Reports... · PETRONAS GAS BERHAD (101671-H) Tower 1, PETRONAS Twin Towers, Kuala Lumpur City...

PETRONAS GAS BERHAD (101671-H)

Tower 1, PETRONAS Twin Towers, Kuala Lumpur City Centre

50088 Kuala Lumpur

Tel : (03) 2051 5000 • Fax: (03) 2051 6555

www.petronasgas.com

PETRONAS GAS BERHAD

BEYONDANNUALREPORT 2016

GOING

3ZERO100 BEYONDTRANSFORMATIONPGB

SUSTAINABLE SAFE AND RELIABLE OPERATIONSEFFICIENT AND EMPOWERED ORGANISATIONCOMPETITIVE GLOBAL BENCHMARKING IN COST, ENERGY AND MANPOWER

PETGAS_AR16_01_At a Glance.indd 2 16/03/2017 1:10 PM

PERFORMANCEORGANISATION

HIGH

SUSTAINABLE SYSTEMS & WORK PROCESS HIGHLY ENGAGED WORKFORCE

An

nu

al R

epo

rt 2

016

ABOUT OUR REPORTS

RATIONALE

IR6 Read more on the basis of preparation on page 84.

The journey continues for PETRONAS Gas Berhad (PGB) as we strive to attain sustainable world class

standards befitting our role as A Leading Gas Infrastructure and Utilities Company. Our approach is focused

on changing mindsets and pushing boundaries to take the Company’s performance beyond expectations.

Our steadfast focus on improving Company-wide safety and operating efficiencies through our ongoing

3ZERO100 Transformation programme will also serve to enhance our overall sustainability and profitability.

We are continuously working towards our goal of becoming a high performance organisation by completely

transforming our work culture and mindset. We will continue in this vein to sustain our legacy of high

performance, strong leadership and value creation for our shareholders.

In line with this year’s theme, Going Beyond, the cover image depicts PGB’s commitment towards achieving

results that exceed the norm.

Annual Report Regulations Complied

Regulations CompliedFinancial Report

Primary source of

information on our

Group’s financial and

non-financial

performance for

FY2016 and outlook

for FY2017 across our

operations in Malaysia

Navigation icons• Bursa Malaysia Main

Market Listing

Requirements

• Companies Act

2016

• Bursa Malaysia Main

Market Listing

Requirements

• Companies Act,

1965

• Malaysian Financial

Reporting Standards

Summary of financial

information and full set

of Group’s Audited

Financial Statements

Refer to website

www.petronasgas.com

Integrated Reporting

cross-referencing

IR

This report covers our 2016 fiscal year, from 1 January 2016 to 31 December 2016. This year, besides our continued

effort in improving integrated reporting, we have also included Sustainability Report in our Annual Report. This

embedded sustainability report is in line with FTSE4Good Bursa Malaysia Index (FTSE4Good), which shows our ongoing

commitment towards transparency and accountability.

IR7 Our sustainability report can be read from page 218 onwards of this Annual Report.

Kuala Lumpur

Convention Centre

Monday, 17 April 2017

10.30 a.m.

ANNUAL GENERAL MEETING

AR

/20

16

34 th01 AT A GLANCE

8 Facts At A Glance

10 2016 Key Highlights

12 5-year Financial Summary

02 WHO WE ARE AND WHAT WE DO

16 Vision, Mission, and Shared Values

17 Corporate Information

18 Corporate Milestones

20 Our Profile

22 Our Presence and Operations

24 Strategic Business Unit

26 Group Corporate Structure

27 Group Organisational Structure

03 MESSAGE TO SHAREHOLDERS

32 Chairman’s Statement

04 LEADERSHIP

38 Board of Directors

40 Our Board at A Glance

41 Profile of Directors

48 Leadership Team

50 Profile of Leadership Team

05 MANAGEMENT DISCUSSION AND ANALYSIS

A STRATEGIC REVIEW AND OUTLOOK62 MD/CEO’s Message

68 Operating Environment

and Outlook

70 Business Model and

Integrated Value Chain

72 Sustainable Value Creation

74 Our Strategy

81 Key Risks and Opportunities

83 Mitigating Risks

84 Material Matters Impacting

Our Strategy

INSID

B PERFORMANCE REVIEW

88 Group Financial Review by

Chief Financial Officer

98 5-year Group Financial Analysis

100 5-year Group Financial Information

101 Group Quarterly Performance

102 Performance Scorecard

106 Key Performance Indicators

108 Simplified Group Statement on

Financial Position and

Segmental Analysis

112 Key Interest Bearing Assets

and Liabilities

112 Statement of Value Added

113 Distribution of Value Added

114 Investor Relations

119 Share Perfomance

121 2016 Investor Relations Calendar

121 2017 Investor Relations Planner

07 SUSTAINABILITY REPORTING

218 About This Report

220 Sustainability Highlights

222 Sustainability Framework

226 Sustainability Statements

226 Economic

230 Environment

236 Social

08 ACHIEVEMENTS

254 2016 Significant Events

256 2016 Media Milestones

258 2016 Calendar of Events

262 Awards and Achievements

265 Past Awards

09 STAKEHOLDER INFORMATION

268 Analysis of Shareholdings

268 Classification of Shareholders

269 Share Capital

269 List of Substantial Shareholders

269 List of Directors’ Shareholdings

270 List of 30 Largest Shareholders

272 Summary and Usage of

Landed Property,

Plant and Equipment

282 Top 10 Landed Plant,

Property & Equipment

283 Corporate Directory

284 FTSE4Good Index

292 Independent Assurance Statement

294 Notice of Annual General Meeting

298 Administrative Details for

the 34th Annual General Meeting

299 Glossary

• Proxy Form

C BUSINESS REVIEW

126 Gas Processing

136 Gas Transportation

144 Utilities

154 Regasification

06 CORPORATE GOVERNANCE

166 Corporate Governance Statement

181 Status of Observance with The

Principles and Recommendations

of The Malaysian Code on

Corporate Governance 2012

184 Statement on Risk Management

and Internal Controls

198 Board Audit Committee Report

204 Nomination and Remuneration

Committee Report

210 Business Continuity Management

212 Internal Policies

THIS REPORTDE

Kimanis Power Plants, Kimanis, Sabah

AT A GLANCE

8 Facts At A Glance



01

MORE THAN

2,000 mmscfd

SIX GAS PROCESSING PLANTS

processing capacity throughSupply of

INDUSTRIAL UTILITIES

to petrochemical and industrial customers in Kertih and Gebeng

MORE THAN

2,500across Malaysia

kmGAS TRANSMISSION PIPELINE

FACTS AT A GLANCE

OPERATING

300MW

Power Plant in Kimanis, Sabah

PAGE: 8

PETRONAS GAS BERHAD

PETRONAS Gas Berhad (PGB) has been in

business for more than three decades and is

still growing strongOUR STRENGTH

UNDER CONSTRUCTION

Air Separation Unit (ASU) Pengerang, Johor490 mmscfd

LNG Regasification Terminal Pengerang, Johor

Oxygen

Nitrogen

41,000 Nm3/HR

25,900 Nm3/HR

530mmscfd

LNG REGASIFICATION

TERMINALSungai Udang, Melaka

PAGE: 9

ANNUAL REPORT 2016

PAGE: 10

PETRONAS GAS BERHAD

DIVIDENDS

RM1.22016: 62 sen/share

billion

+3%

2015: 60 sen/share

MARKET CAPITALISATION

RM42.1billion

2015: RM44.9 billion

-6%

REVENUE

RM4.62015: RM4.5 billion

billion

+2%

TOTAL ASSET


billion

+15%

PROFIT AFTER TAX

RM1.72015: RM1.7 billion*

billion

-0.4%

2016 KEY HIGHLIGHTS

* Based on normalised FY2015, excluding tax incentives

and unrealised foreign exchange of RM243.2 million.

AIR SEPARATION UNIT PROJECT AT PENGERANG (ASU)

Achieved Final Investment Decision of

USD172 million

Pengerang Gas Solutions Sdn Bhd was

incorporated in August 2016, a joint

venture with Linde Malaysia Sdn Bhd to

undertake the ASU project

EXCELLENT LIQUID PLANTEXTRACTION PERFORMANCE

Achieved 12 months Performance Based

Structure income of RM69 million

EXTERNAL FINANCING

Secured USD500 million term loan

from Mizuho Bank Ltd

PGB TRANSFORMATION

Completion of 3ZERO100

Transformation which focuses on

improvement of asset integrity, people

& culture and system & process

LNG REGASIFICATION TERMINALPENGERANG PROJECT

Advancing well at 75% completion

and on track to achieve commercial

operations by quarter four of 2017

PAGE: 11

ANNUAL REPORT 2016

Year 2012 2013 2014 2015 2016

Revenue (RM million) 3,576.8 3,892.1 4,391.7 4,455.9 4,561.3

Profit after tax (RM million) 1,404.9 2,078.9 1,842.1 1,985.9 1,736.3

Dividends per share (sen) 50.0 55.0 55.0 60.0 62.0

Earnings per share (sen) 71.0 105.1 93.1 100.4 87.9

Total assets (RM million) 12,438.3 13,222.4 13,260.5 14,382.0 16,553.6

Total equity (RM million) 9,167.2 10,265.5 10,569.0 11,594.9 12,161.2

Market capitalisation (RM million) 38,624.8 48,043.6 43,848.7 44,917.2 42,147.0

Share price (RM) 19.52 24.28 22.16 22.70 21.30

PAGE: 12

PETRONAS GAS BERHAD

5-YEAR FINANCIAL SUMMARY

‘12 ‘13 ‘14 ‘15 ‘16

3,5

76

.8

3,8

92

.1

4,3

91.

7

4,4

55

.9

4,5

61.

3

Revenue(RM million)

1,4

04

.9

2,0

78

.9

1,8

42

.1

1,9

85

.9

1,73

6.3

‘12 ‘13 ‘14 ‘15 ‘16

Profit After Tax(RM million)

71.

0

105

.1

93

.1

100

.4

87.

9

‘12 ‘13 ‘14 ‘15 ‘16

Earnings Per Share (EPS)(sen)

PAGE: 13

ANNUAL REPORT 2016

50

.0 55

.0

55

.0 60

.0

62

.0

‘12 ‘13 ‘14 ‘15 ‘16

Dividends Per Share(sen)

9,1

67.

2

10,2

65

.5

10,5

69

.0

11,5

94

.9

12,1

61.

2

‘12 ‘13 ‘14 ‘15 ‘16

Total Equity(RM million)

12,4

38

.3

13,2

22

.4

13,2

60

.5

14,3

82

.0

16,5

53

.6

‘12 ‘13 ‘14 ‘15 ‘16

Total Assets(RM million)

38

,62

4.8

48

,04

3.6

43

,84

8.7

44

,917

.2

42

,14

7.0

‘12 ‘13 ‘14 ‘15 ‘16

Market Capitalisation(RM million)

19.5

2

24

.28

22

.16

22

.70

21.

30

‘12 ‘13 ‘14 ‘15 ‘16

Share Price(RM)

Gas Processing Plant, Kertih, Terengganu

02

WHO WE ARE AND WHAT WE DO

16 Vision, Mission, and Shared Values

17 Corporate Information

18 Corporate Milestones

20 Our Profile

22 Our Presence and Operations

24 Strategic Business Unit

26 Group Corporate Structure

27 Group Organisational Structure

PAGE: 16

PETRONAS GAS BERHAD

PAGE : 16

PETRONAS GAS BERHAD

VISION

MISSION

SHARED VALUES

A LEADING GAS INFRASTRUCTURE AND UTILITIES COMPANY

• WE ARE A BUSINESS ENTITY

• GAS INFRASTRUCTURE

AND UTILITIES IS

OUR CORE BUSINESS

• WE OPERATE SAFELY, RELIABLY AND

COMPETITIVELY

• WE OPTIMISE THE GAS VALUE CHAIN TO

MAXIMISE RETURNS FOR OUR

STAKEHOLDERS

LOYALTY INTEGRITY PROFESSIONALISM COHESIVENESS

BOARD AUDIT COMMITTEE

HABIBAH ABDUL

(Chairman)

DATO’ AB. HALIM MOHYIDDIN

EMELIANA DALLAN RICE-OXLEY

HENG HEYOK CHIANG @ HENG HOCK CHENG

NOMINATION AND REMUNERATION COMMITTEE

DATO’ AB. HALIM MOHYIDDIN (Chairman)

HABIBAH ABDUL

HENG HEYOK CHIANG @ HENG HOCK CHENG

COMPANY SECRETARIES

INTAN SHAFINAS (TUTY) HUSSAIN

(LS 0009774)

YEAP KOK LEONG

(MAICSA 0862549)

REGISTERED OFFICE AND BUSINESS ADDRESS

Tower 1

PETRONAS Twin Towers

Kuala Lumpur City Centre

50088 Kuala Lumpur

Malaysia

Tel : (+603) 2051 5000

Fax : (+603) 2026 5505

REGISTRAR

Symphony Share Registrars Sdn Bhd

(378993-D)

Level 6, Symphony House

Pusat Dagangan Dana 1

Jalan PJU 1A/46

47301 Petaling Jaya

Selangor Darul Ehsan

Malaysia

Tel : (+603) 7841 8000

Fax : (+603) 7841 8151/7841 8152

AUDITORS

KPMG PLT (LLP0010081-LCA&AF0758)

Chartered Accountants

10th Floor, KPMG Tower

8, First Avenue, Bandar Utama

47800 Petaling Jaya


Malaysia

Tel : (+603) 7721 3388

Fax : (+603) 7721 3399

BANKING SERVICES PROVIDER

PETRONAS Integrated Financial Shared Services

Centre (IFSSC)*

STOCK EXCHANGE LISTING

Main Market of Bursa Malaysia Securities Berhad

WEBSITE

www.petronasgas.com

* Banking requirements are managed centrally by IFSSC to

enable more efficient banking management for the Group

and the Company.

PAGE: 17

ANNUAL REPORT 2016

CORPORATE INFORMATION

1992• First salesgas delivery to Senoko

Power Station in Singapore via

submarine pipeline.

• Commissioning of GPP2 and

GPP3.

1994

• Commissioning of GPP4.

1995• Execution of 20-year Gas

Processing and Gas

Transmission Agreement (GPTA)

between PGSB and PETRONAS

on 31 March 1995, with

effective date 1 April 1994.

• Listed as PETRONAS Gas

Berhad (PGB) on the Main

Board of Bursa Malaysia

Securities Berhad (Bursa

Malaysia) which is formerly

known as Kuala Lumpur Stock

Exchange.

PAGE : 18

PETRONAS GAS BERHAD

CORPORATE MILESTONES

1983 • Incorporation of PETRONAS

Gas Sdn Bhd (PGSB) as a

wholly-owned subsidiary of

Petroliam Nasional Berhad

(PETRONAS) on 23 May 1983.

1984• Commissioning of Peninsular Gas

Utilisation (PGU) 1 and commissioning

of Gas Processing Plant (GPP) 1.

• First gas in and first salesgas delivery

to power and industrial customers.

1987 • Appointment of PGSB as a

throughput and servicing agent to

PETRONAS for PGU via Throughput

Agreement executed on 2 November

1987.

1991• Commissioning of PGU 2.

• Officiation of the Segamat Gas

Transmission Centre by the then

Prime Minister of Malaysia, Tun Dr.

Mahathir Mohamad.

1998• Completion of PGU 3.

• Execution of first Sale

and Purchase Agreement

with Centralised Utility

Facilities (CUF).

1999

• Commissioning of GPP5

and GPP6.

• First delivery of

electricity from CUF

Kertih and CUF Gebeng

to customers.

2000

• Secured RM1.4 billion from

domestic private debt securities

via Islamic Financing to partly

finance CUF project.

2005

• First gas in from

Malaysia-Thailand Joint

Development Area.

• Execution of Operation

and Maintenance

Services Agreement

with Trans Thai-

Malaysia (M) Sdn Bhd.

2010

• Announcement of the

development of

Malaysia’s first liquefied

natural gas (LNG)

Regasification Terminal

in Sungai Udang, Melaka

(RGTSU) by Prime

Minister of Malaysia,

Dato’ Sri Mohd Najib

Tun Haji Abdul Razak on

10 June 2010 under the

10th Malaysia Plan.

PAGE : 19

ANNUAL REPORT 2016

2011• Execution of Engineering,

Procurement, Construction,

Installation and Commissioning

Alliance Agreement between PGB

and consortium of contractors for

the development of RGTSU on 25

February 2011.

• PGB Network Code was

announced to Bursa Malaysia on

23 December 2011.

2009• Ground breaking ceremony

of Kimanis Power Plant

project by Chief Minister of

Sabah, Datuk Seri Panglima

Musa Haji Aman on 26

November 2009.

2013• Commissioning of

RGTSU on 23 May 2013.

• Commissioning of

Kimanis Power Plant.

2015• Completion of

Plant Rejuvenation

and Revamp

Project for GPP2,

3 and 4.

2016• Execution of USD500 million

Term Loan Facility Agreement

with Mizuho Bank Ltd to fund

capital projects.

• Successful completion of both

LNG tanks for LNG

Regasification Terminal at

Pengerang.

2014

• Operationalisation of Kimanis

Power Plant in November

2014.

• Executed a series of

agreements for the

development of Malaysia’s

Second LNG Regasification

Terminal in Pengerang

(RGTP).

• Execution of Heads of

Agreement with Linde to

develop an Air Separation

Unit for Pengerang

Integrated Complex.

• Execution of the new Gas

Processing Agreement (GPA)

and Gas Transportation

Agreements (GTA) with

PETRONAS for another

20 years.

PETRONAS Gas Berhad (PGB) was initially a wholly-owned

subsidiary of PETRONAS, the Malaysia’s national oil

corporation, which upon listing owns 60.63% of its shares

while the remaining 39.37% is held by financial institutions

and retail shareholders.

Today, we are one of the largest companies on the local

bourse, in terms of market capitalisation. We are is also

Malaysia’s leading gas infrastructure and utilities company with

core businesses in Gas Processing (GP), Gas Transportation

(GT), Utilities (UT) and Regasification (RGT).

We process PETRONAS’ natural gas piped from offshore

fields, transports the processed gas via Peninsular Gas

Utilisation (PGU) pipeline network to PETRONAS’ customers

in Malaysia and Singapore. In addition, we also supply

electricity, steam and industrial gases for our customers at

Kertih Integrated Petrochemical Complex in Terengganu and

Gebeng Industrial Area in Pahang.

PAGE: 20

PETRONAS GAS BERHAD

OUR PROFILE

PETRONAS GAS BERHAD

(PGB) WAS INCORPORATED

IN 1983 AND WAS LISTED

ON THE MAIN MARKET

OF BURSA MALAYSIA

SECURITIES BERHAD

ON 4 SEPTEMBER 1995

We have staff strength of 2,117 employees nationwide. The

majority of the staff are based at its plant operations located in

Kertih and Santong, Terengganu and in Gebeng, Pahang.

We operate from our headquarter at the PETRONAS Twin

Towers in Kuala Lumpur as well as nine regional offices in

Peninsular Malaysia and three in East Malaysia.

In 2013, we further broadened its business portfolio with the

commissioning of the liquefied natural gas (LNG) Regasification

Terminal in Sungai Udang, Melaka, the Malaysia’s first

regasification facility.

Over the years, we have expanded our business and this

includes venturing into power generation in Sabah in 2011,

through a 60% joint venture company, Kimanis Power Sdn

Bhd, which commenced its full commercial operations end

of 2014.

We are also constructing two new plants, second LNG

Regasification Terminal and Air Separation Unit (ASU) in

Pengerang, Johor which are expected to complete by end

2017 and end 2018 respectively.

PAGE: 21

ANNUAL REPORT 2016

MAIN PIPELINE LENGTH GAS – IN

PGU I : Kertih - Teluk Kalong 32 km 1983

PGU II 714 km

Sector I : Teluk Kalong - Segamat 265 km 1991

Sector II : Segamat - Kapar 241 km 1991

Sector III : Segamat - Plentong 208 km 1991

MAIN PIPELINE LENGTH GAS – IN

PGU III 450 km

Sector I : Meru - Lumut 184 km 1996

Sector II : Lumut - Gurun 130 km 1996

Sector III : Gurun - Pauh 136 km 1996

Loop 1 : Kertih - Segamat 266 km 1999

Loop 2 : Segamat - Meru 228 km 2000

PULAUPINANG

GPS

Utilities Kertih

Utilities Gebeng

GPK

STRAITSOF MELAKA

SOUTH CHINA SEA

PERAK

SELANGOR

PAHANG

KEDAH

KELANTANTERENGGANU

MELAKA

JOHOR

SINGAPORE

NEGERISEMBILAN

PERLIS

In Progress

PAGE: 22

PETRONAS GAS BERHAD

OUR PRESENCE AND OPERATIONS

SALESGAS CUSTOMERS (PENINSULAR MALAYSIA)

POWER1. TNB Tuanku Jaafar

2. Segari Energy Ventures

3. TNB Paka

4. Panglima Power, Teluk Gong

5. Genting Sanyen Power

NON-POWER1. Gas Malaysia Bhd

2. PETRONAS Penapisan Melaka (M) Sdn Bhd

3. PETRONAS Chemical Fertiliser Kedah Sdn Bhd

4. LOTTE Chemical Titan (M) Sdn Bhd

5. White Horse Ceramic Industries Sdn Bhd

EXPORT1. Senoko Energy

2 Keppel Energy

N

SARAWAK

Miri

Bintulu

SABAH

Kimanis

SOUTH CHINA SEA

Tenaga Nasional Berhad

Power Station

Independent Power

Producer Power Station

Kimanis Power Plant

Gas Processing Plant

(GPP)

Utilities Plant

Compressor Station

Offshore LNG


Industry

SALESGAS CUSTOMERS (EAST MALAYSIA)

SARAWAK1. SESCO Miri Power Station

2. Sarawak Gas Distribution System

3. Bintulu Edible Oils Sdn Bhd

4. Syarikat Sebangun Sdn Bhd

5. Sime Darby Austral Sdn Bhd

6. Biport Bulkers Sdn Bhd

SABAH1. Kimanis Power Plant

2. SPR Energy (M) Sdn Bhd

3. PETRONAS Chemical Fertiliser Sabah Sdn Bhd

PGB TOTAL PIPELINE LENGTH (IN OPERATION) LENGTH (km)

Main 1,690

Lateral 458

Liquid 373

Sarawak 39

RGTSU 30

Total 2,590

COMPLEX GPP CAPACITY (mmscfd)

Gas Processing Kertih 1 310

2 250

3 250

4 250

Gas Processing Santong 5 500

6 500

Total 2,060

LNG REGASIFICATION TERMINAL CAPACITY (mmscfd)

Sungai Udang, Melaka 530

Onshore LNG


Air Separation Unit

PAGE: 23

ANNUAL REPORT 2016

STRATEGIC BUSINESS UNIT

Gas Transportation is operated by Gas

Transmission and Regasification (GTR) Division, whereby we

manage the gas transmission pipelines covering much of

West Malaysia known as the PGU pipeline network. We

operate the pipeline network from our main Control Center

located in Segamat, Johor and the salesgas is transported to

PETRONAS’ customers in power and non-power sector via

our 2,551 km PGU pipeline. Our current PGU pipeline

network has the capacity to transport up to 3,000 mmscfd

of gas. We also transport small volumes of salesgas for

PETRONAS’ customers via our gas distribution system in Miri

and Bintulu, Sarawak, as well as manage the gas pipeline in

Kimanis, Sabah. We receive gas transportation fees based on

capacity booking following the 20-year Gas Transportation

Agreements (GTA) with PETRONAS.

Gas Processing

is one of our primary business

segments and is operated by Gas

Processing and Utilities (GPU) Division.

Our six gas processing plants in

Terengganu are located in two complexes,

Gas Processing Kertih (GPK) and Gas Processing

Santong (GPS), which have a combined capacity to

process over 2,000 million standard cubic feet per day

(mmscfd) of feedgas. These plants processes feedgas

from offshore of East Peninsular Malaysia into salesgas,

ethane, propane and butane on behalf of PETRONAS which

are then supplied to PETRONAS’ customers through our

Peninsular Gas Utilisation (PGU) pipeline network. In return, we

receive gas processing fees, comprising mainly fixed

reservation charges under a 20-year Gas Processing

Agreement (GPA) with PETRONAS.

PAGE: 24

PETRONAS GAS BERHAD

OUR FOUR CORE

BUSINESS SEGMENTS ARE

GAS PROCESSING,

GAS TRANSPORTATION,

UTILITIES AND

REGASIFICATION.

Regasification is operated by GTR Division. We operate

and maintain our offshore liquefied natural gas (LNG)

Regasification Terminal Sungai Udang in Melaka (RGTSU),

which began its commercial operations in the second

quarter of 2013 and soon will be the operator for LNG

Regasification Terminal in Pengerang, Johor (RGTP).

The facility receives vessels carrying PETRONAS’

LNG imported from around the world, stores it

in two floating storage units and converts

the LNG into gas before injecting it into

the PGU pipeline network for

distribution to PETRONAS’

customers. We receive

regasification fee based on

capacity underwritten from

the 20-year

Regasification services

Agreement (RSA)

with PETRONAS.

Utilities is operated by GPU Division comprising

two complexes – Utilities Kertih (UK) in Terengganu and

Utilities Gebeng (UG) in Pahang. The utilities plants provide

reliable supply of electricity, steam, industrial gaseous and

other by-products such as liquid oxygen, liquid nitrogen,

demineralised water, raw water, cooling water and boiler

feed water to various petrochemical plants operating in the

Kertih Integrated Petrochemical Complex (KIPC) in

Terengganu and Gebeng Industrial Area in Pahang. We

receive utilities revenue based on the volume of products

sold to customers.

We have expanded our utilities business by venturing into

power generation in Kimanis, Sabah through a 60% joint

venture company, Kimanis Power Sdn Bhd, which

commenced its power plant operations fully from end

of 2014.

PAGE: 25

ANNUAL REPORT 2016

PETRONAS GAS BERHAD

SUBSIDIARIES JOINT VENTURES ASSOCIATE

PENGERANG LNG (TWO) SDN BHD

65%PETRONAS GAS BERHAD

25%DIALOG LNG SDN BHD

10%STATE SECRETARY

JOHOR (INCORPORATED)

36%PUBLIC SHAREHOLDERS

31%MMC BERHAD

18%TOKYO GAS-MITSUI

HOLDINGS


INDUSTRIAL GASES SOLUTIONS SDN BHD

GAS MALAYSIA BERHAD

KIMANIS POWER SDN BHD*

KIMANIS O&M SDN BHD*

PENGERANG GAS SOLUTIONS SDN BHD*

REGAS TERMINAL (SG. UDANG) SDN BHD

REGAS TERMINAL (PENGERANG) SDN BHD

REGAS TERMINAL (LAHAD DATU) SDN BHD

* Although the Group has more than 50% ownership

in the equity interests of Kimanis Power Sdn Bhd,

Kimanis O&M Sdn Bhd and Pengerang Gas Solutions

Sdn Bhd, the Group treats these companies as joint

ventures in accordance with Malaysian Financial

Reporting Standards. Read more details on page 66

of the Financial Report.



50%LINDE MALAYSIA SDN BHD


40%NRG CONSORTIUM (SABAH)

SDN BHD


40%NRG CONSORTIUM (SABAH)

SDN BHD


49%LINDE MALAYSIA SDN BHD



PAGE: 26

PETRONAS GAS BERHAD

GROUP CORPORATE STRUCTURE

BOARD OF DIRECTORS

BOARD AUDITCOMMITTEE

INTERNALAUDIT*

GAS PROCESSINGAND UTILITIES

LEGAL ANDCORPORATE

SECRETARIAT*

GAS TRANSMISSION

AND REGASIFICATION

BUSINESS EXCELLENCE

FINANCE

BUSINESS DEVELOPMENT AND

COMMERCIAL

HUMAN RESOURCE

MANAGEMENT

NOMINATIONAND

REMUNERATIONCOMMITTEE

MANAGING DIRECTOR/CHIEF EXECUTIVE OFFICER

LEADERSHIP TEAM

* Internal Audit and Legal and Corporate Secretariat

functions are undertaken by Group Internal Audit,

PETRONAS and Group Legal, PETRONAS respectively.

PAGE: 27

ANNUAL REPORT 2016

GROUP ORGANISATIONAL STRUCTURE

03

MESSAGE TO SHAREHOLDERS

32 Chairman’s Statement

DATUK MOHD ANUAR TAIB Chairman

PETRONAS Gas Berhad

TRANSFORMING TO A GREATER

HEIGHTS

PAGE: 32

PETRONAS GAS BERHAD

CHAIRMAN’S STATEMENT

“THE GROUP’S RESILIENT PERFORMANCE HAS ALLOWED US TO SUSTAIN A MARKET CAPITALISATION OF RM42 BILLION. WITH

OUR HEALTHY PROFIT, MOREOVER, WE ARE ABLE TO PAY OUR HIGHEST EVER DIVIDEND OF 62 SEN PER SHARE FOR THE

FINANCIAL YEAR 2016, WHICH REPRESENTS A PAYOUT RATIO OF 71%, ON PAR WITH THE INDUSTRY AVERAGE.”

Dear Shareholders,

The world in 2016 continued to be in the grips of a challenging economic landscape, with

dampened trade, low levels of investment and reduced productivity leading to economic

slowdowns generally. In Malaysia, despite slower economic growth that of 2015, private

investments and domestic demand remained robust.

Within this environment, PETRONAS Gas Berhad (PGB) continued to enjoy financial stability through

long-term agreements for processing, regasifying and transporting gas from PETRONAS to its

customers. In addition, PGB benefited from the performance – based revenue by achieving its world

class performance level and additional revenue from sales of utilities to customers in Kertih, Terengganu

and Gebeng, Pahang.

The significant improvement in performance is an outcome of our extensive Transformation Plan under

the banner 3ZERO100. The first phase, 3ZERO100 Transformation, completed in December 2016

followed by the second phase called 3ZERO100 Beyond. Each phase consists of a period of two years.

3ZERO100 Beyond seeks to further elevate our competitiveness and efficiencies to be on par with

world benchmarks in terms of cost, energy utilisation and manpower, while achieving sustainable, safe

and reliable operations. Health, Safety, Security and Environment (HSSE), which featured prominently in

the first phase, will continue to be a key focus area as the safety of our people and contractors

will always be our top priority.

PAGE: 33

ANNUAL REPORT 2016

REVENUE

2016: RM4.6 billion

+2.4%

PROFIT AFTER TAX

2016: RM1.7 billion

-0.4%

I am pleased to share that early wins

under the 3ZERO100 Transformation,

together with a robust business base,

enabled us to record a commendable

financial performance in 2016. We

maintained a healthy revenue of

RM4,561.3 million, which was 2.4%

higher than in FY2015, while our profit

stood at RM1,736.3 million, just 0.4%

less than the normalised profit

excluding tax incentives and foreign

exchange loss recorded in FY2015. This

minor reduction in profit is due to

investments in asset integrity and

reliability as part of 3ZERO100

Transformation, a needed and prudent

investment to ensure long-term

sustainability of our business.

Our performance have been recognised

both nationally and internationally. In

2016, our list of accolades expanded

with recognition by the United

Kingdom-based Royal Society for the

Prevention of Accidents (ROSPA) and

the International Convention on Quality

Control Circles (ICQCC) for our high

standards of occupational health and

safety, as well as for innovation and

quality. In addition, we were

acknowledged by the National Annual

Corporate Report Awards (NACRA) and

the Minority Shareholder Watchdog

Group (MSWG) for the third

consecutive year, for our commitment

to transparency, strong governance and

good corporate reporting.

While strengthening our foundations

we continue to grow for the future. It

gives me great pleasure to share that

we are making steady headway in two

new projects in the Pengerang

Integrated Complex (PIC) in Johor.

During the year, we formed a joint

venture company with one of the

world’s leading industrial gas players,

Linde Malaysia Sdn Bhd, to undertake

the development of the Air Separation

Unit (ASU), which is the third in the

Group. Concurrently, our second

liquified natural gas (LNG)

Regasification Terminal is progressing

as planned and is expected to be

completed by end 2017. These two

developments will increase our capacity

and will integrate us into PIC, which is

set to become a major regional oil and

gas downstream hub.

Going into 2017, we will continue to

focus on our core businesses. At the

same time, we will work closely with

the Energy Commission (EC) to ensure

the smooth implementation of the Gas

Supply (Amendment) Act 2016. The

amendment, which provides for

Third Party Access to our pipelines and

regasification capacity, marks a defining

change to the industry. We are

supportive of this development and

preparing ourselves well to be the

safest, most reliable and efficient gas

transporter and utilities management in

the country.

The Group will look continuously for

growth opportunities leveraging on our

core competencies in the gas

infrastructure and utilities business.

Towards this end, we have close

collaboration with the Malaysian

Industrial Development Authority

(MIDA), East Coast Economic Region

(ECER), Economic Planning Unit (EPU)

and EC to identify potential ventures

that would enable us to expand our

existing business with the ultimate

objective of ensuring higher returns to

our shareholders.

It is paramount that we ensure our

growth is achieved in a manner that is

sustainable. This, in turn, is reflected by

elements of sustainability that have been

fully integrated into the Company’s

business value chain, as highlighted in

our Sustainability Report. The report itself

is a new development, and underlines

our commitment to creating

transparency in matters that are

important to our stakeholders.

A key consideration in upholding

corporate governance is to ensure a

good balance of perspectives, diversity

and views on the Board. With this in

mind, during the year, we appointed

three new Directors, Emeliana Dallan

Rice-Oxley, Wan Shamilah Wan

Muhammad Saidi and Heng Heyok

Chiang @ Heng Hock Cheng, who

bring with them vast skills and

expertise in divergent fields, further

enhancing the collective experience of

the PGB Board.

* Based on normalised FY2015, excluding tax incentives and

unrealised foreign exchange of RM243.2 million

*

PAGE: 34

PETRONAS GAS BERHAD

CHAIRMAN’S STATEMENT

We also bid farewell to Dato’ N.

Sadasivan N.N. Pillay, Datuk Rosli Boni,

Ir. Pramod Kumar Karunakaran, Lim

Beng Choon and my predecessor, Tan

Sri Dato’ Seri Shamsul Azhar Abbas. On

behalf of my colleagues, I would like

to express our gratitude to them for

their time and dedication, and

especially to Dato’ N. Sadasivan N.N.

Pillay for his 21 years of commitment

to the PGB Board, and Tan Sri Dato’

Seri Shamsul Azhar Abbas for his

exemplary leadership and wise counsel.

To our shareholders, it gives me

pleasure to share that the Group’s

resilient performance has allowed us to

sustain a market capitalisation of RM42

billion. For the financial year 2016, we

are able to pay dividend of 62 sen per

share, our highest ever. This represents

a payout ratio of 71%, on par with the

industry average.

The Company is certainly making great

strides, to enhance our shareholders

value. For this, I would like to

acknowledge the support provided by

various federal and state agencies

involved in the gas industry.

A big thank you also goes to the true

‘engine of growth’ of this company

– our very able Leadership Team as

well as all our dedicated employees.

With your hard work and commitment,

we can make great things happen.

Thank you.

ANUAR TAIB

PAGE: 35

ANNUAL REPORT 2016

04

LEADERSHIP

38 Board of Directors

40 Our Board at A Glance

41 Profile of Directors

48 Leadership Team

50 Profile of Leadership Team

BOARD OF

DIREC

From left:

1. WAN SHAMILAH WAN MUHAMMAD SAIDI

(Non-Independent Non-Executive

Director)

2. HENG HEYOK CHIANG @ HENG HOCK CHENG

(Independent Non-Executive Director)

3. EMELIANA DALLAN RICE-OXLEY

(Non-Independent Non-Executive

Director)

4. DATUK MOHD ANUAR TAIB

(Chairman, Non-Independent

Non-Executive Director)

PAGE: 38

PETRONAS GAS BERHAD

CTORS

5. YUSA’ HASSAN

(Managing Director/

Chief Executive Officer)

6. HABIBAH ABDUL

(Senior Independent Director)

7. DATO’ AB. HALIM MOHYIDDIN

(Independent Non-Executive

Director)

8. INTAN SHAFINAS (TUTY) HUSSAIN

(Company Secretary)

9. YEAP KOK LEONG

(Company Secretary)

PAGE: 39

ANNUAL REPORT 2016

PAGE: 40

PETRONAS GAS BERHAD

OUR BOARD

AT A GLANCEBOARD COMPOSITION

SKILLS AND EXPERIENCE

01

02

03

04

05

06

07

3

4 4

5

7 7

4

3 3

6 6

3 2 1 1

Non-Independent

Non-Executive Directors

(Including the Chairman)

Fin

an

ce

/Au

dit

Ec

on

om

ics

En

gin

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rin

g/T

ec

hn

ica

l

Co

mm

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tin

g

Op

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tio

ns

Co

rpo

rate

Pla

nn

ing

an

d D

ev

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en

t

Hu

ma

n R

eso

urc

e

Oil

an

d G

as

Ba

nk

ing

an

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ina

nc

e

Sh

ipp

ing

/Lo

gis

tic

s

Re

gio

na

l/In

tern

ati

on

al

Independent

Non-Executive Directors

Executive Director

(Managing Director/

Chief Executive Officer)

Senior Independent

Director

Declaration

None of the Directors have been changed for any offences within the past five years other

than traffic offences, if any

DATUK MOHD ANUAR TAIB Chairman, Non-Independent Non-Executive Director

Malay, Malaysian (age 48, Male)

Date of Appointment: 1 January 2017

Length of Service (As at 17 February 2017): 2 months

ATATATATATATATATATATAcademic/Professional Qualifications

• Bachelor of Science in Mechanical Engineering, Case Western Reserve

University, United States of America

• Masters of Business Administration in International Management, Royal

Melbourne Institute of Technology University, Melbourne, Australia

Present Directorship

Listed Entities:(i) PETRONAS Gas Berhad

Public companies: Nil

Present Appointments

• Executive Vice President and Chief Executive Officer, PETRONAS Upstream

• Member, PETRONAS Executive Leadership Team

• Chairman of Advisory Council, Society of Petroleum Engineers Asia Pacific

• Board Member, various companies in PETRONAS

Past Experience

• Chief Executive Officer, PETRONAS Development and Production

• Senior Vice President, PETRONAS Upstream Malaysia

• Chairman, Shell Malaysia

• Chairman, Shell Refining Company (Federation of Malaya) Berhad

• 27 years of extensive experience in oil and gas industry

Declaration

• No family relationship with any Director/Major Shareholder

• No conflict of interest with PETRONAS Gas Berhad

PAGE: 41

ANNUAL REPORT 2016

PROFILE OF DIRECTORS

YUSA’ HASSANManaging Director/Chief Executive Officer


Date of Appointment: 1 July 2013

Length of Service (As at 17 February 2017): 3 years 7 months

YHYHYHYHYHYHYHYHYHAcademic/Professional Qualification

• Bachelor of Science in Mechanical Engineering, West Virginia University, United

States of America

Present Directorships


(ii) Gas Malaysia Berhad



• Managing Director/Chief Executive Officer

• PETRONAS Skill Group Advisor for Mechanical Engineers SKG12


Past Experience

• Head of Olefins and Derivative Business, PETRONAS Chemicals Group Berhad

• Head of Fertiliser and Methanol Business Division, PETRONAS Chemicals Group

Berhad

• Held various senior and top management positions in PETRONAS Penapisan

(Terengganu) Sdn Bhd and PETRONAS Chemicals MTBE Sdn Bhd

• Involved in the design, construction and commissioning of greenfield Ammonia

Syngas Project, PETRONAS Ammonia Sdn Bhd (now known as PETRONAS

Chemicals Ammonia Sdn Bhd

Declaration




PAGE: 42

PETRONAS GAS BERHAD

HAHAHAHAHAHAHAHAHAHAHABIBAH ABDUL

Senior Independent Director

Malay, Malaysian (age 61, Female)

Date of Appointment: 13 September 2013


Academic/Professional Qualifications

• Bachelor of Economics (Accounting), University Malaya

• Member, Institute of Chartered Accountants in England and Wales

• Member, Malaysian Institute of Certified Public Accountants

• Member, Malaysian Institute of Accountants



(ii) KLCC Property Holdings Berhad

Public companies:Nil


• Chairman, Board Audit Committee, PETRONAS Gas Berhad

• Member, Nomination and Remuneration Committee, PETRONAS Gas Berhad

• Member, Board Audit Committee, KLCC Property Holdings Berhad

• Member, Nomination and Remuneration Committee, KLCC Property Holdings Berhad

Past Experience

• Member of Securities Commission

• Experienced in providing audit and business advisory services to several large

public listed, multinationals and local corporations

• Partner, Arthur Andersen

• Partner, Ernst & Young

Declaration



PAGE: 43

ANNUAL REPORT 2016

HMHMHMHMHMHMHMHMHMHMDATO’ AB. HALIM MOHYIDDIN Independent Non-Executive Director


Date of Appointment: 4 August 2011



PAGE: 44

PETRONAS GAS BERHAD


• Master of Business Administration, University of Alberta, Canada

• Bachelor of Economics in Accounting, University Malaya

• Diploma in Accountancy, University Malaya

• Member, Malaysian Institute of Certified Public Accountants



Listed Entities: (i) PETRONAS Gas Berhad

(ii) MISC Berhad

(iii) Amway (Malaysia) Holdings Berhad

(iv) KNM Group Berhad



• Chairman, MISC Berhad

• Chairman, Amway (Malaysia) Holdings Berhad

• Chairman, KNM Group Berhad

• Chairman, Nomination and Remuneration Committee, PETRONAS Gas Berhad

• Chairman, Board Audit Committee, Amway (Malaysia) Holdings Berhad

• Chairman, Nomination Committee, KNM Group Berhad

• Chairman, Audit Committee, KNM Group Berhad

• Member, Board Audit Committee, PETRONAS Gas Berhad

• Member, Nomination Committee, Amway (Malaysia) Holdings Berhad

• Member, Remuneration Committee, Amway (Malaysia) Holdings Berhad

• Member, Remuneration Committee, KNM Group Berhad

Past Experience

• Partner, KPMG/KPMG Desa Megat & Co

• Member, Education Committee International Federation of Accountants

Declaration



EROEROEROEROEROEROEROEROEROEROEMELIANA DALLAN RICE-OXLEYNon-Independent Non-Executive Director

Anglo-Bisaya, Malaysian (age 54, Female)




• Degree in Geology University of South Carolina, United States of America

• Advanced Management Programme, Harvard Business School





• Vice President, Exploration PETRONAS Upstream

• Member, Board Audit Committee of PETRONAS Gas Berhad

• Member, Upstream Leadership Team, PETRONAS

• Member, Upstream PDC, PETRONAS

• Champion, Upstream PETRONAS Leading Women Network


Past Experience

• Vice President of Exploration Malaysia, PETRONAS

• Led PETRONAS strategy to accelerate monetisation of the gas-rich resources

in East Malaysia as well as international exploration growth

• Served numerous technical and managerial roles in Malaysia, Central North

Sea, Brazil, Onshore United States of America and Latin America for Shell

• Exploration Portfolio and Planning Manager for Asia Pacific region for Shell

Declaration



PAGE: 45

ANNUAL REPORT 2016

WSWSWSWSWSWSWSWSWSWSWAN SHAMILAH WAN MUHAMMAD SAIDI Non-Independent Non-Executive Director

Malay, Malaysian (age 46, Female)




• Degree in Economics and Accounting, University of Bristol, United Kingdom

• Fellow, Institute of Chartered Accountants in England & Wales

• Advanced Management Programme, Harvard Business School




Public companies:Nil


• Chief Digital Officer, PETRONAS


Past Experience

• Senior General Manager, Corporate Strategic Planning, PETRONAS

• Chief Financial Officer, PETRONAS Chemicals Group Berhad

• Senior General Manager, Crude Oil Group, PETRONAS

• General Manager Finance, Malaysia LNG Sdn Bhd

• General Manager Finance, PETRONAS Gas Berhad

Declaration




PAGE: 46

PETRONAS GAS BERHAD

HCHCHCHCHCHCHCHCHCHCHENG HEYOK CHIANG @ HENG HOCK CHENG

Independent Non-Executive Director

Chinese, Malaysian (age 68, Male)

Date of Appointment: 1 January 2017


Academic/Professional Qualification

• Bachelor of Science (Honours) in Chemical Engineering University of

Birmingham, United Kingdom


Listed Entities:• PETRONAS Gas Berhad

• Malaysian Marine and Heavy Engineering Holdings Berhad

• Shell Refining Company (Federation of Malaya) Berhad



• Chairman, Board Bid Committee, Malaysian Marine and Heavy Engineering

Holdings Berhad

• Member, Nomination and Remuneration Committee, PETRONAS Gas Berhad

• Member, Board Audit Committee, PETRONAS Gas Berhad

• Member, Board Audit Committee, Shell Refining Company (Federation of Malaya)

Berhad

• Member, Board Audit Committee, Malaysian Marine and Heavy Engineering

• Member, Nomination and Remuneration Committee, Malaysian Marine and Heavy

Engineering

• Advisor, Dialog Group Berhad

Past Experience

• Chairman, Shell China

• Managing Director, Shell Gas & Power Malaysia

• Technical Director, Sarawak Shell Berhad/Sabah Shell Petroleum Co. Ltd.

• Extensive experience in Upstream, Downstream and Gas & Power Divisions with Shell

Description



PAGE: 47

ANNUAL REPORT 2016

PAGE: 48

PETRONAS GAS BERHAD

LEADERSHIP TEAM

PAGE: 49

ANNUAL REPORT 2016

YHYusa’ was appointed to his current position on 1 July 2013

Responsibilities

• Spearheads PETRONAS Gas Berhad (PGB) overall business

growth and transformation strategies

• Responsible for driving the execution of PGB Group’s

business targets to meet its aspirations and visions

• Oversees and ensures an optimum balance between

driving operational excellence and strong governance in

creating sustainable values for shareholders and all

stakeholders

Experience

• 30 years of experience in petrochemicals, refinery and

gas businesses in PETRONAS; covering areas like

operations, projects and commercial

• Held various engineering and management positions for

numerous operating units in PETRONAS

• Appointed as Head of Olefins and Derivative Business,

PETRONAS Chemicals Group Berhad

Qualification

• Bachelor of Science in Mechanical Engineering, West

Virginia University, United States of America

Committee Memberships/Appointments

• Chairman of:

– Kimanis Power Sdn Bhd

– Kimanis O&M Sdn Bhd

– Regas Terminal (Sg. Udang) Sdn Bhd

– Regas Terminal (Pengerang) Sdn Bhd

– Regas Terminal (Lahad Datu) Sdn Bhd

– Pengerang LNG (Two) Sdn Bhd

External Appointment

• Director, Gas Malaysia Berhad

YUSA’ HASSANManaging Director/Chief Executive Officer (MD/CEO)

Malaysian

54 Years

Male

N

A

G

PAGE: 50

PETRONAS GAS BERHAD

PROFILE OF LEADERSHIP TEAM

KN

Mohd Kabir was appointed to his current position on 1 July 2015

Responsibilities

• Responsible for the overall management and operations

of Gas Processing and Utilities facilities by ensuring safe,

optimum and efficient plant operations

• Ensure delivery of contracted utilities which satisfies

customers’ requirements as well as achieving optimum

gas value chain for PETRONAS and PGB

• Ensure compliance with regulations and statutory

requirements

Experience

• Began his career in 1991, serving as a member of

Production Technology at PETRONAS Penapisan

(Terengganu) Sdn Bhd (PP(T)SB)

• Production Specialist in PETRONAS Penapisan (Melaka)

Sdn Bhd (PP(M)SB) from 1993 until 1998, and

subsequently progressed his career in various positions

within PP(M)SB

• Appointed as the General Manager of Operation at

Malaysia LNG Sdn Bhd (MLNG) in 2011

• Appointed as Head of Production, Gas Processing and

Utilities Division (GPU) in April 2015

Qualification

• Degree in Chemical Engineering, University of Leeds,

United Kingdom

Committee Membership/Appointment

• Director of Industrial Gases Solutions Sdn Bhd


• Nil

MOHD KABIR NOORDINHead of Gas Processing and Utilities Division

Malaysian

51 Years

Male

N

A

G

PAGE: 51

ANNUAL REPORT 2016

BA

BURHAN ABDULLAHHead of Gas Transmission and Regasification Division

Burhan assumed his current position on 1 January 2017

Responsibilities

• Responsible for the overall management and operations

of Gas Transmission and Regasification facilities by

ensuring safe, optimum and efficient pipeline network and

regasification operations

• Ensure delivery of gas which satisfy PETRONAS’

customers requirements as well as achieving optimum

gas value chain for PETRONAS

• Ensure compliance with regulations and statutory

requirements

Experience

• Started his career in 1991 as Operation Engineer at

PETRONAS Penapisan (Terengganu) Sdn Bhd (PP(T)SB)

• Part of commissioning team to commission PETRONAS 1st

Ethylene Cracker, Ethylene Malaysia Sdn Bhd in 1996

• Served as Shift Supervisor and later as Utilities Offsite and

Process Manager from 1997 to 2006. Subsequently,

served as Senior Operation Managers, Gas Processing

Kertih and later on to Gas Processing Santong from 2007

until 2013

• Appointed as Vice President Operations, Trans-Thai

Malaysia (Thailand) Ltd (TTMT) in 2014 until 2016

Qualifications

• Bachelor of Chemical Engineering from University of

Texas A&I, United States of America

• First Grade Steam Engineer from Malaysian Department of

Occupational Safety & Health


• Chief Executive Officer of Regas Terminal (Sg. Udang)

Sdn Bhd


• Nil

Malaysian

50 Years

Male

N

A

G


PAGE: 52

PETRONAS GAS BERHAD

AAJAida Aziza is currently the Chief Financial Officer effective September 2012

Responsibilities

• Responsible for the Group’s financial, planning and

reporting, capital funding and treasury management,

procurement and investor relations

• Develop and implement initiatives and strategies to

manage financial risks and improve the Group’s capital

structure and financial performance

• Provide strategic support to the business particularly in

new business ventures and commercial arrangements

Experience

• Began her career with PETRONAS in October 1996 as

Executive in the Budget Department

• Subsequently, held various positions within PETRONAS

until 2005 covering areas of reporting, planning and

budgeting and taxation

• Appointed as Manager, Operations Accounting and Loan

Management, PGB from 2005 to 2008

• Appointed, as General Manager of Finance and Accounts

Services in PETRONAS from 2011 to 2012, responsible for

financial reporting including accounting standards setting

for PETRONAS Group of companies

Qualifications

• Bachelor of Accounting and Finance, University of

Lancaster, United Kingdom

• Fellow of the Association of Chartered Certified

Accountant of United Kingdom


• Director of




– Pengerang Gas Solutions Sdn Bhd

– Gas District Cooling (UTP) Sdn Bhd

– TTM Sukuk Berhad


• Alternate Director, Gas Malaysia Berhad

AIDA AZIZA MOHD JAMALUDINChief Financial Officer

Malaysian

43 Years

Female

N

A

G

PAGE: 53

ANNUAL REPORT 2016

ARSAbdul Razak assumed the position of Head of Business Development and Commercial Division (formerly known as Commercial and Corporate Services Division) in February 2013

Responsibilities

• Responsible to maximise profitability for the Group through

effective business development, commercial negotiations and

resolutions, business ventures management, land acquisition &

management and Third Party Access (TPA) & regulatory

Experience

• Started his 24 years of career as a Procurement Executive

in PGB Transmission Operation Division (currently known

as Gas Transmission and Regasification Division) in 1992

and held various technical positions within PGB until 2002

• In September 2002, seconded to East Australia Pipeline

Marketing Pty Ltd based in Sydney for three years, where he

managed the capacity marketing for the 3,000 km Moomba-

Sydney gas pipeline under TPA regime, involved in the

front-end development of the Papua New Guinea–

Queensland pipeline project

• Appointed as Manager, Gas Supply Planning, Gas Business

Unit, PETRONAS in 2006 and headed the department

from 2008 until 2011

• Appointed as General Manager, Gas Business

Development Department, Gas Business Unit in 2011

Qualification

• Degree in Mechanical Engineering (Hons), University of

Wollongong, New South Wales, Australia


• Director of:

– Industrial Gases Solutions Sdn Bhd




• Alternate Director on the Board of Pengerang LNG (Two)

Sdn Bhd

• Chief Operating Officer (COO) and Director of BAKIPC

Sdn Bhd (until June 2016)

External Appointments

• Director, Transasia Pipeline Company Pty Ltd

• Commissioner, PT Transportasi Gas Indonesia

ABDUL RAZAK SAIMHead of Business Development and Commercial Division

Malaysian

50 Years

Male

N

A

G

PAGE: 54

PETRONAS GAS BERHAD


BH

Barishah was appointed as Head of Human Resources Management Division in March 2013

Responsibilities

• Formulate the people strategies and initiative in

developing the capable leaders and workforce across PGB

Group including attracting, developing and retaining

talents

• Provide HR advisory support to the business in new

business ventures

Experience

• Began her career with PETRONAS in February 1988 as an

Executive at the Education Sponsorship Unit

• Held various positions within HRM of PETRONAS from

1991 to 2004 in the areas of remunerations, people

development, capability development and HR information

system

• Assigned as Manager (HR Planning) in PGB in January

2005

• Appointed as Manager, HRM in PETRONAS Chemicals

Fertiliser (Kedah) Sdn Bhd in 2006

• Appointed as Manager of Sponsorship and Talent

Sourcing at Talent Sourcing and Employee Relations

Department, HRM Division, PETRONAS in December 2011

• Major accomplishments during her 29 years of service

include the implementation of HRIS System and the

outsourcing of medical administration for PETRONAS, the

decentralisation of talent sourcing initiative as well as

recruitment brand enhancement initiatives

Qualification

• Bachelor in Business Administration (Cum Laude),

University of Toledo, Ohio, United States of America


• Joint secretary of the Nomination and Remuneration

Committee


• Nil

BARISHAH MD HANIPAHHead of Human Resources (HR), Management Division

Malaysian

53 Years

Female

N

A

G

PAGE: 55

ANNUAL REPORT 2016

TH

Intan Shafinas assumed the position on March 2012

Responsibilities

• Responsible for all legal affairs and company secretarial

services of the Group

Experience

• Five years working experience at several financial

institutions prior to joining PETRONAS

• Joined Petrochemical Business, PETRONAS, in 2001 as

Legal Executive

• From 2007 till 2010, was attached to the Corporate

Services and Technology Department, Legal Division,

providing legal advisory services in the areas of

intellectual property, commercialisation of technologies as

well as corporate matters

• Appointed as Senior Legal Counsel of PETRONAS

Chemicals Group Berhad in 2011

• Appointed as Head, Legal and Corporate Secretariat

Department, PETRONAS Gas Berhad in March 2012 and is

the appointed joint Company Secretary of the Company

• Currently holds the position of Head, Legal PGB, Legal

Downstream, Finance & Technology, Group Legal,

PETRONAS

Qualifications

• LLB (Hons), Universiti of Leicester, United Kingdom

• Certificate in Legal Practice (Legal Profession Qualifying

Board, Malaysia)

• Licensed Company Secretary


• Company Secretary for:




– Industrical Gas Solutions Sdn Bhd

– Regas Terminal (Sg. Udang) Sdn Bhd





• Nil

INTAN SHAFINAS (TUTY) HUSSAIN

Head of Legal and Corporate Secretariat

Malaysian

44 Years

Female

N

A

G

PAGE: 56

PETRONAS GAS BERHAD


ILIrwan assumed his current position as CEO of Kimanis Power Sdn Bhd on 1 November 2016

Responsibilities

• Responsible for the overall business and operations of

Kimanis Power Sdn Bhd and Kimanis O&M Sdn Bhd in

managing a 300 MW Combined Cycled Gas Turbines

Power Plant, Kimanis, Sabah

Experience

• Starts his career in PGB as the first batch of Process

Supervisor in Operation Department of Gas Processing in

Paka, Terengganu in 1997

• Held managerial position in Operation Department and

then as Asset Manager at Utilities Kertih, Terengganu from

2007 to 2010

• Appointed as the Head of Central Engineering

Department in 2013

• In 2014, appointed as Head of Health, Safety and

Environment (HSE) and Operational Excellence (OE) of

PGB, responsible to develop and implement strategies to

ensure sustainable plant operational performance as well

as effective implementation of HSE Policy and assurance

framework within PGB Group

Qualification

• Bachelor in Petroleum Engineering, Universiti Teknologi

Malaysia, Johor


• Member, Sabah Labuan Grid Code Committee


• Nil

IRWAN ABDUL LATIF

Chief Executive Officer (CEO) of Kimanis Power Sdn Bhd

Malaysian

44 Years

Male

N

A

G

PAGE: 57

ANNUAL REPORT 2016

MANAGEMENT DISCUSSION AND ANALYSIS

STRATEGIC REVIEW AND OUTLOOK62 MD/CEO’s Message

68 Operating Environment

and Outlook

70 Business Model and

Integrated Value Chain

72 Sustainable Value Creation

74 Our Strategy

81 Key Risks and Opportunities

83 Mitigating Risks

84 Material Matters Impacting

Our Strategy

05A

YUSA’ HASSANManaging Director/Chief Executive Officer

PETRONAS Gas Berhad

GOING BEYOND

TO ACHIEVECOMPETITIVENESS,

PRODUCTIVITY & EFFICIENCY

PAGE: 62

PETRONAS GAS BERHAD

MESSAGE

WITHIN A CHALLENGING ECONOMIC LANDSCAPE, PETRONAS GAS BERHAD (PGB) CONTINUED TO FOCUS ON ENHANCING OUR

OPERATIONAL EFFICIENCIES AND SAFETY STANDARDS TO RECORD NEW HIGHS IN KEY PERFORMANCE PARAMETERS. THIS, IN TURN,

WAS REFLECTED IN YET ANOTHER ROBUST FINANCIAL PERFORMANCE, ALLOWING US TO PRESENT HEALTHY

RETURNS TO OUR SHAREHOLDERS.

MD/CEO’s

T he financial year 2016 continued to be challenging, with the global economy seeing one of

the lowest Gross Domestic Product (GDP) growths since the financial meltdown in 2008,

estimated by the International Monetary Fund (IMF) to measure 3.1%. This was marked by

dampened trade, low levels of investment and reduced productivity. Slowdowns were pandemic across

developed nations and were mirrored in China and Japan, major trading partners for most countries in

Asia. Yet, the region remained one of the fastest growing. In Malaysia itself, the economy expanded at

4.2%, according to the Malaysian Institute of Economic Research (MIER). Although this was lower than

the 5.0% recorded in 2015, private investments and domestic demand remained relatively stable and

look set to further increase along with expected, though gradual, recovery.

For the oil and gas industry in particular, the low oil price regime has become the ‘new norm’

requiring all players to re-think their business strategies in order to manage tighter margins. A new

‘survival mentality’ has been spawned which is spurring greater focus on efficiencies to ensure

profitability in this period of lower capital expenditure (CAPEX) and expansion. In response to the

industry downturn, PETRONAS has declared CAPEX cuts over the next four years. This, however, has

not affected investments in the Pengerang Integrated Complex (PIC) in Johor.

PAGE: 63

ANNUAL REPORT 2016

MD/CEO’S MESSAGE

As the sole gas processor and

transporter and liquified natural gas

(LNG) regasification service provider in

the country, PGB is not directly

affected by the low oil and gas

environment. However, we are

inevitably impacted by the long-term

dynamics of gas supply and demand in

Malaysia, as well as by demand for

utilities in the industrial and

petrochemicals complexes we supply.

We continue to fulfil the needs of

PETRONAS to supply gas to its

customers while also supplying utilities

to our own long-term customers in

Kertih Integrated Petrochemical

Complex and Gebeng Industrial Area.

The services we provide to PETRONAS

are determined by long-term gas

processing, transportation and

regasification agreements which afford

us stable and fixed revenue – with the

potential of earning additional income

from Performance Based Structure

(PBS) incentives for Gas Processing.

I am pleased to share that we were

able to leverage on this during the year

as a result of increased operational

efficiencies, driven by an effective asset

integrity programme under our

Transformation Programme.

3ZERO100 TRANSFORMATION

Towards end 2014, PGB embarked on

an extensive 3ZERO100 Transformation

programme to enhance our

performance across the board as we

prepare for our next wave of growth.

The two-year 3ZERO100

Transformation, aimed at achieving

ZERO HSE incidents, ZERO

interruptions, ZERO non-compliance

and 100% product delivery reliability,

was completed in December 2016.

As a result of various strategic

initiatives focusing on Key Results Area

(KRA), we successfully enhanced our

assets performance and management

system strategy, work processes and

talent development to build a high

performance work culture. This has, in

turn, been reflected in commendable

operational performance, with our

plants attaining world-class standards,

recording higher reliability as well as

Overall Equipment Efficiency (OEE) and

attaining 100% product delivery.

Our key achievements to date include:

• Gas Processing exceeding its OEE

targets for each of the four gases

– salesgas, ethane, propane and

butane – resulting in significantly

higher PBS income. This was

supported by flawless execution of

major turnarounds at the Gas

Processing Plant (GPP) 3 and GPP4.

• Resolution of post-commissioning

issues at our LNG Regasification

Terminal Sungai Udang (RGTSU),

resulting in 100% OEE, the best so

far since its commissioning in 2013.

• Accelerated implementation of Work

Process (WP) and Operational

Excellence Management System

(OeXMS), which were completed in

September 2016, three months

ahead of schedule.

• Significant reduction in HSE

incidents and ZERO non-

compliance case.

HIGHEST EVER ETHANE RELIABILITY

98.8%IR1 Read more on our strategy from pages 74 to 80.

OPERATIONAL PERFORMANCE

Along with enhanced operational

performance across the board, we have

been able to elevate our service

reliability to customers.

The year saw our Gas Processing

Plants processed a total of 1,672

million standard cubic feet per day

(mmscfd) of salesgas. Adding to this

was 327 mmscf of salesgas fed from

the Malaysia-Thailand Joint

Development Area (MTJDA) to the

Peninsular Gas Utilisation (PGU) pipeline

network, and another 153 mmscfd of

salesgas from RGTSU. Accordingly, we

delivered a total of 2,152 mmscfd of

salesgas to PETRONAS’ customers via

the PGU.

A key accomplishment of our Gas

Processing segment was to record the

highest ever ethane production. This

was achieved as a result of enhanced

plant reliability, which increased to

98.8% from 95.5% in 2015. Our Gas

Processing Plants also collectively

recorded a higher load during the year,

accompanied by greater product

recovery in Kertih and Santong.

Salesgas reliability was maintained at

99.2%, while the reliability of both

propane and butane rose from 96.5%

to 99.1% year-on-year. In each key

performance parameter, we either met

or exceeded the world-class standard

of 98%.

PAGE: 64

PETRONAS GAS BERHAD

OUR ENHANCED OPERATIONS MEANT

THAT WE WERE ONCE AGAIN ABLE TO MEET

OUR OBLIGATIONS TO PETRONAS UNDER THE

GAS PROCESSING AGREEMENT (GPA), GAS

TRANSPORTATION AGREEMENTS (GTA) AND

REGASIFICATION SERVICES AGREEMENT

(RSA), THUS SECURING A HEALTHY FINANCIAL

SCORECARD.

I am pleased to share that this year

our Utilities segment also achieved

world-class performance, with reliability

for electricity and industrial gases

increasing from 96.4% and 94.4% to

98.8% and 99.9% respectively; whilst

steam drop slightly to 94.5% from

95.9%. These encouraging results can

be attributed largely to intent focus on

Key Result Area (KRA) to enhance the

reliability of our Air Separation Unit,

complemented by preventive

maintenance work at our gas turbines

in Kertih and Gebeng.

Gas Transportation forms the backbone

of our business, ensuring the safe and

reliable transmission of gases to

customers throughout Peninsular

Malaysia, as well as certain sectors of

Sabah and Sarawak. Focusing on the

integrity of our pipeline and equipment,

Gas Transportation once again

achieved world-class performance in

terms of transmission reliability and

availability, exceeding targets that had

been set. The segment also attained

notable successes in ongoing projects.

Work on the Sabah-Sarawak Gas

Pipeline (SSGP) post Lawas was

completed earlier than scheduled,

enabling supply to Malaysia LNG Sdn

Bhd (MLNG) to recommence in March,

as opposed to July 2016.

Our Regasification segment added to

security of natural gas supply in the

country, by converting imported LNG

into salesgas which is then transmitted

to PETRONAS’ end users through the

PGU. Since its commissioning in 2013,

our RGTSU – currently the only such

terminal in the country – has steadily

improved in various performance

parameters including reliability and

availability. This year, we were proud to

see it achieved 100% OEE.

While focusing on our existing

operations, we also made significant

headway in our investments in PIC. In

August 2016, we entered into a

Shareholders Agreement with Linde

Malaysia Sdn Bhd (Linde) to set up

Pengerang Gas Solution Sdn Bhd

(PGSSB) which will undertake the

development of the Air Separation Unit

(ASU) project. The ASU plant will

separate atmospheric air into gaseous

nitrogen and oxygen, to be supplied as

feedstock to utilities providers,

petrochemical plants, refineries and the

LNG Regasification Terminal in PIC.

Meanwhile, our second LNG

Regasification Terminal project in

Pengerang (RGTP) is progressing well,

and was close to 75% completion as at

year end. The terminal, which will

primarily serve PIC’s needs, will have a

maximum regasification capacity of IR2 Read more on our business segments

performance from pages 126 to 161.

3.5 million tonnes per annum (MTPA)

and total storage capacity of 400,000m³.

Given the rate at which it is being

constructed, we are confident of the

project being completed and

commissioned at end 2017, as per

schedule.

Unfortunately, our operational successes

were marred by three fatalities during

the year in three separate incidents, one

at the Pengerang Gas Pipeline Project

(PGPP), one at the Segamat Operation

Centre and another at one of our Gas

Processing Plants. These incidents were

extremely disheartening and served to

further intensify our focus on HSSE as

we implement additional safeguards to

ensure the safety of all workers,

including those of our contractors, at

our sites.

PAGE: 65

ANNUAL REPORT 2016

MD/CEO’S MESSAGE

FINANCIAL PERFORMANCE

Our enhanced operations meant that

we were once again able to meet our

obligations to PETRONAS under the

Gas Processing Agreement (GPA), Gas

Transportation Agreements (GTA) and

Regasification Services Agreement

(RSA), thus securing a healthy financial

scorecard.

Given lower plant downtime and higher

OEE for ethane, butane and propane,

Gas Processing recorded a 1.5%

increase in revenue from PBS income.

Our Utilities segment also achieved a

notable increase in revenue – of 9.8%

– on the back of two fuelgas tariff

revisions. Meanwhile, the Regasification

segment saw a 0.9% decrease in

revenue resulting from the downward

revision of Floating Storage Unit (FSU)

charges which was passed to our

customer.

Taking the performance of all our

business segments, the Group’s

revenue remained healthy, increasing

2.4% to RM4,561.3 million.

The Group’s profit after tax (PAT),

however, was RM1,736.3 million,

marking a slight decrease compared to

the normalised profit achieved in 2015.

This was mainly due to investments

into asset integrity and reliability as part

of our Transformation programme,

which will bring us long-term benefits.

Losses resulting from foreign exchange

volatility on our USD denominated

finance lease were, however, mitigated

during the year by the adoption of

hedge accounting at the beginning

of 2016.

AWARDS AND RECOGNITIONS

While our efforts to enhance our

operational efficiencies and attain

world-class standards in plant and

safety performance, it is always

encouraging to receive independent

recognition of our accomplishments.

Over the years, each of our four

business segments has gathered a string

of awards reflecting high standards of

quality, innovation and creativity. This

year was no different.

Gas Processing won a Gold Award at

the International Convention on Quality

Control Circle (ICQCC) 2016 for

Particle Analysis in Natural Gas Project

held in Bangkok, Thailand in October.

Both Gas Processing and Utilities

continued to win Gold Awards at the

Mini Team Excellence Convention,

Regional Team Excellence Convention

for the East Coast Region 2016 and

National Team Excellence Convention

2016 for value creation. Gas Processing

had outlined a shorter, cost-saving

preventive maintenance and overhaul

programme, while Utilities had

developed an initiative to enhance the

reliability of our co-generation plant

and ensure uninterrupted power supply

to customers.

Another feather to our cap this year

was our Gas Transmission and

Regasification Division receiving the

Silver Award for Culture Excellence at

the Downstream Operational Excellence

Forum Awards (DOEFA) 2016, organised

by PETRONAS. We were also

recognised by the Minority Shareholder

Watchdog Group (MSWG), Focus

Malaysia and ACCA Malaysia for strong

governance, transparency and

sustainability. Along with industry

accolades, we maintained our place on

the FTSE4Good Bursa Malaysia Index.

Meanwhile, PGB’s Annual Report for

the year 2015 was once again named

the best within our industry at the

National Annual Corporate Report

Awards (NACRA), indicating a high level

of disclosure and operational

transparency.

CHALLENGES AND MITIGATIONS

Our risk profile changes along with the

operating environment, is monitored

on a regular basis by our Leadership

Team.

Currently, a major risk is that posed by

the new Gas Supply (Amendment) Act

2016. We need to ensure compliance

with the Act, as well as be able to face

increased competition and regulated

tariffs. We are already in compliant

with most of the requirements and will

be fully compliant in the near future.

At the same time, we are looking into

ways to ensure the continued stability

of our revenue while embarking on

various cost-reduction initiatives to

streamline our operations.

IR5 Read more on our financial performance

from pages 88 to 97.

PAGE: 66

PETRONAS GAS BERHAD

Another key risk are HSE incidents,

which could damage our reputation

and assets and, most importantly, pose

grave danger to our people if not

properly managed. In this regard, we

continue to reinforce safe processes

and behaviours at our work sites

among employees as well as

contractors’ staff. We also make a

concerted effort to take appropriate

action as recommended by our safety

audits, and continuously enhance the

capabilities and accountability of key

personnel.

A third key risk is not maintaining

optimum operational efficiency, which

would affect the quality of our

products and/or our ability to deliver

within budget and schedule. Towards

this end, we continuously invest

significant amounts into upgrading our

plants and facilities to enhance our

OEE, production as well as delivery.

IR10 Read more on our top key risk on page 83.

OUTLOOK

As we enter the year 2017, we have

our journey mapped for us in the form

of 3ZERO100 Beyond, which represents

the second phase of our

Transformation programme. Upon the

early completion of Phase 1 focusing

on the basics of operational and safety

excellence in December 2016, Phase 2

revolves around creating a competitive

and efficient organisation. Guided by

3ZERO100 Beyond, we aim to further

entrench the safety and reliability of

our operations to continue to deliver

our service commitment to customers

while managing our costs.

Our end goal with 3ZERO100 Beyond

is for PGB to be included in the top

quartile worldwide for cost and energy

efficiencies; and to create a more

empowered organisation through

shared leadership.

We welcome the new Gas Supply

(Amendment) Act 2016 as we believe in

the benefits of a liberalised gas market

to all affected stakeholders, and

especially end users or customers. As

the Energy Commission is to regulate

all transmission and regasification

activities under the new Act, we are

working closely with the Commission

and providing our input to ensure all

the changes are implemented smoothly.

Recognising the changing face of the

gas industry, we are undertaking an

intensive study jointly with key

stakeholders on the issues and

challenges in Peninsular Malaysia. Insight

from this study will be used to steer

PGB as we pursue profitable growth

opportunities within our core expertise,

while supporting PETRONAS’ value chain.

In the immediate future, we have

identified two areas of focus: 1)

growing our Utilities services in Kertih

to meet increasing demand by new as

well as existing plants in the Kertih

Integrated Petrochemical Complex

(KIPC) as well as East Coast Economic

Region; and 2) creating opportunities

to serve more customers who do not

have access to the PGU.

At the same time, we remain

committed to adding value to our

shareholders and will continue to strive

for enhanced financial performance so

as to be able to offer attractive returns

in the form of dividends on par with

average industry payout ratios. This has

enabled us to provide our shareholders

with an attractive rate of return on

their investments over the years.

ACKNOWLEDGEMENTS

Despite operating in a very challenging

environment, PGB has managed to

grow from strength to strength. The

many successes we have enjoyed to

date are the result of the contributions

of various stakeholders – from our

shareholders to our customers, business

partners, employees and our Board.

I would like to take this opportunity to

thank our shareholders for their trust in

our ability to deliver; our customers for

their loyal support; our business partners

for continuing to work collaboratively

with us; and our employees for their

hard work and commitment to the

Group, without which we would not be

where we are today.

Finally, on behalf of the Leadership

Team, I would like to express our

gratitude to our Board of Directors for

their wisdom and counsel. In particular

we wish to thank Dato’ N. Sadasivan

N.N. Pillay for his 21 years of

commitment to PGB Board, former

Chairman, Tan Sri Dato’ Seri Shamsul

Azhar Abbas, for his sound leadership;

and to welcome his successor, Datuk

Mohd Anuar Taib, who takes over as

Chairman as of 1 January 2017.

Thank you.

YUSA’ HASSAN

IR11 PGB is undertaking necessary strategies

and initiatives, in respond to the

challenging economic environment. Read

more from pages 68 to 69.

PAGE: 67

ANNUAL REPORT 2016

THE GAS INDUSTRY IS AFFECTED BY VARIOUS MACRO-ECONOMIC FACTORS AS WELL AS MEGATRENDS WHICH ULTIMATELY IMPACT OUR BUSINESS.

The global economy influences the

industry by affecting demand for

natural gas. The current economic

downturn, accompanied by lower

consumer spending, has dampened

demand for a range of goods and

services, thus reducing demand for fuel

and therefore also gas. However, there

are indications that the global

economy is picking up. Accompanied

by continuously expanding populations,

we can reasonably expect demand for

energy fuel to keep increasing in the

long term.

Although environmental concerns and

fear that depletion of our oil and gas

reserves have spurred investments into

alternative fuels and especially

renewable and green sources of

energy, there is no question that oil

and gas continue to be the primary

source of fuel for most people around

the world today and the situation is

likely to last until hydrocarbon

resources truly start to dry up. The

predictions of ‘peak oil’ has been

continuously proven wrong as new

reserves are discovered along with

better and more accurate technologies.

Although experts do not dispute there

may come a day when earth will not

be able to produce any more

hydrocarbon fuels to support our

needs, this is likely to happen only in

the distant future. The very same

experts will also not dispute, however,

that remaining reserves of oil and gas

are in remote or harder to access

areas and we will require more

advanced technologies to extract.

These technologies will include more

robotics and other forms of automation

as it would be too costly and

dangerous to send humans into the

uncharted terrains. Already, there are a

sprinkling of unmanned platforms in

Malaysia, not because of their remote

locations but rather because they are

more cost efficient. Their numbers are

bound to increase over time.

Aside from depletion of oil and gas,

there are strong environmental

grounds for the development of

non-hydrocarbon forms of fuel to

support the industry. Nations across

the world are becoming more

concerned about climate change and

other environmental issues. At the

United Nations Climate Change

conference held in Paris in December

2015, representatives from 195

countries adopted the first ever

universal, legally binding global climate

deal – agreeing to cut down carbon

emissions to limit global warming to

below 2° above pre-industrial levels.

Environmental concerns are, however,

positive for the gas industry given that

it is the cleanest fossil fuel. Efforts to

reduce our carbon emissions have

resulted in the emergence of natural

gas vehicles (NGVs) as well as electric

vehicles.

Meanwhile, it is becoming increasingly

important for oil and gas players to

show a commitment, as responsible

corporate citizens, to reduce their

carbon footprint as far as possible. Not

only is this being observed across the

board, the bigger players are even

contributing to research on alternative

forms of energy such as solar and

hydro-power.

Another challenge facing by the oil and

gas industry has been the shortage of

talent. Added to this is the need for

industry players to take into account

changing work styles of those entering

the workforce. According to estimates,

the industry will need to recruit

120,000 new employees globally over

the next ten years. In order to do this,

oil and gas companies will have to be

seen attractive to Generation X,

Millennials, Post Millennials and women.

Many initiatives are being undertaken

to attract and retain women, enabling

them to balance their professional and

personal obligations, and to enjoy

equal opportunities for advancement as

their male colleagues.

IR5 PGB has taken measures to overcome the

encumbrance on talent shortage and

reduce carbon emission. Refer pages 72 to

73 on how we create value.

PAGE: 68

PETRONAS GAS BERHAD

OPERATING ENVIRONMENT AND OUTLOOK

In Malaysia, Petroliam Nasional Berhad

(PETRONAS) Group is still seen to be a

prestigious company to work for, given

its contribution to national wealth and

its international reputation, being one

of the few Malaysian corporations

belong to Fortune 500. Nevertheless,

PETRONAS Gas Berhad (PGB) takes

seriously the challenges posed by

today’s talent as we do with other

trends that have an impact on our

operations.

Key among these is the new Gas

Supply (Amendment) Act (GSA) 2016,

passed on 14 June 2016, which aims

to ensure gas supply security in

Malaysia by liberalising the sector and

allowing third party operators to

import, regasify, transport and distribute

gas to consumers via existing gas

infrastructure. This will promote healthy

competition in the gas supply industry,

benefiting consumers.

Under the GSA, gas tariff and terms of

services will be regulated and

determined by the Energy Commission.

This marks a departure from the

practice to date, where both

transmission and regasification tariffs

have been agreed between PETRONAS

and PGB, taking into account our

investments in the infrastructure

required to supply gas to PETRONAS’

customers. There is a need, therefore,

for the Energy Commission to be fully

apprised of the costs involved in

developing essential gas infrastructure,

and we are working closely with the

regulator to ensure the provisions of

Third Party Access (TPA) are equitable

to all stakeholders.

IR1 Read more about our strategy from

pages 74 to 80.

PAGE: 69

ANNUAL REPORT 2016

OUR CORE BUSINESSES AND ACTIVITIES

F

F

M

M

EMPLOYEES

EMPLOYEES

1,120

417

12%

13%

88%

87%

GA

S

PR

OC

ES

SIN

G (

GP

)G

AS

TR

AN

PO

RT

AT

ION

(G

T)

ACTIVITIES

ACTIVITIES

ASSETS

ASSETS

INPUT*

INPUT*

OUTPUT*

OUTPUT*

REVENUE STRUCTURE

REVENUE STRUCTURE

COST STRUCTURE

COST STRUCTURE

CUSTOMER

CUSTOMER

KEY RESOURCES

KEY RESOURCES

Processes feedgas from

offshore Peninsular Malaysia

into a high-value products to

be transported to PETRONAS’

customers by our GT

business

Transports processed gas from

our GPP, Joint Development

Area (JDA) in Thailand and

LNG Regasification Terminal in

Sungai Udang, Melaka to

PETRONAS’ customers in

Peninsular Malaysia, Sabah,

Sarawak and Singapore

• Six Gas Processing Plants (GPP) located

at Gas Processing Kertih (GPK) and Gas

Processing Santong (GPS), Terengganu

• One Export Terminal Facility located at

Tanjung Sulong, Kemaman, Terengganu

(TSET) for export purposes

• 2,551 km pipelines covering much of

West Malaysia known as the Peninsular

Gas Utilisation (PGU) pipeline network

• A distribution systems in Miri and Bintulu

in East Malaysia

Natural gas from

offshore platforms

• Salesgas from

GPP and JDA

• Ethane, butane

and propane

from GPP

• Regasified LNG

from RGT

Transported

salegas

• Reservation charge

• Flowrate charge

• Performance Based Structure

Income

Transportation fee

• Depreciation and operational costs such

as repair and maintenance, materials and

supplies, as well as professional and

purchased services


as repair and maintenance as well as

materials and supplies, as well as

professional and purchased services

• Mainly PETRONAS

• PGB distributes the output

to PETRONAS’ customers

– Power and non-power

sector, including

Petrochemical sector

• Mainly PETRONAS




sector including


Salesgas

Propane

Ethane

Butane

IR2 Read more about our business segment performance from pages 126 to 161.* Input and output belong to customer.

BUSINESS MODEL

PETRONAS GAS BERHAD

OUR BUSINESS MODEL IS BUILT TO SUPPORT AND ACTIVELY INTERACT WITH EACH OTHER

LEAVING MINIMUM RESOURCES UNUTILISED. OUR INTEGRATED BUSINESS MODEL ALLOWS

DECISION MAKING, EXECUTION AND GROWTH IN OUR FIELD AS DYNAMIC AS WE CAN AND

ENABLES US TO DELIVER THE BEST OUTCOME FOR BOTH PETRONAS GROUP AND OUR OWN

STAKEHOLDERS.

F

F

M

M

EMPLOYEES

EMPLOYEES

212

94

6%

3%

94%

97%

IR4 Our business strategy is underpinned by integrated business model illustrated from pages 70 to 71, which encompasses the entire value chain.

UT

ILITIE

S (U

T)

RE

GA

SIFIC

AT

ION

(RG

T)

ACTIVITIES

ACTIVITIES

ASSETS

ASSETS

INPUT

INPUT*

OUTPUT

OUTPUT*

REVENUE STRUCTURE

REVENUE STRUCTURE

COST STRUCTURE

COST STRUCTURE

CUSTOMER

CUSTOMER

KEY RESOURCES

KEY RESOURCES

Manufactures, supplies and

markets electricity and a

range of industrial utilities to

the various petrochemical

businesses and third parties

Converts PETRONAS’ Liquidified

Natural Gas (LNG) into salesgas

to be delivered to PETRONAS’

customers by our GT business.

The LNG is imported from

around the world and stored in

RGT’s floating storage units

before it being regasified

Four types of facilities located at both

Utilities Kertih (UK) and Utilities Gebeng (UG):

• Cogeneration plant (COGEN)

• Air Separation Unit (ASU)

• Water plant

• Nitrogen Generation Unit (NGU)

• Offshore LNG Regasification Terminal in

Sungai Udang, Melaka (RGTSU)

• 27 km onshore pipeline

• 3 km offshore pipeline in Sungai Udang,

Melaka

• Two leased Floating Storage Units (FSU)

• Salegas from

GPP

• Chemicals

• Raw Water

• Air

Liquefied Natural

Gas (LNG)

• Electricity & steam

• Industrial gaseous

such as gaseous

oxygen & nitrogen

• Demineralised

water, raw water,

cooling water and

boiler feed water

Regasified LNG

• Regasification fee

• Throughput fee

• Storage fee

Sales of utilities


as fuelgas, repair and maintenance,

materials and supplies, as well as

professional and purchased services


as repair and maintenance, materials and

supplies, as well as professional and

purchased services

• Petrochemical and industrial

customers in Gebeng

Industrial Area, Pahang and

Kertih Integrated

Petrochemical Complex,

Terengganu

• Mainly PETRONAS




sector, including


LNG LNG

ANNUAL REPORT 2016

PE

TR

ON

AS

UP

ST

RE

AM

WA

TE

RA

IRFU

ELG

AS

PE

TR

ON

AS

LNG

CA

RG

OM

AL

AY

SIA

-

TH

AIL

AN

D J

OIN

T

DE

VE

LOP

ME

NT

A

RE

A

GPS

RGTSU

GPK

UK

UG

FSU

ACTIVITIES AND PROCESSESSOURCES

GA

S P

RO

CE

SS

ING

(G

P)

Feedgas

Feedgas

Air

LNG LNG

Raw Water

Chemical

Salesgas

Others

Salesgas

Salesgas

Salesgas

Salesgas

Propane

Steam

Ethane

Industrialgases

Butane

Electricity

RE

GA

SIF

ICA

TIO

N (

RG

T)

UT

ILIT

IES

(U

T)

Storage in

FSU

Regasification

Unit

3 km offshorepipeline

Power Substation

input from GPP

GasTransportation (GT)



PAGE: 70

PETRONAS GAS BERHAD

ASU

RGTP

PGPP

TSET

PETRONAS AND PGB CUSTOMERS GROWTH

Legend

ExportTerminal

Export

Power substation

27 km onshorepipeline

Pip

elin

e n

etw

ork

mo

re t

han

2

,50

0 k

m a

cro

ss P

en

insu

lar

Mala

ysi

a

Petrochemical Plants

TNB

Large industries

Independent Power Producers (IPP)

LNG RegasificationTerminal

Pengerang (RGTP)Project

Air Separation Unit (ASU)

Pengerang Project

Refinery and Petrochemical

Integrated Development

(RAPID)

Senoko/Keppel

Smallindustries

Smallcommercial

Residential Resources

Electricity Transmission Grid

Products

PGU pipeline

UT pipelineto KIPC complex

Pengerang Gas Pipeline Project



PAGE: 71

ANNUAL REPORT 2016

INPUTS

INTEGRATED

OUR INTEGRATED VALUE CHAIN MODEL PROVIDES LONG TERM VALUE

CREATION TO ITS STAKEHOLDERS FOR SUSTAINABLE, PROFITABLE AND

CONTINUOUS BUSINESS GROWTH.

VALUE CHAIN

FINANCIALEquity funding

Debt funding

Internally generated

cash flows

NATUREGas consumption

Air consumption

Water consumption

Physical locations

ASSETPlants

Pipeline

INTELLECTUALSystem and

process

HUMAN CAPITALEngaged workforce

Ethical values

Specific knowledge

and skills

SOCIAL AND RELATIONSHIPBusiness partners

Suppliers

Customers

Investors & funding institutions

Communities

Government agencies/authorities

Unions

IR8

OUTPUTS VALUE CREATED

Details of value created can be found

on pages 72 to 73.

• GAS PROCESSING SERVICESProcesses PETRONAS’

upstream feedgas delivered

from offshore Peninsular

Malaysia into salesgas and

other by-products such as

ethane, propane and butane

• GAS TRANSPORTATION SERVICESTransports processed gas to

PETRONAS’ end customers

through Peninsular Gas

Utilisation (PGU) pipeline

network and smaller

distribution system in Miri and

Bintulu

• UTILITIES PRODUCTSManufactures and supplies

steam, electricity, industrial

gaseous and others to various

petrochemical businesses and

third parties

• REGASIFICATION SERVICES Receives PETRONAS’

imported Liquefied Natural

Gas (LNG), stores it in

Floating Storage Units (FSU)

and converts the LNG

to salesgas

• OPTIMISING FINANCIAL CAPITALGrowth opportunities

Prudent gearing levels

Sustainable returns for investors

• MANAGING NATURAL RESOURCESEnergy efficiency

• ELEVATING ASSET PERFORMANCEZERO HSE Incident

ZERO Interruption

• LEVERAGING INTELLECTUAL CAPITALWorld class performance of asset reliability

ZERO Non-Compliance

• NURTURING PEOPLEJob creation

Highly engaged and capable workforce

• ENGAGING STAKEHOLDERSNational energy security

We create value by continuously

delivering our obligations to

shareholders whilst meeting

society’s and the country’s needs

in a responsible manner.

0102

03

OPTIMISING FINANCIAL CAPITAL

To ensure long term sustainable returns to

our investors, we strategise our business

model by effectively leveraging on our

financial strengths which enable us to raise

funding at the best possible rates. We also

firmly stand on continuous investment as

well as growth initiative with a considerable

target return on capital to sustain the

current business.

Key Input 2015 2016

Market capitalisation (RM billion) 45 42

Equity funding 100% 70%

Debt funding - 30%

WACC1 9.2% 7.8%

Interest earned from investments (RM million) 32 54

1 Source: Bloomberg

How We Create Value

• USD500 million Term Loan Facility

executed between PGB and Mizuho

Bank Ltd attained competitive pricing

lower than the market average

• Continuous assessment on various

funding alternatives to cater for the

scale of our capital requirement

including planned growth initiative

Key Output 2015 2016

Revenue (RM million) 4,456 4,561

Operation profit (RM million) 2,017 2,137

Cash generated from operating profit (RM million) 2,846 2,761

Dividend paid to shareholders (RM million) 1,148 1,187

Earnings per share 100.4 sen 87.9 sen

MANAGING NATURAL RESOURCES

We convert natural capital (i.e gas and water)

into a high-value products (i.e salesgas,

ethane, propane butane, electricity, steam,

industrial gaseous and other utility products)

by deploying our technology and other

resources. While monetising natural capital to

deliver country’s need, we also aim to

minimise the impact of our business on the

environment by reducing our carbon footprint

e.g. greenhouse gas emission and promotion

of energy efficiency and waste management.

Key Input 2015 2016

Natural gas (mmscfd) 2,037 2,063

Water consumption (million Sm3) 7.4 6.4

Land area (hectare) 5,044 5,044

How We Create Value

• Strategically invest in research and

development as well as technologies to

cushion negative impact on natural

elements by promoting water stewardship

and minimising pollution

• RM2 million allocated for effective waste

disposal and a target of 3% annual

reduction in waste disposal

• ‘Sayangi Sungai Paka’ programme

conducted to preserve the biodiversity

of Sungai Paka in Terengganu


Greenhouse gas emission (Million tonnes) 5.6 4.0

Waste generated (tonnes) 1,360 4,269

Waste recycled (tonnes) 10.0% 3.2%

Water recycled 25.0% 37.5%

Asset value (RM million) 9,317 8,773

ELEVATING ASSET PERFORMANCE

Ongoing capital investment in our plants

and equipments enable us to operate the

assets safely, reliably and competitively for

an extended period.

Key Input 2015 2016

Plant and pipelines (RM million) 19,358 19,440

Project in progress (RM million) 1,586 3,147

How We Create Value

• Progressive investment in Pengerang

LNG (Two) Sdn Bhd (PLNG2) to build

a LNG Regasification Terminal in

Pengerang, Johor

• New investment for the development of

Air Separation Unit (ASU) in Pengerang,

Johor

• Routine and emerging maintenance

works in accordance with necessity

eventually leading to optimised capital

allocation


Capital expenditure (RM million) 4,843 4,009

Depreciation and impairment (RM million) 777 877

IR7 Read more about our environmental

sustainability activities from pages 230 to 235.

IR7 Read more on our assets performance

on page 103.

IR5 Read more about our financial

performance results from pages 88 to

page 97.

PAGE: 72

PETRONAS GAS BERHAD

SUSTAINABLE

In sustaining profitability and

growing our business, we

consider all our key resources and

how we can create values from

the Six Key Capitals.

04

05

06

LEVERAGING INTELLECTUAL CAPITAL

Intellectual capital development goes hand in

hand for both the equipment and operators

(workforce). These intangible assets such as

new patents, system revamps and upgrades,

procedures, protocols as well as practical

courses are the competitive advantages that

are needed to excel in this industry. In

return, the results produced fulfill

requirements and generate high return on

investments. As one of the leaders of the

industry, we revolve around the innovation

theme through strategic partnerships and

keeping all our systems at par if not higher

compared to international standards.

Key Input

• Skilled, experienced and technically

qualified employees, industry thought

leaders and experts

• Our business processes and

management system

How We Create Value

• Implementation of standardised Work

Process at all assets and rolled out to

key enablers

• Implementation of Operational Excellence

Management System (OeXMS) with the

first Management System Review (MSR)

conducted in October 2016

Key Output

• OeXMS – a one-stop-center for all

systems and requirements that assure

safe and reliable executions, with a

built-in self assurance process,

incorporates best practices and continual

improvement cycles

• New standardised Work Process

covering end to end value chain

NURTURING PEOPLE

We offer challenging, meaningful and

fulfilling careers for our people in a

value-driven organisation. We have

experienced a reduction in our workforce

by 3.2% as a result of implementation of

standardised Work Process and empowered

organisation. This enables higher

optimisation of talents and costs.

Key Input 2015 2016

No. of employees 2,187 2,117

How We Create Value

• Our 2,117 talented workforce are

exposed to world class working

environment, culture and ethics in

nurturing leadership capability.

• Health, Safety, Security and Environment

(HSSE) priorities with introduction of

policies and development of HSSE skill

enhancement workshops and courses.

• Accelerating Culture Change (ACC)

programme designed to enhance

leadership competencies.

• Enhancing the Building Leaders

Programme (BLP) Framework.


Total wages and salaries (RM’000) 283,240 281,798

Investment in training (RM) 7,824 6,348

Training mandays per employee (days) 9.8 10.3

No. of work-related fatalities 0 3

ENGAGING STAKEHOLDERS

We believe that gaining the trust of our

stakeholders is important to create value.

Social and relationship capital is an initiative

beneficial to the surrounding community

and ourselves in the long run. Constant

engagement with government bodies and

society to address social issues and needs

gives positive impact to the business.

Programmes held and organised by our

own staff, ensure more personal experience

thus stimulating a sense of belonging for all.

Key Input

• Management and employees

• Investors

• Government representatives and

regulators

• Business partners and contractors

• Customers and suppliers

How We Create Value

• Corporate Social Investment

programmes

• Develop vendors (Vendor Development

Programme), centrally organised by

PETRONAS

• Continuous engagements with

stakeholders

• Sponsorships and relief assistance to the

underprivileged families


Tax paid to Government (RM million) 169 122

Corporate Social Responsibility programmes 16 18

IR7 Read more about our social

sustainability activities from pages 248

to 249.

IR7 Read more about how we invest in our

talent from pages 245 to 247.

PAGE: 73

ANNUAL REPORT 2016

VALUE CREATION

WE ARE COMMITTED TO REALISE

OUR VISION OF BECOMING A LEADING GAS INFRASTRUCTURE AND UTILITIES COMPANY.

THE THREE PILLARS OF OUR

STRATEGIC FOCUS AREAS

ARE AS FOLLOWS:

PAGE: 74

PETRONAS GAS BERHAD

OUR STRATEGY

HEALTH, SAFETY, SECURITY & ENVIRONMENT (HSSE)

Robust HSSE governance and assurance

• We are committed to exhibiting leadership in the area of HSSE and ensuring compliance with all

HSSE governance and assurance frameworks including the PETRONAS Mandatory Control

Framework at all times to safeguard lives, assets and ensure our overall business continuity.

Institutionalisation of Process and Behavioural Safety

• We are determined to increase our efforts to instill safety-at-heart in all members of our

workforce to achieve safe operationalisation of the Company’s assets.

OPERATIONAL EXCELLENCE

Superior product delivery and reliability

• We are striving to elevate our Overall Equipment Effectiveness (OEE), which would translate into

higher product delivery reliability to our customers.

Sustainable improvement of key operational indicators

• We are committed to improve and sustain our plant operational performance towards optimising

the value delivered to our stakeholders.

VALUE OPTIMISATION & GROWTH

Optimum cost control and asset utilisation

• We endeavour to minimise value leakages and improve overall asset utilisation, which in turn

would yield higher returns to our shareholders.

Improved energy efficiency

• We are committed to utilise energy-efficient technologies to reduce energy per unit cost of

production, which contributes to lower production cost and a reduction in overall energy

intensity and carbon footprint.

Strategic growth in gas infrastructure and utilities

• We are determined to pursue, explore and execute new business ventures within the core areas

of the Company’s expertise to establish new revenue streams and value for our shareholders.

Excellence in project delivery

• We are focused on implementing a seamless project execution strategy for all projects which

translates into on time and on budget project completion and delivery.

01

02

03

IR2 The business strategies of our four business segments are built on these three pillars. Read more about

respective business strategies on pages 130, 140, 148 and 158.

PAGE: 75

ANNUAL REPORT 2016

OUR STRATEGY

3ZERO100 TRANSFORMATION

We successfully completed our two-year 3ZERO100 Transformation programme, the first phase of 3ZERO100 roadmap, in

December 2016. Through three Key Strategic Thrusts namely Asset, System & Process and People & Culture, various strategic

initiatives have been implemented to drive the organisation towards achieving ZERO Health, Safety and Environment (HSE)

incident, ZERO non-compliance, ZERO interruption and 100% product delivery reliability.

3ZERO100

ORGANISATION

PERFORMANCE

HIGH

0 HSE Incident 0 Non-compliance

0 Interruption100% Product

Delivery Reliability

Efficient & Sustainable System & Work Process

Highly Engaged & Capable Workforce

PGB TRANSFORMATION

WE HAVE OUTLINED A ROADMAP TO TAKE US TO OUR DESTINATION OF BEING A

HIGH-PERFORMANCE ORGANISATION BY 2020. THIS IS THE 3ZERO100 JOURNEY – A

STRATEGIC BLUEPRINT THAT DRIVES US TO KEEP BETTERING OURSELVES.

3ZERO100 ROADMAP

Brilliant at Basic Efficiency & Competitiveness Sustain for the Future

2015 2016 2017 2018 2019 2020

3ZERO100TRANSFORMATION

Safety & Reliability

• ZERO HSE Incident

• ZERO Non-Compliance

• ZERO Interruption

• 100% Product Delivery Reliability

3ZERO100GENERATION 3.0

World Class Organisation

• World Class competitiveness:

Overall Quartile 1 in Global

Benchmark

• Empowered Organisation: Self

Directed

3ZERO100BEYOND

Competitiveness,

Productivity & Efficiency

• Sustainable safe and reliable

operations

• Efficient and Empowered

Organisation: Shared Leadership

• 1st Quartile in Cost and Energy,

2nd Quartile for manpower in

Global Benchmarking

• Cost reduction

IR5 Brilliant at Basic has contributed to achievement of a sustainable performance in 2016. Read more on our Performance Scorecard from pages 102 to 105.

IR1 To understand further on how material matters are reflected in our roadmap, refer to page 85.

Safe, Reliable & Efficient

Cost Reduction

PEOPLE& CULTURE

SYSTEM & PROCESS

ASSETS

PAGE: 76

PETRONAS GAS BERHAD

At the end of 3ZERO100 Transformation

programme, PGB continued to record a

progressive improvement towards its

target. In 2016, we recorded the highest

production and delivery of ethane in

history, consistently well above our

customer’s requirement under the Gas

Processing segment resulting in

additional revenue through the

Performance Based Structure (PBS)

income for twelve months. We achieved

high reliability for both Utilities facilities

and sustained world class performance

of our Gas Transmission. A

commendable reliability performance

was also demonstrated at our

Regasification facility. These

improvements are represented by a

higher number of Great Days, a

measurement of all assets of the Group

meeting the Key Performance Indicators

(KPI) on a daily basis, from 40 days in

2015 to 126 days in 2016.

The standardisation of Work Process

(WP) was successfully implemented at all

assets while the newly developed PGB

Operational Excellence Management

System (OeXMS) was also introduced.

With the deployment of both the WP

and OeXMS, the organisation is geared

towards ensuring operating discipline and

continuous improvement. In addition,

focus has been put towards shaping

PGB’s organisational culture anchored to

the PETRONAS Cultural Beliefs and

nurturing internal technical and

leadership capabilities which has shown

a good improvement as indicated

through the cultural survey results.

While a number of key operational

parameters showed significant

improvements, our Health, Safety,

Security and Environment (HSSE)

performance was marred with three

fatalities in three separate incidents

involving three contractors personnel.

We shall continue to strive for zero

incident as HSSE has always been and

continues to remain our top priority.

ZERO HSE Incident Reduction in number of incidents by 52%

ZERO Non-Compliance Reduction in number of non-compliance by 32%

ZERO Interruption Reduction in asset interruptions by 35%

100%

Product Delivery Reliability

Gas Processing

• Received 12 months PBS income

• Completion of major shutdown and plant

improvement projects

• Achieved highest delivery of ethane (138 MT/hr) and

highest ethane Overall Equipment Effectiveness (OEE)

record in history, well above world class target of 95%

Gas Transportation

• Sustained world class reliability performance above

99.9%

Utilities

• Achieved the highest OEE performance for industrial

gaseous at 100.0%

Regasification

• Achieved the world class reliability performance

above 98% and sustained performance above 99.9%

since May 2016

Growth

• Achieved Final Investment Decision (FID) for the Air

Separation Unit (ASU) project in August 2016 and on

track to achieve Initial Acceptance (IA) by end of

2018

• LNG Regasification Terminal Project in Pengerang, Johor

continued to progress well towards Commercial Operation

Date (COD) for the first tank in quarter four, 2017

Efficient and Sustainable

System & Work Process

• Successfully completed the implementation of

standardised WP at all assets and rolled out to key

enablers

• Completed the implementation of OeXMS with the

first Management System Review (MSR) conducted in

October 2016

Highly Engagedand

Capable Workforce

• High manpower strength level with selective

recruitment of technical professionals and experience

staff to fill up critical and vacant positions

• Improved organisational technical capability and staff

competency through in-house training and

PETRONAS certification programme

• Progressive improvement towards a culture of

accountability

• Engaging workforce with a healthy organisation climate

RESULT IN 2016TARGET

IR2 Read details on our business segment achievements on pages 126 to 161

PAGE: 77

ANNUAL REPORT 2016

OUR STRATEGY

THE SIX KEY PRODUCTIVITY ENABLERS

WORKPROCESSES

EMPOWEREDTEAMS

PERFORMANCECULTURE

ORGANISATIONALDESIGN

COMPETENCIESIN WORKFORCE

MANAGEMENTSYSTEMS

3ZERO100 BEYOND

Amid the new challenging business landscape of the oil and gas industry, PGB has initiated the next phase of 3ZERO100

roadmap in our pursuit to become a World Class Organisation by 2020. The second phase coined as 3ZERO100 Beyond, is

a continuous effort towards a safe, reliable and efficient organisation. This second phase commences from 2017 until 2018

and focuses on elevating the competitiveness, productivity and efficiency of our organisation. The targets are to achieve

sustainable, safe and reliable operations, efficient and empowered organisation to the level of shared leadership, improving

our position in global benchmarking in cost, energy and manpower. These challenging targets will be achieved through the

implementation of six key productivity enablers, namely, work processes, empowered teams, performance culture,

competencies in workforce, organisational design and management systems.


Cost Reduction

PAGE: 78

PETRONAS GAS BERHAD

RESULTS MATTER

NURTURETRUST

OWN IT!

TELL ME

FOCUSEDEXECUTION

SHARED SUCCESS

I always keep

my promise

and build

mutual trust

I own the

results and

don’t blame

others

I seek, give and

act positively

on feedback

I plan, commit,

and deliver

with discipline

I stretch my

limits to deliver

superior results

I collaborate

for greater

good of

PETRONAS

PETRONAS CULTURAL BELIEFS (PCB)

To accelerate the journey towards becoming the World Class Organisation, PGB continues to adopt PCB to strengthen the

culture of personal accountability in delivering results as part of the 3ZERO100 roadmap. We believe that by changing the

Company culture, it will transform the organisation and deliver sustainable, safe, reliable, and efficient performance. The

focus is on leaders creating the culture by providing the right experience to the staff, which will in turn creates the right

beliefs in the organisation. The six PETRONAS Cultural Belief are:

PETRONAS

CULTURAL BELIEFS

PAGE: 79

ANNUAL REPORT 2016

OUR STRATEGY

PGB DESIRED CULTURE (C2)“Highly accountable and ownership towards safe,

reliable and competitive organisation”

A healthy organisational

culture with employee

BAROMETER SCORE1

3.13average

score

PGB C2 CULTURE SCORE1

3.12average

score

involved Managing

Director/Chief

Executive Officer

Engagements36conducted in 2016

Leadership

Engagements146

Staff attended

PCB Programme100%

participated in

Culture Drive

challenges!

98%PGB Culture (C2) Drive Programme2

conducted by leaders

on contribution

towards the

organisation & staff

development

Coaching

Sessions170

WHAT WE DID

In creating a culture of accountability, PGB has developed PGB Desired Culture (C2). In year 2016, our continuous

engagements and development programmes has contributed towards an improved level of staff satisfaction, which has

resulted in the much improved performance.

Note:1. Barometer & Culture survey is an internal initiative conducted by PGB to determine the level of staff satisfaction. The highest score is 4.00. PGB

score in 2015 was 2.98.

2. PGB Culture Drive Programme was conducted over nine months period targeted for all leaders to create new experience and drive the

organisation towards PGB desired culture adopting PCB.

Leaders

PAGE: 80

PETRONAS GAS BERHAD

RISK MANAGEMENT POLICY

The Group’s Risk Policy provides a clear communication on

the Management’s expectations with regard to risk

management implementation and business continuity

practices.

The Risk Policy encompasses three areas of business

resiliency namely, Enterprise Risk Management (ERM), Crisis

Management (CM) and Business Continuity Management

(BCM), to strengthen the current practices and places greater

emphasis on PGB Leadership Team expectations with regard

to risk management implementation and business continuity

practices.

RISK MANAGEMENT FRAMEWORK

Our Risk Management Framework adheres to the PETRONAS

Resiliency Model, which entails an enhanced PETRONAS

Enterprise Risk Management (ERM) Framework that adopts

the ISO 31000:2009 Risk Management requirements.

IR9 For more comprehensive report on the Risk Management

Framework, refer to page 186

PGB GROUP RISK MANAGEMENT

PRACTICES HAVE BEEN AN INTEGRAL

PART OF OUR ORGANISATIONAL

PROCESS AND ARE FIRMLY EMBEDDED

IN THE MANAGEMENT SYSTEM. WE

ADOPT A STRUCTURED APPROACH IN

IDENTIFYING, ASSESSING, TREATING AND

MONITORING RISKS TO ENHANCE THE

ORGANISATION’S ABILITY TO ACHIEVE

OUR STRATEGIC OBJECTIVES.

RISK OVERSIGHT STRUCTURE

The Group oversight structure allows risk information flow

for effective oversight on risk management implementation

at all levels.

At Division level, the Plant Leadership Teams chaired by the

Head of Divisions, take up the responsibility in ensuring the

implementation of effective risk management for our plants

and facilities.

At Group level, the Risk and Compliance Committee (RCC),

which is chaired by the Managing Director/Chief Executive

Officer (MD/CEO) is obliged to ensure that an appropriate

and effective risk management framework is in place and

implemented throughout the Group as well as its

compliance with the statutory, regulatory requirements and

policies applicable to it.

The Board Audit Committee (BAC) is authorised by the

Board to review the adequacy and effectiveness of risk

management practices and procedures as well as conducting

risk profiling reviews the Group, on a quarterly basis. The

BAC also deliberates the Group’s Enterprise Risk Report on a

quarterly basis, including risk exposures and the mitigation

plans required, subsequent to review by the RCC.

PAGE: 81

ANNUAL REPORT 2016

KEY RISKS AND OPPORTUNITIES

ENTERPRISE RISK PROFILING

Enterprise Risk Profiling and Assessment follows a structured

process which ensures a comprehensive and consistent

approach in assessing and analysing risks faced by PGB.

Risks are reviewed annually with involvement from the

Management and Subject Matter Experts (SMEs) from

Divisions and Departments across the Company.

CONTEXT SETTING

Prior to risk profiling and assessment activities, various inputs

are analysed in setting the context of the assessment, which

include both internal and external factors that may impact

our business and operations. The Group’s annual risk

profiling and assessment process is guided by its approved

strategies and plans. Discussions are focused on risks which

could potentially impede the Group from meeting its

objectives.

On a regular basis, other various operational risk profiles

namely project risks, new business venture risks as well as

plant and facilities risks under Gas Processing and Utilities

(GPU) and Gas Transmission and Regasification (GTR)

Divisions are reviewed to identify significant risks to be

escalated to the Enterprise Risk Profile (ERP). Other key

discussions include recent Health, Safety, Security and

Environment (HSSE) issues or audit findings, operational

issues as well as project issues.

From an external context, any recent changes in regulatory/

statutory requirements as well as shifts in industry outlook

and landscape are also analysed as they may have direct or

indirect impact on the Group’s operations.

IR10 Further information on PGB 2016/17 ERP is provided on page 187.

BOARD

MANAGING DIRECTOR/ CHIEF EXECUTIVE OFFICER

RISK &COMPLIANCECOMMITTEE


RISK MANAGEMENT UNIT

HEAD, BUSINESS EXCELLENCE

High Level Group Risk Oversight Structure

Reporting flow Information flow

RISK ASSESSMENT AND TREATMENT

Each risk is mapped based on a five-scale matrix which

specifies its likelihood and impact. Likelihood rating specifies

how likely it is for the risk to happen whilst impact rating

indicates the extent of its impact if it did happen. Risk

impact is analysed from both qualitative and quantitative

perspectives.

The PGB Enterprise Risk Matrix is adopted from the

PETRONAS ERM Framework and adapted based on the PGB

risk appetite and tolerance level.

Depending on risk treatment strategies adopted, mitigation

plans are outlined to mitigate the risks to an acceptable

level.

Key Risk Indicators (KRIs) are identified to facilitate

monitoring of the risks which provide an early warning signal

on potential emerging risks. Risk Owners, Risk Mitigation

Owners and Risk Focal Persons are assigned for each risk to

ensure the risk mitigations developed are appropriately

implemented, monitored and regularly reported.

IR9 Refer to page 188 for our Risk Assessment process.

VHVH

H

H

M

L

H

H

M

L

L

H

M

L

L

L

M

L

L

L

L

VH

H

H

M

Almost Certain

Likely

Possible

Unlikely

Remote

Insignificant Minor Moderate Major Severe

LIK

EL

IHO

OD

IMPACT

Risk Assessment Matrix

Note:

L: Low

M: Medium

H: High

VH: Very High

PAGE: 82

PETRONAS GAS BERHAD

CONTINUOUS IMPROVEMENTS

We continue to enhance risk

management awareness and capability

building across the Company and our

subsidiaries through various sharing of

information efforts and application of

best practices.

In addition, we benefit from being part

of the PETRONAS Group, which has an

established Board Governance and Risk

Committee that primarily provides

guidance and reviews strategies and

policies on Risk Management

implementation. The Company is also

part of various Community of Practice

(CoP) discussions driven by PETRONAS

Downstream Business, which provides

platforms for PETRONAS Downstream

companies to share and learn best

practices, discuss on issues and

improvements relating to Risk

Management and BCM implementation.

Efforts are also ongoing to reinforce

risk assurance exercises within the

Company to validate controls and

mitigations supporting its risks, as part

of its aspirations to achieve safe,

reliable and effective organisation.

We will also continue our focus on

institutionalisation of risk management

as a culture throughout the Group.

The Group has identified three main key risks mainly in the area of Commercial and Assets as described in detail below:

Our Strategy

IR1

Risk Category

IR9

Top Risks

IR2

Implications Treatment Measures

ZERONon-Compliance

Commercial Risk

• Gas Supply

(Amendment) Act

2016 and Third Party

Access (TPA)

regulations that are

not favourable to

PGB

• Occurrence of the

risks will hinder PGB

from achieving its

aspirations and

vision to be A

Leading Gas

Infrastructure and

Utilities Company

and as a result

erode its value and

returns to its

stakeholders

• As PGB is

aggressively driving

its 3ZERO100

BEYOND efforts in

achieving safe,

reliable and efficient

organisation by

2018, these top

risks need to be

effectively mitigated

and managed

• Strengthen engagements with

Energy Commission with

regards to TPA regulations

and its impact on PGB

ZEROHSE Incident

Health, Safety, Security &

Environment (HSSE) Risk

• Occurrence of

major HSSE

incidents due to

non-compliance

with HSSE

requirements/

policies affecting

PGB business and

reputation

• Strengthen HSSE processes

and behaviours amongst

both staff and contractors

• Focus on closure of audit

findings

• Enhance capabilities and

accountability of key

personnel

ZEROInterruption

100% Product Delivery

Reliability

Operation & Project Risk

• Ineffective project

management

towards ensuring

quality delivery

within HSSE, budget

and schedule

• Rectifications and upgrading

of plant and facilities which

have direct impact on

salesgas, ethane and utilities

production and delivery

improvements

Top key risks identified under the PGB Enterprise Risk Profile are regularly monitored to ensure timely completion of their mitigations

IR1 Our achievements resulting from implementation of Key Strategic Thrusts is provided on page 77

IR2 For details on key risks and mitigations relevant to each business segment, refer to pages 131, 141, 149 and 159

IR9 For a comprehensive disclosure of our material risk, refer to pages 189 to 190

PAGE: 83

ANNUAL REPORT 2016

MITIGATING RISKS

An issue is material when it impacts our ability to remain

commercially viable and socially relevant in which we operate. In

particular, material issues are those that have a strong influence on

our stakeholders’ judgement and decisions about the Group’s long

term sustainability and its commitment to their needs. We also

take into consideration those factors that may affect financial

stability and economic growth and in turn our business. Effectively

managing this is critical to achieve our strategic objectives.

TO DETERMINE OUR

MATERIAL MATTERS, WE

ADOPT THE FOLLOWING

APPROACH:

01

02

03

IDENTIFY

PRIORITISE

REPORT

• Board meeting, board audit

committee meeting and

senior management

meeting

• Conferences, analysts

meeting

• Risk assessment matrix/

workshop

• Our strategy

• Our code and ethics

• Materiality

• Industry and global trend

REPORT MATTERS WHICH CREATE VALUES TO STAKEHOLDERS

REVIEW

ASSESSMENT

VALUE CREATION

IDENTIFY CRITICAL AREAS THROUGH:

PRIORITISATION BASED ON ITS IMPACT AND VALUE CREATION TOWARDS:

• Materiality matrix

• Industry news

• Strategy

• Policies, code of conducts

• Sustainability indices

• Sustainability

• Economic growth

• Financial stability

PAGE: 84

PETRONAS GAS BERHAD

MATERIAL MATTERS IMPACTING OUR STRATEGY

IR3 To understand how we create value to our stakeholders, refer pages 72 to 73.

.

IMPACT TO PGB TIMEFRAME PGB STRATEGY

Human Capital • Productive, innovative and

competitive workforce

• Highly Engaged,

Capable & Empowered

Workforce

Compliance to

regulations

• Full compliance to statutory and

regulatory requirement

• ZERO Non-compliance

Working environment • Safe and healthy working

environment promoting work-life

balance


• Efficient & Sustainable

System and Work

Process

Plant and pipeline

reliability

• Product Delivery Reliability

• World class Overall Equipment

Effectiveness (OEE)



• 100% Product Delivery

Reliability


System and Work

Process

Energy consumption

and waste emission

• Efficient running of operations

and green technology

• 1st Quartile in Cost &

Energy

Gas market

liberalisation and

economic

regularisation of

transportation and

regasification business

through Gas Supply

(Amendment) Act 2016

• Effective cost reduction to achieve

sustainable profit following the

impact of regulated tariff

• Cost reduction

• 1st Quartile in Cost

• Potential revenue from various

services and expansion of market

arising from healthy competition

in the gas industry

• Value optimisation and

growth

Revenue growth • Incremental return to

shareholders


growth

Gas supply and

demand outlook

• Strategic growth in gas

infrastructure and utilities


growth

MA

TE

RIA

L M

AT

TE

RS

Our material matters are those matters which may influence our judgement to deliver a strategic priorities, and create a

sustainable value in short, medium and long term towards our stakeholders.

Immediate Long Term

PAGE: 85

ANNUAL REPORT 2016

05


PERFORMANCE REVIEW88 Group Financial Review by

Chief Financial Officer


100 5-year Group Financial

Information


102 Performance Scorecard


108 Simplified Group Statement of

Financial Position and

Segmental Analysis

112 Key Interest Bearing Assets

and Liabilities



114 Investor Relations

119 Share Perfomance

121 2016 Investor Relations Calendar

121 2017 Investor Relations Planner

B

AIDA AZIZA MOHD JAMALUDINChief Financial Officer

AS A TRUSTED BUSINESS PARTNER, FINANCE’S FOCUS IS PROVIDING INSIGHTFUL AND VALUE ADDED ANALYSIS AND REPORTING, IMPLEMENTING RISK MITIGATION, OPTIMISING COST OF CAPITAL AND MAINTAINING EFFICIENT DELIVERY OF SERVICES.

* Based on normalised FY2015, excluding tax incentives and unrealised foreign exchange (forex) of RM243.2 million.

billion

RM4.6+2.4%

billion

RM16.6+15.1%

billion

RM1.7-0.4%

sen

87.9-0.4%

REVENUESustained revenue strength, driven by long

term agreements on gas processing, gas

transportation and regasification.

ASSETSStrengthened by RM2.2 billion

supported by strong Group’s cash

balance and property, plant and

equipment.

PROFIT AFTER TAX*Stable despite higher operating costs to

sustain higher assets integrity and

reliability.

EARNINGS PER SHARE*Declined by 0.3 sen in tandem with

lower net profit attributable to

shareholders.

PAGE: 88

PETRONAS GAS BERHAD

GROUP FINANCIAL REVIEW BY CHIEF FINANCIAL OFFICER

VALUE ADDED ANALYSIS AND REPORTING

One of our key focus as a strategic business

partner is to deliver value added and insightful

analysis and reporting, which support and enable

business decision making.

MITIGATING RISK

The Group are exposed to various financial risks

arising from the normal course of business,

comprising credit risk, liquidity risk and market risk.

Policies and guidelines have been developed to

identify, analyse, appraise and monitor the dynamic

risks we face.

Credit Risk

We minimise credit risk by entering into contracts

with high credit rated counterparties and

implementing other credit enhancement measures

such a cash deposits and bank guarantees.

Liquidity Risk

To ensure smooth running of the business and our

projects, the Group maintain sufficient cash and

liquid marketable assets. The Group and Company’s

cash and cash equivalents stood at RM1.8 billion

and RM1.6 billion respectively as at the 31

December 2016, sufficient to maintain our

operational needs for the next one year

notwithstanding cash requirements for financing

and investing activities. Financing for growth

projects is via external term loans and loans from

corporate shareholders of joint ventures.

Market Risk

The market price changes that the Group are

mainly exposed to include changes in interest rates

and foreign currency exchange rates.

All interest rate exposures are monitored and

manage proactively in line with our policies and

guidelines including our recently secured USD500

million Term Loan Facility which is a floating rate

instrument.

As of 1 January 2016, the PETRONAS Gas Berhad

(PGB) Group had adopted cash flow hedge

accounting to mitigate accounting treatment

mismatch between USD finance lease liabilities (FLL)

outflows, which was intended to hedge exposure

on variability of cash flow from storage fees due to

foreign currency exchange rate volatility.

Upon adoption of the hedge accounting, the

unrealised foreign exchange (forex) gain or loss on

FLL is recognised in equity instead of profit or loss.

(FY2015: RM199.9 million unrealised forex loss.)

OPTIMISE CAPITAL STRUCTURE

Our strong business model has always assured us

sufficient capital to run our operations and support

projects that ensure reliability of our plants.

Nevertheless, lowering cost of capital to remain

competitive is also our focus.

On 7 January 2016, PGB had executed a Facility

Agreement with Mizuho Bank Ltd for a USD500

million five year Term Loan Facility to finance the

Group’s capital expenditure (CAPEX) requirements.

A LEADING FINANCE FUNCTION

In Finance, we strive to provide sustainable and

reliable services to the business. During the year, in

support of the implementation of 3ZERO100 Beyond

we completed standardisation and alignment of

finance Work Processes to ensure consistency in

practices, operating discipline, continuous

improvement and retention of knowledge. This in

turn, would enable the implementation of new

empowered and efficient Finance organisation

structure effective 1 January 2017.

External accreditation also reflects our level of

competency relative to our peers. In 2016, PGB was

recognised as fifth Most Transparent Company in

2016 by Focus Malaysia, accredited with Industrial

Excellence award at the National Annual Corporate

Report Awards 2016 and Malaysia-Asean Corporate

Governance Transparency Index, Findings and

Recognition 2016. PGB was also shortlisted in ACCA

Malaysia Sustainability Reporting Awards 2016.

OU

R F

OC

US

PAGE: 89

ANNUAL REPORT 2016

As a strategic business partner, Finance enables the business in various

strategic initiatives including:

Acquisition of non-controlling interest in a subsidiary

On 10 February 2016, the Company had acquired the remaining 1% interest in

its subsidiary, Regas Terminal (Lahad Datu) Sdn Bhd (RGTLD) from a non-

controlling party, Sabah Energy Corporation Sdn Bhd (SEC) for a purchase

consideration of RM1,000 upon termination of the Shareholders Agreement.

Accordingly, the Group increased its ownership in RGTLD from 99% to 100%.

Formation of a joint venture

On 15 August 2016, pursuant to Final Investment Decision (FID) obtained from

the respective Boards to develop an Air Separation Unit plant (ASU) in

Pengerang, Johor, the Company had formed a joint venture company,

Pengerang Gas Solutions Sdn Bhd (PGSSB) with Linde Malaysia Sdn Bhd

(Linde) where PGB and Linde owned 51% and 49% equity interests

respectively.

Financing growth projects

As at 31 December 2016, PGB had drawdown USD177.4 million from the

Facility and on-lent on a back-to-back basis to Pengerang LNG (Two)

Sdn Bhd (PLNG2) and PGSSB, a subsidiary and joint venture respectively of the

Group. The interest costs arising from this Facility is capitalised as part of the

respective projects cost.

SUPPORTING GROWTH

million

million

USD177.4

USD500

Drawdown

Raised Term Loan Facility

from the Facility and on-lent on a back-to-back basis to projects



PAGE: 90

PETRONAS GAS BERHAD

Upward Fuelgas Price Revision

Government implemented two upward fuelgas price revisions by RM1.50/mmbtu

effective 1 January 2016 and 1 July 2016 respectively. The revision of price has no

significant impact to the results as the increase in price is passed through to

utilities customers except for electricity. The impact to electricity is being

mitigated through fuelgas optimisation. Meanwhile, fuelgas is provided by our

customer within Agreed Operating Parameters for Gas Processing (GP) and Gas

Transportation (GT) businesses.

Improving Asset Integrity

One of the Key Strategic Thrusts under 3ZERO100 Transformation is elimination of

asset Bad Actors to sustain and improve the Group’s asset integrity. Completion of

various Key Results Area (KRA) activities have translated to achievement of higher

Performance Based Structure (PBS) income of RM68.8 million in line with the GP

plant’s higher liquid extraction performance.

Maximising Shareholders’ Return

It is always our aspiration to maximise shareholders’ return. Nevertheless, it

needs to balance between cash requirements for the business operations and

capital requirement for growth and dividend payouts to shareholders. To

determine dividends to shareholders, PGB amongst others, benchmark dividend

payout ratio of our industry peers and ensuring sustainable dividends

for the future.

For 2016, the Company had declared dividends totalling 62 sen per ordinary

share, our highest ever which is equivalent to a 70.7% dividend payout ratio.

HIG

HLI

GH

TS

OF

TH

E Y

EA

R

million

billion

RM68.8

70.7%RM1.2

Highest PBS income

Dividend

62 sen per ordinary share

Dividend payout ratio

PAGE: 91

ANNUAL REPORT 2016

PGB Group delivered a solid financial performance for the year ended 31 December 2016 supported by

its strong fundamentals in GP, GT, Utilities (UT) and Regasification (RGT) business segments.

Revenue for the year sustained at RM4,561.3 million, contributed largerly by the above key business

segments. Compared to corresponding year, it was an increase of 2.4% primarily driven by higher

utilities revenue, as a result of higher sales prices to customers in line with upward fuelgas price

revision and higher GP revenue.

Profit for the year stood at RM1,736.3 million, marginally lower than normalised profit excluding tax

incentives and forex loss recorded in FY2015.

Notes:

* Excluding tax incentives and forex (FY2013: RM567.7 million, FY2014: RM101.0 million and FY2015: RM243.2 million)

Profit After Tax (PAT) including tax incentives and forex PAT excluding tax incentives and forex

‘12 ‘13 ‘14 ‘15 ‘16

3,5

76

.8

3,8

92

.1

4,3

91.

7

4,4

55

.9

4,5

61.

3

Revenue(RM million)

‘12 ‘13* ‘14* ‘15* ‘16

1,4

04

.9

2,0

78

.9

1,5

11.2 1,8

42

.1

1,74

1.1

1,9

85

.9

1,74

2.7

1,73

6.3


‘12 ‘13 ‘14 ‘15 ‘16

1,8

06

.8

1,9

47.

3

2,1

79

.5

2,3

16.5

2,4

95

.4

Costs of Revenue(RM million)

OVERVIEW OF FINANCIAL PERFORMANCE


PAGE: 92

PETRONAS GAS BERHAD

Gas Processing

Gas Transportation

Utilities

Regasification

908.8

836.6

328.6

302.5

913.2

837.8

344.8

339.6

2016

2015

Cost of Revenue(RM million)

Revenue

The Group’s revenue for the year ended 31 December 2016

reached RM4,561.3 million, an increase of RM105.4 million or

2.4% as compared to 2015. This was primarily driven by

higher utilities, and gas processing revenue.

Utilities revenue rose by RM95.5 million to RM1,069.1 million,

primarily contributed by higher average sales price in line

with upward fuelgas price revision by RM1.50/mmbtu

effective 1 January 2016 (to RM18.20/mmbtu) and 1 July

2016 (to RM19.70/mmbtu) respectively.

Directly as a result of higher asset integrity under the

Group’s 3ZERO100 Transformation, GP revenue improved by

RM23.6 million mainly attributable to higher PBS income

resulting from GP plant’s higher liquid extraction

performance.

RGT revenue was at RM631.1 million, a decrease of RM6.0

million resulting from a pass through revision of Floating

Storage Unit (FSU) Operating Expenditure (OPEX) charter hire

to customer.

GT segment registered revenue of RM1,303.9 million,

reflecting a slight decrease of RM7.7 million from RM1,311.6

million in corresponding year due to downward revision of

Gas Transportation Sabah tariff in the second quarter of

2016.

Cost of Revenue

Cost of revenue for the Group increased by RM178.9 million

(7.7%) to RM2,495.4 million in FY2016, mainly due to higher

depreciation expense in line with completion of various

capital projects and accelerated depreciation for our

turnaround expenditure, higher UT segment cost of sales

due to upward fuelgas price revision as well as higher repair

and maintenance to improve assets integrity.

Gross Profit

In line with higher cost of revenue, gross profit for the year

under review declined by RM73.5 million (3.4%) to RM2,065.9

million in view of lower contribution from GP segment by

RM48.6 million (7.0%), GT segment by RM33.8 million (3.3%)

and RGT segment by RM11.2 million (3.8%). Only UT

segment delivered higher contribution by RM20.1 million

(14.8%) as compared to last year.

Gas Processing

Gas Transportation

Utilities

Regasification

1,557.2

1,533.6

1,303.9

1,311.6

1,069.1

973.6

631.1

637.1

2016

2015

Revenue(RM million)

Gas Processing

Gas Transportation

Utilities

Regasification

648.4

697.0

975.3

1,009.1

155.9

135.8

286.3

297.5

2016

2015

Gross Profit(RM million)

PAGE: 93

ANNUAL REPORT 2016

Other Income

Other income for the Group was higher by RM7.0 million

(4.1%) primarily driven by higher investment income from cash

and fund investment mainly attributed to higher cash balance

and higher income from operations and maintenance services

to Sabah Sarawak Gas Pipeline (SSGP) upon recommissioning

of its operations in March 2016.

Other Expenses

Other expenses were lower by RM190.2 million (92.7%) mainly

due to lower unrealised forex loss on FLL as a result of

adoption of cash flow hedge accounting effective 1 January

2016. In 2015, PGB Group recorded RM199.9 million forex loss

arising from the translation of USD denominated FLL.

Share of Profit After Tax (PAT) of Associate and Joint Ventures

The Group’s associate, Gas Malaysia Berhad (GMB), contributed

RM18.7 million whilst our joint ventures Kimanis Power Sdn

Bhd (KPSB), Kimanis O&M Sdn Bhd (KOMSB), Industrial Gases

Solutions Sdn Bhd (IGS) and PGSSB contributed a combined

share of PAT of RM44.9 million.

The total share of PAT from our equity accounted associate

and joint ventures amounted to RM63.6 million, a decrease by

RM11.6 million (15.4%) from FY2015 as a result of lower

contribution from KPSB.

Tax Expenses

Tax expense was higher by RM354.3 million compared to last

year as PGB Group had recognised tax incentives totalling

RM443.1 million in FY2015 arising from investment tax

allowance (ITA) and reinvestment allowance (RA) granted by

Malaysian Investment Development Authority (MIDA) for Plant

Rejuvenation and Revamp (PRR) project.

Profit

As a result, the Group’s profit for the year declined by 12.6%

or RM249.6 million, primarily due to lower tax expenses in

FY2015.

Against normalised result in FY2015, profit decreased slightly

by RM6.4 million or 0.4% due to higher operating costs.

Results by Segment

Revenue

Cost of Revenue

Gross Profit

1,557.2

1,533.6

908.8

836.6

648.4

697.0

Revenue

Cost of Revenue

Gross Profit

1,069.1

973.6

913.2

837.8

155.9

135.8

Revenue

Cost of Revenue

Gross Profit

1,303.9

1,311.6

328.6

302.5

975.3

1,009.1

Revenue

Cost of Revenue

Gross Profit

637.1

631.1

339.6

344.8

297.5

286.3

2016

2016

2016

2016

2015

2015

2015

2015

Gas Processing(RM million)

Utilities(RM million)

Gas Transportation(RM million)

Regasification(RM million)


PAGE: 94

PETRONAS GAS BERHAD

Gas Processing (GP)

Segment revenue improved by RM23.6 million as compared to

the corresponding year mainly attributable to higher PBS

income resulting from the plant’s higher liquid extraction

performance.

GP contributed RM648.4 million to the Group’s gross profit

which was lower by RM48.6 million due to higher operating

costs primarily due to depreciation expense in line with

completion of capital projects and accelerated depreciation for

its turnaround expenditure. These were partially offset by lower

utilities cost due to running of its new cogeneration plant to

produce electricity internally.

Gas Transportation (GT)

Segment revenue was at RM1,303.9 million, reflecting a slight

decrease of RM7.7 million from RM1,311.6 million in

corresponding year due to downward revision of Gas

Transportation Sabah tariff in the second quarter of 2016.

GT contributed RM975.3 million to the Group’s gross profit

which was lower by RM33.8 million mainly due to higher land

assessment fees and depreciation expense.

Utilities (UT)

UT revenue for 2016 rose by RM95.5 million to RM1,069.1

million, primarily contributed by higher average sales price to

customers in line with two upward fuelgas price revisions

effective 1 January 2016 and 1 July 2016 respectively.

UT contribution to the Group’s gross profit improved by

RM20.1 million, as compared to the corresponding year in

tandem with higher revenue. This was partially offset by higher

operating costs.

Regasification (RGT)

Segment revenue for the year was RM631.1 million, a decrease

of RM6.0 million resulting from pass through revision of FSU

OPEX charter hire to customer.

RGT contribution to the Group’s gross profit of RM286.3

million was lower by RM11.2 million as a result of higher repair

and maintenance costs to improve asset integrity.

Assets

1,763.1

12,807.5 2016RM16,553.6

1,983.0

PPE

Other Assets

Cash & Cash Equivalents

1,827.4

11,323.8

2015RM14,382.0

1,230.8

PPE

Other Assets

Cash & Cash Equivalents

The Group’s total assets stood firm at RM16,553.6 million as

at 31 December 2016, representing an improvement of

RM2,171.6 million (15.1%) from the RM14,382.0 million of the

corresponding year.

PAGE: 95

ANNUAL REPORT 2016

Property, Plant and Equipment (PPE)

Property, plant and equipment increased by RM1,483.7 million (13.1%) to RM12,807.5 million mainly contributed by CAPEX for

growth projects namely LNG Regasification Terminal, Pengerang and Pengerang Gas Pipeline projects as well as capital

expenditure to sustain and improve the plants’ asset integrity.

Cash and Cash Equivalents

The Group generated RM2,761.0 million cash from operations during the year. This was sufficient to sustain the current year’s

dividend payments of RM1,187.2 million to the shareholders’ and partly finance the Group’s CAPEX activities totalling

RM1,954.6 million.

During the year, the Group had drawdown RM776.1 million from its USD Term Loan Facility as well as from corporate

shareholder of a subsidiary amounting to RM287.3 million to finance the Group’s growth projects namely the LNG

Regasification Terminal and ASU projects in Pengerang, Johor.

Consequently, the Group’s cash and cash equivalents increased by RM532.3 million (43.2%) to RM1,763.1 million as at 31

December 2016.

Other Assets

Other assets increased by RM155.6 million to RM1,983.0 million as at 31 December 2016 mainly contributed by higher trade

and other receivables and higher investment in joint ventures.

Liabilities

Total liabilities for the Group rose by RM1,605.3 million (57.6%) from RM2,787.1 million to RM4,392.4 million as at 31

December 2016.

The increase was mainly due to drawdown from USD Term Loan Facility and loan from corporate shareholder of a subsidiary

amounting to RM776.1 million and RM287.3 million respectively as well as increase in trade and other payables by

RM208.5 million.

2,249.5

1,131.0 2016RM4,392.4

1,011.9

Borrowings

Deffered tax

Trade and other payables

Taxation

1,058.3

922.6

2015RM2,787.1

803.4

Borrowings

Deffered tax


Taxation

2.8


PAGE: 96

PETRONAS GAS BERHAD

Equity

Total equity attributable to shareholders of the Company as at 31 December 2016 rose by RM527.9 million (4.6%) primarily

contributed by profit attributable to shareholders of the Company, partially offset by dividend payments.

Earnings Per Share (EPS)

Earnings per share was lower by 12.55 sen, in tandem with lower net profit attributable to shareholders of the Company.

Excluding impact of tax incentives and forex, EPS decreased by 0.33 sen or 0.4%.

Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA)

EBITDA was higher by RM186.4 (6.6%) mainly due to lower unrealised forex loss on FLL as a result of adoption of hedge

accounting effective 1 January 2016 and higher revenue but partially offset by higher operating costs.

Dividends

During the financial year, the Company declared four interim dividends totalling 62 sen per share amounting to RM1,226.8

million for FY2016, the Company’s highest ever dividend payout to shareholders.

Indeed, this represents a dividend payout ratio of 70.7% on profit attributable to the shareholders of the Company, on par

with – if not better than – the industry average.

2015(sen)

1st interim 2nd interim 3rd interim 4th interim

14.0

14.0 15

.0 17.0

14.0

14.0

1st interim 2nd interim 3rd interim 4th interim

15.0

19.0

2016(sen)

PAGE: 97

ANNUAL REPORT 2016

Item 2012 2013 2014 2015 2016


Normalised profit after tax* (RM million) 1,404.9 1,511.2 1,741.1 1,742.7 1,736.3

2012

1,404.9

2,078.9

1,511.2

1,842.1

1,741.1

1,985.9

1,742.71,736.3

2013 2014 2015 2016

Profit After Tax(RM million)ANALYSIS

2012

• Profit of RM1.4 billion was contributed by three business

segments comprising Gas Processing (GP), Gas

Transportation (GT) and Utilities (UT).

• Compared to 2011, the Group results increased due to gain

on partial disposal of investment in an associate, Gas Malaysia

Berhad of RM100.0 million through initial public offering.

2013

• Profit of RM2.1 billion was contributed by four business

segments comprising GP, GT, UT and newly commissioned

operations, Regasification (RGT).

• Achieved commercial operations of Malaysia’s First LNG

Regasification Terminal in Sg Udang, Melaka (RGTSU) in May

2013.

• Compared to 2012, the Group results improved due to

recognition of deferred tax assets (DTA) arising from

investment tax allowances (ITA) granted by Malaysian

Investment Development Authority (MIDA) amounting to

RM626.4 million.

• Excluding impact of DTA, profit sustained at RM1.5 billion.

2014

• Signing of new Gas Processing Agreement (GPA) and Gas

Transportation Agreement (GTA) with PETRONAS for 20-year

period.

• Kimanis Power Plant achieved full commercial operations in

November 2014.

• Compared to 2013, excluding impact of DTA on ITA from

RGTSU and Kimanis Power Sdn Bhd (KPSB), the Group’s

profit increased attributable to profit contribution from KPSB,

full year contribution from RGTSU and strentghening of GT

revenue base under new GTA.

2015

• Completion of the last series of plant revamp and rejuvenation

project (PRR) for GP segment (PRR for Gas Processing Plant

(GPP) 2 and 3 was completed in 2013 and PRR for GPP4 was

completed in 2015).

• Compared to 2014, the Group’s profit increased as a result of

recognition of tax incentives arising from ITA and

reinvestment allowances granted by MIDA on PRR totalling

RM443.1 million.

• This was partially offset by unrealised foreign exchange

(forex) loss on USD finance lease liabilities totalling RM199.9

million due to weakening of the Ringgit.

• Excluding impact of tax incentives and forex, profit remained

strong at RM1.7 billion.

2016

• Compared to 2015, excluding impact of tax incentives and

forex, profit remained steady at RM1.7 billion.


PAGE: 98

PETRONAS GAS BERHAD

5-YEAR GROUP FINANCIAL ANALYSIS

Item 2012 2013 2014 2015 2016


12,438.3

13,222.4 13,260.5

14,382.0

16,553.6

2012 2013 2014 2015 2016

Total Assets(RM million)ANALYSIS

Item 2012 2013 2014 2015 2016

Property, plant and equipment 9,777.9 10,611.1 10,858.5 11,323.8 12,807.5

Fixed assets 5,443.6 8,913.8 9,230.6 9,737.9 9,660.8

Project-in-progress 4,334.3 1,697.3 1,627.9 1,585.9 3,146.7

Cash and cash equivalents 912.1 1,706.2 637.7 1,230.8 1,763.1

ANALYSIS

2012

• Total assets of RM12.4 billion mainly consist of plant,

property and equipment (PPE) from the three business

segments: GP, GT and UT.

2013

• Compared to 2012, total assets further strengthened following

completion of RGTSU and PRR for GPP2 and GPP3.

2014

• Compared to 2013, total assets remained steady at RM13.3

billion mainly consist of PPE from four business segments:

GP, GT, UT and RGT.

2015

• Compared to 2014, total assets of the Group increased was

mainly attributed to higher PPE arising from completion of

PRR for GPP4 and higher cash balances.

2016

• Compared to 2015, total assets surged to RM16.6 billion as

the Group embarked into Malaysia’s Second LNG

Regasification Terminal and Air Separation Unit plant projects

in Pengerang, Johor.

PAGE: 99

ANNUAL REPORT 2016

Year 2012 2013 2014 2015RM million

2016

Key results Revenue 3,576.8 3,892.1 4,391.7 4,455.9 4,561.3

By segment:Gas Processing 1,511.2 1,497.4 1,480.2 1,533.6 1,557.2 Gas Transportation 1,119.4 1,189.4 1,286.7 1,311.6 1,303.9 Utilities 946.2 867.2 1,008.6 973.6 1,069.1 Regasification – 338.2 616.2 637.1 631.1

By geographical:Peninsular Malaysia 3,559.3 3,873.8 4,365.5 4,428.8 4,545.4 Sabah – – 8.5 8.5 (3.3)Sarawak 17.5 18.3 17.7 18.6 19.2

Interest income 71.5 41.8 36.9 31.8 54.2 Cost of revenue 1,806.8 1,947.3 2,179.5 2,316.5 2,495.4

By segment:Gas Processing 742.5 746.1 778.5 836.6 908.8 Gas Transportation 280.1 287.0 280.0 302.5 328.6 Utilities 784.2 739.5 812.6 837.8 913.2 Regasification – 174.7 308.4 339.6 344.8

Financing costs 20.3 50.1 76.3 90.1 93.9 Administration expenses 156.0 120.0 74.8 89.5 93.1 Operating profit 1,859.6 1,903.7 2,142.1 2,016.9 2,137.1 Earnings before interest, taxes,

depreciation and amortisation 2,463.0 2,628.6 3,180.8 2,837.2 3,023.6 Profit before taxation 1,851.3 1,896.4 2,354.5 2,002.1 2,106.8 Profit for the year 1,404.9 2,078.9 1,842.1 1,985.9 1,736.3 Profit attributables to the shareholders

of the Company 1,405.0 2,078.9 1,843.2 1,987.5 1,739.1

Key statement of financial positionProperty, plant and equipment 9,777.9 10,611.1 10,858.5 11,323.8 12,807.5 Cash & cash equivalents 912.1 1,706.2 637.7 1,230.8 1,763.1 Total assets 12,438.3 13,222.4 13,260.5 14,382.0 16,553.6 Borrowings 1,246.7 841.8 882.3 1,058.3 2,249.5 Total liabilities 3,271.1 2,956.9 2,691.5 2,787.1 4,392.4 Share capital 1,978.7 1,978.7 1,978.7 1,978.7 1,978.7 Reserves 7,188.7 8,287.0 8,555.1 9,460.1 9,988.0 Total equity attributable to the

shareholders of the Company 9,167.4 10,265.7 10,533.8 11,438.8 11,966.7 Non-controlling interests (0.2) (0.2) 35.0 156.1 194.5 Total equity 9,167.2 10,265.5 10,569.0 11,594.9 12,161.2

Share informationEarnings per share (sen) 71.0 105.1 93.1 100.4 87.9 Dividends per share (sen) 50.0 55.0 55.0 60.0 62.0 Net assets (sen) 4.63 5.19 5.32 5.78 6.05 Closing share price 19.52 24.28 22.16 22.70 21.30 Number of ordinary shares (’000) 1,978,732 1,978,732 1,978,732 1,978,732 1,978,732 Market capitalisation (RM million) 38,624.8 48,043.6 43,848.7 44,917.2 42,147.0

PAGE: 100

PETRONAS GAS BERHAD

5-YEAR GROUP FINANCIAL INFORMATION

2016In RM Million

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year 2016

Operating revenue 1,130.6 1,119.0 1,157.8 1,153.9 4,561.3

Operating profit 591.9 502.9 542.3 500.0 2,137.1

Profit before taxation 578.8 497.9 546.3 483.8 2,106.8

Profit for the period/year 447.4 403.5 422.1 463.3 1,736.3

Profit attributable to shareholders

of the Company 447.3 403.9 422.8 465.1 1,739.1



2015In RM Million

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year 2015






of the Company 450.0 818.0 305.0 414.5 1,987.5



GROUP QUARTERLY PERFORMANCE

PAGE: 101

ANNUAL REPORT 2016

IR7 PGB is committed to deliver a sustainable value for all stakeholders by ensuring a safer environment, boosting economy and

improve social relationship. Read more on our Sustainability Report from pages 218 to 249.

The two-year 3ZERO100 Transformation programme launched in 2015, strived the organisation to achieve ZERO

Health, Safety and Environment (HSE) incident, ZERO non-compliance, ZERO interruption and 100% product

delivery reliability. Various Key Results Area (KRA) activities under Key Strategic Thrusts: Assets, System & Process

and People & Culture have contributed to the following achievements for the year. We achieved no major Lost

of Primary Containment (LOPC) and major fire in 2016. However, we were unfortunate with the three fatalities

and six Lost Time Injury (LTIs). PGB will put its utmost priorities in HSSE to prevent recurrence of the incidents.

IN ACHIEVING OUR STRATEGIC OBJECTIVES, PGB ALSO DEVELOPS NON-FINANCIAL

KEY PERFORMANCE INDICATORS (KPI) TO ASSESS THE PERFORMANCE OF OTHER

KEY ACTIVITIES WITHIN THE ORGANISATION. OUR PERFORMANCE SCORECARD

PROVIDES AN OVERVIEW ON HOW WE HAVE PERFORMED DURING THE YEAR.

ObjectivesUnits of

measurement Description 2014 2015 2016 YoY Trend

Fatality AccidentNumber of

incidents

Total number of reportable fatalities

(staff, contractor and third party).3 0 3

LTINumber of

incidents

An injury is assessed to be a LTI when

the injured person cannot return for

duty during next shift or next day.

8 5 6

Major LOPCNumber of

incidents

Total number of LOPC related to

process safety incidents with the

greatest consequences.

1 3 0

Major Fire IncidentNumber of

incidents

Total number of fire or explosion

resulting in the greatest consequences. 1 1 0H

EA

LTH

, S

AFE

TY

, S

EC

UR

ITY

AN

D E

NV

IRO

NM

EN

T (

HS

SE

)

PAGE: 102

PETRONAS GAS BERHAD

PERFORMANCE SCORECARD

Higher Overall Equipment Effectiveness (OEE) achieved for Gas Processing, Utilities and Regasification has

translated into higher Product Delivery Reliability (PDR) to customers. Higher Transmission reliability demonstrated

our world class performance in transmission operations, ensuring security of gas supply to the nation.

Gas Processing OEE1 (%)

Salesgas Ethane Propane Butane

Power Steam Industrial Gases Transmission Reliability2 (%)

Regasification OEE1 (%)

Utilities OEE1 (%)

90

.5

87.

1

89

.3

86

.6

88

.8

91.

7

100

.0

92

.196

.3

99

.92

99

.92

99

.96

100

.0

99

.1

94

.1

’14 ’15 ’16 ’14 ’15 ’16 ’14 ’15 ’16 ’14 ’15 ’16’14 ’15 ’16

’14 ’15 ’16’14 ’15 ’16 ’14 ’15 ’16 ’14 ’15 ’16

98

.6

94

.096

.6 97.

7

90

.8

87.

6

96

.6

88

.6

88

.4

96

.6

89

.9

88

.6

ObjectivesUnits of

measurement Description 2014 2015 2016 YoY Trend

Sales Gas PDR %

Product delivered meet the customer’s

nomination on monthly basis.

100.0 100.0 100.0

Power PDR % 99.99 99.98 100.0

Steam PDR % 99.84 99.91 100.0

Ethane Production (MT/hr)Annual average ethane production

from the gas processing plants.117 135 142

OP

ER

AT

ION

S

Note 1: OEE – A measure of plant performance against its limits and identified sources of loss within the plant and a measure of how well

equipment is used when available.

Note 2: Reliability – A measure to determine the impact of unscheduled downtime on the availability of the plant.

* World Class Performance benchmark for OEE is 95% and Reliability is 98%.

PAGE: 103

ANNUAL REPORT 2016

PGB has adopted empowered and efficient organisational structure to ensure clear demarcation of roles. We

always achieved optimum level of manning to ensure sustainability of our operations.

We provide continuous Leadership and Capability Development programmes to enhance the staff professional

and personal development. In 2016, we further enhanced Building Leaders programme and 31 managers have

attended the Accelerated Cultural Change (ACC) programme designed to enhance competencies to drive

direction and lead change.

HU

MA

N C

AP

ITA

L

ObjectivesUnits of

measurement 2014 2015 2016

Total employees Number of staff 2,111 2,187 2,117

Other nationality Number of staff 2 14 14

Employee turnover % 0.8% 1.1% 0.7%

Staff costs RM million 294.3 283.2 281.8

Mandays training

per employee

days 8.0 9.8 10.3

Training investment

per employee

RM’000 6.4 7.8 6.3

Employee

satisfaction1

% 1.83 2.98 3.13

20

16

2,060 (97%)

2015: 2,032 (93%)2014: 2,085 (99%)

210Baby Boomers2015: 2242014: 258

575Gen X2015: 5922014: 590

1,331Millenials2015: 1,3702014: 1,263

1Post Millenials

2015: 12014: 0

Permanent

38% 2015: 33%2014: 33%

Women in Leadership

Team

43% 2015: 13%2014: 13%

Women in Board

Composition* Data is based on internal survey conducted by PGB to determine the level of staff

satisfaction. The highest score is 4.00.

PERFORMANCE SCORECARD

PAGE: 104

PETRONAS GAS BERHAD

We believe that it is our duty to care for the well-being of the communities surround our operations.

In 2016, we actively reached out to the community through several programmes:

ObjectivesUnits of

measurement 2014 2015 2016 YoY Trend

Corporate Social

Responsibilities

(CSR) Programme

Number of

programme36 16 18

CSR ParticipationNumber of

Staff1,369 592 1,179

SO

CIA

L

PGB Livelihood programme which aims to impart baking and entrepreneurship skills to

women from low-income households.

Program Sentuhan Kasih PETRONAS where we donated 10 kg of rice each to 95

low-income families during Ramadhan.

Program Sentuhan Ilmu offers academic and non-academic assistance to under performing

students from low-income families.

In preserving the environment, PGB allocated RM2 million for waste disposal and set a

target of reducing waste by 3% annually.

Preserve the biodiversity of Sungai Paka in Terengganu through ‘Sayangi Sungai Paka’ programme.

1

2

3

4

5

YOY – Year on year

PAGE: 105

ANNUAL REPORT 2016

The financial indicators assess the Group’s current year performance as compared to the corresponding year.

GROUP PERFORMANCE RATIOS

All analysis below is after excluding impact of tax incentives and unrealised foreign exchange.

39.1%

Normalised 2015

Normalised 2015

2015

2015

2015

2015

2015

2016

2016

2016

2016

2016

12.1%

48.0%

52.0%

44.6%

13.8%

45.3%

54.7%

38.1%

10.5%

Sustained within healthy levels. Due to higher operating costs.

Continuous improvement towards assets

integrity.

Slightly lower due to higher spending on growth

projects yet to generate returns.

Net profit margin is defined as a ratio

of net profit after tax to revenue.

Gross profit margin is defined as a

ratio of gross profit to revenue.

Cost to Income (CTI) is a measure of

cost of revenue divided by revenue.

Return on Asset (ROA) is an indicator that

measures the Company’s efficiency in using

the total assets to generate profit.

2.3

2.5

Higher attributed to high cash balances.

Current ratio is defined as the Company’s

ability to meet its short term obligations.

PAGE: 106

PETRONAS GAS BERHAD

KEY PERFORMANCE INDICATORS

Normalised 2015

2015 2015

2015

2016 2016

2016

Normalised 2015 2015 2016 Normalised 2015 2015 2016

sen

sen

88.2

100.4

87.9

In line with steady profit for the year.

Within the industry average of DPR.

Earnings Per Share (EPS) represents the

portion of the Company’s distributable

income allocated to each equity share.

Dividend Payout Ratio (DPR) is defined as the

percentage of earnings paid to shareholders in dividend.

77.0%

59.8%

70.7%

15.2%

17.4%

14.5%

Respectable returns from investments.

Return on Equity (ROE) is defined as profit

attributable to shareholders divided by the average

shareholders’ equity for the financial year.

60.0

62.0

5.1%

-3.4%

Higher dividend payout in respect of FY2016 in

tandem with strong performance of the Group.

Due to decline of share price during the year.

Dividends Per Share (DPS) is dividends declared

for the shareholders divided by the number of

ordinary shares issued.

Total Shareholder’s Return (TSR) is measure of

share price performance and dividends paid during

the year, divided by the opening share prices.

PAGE: 107

ANNUAL REPORT 2016

2015

2016

Total Assets

Total Assets

Property, Plant and Equipment 77% Cash and Cash Equivalents 11% Investment in Joint Ventures 4% Trade and Other Receivables 4% Deferred Tax Assets 3% Investment in Associate 1% Long Term Receivables 0%*

Tax Recoverable 0%*

Trade and Other Inventories 0%*

Property, Plant and Equipment 79% Cash and Cash Equivalents 9% Investment in Joint Ventures 4% Trade and Other Receivables 4% Deferred Tax Assets 3% Investment in Associate 1% Trade and Other Inventories 0%*

RM14.4 billion

RM16.6 billion

* Insignificant percentage (%)


PAGE: 108

PETRONAS GAS BERHAD

SIMPLIFIED GROUP STATEMENT ON FINANCIAL POSITION AND SEGMENTAL ANALYSIS

2015

2016

Total Liabilities & Shareholder’s Equity


Reserves 66% Share Capital 14% Non-Current Borrowings 7% Deferred Tax Liabilities 6% Trade and Other Payables 6% Non-Controlling Interests 1% Deferred Income 0%*

Current Borrowings 0%*

Taxation 0%*

Reserves 60% Non-Current Borrowings 13% Share Capital 12% Deferred Tax Liabilities 7% Trade and Other Payables 6% Non-Controlling Interests 2% Deferred Income 0%*


Taxation 0%*

RM14.4 billion

RM16.6 billion



PAGE: 109

ANNUAL REPORT 2016







2,575.14,376.4

1,009.1697.0

1,311.61,533.6

2,620.14,321.6

975.3648.4

1,303.91,557.2

SEGMENT OPERATING REVENUE

SEGMENT GROSS PROFIT

SEGMENT ASSETS

2015

2015

2015

2016

2016

2016

RM4.6 billion

RM2.1 billion

RM14.2 billion

for the financial year ended 31 December



2016

2016

2016


PAGE: 110

PETRONAS GAS BERHAD







637.1

297.5

4,389.31,184.5

135.8

973.6

631.1

286.3

5,896.31,317.9

155.9

1,069.1

2015

2015

2015

2016

2016

2016

RM2.1 billion

RM12.5 billion

RM4.5 billion

2015

2015

2015

PAGE: 111

ANNUAL REPORT 2016

2015 2016

As at 31 December

RM million

EffectiveInterest Rate

%

InterestIncome/

(Expenses)RM million

As at 31 December

RM million


%

InterestIncome/


Interest earning assets

Cash and cash equivalents 1,230.8 3.9 31.8 1,763.1 3.6 54.2

Interest bearing liabilities

Finance lease liabilities 1,058.3 9.1 (90.1) 1,166.6 9.1 (93.9)

Team loan – – – 795.6 1.7 –*

Loan from corporate

shareholder of a subsidary – – – 287.3 6.5 –*

* Interest expenses are being capitalised as part of projects-in-progress.

2015RM million

2016RM million

Revenue 4,455.9 4,561.3

Purchase of goods and services (1,300.2) (1,386.8)

Value added by the Company 3,155.7 3,174.5

Other income and expenses (32.9) 164.3

Financing costs (90.1) (93.9)

Share of profit after tax of equity accounted associate and jointly controlled entity 75.2 63.6

Value added available for distribution 3,107.9 3,308.5

PAGE: 112

PETRONAS GAS BERHAD

KEY INTEREST BEARING ASSETS AND LIABILITIES

STATEMENT OF VALUE ADDED

2015RM million

2016RM million

To employees

Employment costs 326.9 324.5

To government

Taxation 71.9 113.7

To shareholders

Dividends 1,147.8 1,187.2

Non-controlling interest (1.5) (2.8)

Retained for reinvestment and future growth

Depreciation and amortisation 778.9 877.2

Deferred tax expense/(income) (55.7) 256.8

Retained profit 839.6 551.9

3,107.9 3,308.5

10%

3%

51%

FY2016

36%


To shareholders

To employees

To government

11%

2%37%

FY2015

50%


To shareholders

To employees

To government

PAGE: 113

ANNUAL REPORT 2016

DISTRIBUTION OF VALUE ADDED

HIGHLIGHTS

RE

SU

LTS

BR

IEFI

NG 04

INV

ES

TO

RS

ME

ET

ING 34

IR

CO

NFE

REN

CES

04

PLA

NT

VIS

ITS

02

IN TODAY’S DYNAMIC ENVIRONMENT,

IT IS ESSENTIAL TO HAVE AN EFFECTIVE

CHANNEL TO KEEP OUR STAKEHOLDERS

ABREAST WITH THE LATEST

INFORMATION ON THE GROUP. PGB’S

INVESTOR RELATIONS HELPS TO

PROVIDE AN UP TO DATE INFORMATION

TO THE INVESTMENT COMMUNITY

THROUGH ITS VARIOUS ENGAGEMENT

PROGRAMMES.

FORTIFYING TIES IN INVESTMENT COMMUNITY

PETRONAS Gas Berhad (PGB) acknowledges the importance

of engaging its stakeholders particularly its investors and

analysts on the financial and operational performance of the

Group as well as on its strategic direction, growth initiatives

and major projects updates. The Investor Relations unit

facilitates communication to the investment community via

an extensive programme approved by the Senior

Management and obtains feedback from them to assess the

effectiveness of each programme held.

The year kicked off with PGB participating in the CIMB 8th

Annual Malaysia Corporate Day on 6 January 2016 at Hilton

Kuala Lumpur. During the year under review, PGB

participated in two conferences locally and two overseas

conferences, held in Japan and Singapore. In comparison,

PGB participated in three international conferences during

FY2015. We believe that continuous investor engagement will

promote transparency and is essential if the Company is to

thrive in challenging economic conditions. Our Managing

Director and Chief Executive Officer (MD/CEO), Chief

Financial Officer and Head of Investor Relations were fully

committed to dedicate their time to meet the investors to

provide the latest Company’s updates.

We viewed the conferences to be successful as our foreign

shareholdings sustained at 8.4% as at 17 February 2017. In

addition, regular meetings and conference calls with analysts

and potential investors were held on a frequent basis to

demonstrate our commitment to engage with the

investment community.

PAGE: 114

PETRONAS GAS BERHAD

INVESTOR RELATIONS

Breakdown of Shareholdings by Local & Foreign

Foreign Shareholdings

Category of Shareholder by Individual, Corporate Body, Institutions & Nominees

‘15 ‘16‘14‘13‘12 ‘17*

8.48.8

8.57.46.66.4

* as at 17 February 2017

8.4%

Local shareholdings

Foreign shareholdings

91.6%

0.1%

0.6%

83.3%

16.0%

Nominees

Body Corporate

Individuals

Instituitions

QUICK FACTS

PGB shareholders are mainly local investors. Out of this group, 83.3% shares belong to

nominee companies.

By geographical, our foreign shareholders are mainly from United States of America (4.5%), Ireland

(0.5%), Singapore (0.4%) and Hong Kong (0.3%).

PGB’S SHAREHOLDING

PAGE: 115

ANNUAL REPORT 2016

For the year under review, PGB announced its performance results on a quarterly basis. Through its quarterly result briefings

PGB provided timely releases of financial results, growth initiatives and updates on major projects. The quarterly results were

facilitated by our Head of Investor Relations while the presentation and questions and answers were undertaken in the

presence of our MD/CEO and Chief Financial Officer. The webcasts and tele-conferences received overwhelming

participation from analysts. On average, a total 35 analysts participated in our quarterly result briefings. The scope of

information disseminated was extended from only internal news to external factors that impacted the business. Among key

issues deliberated were the impact of the recent Gas Supply (Amendment) Act 2016 towards regasification and the

transportation businesses, exposure on foreign exchange volatility particularly in relation to PGB’S external loan as well as the

trend of the industry.

The top three key topics discussed with our analysts are summarised in page 120.

Our analysts coverage is highlighted on page 120.

No Report Title Quarter & Date Financial Institutions

1 Flowing Smoothly Q1 2016 (09.05.2016) CIMB Bank

2 Steady earnings continue; defensive play with

dividend upside potential; reiterate OW

Q1 2016 (09.05.2016) J.P. Morgan Chase Bank Berhad

3 1Q16 No Surprises Q1 2016 (10.05.2016) Kenanga Investment Bank Berhad

4 No Negatives Q1 2016 (10.05.2016) Maybank Investment Bank

5 Largely Routine Q1 2016 (11.05.2016) Maybank Investment Bank

6 Marginal decline in earnings not unexpected Q1 2016 (10.05.2016) MIDF Amanah Investment Bank Berhad

7 Rich valuations with slow growth prospects Q1 2016 (09.05.2016) Nomura Holdings

8 Business as usual Q1 2016 (11.05.2016) TA Securities Holding Berhad

9 2Q16 In Line Q2 2016 (10.08.2016) Kenanga Investment Bank Berhad

10 Earnings buoyed by upward tariff revisions Q2 2016 (10.08.2016) MIDF Amanah Investment Bank Berhad

11 Largely In-Line Q2 2016 (10.08.2016) TA Securities Holding Berhad

12 Near Term Looks Sleepy Q2 2016 (11.08.2016) TA Securities Holding Berhad

13 3Q16 Disappointing; Cut To UP Q3 2016 (03.11.2016) Kenanga Investment Bank Berhad

14 Nothing Untoward Q3 2016 (03.11.2016) Maybank Investment Bank

15 Smooth Earnings from Stable Biz Q3 2016 (03.11.2016) TA Securities Holding Berhad

16 More Colour on Looming Gas Liberalisation Q3 2016 (04.11.2016) TA Securities Holding Berhad

INVESTOR RELATIONS

PAGE: 116

PETRONAS GAS BERHAD

PGB also organised two plant visits namely, to Utilities Gebeng and Kuantan Compressor Station, Pahang and Segamat

Operations Centre, Johor. This is a way to show appreciation to our shareholders and to bring them closer towards

understanding our business. A total of 60 shareholders participated in the plant visits.

Main Control Building, Utilities Gebeng, Pahang 15 August 2016. Shareholders’ Briefing Session, 15 August 2016.

Shareholders’ Visit at Kuantan Compressor Station, Pahang, 15 August 2016.

PAGE: 117

ANNUAL REPORT 2016

ANNUAL GENERAL MEETING (AGM)

PGB held its AGM on 26 April 2016 at the Mandarin Oriental, Kuala Lumpur. All resolutions proposed were duly passed.

En Yusa’ Hassan presenting performance of the Group for FY2015.

Press conference after AGM.

Question and answer session during the AGM.

INVESTOR RELATIONS

PAGE: 118

PETRONAS GAS BERHAD

PGB SHARE PRICE PERFORMANCE

Sustained strong share price underpinned by our strong and robust business model, despite changing economic landscape.

Accordingly, PGB market capitalisation stood at RM42.1 billion as at 31 December 2016.

1,450

1,500

1,550

1,600

1,650

1,700

1,750

1,800

1,850

18.00

18.50

19.00

19.50

20.00

20.50

21.00

21.50

22.00

22.50

23.00

23.50

RM22.90

RM20.82

Q4 FY2015

25 Feb

Q1 FY2016

10 May

Q2 FY2016

10 AugShare Price (RM) FBM KLCI (‘000)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Highest Share Price for 2016Lowest Share Price for 2016

Jan Feb

Q3 FY2016

3 Nov

SHARE PRICE DIVIDENDS PER SHARE DIVIDEND PAYMENT DATE

EARNINGS PER SHARE

TOTAL SHAREHOLDERS’RETURN

AVERAGE DAILY VOLUME TRADED (’00)

RM22.70 (OPENING) 62 sen (2016)Q1 14 sen

8 June 2016

Q2 14 sen 8 September 2016

Q3 15 sen 2 December 2016

Q4 19 sen 22 March 2017

87.9 sen (2016)

28,644 (2016)

60 sen (2015)


RM42.1 billion (2016)

RM44.9 billion (2015)

100.4 sen (2015)

30,967 (2015)

RM21.30 (CLOSING)

RM22.90 (PEAK)

-3.4% (2016)

5.1% (2015)

PAGE: 119

ANNUAL REPORT 2016

SHARE PERFORMANCE

Implementation of New Gas Supply (Amendment) Act 2016

The new amendment exposed PGB to increased competition due to Third Party

Access implementation and economic regulation.

Increasing Trend of Repair and Maintenance Cost

The Group incurred higher repair and maintenance cost in FY2015 and FY2016 to

address assets integrity issues as part of its Key Results Area under 3ZERO100

Transformation.

Future Growth Strategy

The Group continue to focus on delivering the existing growth projects and initiatives

which are expected to complete by FY2018. The Group has yet to announce its future

growth plan, which will continue to leverage on its core competencies.

01

03

05

07

09

11

13

15

02

04

06

08

10

12

14

16

ANALYST COVERAGE

ANALYST AREA OF CONCERN

01

02

03

SHARE PERFORMANCE

PAGE: 120

PETRONAS GAS BERHAD

2016 INVESTOR RELATIONS CALENDAR

33rd

INVESTOR CONFERENCE

PLANT VISITS (RETAIL SHAREHOLDERS)

ANNUALGENERALMEETING

LOCAL

15 AUGUST 2016

INTERNATIONAL

21 SEPTEMBER 2016

CIMB 8th Annual Malaysia Day

10 May 2016

03 March 2016

10 August 2016

24 February 2017

26 April 2016

Daiwa Investment Conference 2016

Maybank Invest Malaysia 2016

Nomura Investment Forum Asia 2016

Hilton, Kuala Lumpur

PGB Corporate Office, Kuala Lumpur

Utilities Gebeng and Kuantan Compressor

Station, Pahang

Mandarin Oriental, Kuala Lumpur

Segamat Operations Centre, Johor

Tokyo, Japan

Shangri-La Hotel, Kuala Lumpur

SingaporeANALYST BRIEFING

PAGE: 121

ANNUAL REPORT 2016

• Closed period

• Q4 Results Announcement

• IR Conference

• Analyst Meetings

Q1 Q2

Q4 Q3

2017 INVESTOR RELATIONS PLANNER

Q1 Q2 Q3 Q4

• Closed period



• IR Conference

• Shareholders’ Plant Visit

• Closed period



• Annual General Meeting

• Closed period



• Shareholder’ Plant Visit

LNG Regasification Terminal Sungai Udang, Melaka

05


BUSINESS REVIEW126 Gas Processing

136 Gas Transportation

144 Utilities

154 Regasification

C

GAS PROCESSINGA visual of our Gas Processing segment (GP)’s achievements, contributions and milestones during the year.

LTIF2 FATALITY

7.51982 million safe manhours

achieved

HUMAN CAPITAL


1 Inclusive of safe manhours achieved after LTI incident.2 LTIF – Lost time injury frequency is defined as loss of productive work

time due to injury suffered, relative to total hours worked during the year.

98.6% 100.0% 100.0% 100.0%97.7% 99.2%

1,120

96.6% 96.6%

C1 Salesgas C2 Ethane C3 Propane C4 Butane

‘12 ‘13 ‘14 ‘15 ‘16 ‘12 ‘13 ‘14 ‘15 ‘16 ‘12 ‘13 ‘14 ‘15 ‘16 ‘12 ‘13 ‘14 ‘15 ‘16

99

.1

96

.5

96

.5

95

.5

99

.2

95

.6

95

.6

95

.199

.4

91.

3

91.

3

89

.1

99

.9

91.

7

91.

7

90

.1

99

.9

99

.1

98

.8

99

.2

1,015 (90.6%)

105 (9.4%)

Technical Non-Technical

PRODUCTIVITY CAPITAL

OVERALL EQUIPMENT EFFECTIVENESS (OEE) PRODUCT DELIVERY RELIABILITY (PDR)

Reliability (%)

C1 C1

142 MT/hr 138 MT/hr

C2 C2C3

10,100

C3C4 C4

0.4 1

Ethane (C2) Performance

Total Manpower

Strength

Production 2016 Delivery 2016

Highest since 2012 (135 MT/hr) despite of lower C2

composition in feedgas (6.2% in 2016 vs 6.9% in 2012)

Highest since 2011 (128 MT/hr) contributed

by highest demand from petrochemicals business

M

PAGE : 126

PETRONAS GAS BERHAD

BUSINESS REVIEW

YEAR IN REVIEW

mandays of training

and development

138F


‘12

‘12

‘13

‘13

‘14

‘14

‘15

‘15

1,5

33

.66

97.0

1,5

57.2

64

8.4

1,4

80

.270

1.7

1,4

97.4

75

1.3

1,5

11.2

76

8.7

higher by 1.5% attributed to Performance

Based Structure (PBS) income on the back of higher

liquid plant reliability and availability.

RM1.6REVENUE

billion

’16

’16

Revenue (RM million)

Gross Profit (RM million)


7.0% lower due to higher operating costs

RM648.4GROSS PROFIT million

68.4%

31.4%

contribution to

PGB Group

31.4%Gas Processing

Gross Profit

• Surpassed world benchmark for salesgas reliability at

99.2%.

• Best reliability performance for ethane, propane and

butane in the last five years at 98.8%, 99.1% and 99.1%

respectively, which contributed to PGB’s highest

achievement in Performance Based Structure (PBS) income

for FY2016.

• Gas Processing Plant (GPP) performed better in Overall Equipment Effectiveness (OEE) for salesgas (98.6%), ethane

(97.7%), propane (96.6%) and butane (96.6%).

• GPP Ethane Recovery Improvement initiative contributed to

the highest ethane production and delivery and

subsequently improvement to the PETRONAS value chain.

• 100% completion of Key Results Area (KRA) activities which

have led to excellent reliability performance for each

liquid products.

• Revenue surged by RM23.6 million from RM1,533.6 million

in 2015, attributable to the higher PBS income received for

ethane (RM64.0 million), propane (RM2.5 million) and butane

(RM2.3 million).

• Contribution to the Group’s gross profit decreased by

RM48.6 million (7.0%) due to higher operating costs in line

with the Company’s effort in improving asset integrity.

HIGHLIGHTS OF THE YEAR

Other business segments

PAGE: 127

ANNUAL REPORT 2016

GP is one of PGB’s primary business segments, and is operated

by our Gas Processing and Utilities (GPU) Division. Our six

plants in Terengganu are divided into two complexes, namely

Gas Processing Kertih (GPK) and Gas Processing Santong (GPS).

In the beginning, GPP1 and Tanjung Sulong Export Terminal

(TSET) were commissioned and both commenced operations

in 1984. In view of increasing national gas demand, GPP2,

GPP3 and GPP4 were constructed and commissioned in 1992

and 1994 respectively at GPK, followed by GPP5 and GPP6 in

1998 at GPS.

With total salesgas processing capacity of over 2,000 million

standard cubic feet per day (mmscfd), these plants currently

process feedgas (raw gas) from offshore of East Peninsular

Malaysia on behalf of PETRONAS into salesgas (C1) and

other by-products, such as ethane (C2), propane (C3) and

butane (C4). These products are then supplied to PETRONAS’

customers in power and non-power sectors via PGB’s

Peninsular Gas Utilisation (PGU) pipeline network.

In return for the gas processing services, PGB receives gas

processing fees comprising mainly fixed reservation charges

under the 20-year Gas Processing Agreement (GPA). The

agreement also provides for PBS income, if GP exceeds the

liquid extraction performance target set by our customer.

BUTANE

STABILISED CONDENSATE

TERENGGANU CRUDE OIL TERMINAL

PROPANE ETHANE SALESGAS

PGU LINE

DE-BUTANISERCOLUMN

DE-PROPANISERCOLUMN

DE-ETHANISERCOLUMN

DE-METHANISERCOLUMN

PRODUCT RECOVERY UNIT

Seperate feedgas to salesgas

LOW TEMPERATURESEPARATION UNIT

Water & chloride CO2 MoistureH2S Mercury

45

CONDENSATE STRIPPER

6

FEED GAS

Gas

Liquid

Product

Contaminants

By-product

FEED LIQUID

70 barg

(300C)

1 to 59 barg

(30 to 1200C)

Remove water and chloride

Remove lighter components in feed liquid

Remove moisture

ACID GASREMOVAL

UNIT

DEHYDRATION &MERCURY REMOVAL

UNIT

FEEDPRE-TREATMENT

UNIT

1 3

Remove hydrogen sulphide and carbon dioxide

5 barg

(48 to 1280C)

15 barg

(46 to 1220C)

27 barg

(5 to 950C)

23 to 55 barg

(-101 to 250C)

155 barg

(250C)

Simplified Flow Diagram of Gas Processing Plants

Separate feedgas to liquid products

PE

TR

ON

AS

UP

ST

RE

AM

2

PAGE: 128

PETRONAS GAS BERHAD

BUSINESS REVIEW – GAS PROCESSING

WHO WE ARE

Petrochemical plants

Large industries

REVENUE STRUCTURE

• Reservation charges which

are intended to recover all

capital expenditure and

operating expenditure for

making available capacity

up to 1,750 mmscfd.

• Flow rate charges which

are intended to recover

additional variable cost for

gas processing.

• PBS income for

performance of plant

liquid extraction exceeding

targets as governed by

our GPA.

COST STRUCTURE

• Operating costs

– repair and maintenance,

materials and supplies

and professional and

purchased services.

• Depreciation costs.

ASSETS

• GPP1, GPP2, GPP3, GPP4

in Gas Processing Kertih.

• GPP5, GPP6 in Gas

Processing Santong.

• Tanjung Sulong Export

Terminal.

ACTIVITIES

• Processing PETRONAS’

feedgas from offshore

Peninsular Malaysia.

KEY RESOURCES

• 1,120 employees from

both technical and

non-technical.

• 88% of male and 12% of

female employees.

OUTPUT*

• Salesgas (C1)

• Ethane (C2)

• Propane (C3)

• Butane (C4)

CUSTOMER

• PETRONAS, which is the

main aggregator of gas

from upstream in

Peninsular Malaysia.

– The output is

subsequently distributed

to PETRONAS’ power

and non-power

customers, including

petrochemical plants.

ASSETS

CUSTOMER

ACTIVITIES

REVENUESTRUCTURE

KEYRESOURCES

COSTSTRUCTURE

OUTPUT

* Output belong to customer

PAGE: 129

ANNUAL REPORT 2016

BUSINESS MODEL

1. HEALTH, SAFETY, SECURITY & ENVIRONMENT (HSSE)


GP is committed to exhibit

leadership in the area of safety

and ensuring our compliance with

the various HSSE governance and

assurance frameworks as well as

the PETRONAS Mandatory Control

Framework at all times to

safeguard lives, assets and our

overall business continuity.

Institutionalisation of process and behavioural safety

GP is determined to increase its

efforts to instil safety-at-heart in

all members of our workforce, to

achieve safe operationalisation of

the Company’s assets.

Strengthening HSSE culture

through implementation of the

Hearts and Minds programme

which integrates and complements

all other ongoing efforts in

uplifting GP to a generative safety

culture and providing process as

well as tools to facilitate lasting

behavioural change.

2. OPERATIONAL EXCELLENCE


GP strives to elevate its reliability

and availability of its assets which

would ultimately translate into

higher OEE, world class salesgas

reliability and 100% product

delivery reliability to our

customers.


GP is committed to improve and

sustain its plant operational

performance in optimising the

value delivered to our

stakeholders.

GP is accredited with national and

international awards and

certifications consistent with its

high standards in operations.

3. VALUE OPTIMISATION & GROWTH


GP is dedicated to minimise value

leakages and improving overall

asset utilisation, which would

translate into higher returns to its

shareholders.


GP is committed to utilise energy

efficient technologies to reduce

energy per unit cost of gas

processing, which would translate

into lower production cost and a

reduction in overall energy


Value optimisation and strategic growth in gas infrastructure

GP is determined to optimise its

current business and to pursue,

explore and execute new business

ventures within the core areas of

the Company’s expertise to

establish new revenue streams and

value for its shareholders.


GP is focused on implementing

seamless project execution

strategy for all of its projects to

improve its asset reliability and

enhancing PETRONAS’ value chain

which translates into timely and

within budget project delivery.

PAGE: 130

PETRONAS GAS BERHAD

BUSINESS STRATEGY



Cost Reduction

4. PGB TRANSFORMATION PROGRAMME

In line with the PGB

Transformation Programme, GP is

committed to undertake activities

under Key Strategic Thrusts –

Assets, System & Process and

People & Culture.

GP is committed to improve asset

reliability and availability through

the implementation of KRA to

eliminate the Bad Actors.

In FY2016, GP completed various

KRA activities to improve its asset

integrity, higher plant load initiative

to maximise ethane production and

higher product recovery at GPK and

GPS. These activities contributed

positively to the liquid plant

performance, consistently exceeding

the OEE target in FY2016 which in

turn resulted in the achievement of

12 months PBS income.

Improved GP performance and

greater collaboration between

upstream, PGB and PETRONAS

Chemicals Group Berhad (PCG)

have also contributed to the

GP MANAGED ITS RISKS

VIA ENTERPRISE RISK

MANAGEMENT (ERM) AND

PLANT & FACILITIES RISK

MANAGEMENT (PFRM).

UNDER ERM AND PFRM,

RISKS RELEVANT TO THE

DIVISION ARE ASSESSED,

MONITORED AND

REPORTED TO THE

DIVISION PLANT

LEADERSHIP TEAM (PLT)

AND PGB’S RISK

COMPLIANCE

COMMITTEE (RCC).

General key risk areas facing by GP are

mainly in relation to HSSE such as

fatality and incidences and GPP

reliability issues resulting in interruption

of ethane supply to the petrochemical

business.

Mitigations for each high and medium

risks have been assigned to the

respective key risk owners in reducing

and eliminating the risks associated with

the business, HSSE and operations. The

mitigations have been implemented

through HSSE and Process Safety

Management (PSM) enhancement

programmes such as Mechanical

Integrity (MI) and Loss of Potential

Containment (LOPC) framework,

improvements in Confined Space Entry

(CSE) process as well as further

strengthening on implementation of the

Balance of Consequence Management

together with KRA improvement

activities which are continuation efforts

from 2015.

highest ethane volume production

and delivery in 2016 since the last

highest in 2012 and 2011

respectively.

GP aspire to improve and sustain

workforce productivity through

structured work management with

implementation of standardised

Work Process (WP) and Operational


(OeXMS) at all GP area.

The GP Barometer Survey 2016

score showed improvement in the

staff’s commitment and cultural

shift indicating progressive

improvement achieved in the

3ZERO100 Transformation journey.

This has paved the way for the

implementation of 3ZERO100 Beyond initiative which is set to

be achieved by end of 2018. It is

a continuous effort towards

achieving sustainable safe and reliable operations, efficient and empowered organisation at shared leadership level and improved performance in global benchmarking in cost, energy and manpower.

PAGE: 131

ANNUAL REPORT 2016

KEY RISKS & MITIGATIONS

During the year under review,

GP recorded its highest

achievement on OEE

improvement for ethane, propane

and butane. This is in line with PGB’s

Transformation Programme which

focuses on operational excellence,

reflecting PGB’s true performance as

an infrastructure services provider.

The OEE for ethane improved

significantly by 6.9% to 97.7%

contributed by higher product

recovery for ethane extraction

efficiency. Propane and butane

registered 96.6% which was also a

significant improvement by 8.0% and

6.8% respectively.

The reliability of salesgas at 99.2%

consistently surpassed world class

performance benchmark at 98.0%.

Reliability for ethane, propane and

butane achieved its best performance

for the last five years, stood at

98.8%, 99.1% and 99.1% respectively,

mainly contributed by lower

unplanned downtime during the year.

Coupled with improved OEE, GP

sustained its 100% Product Delivery

Reliability (PDR) for salesgas,

propane and butane. PDR for

ethane showed significant

improvement by 2.3% to 99.2%

contributed to the highest

ethylene production of PCG as

compared to previous years.

Ultimately as a result, we have

increased our production volume of

ethane by 5% with total production

volume of 1,239,887 MT which is

the highest since 2012. Production

for propane and butane stood at

1,130,113 MT and 775,835 MT

respectively.

GP RECORDED ITS HIGHEST ETHANE PRODUCTION SINCE 2012 AS A RESULT OF ENHANCED PLANT AVAILABILITY AND RELIABILITY. OUR PLANTS ALSO ACHIEVED THEIR HIGHER OEE PERFORMANCE DURING THE YEAR, ACCOMPANIED BY GREATER PRODUCT RECOVERY IN KERTIH AND SANTONG, WHICH TRANSLATED TO OUR BEST PBS INCOME ACHIEVED SO FAR.

• Plant improvements under KRA activities which have contributed

to enhancing ethane OEE:

– Improvement of Key Rotating, Electrical and Instrument

equipment reliability such as Loop Robustness at GPK and Air

Inlet Filtration System works at GPS.

– Enhancement of Acid Gas Removal Unit (AGRU) pump reliability

at GPS, GPK AGRU and steam system, GPU Special Scheme

Inspection (SSI) implementation, Dehydration Unit (DHU), GPS

Instrument Air system and GPU Inspection Reference Plan (IRP)

& Scheme of Examination (SoE) enhancement.

• Completion of Key Strategic Thrusts on People & Culture such as

Gas Academy and Root Cause Failure Analysis (RCFA) Leaders

Programme.

• Increased productivity with implementation of WP and higher

operating discipline with OeXMS implementation.

WH

AT

WE

DID

TO

AC

HIE

VE

3Z

ERO

100

TR

AN

SFO

RM

AT

ION

TA

RG

ETS

‘15‘15‘15 ‘16

C4

11%13%5%

C3C2

‘16‘16

1,17

9,5

07

1,0

02

,94

3

70

0,9

12

775

,83

5

1,13

0,1

13

1,2

39

,88

7

Liquid Production Volume (MT)


OPERATIONS

Plant Performance

PAGE: 132

PETRONAS GAS BERHAD

REVIEW OF PERFORMANCE FOR THE YEAR


Projects Delivery

• Plant turnaround activities for GPP3

and GPP4 with timely completion

resulted to early start up and

minimum downtime.

• Resolving Bad Actors such as Heat

Exchanger replacement project

which successfully eliminated

unplanned shutdown.

• Reinstatement of the flare system at

TSET improved the reliability of the

flare system and enhancing

PETRONAS’ value chain.

• Improvement of Industrial Effluent

Treatment System (IETS) for Sludge

Dewatering, Chemical Treatment

and Dissolved Air Flotation (DAF)

at GPS.

FINANCIAL

GP continued to deliver commendable

performance during the year and

sustained revenue of RM1.6 billion

contributing about 34.1% to the

Group’s revenue base.

Improvement in revenue by

RM23.6 million (1.5%) was supported

by higher PBS income received

from excellent liquid plant extraction

performance amounting to RM68.8 million from RM44.6 million in

FY2015.

GP contribution to PGB’s gross profit

however decreased by RM48.6 million

as a result of higher operating costs

particularly due to higher repair and

maintenance in line with efforts to

intensify plant reliability and availability.


Health, Safety, Security and Environment (HSSE)

GP is recognised at both national and

international levels for its achievements

in commendable safety and health

records and higher improvement in

occupational safety and health

processes through sound management

systems. In 2016, GP received the

following awards:

• Highest awards for RoSPA International Health and Safety Awards (Gold Award) for 2016 by

The Royal Society for the

Prevention of Accidents (RoSPA);

and

• National Level OSH Award & Recognition (MSOSH 2015) Awarded the MSOSH OSH Grand

Award Winner 2015 (Superior OSH

Performance) for GPK. Awarded

MSOSH OSH Gold Class 1 Award

Winner 2015 (Very Good OSH

Performance) for GPS.

Innovation and Improvement

The recognitions garnered from

industry and statutory bodies have

inspired GP to continue to deliver the

best level of performance in the years

to come.

• Gold Award at International Convention on Quality Control Circle (ICQCC) 2016 for the

Particle Analysis in Natural Gas

project held in Bangkok, Thailand

from 23 to 25 October 2016. The

result of the analysis prevented an

opportunity loss of RM2.1 million

from ethane unavailability;

• Consistently attained Gold Award Winners in the Mini Team Excellence Convention, Regional Team Excellence Convention for East Coast Region 2016 and National Team Excellence Convention 2016 under Malaysia

Productivity Corporation (MPC) for

value creation on cost saving of

RM0.1 million, and reduction of

duration for overhaul of Boiler

Feedwater pump from five months

to two months; and

• The IKM (Institut Kimia Malaysia)

2016 LAB Excellence Award

accorded to three GP labs at GPK,

GPS and TSET.

SUSTAINABILITY

Environment

GP acknowledges the additional

responsibility of ensuring its processes

and systems are efficient and safe at all

time to minimise impact to the

environment. This is achieved through

the following:

• Sustenance of Flare Gas Recovery

Unit (FGRU) GPK and GPS to

reduce black smoke.

• Discharging on-specification

industrial effluent in compliance

with Industrial Effluent Regulation

(IER) 2009.

• Keeping abreast with potential

regulation introduced by regulatory

bodies such as Clean Air Regulation

(CAR) 2014 and undertaking

necessary actions to ensure

compliance.

PAGE: 133

ANNUAL REPORT 2016

• GP looks forward to further

improve its high performance

by focusing on sustaining safety

and reliable operations towards

productive, efficient and

competitive assets via

continuous plant improvement,

preventive maintenance and

turnaround activities.

• GP continues to uphold its

obligations under the GPA

which is expected to provide

GP stable income with potential

PBS income to be derived from

excellent plant liquid

performance.

• In line with the 3ZERO100

Beyond, GP will continue to

develop an empowered team by

enhancing leadership

competencies and optimising

cost which is competitive

against other organisations in

global benchmarking.

• Together with the

implementation of WP and

OeXMS, GP is committed to

increase staff productivity,

capability and accountability in

decision making.

• GP is also expected to extract

higher ethane volume

attributable to higher feedgas

composition received from

TGAST facilities, once TGAST

project completed by

PETRONAS Carigali Sdn Bhd.

Community

GP is also responsible for sustaining

cohesive relations with the local

community through its Corporate Social

Investment (CSI) activities such as:

• Continuous support of the “Sayangi

Sungai Paka” programme in

collaboration with Malaysian Nature

Society (MNS), PETRONAS East Cost

Regional Office (ECRO) and

government agencies by sharing

and providing awareness to

surrounding communities during

Hari Alam Sekitar Negara (HASN) on

22 October 2016 and during

Control of Industrial Major Accident

Hazards (CIMAH) Day on 16 May

2016. These events which focus on

environmental awareness and

conservation are part of a CSI

initiative by PGB and undertaken

by GP.

• Various Corporate Social

Responsibility (CSR) activities

conducted throughout the year

with the involvement of local

communities, schools and

authorities including cleaning of

mosques, schools and residential

housing areas.

• Led Occupational Safety and Health

(OSH) Open Day in collaboration with

other PETRONAS subsidiaries to foster

a closer relationship between local

communities and the Terengganu

Department of Occupational Safety

and Health (DOSH).

Workplace

GP is committed to protect the health

of people at our workplace and

provides conducive workplace to staff

and contractors through various

programmes such as:

• Employee driven programmes

through HSSE Action Teams such as

Safety Observation, Safety Audit,

Mega Housekeeping, supporting

Equipment Basic Care and GPU Safe

Raya Campaign.

• Medical counselling carried out by

Occupational Health doctors which

is aimed at promoting healthy

lifestyle to employees.

• Series of “Hari Bertemu Pelanggan”

with its objective to increase health

awareness among staff including

carrying out medical screening at

GPK, GPS and TSET.

• Healthy lifestyle programme such as

Biggest Loser, Mountain Bike (MTB)

Competition, Green Run, Zumba

exercise, Body Measured Index

(BMI), Blood Donation Drive and

others.

Marketplace

GP’s focus was on further

strengthening its relationship with

stakeholders through various activities

which included:

• Recreational activities consisting of

bowling tournaments and friendly

futsal engagements with GP’s

customers and suppliers.

• Management engagement and

networking such as the Gas

Customers Annual Focus Engagement

with PETRONAS Ethylene Sdn Bhd

(PCESB), Plant Leadership Team visit

to PETRONAS Penapisan (Melaka) Sdn

Bhd (PP(M)SB), PETRONAS Chemicals

Olefins Glycols and Derivates Sdn

Bhd (PCOGD) and PCESB.

• Contractors Forum 2016 which

provided GP and contractors a

platform for a two way

communications and engagement

with each other.

OUTLOOK

PAGE: 134

PETRONAS GAS BERHAD


PAGE: 135

ANNUAL REPORT 2016

GAS TRANSPORTATION

A visual of our Gas Transportation segment (GT)’s achievements, contributions and milestones during the year.

HUMAN CAPITAL


417

Reliability Availability

‘12 ‘13 ‘14 ‘15 ‘16 ‘12 ‘13 ‘14 ‘15 ‘16

99

.87

99

.92

99

.85

99

.92

99

.95

99

.98

99

.99

99

.99

99

.90

99

.96

57 (13.7%)

360 (86.3%)

Technical Non-technical

PRODUCTIVITY CAPITALReliability and Availability (%)

PRODUCT DELIVERY RELIABILITY (PDR)

Total Manpower

Strength

PAGE : 136

PETRONAS GAS BERHAD

BUSINESS REVIEW

LTIF2 FATALITY

4.41


million safe manhours

achieved

1 Inclusive of safe manhours achieved after LTI incident.2 LTIF—Lost time injury frequency is defined as loss of productive work


0.5 2

361M

mmscfd salesgas

delivered

56F

YEAR IN REVIEW

4,396

100.0%

2,152

mandays of training

and development

47.2%

Gas Transportation

Gross Profit

3.3% lower due to higher operating costs


contribution to

PGB Group

47.2%

0.6% decrease due to downward revision

of Gas Transportation Sabah tariff


52.8%

PAGE: 137

ANNUAL REPORT 2016

1,3

11.6

1,0

09

.1

1,3

03

.99

75

.3

1,2

86

.71,

00

6.7

1,18

9.4

90

2.4

1,11

9.4

83

9.3

RM1.3REVENUE

billion




• Sustained world class performance in transmission reliability and availability at 99.96% and 99.90% respectively through pipeline integrity assurance and

rectification programmes.

• Stable revenue generation at RM1,303.9 million with only

a slight decrease by RM7.7 million (0.6%) from FY2015.

• Gross profit of RM975.3 million, was lower by RM33.8

million (3.3%) from FY2015, attributed to higher operating

costs.

• Successfully re-commissioned the Sabah-Sarawak Gas

Pipeline (SSGP) in March 2016 with zero HSE incident and

subsequently increase its contribution to GT profitability by

RM24.7 million.


‘12 ‘13 ‘14 ‘15 ’16

‘12 ‘13 ‘14 ‘15 ’16

PAGE: 138

PETRONAS GAS BERHAD

PIPELINE

POWER

NON-POWER

COMPRESSORSTATION

METERINGSTATION

Measure the gas flow rate

Pressurise gas to

transport it from

one location to

another

GT is operated by our Gas Transmission and Regasification

(GTR) Division. We manage gas transmission operations through

pipelines covering much of West Malaysia known as the

Peninsular Gas Utilisation (PGU) pipeline network.

We operate from our main Control Centre located in Segamat,

Johor and the salesgas is transported to PETRONAS’ customers

via our 2,551 km PGU pipeline. Starting off our operations

upon completion of PGU 1 in 1984, our PGU pipeline network

has expanded and currently has the capacity to transport up to

3,000 million standard cubic feet per day (mmscfd) of gas.

In addition, we also transport small volumes of salesgas for

PETRONAS’ customers via our gas distribution system in Miri

and Bintulu, Sarawak, as well as manage the gas pipeline in

Kimanis, Sabah.

In return for the gas transportation services, PGB receives gas

transportation fees which are mainly postage tariff under the

20-year Gas Transportation Agreements (GTA).

GT also acts as the operations and maintenance (O&M)

operator for SSGP and Trans Thai-Malaysia (M) Sdn Bhd’s

pipeline from the northern Malaysian border to Seberang Prai

in Pulau Pinang.

Pipeline Network

Gas Processing

Plants

Tenaga Nasional

Berhad

Gas Malaysia Berhad

Petrochemical Plants

Large Industries

Independent Power

Producers (IPP)

Senoko/Keppel

LNG Regasification

Terminal

Malaysia - Thailand

Joint Development

Area

WHO WE ARE

Salesgas

Salesgas Delivered

to Customer

BUSINESS REVIEW – GAS TRANSPORTATION


PAGE: 139

ANNUAL REPORT 2016

BUSINESS MODEL

REVENUE STRUCTURE

• Capacity reservation

which is based on

capacity booking at tariff

RM per gigajoule (GJ)

governed by the GTA.

COST STRUCTURE

• Operating costs

– Repair and maintenance

(includes preventive),

payroll cost and

benefits, insurance,

taxes and licenses, and

others.


ASSETS

• Transmission pipelines

covering much of West

Malaysia (known as the

PGU pipeline network).

• Smaller distribution

systems in Miri and

Bintulu in East Malaysia.

ACTIVITIES

• Transportation of gas to


Peninsular Malaysia and

Singapore. Source of gas

are through three

injection points:

– Gas processing plants

– Malaysia-Thailand Joint

Development Area

– LNG Regasification

Terminal in Sungai

Udang, Melaka

• Transportation of gas to


Sabah and Sarawak.

KEY RESOURCES

• 417 employees from

both technical and

non-technical

backgrounds.


female employees.

OUTPUT*

• Gas transportation

services consist of mainly

delivery of salesgas as

well as ethane, propane

and butane.

CUSTOMER

• Solely PETRONAS.

ASSETS

CUSTOMER

ACTIVITIES

REVENUESTRUCTURE

KEYRESOURCES

COSTSTRUCTURE

OUTPUT

PAGE: 140

PETRONAS GAS BERHAD



GT is committed to exhibit






Framework at all times to




GT is determined to increase its








which integrates and complements

all ongoing efforts in uplifting GT

to generative safety culture and to

facilitate lasting behavioural

change.



GT strives to sustain its asset

reliability and availability for

superior operational excellence.


GT is committed to improve and

sustain our transmission

operational performance in

optimising the value delivered to

our stakeholders.



GT is dedicated to minimise value

leakages and improve overall asset

reliability, which would translate into

higher returns to its shareholders.


GT is committed to utilise energy


energy per unit cost of

transmission which would translate

into lower transmission cost and a

reduction in overall energy


Value optimisation and strategic growth in gas infrastructure

GT is determined to optimise



ventures within the core

competencies of the Company to




GT is focused on implementing

seamless project execution strategy

across all of its projects to improve

its asset reliability and enhancing

PETRONAS’ value chain which

translates into timely and within

budget project delivery.

BUSINESS STRATEGY



Cost Reduction

PAGE: 141

ANNUAL REPORT 2016


In line with PGB Transformation

programme, GT is committed to

undertake activities under Key

Strategic Thrusts on Assets, System

& Process and People & Culture.

GT is committed to improve asset

reliability and availability by

elimination of Bad Actors through

the implementation of Key Results

Area (KRA) and GTR Taskforce.

In 2016, GT completed various KRA

activities, which have enabled GT in

sustaining its pipeline reliability and

availability, such as:

• Inspection of Above Ground

Piping System

• Enhancement of Equipment

Reliability Strategy (ERS) & Bill

of Material (BOM)

• Pipeline Integrity Enhancement

Programme

• PETRONAS Risk Based

Inspection (PRBI) Enhancement

• Safety Criticality Element (SCE)

Development & Implementation

GT MANAGED ITS RISKS VIA ENTERPRISE RISK MANAGEMENT (ERM) AND PLANT & FACILITIES RISK MANAGEMENT (PFRM). UNDER ERM AND PFRM, RISKS RELEVANT TO THE DIVISION ARE ASSESSED, MONITORED AND REPORTED TO THE DIVISION PLANT LEADERSHIP TEAM (PLT) AND PGB RISK COMPLIANCE COMMITTEE

(RCC).

General key risk areas facing by GT are


fatality, incidences, loss of primary

containment and supply interruption

due to external factors such as geo-

technical instability and third party

activities.

GT is also exposed on the risk of

implementation of the new Gas Supply

(Amendment) Act (GSA) 2016, in

particular on increased competition and

economic regulation.




and eliminating the risk associated with

business, HSSE and operations. The

mitigations have been implemented



programmes and further strengthening

Balance of Consequence Management,

as well as to conduct public awareness

and geo-technical assessment on

regular basis. Other than that, GT will

also ensure compliance with the GSA

and looking into ways to ensure

stability of its revenue and performance

while embarking on various cost

reduction initiatives.

• Quality Assurance/Quality

Control (QA/QC) Scheme

Development

GT also carried out other initiatives

namely:

• Pipeline Weldment Integrity

Assurance

• Kuantan Compressor Station

Reliability Enhancement

The GT Barometer Survey 2016

score showed improvement in


shift indicating progressive

improvement in 3ZERO100

Transformation journey.







PAGE: 142

PETRONAS GAS BERHAD

We have started to reap the

positive impact arising

from the Transformation

programme despite the challenges

and volatile economy outlook.

During the year, GT achieved zero

interruption and sustained world

class performance of reliability and

availability at 99.96% and 99.90%

respectively.

GT achieved zero supply

curtailment through effective

management of the PGU supply

and delivery chain, resulting to

uninterrupted gas delivery to

PETRONAS’ customers. GT

managed to transport and supply a

total of 2,152 mmscfd of salesgas

during the year.

• Pengerang Gas Pipeline project

(PGPP) progressing at 94.4%,

expected to be commissioned

in March 2017 and completed

in June 2017.

• Pipeline Relocation Sungai

Skudai project (PIRESS) has

been completed in December

2016 to resolve operational

risks at that particular area.

GAS TRANSPORTATION CONTINUED TO SUSTAIN WORLD-CLASS PERFORMANCE IN

TRANSMISSION RELIABILITY AND AVAILABILITY, EXCEEDING TARGETS THAT HAD BEEN SET.

THIS, ULTIMATELY, CONTRIBUTES TO THE SECURITY OF GAS SUPPLY TO THE NATION.

BURHAN ABDULLAHHead of Gas Transmission and

Regasification Division

• KRA initiatives, such as:

• Enhancement of Equipment Reliability Strategy (ERS)

• Inspection of Above Ground Piping System

• Pipeline Integrity Enhancement Programme

• Completion of GT Taskforce activities, such as:

• Pipeline Weldment Integrity Assurance

• Kuantan Compressor Station Reliability Enhancement

Programme

• Completion of Key Strategic Thrusts of People & Culture such as

GTR Academy and GTR Root Cause Failure Analysis (RCFA) and

Leaders Development Programme

• Increase productivity with implementation of Work Process (WP)

and higher operating discipline with Operational Excellence

Management System (OeXMS) implementation

WH

AT

WE

DID

TO

AC

HIE

VE

3Z

ERO

100

TR

AN

SFO

RM

AT

ION

TA

RG

ETS


OPERATIONS

Transmission Performance Projects Delivery


FINANCIAL

GT registered revenue of RM1,303.9

million for FY2016, reflecting a marginal

decrease of 0.6% from last year, mainly

due to downward revision of the Gas

Transportation Sabah tariff.

GT contributed RM975.3 million to the

Group’s gross profit, decreased by

RM33.8 million (3.3%) in tandem with

lower revenue and higher operating

costs, particularly land assessment fees

and depreciation expense.

AWARD AND RECOGNITION

GT won Silver Award for Culture

Excellence at the Downstream

Operational Excellence Forum Awards

(DOEFA) 2016.

SUSTAINABILITY

Environment

GT acknowledges the additional

responsibility to ensure its pipeline

network are efficient and safe at all

times to minimise impact to the


compliance towards Clean Air

Regulation (CAR) 2014 that was

gazetted in 2014 by Department of

Environment.

Community

GT is committed to contribute to the

society through PGB Corporate Social

Investment (CSI) programme. In

September 2016, GT completed the

renovation and installation of

equipment for the training center at

Dewan Serbaguna Kampung Air Bah,

Segamat. 20 participants attended the

seven months training on

We expect our Gas Transportation business to continue generating sustainable returns next

year on the back of GTA.

GT will continuously emphasise on the HSSE

implementation to ensure zero HSE

incident at all times.

In line with the 3ZERO100 Beyond, GT is expected to

continue sustaining its assets performance,

enhance WP and the OeXMS implementation to improve productivity and efficiency with lean

and empowered organisation.

entrepreneurship conducted at the

center. A graduation ceremony was

held on 29 September 2016, where the

participants were given graduation

certificates from PETRONAS and Kolej

Komuniti Hulu Langat to recognise and

acknowledge their dedication and

success.

Workplace

GT is committed to protect the health


provides conducive working

environment to staff and contractors

through various programmes such as:

• Health talk and medical checkup by

Segamat District Health Office

which are aimed to promote

healthy lifestyle to employees.

• Healthy lifestyle programme such as

aerobic session, Zumba exercise,

Blood Donation drive and others.

Marketplace

GT focused to further strengthen

relationship with stakeholders through

various activities such as:

• Public awareness session with

factory adjacent to PGB’s Right of

Way (ROW) at KP197, Taman Desa

Cemerlang has been conducted to

address HSSE issue at Ulu Tiram

leak incident.

• Visit from Jabatan Bomba dan

Penyelamat Malaysia Zon Muar in

May 2016, for Disaster Management

Exercise (D’Max).

• Participated in Hari Alam Sekitar

Peringkat Negeri Johor 2016 to give

awareness to local community on

PGB pipeline network at Dataran

Bandaraya Johor Bahru in October

2016.

OUTLOOK

PAGE: 143

ANNUAL REPORT 2016

UTILITIESA visual of our Utilities (UT)’s segment achievements, contributions and milestones during the year.

200

HUMAN CAPITAL


90.5%

100.0%

86.6%

100.0%

212

100.0%

100.0%

Electricity Steam Industrial Gases

‘12 ‘13 ‘14 ‘15 ‘16 ‘12 ‘13 ‘14 ‘15 ‘16 ‘12 ‘13 ‘14 ‘15 ‘16

94

.495

.996

.4

99

.0

97.9

97.8

98

.6

98

.1

98

.0

95

.6

94

.9

99

.9

99

.9

94

.5

98

.8

4 (1.9%)

208 (98.1%)



OVERALL EQUIPMENT EFFECTIVENESS (OEE)

Reliability (%)

Electricity

Electricity

Steam

Steam

Industrial Gases

Industrial Gases


Total Manpower

Strength

M

PAGE : 144

PETRONAS GAS BERHAD

BUSINESS REVIEW

LTIF2 FATALITY

1.41 million safe manhours

achieved

1 Inclusive of safe manhours achieved after LTI incident.2 LTIF—Lost time injury frequency is defined as loss of productive work


0.7 0

12F

YEAR IN REVIEW

3,736mandays of training

and development


higher by 9.8% attributed to industrial

gases, steam and electricity sales.


PAGE: 145

ANNUAL REPORT 2016

973

.613

5.8

1,0

69

.115

5.9

1,0

08

.619

5.9

86

7.2

127.7

94

6.2

162

.0RM1.1REVENUE

billion




14.8% increase was contributed by higher revenue


92.5%

7.5%

contribution to

PGB Group

7.5%Utilities

Gross Profit

• UT continued to deliver commendable performance with

reliability at 98.8% for electricity, 94.5% for steam and

99.9% for industrial gases and significantly improvement on PDR at 100% for all products.

• The above achievements were as a result of completion of

Key Results Area (KRA) activities under the 3ZERO100 Transformation and plant improvement project. UT also

recorded higher OEE for electricity at 90.5% and industrial

gases at 100%.

• UT recorded revenue of RM1,069.1 million, an increase of RM95.5 million (9.8%) from FY2015 attributable to higher

sales of industrial gases, steam and electricity in line with

two fuelgas price revisions in FY2016.

• UT contribution to PGB’s gross profit increased by RM20.1 million (14.8%), in tandem with the increase of revenue

but partially negated by higher operating costs.


‘12 ‘13 ‘14 ‘15 ’16

‘12 ‘13 ‘14 ‘15 ’16

FEEDSTOCK UTILITIES CUSTOMERS

GAS TRANSMISSION GRID

WATER SUPPLY

Natural Gas

Treated Water

Effluent Water Waste Water

Ambient Air

DEMIN PLANT

COGENERATION PLANT

COOLING WATER PLANT

EFFLUENT TREATMENT PLANT

AIR SEPARATION/NITROGEN GENERATION UNIT

Electricity

Condensate

UK: 6 GT (5 online + 1 standby)

UG: 3 GT

UK: 2 units (ASU)

UG: 2 units (NGU)

Electricity/LP Steam/ IP Steam/HP Steam/

HHP Steam

Demineralised WaterTreated Water

Fire Water

Low Pressure N2High Pressure N2High Pressure O2

Liquid N2Liquid O2

Liquid Argon

LP : Low Pressure

IP : Intermediate Pressure

HP : High Pressure

HHP : High High Pressure

ASU : Air Separation Unit

NGU : Nitrogen Generation Unit

N2

: Nitrogen

O2

: Oxygen

Product

By-product

PAGE: 146

PETRONAS GAS BERHAD

UT is operated by our Gas Processing and Utilities (GPU)

Division, consisting two complexes of Utilities Kertih (UK) and

Utilities Gebeng (UG).

UT’s operations began in 1998 when PGB expanded into

manufacturing, supplying and marketing a range of industrial

utilities to the various petrochemical businesses and industries

in the Kertih Integrated Petrochemical Complex in Terengganu

and the Gebeng Industrial Area in Pahang.

UK and UG are strategically located and provide a competitive

edge to the petrochemical plants and surrounding industries

with reliable supply of electricity, steam, industrial gases and

other by-products like liquid oxygen, liquid nitrogen,

demineralised water, raw water, cooling water and boiler feed

water. UT’s first delivery of electricity to its customers was in

1999 and it has since increased its customers base to help

PGB maximise shareholders value. Given its size and scale of

facilities, output from UT is cost efficient, allowing customers

to focus on their respective core business.

UT operates on merchant mode where it manufactures,

supplies and markets products to customers and receives

payment based on products delivered in accordance with the

respective sales and purchase agreements.

Simplified Flow Diagram of Utilities Plants

WHO WE ARE

BUSINESS REVIEW – UTILITIES

PAGE: 147

ANNUAL REPORT 2016

REVENUE STRUCTURE

• Based on volume of

products sold to

customers at prices

stipulated in sales

and purchase agreements

with prices comprising

fixed cost, variable cost

and inflation.

COST STRUCTURE

• Operating costs

– fuelgas, repair and

maintenance, materials

and supplies and

professional and

purchased services.


ASSETS

• Cogeneration plant, Air

Separation plant and

Water plant at Utilities

Kertih.

• Cogeneration plant,

Nitrogen Generation plant,

and Water plant at

Utilities Gebeng.

ACTIVITIES

• Manufacturing, supplying

and marketing electricity

and a range of industrial

utilities to the customers.

KEY RESOURCES

• 212 employees comprising

both technical and

non-technical


female employees

OUTPUT

• Electricity

• Steam

• Industrial gases

• Other products such as

liquid oxygen, liquid

nitrogen, demineralised

water, raw water, cooling

water and boiler feed

water

CUSTOMERS

• Petrochemical plants

• Industrial

ASSETS

CUSTOMER

ACTIVITIES

REVENUESTRUCTURE

KEYRESOURCES

COSTSTRUCTURE

OUTPUT

BUSINESS MODEL

PAGE: 148

PETRONAS GAS BERHAD



UT is committed to exhibiting

leadership in the area of safety and

ensuring our compliance with the

various HSSE governance and



Framework at all times to safeguard

lives, assets and our overall business

continuity.


UT is determined to increase its








which is integrated and

complements all other ongoing

efforts in uplifting UT to a

generative safety culture and

providing process as well as tools

to facilitate lasting behavioural

change.



UT strives to elevate its plant

reliability and OEE by

implementing gap identification to

improve equipment reliability and

increase system robustness for

electricity generation, protection

and distribution which would

translate into 100% PDR to our

customers.


UT is committed to improve and

sustain its plant operational

performance in optimising the

value delivered to our

stakeholders.

UT is accredited with national and

international awards and

certifications consistent with its

high standards in operations.


UT is dedicated to minimise value

leakages and improve overall asset

utilisation, which would translate

into higher returns to its

shareholders.


UT is committed to utilise energy


energy per unit cost of production,

which would translate into lower

production cost and a reduction in

overall energy intensity and carbon

footprint.

Value optimisation and strategic growth in utilities business

UT is determined to optimise its



ventures within the core areas of

the Company’s expertise to


creating value for its shareholders.


UT is focused on implementing


strategy for all of its projects to

improve its asset reliability and

enhancing PETRONAS’ value chain



BUSINESS STRATEGY


PAGE: 149

ANNUAL REPORT 2016


In line with the PGB

Transformation programme, UT is

committed to undertake activities

under Key Strategic Thrusts –

Assets, System & Process and

People & Culture.

UT is dedicated to improve overall

asset reliability and availability

through the implementation of

KRA to eliminate Bad Actors.

UT is inspired to improve and

sustain workforce productivity

through structured work

management with implementation

of standardised Work Process (WP)

and Operational Excellence

Management System (OeXMS) at

all UT area.

UT MANAGED ITS RISKS

VIA ENTERPRISE RISK



MANAGEMENT (PFRM).

UNDER ERM AND PFRM,



MONITORED AND

REPORTED TO THE

DIVISION PLANT

LEADERSHIP

TEAM (PLT) AND PGB

RISK COMPLIANCE

COMMITTEE (RCC).

General key risk areas facing UT are


fatality and incidences and interruptions

of utility supply to the customers i.e.

industrial gases, electricity and steam

due to Utilities plant failure.




and eliminating the risks associated

with the business, HSSE and operations.

The mitigations have been implemented



programmes such as Mechanical

Integrity (MI), Loss of Potential

Containment (LOPC) framework,

improvements in Confined Space Entry

(CSE) process as well as further

strengthening on implementation of the

Balance of Consequence Management

and KRA improvement activities which

are continuation efforts from 2015.

The UT Barometer Survey 2016



shift which indicating progressive

improvement in 3ZERO100

Transformation journey, recently

completed.








Cost Reduction

PAGE: 150

PETRONAS GAS BERHAD


UT recorded its highest

achievement on OEE

improvements for electricity and

industrial gases products. This is in

line with the PGB Transformation

programme which focuses on

operational excellence, reflecting

PGB’s true performance as an

infrastructure and utilities gas

services provider. Our UT segment

has shown downward trend in

plant interruption, in addition to

successfully meeting the PDR

target.

Electricity and industrial gases

reliability exceeded the world class

benchmarks, at 98.8% and 99.9% respectively, while steam at 94.5% was only 0.5% below the benchmark.

Better OEE for electricity and

industrial gases were mainly

attributed by intensive maintenance

activities and lower unplanned

activities undertaken during the year.

Ultimately, UT shown improvement from 2015 by 3.4% to 90.5% for electricity and by 7.9% to 100.0% for industrial gases. Coupled with

improved OEE, UT scored 100%

PDR for each products, which were

a significant improvement compared

to 2015.

Utilities products delivery, however,

fell as a result of lower electricity

export in line with fuelgas

optimisation initiative and lower steam

customers offtake caused by

customers internal steam optimisation.

Electricity delivery stood at 1,664 gigawatt hour (GWh); steam at 3,787 kilometric tonnes (KMt); and industrial gases at 677 mega normal cubic meters (MNm3).

UTILITIES MARKED SIGNIFICANT IMPROVEMENT IN ITS PERFORMANCE. RELIABILITY FOR ELECTRICITY AND INDUSTRIAL GASES EXCEEDED THE WORLD CLASS BENCHMARK AS A RESULT OF INTENT FOCUS ON OPERATIONAL TARGETS, COMPLEMENTED BY PREVENTIVE MAINTENANCE WORK AT OUR GAS TURBINES AND AIR SEPARATION UNIT IN KERTIH AND GEBENG.


• Plant improvement activities which have contributed towards enhancing Product Delivery Reliability such as:

• UT KRA activities for improvement of ASU reliability by resolving Main Air Compressor Bad Actors, improving steam efficiency and equipment performance.

• ASU1 and ASU2 Power Supply Segregation (ASPIRE) and Overall Boiler Integrity Management (OBIMA) project to enhanced ASU reliability and upgrading boiler to restore mechanical integrity and eliminate bad actors issues.

• Completion of Key Strategic Thrusts on People & Culture such as Gas Academy and Root Cause Failure Analysis (RCFA) Leaders programme.

• Increase productivity with implementation of WP and higher operating discipline with OeXMS implementation.

WH

AT

WE

DID

TO

AC

HIE

VE

3Z

ERO

100

TR

AN

SFO

RM

AT

ION

TA

RG

ETS

‘15‘15‘15 ‘16

14%7%2%

Electricity (GWh) Steam (KMt) Industrial Gases (MNm3)‘16‘16

1,70

4

4,0

76

59

4

677

3,7

87

1,6

64

Utilities Volume

OPERATIONS

Plant Performance



Projects Delivery

• Completion of plant turnaround

activities for demineralised water

plant at UK, nitrogen plant at UG

and gas turbine major overhaul at

UK and UG.

• Enhancing ASU plant reliability by

segregating power supply to serve

on dedicated basis for ASU1 and

ASU2 equipment under ASPIRE

project.

• OBIMA project to improve capacity

and reliability steam production in

order to support additional steam

supply to BASF PETRONAS

Chemicals Sdn Bhd (BPC) for their

new Aromatic plant effective August

2016.

FINANCIAL

UT registered revenue of RM1.1 billion

for FY2016, reflecting an improvement

of RM95.5 million (9.8%) as compared

to 2015 mainly attributable to higher

sales of industrial gases, steam and

electricity.

The increase was mainly contributed by

higher effective price charged to

industrial gases and steam customers

in line with two fuelgas price revisions

in FY2016.

UT contribution to PGB’s gross profit

increased by RM20.1 million in line

with of higher revenue despite higher,

fuelgas, operations and maintenance

cost during the year to support with

the Company’s effort in improving

plant reliability and availability.


Health, Safety, Security and Environment (HSSE)

UT is recognised at both national and

international level for its achievements

in commendable safety and health

records and higher improvement in

occupational safety and health

processes through sound management

systems. In 2016, UT received the

following awards:

• Highest awards for RoSPA International Health and Safety Awards (Gold Award) for 2016 by

The Royal Society for the Prevention

of Accidents (RoSPA).

• National Level OSH Award & Recognition (MSOSH 2015) Awarded the MSOSH OSH Grand

Award Winner 2015 (Excellence

OSH Performance) for UK. Awarded

MSOSH OSH Gold Class 1 Award

Winner 2015 (Very Good OSH

Performance) for UG.

Innovation and Improvement

The recognition garnered from industry

and statutory bodies have inspired UT

to continue to deliver the best level of

performance in the years to come.

• Consistently attained Gold Award Winners in the Regional Team Excellence Convention for East Coast Region 2016 and National Team Excellence Convention 2016

under Malaysia Productivity

Corporation (MPC) for value

creation on Co-generation plant

reliability and uninterrupted power

supply to customers.

• Award Winner under Top 10 Award

for Manufacturing Sector in National

Team Excellence Convention 2016.

• The IKM (Institut Kimia Malaysia)

2016 LAB Excellence Award accorded

to two UT labs namely UK and UG.

SUSTAINABILITY

Environment

UT acknowledges the additional

responsibility of ensuring its processes




the following:

• Discharging on-specification industrial

effluent in compliance with the

Industrial Effluent Regulation (IER)

2009.

• Keeping abreast with potential

regulation introduced by regulatory

bodies such as Clean Air Regulation

(CAR) 2014 and undertaking

necessary actions to ensure

compliance.

Community

UT has also established and sustained

close relationship with local community

through its Corporate Social Investment

(CSI) activity such as:

• Continuous support of the “Sayangi

Sungai Paka” programme in

collaboration with Malaysian Nature

Society (MNS), PETRONAS East Cost

Regional Office (ECRO) and

government agencies by sharing and

providing awareness to surrounding

communities during Hari Alam Sekitar

Negara (HASN) on 22 October 2016

and during Control of Industrial Major

Accident Hazards (CIMAH) Day on 16

May 2016. The events which focus

on environmental awareness and

conservation are part of a CSI

initiative by PGB and undertaken

by UT.

PAGE: 151

ANNUAL REPORT 2016

• Moving foward, UT performance

would be very much dependent

on the demand by Petrochemical

business.

• UT is looking forward to further

improve its high performance

by focusing on sustaining safety

and reliable operations towards

productive, efficient and

competitive assets through

continuous plant improvement

such as UG cogeneration plant

expansion, the Generator and

Turbine Control System

Upgrade (GETS-UP), preventive

maintenance and turnaround

activities.

• In line with the 3ZERO100

Beyond, UT will continue to

develop an empowered team by

enhancing leadership

competencies and optimising

cost which are competitive

against other organisations in

global benchmarking.

• Together with the

implementation of WP and

OeXMS, UT is committed to

increase staff productivity,

capability and accountability in

decision making.

• UT is also committed to pursue

new business opportunities to

maximise utilisation of its assets.

• Various CSR activities conducted

throughout the year with the

involvement of local communities,

schools and authorities including

cleaning of mosques, schools,

welfare, and residential housing

areas.

• Led Occupational Safety and Health

(OSH) open day in collaboration

with other PETRONAS subsidiaries

to foster relationship between local

communities and Terengganu

Department of Occupational Safety

and Health (DOSH).

• Second Runner Up in Gebeng

Emergency Mutual Aid (GEMA)

competition on First Aid category

organised by Polyplastic Sdn Bhd.

Workplace

UT is committed to protect the health


provides conducive workplace to staff

and contractors through various

programmes such as:

• Employee driven programmes

through HSSE Action Teams such as

Safety Observation, Safety Audit,

Mega Housekeeping, Supporting

Equipment Basic Care, and GPU

Safe Raya Campaign.

• Medical counselling carried out by

Occupational Health Doctors aimed

to promote healthy lifestyle to

employees.

• A series of “Hari Bertemu

Pelanggan” to increase health

awareness among staff including

carrying out medical screening at

UK and UG.

• Healthy lifestyle programme for

example achieving First Runner Up

during Football league with

PETRONAS Recreation Club,

Biggest Loser, Mountain Bike (MTB)

Competition, Green Run, Zumba

exercise, Body Measured Index

(BMI), Blood Donation drive and

others.

Marketplace

UT’s focus was on further

strengthening its relationship with

stakeholders through various activities

which included:

• Recreational activities consisting of

bowling tournament and friendly

futsal engagement with UT

customers and suppliers.

• Leadership Team engagement and

networking such as the Gas

Customers Annual Focus Engagement

with PETRONAS Chemical Ethylene

Sdn Bhd (PCESB) and PETRONAS

Chemicals Ammonia Sdn Bhd

(PCASB) and Plant Leadership Team

visit to PETRONAS Penapisan (Melaka)

Sdn Bhd (PP(M)SB), Linde Malaysia

Sdn Bhd (Linde), PETRONAS Chemical

Olefins, Glycol & Derivatives Sdn Bhd

(PCOGD), Air Liquide Melaka Plant

and PCESB.

• Engagement with potential

customers and contractors forum

which provided UT a platform for a

two way communications and

engagement with each other.

PAGE: 152

PETRONAS GAS BERHAD

OUTLOOK


PAGE: 153

ANNUAL REPORT 2016

PETRONAS GAS BERHAD

REGASIFICATIONBUSINESS REVIEW

PETRONAS GAS BERHAD

PAGE: 154

A visual of our Regasification segment (RGT)’s achievements, contributions and milestones during the year.

91


94

Reliability % Availability % OEE %

‘14 ‘15 ‘16 ‘14 ‘15 ‘16 ‘14 ‘15 ‘16

99

.1

83

.1

86

.3

94

.1

73

.079

.2

100

.0

88

.2

98

.4

4 (4.3%)

90 (95.7%)



OVERALL EQUIPMENT EFFECTIVENESS (OEE)

LNG cargoes from

all over the world


Total Manpower

Strength

M

20

3F

LTIF1 FATALITY

656 thousands safe

manhours achieved

1 Lost time injury frequency (LTIF) is defined as loss of productive work time due to injury suffered, relative to total hours worked during the year.

0 0

HUMAN CAPITAL HEALTH, SAFETY, SECURITY & ENVIRONMENT (HSSE)

YEAR IN REVIEW

1,651mandays of training

and development

100.0% 100.0%

Revenue decreased by 0.9% as compared

to previous year.


PAGE: 155

ANNUAL REPORT 2016

‘13

‘13

‘14

‘14

‘15

‘15

29

7.5

63

7.1

63

1.1

28

6.33

07.9

616

.2

33

8.2

163

.5RM631.1REVENUE

million

‘16

‘16




• RGT achieved regasification reliability of 98.4%, an

improvement from 86.3% recorded last year. Availability was

also elevated to 88.2% from 83.1% in FY2015.

• RGT achieved 100% OEE which translated to higher overall

asset reliability and availability through the implementation

of Key Results Area (KRA) under 3ZERO100 Transformation.

• During the year, RGT complex received 20 cargoes from all

over the world. The RGT Minimum Send Out Capability

Improvement (RGTEC) initiative to optimise the overall gas supply chain of PETRONAS and enhance plant reliability and availability was progressing at 96.9% and is expected

to be fully completed by quarter two of 2017.

• RGT recorded revenue of RM631.1 million, slightly

decreased by RM6.0 million (0.9%) from FY2015, attributed

to downward revision of Floating Storage Unit (FSU) OPEX

charter hire which was a pass through to PETRONAS.

• RGT registered gross profit of RM286.3 million, a slight

decline by RM11.2 million (3.8%) from FY2015 as a result of

lower revenue and higher repair and maintenance to

improve the assets integrity.


3.8%RM286.3GROSS

PROFIT million

86.1%

13.9%

contribution to

PGB Group

13.9%Regasification

Gross Profit

decrease in gross profit attributed to lower

revenue and higher operating costs.

BOIL OF GAS COMPRESSOR

SUCTION DRUM

METERING SKID

PROPANE PUMP

RECONDENSOR

HIGH PRESSURE PUMPS A/B

LOW PRESSURE BOOSTER PUMPS

A/B/C

1 2

34

5

LNG FROM

FSU

WITH

130,000M3

CAPACITY

EACH

NATURAL

GAS TO PGU

NATURAL GAS TRIM HEATER

LNG EVAPORATOR

BOIL OF GAS COOLER

PROPANE TANK

PROPANE EVAPORATOR

A/B/C

PROPANE PRE-HEATER

Measure natural

gas quality and

quantity

Acts as buffer tank to

transfer LNG from FSU to

Low Pressure Booster

Pumps.

Transfer LNG to Recondensor

by increasing the pressure.

Transfer LNG to Regas Train

by increasing the pressure.

Convert LNG into natural gas using propane and seawater

Legend

LNG/natural gas

Boil of Gas (BOG)

Sea water

Propane

Propane system

Product

SEA WATER

PAGE: 156

PETRONAS GAS BERHAD

RGT is operated by our Gas Transmission and Regasification

(GTR) Division. We operate and maintain our offshore liquefied

natural gas (LNG) Regasification Terminal in Sungai Udang,

Melaka (RGTSU), which began commercial operations in the

second quarter of 2013.

The facility receives vessels carrying LNG imported from around

the world, stores it in two floating storage units and converts

the LNG into gas before injecting it into the Peninsular Gas

Utilisation (PGU) pipeline network for distribution to PETRONAS

customers.

PGB receives regasification fee based on capacity underwritten

from the 20-year Regasification Services Agreement (RSA) with

PETRONAS.

The commissioning of RGTSU in 2013 paved way for the

importation of LNG to cater the increasing gas demand in

Malaysia.

Regas Terminal (Sg. Udang) Sdn Bhd will also be the operator

of the LNG Regasification Terminal in Pengerang, Johor (RGTP),

which is still under construction and targeted for commercial

operation by quarter four of 2017.

WHO WE ARE

TRAIN 1/2/3

Simplified Flow Diagram of LNG Regasification Facilities

BUSINESS REVIEW – REGASIFICATION


PAGE: 157

ANNUAL REPORT 2016

BUSINESS MODEL

REVENUE STRUCTURE

• Fees governed by our

RSA consist of:

• Regasification fee

• Throughput fee

• Storage fee

COST STRUCTURE

• Operating costs

– repair and maintenance,

material and supplies

and purchased sevices.


ASSETS

• Offshore RGTSU

• A 27 km onshore and

3 km offshore pipeline

• Two leased floating

storage units.

ACTIVITIES

• Receiving vessels carrying

LNG imported by

PETRONAS from around

the world which

subsequently stored into

floating storage units.

• The LNG is then

converted to gas through

regasification process

before being injected into

the PGU pipeline network

for distribution to

PETRONAS’ customers.

KEY RESOURCES

• 94 employees from both

technical and non-

technical background


female employees.

OUTPUT*

• Regasified LNG which is

subsequently injected into

PGU system.

CUSTOMER

• PETRONAS, which fully

underwrites the capacity

of our facilities.

ASSETS

CUSTOMER

ACTIVITIES

REVENUESTRUCTURE

KEYRESOURCES

COSTSTRUCTURE

OUTPUT

PAGE: 158

PETRONAS GAS BERHAD



RGT is committed to exhibit






Framework at all times and to




RGT is determined to increase its

efforts to instill safety-at-heart in

all members of our workforce to


Company’s assets.


through implementation of Hearts

and Minds programme which

integrates and complements all

other ongoing efforts in uplifting

RGT to a generative safety culture

and to facilitate lasting behavioural

change.



RGT strives to elevate its OEE for

equipment reliability, which would

translate into 100% product

delivery reliability to our

customers.


RGT is committed to improve and

sustain our facilities operational

performance in optimising the value

delivered to our stakeholders.


Optimum cost control and asset reliability

RGT is dedicated to minimise

value leakages and improve overall

asset reliability, which would

translate into higher returns to its

shareholders.


RGT is committed to utilise energy


energy per unit cost of

regasification, which would

translate into lower regasification

cost and reduction in overall

energy intensity and carbon

footprint.

Value optimisation on strategic growth in gas infrastructure

RGT is determined to pursue,


ventures within the core

competencies of the Company to




RGT is focused on implementing a


strategy across all of its projects,



BUSINESS STRATEGY



Cost Reduction

PAGE: 159

ANNUAL REPORT 2016


In line with the PGB Transformation

programme, RGT is committed to

undertake activities under Key

Strategic Thrusts on Assets, System

& Process and People & Culture.

RGT is committed to improve

asset reliability and availibilty

through the implementation of

KRA to eliminate the Bad Actors.

In FY2016, RGT completed various

KRA activities, which have enabled

RGT in sustaining its overall asset

reliability and availability, such as:

• Resolution of Low Temperature

and Maximise Capacity

• Enhancement of Propane Pump

Reliability

• Nitrogen Supply and Air

Compressor Enhancement

RGT MANAGED ITS RISKS

VIA ENTERPRISE RISK



MANAGEMENT (PFRM).

UNDER ERM AND PFRM,



MONITORED AND

REPORTED TO THE

DIVISION PLANT

LEADERSHIP TEAM (PLT)

AND PGB’S RISK

COMPLIANCE COMMITTEE

(RCC).

General key risk areas facing by RGT

are mainly in relation to HSSE and

failure of seawater outlet which

affecting RGT operations.

Mitigations for each risks have been

assigned to respective key risk owners

in reducing and eliminating the risks

associated with business, HSSE and

operations. The mitigations have been

implemented through HSSE and

Process Safety Management (PSM)

enhancement programmes and further

strengthening Balance of Consequence

Management and to conduct the study

on overall main seawater system

vibration.

The RGT Barometer Survey 2016


staff’s commitment and cultural shift

indicating progressive improvement

in the 3ZERO100 Transformation

journey recently completed.







PAGE: 160

PETRONAS GAS BERHAD


RGT received 20 LNG

cargoes and RGT OEE stood

at 100%, significantly improved its

performance as compared to

FY2015.

Notwithstanding that, RGT has

eliminated Bad Actors and the

positive impact of this was

reflected in the reduction of

facilities trips. We also

strengthened RGT’s HSSE and

operational compliance through

various assurance programmes.

RGT has successfully completed

internal LNG Regasification

modules under Transmission

Academy encompassing operations,

mechanical, electrical and

instrumentation development for

RGT. A total of eight Competency

Based Training sessions have been

conducted for RGT staff

encompasses of 30 newly

developed RGT specific modules

which contributes to overall 1,651

training mandays recorded for RGT

in 2016.

Projects Delivery

• Resolving Bad Actors such as

Resolution of Low Temperature,

Enhancement of Propane Pump

Reliability as well as Nitrogen

Supply and Air Compressor

Enhancement improved

reliability and availability and

eliminated potential downtime

and tripping numbers.

• RGTEC is progressing at 96.9%,

expected to be completed in

quarter two of 2017.

OUR LNG REGASIFICATION TERMINAL IN SUNGAI UDANG, MELAKA ACHIEVED ITS BEST

EVER PERFORMANCE WITH 98.4% RELIABILITY AND 100% OEE. MEANWHILE, OUR

SECOND LNG REGASIFICATION TERMINAL PROJECT IN PENGERANG IS PROGRESSING

WELL AND IS EXPECTED TO BE COMMISSIONED BY END 2017.

• Completion of Key Strategic Thrusts of People & Culture such

as Transmission Academy and Root Cause Failure Analysis

(RCFA) Leaders Programmes.

• Increased productivity with implementation of Work Process

(WP) and higher operating discipline with Operational Excellence

Management System (OeXMS) implementation.

WHAT WE DID TO ACHIEVE 3ZERO100 TRANSFORMATION TARGETS

OPERATIONS

Regasification Performance



BURHAN ABDULLAHHead of Gas Transmission and

Regasification Division

PAGE: 161

ANNUAL REPORT 2016

FINANCIAL

RGT recorded stable revenue of

RM631.1 million, contributing about

13.8% to the Group’s revenue.

RGT’s gross profit was RM286.3 million,

a decrease of RM11.2 million or 3.8%

from the previous year. The lower

gross profit was mainly due to lower

revenue and higher operating costs

mainly on repair and maintenance to

improve assets integrity.

AWARD AND RECOGNITION

GTR won Silver Award for Culture

Downstream Operational Excellence

Forum Awards (DOEFA) 2016.

SUSTAINABILITY

Environment

RGT acknowledges the additional

responsibility to ensure its processes




its compliance with Environmental

Impact Assessments (EIA) and RGT

Environmental Management Plans such

as third party environmental audit,

quarterly ambient air and noise

boundary monitoring including semi-

annually stack emission monitoring.

Community

RGT is also responsible for sustaining

cohesive relations with the local

community through its Corporate

Social Investment (CSI) activities. RGT

has conducted a social programme in

July 2016 at Tanjung Kling with the

Leadership Team by meeting the

villagers and providing donations to 20

orphanages within Tanjung Kling

vicinity.

We anticipate the revenue for our

Regasification business will contribute

positively to the Group income and remain

sustainable on the back of capacity reservation

by PETRONAS under the RSA.

In line with the PGB Transformation

journey, RGT is expected to

continue improving its assets’

performance and enhancing WP

and OeXMS’ implementation to

improve productivity.

The development of our RGTP is on

track. The commissioning of RGTP

is anticipated in quarter three of

2017 and will be in full operations

by quarter four of 2017. The new

terminal will supplement the

business growth of PETRONAS’

Pengerang Integrated Complex (PIC)

and further strengthen security of

gas supply to the nation.

OUTLOOKWorkplace

RGT is committed to protect the health


provides conducive working

environment to staff and contractors

through various programmes such as:

• HSSE Stand Down to reflect the

HSSE Alert issues by PETRONAS.

• HSSE Programmes including safety

observation by each staff and

Hearts and Minds Programme to

inculcate the safety culture among

staff.

Marketplace

RGT focused to further strengthen its

relationship with stakeholders through

various activities which included a

series of engagement sessions to foster

a good rapport with authorities such as

Melaka State Chief Policies, Director of

Melaka Tengah Health Department and

State Director of Jabatan Bomba dan

Penyelamat Malaysia (JBPM).

06

CORPORATE GOVERNANCE

166 Corporate Governance Statement

181 Status of Observance with The

Principles and Recommendations

of The Malaysian Code on

Corporate Governance 2012

184 Statement on Risk Management

and Internal Control

198 Board Audit Committee Report

204 Nomination and Remuneration

Committee Report

210 Business Continuity Management

212 Internal Policies

THE BOARD OF DIRECTORS

(THE BOARD) OF PETRONAS

GAS BERHAD (PGB OR THE

COMPANY) BELIEVES THAT

EXCELLENCE IN

CORPORATE GOVERNANCE

STANDARDS

DEMONSTRATES THE

COMMITMENT BY THE

BOARD TO ACHIEVE THE

HIGHEST STANDARDS OF

PROFESSIONALISM AND

BUSINESS ETHICS ACROSS

THE COMPANY’S

SPECTRUM OF ACTIVITIES.

THE BOARD

ACKNOWLEDGES THAT

IT IS A FORM OF

SELF-REGULATION WHICH

IS AIMED AT ENHANCING

BUSINESS PROPOSITIONS

AND MAXIMISING

SHAREHOLDERS’

VALUE AND PROTECT

STAKEHOLDERS’ INTERESTS.

This Corporate Governance Statement

seeks to provide investors with vital

insights into the corporate governance

practices of PGB. In this statement, the

Board reports on the manner the

Group has adopted and applied the

principles and best practices as set out

in the Main Market Listing

Requirements (MMLR) of Bursa Malaysia

Securities Berhad (Bursa Malaysia), the

Malaysian Code on Corporate

Governance 2012 (MCCG 2012) and

the Minority Shareholder Watchdog

Group (MSWG).

BOARD OF DIRECTORS

Principal Roles and Responsibilities of the Board

The Board is generally entrusted with the overall governance of the Company, the

responsibility to exercise reasonable and proper care of the Company’s resources for

the best interests of its shareholders as well as to safeguard the Company’s assets.

In discharging its fiduciary and leadership functions, the roles and responsibilities of

the Board are, inter alia, as follows:

THE BOARD’S MAIN FUNCTIONS

STRATEGY FORMULATION

MONITORING AND SUPERVISING EXECUTIVE ACTIVITIES

POLICY MAKING

PROVIDING ACCOUNTABILITY

• Reviewing, approving and monitoring the strategic business plans, goals and

key policies proposed by the Management to ensure sustainability and

optimisation of long term returns.

• Identifying, continuously assessing and managing the principal risks affecting

PGB Group and the implementation of an effective system of internal controls,

mitigation measures and risk management;

• Overseeing the conduct and the performance of the Management as well as

PGB Group’s businesses;

• Overseeing the appropriate succession plan for members of the Board and

Management; and

• To review the adequacy and integrity of the Company’s internal systems including

systems for compliance with applicable laws, regulations, rules and guidelines.

• To ensure that appropriate policies are in place, adopted effectively and are

regularly reviewed in light of the changing circumstances.

• Policies are normally developed by the Management and where appropriate, be

approved by the Board. In some situations, the Board may set the policies

themselves.

• In other cases, the Board may delegate the policy making to the Managing

Director/Chief Executive Officer (MD/CEO) and the Management.

• The Board is accountable to its members or shareholders. The Board may

have some accountability towards a wider range of stakeholders affected by

PGB’s decision such as employees, suppliers, customers, the local community

and the state where PGB is operating.

IR9 Our Board has exhibited an exemplary responsibility towards promoting good governance as explained

in the Board Charter on page 167.

PAGE: 166

PETRONAS GAS BERHAD

CORPORATE GOVERNANCE STATEMENT

In discharging its duties and roles

effectively, the Board is guided by its

Board Charter, a document which sets

out the principles and guidelines that

are to be applied by the Board and the

Board Committees. The Board Charter

was developed based on the principles

and recommendations as set out in the

MCCG 2012.

The Board Charter shall be periodically

reviewed and updated from time to

time to reflect relevant changes to

policies, procedures and processes as

well as amendments to rules and

regulations.

On 2 November 2016, the Board

reviewed and approved revisions to the

Board Charter, which included

delineating the roles of the Chairman

and MD/CEO and updating various

provisions to ensure the document

remains relevant and consistent with

applicable rules and regulations and

recommended best practices.

The Board Charter is accessible to

the public for reference on the

Company’s official website at

www.petronasgas.com.

Composition of the Board

The Board currently comprises seven

members, one of whom holds an

Executive Office, having a dual role as

Managing Director as well as Chief

Executive Officer. There are three

members who are independent and

non-executive and three other non-

independent and non-executive

members, including the Chairman. In

addition, none of the Board Members

is a former MD/CEO of PGB in the last

two years.

In accordance with the Board Diversity

Policy and in line with the Country’s

aspirational target of 30%

representation of women, the Board is

pleased to report that female directors

currently represents 43% of its

composition.

As at the date of this Annual Report,

the Board composition is as follows:

Executive Director(MD/CEO)

1 out of 7

Independent Non-Executive Directors 3 out of 7

Non-Independent Non-Executive Directors(including Chairman)

3 out of 7

14%43%

43%

Board composition

The composition of the Board exceeds

the requirements of Paragraph 15.02 of

the MMLR as more than one-third of

its members are Independent Non-

Executive Directors. This composition

enables an effective and objective

check and balance on the Board’s

deliberation and decision making. The

presence of the Independent Non-

Executive Directors is also crucial in

the mitigation of any possible conflict

of interest in relation to related party

transactions.

During the financial year under review,

the Board underwent a few changes in

its composition following the

retirement of Datuk Rosli Boni and

resignation of Ir Pramod Kumar

Karunakaran. They vacated their

positions as Directors of the Company

effective 1 September 2016. Datuk Rosli

Boni and Ir Pramod Kumar Karunakaran

are succeeded by Emeliana Dallan

Rice-Oxley and Wan Shamilah Wan

Muhammad Saidi, whose profile are

available on pages 45 and 46 of this

Annual Report.

As at the date of this Annual Report

and as announced to Bursa Malaysia,

on 2 November 2016 and 9 December

2016 respectively, Lim Beng Choon,

Dato’ N. Sadasivan N.N. Pillay and Tan

Sri Dato’ Seri Shamsul Azhar Abbas also

ceased to be Directors of the

Company effective 1 January 2017.

IR9

PAGE: 167

ANNUAL REPORT 2016

Lim Beng Choon has been succeeded by an Independent Non-Executive Director, Heng Heyok Chiang @ Heng Hock Cheng

whilst Tan Sri Dato’ Seri Shamsul Azhar Abbas has been succeeded by Datuk Mohd Anuar Taib as the new Chairman on 1

January 2017. PGB is currently evaluating potential candidates to replace Dato’ N. Sadasivan N.N. Pillay. The Board wishes to

extend its gratitude to the outgoing Directors for their outstanding contribution and services during their tenure as Directors

of PGB.

The Directors are selected based on their individual merits and experience. The current Board’s composition comprises

individuals of diverse backgrounds with expertise and skills in the oil and gas industry, economics, engineering/technical,

finance, operations and corporate planning. The current Board’s composition has the adequate size and diversity of age,

gender and ethnicity. These are important to ensure diversity of views, facilitate effective decision making and constructive

Board deliberation during its meetings.

The profile of each Director is presented on page 41 to page 47 of this Annual Report.

Skill and Experience Matrix of The Board of Directors

* Required Skills and/or Experience

Datuk Mohd Anuar Taib

Yusa’ Hassan

Habibah Abdul

Dato’ Ab. Halim

Mohyiddin

Emeliana Dallan

Rice-Oxley

Wan Shamilah

Wan Muhammad

Saidi

Heng Heyok Chiang @

Heng Hock Cheng

Finance/Audit

Economics

Engineering/Technical

Commercial/Marketing

Operations

Corporate Planning

and Development

Human Resource

Oil and Gas

Banking and Finance

Shipping/Logistics

Regional/International

* Includes tertiary and professional experience.

IR9 The Board has an appropriate mix of skills and experience to effectively govern and steer the direction of the Company.


PAGE: 168

PETRONAS GAS BERHAD

The Non-Executive Directors possess

the necessary expertise and experience

to ensure that the strategies proposed

by the Management are fully

deliberated and examined, taking into

account the long term interests of the

shareholders and stakeholders. They

contribute to the formulation of policy

and decision making through their

expertise and experience. They also

provide guidance and promote

professionalism and competence

among Management and employees.

The Independent Non-Executive

Directors do not participate in the

day-to-day management of the Group

and do not engage in any business

dealing or other relationship with any

companies within the Group. The

Independent Non-Executive Directors

play a significant role in providing

unbiased and independent views,

advice and judgment taking into

account the interest of relevant

stakeholders including minority

shareholders of the Group. For the

financial year under review, the


have reaffirmed their independence

based on the criteria of Independent

Non-Executive Directors as provided in

the MMLR.

In accordance with the MMLR, none of

the members of the Board holds more

than five directorships in listed

companies.

Prior to acceptance of any other

appointment for directorships in other

listed companies, the Directors are

required to first notify the Chairman to

ensure that such appointments would

not unduly affect their time

commitments and responsibilities to

the Board.

Chairman and MD/CEO

There is clear demarcation of duties

and responsibilities between the

Chairman, MD/CEO and Non-Executive

Directors to ensure a balance of power

and authority. The positions of

Chairman and MD/CEO are held by

two different individuals.

The Chairman is primarily responsible

for the stewardship and smooth

functioning of the Board, whilst the

MD/CEO is responsible for the overall

operations of the business,

organisational effectiveness and the

implementation of the Group’s

strategies and policies. Given the

Company’s synergetic business

operational integration with Petroliam

Nasional Berhad (PETRONAS), the

Chairmanship of the Company remains

with a Non-Independent Non-Executive

Director.

The MD/CEO also manages the

respective responsibilities of the

divisions and departments in the

Company and he is assisted in the

management of the business by the

Leadership Team (LT). The LT ensures

that effective systems, controls and

resources are in place to execute

business strategies and decisions taken

by the MD/CEO and/or the Board.


Habibah Abdul who fulfils the criteria

under the definition of Independent

Director pursuant to MMLR is the

Senior Independent Director of the

Company (SID). As a SID, she acts as

the main liaison between the


and the Chairman on matters that may

be deemed sensitive and also provides

an alternative communication avenue

for shareholders and stakeholders to

convey their concerns and raise issues

so that these can be channeled to the

relevant parties.

All queries relating to the Group can

be channeled to the following address:

Habibah AbdulSenior Independent Director

PETRONAS Gas Berhad

Level 51, Tower 1,



50088 Kuala Lumpur

Email address:

[email protected]

PAGE: 169

ANNUAL REPORT 2016

Roles of Chairman, MD/CEO and Senior Independent Director

Chairman

(i) Leading the Board in setting the

values and ethical standards of

PGB.

(ii) Chairing the Board meetings and

stimulating debates on issues and

encouraging positive contributions

from each Director.

(iii) Consulting with the Company

Secretary in setting the agenda for

board meetings and ensuring that

all relevant issues are on the

meetings’ agenda.

(iv) Maintaining a relationship of trust

with and between the MD/CEO

and Non-Executive Directors.

(v) Ensuring the provision of accurate,

timely and clear information to

Directors.

(vi) Ensuring effective communication

with shareholders and relevant

stakeholders.

(vii) Conducting performance

assessment of the Board, its

Committees and individual

directors, including assessment of

the independence of Independent

Non-Executive Directors.

(viii) Facilitating effective contribution of

Non-Executive Directors and

ensuring constructive discussions

at Board meetings.

(ix) Ensuring that all Directors are

properly apprised on issues arising

at Board meetings and there is

sufficient time allowed for

discussion on complex or

contentious issues and where

appropriate, arranging for informal

meetings beforehand to enable

thorough preparations.

(x) Allowing every Board resolution to

be voted on and ensuring the will

of the majority prevails.

(xi) Casting his votes in accordance

with the prescribed Articles in the

Constitution of the Company.

(xii) Ensuring that all Board Members,

upon taking up their office, are

fully-briefed on the terms of their

appointment, time commitment,

duties and responsibilities, and the

business of PGB.

(xiii) Acting as liaison between the

Board and Management, and

between the Board and the

MD/CEO.

MD/CEO

(i) With regard to the Board and PGB:

(a) To develop and recommend

to the Board the long term

strategy and vision for PGB

and/or Group that leads to

the creation of long term

prosperity and stakeholder

value.

(b) To develop and recommend to

the Board the operational plan

and budget that support PGB’s

and/or Group’s long term

strategy.

(c) To foster a corporate culture

that promotes ethical

practices, encourages

individual integrity and the

fulfilment of PGB’s corporate

social responsibilities.

(d) To maintain a positive and

ethical working environment

that is conducive to attracting,

retaining and motivating a

diverse workforce at all levels.

(ii) With regard to the Management

and business operation:

(a) To recommend suitable

management structure and

operating authority levels

which include delegations of

responsibilities to the

Management.

(b) To ensure an effective LT

below the level of the

MD/CEO and to develop an

appropriate succession plan.

c) To formulate and oversee

implementation of major

corporate policies.

d) To be accountable to the

Board for the financial

management and reporting,

including forecasts and

budgets of PGB.

(e) To make reports to the Board

periodically on its financial

positions, key performance

indicators and business

development from time to

time.

(f) To ensure continuous

improvement in quality and

value of PGB’s products and

services.

(g) To serve as spokesperson for

PGB.

IR9 Specific actions and role of the Senior

Management are highlighted above.

PAGE: 170

PETRONAS GAS BERHAD



The SID acts as the point of contact between the Independent Non-Executive Directors and Chairman on sensitive issues

and has been identified as a designated contact to whom shareholders’ concerns or queries may be raised, as an alternative

to the formal channel of communication with shareholders.

Board Diversity

The Board recognises that diversity is one of the key drivers to enhance the Board’s effectiveness as diversity broadens the

debate within the Board. In August 2016, the Board approved the Diversity Policy whose objective is to ensure that the mix

and profiles of the Board Members, in terms of age, ethnicity and gender, provide the necessary range of perspectives,

experience and expertise required to achieve effective stewardship and management.

As at the date of this Annual Report, all of the seven Directors are Malaysian. Of the total, five are Malay; one Chinese and

the other is of an Anglo-Bisaya ethnicity. On the other hand, the Board is made up of four male Directors while the

remaining are females.

The current Board’s age distribution falls within the respective age groups as follows:

The Board Diversity Policy is accessible to the public for reference on PGB’s official website at www.petronasgas.com.

4

1

2AG

E G

RO

UP 40-54

55-64

65-74

Number of Directors

IR9 The Board diversity is highlighted above.

PAGE: 171

ANNUAL REPORT 2016

Board Meetings

The Board meets at least quarterly with additional meetings convened as and when necessary. The Board meetings for the

2016 financial year are scheduled in November 2015 to facilitate the Directors in planning ahead and incorporating the Board

meetings into their respective schedules. This also serves to provide the members with ample notice of the meetings.

The Board has a formal schedule of matters reserved at Board meetings which includes corporate plans, annual budgets,

operational and financial performance reviews, major investments and financial decisions, management performance

assessment, changes to the management and control structure within the Group, including key policies and procedures and

delegated authority limits. The reports of the Board Audit and Nomination and Remuneration Committees are also presented

and deliberated at Board meetings. All proceedings of Board meetings are duly recorded in the minutes of each meeting and

signed minutes of each Board meeting are properly kept by the Company Secretary.

During the financial year under review, the Board met in total of five times. All Directors complied with the minimum

attendance requirement of at least 50% of Board meetings held during the financial year pursuant to the MMLR.

The breakdown of the meetings of the Board Committees and Annual General Meeting held and the attendance of the

Directors who had served PGB during the financial year under review, are as follows:

Board ofDirectors’ Meetings

Board Audit Committee

Meetings

Nomination and Remuneration

Committee Meetings

Annual General Meeting

Name of Directors Att

end

ance

Per

cen

tag

e

Att

end

ance

Per

cen

tag

e

Att

end

ance

Per

cen

tag

e

Att

end

ance

Per

cen

tag

e

Tan Sri Dato’ Seri Shamsul Azhar Abbas*** 5/5 100 1/1 100

Yusa’ Hassan 5/5 100 1/1 100

Dato’ N. Sadasivan N.N. Pillay*** 5/5 100 4/4 100 2/2 100 1/1 100

Datuk Rosli Boni** 4/4 100 3/3 100 1/1 100

Dato’ Ab. Halim Mohyiddin 5/5 100 4/4 100 1/1 100

Ir. Pramod Kumar Karunakaran** 4/4 100 1/1 100

Lim Beng Choon***# 5/5 100 3/3 100 2/2 100 1/1 100

Habibah Abdul# 5/5 100 3/3 100 2/2 100 1/1 100

Emeliana Dallan Rice-Oxley* 1/1 100 1/1 100

Wan Shamilah Wan Muhammad Saidi* 1/1 100

* Appointed on 1 September 2016

** Vacated office on 1 September 2016

*** Vacated office on 1 January 2017# Appointed as Board Committee members on 24 February 2016

The Board’s strategic conversation with the LT of PGB was held on 13 September 2016 to deliberate on the market outlook,

external environment analysis and the Group’s strategic and growth plans.

PAGE: 172

PETRONAS GAS BERHAD


Dealing in Shares

On a quarterly basis, the Company

Secretary issued a Notice of Closed

Period to Directors and Management,

highlighting the requirements with

regard to dealing in the Company’s

shares during the “Closed

Period”/”Outside Closed Period” as they

are in a possession of price sensitive

information relating to PGB.


none of the Directors and the

Management of PGB have any dealing

in shares during the “Closed Period”.

Supply and Access to Information

Prior to each Board meeting, the

agenda and a set of board papers

encompassing qualitative and

quantitative information relevant to the

business of the meeting are circulated

to all Directors within five business

days of the meeting dates. This enables

the Directors to have sufficient time to

peruse the board papers and seek

clarification or further details from the

Management or the Company Secretary

before each meeting to ensure

preparedness for the meeting. Any

Director may request matters to be

included in the agenda. Urgent papers

may be presented and tabled at a

meeting under the item Any Other

Business, subject to the approval of

both the Chairman and MD/CEO. The

content of the board papers are

comprehensive and include objectives,

background, critical issues, implications,

risks, strategic fit, recommendations

and other pertinent information to

enable informed decision making by

the Board.

Presentations and briefings by the

Management and relevant external

consultants, where applicable, are also

held at Board meetings to advise the

Board. In this regard, relevant

information is furnished and

clarification given to assist the Board in

making a decision.

Access by the Board to board papers is

carried out online through a

collaborative software which allows the

Directors to securely access Board

documents and collaborate with other

Board Members and the Company

Secretary electronically. The online

accessibility facilitates the Directors to

read and review documents or

communicate with other Board

Members at any time.

The Directors have direct access to the

Management and have unrestricted

access to any information relating to

the Group to enable them to discharge

their duties. The Directors also have

direct access to the advice and services

of the Company Secretaries and are

regularly updated on new statutory and

regulatory requirements relating to the

duties and responsibilities of the

Directors. The Directors, whether as a

full Board or in their individual capacity,

may seek independent professional

advice at the Company’s expense in

furtherance of their duties.

Board Committees

To assist the Board in discharging its

duties, the Board has established two

Board Committees namely the Board

Audit Committee (BAC) and the


Committee (NRC). The reports of these

Committees can be found on pages

198 to 209 of this Annual Report.

Continuing Development Programme for Directors

All the Directors except for Datuk

Mohd Anuar Taib and Wan Shamilah

Wan Muhammad Saidi have attended

the Mandatory Accreditation

Programme (MAP) as required under

the MMLR of Bursa Malaysia.

Datuk Mohd Anuar Taib and Wan

Shamilah Wan Muhammad Saidi will

complete the MAP on 6-7 April 2017

and 20-21 February 2017 respectively.

The Directors are regularly updated on

the Group’s businesses and the

competitive and regulatory environment

in which the Group operates. As an

integral part of orientation programme

for new directors, the Company

provides comprehensive briefings on

the Group’s operations and financial

performance as well as site visits to the

Group’s projects and facilities.

In line with Recommendation 4.2 of

the MCCG 2012, the Directors

recognise the importance and value of

attending conferences, training

programmes and seminars in order to

keep themselves abreast with the

development and changes in the

industries in which the Group operates,

as well as to update themselves on

new statutory and regulatory

requirements. During the financial year

under review, the Directors attended

and participated in programmes,

conferences and seminars that covered

the areas of corporate governance,

financial, relevant industry updates and

global business developments which

they considered as useful in

contributing to the effective discharge

of their duties as directors. The

Directors also participated in a

familiarisation visit to PGB’s project site

situated at Pengerang, Johor.

PAGE: 173

ANNUAL REPORT 2016

During the financial year under review, the Directors participated in seminars and training programmes in various capacities

as delegates and/or speakers, the details of which are set out below:

Attendee(s) Training/Conferences Date

Tan Sri Dato’ Seri

Shamsul Azhar Abbas

1. Sustainability Engagement Series for Directors and CEOs

2. Site Visit at Pengerang Integrated Complex (PIC) Pengerang, Johor

– Overview of LNG Regasification Terminal (RGT) and Air Separation

Unit (ASU) Projects

3. 5th PETRONAS BAC Forum 2016

4. MISC Berhad Board Annual Training

– Ethics and Compliance

– Financial Reporting – Updates on Changes in Reporting Standards.

31 March 2016

23 July 2016

16 August 2016

11 November 2016

Yusa’ Hassan 1. Daiwa Investment Conference 2016

2. Invest Malaysia 2016 “Leadership Think LAB”

3. Briefing on Securities Commission Malaysia Annual Report 2015

4. Strategic Insights Forum with IHS

5. Sustainability Engagement Series for Directors and CEO

6. Site Visit at PIC Pengerang, Johor

– Overview of RGT and ASU Projects

3 – 4 January 2016

10 March 2016

10 March 2016

22 April 2016

1 June 2016

23 July 2016

Dato’ N. Sadasivan

N.N. Pillay


2. The Interplay between CG, NFI and Investment Decision – What

Boards of Listed Companies Need to Know

3. Related Party Transactions

– Their Implications to the Board of Directors, Audit Committee &

Management

16 August 2016

28 September 2016

25 October 2016

Datuk Rosli Boni 1. Site Visit at PIC Pengerang, Johor


23 July 2016

Ir. Pramod Kumar Karunakaran 1. Site Visit at PIC Pengerang, Johor


23 July 2016

Dato’ Ab. Halim Mohyiddin 1. Corporate Governance Breakfast Series

– Future of Auditor Reporting

– The Game Changer for Boardroom

2. Independent Directors Programme: The Essence of Independence

3. MFRS Update 2016 (Run 2)

4. Annual Planning Forum


– Overview of RGT and ASU Project


6 March 2016

23 March 2016

28 March 2016

13 July 2016

23 July 2016

16 August 2016

Lim Beng Choon 1. Sustainability Engagement Series for Directors and CEOs




4. MISC Berhad Board Annual Training

– Ethics and Compliance

– Financial Reporting – Update on Changes in Reporting Standards

31 March 2016

23 July 2016

16 August 2016

11 November 2016

Habibah Abdul 1. Site Visit at PIC Pengerang, Johor


2. Tax Budget by Ernst & Young

3. Conference – Malaysian Institute of Accountants

23 July 2016

27 October 2016

15 – 16 November 2016

Emeliana Dallan Rice-Oxley 1. Mandatory Accreditation Programme (MAP) 13 – 14 October 2016

Wan Shamilah

Wan Muhammad Saidi

1. Advanced 1: Best Practices for Board Excellence Programme

2. Advanced 2: Effective Strategy for Stakeholders Management

3. Advanced Management Programme, Harvard School

3 August 2016

17 October 2016

28 March – 20 May 2016

PAGE: 174

PETRONAS GAS BERHAD


Re-appointment and Re-election

In accordance with Article 93 of the

Constitution of the Company, at every

Annual General Meeting (AGM),

one-third of the Directors shall retire

from office by rotation and may offer

themselves for re-election. The

Constitution of the Company also

provides that all Directors are subject

to retirement by rotation at least once

in every three years and shall be

eligible for re-election. Directors who

are appointed by the Board during the

financial year are subject to re-election

by shareholders at the first AGM held

following their appointments.

The Companies Act 2016, has now

replaced the Companies Act 1965

effective 31 January 2017. With the

enforcement of the new Act, the

Companies Act 1965 was therefore

repealed. Previously, under section 129

of the Companies Act 1965 a Director

who is over 70 years of age must

retire at the AGM of the Company, and

may be re-appointed by shareholders

with not less than a three-fourths

majority. Pursuant to new Companies

Act 2016 Directors who attain the age

of more than 70 years are no longer

required to retire at the AGM of the

Company.

Recommendations 3.2 and 3.3 of the

MCCG 2012, states that the tenure of

an Independent Non-Executive

Directors should not exceed a

cumulative term of nine years. Upon

completion of the nine years, an

Independent Non-Executive Director

may continue to serve on the Board

subject to the directors’ re-designation

as a Non-Independent Director or the

Board must justify and seek

shareholders’ approval in the event it

retains the Director as an Independent

Director.

For the financial year under review,

none of PGB’s Independent Director

has exceeded the nine years tenure.

Board Effectiveness Evaluation

The Company conducts an annual

evaluation of the effectiveness of its

Board and Committees. It comprises a

Board Evaluation, a Committee

Evaluation, Board Skills and

Competency Mapping and Individual

Director Self and Peer Evaluation

(Board Evaluation). The purpose of the

Board evaluation is to measure the

effectiveness of the performance of the

Board and Committees as a whole and

the Directors individually as well as to

address the Board’s and Committees’

attention on areas for improvement as

part of discharging each members’ role

as a Director of the Company. The

Board Evaluation also addresses the

Board’s and each Committee’s

attention on areas for improvement as

part of discharging his/her role as a

Director of PGB.

The questionnaires on the Board

Evaluation are prepared internally

incorporating applicable best practices.

The indicators for the performance of

the Board include factors such as

conduct, participation and

communication with the Management

and stakeholders as well as overall

strategy and planning for the Company.

The performance indicators for

individual Directors include roles,

leadership and contribution to the

Company.

Upon completion of the evaluation by

the Directors, the Company Secretary

collates and analyses the feedback

received. The analysis conducted is

presented to the NRC for deliberation.

In addition, the Chairman may conduct

individual feedback sessions with the

Board Members with a view to

enhance strengths and discuss areas

for improvement.

For the financial year under review, a

Board evaluation was undertaken with

the Board providing its feedback and

assessment on the performances of

both the MD/CEO and the Chairman.

From the Board Evaluation, it was

noted that the MD/CEO and

Chairman’s roles were balanced and

linked to the current strategy and

future aspirations of the Company.

Directors’ Fees

The fees structure of Non-Executive

Directors of the Company consists of

the following:

• Fees for duties as Directors and

additional fees for undertaking

responsibilities as Chairman of the

Board;

• Meeting allowances for each

meeting attended;

• Fuel allowance; and

• Directors and Officers Liability

Insurance.

The fees and allowances for Non-

Executive Directors are determined by

the Board and are subject to the

approval of the shareholders of the

Company at the AGM. The review of

Directors’ fees and allowances is under

the purview of the NRC before any

recommendation is tabled to the Board.

The Director’s fees and meeting

allowances for certain Non-Independent

Non-Executive Directors who are also

employees of PETRONAS and holding

positions of Vice President and above

are paid directly to PETRONAS. The

presence and participation of the

Non-Independent Non-Executive

Directors who are employees of

PETRONAS provide the Board with a

deeper insight into the operations of

PETRONAS.

PAGE: 175

ANNUAL REPORT 2016

Pursuant to Article 84 of the Constitution of the Company, PGB also reimburses reasonable expenses incurred by Directors,

where relevant, in the course of carrying out their duties as Directors.For the financial year under review, the breakdown of

the Directors’ fees is as follows:

Name of Directors

Directors’ Fees(RM)

Board Meeting

Attendance Fees^ (RM)

Audit Committee

Meeting Attendance

Fees^

(RM)

Nomination and

Remuneration Committee

Meeting Attendance

Fees^

(RM)AGM(RM)

Others**

(RM)Total

(RM)

Tan Sri Dato’ Seri

Shamsul Azhar Abbas 108,000 20,000 N/A N/A 4,000 6,000 138,000

Yusa’ Hassan N/A N/A N/A N/A N/A N/A N/A

Dato’ N. Sadasivan N.N.

Pillay 72,000 15,000 9,000 4,000 3,000 6,000 109,000

Datuk Rosli Boni 48,000 12,000 6,000 N/A 3,000 6,000 75,000

Ir Pramod Kumar

Karunakaran

36,000

12,000

6,000

6,000 N/A N/A

3,000

1,000

45,000*

19,000

Dato’ Ab. Halim

Mohyiddin 72,000 15,000 8,000 N/A 3,000 6,000 104,000

Lim Beng Choon 72,000 15,000 6,000 6,000 3,000 3,000 105,000

Habibah Abdul 72,000 15,000 9,000 4,000 3,000 6,000 109,000

Emeliana Dallan Rice-

Oxley 24,000 3,000 2,000 N/A N/A N/A 29,000*

Wan Shamilah Wan

Muhammad Saidi 24,000 3,000 N/A N/A N/A N/A 27,000

Total 540,000 110,000 40,000 14,000 22,000 34,000 760,000

* Fees paid to PETRONAS

** Others includes petrol/fleet card.

^ Meeting attendance fees are based on the number of meetings attended by the Directors.

PAGE: 176

PETRONAS GAS BERHAD


The remuneration package for the

Executive Director of the Company is

balanced between fixed and

performance linked elements. A portion

of the Executive Director’s

compensation package is variable in

nature and is Key Performance

Indicator (KPI) driven, which includes

the Group’s performance. As an

Executive Director, he is not entitled to

receive Directors’ fees as well as

meeting allowance.

Yusa’ Hassan, the MD/CEO and an

Executive Director of the Company, is

an employee of PETRONAS and is

seconded to the Company. In

consideration of the service of the

MD/CEO, the Company is required to

pay fee to cover all payroll-related costs

and benefits ordinarily incurred by him

in the course of his employment. During

the year, RM787,320 was paid for his

services as MD/CEO of the Company.

Management staff and executives of

PGB have also been seconded from

PETRONAS. Their training, succession

planning and performance appraisal are

aligned to the PETRONAS’ Human

Resources Policies and Strategies. The

Board ensures that only appropriate

personnel with the relevant skills and

experiences are appointed to the

Management positions of PGB.

The Directors’ fees are broadly categorised into the following bands:

Number of Directors

Range of Fees Executive Non-Executive

RM50,000 and below – 2

RM50,001 to RM100,000 – 2

RM100,001 to RM150,000 – 5

RM700,000 to RM1,000,000 1 –

IR5 The remuneration package is well balanced and directly linked to the Group performance. Read more

on our performance scorecard and key performance indicators from pages 102 to 107.

Fixed

Group Performance

Variable

PAGE: 177

ANNUAL REPORT 2016

RELATIONSHIP WITH SHAREHOLDERS

Communications between the Company and its investors

The Board recognises the importance of

effective communications with the

Company’s shareholders and other

stakeholders including the general

public. Information on the Group’s

business activities and financial

performance is disseminated timely

through announcements to Bursa

Malaysia, postings on the Company’s

website, press releases, issuance of the

Annual Report and where required,

press conferences. Immediately after the

conclusion of the AGM, the Company

will hold a press conference with the

media and any materials distributed

during the press conference are

published on the Company’s website.

The MD/CEO together with the Chief

Financial Officer and the Company’s

Investor Relations Unit conduct regular

dialogues with the Company’s

institutional shareholders and analysts,

and hold quarterly analysts briefings to

further explain the Group’s quarterly

financial results. This is to promote

better understanding of the Group’s

financial performance and operations.

Visits to the Group’s facilities are also

organised periodically to facilitate

better appreciation and insight into the

Group’s business and operations.

The Company actively updates its

website www.petronasgas.com

with the latest information on the

corporate and business aspects of the

Group. Press releases, announcements

to the Bursa Malaysia, analyst briefings

and quarterly results of the Group are

also made available on the website and

this helps to promote accessibility of

information to the Company’s

shareholders and all other market

participants. Communication and

feedback from investors can also be

directed to the email address

[email protected] or

alternatively, it can be addressed to:

Harris HarunHead Investor Relations

Level 51, Tower 1


50088 Kuala Lumpur

Malaysia

Annual General Meeting (AGM)

The AGM is the principal forum of

open dialogue with shareholders. The

notice and agenda of the AGM

together with Forms of Proxy are given

to shareholders at least 25 days before

AGM, which gives shareholders

sufficient time to prepare themselves to

attend the AGM or to appoint proxies

to attend and vote on their behalf.

Each item of ordinary business

included in the notice of the AGM will

be accompanied by an explanatory

statement on the effects of the

proposed resolution. For the past two

years, 28 days’ notice were issued to

shareholders.

At each AGM, shareholders are

encouraged and given sufficient

opportunity as well as time by the

Board to raise questions on issues

pertaining to the Annual Report,

resolutions being proposed and the

business of the Company or the Group

in general prior to seeking approval

from members and proxies on the

resolutions. The Board, LT, external

auditors and other advisors, as

applicable are present at the AGM to

provide answers and clarifications to

shareholders. The Chairman informs on

the availability of poll voting via

electronic polling by shareholders on

matters raised during the AGM.

Pursuant to Paragraph 8.29A of the

MMLR, each resolution to be tabled at

an AGM is to be voted by poll.

Consequently, decisions at PGB’s AGM

scheduled to be held on 17 April 2017

will be conducted via electronic

polling. For this purpose, PGB will

engage independent scrutineers to

validate the voting at the AGM for each

proposal presented to shareholders.

ACCOUNTABILITY AND AUDIT

Financial reporting

The Board is committed to provide a

fair and objective assessment of the

financial position and prospects of the

Group in the quarterly financial results,

annual financial statements, Annual

Reports and all other reports or

statements to shareholders, investors

and relevant regulatory authorities.

The Statement of Responsibility by

Directors in respect of preparation

of the annual audited financial

statements is set out on page 22 of

the Financial Report.

PAGE: 178

PETRONAS GAS BERHAD


Related Party Transactions and Conflict of Interest Situations

All related party transactions including

recurrent related party transactions

entered into by the Company or its

subsidiaries are reviewed by the BAC.

The list of transactions entered into

with related parties are incorporated at

page 82 of the Financial Report.

The Company has established its

policies and procedures on related party

transactions and conflict of interest

situations, including recurrent related

party transactions, to ensure that they

are undertaken on normal commercial

terms and are not to the detriment of

the Company’s minority shareholders.

The policies and procedures are

embodied in the PGB Related Party

Transaction/Recurrent Related Party

Transactions Policies and Procedures.

The Statement on Risk Management

and Internal Control provides a

comprehensive overview of the Group’s

policies and procedures on related

party transactions and recurrent related

party transactions. This is set out

on page 193 to page 194 of this

Annual Report.

Risk Management and Internal Control

The Board continues to maintain and

review its risk management processes

and internal control procedures to

ensure a sound system of risk

management and internal control to

safeguard shareholders’ investments

and the assets of the Company and

the Group.

The Statement on Risk Management

and Internal Controls provides an

overview of the risk management and

internal controls within the Group as

set out on page 184 to page 197 of

this Annual Report.

INTEGRITY AND ETHICS

The Board further acknowledges its

role in establishing a corporate culture

that encompasses and embraces

ethical conduct within the Group. In

line with this principle, the Board has

adopted the PETRONAS Code of

Conduct and Business Ethics, the

Whistleblowing Policy, the Corporate

Disclosure Guide and the Anti-Bribery

and Corruption Manual. The adoption

of these policies is to ensure that the

conduct of business and the

Company’s employees are consistently

carried out ethically and with integrity.

IR9 PGB is committed to uphold the ethical value

as mentioned above.

Code of Conduct and Business Ethics

The Group adopts and practices the

PETRONAS Code of Conduct and

Business Ethics (CoBE). Further

information on CoBE can be found on

page 212 of this Annual Report.

The CoBE is also accessible to

the public for reference on the


www.petronasgas.com

Whistleblowing Policy

The Group has adopted the PETRONAS

Whistleblowing Policy which provides

an avenue for the Group’s employees

and members of the public to disclose

any improper conduct in accordance

with the procedures as provided under

the Policy.

Further information on the PETRONAS

Whistleblowing Policy can be found on

page 213 of this Annual Report.

The Whistleblowing Policy is also

accessible to the public for reference

on the Company’s official website at

www.petronasgas.com

Corporate Disclosure Guide

The Company has established an

internal Corporate Disclosure Guide to

facilitate the disclosure and conduct on

the dissemination of information. This

Guide is based on the requirements as

set out in the MMLR, the Corporate

Disclosure Guidelines [2nd Edition] by

Bursa Malaysia and promotes

transparency and accountability in the

communication and dissemination of

material information amongst the

Company organisation and public. A

detailed guide is available at

www.petronasgas.com

Trading on Insider Information

Notices on the Closed Period for trading

in the Company’s shares are sent to the

Directors and Principal Officers on a

quarterly basis as a reminder on the

prohibition to trade during the identifying

timeframe during which the Directors

and the Principal Officers are prohibited

from dealing in the Company’s shares.

Directors are also reminded not to deal

in the Company’s shares when price

sensitive information is shared with them

in the proposal papers.

None of the Directors and Principal

Officers breached the above ruling

during the financial year under review.

Selection of Vendors

The Group has adopted the PETRONAS

Tendering process and governing

principles that are embedded in the

PETRONAS Supply Chain Management

Policy for vendors’ selection. Generally,

the main selection criteria is based on

technically acceptable and

commercially lowest bid.

PAGE: 179

ANNUAL REPORT 2016

The Group has established Tender

Committees to carry out independent

assessment on bidders’ proposals and to

ensure tendering activities are carried

out in accordance with the Tender

Committee’s Terms of Reference.

Tendering processes are as follows:

(i) Tender Plan Approval

(ii) Technical Evaluation

(iii) Commercial Evaluation

(iv) Award Recommendation

QUALIFIED AND COMPETENT COMPANY SECRETARIES

The Company has two Company

Secretaries. The Company Secretaries of

the Company are qualified to act as

company secretaries pursuant to Section

235 of the Companies Act 2016. One of

them has a legal qualification and the

other is a Fellow of the Malaysian

Institute of Chartered Secretaries and

Administrators. The Company Secretaries

play an advisory role to the Board,

particularly with regards to the

Constitution of the Company, Board

policies and procedures and the

Company’s compliance with regulatory

requirements, codes, guidance and

legislation.

The Company Secretaries ensure that

the discussions and deliberations at

Board and Board Committee meetings

are well documented, and subsequently

communicated to the relevant

Management for appropriate actions.

The Company Secretaries update the

Board on the follow-up of its decisions

and recommendations by the

Management.

The Company Secretaries constantly

keep themselves abreast of the

evolving capital market environment,

regulatory changes and developments

in corporate governance through

continuous training. The Board is

satisfied with the performance and

support rendered by the Company

Secretaries to the Board in discharging

their functions.

RELATIONSHIP WITH AUDITORS

External Auditor

Through the BAC, the Company

maintains a professional and transparent

relationship with its external auditors,

KPMG PLT. The BAC met the external

auditors twice during the financial year

under review without the presence of

the Management to review the scope

and adequacy of the Group’s audit

process, the annual financial statements

and their audit findings. At the meeting,

the external auditors highlighted to both

the BAC and the Board on matters that

warranted their attention.

The role of the BAC in relation to the

external auditors is described in the

BAC Report on page 202 of this

Annual Report.

Internal Auditors

The Company’s Internal Auditors, whose

function is undertaken by the Group

Internal Audit (GIA) Division of

PETRONAS reports directly to the BAC

and has unrestricted access to the BAC.

The GIA function is independent of the

activities or operations of other

operating units. The GIA conducts

regular audits on the effectiveness of

internal controls, compliance with

internal and regulatory requirements.

The audit report which highlights any

findings, along with the

recommendations are tabled to the BAC.

Further information on Internal Audit

can be found on pages 202 to 203 of

this Annual Report.

STATEMENT BY THE BOARD ON COMPLIANCE

The Board has deliberated, reviewed

and approved this statement. The

Board is satisfied that the Company

and the Group have fulfilled their

obligations under the relevant

paragraphs of the MMLR, MCCG 2012

and MSWG Malaysia-ASEAN Corporate

Governance Scorecard on corporate

governance and applicable laws and

regulations throughout the financial

year ended 31 December 2016.

The table highlighting the Company’s

observance of the Principles and

Recommendations of the MCCG 2012

is set out on pages 181 to 183 of this

Annual Report.

This statement is made in accordance

with the resolution of the Board of

Directors dated 23 February 2017.

Datuk Mohd Anuar TaibChairman

Yusa’ HassanManaging Director/

Chief Executive Officer

PAGE: 180

PETRONAS GAS BERHAD


The table below sets out the status of the observance of PETRONAS Gas Berhad with the principles and recommendations

of Malaysian Code on Corporate Governance 2012 in respect of FY2016.

Principle/Recommendation Page Remarks

Principle 1 – Establish Clear Roles and Responsibilities

1.1 The Board should establish clear functions reserved for the

Board and those delegated to management

166,

169, 170

Complied

1.2 The Board should establish clear roles and responsibilities in

discharging its fiduciary and leadership functions

166 Complied

1.3 The Board should formalise ethical standards through a code of

conduct and ensure its compliance

179, 195,

212 – 213

Complied

1.4 The Board should ensure that the Company’s strategies

promote sustainability

166,

217 – 222

Complied

1.5 The Board should have procedures to allow its members access

to information and advice

173 Complied

1.6 The Board should ensure it is supported by a suitably qualified

and competent company secretary

180 Complied

1.7 The Board should formalise, periodically review and make

public its Board Charter

167 Complied

Principle 2 – Strengthen Composition

2.1 The Board should establish a Nominating Committee which

should comprise exclusively Non-Executive directors, a majority

of whom must be independent. The chair of the Nominating

Committee should be the Senior Independent Director

204 – 205 Currently the Senior Independent

Director of PGB serves as the Chairman

of the BAC. As such, the Board has

instead elected Dato’ Ab. Halim

Mohyiddin as the Chairman of the NRC

in order to have different Director

chairing the committees so as to

leverage on different dynamics. This will

also ensure that each Independent

Director has equitable roles and

responsibilities.

2.2 The Nominating Committee should develop, maintain and

review the criteria to be used in the recruitment process and

annual assessment of Directors

175,

206 – 207,

209

Complied

PAGE: 181

ANNUAL REPORT 2016

STATUS OF OBSERVANCE WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE MALAYSIAN CODE ON CORPORATE GOVERNANCE 2012


2.3 The Board should establish formal and transparent remuneration

policies and procedures to attract and retain Directors

175 – 176 The policy is currently being developed

and will be presented to the Board for

approval in due course.

Principle 3 – Reinforce Independence

3.1 The Board should undertake an assessment of its Independent

Directors annually

209 Complied

3.2 The tenure of an Independent Director should not exceed a

cumulative term of nine years. Upon completion of the nine

years, an Independent Director may continue to serve on the

Board subject to the Director’s re-designation as a Non-

Independent Director

175 Complied

3.3 The Board must justify and seek shareholders’ approval in the

event it retains as an Independent Director, a person who has

served in that capacity for more than nine years

175 Complied

3.4 The positions of Chairman and Chief Executive Officer should

be held by different individuals, and the Chairman must be a

Non-Executive member of the Board

169 – 170 Complied

3.5 The Board must comprise a majority of Independent Directors

where the Chairman of the Board is not an Independent

Director

167 The Chairman of the Company is

currently a Non-Independent Non-

Executive Director. This is premised on

the high level of integration between

PGB and PETRONAS Group of

Companies. The Board’s composition

comprises three Independent Non-

Executive Directors, three Non-


and one Executive Director. The current

Board composition is balanced and

complies with paragraph 15.02 of the

MMLR of Bursa Malaysia, as 1/3 of the

Board Members are Independent

Directors. The Company intends to

maintain the current Board composition.

Principle 4 – Foster Commitment

4.1 The Board should set out expectations on time commitment

for its members and protocols for accepting new directorships

169 Complied

4.2 The Board should ensure its members have access to

appropriate continuing education programmes


PAGE: 182

PETRONAS GAS BERHAD

STATUS OF OBSERVANCE WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE MALAYSIAN CODE ON CORPORATE GOVERNANCE 2012


Principle 5 – Uphold Integrity in Financial Reporting

5.1 The Audit Committee should ensure financial statements

comply with applicable financial reporting standards

201 Complied

5.2 The Audit Committee should have policies and procedures to

assess the suitability and independence of External Auditors

202 The Company does not have a policy

and procedures to assess the suitability

and independence of the external

auditors. However, as part of the annual

audit exercise, the Company obtains

assurance from the external auditors

confirming their independence

throughout the year under review.

Principle 6 – Recognise and Manage Risks

6.1 The Board should establish a sound framework to manage risks 179,

184 – 191,

203

Complied

6.2 The Board should establish an internal audit function which

reports directly to the Audit Committee


Principle 7 – Ensure the Timely and High Quality Disclosure

7.1 The Board should ensure the Company has appropriate

corporate disclosure policies and procedures

179 Complied

7.2 The Board should encourage the Company to leverage on

information technology for effective dissemination of

information

173 Complied

Principle 8 – Strengthen Relationship between Company and Shareholders

8.1 The Board should take reasonable steps to encourage

shareholder participation at general meetings

178 Complied

8.2 The Board should encourage poll voting 178 Effective 2017, general meetings will be

conducted via e-polling. Independent

Scrutineers and Poll Administrator will be

appointed to conduct the polling

process and verify the results of the poll.

8.3 The Board should promote effective communication and

proactive engagements with shareholders

178 Complied

PAGE: 183

ANNUAL REPORT 2016

The Board is committed to maintain and continuously improve the Group’s system of risk

management as well as internal control and is pleased to provide the following statement

which outlines the nature and scope of risk management and internal control of the Group

during the year under review.

As internal control is an integral part of the Group’s risk and control continuum to achieve the

Group’s objectives, the Group adopts PETRONAS’ shared values of loyalty, integrity,

professionalism and cohesiveness which set the tone for a sound system of risk management

and internal control.

BOARD’S ACCOUNTABILITY

The Board acknowledges the importance of a sound risk management system and internal control practices for good

corporate governance with the objective of safeguarding shareholders’ investments and the Group’s assets. The Board affirms

its overall responsibility for the Group’s system of risk management and internal controls and has undertaken a review of the

adequacy and effectiveness of those systems and compliance with relevant laws and regulations.

In view of the limitations that are inherent in any system of internal control, this system is designed to manage, rather than

eliminate, the risk of failure of achieving the corporate objectives. Accordingly, it can only provide reasonable but not

absolute assurance against material misstatement or losses or the occurrence of unforeseeable circumstances.

The Group has in place an ongoing process for identifying, evaluating, monitoring and managing all significant risks faced by the

Group and its achievement of objectives and strategies for the year under review and up to the date of approval of this Statement

on Risk Management and Internal Control for inclusion in the Annual Report. This process is regularly reviewed by the Board in

accordance with the Statement on Risk Management and Internal Controls: Guidelines for Directors of Listed Issuers.

RISK MANAGEMENT

Risk Management is regarded by the Board to be an integral part of the Group’s organisational processes, with the objective

of maintaining a sound system and ensuring its continuing adequacy and integrity. Risk Management is firmly embedded in

the Group’s management system. The Group’s Risk Management Policy is to adopt an effective and progressive Enterprise

Risk Management (ERM) system to identify, evaluate and monitor the risks faced by the Group and to take specific measures

to mitigate these risks.

THE STATEMENT IS MADE PURSUANT TO PARAGRAPH 15.26 (B) OF THE MAIN

MARKET LISTING REQUIREMENTS (MMLR) OF BURSA MALAYSIA SECURITIES

BERHAD (BURSA MALAYSIA) WHERE THE BOARD OF DIRECTORS OF PUBLIC

COMPANIES ARE REQUIRED TO PUBLISH A STATEMENT ABOUT THE STATE

OF THE INTERNAL CONTROL OF THE LISTED ISSUER AS A GROUP.

PAGE: 184

PETRONAS GAS BERHAD

STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROLS

Risk Oversight Structure

The Group risk oversight structure allows risk information flow for effective oversight on risk management implementation at

all levels. Risks are reviewed at various levels namely Divisional Plant Leadership Teams (PLTs) and Project Steering

Committees (PSCs) within the Group before it is deliberated at the PETRONAS Gas Berhad (PGB) Group Risk and Compliance

Committee (RCC) and Board Audit Committee (BAC).

BOARD

MANAGING DIRECTOR/ CHIEF EXECUTIVE OFFICER

RISK &COMPLIANCECOMMITTEE


RISK MANAGEMENT UNIT

HEAD, BUSINESS EXCELLENCE

High Level Group Risk Oversight Structure

Reporting flow Information flow

The BAC is authorised by Board to review the adequacy and

effectiveness of risk management practices and procedures as well

as conducting risk profiling reviews of the Group, on a quarterly

basis. The BAC also deliberates on the Group’s Enterprise Risk

Report on quarterly basis, including risk exposures and the

mitigation plans required, subsequent to review by the RCC.

The RCC, which is chaired by the Managing Director/Chief Executive

Officer (MD/CEO), is obliged to ensure that an appropriate and

effective risk management framework is in place and implemented

throughout the Group as well as its compliance with the statutory,

regulatory requirements and policies applicable to it.

Risk Management Unit (RMU) is entrusted with the

responsibility of ensuring effective risk governance and

implementation in the Group. RMU is also undertaking the

secretariat roles of RCC.

The Group’s Risk Policy provides communication on

Management’s expectations on risk management

implementation and business continuity practices. In addition,

the Group’s risk appetite statement further enhances clarity

on the risks that the Group is willing to pursue or retain:

“PETRONAS Gas Berhad shall take reasonable and practicable steps to mitigate or eliminate risks to ensure safe, reliable and competitive business operations towards achieving PGB’s objective to be A Leading Gas Infrastructure and Utilities Company.”

PAGE: 185

ANNUAL REPORT 2016

Risk Management Framework Implementation

(a) Enterprise Risk

The Group’s Enterprise Risk Management (ERM) adheres to the PETRONAS Resiliency Model, which includes an

enhanced PETRONAS ERM Framework that adopts ISO 31000:2009 Risk Management requirements. The enhanced ERM

Framework provides a standard and consistent approach in implementing ERM in an entity. There are six key

requirements of ERM under the Framework:

Enterprise Risk Profiling and Assessment follows a structured process which ensures a comprehensive and consistent

approach in assessing and analysing risks faced by the Group. Risks are reviewed annually with involvement from

Management and Subject Matter Experts (SMEs) from divisions and departments across the Group. Prior to risk profiling

and assessment activities, various inputs are analysed in setting the context of the assessment, which include both

internal and external factors that may impact the Group’s businesses and operations.

The Group’s annual risk profiling and assessment process are guided by its approved strategies and plans. Discussions

are focused on risks which could potentially impede the Group from meeting its objectives. On a regular basis existing

risk profiles namely project risks, plant and facilities risks, and new business venture risks are reviewed to identify

significant risks to be escalated to the Enterprise Risk Profile (ERP). Other key discussions include recent Health, Safety,

Security and Environment (HSSE) or audit findings, operational issues as well as project issues.

GOVERNANCECONTINUALIMPROVEMENT

CONTEXT SETTINGRISK MONITORING & REVIEW

RISK ASSESSMENTRISK TREATMENT

• Risk Policy

• Organisational Structure

• Roles & Responsibilities

• System Monitoring

& Review

• Risk Assurance

• ERM Capability

• External Context

• Internal Context

• Risk Appetite

• Risk Criteria

• Risk Reporting

& Monitoring

• Risk Information

System

• Risk Identification

• Risk Analysis

• Risk Evaluation

• Risk Treatment Strategy

• Risk Treatment Plan

PAGE: 186

PETRONAS GAS BERHAD

ERMFRAMEWORK


From external context, any recent changes in regulatory or statutory requirements as well as shifts in industry outlook

and landscape are also analysed as they may have direct or indirect impact to the Group operations.

Each risk is mapped based on a matrix which specifies its likelihood (how likely is the risk to happen) and its impact (the

extent of its impact if it did happen), analysing from both qualitative and quantitative perspectives. The matrix is adopted

from PETRONAS ERM Framework and adapted based on the Group’s risk appetite and tolerance level. Depending on risk

treatment strategies adopted, mitigation plans are outlined to mitigate the risks to an acceptable level.

Context of PGB 2016/17 ERP is based on various inputs to reflect the latest environment and expectations

PGB 2016/17 ENTERPRISE RISK PROFILE

PGB 2015/16

Risk Profile &

P4R Risk Profile

PGB Risk Policy

& Appetite

PGB 3ZERO100

BEYOND & PGB

Results 2

Latest

Development

Common Audit

Findings

Industry Outlook

New Regulatory/

Legal

Requirements

PGB Corporate

House; Vision and

Mission

Management

Expectation

OPERATING DIVISIONS

Plant and Facilities Risk

Report to:

Division Plant Leadership Team

PROJECTS

Project Risk

Report to:

Respective Projects

GROWTH / NEW BUSINESS TRANSACTIONS

Business Ventures Risk

Report to:

Respective Project/Commercial

Steering Committee

Operational and common project issues, plant performance, HSE incidents,

common audit findings, new development

PAGE: 187

ANNUAL REPORT 2016

Key Risk Indicators (KRIs) are identified to facilitate monitoring of the risks

which provide an early warning signal on potential emerging risks. Risk

Owners, Risk Mitigation Owners and Risk Focal persons are assigned for each

risk to ensure the risk mitigations developed are appropriately implemented,

monitored and regularly reported.

The RMU previously under

Planning and Risk Management

Department (PRMD) (now has

been restructured to be part of

Business Excellence Division) is

entrusted with the responsibility of

ensuring effective risk governance

and implementation in the Group.

The RCC is responsible to oversee

the overall risk management

activities and implementation in

the Group. The RCC is chaired by

Managing Director/Chief Executive

Office (MD/CEO) with RMU

undertaking the secretariat roles.

RMU provides updates on the

Group’s ERM implementation to

both the Group’s RCC and BAC in

the form of quarterly Enterprise

Risk Report (ERR). The report

covers the risk profile and status

of risk mitigation implementation,

KRIs as well as risk management

framework implementation and risk

initiatives.

In the last review, key issues and

risks were deliberated at length

focusing on the key risks of the

Group, comprising Very High, High

and Medium risks. The rationale of

the likelihood and impact rating

assigned to the key risks were also

discussed against the

Management’s risk tolerance and

appetite. Further mitigations were

identified for the key risks, mainly

in the commercial, operational and

HSSE areas. These mitigations are

in line with the Group’s focus in

driving its business plans and

strategies to achieve its aspirations

as set out in page 74.

Risk mitigations validation and

assurance exercise were also

conducted during the year to

validate the controls and

completed mitigation actions. The

exercise were conducted both

internally as well as by PETRONAS

Downstream Business Unit. There

were six risks selected for the

assurance which included five

High and one Low risks from the

Group’s ERP. The outcome of the

assurance including corrective

actions were reported to the

Management. Overall, all of the

risks selected were rated as

satisfactory based on the risk

mitigation effectiveness. No major

findings were noted that could

significantly impair achievement of

the overall intended objectives of

the identified risk mitigations.

The Company had also provided

guidance to one of its joint

venture companies, on the

establishment of Risk Management

Framework.

Risk assessments are also

conducted on new business

ventures and strategies. During the

year under review, six Business

Venture Risk Assessment (BVRA)

were facilitated by RMU where the

reports were included as part of

business development proposal

presented to the Commercial

Steering Committee (CSC), relevant

Project Steering Committees (PSC)

or Divisional Plant Leadership

Team (PLT) for Management’s

approval and where relevant, in

the Final Investment Decision (FID)

proposals for the Board’s approval.

PGB Enterprise Risk Assessment adheres to a structured process which complies with PETRONAS ERM Framework.

02

Identify risks &

existing controls

03

Identify likelihood

& impact

04

Identify risk mitigations

& key risk indicators

05

Determine risk owners

and mitigations owners

06

Obtain approval of risk profile

from Leadership Team & BAC

07

Periodically monitor & report

mitigation action status to

Leadership Team & BAC

01

Establish internal &

external context

PAGE: 188

PETRONAS GAS BERHAD

(b) Plant and Facilities Risk

The PLT is responsible in ensuring

adequate and effective Plant and

Facilities Risk Management (PFRM)

at the divisions. The Group

managed its operational risks via

PFRM. Under PFRM, risks relevant

to operations at the divisions were

assessed, monitored and reported

to the respective Divisions’ PLT.

As per Enterprise Risk, the risks

were rated based on its probability

and impact to the divisions’

operations. Appropriate mitigation

plans are put in place for every

key risk.

During the year under review, the

plant and facilities risk review was

conducted for both Gas

Processing and Utilities (GPU)

division, and Gas Transmission and

Regasification (GTR) division. The

respective divisions’ risk profiles

were deliberated, updated and

approved at Division’s PLT.

Subsequently, the risks were

monitored with mitigation actions

tracked and periodically reported

to the respective PLT at the

operating divisions.

(c) Project Risk

The Group continues to

implement Project Risk

Management processes in line with

the PETRONAS Project

Management System (PPMS)

requirements. The Group carries

out Project Risk Assessments,

Independent Reviews and Lessons

Learnt for all its major and critical

projects.

Updates on project risk mitigations

status are included as part of the

monthly project progress report to

the relevant committees e.g.

respective Divisions’ PLT, the

relevant PSCs and RCC for proper

monitoring.

At Group level, the PSC is chaired

by PGB MD/CEO and meets on

regular basis to deliberate on key

project progress, risk areas and

their mitigations. Updates on

project progress are also

incorporated as an agenda

deliberated in the monthly

Management Committee (MC)

(now known as PGB Leadership

Team (LT)) meetings, and quarterly

Board meetings.

Project risk report which includes

project status and areas of

concerns are also incorporated

into the ERR and submitted to the

RCC and BAC on a quarterly basis.


PETRONAS Project Delivery &

Technology (PD&T) rolled out a

revised PPMS incorporating an

enhanced project gated process.

The Group is working closely with

PD&T to ensure compliance to the

new requirements.

(d) Contractor Risk

Contractor risk is managed through

tendering evaluation exercises

facilitated by the Company’s

Procurement Department, PD&T

and Procurement Downstream &

Indirect Spend (PDIS) prior to the

award of contracts in compliance

with the PETRONAS Group

tendering and contract procedures

and guidelines.

The Contractor Risk Assessment

(CoRA) process is an integral part

of the contractor selection process

which is being applied prior to

awarding the contract to the

contractor. Upon award of contract,

the results of CoRA together with

its mitigation plans are

implemented, monitored and

resolved by the relevant teams

involved in the project.

(e) Finance Risk

The Group has adopted

PETRONAS Corporate Financial

Policy (CFP) which sets forth the

governing policy in effecting the

practice of Financial Risk

Management across the Group.

The policy stipulates a consistent

framework in which financial risk

exposures are identified and

strategies developed to mitigate

such risks. The Group has

established CFP supporting

guidelines to manage its finance

risk exposures that includes

counterparty risk, liquidity risk,

foreign exchange risk and interest

rate risk. These guidelines align the

Group’s practices with PETRONAS’

policies and guidelines.

PAGE: 189

ANNUAL REPORT 2016

(f) Credit Risk

To reduce its credit risk exposure,

the Company continues to apply

the Credit Risk Management

processes based on PETRONAS

Credit Risk Rating methodology

whereby the customers are

assessed using the PETRONAS

Credit Risk Rating System (PCRRS)

to ensure alignment with the

credit assessment process adopted

by the PETRONAS Group. The

system evaluates the credit

worthiness and assigns credit risk

ratings to all of the Company’s

external customers. Annual reviews

are conducted on the assigned

credit risk ratings of these

customers while the trend of the

customers’ financials are also

analysed to detect early signs of

financial distress and to provide

early warning to the Management.

The trade and non-trade

receivables ageing are also

deliberated by the PGB LT as well

as Commercial Steering

Committee on monthly and

quarterly basis respectively.

(g) Contingency Planning and Business Continuity Management

The Group has in place

contingency planning that defines

the structure and processes for

managing emergencies at

operational and company level.

There is a three-tier response

system in place which provides a

clear demarcation of roles and

responsibilities between emergency

site management, Division PLT and

PGB LT. Business Continuity Plan

(BCP) is also in place to ensure

business continuity in the event of

crises, or business disruptions. The

BCP implementation is part of the

Group’s Business Continuity

Management set out in page 210.

The above Contingency and

Business Continuity Plans should

enhance the Group’s readiness in

dealing with disruptive incidents,

reduce its impact and ensure

continuity of Group’s critical

functions within a reasonable

period of time. A sound business

continuity plan is crucial towards

sustaining the operational survival

thus protecting business,

stakeholders and customers during

crisis or disaster.

(h) Health, Safety, Security and Environment (HSSE) Risk

The Group leverages on the

PETRONAS HSE Management

System (HSEMS) to manage HSSE

risks and ensure that operations

are in compliance with the HSSE

regulatory requirements. The

HSEMS ensures that HSSE risks

within the business are managed

effectively. In addition, the Group

subscribes to PETRONAS HSSE

Mandatory Control Framework to

strengthen HSSE governance

within the Group through clear

HSSE requirements.

The Group has established a

governance structure in managing

the HSSE risks, in tandem with the

PETRONAS HSEMS and HSSE

Mandatory Control Framework.

The governance structure includes

the identification of HSSE risks,

develop HSSE strategic initiative,

establish annual plan and targets,

internal compliance review and

appointment of Result Managers

for monitoring the implementation.

Amongst new Key Results Areas

for the year under review is the

rollout of Hearts & Minds

programme to all staff and

implementation of online database

for evaluation of regulatory

compliance.

The Group has established multiple

platforms to conduct periodic

management review on HSSE

related risks and events in

addressing changes that are

triggered from past incidents and

plant modifications activities. PGB

MD/CEO chairs the Health, Safety,

Environment and Operational

Excellence (HSEOE) Steering

Committee which comprises

members from the Management

to discuss HSSE matters

concerning the Group on monthly

basis. Similar HSSE Leadership

Team (HSELT) Committee

meetings are held at the facilities,

projects as well as at division level

which are chaired by respective

Management personnel.

The Group has also put in place a

series of assurance programmes to

review and verify the effectiveness

of the HSEMS and HSSE risk

mitigations. The HSSE assurance

programme adheres to the

requirement of PETRONAS HSEMS,

Mandatory Control Framework,

PETRONAS Technical Standards,

and international standards such as

ISO 14001 for Environmental

Management System, OHSAS

18001 and MS 1722 for

Occupational Health and Safety

Management System.


internal audits which involved

PETRONAS Downstream Business

as well as PETRONAS Group

Health, Safety and Environment

(GHSE), were conducted at Gas

Processing Kertih (GPK) and Gas

Processing Santong (GPS). The

Group also performed various

HSSE-related assurance

programmes and audits on its

facilities. HSSE Peer Review were

conducted on several assets of the

Group. The Group is committed to

PAGE: 190

PETRONAS GAS BERHAD


continue with its rigorous HSSE

assurance programmes in ensuring

the effectiveness of its HSEMS

implementation.

Risk Initiatives

The Group continues to enhance risk

management awareness and capability

building across the Group through

various sharing of information and

application of best practices.

The Group benefits from being part of

the PETRONAS Group, which has an

established Board Governance and Risk

Committee that primarily provides

guidance and reviews strategies and

policies on Risk Management

implementation. The Group has also

participated in various sharing platforms

established at PETRONAS level through

the Community of Practice (CoP)

discussions.

Moving Forward

The Group will continue its focus in

implementing key risk management

strategies and initiatives towards

institutionalisation of risk management

as a culture throughout the Group.

INTERNAL AUDIT FUNCTION

The Board recognises that the internal

audit function is an integral part of the

governance process. PETRONAS Group

Internal Audit (GIA) Division undertakes

the internal audit function of the Group

and provides independent assurance on

the adequacy and effectiveness of the

internal control systems implemented

by the Group, and reports its findings

directly to the BAC.

The internal audit function includes

undertaking reviews of the Group’s

system of internal controls, its

operations and selected key activities

based on risk assessment and in

accordance with the annual internal

audit plan which is presented and

approved by the BAC.

BAC receives and reviews all GIA audit

reports including the agreed corrective

actions to be undertaken by the

auditees. GIA also monitors status of

the agreed corrective actions through

Quarterly Status Audit Report submitted

by auditees which are assessed and

verified by GIA. The consolidated status

of the audit issues is submitted and

presented to the BAC for deliberation

on a quarterly basis.

GIA adopts the standards and principles

outlined in the International

Professional Practices Framework of

the Institute of Internal Auditor.

The key activities of the internal audit

function are set out in the BAC Report

on page 202 of this Annual Report.

OTHER SIGNIFICANT ELEMENTS OF INTERNAL CONTROL SYSTEM

The other significant elements of the

Group’s internal control system are

tabulated below.

(a) Board

The Board meets at least once a

quarter, in order to maintain its

full and effective supervision on

the overall governance of the

Group. The MD/CEO leads the

presentation of Board Papers and

provides comprehensive

explanation on pertinent issues. In

arriving at any decisions, based on

recommendations by the

Management, a thorough

deliberation and discussion by the

Board is a prerequisite. In addition,

the Board is kept updated on the

Group’s activities and its

operations on a regular basis.

The Board reviews all significant

issues arising from changes in the

business environment, which may

result in significant risks to the

Group. The Chief Financial Officer

(CFO) provides the Board with the

Group quarterly performance

report.

Where areas for improvement in

the system are identified, the

Board will consider the views and

recommendations made by the

BAC and Management.

(b) Organisation Structure

An organisational structure which

defines the formal lines of

responsibility and delegation of

authority is in place to assist in

implementing the Group’s

strategies and day-to-day business

activities. A process of hierarchical

reporting has been established

which provides a documented and

auditable trail of accountability.

Effective 1 January 2017, the

Company implemented new

organisational structure in line with

the strategy to transform our

organisational towards an efficient

and empowered organisation. The

Company’s organisational structure

is set out on page 27 of the

Annual Report.

The Company has a Leadership

Team (LT) which serves as an

advisory capacity to PGB MD/CEO

in accomplishing the vision,

mission, strategies and objectives

set for the Group. Additionally, the

GPU and GTR Division PLTs

provide operational directions and

manage operational issues at the

respective divisions.

PAGE: 191

ANNUAL REPORT 2016

Various functional committees

have also been established across

the Group to ensure the Group’s

activities, major projects and

operations are properly aligned

towards achieving the

organisation’s goals and objectives.

(c) Budget Approval

Budgets are an important control

mechanism used by the Group to

ensure an optimum allocation of

Group resources and the

operational managers are

sufficiently guided in making

business decisions. The Group

undertakes a comprehensive

planning and budgeting exercise

which include the development of

business strategies for a five-year

period and establishment of

performance indicators against

which operating units and

subsidiaries are evaluated. The

Group’s plans and budget shall be

approved by the Board.

Variances against the approved

budget are analysed and reported

to the PGB LT and BAC/Board on

a monthly and quarterly basis

respectively and corrective actions

will be taken where necessary.

Any additional budget requirement

is to be managed by budget

transfer or supplementary budget

and is approved by the relevant

approving authority in accordance

to the Limits of Authority.

(d) Limits of Authority

A documented Limits of Authority

(LOA) with clear lines of

accountability and responsibility

serves as a tool of reference to

identify the appropriate approving

authority at various levels of

management including matters

that require the Board’s approval.

A full review of LOA is undertaken

every five years and realignment of

LOA is performed to cater for a

change in the organisational

structure to ensure effective

decision making. The Company

has undertaken a full review of the

LOA in 2016 where the new

revised LOA has been

implemented effective 1 January

2017.

(e) System and Control

System and Control Unit of

Finance Division conducts

scheduled governance and

compliance audits in addition to

the internal audits conducted by

GIA. The audits are meant to

provide assurance to the

Management on the Group’s

internal control effectiveness and

compliance to the Company’s

Enterprise Resource Planning

system’s established roles and

segregation of duties, LOA, policies

and work procedures. At the end

of each audit, a report is

presented to the RCC highlighting

findings and the agreed corrective

actions. The status of the audit

issues are monitored and reported

to the RCC on a quarterly basis.


self-assessment on PGB SAP Users

Profile Maintenance Exercise were

undertaken, with an overall

assessment of FAIR.

(f) Tendering and Procurement

The Group has defined

authorisation procedures and

authority limits set for awarding

tenders and all procurement

transactions covering both capital

and revenue expenditure items.

Tender Committee structure with

defined level of responsibilities is

in place to govern the tendering

activities. Subsequent to the review

by the relevant Tender

Committees, the contracts will be

subject to approval by the relevant

approving authority who is

independent from the Tender

Committee. Tenders are called for

and are awarded based on factors

such as technical and financial

capability, quality, HSSE,

performance track record,

schedule and cost.

In inculcating integrity and

compliance culture among

contractors and their employees,

the Group has jointly conducted

the inaugural Integrity Pledge

signing ceremony with contractors

together with PETRONAS Chief

Integrity Officer (CIO)’s Office and

Company’s Procurement

Department on 30 November

2015, with 10 contractors signing

the pledge. A similar ceremony

was held during PGB Contractors

Forum on 2 August 2016, with

further 32 contractors signing the

pledge.

The Vendor Integrity Pledge is a

documented declaration on

contractors’ commitment to

uphold the Anti-Corruption

Principles. By signing the pledge,

contractors are making a unilateral

declaration that they will not

commit corrupt acts, will work

PAGE: 192

PETRONAS GAS BERHAD


towards creating a business

environment that is free from

corruption and will uphold a zero

tolerance to bribery in its business

and interaction with its business

partners and Government.

(g) Operating Procedures and Guidelines

As part of the Company’s efforts

in promoting self-assurance and

self-governance, the Company has

embarked on the implementation

of Operational Excellence

Management System (OeXMS)

which serves as a one-stop-centre

for all systems and requirements,

with a built-in self-assurance

process. It incorporates best

practices and continual

improvement cycles and embed

mandatory requirements into

day-to-day work practices,

translated into four levels of

structured document (Level 1,

Level 2, Level 3 and Level 4). The

system leverages on internal

governance processes that ensures

disciplined execution at all levels

of the Company.

(h) Financial Control Framework

The Group has adopted

PETRONAS Financial Control

Framework (FCF) with the principal

objective of enhancing the quality

and integrity of the Group’s

financial reports through a

structured process of ensuring the

adequacy and effectiveness of key

internal controls operating at

various levels within the Group at

all times. FCF requires among

others, documentation of key

controls, remediation of control

gaps as well as a regular conduct

of testing of control operating

effectiveness.

During the year, the Group

embarked on Governance, Risk

and Compliance system focusing

on Process Control which is a

single solution for end-to-end

control management including

documentation, testing, monitoring

and certification. The system

functions as central depository of

internal control documentation for

FCF for PETRONAS Group and

Operating Units (OPUs).

On a semi-annual basis, each key

process owner at various

Management levels is required to

complete and submit a Letter of

Assurance which provides

confirmation of compliance to key

controls for the areas of the

business for which they are

accountable. Subsequently, PGB

MD/CEO and the CFO provide

overall assurance to the Board on

the adequacy and effectiveness of

key internal controls of the Group.

During the year under review, the

Group assisted roll out of FCF to

two of its joint ventures.

(i) Information and Communication Technology

The Group leverages on

Information and Communication

Technology (ICT) as key enabler to

enhance productivity and decision

making process. Being part of

PETRONAS Group, the Group

adheres to PETRONAS Group ICT

Policy and adopts PETRONAS

Group ICT Strategy and roadmap.

Internal ICT audit and system

reviews are conducted periodically

to ensure compliance against

PETRONAS Group policies and

procedures.

(j) Related Party Transaction

The Group has established policies

and procedures with regard to

Related Party Transactions (RPT)

and Conflict of Interest (COI) to

ensure full compliance to the

MMLR of Bursa Malaysia. This

includes the PGB RPT/Recurrent

RPT (RRPT) Policies and

Procedures.

During the financial year under

review, the BAC had endorsed

revisions to the policies and

procedures, which was

subsequently approved by the

Board. The revisions were made to

ensure PGB’s policies and

procedures are updated and in line

with the requirements of MMLR.

The policies and procedures

require the use of various methods

to ensure that RPT/RRPT are

conducted on normal commercial

terms, which are consistent with

the Group’s normal business

practices and policies, and that the

terms will not be to the detriment

of the Group’s minority

shareholders. Such methods

include the review and disclosure

procedures as follows:

• Directors and Officers of the

Company and its Group shall

not enter into transactions with

related parties unless these

transactions are carried out on

normal commercial terms and

are not to the detriment of the

Group’s minority shareholders.

PAGE: 193

ANNUAL REPORT 2016

• All Directors are required to

make annual written declaration

involving their interest, either

directly or indirectly, to the

Company Secretary. They can

also notify the Company

Secretary at Board meetings of

any interest in RPT or COI

situation when it becomes

known to them.

• As per the RPT/RRPT policies

and procedures, RPT/RRPT will

be reviewed by the BAC for

the BAC’s endorsement of the

transaction. Such transactions

are then approved by the

relevant approving authority as

prescribed in the Company’s

LOA. The Directors further

acknowledged that they are

required to abstain from

deliberation and voting on

relevant resolutions in which

they have conflict of interest at

the Board or any general

meeting convened (if any).

• Where possible, to conduct

benchmarking on the prices of

similar services/product

available in the market.

• The Board has the overall

responsibility to ensure

compliance to the established

guidelines and procedures to

approve and monitor RPT/RRPT

and COI situations. The Board

and/or BAC may also appoint

individuals and Committees to

examine the RPT/RRPT, as

deemed appropriate.

The Company has been granted

various waivers by Bursa Malaysia

from complying with the

requirements of Paragraph 10.08

and 10.09 of the MMLR of Bursa

Malaysia from having to seek

shareholders’ mandate for RRPT

entered into with parties that are

related to PETRONAS Group of

Companies vide letters dated 2

March 2011, 26 March 2014, 23

May 2014 and 27 October 2015.

The said exemptions were subject

to conditions which essentially

state that the exempted RRPT

must be transacted on an arm’s

length basis.

(k) Human Rights Commitment

The Group is committed to uphold

internationally recognised human

rights in areas of its operations,

complying with its Code of

Conduct, Business Ethics, and all

relevant legal requirements.

The Group subscribes to

PETRONAS Social Performance

Framework. The introduction of

this framework covers the supply

chain, community well-being,

labour and working conditions for

contractors, and third party

security which will strengthen the

commitment of social

responsibility. The Group are

working closely with GHSE to

increase the human rights

awareness in PGB. Human Rights

Awareness Session has been

conducted for Management level,

and will be rolled-out to all level.

Meanwhile, the Group is vigilant to

ensure all projects will comply not

only with the safety and

environment, but also with social

dimension. Prior to any

development of projects, social

impact assessment will be

conducted as part of the

Environmental Impact Assessment

process under the jurisdiction of

the Department of Environment.

Aspects and matters arising from

community health (dust, noise

pollution), safety (construction

debris, traffic flow prone to

accidents), community sensitivities

(cultural heritage, relocation of

local’s important socio elements

– pre-historical buildings etc) were

aptly addressed. Stakeholder

engagements were carried out

with the local communities to

reach to a mutual level of

understanding that benefit both

sides and without any prejudicial

or lopsided implication to the

latter.

(l) Employee Performance Management

In order to maintain the Group as

a high performing organisation,

the Group continues to strengthen

and enhance its Employee

Performance Management. The

Group has established a systematic

assessment of staff’s performance

against the set performance

indicators which is reviewed on

periodical basis.

PAGE: 194

PETRONAS GAS BERHAD


(m) Capability Development

The Group invests in accelerating

the capability of its staff. The

Group aligns its capability

development efforts to the

PETRONAS Accelerated Capability

Development Framework for its

technical staff and Online

Functional Assessment for the

non-technical staff, where their

capabilities are continuously

developed and periodically

assessed.

The Group has also established a

platform to deliberate staff

capability matters through the

Company Capability Development

Working Committee (CDWC). This

platform is crucial to discuss on

staff capability and intervention

plans to close capability gaps for

each Skill Group together with

dedicated Discipline Resource

Person (DRP).

(n) Code of Conduct and Business Ethics

The Group adopts and practices

PETRONAS Code of Conduct

and Business Ethics (CoBE).

The CoBE is accessible to the

public for reference on the


www.petronasgas.com

which places significant

importance in upholding the

principle of discipline, good

conduct, professionalism, loyalty,

integrity and cohesiveness that are

critical to the success and well-

being of the Group. The CoBE

detailed policy statements on the

standards of behaviour and ethical

conduct expected of each

individual to whom the CoBE

applies. The Group also expects

that contractors, sub-contractors,

consultants, agents and

representatives and others

performing work or services for or

on behalf of the Group to comply

with the relevant parts of the

CoBE when performing such work

or services. The CoBE expressly

prohibits improper solicitation,

bribery and other corrupt activity

not only by employees and

directors but also by third parties

performing work or services for or

on behalf of companies in the

PETRONAS Group.

In compliance with the CoBE, the

Company adopts the PETRONAS

Anti-Bribery and Corruption (ABC)

Manual which governs the

prevention of corruption and

unethical practices within the

Group. ABC Manual sets forth the

policy statement and guidelines on

how to deal with improper

solicitation, bribery and other

corrupt activities and issues that

may arise in the course of

business.

(o) Whistleblowing Policy

The Group has adopted the

PETRONAS Whistleblowing Policy

(WBP) which provides an avenue

for the Group employees and

member of the public to disclose

any improper conduct committed

or about to be committed in

accordance with the procedures

as provided under the policy.

The WBP is accessible to the

public for reference on the



Under the WBP, a whistle blower

will be accorded with protection

of confidentiality of identity, to the

extent reasonably practicable. An

employee who whistle blows

internally will also be protected

against any adverse and

detrimental actions for disclosing

any improper conduct committed

or about to be committed within

the Group, to the extent

reasonably practicable, provided

that the disclosure is made in

good faith. Such protection is

accorded even if the investigation

later reveals that the whistle

blower is mistaken as to the facts

and the rules and procedures

involved.

(p) PETRONAS Raid Protocol

The Company’s policies are

aligned to the PETRONAS Raid

Protocol in ensuring appropriate

manner in handling interaction

with, and submission of

information and data to the

authorities in the event that raids

are carried out in PETRONAS’

offices worldwide. It is an internal

procedure in response to the

powers of the authorities under

relevant laws and various

jurisdictions.

PAGE: 195

ANNUAL REPORT 2016

(q) Succession Planning

The Succession Planning process

is aimed to enable the matching

of the right talents to the right

positions for breakthrough

performance. The process starts

with identification of critical

positions at business and

corporate level. The Company

invests in developing the

Succession Planning for the

focused group of staff i.e.

Technical and Non-Technical

Managers as well as for Technical

Professional Positions. This

exercise is crucial in managing

talents within the Company and

from other Operating Units or

Business Units. The Succession

Planning information will then

facilitate the Management in

deliberating and charting staff’s

career progression including

mobility internally within the

Company or across businesses

within PETRONAS Group for wider

exposure as well as capability gap

closure through an identified

development plan.

(r) Leadership Development

The Management recognises the

importance of Leadership

Development in ensuring the

organisation has sufficient leaders

in the future. The PETRONAS

Leadership Competencies and

PETRONAS Cultural Beliefs

behaviours guides staff to better

understand the PETRONAS

Leadership Philosophy,

emphasising on Leadership

Competencies and Cultural Beliefs

behaviours to promote better

internalisation.

(s) Human Resource Policies and Procedures

The Group’s Human Resource (HR)

policies are aligned to the

PETRONAS policies and

procedures on all areas of human

resources. This is to ensure that

the Group practices best in class

HR policies and procedures

especially with regards to Human

Capital Development. Other HR

areas which are established in the

Group include Job Management,

Succession Planning and

Leadership Development.

MANAGEMENT ROLE

Management is accountable to the

Board for the implementation of the

processes in identifying, evaluating,

monitoring and reporting of risks and

internal control as prescribed above.

The MD/CEO and the CFO have

provided the Board with assurance that

the Group risk management and

internal control system is operating

adequately and effectively, in all

material aspects, to ensure

achievement of corporate objectives. In

providing the above assurance by

MD/CEO and CFO, similar letters of

assurance have also been obtained

from PGB LT members confirming the

adequacy and effectiveness of risk

management practice and internal

control system within their respective

areas.

WEAKNESSES IN RISK MANAGEMENT AND INTERNAL CONTROL THAT RESULT IN MATERIAL LOSSES

There were no material losses incurred

during the year as a result of

weaknesses in risk management and

internal control. The Management

continues to take measures to

strengthen the control environment

and monitor the risk management and

internal control framework. Accordingly,

the Board is satisfied that the Group’s

risk management and internal control

system is adequate and effective.

IMPLEMENTATION OF RISK MANAGEMENT AND INTERNAL CONTROL IN MATERIAL JOINT VENTURE (JV) COMPANIES AND SUBSIDIARIES

The implementation of the relevant risk

management and internal control

systems at the Group’s material JV is in

place.

The implementation of the relevant risk


systems at the Group’s subsidiary,

Pengerang LNG (Two) Sdn Bhd will be

in place progressively upon completion

of the project and commencement of

the operations.

PAGE: 196

PETRONAS GAS BERHAD


REVIEW OF THIS STATEMENT

The external auditors have reviewed

this Statement on Risk Management

and Internal Control pursuant to the

scope set out in Recommended

Practice Guide (RPG) 5 (Revised),

Guidance for Auditors on Engagements

to Report on the Statement on Risk

Management and Internal Control

included in the Annual Report issued

by the Malaysian Institute of

Accountants (MIA) for inclusion in the

Annual Report of the Group for the

year ended 31 December 2016, and

reported to the Board that nothing has

come to their attention that causes

them to believe that the statement

intended to be included in the Annual

Report of the Group, in all material

aspects:

(a) has not been prepared in

accordance with the disclosures

required by paragraphs 41 and 42

of the Statement on Risk

Management and Internal Control:

Guidelines for Directors of Listed

Issuers, or

(b) is factually inaccurate.

RPG 5 (Revised) does not require the

external auditors to consider whether

the Directors’ Statement on Risk

Management and Internal Control

covers all risks and controls, or to form

an opinion on the adequacy and

effectiveness of the Group’s risk


system including the assessment and

opinion by the Board of Directors and

Management thereon. The auditors are

also not required to consider whether

the processes described to deal with

material internal control aspects of any

significant problems disclosed in the

Annual Report will, in fact, remedy the

problems.

This Statement on Risk Management

and Internal Control is made in

accordance with the resolution of the

Board dated 23 February 2017.

Datuk Mohd Anuar Taib Chairman

Yusa’ Hassan Managing Director/

Chief Executive Officer

PAGE: 197

ANNUAL REPORT 2016

THE BOARD AUDIT COMMITTEE (BAC) OF PETRONAS GAS BERHAD

(PGB OR THE COMPANY) IS PLEASED TO PRESENT THE BAC REPORT FOR

THE FINANCIAL YEAR ENDED 31 DECEMBER 2016 IN COMPLIANCE WITH

PARAGRAPH 15.15 OF THE MAIN MARKET LISTING REQUIREMENTS

(MMLR) OF BURSA MALAYSIA SECURITIES BERHAD

(BURSA MALAYSIA).

HABIBAH ABDUL HENG HEYOK CHIANG @ HENG HOCK CHENG

EMELIANA DALLAN RICE-OXLEYDATO’ AB. HALIM MOHYIDDIN

The BAC members as at 23 February 2017.

PAGE: 198

PETRONAS GAS BERHAD

BOARD AUDIT COMMITTEE REPORT

COMPOSITION

The BAC was formed by the Board pursuant to its meeting held on 14 August 1995.

Emeliana Dallan Rice-Oxley was appointed as a member of the BAC of PGB effective 1 September 2016 in place of Datuk

Rosli Boni who had retired from PETRONAS.

As at 31 December 2016, the composition of the BAC is as follows:

No Name of Members MembershipDate of

Appointment Tenure on the BAC

1 Habibah Abdul

(Chairman)

Senior Independent Director 24 February 2016 10 months

2 Dato’ N. Sadasivan N.N. Pillay Non-Independent Non-Executive

Director

29 August 1995 21 years

3 Dato’ Ab. Halim Mohyiddin Independent Non-Executive

Director

4 August 2011 5 years

4 Lim Beng Choon Independent Non-Executive

Director

24 February 2016 10 months

5 Emeliana Dallan Rice-Oxley Non-Independent Non-Executive

Director

1 September 2016 3 months

The Chairman of the BAC, Habibah Abdul and Dato’ Ab. Halim Mohyiddin are both qualified accountants. Habibah is

currently a Member of the Institute of Chartered Accountants in England and Wales, Malaysian Institute of Certified Public

Accountants and Malaysian Institute of Accountants whilst Dato’ Ab Halim is a Council Member of the Malaysian Institute of

Certified Public Accountants and a Member of the Malaysian Institute of Accountants. In this regard, the Company is in

compliance with Paragraph 15.09(c)(i) of the MMLR which requires at least one member of the BAC to be a qualified

accountant.

During the year under review, the Board assessed the performance of the BAC through an annual Board Committee

effectiveness evaluation. The Board is satisfied that the BAC has discharged its functions, duties and responsibilities in accordance

with the BAC Terms of Reference.

As at the date of this Annual Report and as announced to Bursa Malaysia on 2 November 2016 and 9 December 2016

respectively, effective 1 January 2017, both Lim Beng Choon and Dato’ N. Sadasivan N.N. Pillay ceased to be Directors of the

Company. Lim Beng Choon has been succeeded by an Independent Director, Heng Heyok Chiang @ Heng Hock Cheng

whilst the Company has not identified a replacement for Dato’ N. Sadasivan N.N. Pillay. The BAC wishes to record its

appreciation and gratitude to both outgoing Directors for their contribution and guidance during their tenure as Members of

the BAC.

PAGE: 199

ANNUAL REPORT 2016

As at the date of the Annual Report, the composition of the BAC is as follows:

No Name of Members Directorate

1 Habibah Abdul (Chairman) Senior Independent Director

2 Dato’ Ab. Halim Mohyiddin Independent Non-Executive Director

3 Emeliana Dallan Rice-Oxley Non-Independent Non-Executive Director

4 Heng Heyok Chiang @ Heng Hock Cheng Independent Non-Executive Director

The above composition is in compliance with Paragraph 15.09(1)(b) of the MMLR and the Malaysian Code on Corporate

Governance 2012 (MCCG 2012) where all four BAC members are Non-Executive Directors including three Independent

Directors who fulfill the criteria of independence as defined in the MMLR. None of the Independent Directors has appointed

alternate Directors.

TERMS OF REFERENCE

The Terms of Reference of the BAC set out the authority, duties and responsibilities of the BAC which are consistent with

the requirements of the MMLR and the MCCG 2012. The Terms of Reference of the BAC are accessible to the public for

reference on PGB’s official website at www.petronasgas.com.

MEETINGS

The BAC meets at least quarterly with additional meetings convened as and when necessary. The BAC meetings for the 2016

financial year are scheduled in November 2015 to facilitate the Directors in planning ahead and incorporating the BAC

meetings into their respective schedules. This also serves to provide the members with ample notice of the meetings.

During the financial year under review, the BAC held four meetings. The meeting attendance record of each member is as

follows:

No Name of Members No. of meetings attended

1 Habibah Abdul1 (Chairman) 3/3 (100%)

2 Dato’ N. Sadasivan N.N. Pillay 4/4 (100%)

3 Dato’ Ab. Halim Mohyiddin 4/4 (100%)

4 Lim Beng Choon1 3/3 (100%)

5 Emeliana Dallan Rice-Oxley3 1/1 (100%)

6 Datuk Rosli Boni2 3/3 (100%)

1 Appointed as BAC members on 24 February 20162 Resigned as BAC member on 1 September 20163 Appointed as BAC member on 1 September 2016

PAGE: 200

PETRONAS GAS BERHAD


By invitation, the Managing Director/

Chief Executive Officer, Company

Secretaries, Chief Financial Officer,

Head of Risk Management Division,

external and internal auditors attend

the BAC meetings to provide the BAC

their input and advice and furnish

appropriate relevant information.

The Head of Group Internal Audit (GIA)

Division of PETRONAS presents the

internal audit reports to the BAC. In this

regard, relevant members of the

Management are invited to apprise the

BAC on specific issues arising from the

audit findings. The external auditors also

attend the BAC meeting to present the

external audit plan for the year as well as

the outcome of the statutory audit

conducted on the Company and its

subsidiaries. In addition, the BAC meets

with the external auditors once during

the financial year without the presence of

the Management.

The agenda and a set of meeting

papers encompassing qualitative and

quantitative information relevant to the

business of the meeting are distributed

to the BAC members five days prior to

the meeting dates.

Deliberations during the BAC meetings

include performance review of the

Company, the proposed annual and

interim financial reporting to Bursa

Malaysia, assessment of related party

transactions (RPT) and recurrent related

party transactions (RRPT) proposed to be

entered into by the Company, status of

open audit findings together with the

agreed corrective actions, risk

management activities and proposed

interim dividends.

The above assists the BAC Chairman to

effectively convey to the Board the

matters deliberated at the BAC meetings.

Minutes of a BAC meeting are tabled for

confirmation at the next BAC meeting,

after which they are circulated to the

Board for notation. In addition to

communicating to the Board on matters

deliberated during the BAC meeting, the

BAC Chairman also recommends to the

Board the approval of annual financial

statements, quarterly financial results and

proposed interim dividends.

SUMMARY OF WORK OF THE BAC DURING THE FINANCIAL YEAR 2016

The BAC carried out the following

work in 2016:

Financial Reporting

(a) Reviewed the quarterly results for

announcements to Bursa Malaysia

before recommending the same

for approval by the Board upon

being satisfied that, it had

complied with the applicable

approved Malaysian Financial

Reporting Standards (MFRS) issued

by the Malaysian Accounting

Standards Board (MASB), MMLR

and other relevant regulatory

requirements.

(b) Reviewed the Company’s annual

and quarterly management

accounts.

(c) Reviewed the audited financial

statements of the Company prior

to submission to the Board for the

Board’s consideration and

approval, upon the BAC being

satisfied that, inter alia, the audited

financial statements were drawn

up in accordance with the

provisions of the Companies Act

1965 and the applicable approved

MFRS issued by the MASB.

Internal Control

(a) Reviewed the effectiveness of the

system of internal controls, taking

account of the findings from

internal and external audit reports.

(b) Reviewed the Statement on Risk

Management and Internal Controls

(SORMIC), which was supported by

an independent review by

KPMG PLT.

(c) Quarterly review of all RPT and

RRPT.

(d) Reviewed the revisions to the PGB

RPT/RRPT Policies and Procedures.

Further details on RPT and RRPT

policies and procedures are set out

under the SORMIC on pages 193

to 194 of the Annual Report.

(e) Reviewed PGB’s Revised Limit of

Authority for Procurement.

Annual Reporting

The statements for the BAC Report

and the SORMIC for the financial year

ended 31 December 2016 for the

purpose of inclusion in the Company’s

2016 Annual Report, were reviewed

and endorsed by the BAC on 16

February 2017.

Related Party Transactions and Conflict of Interest

The BAC reviews all RPT and RRPT in

accordance with the PGB RPT Policies &

Procedures to monitor, track and identify

RPT and RRPT so as to ensure the

transactions are at all times carried out

on arms-length basis and are not to the

detriment of minority shareholders.


the BAC reviewed on a quarterly basis,

the status update of the Company’s RPT

and RRPT. The BAC also ensures that

any conflict of interest situation that may

arise in the deliberation of a transaction

is appropriately declared in advance.

Internal Audit

(a) Reviewed and deliberated on reports

of audits conducted by the GIA.

(b) Monitored all corrective actions on

audit findings identified by the GIA

until all issues were resolved.

(c) Reviewed the annual internal audit

plan for the year including its

scope, basis of assessments and

risk ratings of the proposed areas

of audit.

PAGE: 201

ANNUAL REPORT 2016

External Audit

(a) Reviewed with the external auditors’ audit strategy and scope for the statutory audit of the Company’s financial

statements for the financial year ended 31 December 2016.

(b) Reviewed with the external auditors the results of the statutory audit and the audit report.

(c) Reviewed and endorsed the proposed fees for the statutory audits.

(d) Reviewed and approved the non-audit services provided by the external auditors while ensuring there was no

impairment of independency or objectivity. This included monitoring the fee of the total non audit work carried out by

the external auditors so as not to jeorpardise their independence status. In relation to this, the BAC reviewed the

assurance letter from the external auditors confirming their independence throughout the financial year under review.

(e) PGB engaged the external auditors for non-audit services. Total fees paid to the external auditors is as follows:

2016 2015

ParticularsGroup

RM’000CompanyRM’000

GroupRM’000

CompanyRM’000

Audit Fees

• Statutory audit

• Other audit related services fees

43934

27515

377

15

244

15

Total Statutory Audit and Audit Related fees 473 290 392 259

Total Non-audit Fees

• Tax services – – – –

Percentage of Non-audit Fees over Statutory Audit &

Other Audit Related Services Fees – – – –

Risk Monitoring

Reviewed on a quarterly basis the Company’s Enterprise Risk Report and Status of Risk Monitoring. The BAC also deliberated

on the risk exposures and the mitigation plans required.

INTERNAL AUDIT

The PETRONAS GIA supports the BAC in their responsibilities by providing an independent and objective assurance designed

to add value and improve the PETRONAS Group’s operations.

GIA key functions are to assist the Group in accomplishing its goals by bringing a systematic and disciplined approach to

evaluate and improve the effectiveness of risk management, control and governance processes within the Group. The internal

audit function of PGB is carried out by GIA and is currently headed by Asril Rahman Abdul Hadi who reports to the BAC.

PAGE: 202

PETRONAS GAS BERHAD


GIA maintains its impartiality,

proficiency and due professional care,

as outlined in its Internal Audit Charter,

by having its plans and reports directly

under the purview of the BAC. The

BAC has full access to internal auditors

and receives reports on all audits

performed.

GIA performs independent audits in

diverse areas within the PGB including

overall governance and control,

operations, projects, accounting and

financial activities, in accordance with

the risk-based annual audit plan

presented to the BAC for approval.

GIA adopts the Standards and

Principles outlined in the International

Professional Practices Framework of

The Institute of Internal Auditors (IPPF)

and Committee of Sponsoring

Organisation of the Treadway

Commission (COSO) Internal Control

Framework, a comprehensive,

structured and widely used auditing

approach, in conducting the audit

activities. Based on the COSO

Framework, all aspects of controls are

given emphasis in order to ensure risk

is well managed and mitigated.

The audits conducted for PGB during

the financial year under review were:

No. Audit Titles Conducted in 2016

1 Audit on Overall Project

Management Activities of PGB

2 Audit on Operation and

Maintenance of Utilities Kertih,

Export Terminal and Kertih

Shared Marine Facility of PGB

3 Audit on Operations and

Maintenance of Gas

Transmission of PGB

The resulting reports from the audits

were reviewed by the BAC and

forwarded to the auditee’s Management

for the necessary corrective actions.

The auditee’s Management is

responsible for ensuring that corrective

actions are taken within the stipulated

time frame and all outstanding/open

items are reported to the BAC. This is

performed through Quarterly Audit

Status Report (QASR) submitted by the

auditees which will be assessed and

verified by GIA. The consolidated QASR

is submitted and presented to the BAC

for deliberation by PGB Risk

Management Unit.

In addition to the above audit

exercises, GIA also conducted a review

of PGB’s RRPT and RRPT Policies and

Procedures so as to provide assurance

to the BAC that the Policies and

Procedures conforms to the

requirements of Bursa Malaysia and

operations adhered to the Policies and

Procedures.

The said reviews were conducted on a

quarterly basis as well as for the year

ended 31 December 2016.

All internal audit activities for the

financial year under review were

performed in house by 22 internal

auditors from diverse backgrounds and

disciplines such as accounting and

finance, business administration and

management, engineering and

information technology.

GIA undertakes to ensure that the staff

are competent and adequately

equipped in carrying out their duties

and responsibilities by having structured

development programmes and

providing sufficient and relevant

trainings.

The total fees payable to GIA for the

internal audit function of the Company

and the Group for the financial year

was RM668,091.

RISK MANAGEMENT

The Board has established an

organisation structure with clearly

defined lines of responsibility and

accountability pursuant to its business

and operational requirements while

ensuring appropriate risk management

processes are in place to protect

shareholders and stakeholders value.

The Risk Management Unit (RMU) of

PGB has been tasked to conduct

assessment of risks for the PGB Group

of Companies. RMU reports to the BAC

on a quarterly basis or as and when

necessary.

Pursuant to Recommendation 6.1 of

the MCCG 2012, Risk Management is

enforced through an Enterprise Risk

Report (ERR) reporting tool. Further

details on Risk Management are

provided under the SORMIC on page

186 of this Annual Report.

BAC plays a vital role in reviewing the

adequacy and effectiveness of the Risk

Management processes within the PGB

Group. In this regard, BAC reviews and

challenges the ERR which entails

amongst others the risk profile and

status of risk mitigation implementation.

REPORTING TO THE EXCHANGE

For the financial year under review, the

BAC was of the view that the

Company was in compliance with the

MMLR and as such, the reporting to

Bursa Malaysia under Paragraph 15.16

of the MMLR was not required.

Habibah AbdulChairman

Board Audit Committee

16 February 2017

PAGE: 203

ANNUAL REPORT 2016

IN COMPLIANCE WITH PARAGRAPH 15.08A OF THE MAIN MARKET LISTING

REQUIREMENTS (MMLR) OF BURSA MALAYSIA SECURITIES BERHAD

(BURSA MALAYSIA), THE NOMINATION AND REMUNERATION COMMITTEE (NRC) OF

PETRONAS GAS BERHAD (PGB OR THE COMPANY) WAS ESTABLISHED ON 14

NOVEMBER 2011. THE NRC IS PLEASED TO PRESENT THE NRC REPORT FOR THE

FINANCIAL YEAR ENDED 31 DECEMBER 2016.

COMPOSITION

As at 31 December 2016, the NRC comprises three Independent Non-Executive Directors. In line with the Malaysian Code on

Corporate Governance 2012 (MCCG 2012), all NRC members including the Chairman are Non-Executive Directors.

The members of the NRC as at 31 December 2016 are:

No. Name of Members Directorate

1 Lim Beng Choon (Chairman) Independent Non-Executive Director

2 Dato’ N. Sadasivan N.N. Pillay Non-Independent Non-Executive Director

3 Habibah Abdul Senior Independent Director

HABIBAH ABDUL HENG HEYOK CHIANG @ HENG HOCK CHENG

DATO’ AB. HALIM MOHYIDDIN

PAGE: 204

PETRONAS GAS BERHAD

NOMINATION AND REMUNERATION COMMITTEE REPORT

NRC members as at 23 February 2017.

As at the date of this Annual Report and as announced to Bursa Malaysia on 2 November 2016 and 9 December 2016

respectively, effective 1 January 2017, both Lim Beng Choon and Dato’ N. Sadasivan N.N. Pillay ceased to be Directors of the

Company. Lim Beng Choon has been succeeded by an Independent Director, Heng Heyok Chiang @ Heng Hock Cheng,

whilst PGB is currently evaluating potential candidates to replace Dato’ N. Sadasivan N.N. Pillay. The NRC wishes to record its

appreciation and gratitude to both outgoing Directors for their contribution and guidance during their tenure as Members of

the NRC.

The NRC is now chaired by an Independent Director, Dato’ Ab. Halim Mohyiddin effective 1 January 2017.

The MCCG 2012 has recommended that the NRC be chaired by the Senior Independent Director of the Company. However,

the Senior Independent Director of PGB currently serves as the Chairman of the Board Audit Committee. As such, the Board

has instead elected Dato’ Ab. Halim Mohyiddin as the Chairman of the NRC in order to have different Directors chairing the

committees so as to leverage on different perspectives and dynamics. This will also ensure that each Independent Director

has equitable roles and responsibilities.

As at the date of the Annual Report, the composition of the NRC is as follows:

No. Name of Members Directorate

1 Dato’ Ab. Halim Mohyiddin (Chairman) Independent Non-Executive Director

2 Habibah Abdul Senior Independent Director

3 Heng Heyok Chiang @ Heng Hock Cheng Independent Non-Executive Director

The current composition of the NRC comprises exclusively Independent Non-Executive Directors, in compliance with the

requirement of Paragraph 15.08A (1) of MMLR, which provides that the NRC must comprise exclusively Non-Executive

Directors, the majority of whom are Independent Directors. This is also in line with the Recommendation 2.1 of the

MCCG 2012.

Based on the Board Evaluation carried out by the Board of Directors (Board), the Board is satisfied with the performance and

effectiveness of the NRC in providing sound advice and recommendations to the Board.

TERMS OF REFERENCE

The NRC is governed by the NRC Terms of Reference (TOR) which are consistent with the requirements of MMLR and

MCCG 2012. The TOR of the NRC are accessible to the public for reference on PGB’s official website at


PAGE: 205

ANNUAL REPORT 2016

MEETINGS

During the financial year under review, the NRC met twice and the attendance of each member is as follows:

No. Name of Members No. of meetings attended

1 Lim Beng Choon (Chairman) 2/2 (100%)

2 Dato’ N. Sadasivan N.N. Pillay 2/2 (100%)

3 Habibah Abdul 2/2 (100%)

Managing Director/Chief Executive

Officer (MD/CEO), Company

Secretaries, Head of Human Resource

Management Division and any other

persons deemed necessary by the NRC

are invited to attend the NRC meeting

and are present for deliberations which

require their input or advice. The

Company Secretaries and the Head of

Human Resource Management Division

act as Joint Secretaries to the NRC.

The NRC meetings for the financial

year 2016 were scheduled in

November 2015 to facilitate the

Members in planning ahead and

incorporating the NRC meetings into

their respective schedules. This also

serves to provide the Members with

ample notice of the meetings.

The agenda and a set of meeting

papers relevant to the business of the

meeting are distributed to the NRC

Members in advance of the meeting

date.

All proceedings of the NRC meetings

are duly recorded in the minutes of

each meeting and signed minutes of

each NRC meeting are properly kept

by the Secretary. The draft NRC

minutes are circulated to the NRC

members subsequent to the NRC

meeting and approved by the NRC

prior to the Board meeting. This assists

the NRC Chairman to effectively

convey to the Board matters

deliberated at the NRC meeting. The

minutes of the NRC are also distributed

to members of the Board for their

notation.

BOARD APPOINTMENT PROCESS

The Company practices a formal and

transparent procedure for the

appointment of new Directors.

Nomination of Directors to the Board

is made either by Petroliam Nasional

Berhad, being the majority shareholder,

or through engagement of a

professional recruitment firm to find

suitable candidates to fill in the

position of Independent Non-Executive

Directors.

In its selection of suitable candidates,

the NRC is guided by the guidelines

stipulated in the Board Selection

Criteria. The guideline will assist the

NRC in evaluating potential candidates

for the purpose of appointment and

re-appointment of Directors with

proper selection criteria that consider

competencies, skills and personal

attributes.

All nominees to the Board are first

considered by the NRC, taking into

consideration a mix of skills,

competencies, experience, integrity and

time commitment required to

effectively discharge his or her role as

a director. Diversity in terms of age,

gender and ethnicity are also

considered in selecting the best

candidate.

PAGE: 206

PETRONAS GAS BERHAD


PROCESS FLOW FOR APPOINTMENT OF A DIRECTOR

Circumstances giving rise to the appointment of Director

The NRC develops and deliberates selection criteria combining

competencies and attributes required

Search for candidates

Assess and shortlist the potential candidates in consultation

with the NRC

Interview shortlisted candidates

Deliberation by the NRC on the suitability of the candidate

PGB Board Approval

Orientation/Induction

Continuous Training & Annual Performance Assessment

In accordance with the Board Diversity Policy of the Company, the NRC is pleased to inform that the Board has successfully

met its target of 30% women Directors in line with the country’s aspirational target of 30% representation of women

Directors on Boards.

The three female Directors on the Board of PGB represents 43% of the current Board Composition.

PAGE: 207

ANNUAL REPORT 2016

DIRECTORS’ RE-ELECTION AND RE-APPOINTMENT

Based on the schedule of retirement by rotation, the NRC is responsible for recommending to the Board those Directors

who are eligible to stand for re-election or re-appointment. The recommendation is based on the performance of the

Directors, taking into account their contribution to the Board through their skills, experience, strengths and qualities in

particular the level of independence and ability to act in the best interests of the Company.

Article 93 of the Constitution of the Company (CC) provides that one-third of the Directors of the Company for the time

being shall retire by rotation at an Annual General Meeting (AGM) of the Company. With the current Board composition and

with exclusions of Directors retiring under other applicable provisions of the CC, one Director is to retire in accordance with

Article 93 of the CC. The eligible Director may seek re-election at the forthcoming AGM.

The NRC at its meeting held on 23 January 2017 had endorsed for Habibah Abdul to retire and seek for re-election at the

34th AGM pursuant to Article 93 of the CC for re-election at the forthcoming AGM.

Article 96 of the CC provides amongst others, that the Board shall have the power to appoint any person to be a Director

to fill a casual vacancy or as an addition to the existing Board, and that any Director so appointed shall hold office until the

next following AGM and shall then be eligible for re-election.

As at the date of this Annual Report, the following resignations and appointments have taken place:

No Resignations Directorships New Appointments Appointment Date

1 Datuk Rosli Boni Non-Executive Director Wan Shamilah

Wan Muhammad Saidi

1 September 2016

2 Ir Pramod Kumar Karunakaran Non-Executive Director Emeliana Dallan Rice-Oxley 1 September 2016

3 Tan Sri Dato’ Seri Shamsul

Azhar Abbas

Chairman Datuk Mohd Anuar Taib 1 January 2017

4 Lim Beng Choon Independent

Non-Executive Director

Heng Heyok Chiang @ Heng

Hock Cheng

1 January 2017

5 Dato’ N. Sadasivan N.N Pillay Non-Independent

Non-Executive Director

Yet to be identified N/A

In view of the above, the following Directors shall retire at the next AGM pursuant to Article 96 of the CC and offer

themselves for re-election:

1. Emeliana Dallan Rice-Oxley

2. Wan Shamilah Wan Muhammad Saidi

3. Datuk Mohd Anuar Taib

4. Heng Heyok Chiang @Heng Hock Cheng

The NRC at its meeting held on 23 January 2017 had recommended to the Board re-election of the above four Directors at

the forthcoming AGM.

PAGE: 208

PETRONAS GAS BERHAD


BOARD EVALUATION

Every year, under the purview of the

NRC, a formal evaluation is undertaken

to assess the effectiveness of the

following:

(a) The Board as a whole and the

various Board Committees.

(b) Contribution of each individual

Director.

(c) Independence of Independent

Directors.

This is conducted through a Board

Evaluation process which consists of a

Board and Peer Annual Assessment

(Board Evaluation). The Board

Evaluation focuses on maximising the

effectiveness and performance of the

Board in the best interests of the

Company.

The Board Evaluation assessed the

following areas:

(a) Board Structure;

(b) Board Operations and Interactions;

(c) Board Communications; and

(d) Board Roles and Responsibilities

The NRC had, on 23 January 2017,

reviewed the outcome of the Board

Evaluation for 2016 and initiated

improvement actions.

SUCCESSION PLANNING FOR DIRECTORS

The Board Succession Plan will assist

the Company in ensuring the orderly

identification and selection of new

Non-Executive Directors in the event

of an opening on the Board, whether

such opening exists by reason of an

anticipated retirement, an unanticipated

departure, the expansion of the size of

the Board, or otherwise. In addition, a

thoughtful Succession Planning can

improve the composition and

effectiveness of a Board.

SUMMARY OF ACTIVITIES OF THE NRC COMMITTEE

The following activities were carried

out by the NRC during the financial

year ended 31 December 2016:

(a) Assessment on the effectiveness of

the Board as a whole, the

Committees of the Board, as well

as the contribution of each

individual director through a Board

Effectiveness and Directors’

Evaluation exercise.

(b) Reviewed the performance of

PGB’s Senior Management.

(c) Reviewed the Directors’ Training

Requirements.

(d) Reviewed and endorsed the

re-election of Directors.

(e) Reviewed and endorsed the

nomination of Datuk Mohd Anuar

Taib as the Chairman of the

Company.

(f) Reviewed and endorsed the

nomination of Emeliana Dallan

Rice-Oxley, Wan Shamilah

Wan Muhammad Saidi and Heng

Heyok Chiang @ Heng Hock

Cheng as members of the Board

and Board Committees.

(g) Reviewed and endorsed the NRC

Report for 2015 Annual Report.

(h) Reviewed potential candidates for

PGB Directorship.

(i) Reviewed and endorsed the

Management Fees for PGB’s MD/

CEO.

Dato’ Ab. Halim Mohyiddin

Chairman


Committee

23 January 2017

PAGE: 209

ANNUAL REPORT 2016

THE GROUP PRACTICES A STRUCTURED BUSINESS CONTINUITY MANAGEMENT

(BCM) TO ENSURE CONTINUITY OF THE GROUP’S OPERATIONS AND SERVICES IN

THE EVENT OF DISRUPTIONS OR CRISES

PGB BUSINESS CONTINUITY MANAGEMENT FRAMEWORK

Standards

People

Process

Infrastructure

Risk Profiling &

Control

Business Impact

Analysis

Strategy Selection

Business Continuity

Plan

Test &Exercise

Continual Improvement

BCM scope encompasses various elements to ensure readiness in responding to business disruptions.

The Group’s BCM provides a systematic approach from managing its operational risks to building capability towards effective

response during disruptions or crises.

PAGE: 210

PETRONAS GAS BERHAD

BUSINESS CONTINUITY MANAGEMENT

BCM GOVERNANCE

The Risk Management Unit (RMU) is

entrusted with the responsibility of

ensuring effective BCM governance and

implementation in the Group. At

operating divisions, there are focal

persons assigned from the Operational

Excellence and Improvement (OE&I)

Department to drive implementation of

the framework and processes rolled

out by RMU and ensure effective

execution of BCM at the respective

divisions. On regular basis, RMU guides

Divisions to ensure compliance to the

Group’s BCM requirements.

BCM PROCESS

The Group’s BCM process involves

various elements towards enhancing

readiness in responding to business

disruptions and crises.

As set out on page 184 of this Annual

Report, risks are periodically assessed

and monitored to ensure the Group’s

critical risks are managed and

mitigated.

Business Impact Analysis prioritises the

Group’s key business functions and

spells out the timeframe to resume

each function in the event of

disruptions.

The Group has in place a Gas Supply

Business Continuity Plan (BCP) which

adopts a three-tiered approach in

escalating response to gas supply

disruptions from operations to

management. The BCP will assist the

Group in effectively responding and

managing gas supply disruption. The

Group is also currently enhancing the

BCP for its utilities supply in Kertih and

Gebeng, in particular to formalise the

thresholds for BCP escalation criteria in

responding to utilities supply disruption.

The Company has also formulated BCP

in responding to the inaccessibility of

PETRONAS Twin Towers where its

Head Office operates. An alternate

worksite has been established to

resume its Head Office’s critical

functions in the event the PETRONAS

Twin Towers is inaccessible.

The Group acknowledges the

importance of capability building in

managing crisis. Continuous awareness

and capability building programmes are

being carried out for various level of

staff of the Group.

The Group has various programmes in

place to drive continuous

enhancements in the Group’s BCM as

well as to keep Management and staff

up-to-date on the requirements and

processes. These are periodically tested

to ensure business continuity and

effective response to crises and

business disruptions.

PAGE: 211

ANNUAL REPORT 2016

PGB IS GUIDED BY

PETRONAS’ SHARED

VALUES OF LOYALTY,

INTEGRITY,

PROFESSIONALISM AND

COHESIVENESS IN

CARRYING OUT OUR

BUSINESS ACTIVITIES.

CODE OF CONDUCT AND BUSINESS ETHICS (CoBE)

CoBE outlines the ethical conduct

expected of our employees, Directors

as well as third parties working for or

on behalf of the PETRONAS Group.

Among the pertinent areas covered in

the code are conflict of interest,

anti-corruption, competition, anti-

money laundering, international trade

and export controls.

The code also places emphasis on

discipline, good conduct,

professionalism, loyalty, integrity and

cohesiveness – all principles that are

critical to the success and well-being

of the Company. Contractors,

sub-contractors, consultants, agents,

representatives and others performing

work or services for or on behalf of

the Company are required to comply

with the relevant parts of the CoBE

when undertaking such work or

services.

The CoBE and supporting documents

are available on our corporate website

at www.petronasgas.com.

ANTI-BRIBERY AND CORRUPTION COMPLIANCE PROGRAMME

PETRONAS mandates zero tolerance

for all forms of bribery and corruption,

and has implemented a No Gift Policy

since 1 April 2012. The PETRONAS

Integrity Compliance Framework (PICF)

which was developed to inculcate a

stronger culture of ethics and integrity

within the Company, and complement

the CoBE focusing on: Policies and

Procedures, Systems and Processes,

and People and Culture.

An Anti-Bribery and Corruption (ABC)

Manual has been developed to

supplement the general policy

statements set out in the CoBE on

fighting corruption and unethical

practices. The ABC Manual, applicable

across the PETRONAS Group, contains

detailed explanation on procedures for

dealing with improper solicitation,

bribery and corruption, as well as

addressing ethical issues in sensitive

situations.

This includes dealing with gifts,

entertainment and corporate hospitality;

facilitation payments; dealing with third

parties, including promoting PETRONAS’

whistleblowing channels to all

employees as well as third parties.

Mandatory online ABC training was

rolled out in December 2015 to all

staff. The ABC Manual is also available

online at www.petronasgas.com.

All employees are required to adhere

strictly to the provisions on anti-bribery

and corruption stipulated in the CoBE

as well as ABC Manual. The Company

may suspend an employee when

investigating a suspected breach of

CoBE or law on internal procedures.

We may also institute disciplinary

action against an employee should

findings reveal concrete and cogent

evidence in support of the alleged acts

of misconduct. Consequences of

breaching the CoBE include dismissal,

among others.

Managing Bribery and Corruption Risks

To further strengthen the Group’s

anti-bribery and corruption compliance

programme, PETRONAS introduced a

Compliance Desktop in 2015. This

integrated solution provides online

training on the ABC Manual, and an

online register for employees to

declare gifts, entertainment and

conflicts of interest, while facilitating

compliance activities related to third

party screening and due diligence.

PAGE: 212

PETRONAS GAS BERHAD

INTERNAL POLICIES

WHISTLEBLOWING POLICY AND PROCEDURES

The Whistleblowing Policy launched by

PETRONAS in 2012 allows employees

and members of the public to disclose

any improper conduct, criminal offence

or malpractice to the Company. Under

the policy, a whistleblower will be

accorded with protection of

confidentiality of identity to an extent

that is practicable. An employee who

whistleblows internally will also be

protected against any adverse actions

for their disclosure, to an extent that is

practicable, provided that the disclosure

is made in good faith.

Such protection is accorded even if

subsequent investigations reveal that

the whistleblower was mistaken as to

the facts or the rules and procedures

involved. The Whistleblowing Policy

and related procedures are accessible

to the public for reference on the



HEALTH, SAFETY AND ENVIRONMENT (HSE) POLICY

Managing the safety of people, assets

and the environment is PGB’s top

priority. The emphasis is to develop

adequate and effective controls on

identified Health, Safety and

Environment (HSE) risks.

The HSE Policy governs and reinforces

our commitment to safeguarding our

employees, and to preserving the

reliability of our facilities and

operations. This, in turn, translates into

efficient business activity. The Policy,

which is applicable to all employees

and third-party service providers, is

supported by an HSE Mandatory

Control Framework (MCF) to strengthen

HSE Governance within the Company

while providing clear requirements on

operational safety, environment and

health for consistent and effective

implementation.

HUMAN RIGHTS

The Human Rights Commitment was

launched by PETRONAS in October

2015 and has subsequently been

adopted by PGB, underlining our

allegiance to respecting internationally

recognised human rights principles,

laws, best industry practices and

standards in managing our operations.

The Commitment is applicable to all

employees of PGB, our contractors,

subcontractors and any third parties

within our premises or performing

work and/or business for or on behalf

of PGB. It complements the CoBE,

Anti-Bribery and Corruption (ABC)

Policy and Whistleblowing Policy.

Human Rights is embedded across the

five key areas within PETRONAS’ Social

Performance Framework that could

potentially affect our operational

activities namely Health, Safety,

Environment, Security and Socio-

economic and Cultural.

Among others, the Commitment

addresses labour and working

conditions for contractors, third-party

security, the supply chain and

community well-being.

PAGE: 213

ANNUAL REPORT 2016

Sungai Paka, Terengganu

SUSTAINABILITY REPORTING

218 About This Report

220 Sustainability Highlights

222 Sustainability Framework

226 Sustainability Statements

226 Economic

230 Environment

236 Social

07

Corporations exist within ecosystems, and their long-term

sustainability depends largely on the value they are able to

bring to the stakeholders within these ecosystems. Broadly

speaking, these values are linked to the Economic,

Environmental and Social (EES) well-being of their

stakeholders and the natural environment surrounding their

operations.

We have been disclosing our non-financial performance in

the Corporate Responsibility (CR) sections of the previous

Annual Reports. This is our first effort in producing a new

format of Sustainability Report, which highlights the key EES

initiatives.

Information in this report covers the sustainability efforts

undertaken by PGB and our regional offices nationwide

throughout the 12-month period from 1 January to

31 December 2016. Views and feedbacks from our

stakeholders have been compiled to help us identify,

prioritise and address material sustainability issues in our

business strategies. We endeavour to report all issues which

are material to the Company and our stakeholders, as

determined by our policies, surveys, analyses of internal

documents, interactions and media reports. We acknowledge

that there will be gaps in our disclosure, but we are

committed to strengthening our internal mechanisms to

monitor, report and verify key data each successive year.

SCOPE

PETRONAS GAS BERHAD (PGB)

RECOGNISES THAT THE

SUCCESS OF A COMPANY IS

MEASURED NOT ONLY BY ITS

PROFITABILITY BUT ALSO THE

MANNER IN WHICH IT IS BEING

ACHIEVED.

PAGE: 218

PETRONAS GAS BERHAD

ABOUT THIS REPORT

In producing this report, we are guided by the local and

international statutory and reporting frameworks, particularly

Bursa Malaysia Securities Berhad (Bursa Malaysia)’s newly

introduced guidelines relating to Sustainability Statements as

well as the FTSE Environmental, Social and Governance

(ESG) assessment indicators.

We value feedbacks and welcome comments on our

reporting. Please direct them to:

PETRONAS Gas Berhad

Sustainability Reporting Team

Corporate Affairs

PETRONAS Gas Berhad

Level 51, Tower 1, PETRONAS Twin Towers


50088 Kuala Lumpur

Malaysia

or email: [email protected]

APPROACH FEEDBACK

PAGE: 219

ANNUAL REPORT 2016

Board Leadership Team

PAGE: 220

PETRONAS GAS BERHAD

SCORECARD

ECONOMIC

ENVIRONMENT

SOCIAL

100%

Dividends

HSSE

EMPLOYEES

COMMUNITIES

Profit After Tax

Revenue

Product Delivery Reliability

62

0

3

43% 38%

38%

96%

6 LTI

2,117 31.7

4.6

2

3%4.0

1.7

5,044 2,152RM42.1

sen

fatalities

RM

RM

RM

billion

million

tonnes Co2e

million

million

billion

billion

mmscfdhectares

2015: 60 sen

2015: 0

2015: 1

2015: 13% 2015: 33%

2015: 10%

2015: 93%

2015: RM4.5 billion

2015: 5

2015: RM1.7 billion

2015: 5.6 million tonnes Co2e

LAND NATURAL GAS


MALAYSIAPOPULATION*

EMPLOYEES

(salesgas,

power, steam)

* source: Department of Statistics Malaysia

Lost Time Injury Major Fire

Women Composition

CARBON EMISSION Sayangi Sungai Paka

WATER RECYCLED

Permanent Employees

PROGRAM

SENTUHAN

KASIH

PETRONAS

PGB

LIVELIHOOD

PROGRAMME

PROGRAM

SENTUHAN

ILMU

allocated for

waste disposal

effort

annual target on reduction in waste disposalEcosystem baseline assessment

SU

STA

INA

BIL

ITY

HIG

HLIG

HTS

PAGE: 221

ANNUAL REPORT 2016

KEY MILESTONE

2005 - 2010

20112012

2013

2014

2015

2016

• Program Sentuhan

Kasih PETRONAS

• Building Leaders

Programme

• Acid Gas Oxidiser

(AGO) to reduce acid

gas emission

• Certified with MS ISO

14001:2004 (Environmental

Management System)

• Implemented 4G Initiative

(Green Care, Green Mind, Green

Ownership and Green Growth)

• 32% savings of waste

handling costs resulted

from 4G Initiative

• Implementation of

Program Bakti

Pendidikan (PBPP), which

is now rebranded as

Program Sentuhan Ilmu

PETRONAS (PSIP)

• 50% reduction of energy

consumption resulted from 4G

Initiative

• Seeding Programme to develop

future talents by recruiting fresh

graduates

• PGB greenhouse gas emission

reporting enhancement via

SANGEA® software

• Commissioning of Flare Gas

Recovery Unit (FGRU), resulted

in flaring emission reduction

• Mercury management through

HycaptureTM Hg

• Installation of high pressure

online washing at Gas Turbines

inlet to reduce energy

consumption

• Installation of cogeneration

(COGEN) unit

• Collaboration with Malaysian

Nature Society (MNS) to

preserve the biodiversity of

Sungai Paka

• Collaboration with Yayasan

Salam Malaysia on the

Livelihood Programme

• Certified with ISO 14001:2015 (Environmental Management System)

• Developed a structured Leak Detection and Repair (LDAR)

programme to monitor fugitive emission

• Installation of Predictive Emission Monitoring System (PEMS)

• Accelerating Culture Change (ACC) programme

SU

STA

INA

BIL

ITY

HIG

HLIG

HTS

SUSTAINABILITY GOVERNANCE

At PGB, leadership sustainability is part of our organisational approach and is led by the Leadership Team (LT), who oversees

and ensures the Group pursues our regulatory and commercial objectives and remain as a responsible organisation. Relevant

sustainable policies are approved by the Board for implementation.

The LT is supported by our Health, Safety and Environment Steering Committee (HSESC) and sustainability material matters

are reported on a regular basis to the Plant Leadership Team (PLT), LT and Board Audit Committee (BAC). We believe such

cross-functional approach helps us to better identify and manage material issues arising across all our businesses.

These material issues are taken into consideration during our decision-making processes and set the direction for our

sustainability initiatives. The LT also enhances our risk management and contribute to the development of effective

stakeholders’ communication.

Code of Conduct and

Business Ethics (CoBE)

Anti-Bribery and

Corruption Policy and

Guidelines

Health, Safety and

Environment (HSE) Policy

HSE Management System

and Mandatory Control

Framework

Sustainable Development

Management System

Corporate Sustainability

Framework

Carbon Commitments

Energy and Loss

Management System

Water Management Guide

Human Rights

Commitment

PETRONAS Technical

Guidelines on Social Risk

Assessment, Human Rights

Due Diligence and

Grievance Mechanism

Our sustainability efforts are guided by a robust framework as follows:

Our sustainability effort focuses on our management of Economic, Environment and Social (EES) risks and opportunities.

PAGE: 222

PETRONAS GAS BERHAD

SUSTAINABILITY FRAMEWORK

SUSTAINABILITY ENVIRONMENT

GOVERNANCE

ECONOMIC

SOCIETY

01

02

03

04

05

06

PGB

Transformation

programme

Internal documents

such as business

plans and

management

reports

PETRONAS’ Corporate

Sustainability

Framework

Input from our

operations, businesses,

shareholders and

stakeholders

Media reports

about the

Company

Sustainability

Reporting guidelines

and assessment

requirements

Cost Reduction

IDENTIFYING MATERIALITY

Elements of material sustainability are embedded into the Company’s business strategy to deliver excellence in our operation

and project deliveries underpinned by the Transformation programme to boost our resilience especially during the current

low oil price environment. The content of this report was generated by reviewing several internal and external sources of

information as well as findings, which were then deliberated with our internal subject matter experts in various steering

committees.

The following resources are assessed to identify sustainability materiality:

We are committed to continuously enhance our reporting process along with improved materiality mapping. We

acknowledge that a comprehensive exercise will require time and resources as it would entail obtaining inputs from our

various internal and external stakeholders. We will continue to undertake greater stakeholder engagement through formal and

informal channels.

PAGE: 223

ANNUAL REPORT 2016

Key input Impact to strategyHow we create valueHow we engage

• Financing (equity and debt

funding)

• Highly engaged investors

• Quarterly result announcements

and financial reports

• Audited Financial Statements

• Annual General Meeting

• Analysts & Investors briefing

• PGB website

• Plant visits

• Conferences

• Investor Relations

• Capital growth

• Sustainable dividend

• Good corporate governance

• Optimal gearing ratio


Reliability

Key input

Key input

Impact to strategy

Impact to strategy

How we create value

How we create value

How we engage

How we engage

• Incentives (tax)

• Property, plant and

equipment

• Demand

• Revenue

• Continuous engagement

through formal and informal

events

• Constructive feedback

sessions

• Participate in surveys, forum

& reporting

• Seek consultation

• Sponsorship

• Corporate Integrity Pledge

• Satisfaction survey

• Customers feedback system

• Customers relationship

management

• PGB website

• Consultation meetings

• One-to-one engagement

• Diligent taxpayer

• Conformance to legislation

and license requirements

• Reduction of waste

• Corporate social investment

and job creation

• Managing environment

impact

• Health and safety assurance

• Quality products and services

• Security of supply

• Responsive to customers'

need and feedback



Reliability

Customers

CREATING VALUE TO STAKEHOLDERS

Building credibility, trust and mutual respect with our stakeholders is crucial to PGB as these relationships have a direct and

indirect impact on our business. During the year under review, we continued to engage actively with our various stakeholder

groups in ways that are meaningful to each.

Investors & funding institutions

Government agencies authorities

PAGE: 224

PETRONAS GAS BERHAD

Key input Impact to strategyHow we create valueHow we engage

• Intellectual capital (system &

process)

• Financing equity funding

• Specific knowledge and skills

• One-to-one engagement

• Contractors forum

• Joint venture meetings

• Supply chain management

• No Gift Policy

• Code of Conduct and

Business Ethics

• Corporate Integrity Pledge

• Timely payment

• Business opportunity

• Profit sharing

• Fair treatment





Reliability

Key input

Key input

Impact to strategy

Impact to strategy

How we create value

How we create value

How we engage

How we engage

• Demand

• Growth opportunity

• Intellectual property

• Specific knowledge, skills

and expertise

• Highly ethical employees

practising PETRONAS

Cultural Belief

• Through Corporate Social

Investment programmes

• Providing once-off relief

assistance to the

underprivileged families in

area of our operations

• Responding to request from

our strategic stakeholders

through monetary

contributions

• Employee survey

• Performance Management

System

• Periodic union meetings

• Training and attachment

programme

• Regular leadership

engagement sessions

• Internal newsletters & intranet

• Badan Rekreasi & Kebajikan

Sukan (BRKS)

• Badan Kebajikan Islam

PETRONAS (BAKIP)


• Social engagements

• Managing of environmental

impact

• Social economic

• Philanthropic assistance

• Sponsorship/donation

• Job security

• Performance management

• Competitive remuneration

• Career progression

• Competency and capability

management


• Engagement


• Product Delivery Reliability





Reliability


System & Work Process

• Highly Engage & Capable

Workforce

Business partners and suppliers

Communities

Employees and unions

PAGE: 225

ANNUAL REPORT 2016

ECE

PGB CONTRIBUTES TO THE ECONOMY OF THE COUNTRY THROUGH THE SUPPLY OF GAS TO THE MALAYSIA’S POWER

SECTOR, WHICH CHANNELS POWER SUPPLY TO THE WHOLE NATION. TO ENSURE ECONOMIC

SUSTAINABILITY, WE ARE COMMITED TO MAINTAIN HIGH PLANT AND PRODUCT DELIVERY RELIABILITY.

THIS TRANSLATES INTO A SUSTAINABLE PERFORMANCE AND SUSTAINABLE RETURN TO

OUR SHAREHOLDERS.

ECONOMICSUSTAINABILITY

It is essential that our shareholders receive consistent and positive economic returns such as dividends and share capital

appreciation from their investments in PGB to protect and add value to their wealth portfolios. Our major shareholders, such as

PETRONAS, the Employee Provident Fund (EPF) and Kumpulan Wang Persaraan (Diperbadankan) (KWAP), indirectly distribute their

wealth to the Government and public communities. The performance of their investments in PGB therefore has a significant impact

on the economic well-being of the nation.

In our pursuit for profits through the generation of revenue, PGB has contributed to its stakeholders through various activities

including procurements, servicing taxes and giving employment opportunities. These economic outflows benefit our shareholders,

vendors, employees and the Government.

PAGE: 227

ANNUAL REPORT 2016

In line with our vision for sustainable growth, we are continuously evolving our services to meet the needs of the industry

and we continuously seek opportunities to invest in technology, asset integrity and business growth.

Power Steam Salesgas Regasification Transmission

Reliability (%)

98

.8

96

.497.

8

94

.5

95

.997.

9

99

.2

99

.2

99

.4

99

.96

99

.92

99

.92

98

.4

86

.3

79

.2

’14 ’15 ’16 ’14 ’15 ’16 ’14 ’15 ’16 ’14 ’15 ’16’14 ’15 ’16

Performance Based Structure (PBS) income

million

RM68.8

INVESTING IN ASSET INTEGRITY

PGB plays major role in gas value chain by processing, regasifying and delivering gas to power sector which subsequently

channel power supply to the whole nation as well as non-power sector. Security of gas supply is therefore of national

interest as it significantly impacting the nation, Malaysia economy and livelihood of people.

The Group therefore ensures high plant reliability via five-year integrated maintenance plans through which we conduct

reactive and preventive repair and maintenance, major repair and maintenance, major inspections and turnarounds, as well as

revamp and rejuvenation programmes in addition to acquiring or constructing new major assets. We also conduct studies on

life cycle improvement and modernisation of assets.

As part of the 3ZERO100 Transformation programme, we have invested significantly in improving our assets integrity and

reliability. As a result of various strategic initiatives focusing on Key Result Areas (KRAs), we successfully delivered

commendable operational performance, with our plants attaining world-class standards, recording higher reliability as well as

Overall Equipment Efficiency (OEE) and attaining 100% product delivery. This has also resulted in additional revenue through

the Performance Based Structure (PBS) income.

INVESTING IN TECHNOLOGY

PGB has invested on Gas Processing Plant (GPP) Ethane Recovery Improvement

initiative which contributed to the higher ethane production and delivery as well

as subsequently improvement to the PETRONAS value chain. PGB has also

invested on RGT Export Compressor (RGTEC) project which is currently ongoing.

The RGTEC project aims to allow our LNG Regasification Terminal in Sungai

Udang (RGTSU) to be on standby mode with zero send out without flaring. This

will enable RGTSU to recover the Boil off Gas and send it to the pipeline, which

in return results to zero flaring. The cost of flaring based on current gas price

(approximately USD6 per mmbtu) is estimated to be USD67,000 per day.

SUSTAINABILITY STATEMENTS – ECONOMIC

PAGE: 228

PETRONAS GAS BERHAD

Value creation to stakeholders:

GOVERNMENT

EMPLOYEES

SUPPLIERS

INVESTING IN BUSINESS GROWTH

PGB has entered into two new projects in Pengerang Integrated Complex (PIC). The LNG Regasification Terminal in Pengerang

(RGTP) is progressing well and is expected to provide primary gas supply to the Refinery and Petrochemical Integrated Development

(RAPID), the Pengerang Cogeneration Plant (PCP) as well as the existing Peninsular Gas Utilisation (PGU) pipeline network.

During the year, PGB has formed a joint venture company with one of the world’s leading industrial gas player, Linde

Malaysia Sdn Bhd to undertake development of the Air Separation Unit (ASU) plant in the PIC. The ASU will be the sole

facility for the supply of industrial gaseous to PIC customers.

These projects is expected to contribute positively to PGB’s bottom line.

INVESTING IN TECHNOLOGY

INVESTING IN ASSET INTEGRITY

REVENUE

PROFIT AFTER TAX

INVESTING IN BUSINESS GROWTH

DIVIDEND

SUSTAINABILITY MATTERS

HOW THEY ARE MANAGED

WHY ARE THEY IMPORTANT

We continuously seek

opportunities to grow our

revenue and profit by:

Additional capacity ofOxygen

Nitrogen

Nm3/hr

Nm3/hr

41,00025,900

Additional capacity of

via RGTPmmscfd490

1.2RM

billion2015: RM1.1 billion

Return to shareholders

Gas supply for power generation

to the country

PAGE: 229

ANNUAL REPORT 2016

4.6RM


1.7RMbillion

2015: RM1.7 billion

122RM

million2015: RM169 million

282RM

million2015: RM283 million

31.7Malaysia population

1.4RM


TAX PAID TO

PAYMENT TO

SALARIES

MALAYSIA

GOVERNMENT

SUPPLIERS

Economic and livelihood of

million

PGB SUPPORTS THE GOVERNMENT’S NATIONAL DETERMINED CONTRIBUTION (NDC) BY

PROMOTING NATURAL GAS AS LOW CARBON FUEL FOR THE POWER AND MANUFACTURING

SECTORS, IN ADDITION TO DELIVERING ENERGY EFFICIENCY IN ALL OF OUR

OPERATIONS.

EVENVIRONMENTSUSTAINABILITY

Sungai Paka, Terengganu

PAGE: 231

ANNUAL REPORT 2016

COMPLYING TO ENVIRONMENTAL, LEGAL AND OTHER REQUIREMENTS

Towards this end, we have taken steps to manage the

impact of our operations on the environment. We are also

committed to further enhancing our sustainability approach

and disclosure, and identifying other environmental matters

that may be material to our business.

We achieved another year of 100% compliance with

regulatory requirements. During the year under review, PGB

was certified with ISO 14001: 2015 Environmental

Management System by SIRIM Berhad. We also carried out

periodic cross-departmental peer reviews on compliance as

part of internal assurance programmes in the area of

environment management.

To further strengthen our regulatory compliance assurance,

we have implemented an online Legal Easy System

which enables easy interpretation of legal and regulatory

requirement, and helps the evaluation of regulatory

compliance and action tracking to be more efficient.

SUSTAINABILITY STATEMENTS – ENVIRONMENT

PAGE: 232

PETRONAS GAS BERHAD

REDUCING AIR AND CARBON EMISSIONS

To comply with the Clean Air Regulation 2014, we have developed a structured Leak Detection and Repair (LDAR)

programme to monitor and track fugitive emissions. We are installing Continuous Emission Monitoring Systems (CEMS) and

Predictive Emission Monitoring Systems (PEMS) at our plants. In 2016, we set up a PEMS at one of our auxiliary boilers in

Gas Processing Santong (GPS) in Kertih, Terengganu. This has resulted in reduction of greenhouse gas (GHG) and air

emissions by about 20%.

In 2016, PGB’s annual GHG emissions amounted to 4.0 million tonnes CO2e

which is reduction compared to GHG emissions in

year 2015. The reduction was primarily driven by improvements at flared gas recovery units and cogeneration plants installed at

our Gas Processing Kertih (GPK) and GPS. Furthermore, the GHG accounting software was upgraded and more accurate emission

factors were applied, which improved the overall GHG.

Natural gas

firing Natural gas

firing

PAGE: 233

ANNUAL REPORT 2016

FLARE STACKS

FGRU FLARE STACKS

BOILERBOILER

Flare gas from

processing

plants

WITHOUT FGRU WITH FGRU

Flare gas from

processing

plants

Flare gas recovered

carbon, filters and other contaminated scheduled materials

to the recovery company. As a result, we achieved the 3%

waste reduction for 2016, which translated into savings of

almost RM800,000.

We have also enhanced our IETS at the Gas Processing

Santong (GPS) which focused on the sludge and chemical

treatments as well as the Dissolve Air Floatation (DAF). This

is part of our efforts to effectively manage the waste and

water quality, to meet the DOE standard before discharging

it into the monsoon drain.

IMPROVING ENERGY EFFICIENCY

Our energy saving efforts are undertaken through monitoring

of our performance on a monthly basis via the Energy Index.

For the year under review, the energy consumption for PGB

was 48,190,373GJ.

Gas Processing Kertih, Terengganu.

MANAGING WASTE AND EFFLUENT

PGB is committed to managing our hazardous and non-

hazardous wastes in accordance with regulatory

requirements. We have invested in Industrial Effluent

Treatment System (IETS) to treat our industrial effluent to be

in compliance with parameters standard set by the

Department of Environment (DOE). In 2016, a total of RM2.0

million has been allocated to ensure our waste is disposed

properly at identified premises in Malaysia by Kualiti Alam

Sdn Bhd and TRIENEKENS Sdn Bhd.

Having set a target of reducing our waste by 3% annually,

we explored the option of chanelling some of our waste to

a recovery company (that uses waste as raw material to

generate secondary products). To ascertain the viability of

this option, we first identified the most significant wastes

generated at our facilities and had these analysed at an

accredited laboratory. Based on the lab results, we are

satisfied that it is safe to dispatch used lube oil, activated

SUSTAINABILITY STATEMENTS – ENVIRONMENT

PAGE: 234

PETRONAS GAS BERHAD

CONSERVING WATER

Our operations, maintenance and

non-process activities all consume

water. We measure our water

consumption based on freshwater

usage in m3 and percentage of

recycled water from freshwater usage.

We consumed a total of 6,424,751 m3

of water in 2016, 38% of which was

recycled for operations and

maintenance purposes. Water

conservation forms part of our

environmental agenda, and the

programme initiated by our

Demineralised Water Unit, Utilities

Kertih, has been recognised for its

excellence in an Environment

Campaign Competition within the

PETRONAS Group of Companies.

PRESERVING BIODIVERSITY

In 2016, we entered the second year

of a collaboration with the Malaysian

Nature Society (MNS) to preserve the

biodiversity of Sungai Paka in

Terengganu. As a mangrove ecosystem,

Sungai Paka presents an ideal habitat

for fish to lay eggs and for fry to grow

due to low predatory pressure and

abundant source of food biodiversity.

However, a preliminary year-long study

we undertook on birds, mammals,

insects, fish and plants in and around

the river showed that the Sungai Paka

ecosystem is under stress from human

interference. The study involved

engagement with 14 families living

along the river as well as sampling of

17 genus and 18 species by PGB

employees, MNS volunteers and the

relevant local authorities. More

extensive studies will follow in 2017

along with several planned activities

such as planting of river vegetation,

catch-and-release of selected fish

species and throwing of mud balls, to

help rejuvenate Sungai Paka.

Volunteers among PGB staff, Paka community and school children collecting samples from Sungai Paka.

MSN volunteer inspecting the river plants.

PAGE: 235

ANNUAL REPORT 2016

SSCS

OUR PEOPLE AND THE COMMUNITY SURROUNDING OUR OPERATIONS MATTER MOST TO US. WE HELP TO PROTECT,

ELEVATE AND NURTURE THE TALENT OF OUR PEOPLE AS WELL AS THE COMMUNITY.

OUR CULTURE BELIEF AND VALUES GUIDE US TO BUILDING A STRONGER INSTITUTION THAT HAS

LONG TERM SUSTAINABILITY AND ENDURING VALUE THAT BENEFIT BOTH THE COMMUNITY

AND OUR PEOPLE.

SOCIAL SUSTAINABILITY

PAGE: 237

ANNUAL REPORT 2016

We focus on the employee and communities for our social sustainability with the upmost focus is on health and safety.

INSTILLING HEALTH AND SAFETY CULTURE

Safety considerations are embedded in all that we do, where every person is entrusted to collectively take ownership in

upholding safety. Technically complex operations with diverse and multidisciplinary teams of people are subjected to

stringent PGB HSE standards.

Great emphasis is placed on the PETRONAS Zero Tolerance (ZeTo) Rules, applicable to all personnel working at PGB’s assets

and facilities, with compliance being monitored by top Management.

Efforts to raise awareness on Health, Safety, Security and Environment (HSSE) matters were also led by the Leadership Team

(LT) through regular Management walkabouts, engagement sessions with internal and external stakeholders to foster shared

accountability on HSSE matters, including learning from internal and external incidents.

The key elements in embedding the health and safety culture are illustrated as below:

BOARD OF DIRECTORS

LEADERSHIP TEAM

EMPLOYEESOVERSIGHT

PERFORMANCEMONITORING

COMPLIANCE

EMPLOYEES'INVOLVEMENT

RISKASSESSMENT

POLICY

01 06

02

03 04

05

SUSTAINABILITY STATEMENTS – SOCIAL

PAGE: 238

PETRONAS GAS BERHAD

Health and Safety Oversight

EMPLOYEES & UNIONS COMMUNITIES BUSINESS PARTNERS &

SUPPLIERS

GOVERNMENT

AGENCIES &

AUTHORITIES

BOARD


PGB LEADERSHIP TEAM

GPU PLANT LEADERSHIP TEAM

GTR PLANTLEADERSHIP TEAM

The Board is generally entrusted with the overall governance of the Company, as well as to safeguard the Company’s assets

together with the Health and Safety of all stakeholders.

Oversight of Health and Safety are as follows:

Oversight Authority Frequency of Health and Safety matters presented and deliberated

Board Quarterly

Board Audit Committee Quarterly

PGB Leadership Team Monthly

GPU Plant Leadership Team Monthly

GTR Plant Leadership Team Monthly

PAGE: 239

ANNUAL REPORT 2016

Performance Monitoring

Regrettably, PGB has recorded three

fatalities involving contractor workers in

2016, despite its effort to improve the

safety and health performance in the

Company, with a clean fatality incident

recorded in the year before.

The Loss Time Injury Frequency (LTIF)

has thus increased from the previous

year of 0.31 to 0.37 in year 2016 (in

year 2014, LTIF – 0.53). The

unfortunate incidents serve as a painful

reminder that we need to do more to

improve the current HSSE standards, in

particular in managing contractor,

through a more rigorous safety

awareness and assurance programmes.

With the implementation of HSSE

culture improvement programme –

Winning Hearts and Minds towards a

generative safety culture rolled out to

all staff across 17 operating facilities in

PGB, the similar safety programme will

have to be expanded to contractor as

part of safety improvement programme.

Compliance

In 2016, we have continued with another

year of compliance to safety, health,

legal and regulatory requirements

without any fines or compounds. During

the year under review, 13 (76%) of PGB

site facilities have been certified with ISO

18001 Occupational Health and

Management System.

We have embarked on Operational


(OeXMS), streamlining all PETRONAS

HSE Management System (HSEMS), HSE

Mandatory Control Framework (MCF),

ISO requirement into operational work

flow and procedures. We conducted

the inaugural OeXMS Management

System Review in year 2016, identifying

implementation gaps for improvement

from frontline to management level.

The OeXMS Management System

Review was attended by corporate

management representatives, operating

divisions’ management representative

and staff representatives.

In addition to the inaugural OeXMS

Management System Review, we

manage our safety and health through

a periodic HSE and Operational

Excellence Steering Committee chaired

by our Managing Director/Chief

Executive Officer at the corporate level;

and HSSE Leadership Meeting chaired

by the Operating Divisions’ Heads at

the Operating Divisions level, enabling

issues escalation and resolution.

We have completed one of our HSSE

key result area in strengthening the

regulatory compliance assurance,

through the implementation of online

Legal Easy System. It enables easy

interpretation of legal and regulatory

requirement, which helps the

evaluation of regulatory compliance

and action tracking to be more

efficient.

Policies

PGB is committed to Health, Safety,

Security and Environment (HSSE)

excellence in all its activities, with the

HSSE risks identified and managed to

as low as reasonably practical. We

manage identified HSSE risks to ensure

integrity of assets in safeguarding our

workforce, third party personnel and

the community living around the

operating facilities. This commitment is

stated in our HSSE Policy. The policy

statement encompasses its employees,

as well as its contractors.

The commitment towards safety is

extended with Stop Work Policy, which

empower staff, contractors or partners

at the frontline to stop any work

should any immediate risk arise that

would cause harm to people or

damage the environment.

In managing our HSSE activities, we

adopt PETRONAS HSEMS and

PETRONAS HSE MCF.

Our safety considerations in our

operations are subjected to the

stringent requirement of the PETRONAS

HSE Management System and

PETRONAS Technical Standards. We

leverage on the lesson learnts and best

practices across the PETRONAS Group

of Companies that are updated to the

PETRONAS Technical Standards.

The HSSE requirements are cascaded

to members of the workforce and

contractors via various platforms such

as contractual obligations, formal and

informal engagement sessions,

including other means of

communication such as trainings and

briefings. Assurance programmes are

established to review and verify the

effectiveness of the HSSE controls. The

approach to safety involves ensuring

the design, technical and operational

integrity of assets, focusing on the

adequacy as well as effectiveness of

control barriers.

Risk Assessment

In line with the PETRONAS HSE

Management System (HSEMS) and

PETRONAS Technical Standards (PTS),

risks relating to our activities are

managed to ensure they are mitigated

to as low as reasonably practical.

Occupational safety and health as well

as process safety related risks are

managed not only at enterprise level

but also at operational level.


PAGE: 240

PETRONAS GAS BERHAD

At enterprise level, major safety and

health risks are identified, assessed

managed and reviewed periodically

through the PGB Enterprise Risk

Register and Plant and Facilities Risk

Register.

At operational level, different risk

assessments are used on activity-based,

such as Hazard and Operability Study

(HAZOP), WHAT-IFs, Process Hazard

Analysis (PHA), Layer of Protection

Analysis (LOPA), Health Risk Assessment

(HSA), Chemical Health Risk Assessment

(CHRA), Job Hazard Analysis (JHA).

Operational hazards are also identified,

assessed, registered and managed

through Hazard and Effect Register

(HER), as part of Hazard and Effect

Management programme. In the year

under review, with the collaborated

effort with PETRONAS Group, we have

obtained the approval from Department

of Occupational Safety and Health

(DOSH) in using a Generic Chemical

Health Risk Assessment (CHRA) on Gas

Transmissions, thus providing a more

consistent, time and cost saving

approach in managing chemical risk.

Operating with hydrocarbon hazards,

managing fire safety has always been

one of the safety focuses. We have

embarked on Fire Safety Assessment

exercise at our facilities, which includes

tier-1 and tier-2 assurance programme

on fire safety based on the PTS on

Management of Fire Protection System.

In addition, adequacy of fire safety

protection system of RGTSU, our only

offshore operation facility, was also

reviewed, based on the latest PTS

requirements.

PAGE: 241

ANNUAL REPORT 2016

Employees’ Involvement

PGB adopts a holistic approach on safety across its business value chain in Malaysia.

The following activities are continuously carried out by employees to strengthen existing controls for identified HSSE risk

areas:

(i) Safety Process

We work towards enhancing the design, technical and operational integrity of our assets by deploying engineering

solutions based on internationally accepted codes and standards on process safety. This means, Design it Right, Operate

it Right and Maintain it Right in line with the requirements of PETRONAS’ HSEMS and MCF. The ultimate aim is to

protect the environment and ensure continual improvement of the Company’s HSSE management and performance. This

includes preventing Loss of Primary Containment (LOPC).

HSSE AT HEART PROGRAMME

STAFF

Safety Processes

Capability Development

Emergency Preparedness and Crisis

Management

Fire Safety Assessment

2,117


PAGE: 242

PETRONAS GAS BERHAD

(ii) HSSE Capability Development

PGB’s frontline personnel are the centre to the

Company’s growth and contribute significantly towards

HSSE value creation, a central component for enhanced

operational excellence. Considering this, three areas of

specialisation, particularly operation safety, industrial

hygiene, and occupational health were included as part

of the Technical Trade Specialist (TTS) framework for

non-executives. This scheme, while providing an

alternative career progression opportunity, retains the

tacit technical knowledge and niche HSSE skills.

We leverage on the structured training programmes

provided by PETRONAS Competency Assessment System

(PECAS) for technical non-executives, Accelerated

Capability Development (ACD) for technical executives,

and Skill Group Health, Safety, Environment technical

trainings in providing the necessary skillsets in managing

HSSE. Apart from that, PGB also enlisted 36 HSSE

compulsory trainings into our in-house Gas Academy

and Transmission Academy training programmes, made

available to all staff through scheduled training.

PAGE: 243

ANNUAL REPORT 2016

(iii) Emergency Preparedness and Crisis Management

Ongoing emergency response and crisis management

exercises as well as programmes further elevated the

Group’s preparedness, including response capabilities to

manage major fires and oil spills, among others. The

primary aim being to minimise harm on people via

effective solutions and swift response time, while

upholding business resilience by adequately controlling

exposure to current and emerging risks.

Regular training and engagement sessions with various

parties such as local government agencies, host country

authorities, business partners, contractors and local

community members wherever PETRONAS operates

underscores the strategy to foster a closer working

relationship in addressing emergencies as well as crisis

situations. A multidisciplinary internal task force was

formed to enhance existing current emergency plans

and processes, based on findings derived from the

various exercises conducted.

(iv) Fire Safety Assessment

PGB conducted Fire Safety Assessments (FSA) at

selected operating facilities to assess the adequacy as

well as operational readiness of its fire protection

systems. Training and coaching sessions on the FSA

were held for plant personnel to strengthen internal

capacity for conducting the necessary reviews based on

the PETRONAS Technical Standard on Management of

Fire Protection Systems, while instilling greater

ownership and accountability among the identified

individuals. Classroom sessions on the FSA techniques

were supported by practical plant inspection activities to

assess the operational conditions of the existing fire

protection systems.

To promote safety culture among staffs, Winning Hearts

& Minds programme were rolled out to 17 sites in PGB,

with 30 sessions of HSSE culture improvement

workshops conducted with collaboration with

PETRONAS Leadership Centre (PLC). Each session of the

workshop was attended by 20 staffs of all level, to

improve on HSSE culture awareness, work risk

assessment, and HSSE site supervision. In addition, HSE

Week was executed at all sites between August to

November 2016 by the respective facility site, including

programme namely HSE Fun Quiz, HSE Explorace, Plant

Mega Housekeeping and HSE Recognition Day.

In 2016, the following activities were organised by

employees at site:

a) 2016 GPS Green Run and Green Cyclethon in

conjunction with National Environment Day was

held on 21 September 2016 which involved 107

staff as well as contractors.

b) Awards was given to employees and contractors

who had shown outstanding performance in areas

related to HSSE during Gas Processing Unit (GPU)

Recognition Day on 9 October 2016. The event

also includes motivation talk on Occupational

Safety and Healthy (OSH) and blood donation drive.

c) Periodic HSE Audits in plants to promote safe

behaviour and to educate the importance to follow

HSSE rules and work safely during turnaround days.

d) Health Programme namely Biggest Loser which had

assisted obese staff to reduce weight under series

of motivational talks and physical activities.

Previous recognitions received for the HSSE

programmes:

• Gas Processing Kertih (GPK), the Malaysian Society

for Occupational Safety and Health (MSOSH) OSH

Grand Award Winner 2015-Superior OSH

Performance

• Utilities Kertih (UK) MSOSH OSH Gold Merit Award

Winner 2015-Excellent OSH Performance

• Gas Processing Santong (GPS) MSOSH OSH Gold

Class 1 Award Winner 2015-Very Good OSH

Performance

• Utilities Gebeng (UG) MSOSH OSH Gold Class 1

Award Winner 2015-Very Good OSH Performance


PAGE: 244

PETRONAS GAS BERHAD

INVESTING IN OUR PEOPLE

The Company aspires to attract and retain the best talent, develop and nurture a highly engaged and capable workforce to

become an efficient and empowered organisation, as this is critical for PGB to remain relevant. To ensure our employees

have the right skills and capabilities to execute their roles efficiently and effectively, we provide continuous Leadership and

Capability Development Programmes to enhance their professional and personal development.

EMPLOYEE DATA 2015 2016

No of Staff Under Collective Bargaining Agreements 1,107 1,133

Long Service Award 139 331

15 56 105

20 20 96

25 10 78

30 16 7

35 5 8

Retirees 32 37

EMPLOYEE DEVELOPMENT

Total mandays training per employee 9.78 days 10.33 days

Planned mandays 7 days 7 days

Training investment per employee (RM) RM7,824.19 RM6,347.90

Malaysian

Total Employees

Female

ATTRITION RATE

Technical

Non-Technical

Male

35 years

35 years

Other Nationalities

age

age142,103

2,117

2015: Malaysian = 2,173

2015: Technical = 80% 2015: 1%

2015: Male = 1,810 2015: Above 35 years = 52%

2015: Other Nationalities = 14

2015: Non-Technical = 20%

2015: Female = 377 2015: Below 35 years = 48%

1,788

46%

0.7%

80%

20%

< >

54%329

PAGE: 245

ANNUAL REPORT 2016

Talent Capability

As at December 2016, we had 2,117 employees at 15

locations. The number was less than the total of 2,187 at

end 2015 due to a new empowered and efficient

organisational structure implemented effective 1 January

2017, as well as business needs.

Accelerating Culture Change (ACC) for PGB Leaders

To support our 3ZERO100 Transformation, 31 managers

attended the Accelerating Culture Change (ACC) programme,

designed to enhance their competencies to Drive Direction

and Lead Change, as well as Innovation and Interpersonal

Effectiveness. The two-day programme adopted PETRONAS’

leadership tools as well as its Culture Beliefs to provide

clarity of required leadership and accountability as a

foundation of change efforts.

IR9 Our effort to instill PGB Desired Culture (C2) in decision making process.

Enhanced Building Leaders Programme (BLP)

We further enhanced the BLP which serves to develop

leadership qualities in talents from the senior executive level

to managers. We were more selective in the selection of

participants, adopting PETRONAS’ Employee Potential (EP)

criteria, and reinforced the content to lend further support

to our 3ZERO100 Transformation. The participants will

undergo a two-year customised Leadership Programme. The

30 talents selected for the enhanced BLP are still undergoing

training while 122 past graduates have assumed various

leadership roles in PGB and PETRONAS.

Grievances Management

In addressing grievances among staff, we have adopted

PETRONAS’ Grievance Management Policies and Procedures

where staff can express their grievances in an official manner

and ensure that proper and fair treatment were given to

them. For minor grievances, the cases will be managed at

departmental level and may escalate up to PETRONAS level

should it is still not resolved.

Long Services Award 2016 at Gas Processing and Utilities Division.

Employee Engagement

We engage frequently with our employees through various

activities and provide open platforms on which we share

common interests and work together to address any

differences. The higher level engagement sessions have

managed to drive change and accelerate our transformation

through common understanding of the Company’s strategy.

Formal Sessions

• Majlis Sekalung Budi held at the PETRONAS Twin Towers

in Kuala Lumpur, Segamat, Johor and Kertih, Terengganu

• 36 HR engagement sessions with staff

• Quarterly briefing sessions with the Trade Union

representative


PAGE: 246

PETRONAS GAS BERHAD

Informal Sessions

We engage with employees – from non-executives to

Leadership Team – in informal settings to further enhance

working relationships, engender a feeling of belonging, and

strengthen our team spirit. New activities were introduced to

keep high interest level and these include the Super Heroes

League, a monthly game session held at our Head Office

during lunch breaks. Other informal sessions include board

and miniature games as well as puzzles.

In order to encourage our staff to be fit and healthy, we

organised a two-month PGB Biggest Body Transformation

programme, under which twice weekly fitness-related activities

were held, such as aerobics and circuit training classes. These

were conducted by three PGB staff who are certified fitness

trainers. Participants’ baseline data such as body weight, body

fat and body measurements were recorded at the initial and

final weeks of the challenge. At the end of the programme,

three participants each from the male and female categories,

were named as winners based on the approved judging criteria.

PAGE: 247

ANNUAL REPORT 2016

ENRICHING COMMUNITIES

We believe we have a duty to care for the well-being of the marginalised and underprivileged in the communities that

surround our operations, and actively reach out to such individuals through our Corporate Social Responsibility (CSR) efforts.

We constantly reinforce our Corporate Social Investment (CSI) through the following flagship programmes.

Livelihood Programme

We collaborate with Yayasan Salam Malaysia on the Livelihood programme which aims to impart baking and entrepreneurial

skills to women from low-income households (of RM3,000 or less a month). Classes are held twice a week at the

community centres in Hulu Langat, Selangor and Segamat, Johor. Apart from baking and pastry-making, the women are

taught basic accounting and marketing skills. 2016 was the second year of our involvement in this programme. We were

pleased when participants at the Hulu Langat centre secured some RM60,000 worth of orders for Aildifitri cakes and cookies.

Free Market

We organised our second Free Market, a variation on the theme of a flea market, where our staff offered their own pre-loved

items, from clothes to toys, to underprivileged families. The event was held in collaboration with Kuala Lumpur-based charitable

organisation Nadi Annissa during Ramadan in aid of 60 families in Desa Mentari, Subang, Selangor. At the event, we also

presented 111 boys and girls with new baju melayu and baju kurung.


PAGE: 248

PETRONAS GAS BERHAD

Program Sentuhan Kasih PETRONAS (PSKP)

PSKP, launched in 2005, aims at nurturing the spirit of giving

and volunteerism among PETRONAS’ employees and

affiliates. In 2016, we gave 10kg of rice each to 95 low-

income families from the Desa Mentari flats during Ramadan.

The donation was organised together with Nadi Annissa

which helped to identify the deserving families.

Program Sentuhan Ilmu PETRONAS (PSIP)

PSIP was introduced in 2002 by PETRONAS to offer academic

and non-academic assistance to underperforming students

from low-income families at selected primary schools.

Academically, the programme helps to improve the children’s

performance in English, Science and Mathematics. In 2016, we

continued to facilitate various fun learning and other activities

under this programme for the students of Sekolah Kebangsaan

Cherana Puteh in Simpang Ampat, Melaka which we adopted

in 2013.

PSIP Programme at Sekolah Kebangsaan Cherana Puteh, Simpang Ampat, Melaka.

PAGE: 249

ANNUAL REPORT 2016

08

ACHIEVEMENTS

254 2016 Significant Events

256 2016 Media Milestones

258 2016 Calendar of Events

262 Awards and Achievements

265 Past Awards

2016 SIGNIFICANT EVENTS

Execution of a Facility Agreement with Mizuho Bank Ltd

on 7 January 2016 for a USD500 million Term Loan Facility

to finance the Group’s general corporate funding purposes

including, but not limited to, capital expenditure.

Signing ceremony of Shareholders Agreement Between PETRONAS Gas Berhad and Linde Malaysia Sdn Bhd for

the development of the Air Separation Unit (ASU) project in

Pengerang, Johor.

PGB’s involvement in the ASU project is an expansion to

its existing business of providing industrial gasses from the

Centralised Utilities Facilities (CUF) in Kertih, Terengganu

and Gebeng, Pahang.

Successful completion of both Liquefied Natural Gas (LNG) tanks for LNG Regasification Terminal in Pengerang, Johor (RGTP) located

within the Pengerang Integrated

Complex (PIC). The achievement was

not only significant to the development

of RGTP which is expected to

commence its operations by the fourth

quarter of 2017, but also complements

the overall development of the PIC.

The milestone achievement were

signified by the momentous air-rising

of the tanks roof which took about

three hours respectively and followed

by five hours of welding works

respectively, to secure the roofs into

position.

7 JANUARY

28 AUGUST

15 AUGUST

PAGE: 254

PETRONAS GAS BERHAD

PGB signed Long Term Service Agreement (LTSA) with TNB Repair and Maintenance Sdn Bhd (TNB REMACO) of

gas turbine and related equipment at Utilities Kertih and

Utilities Gebeng. The six-year contract will see TNB REMACO

performs the maintenance work at both facilities. The scope

will cover the supply of turbine spare parts, manpower

supply during the inspections and refurbishment of the

turbine components.

Gas Processing and Utilities Division (GPU) was awarded with five gold awards of the Royal Society for the Prevention of Accidents (RoSPA) Occupational Health and Safety Awards 2016 ROSPA. This was as a result of GPU

excellent performance and demonstration of well-developed

occupational health and safety management system and

culture, outstanding control of risk and very low levels or

error, harm and loss. The awards also further reaffirmed PGB’s

pledge in promoting HSE-compliant working environment.

PGB won for the third consecutive year the Industry Excellence Award for Listed Companies of the

prestigious National Annual Corporate Report Awards (NACRA) for the Industrial Products and Technology

category.

The theme for Annual Report 2015, “Transform to

Perform”, reflects PGB’s continued focus on its ongoing

transformation journey to attain sustainable world class

standards befitting PGB’s role as a Leading Gas

Infrastructure and Utilities Company.

26 NOVEMBER15 SEPTEMBER

6 DECEMBER

PAGE: 255

ANNUAL REPORT 2016

PAGE: 256

PETRONAS GAS BERHAD

2016MEDIAMILESTONES

PAGE: 257

ANNUAL REPORT 2016

PAGE: 258

PETRONAS GAS BERHAD

2016 CALENDAR OF EVENTS

Visit by Director of

Department of

Occupational and

Health (DOSH)

Terengganu to Gas

Processing and

Utilities (GPU)

Visit by Bangladesh Minister of Ports and Shipping with PETRONAS LNG Ltd to LNG Regasification Terminal Sungai Udang (RGTSU)

Visit by top officials

from Department of

Occupational Safety

and Health (DOSH)

to Sabah-Sarawak

Gas Pipeline (SSGP)

2 FEBRUARY

17 APRIL

5 FEBRUARY

25 FEBRUARY

20 MARCH

16 APRIL

19 APRIL

28 – 29 MARCH

Visit by SAMSUNG Korea together with PETRONAS LNG Ltd

to RGTSU

Visit by Malaysian

Investment Development

Authority (MIDA) to Gas

Processing Plant (GPP) 3

PACAT pilot plant, of Gas

Processing Kertih (GPK)

Kimanis Power Sdn Bhd organised Corporate Social

Responsibility (CSR) together with Hemophilia Society –

Sabah Chapter to celebrate the inaugural ‘World Hemophilia

Day’ in Sabah with about 100 Hemophilia patients and their

families, nurses, doctors and volunteers

Shah Alam

Regional Office

conducted public

awareness

programme and

engagement

session with Local

Authority, Majlis

Perbandaran

Subang Jaya

Ex-Batang Berjuntai

Emergency Response Exercise

(ERE) at Shah Alam Regional

Office

PGB 33rd Annual General Meeting

PAGE: 259

ANNUAL REPORT 2016

19 APRIL

11 JUNE

2 AUGUST

3 AUGUST19 JUNE

26-30 JUNE

26 APRIL

28 JUNE

Public Awareness

programme at

Pantai Puteri Hotel,

Melaka with local

authorities, local

community and

customers

CSR Rice Donation

programme, Projek

Perumahan Rakyat Miskin

Tegar (PPRT) Desa

Mentari, Petaling Jaya

Environment Institute of

Malaysia, Department of

Environment visit to

Gas Processing Kertih

and Gas Processing

Santong

PGB Contractors Forum 2016

was attended by 50 PGB

contractors from various fields

such as turnaround,

maintenance and projects.

Objectives of the event was to

impart best practices between

PGB and Contractors as well as

to serve as a platform for

continuous engagement

between both parties. At the

event, PGB, together with its

contractors also signed the

Contractors Integrity Pledge

“Free Market” CSR

activity in conjunction

with Aidilfitri for 100

less fortunate families

where they were

invited to choose items

ranging from clothing,

shoes, shirts, trousers,

shoes, and many more

Kimanis Power

Sdn Bhd visited

70 homes of less

fortunate people

in five villages of

Kimanis District

during Ramadhan

month

Engagement session and

public awareness

programme with factory

operator nearby PGB’s

Right of Way

2016 CALENDAR OF EVENTS

PAGE: 260

PETRONAS GAS BERHAD

Engagement session and

familiarisation visit by

community leaders from

Mukim Kertih and Kemasek

to GPK with the objectives

to enhance relationship and

to create public awareness

on the operations and

safety

15 AUGUST

29 AUGUST28 SEPTEMBER

22 SEPTEMBER

26 SEPTEMBER

11 OCTOBER

23 SEPTEMBER

25 AUGUST

Shareholders’

familiarisation visit

to PGB facility at

Gebeng to learn

more about the

Utilities facility

Public awareness programme and engagement session

organised by Miri Regional Office with petrol stations

operator located near the pipelines

Visit by newly appointed BOMBA State Director of Melaka to

RGTSU to learn and experience the offshore terminal and

facilities

Miri Regional Office Emergency Response Exercise

Tier 1 Field #03 for Miri Gas Distribution System

(MGDS) Operation and Maintenance

Engagement session

and familiarisation

visit by community

leaders from Kuantan

area to Utilities

Gebeng with the

objectives to

enhance relationship

and to create public

awareness on the

operations and safety

Engagement session with delegates from Majlis

Perbandaran Seremban

Beach cleaning activity at Esplanade, Miri as part of

PGB’s CSR Programme on environment

PAGE: 261

ANNUAL REPORT 2016

Visit by officials from Bank

Negara Malaysia, Suruhanjaya

Tenaga, Ministry of Finance,

Ministry of Domestic Trade,

Co-operative and

Consumerism (KPDNKK),

Department of Statistics and

Malaysia External Trade

Development Corporation

(MATRADE) to GPK

24 NOVEMBER

21 – 22 OCTOBER

22 NOVEMBER

31 OCTOBER

9 NOVEMBER

24 NOVEMBER

25 JANUARY

3 NOVEMBER

Corporate Social Investment (CSI) activity by Kimanis Power

Sdn Bhd through contribution of school facilities such as tables

and chairs to SK Kambizaan, Papar and SK Mandahan, Kimanis

Exhibition: Program Hari Alam Sekitar Negara, Peringkat

Negeri Johor

Ex-Gadut Tier 2 Drill Exercise at

Seremban City Gate Station

Ex-Long Kevok Tier 2 Field Exercise was carried out at East

Malaysia Office SSGP

Visit by

Asia-Pacific

Economic

Cooperation

together with

Energy

Commission

to RGTSU

Visit by Tenaga Nasional Berhad (TNB) Kenyir to Utilities Kertih

Engagement on

2015 Annual

Report Scorecard

with Minority

Shareholder

Watchdog Group

(MSWG)

PAGE : 262

PETRONAS GAS BERHAD

AWARDS AND

ACHIEV

PAGE : 263

ANNUAL REPORT 2016

EMENTS

20

16

AW

AR

DS

1. SIRIM

PETRONAS Gas Berhad (PGB):

i. Information Security Management System

Certification (ISO/IEC 27001:2005)

ii. SIRIM International Quality Management

System Certification (ISO 9001)

iii. Environment Management System

Certification (ISO 14001:2004)

iv. Occupational Health and Safety

Management System (OHSAS 18001:2007)

v. Occupational Health and Safety

Management System (MS 1722:2011)

Gas Processing and Utilities (GPU):

i. Information Security Management System

Certification (ISO/IEC 27001:2005)

2. Royal Society for the Prevention of Accidents (ROSPA) Occupational Health and Safety Awards 2016

Five Gold Awards for GPU (Gas Processing

Kertih, Gas Processing Santong, Utilities Kertih,

Utilities Gebeng and Tanjung Sulong Export

Terminal) by the ROSPA registered in England

3. Malaysian Society for Occupational Safety and Health (MSOSH) Award 2015

GPU Plant:

i. Gas Processing Kertih (GPK)

• MSOSH OSH Grand Award Winner 2015

– Superior OSH Performance

ii. Utilities Kertih (UK)

• MSOSH OSH Gold Merit Award Winner

2015 – Excellence OSH Performance

iii. Gas Processing Santong (GPS)

• MSOSH OSH Gold Class 1 Award

Winner 2015 – Very Good OSH

Performance

iv. Utilities Gebeng (UG)

• MSOSH OSH Gold Class Award Winner

2015 – Very Good OSH Performance

4. Focus Malaysia

Ranked fifth in the Most Transparent Big

Stock Award in a research undertaken by

Focus Malaysia, a leading English business

weekly newspaper

5. Minority Shareholder Watchdog Group (MSWG) Malaysia – Asean Corporate Governance Transparency

Award winner under the Industry Excellence

– Oil and Gas Category

6. National Annual Corporate Report Award (NACRA) 2016

Award winner under the Industrial Products

and Technology category for the third

consecutive year

7. FTSE4Good Bursa Malaysia Index

PGB remains a constituent of the FTSE4Good

Bursa Malaysia Index, following the 2016

assessment. The FTSE4Good Index Series is

designed to identify companies that

demonstrate strong Environmental, Social and

Governance practices measured against

globally recognised standards

8. Association of Chartered Certified Accountants (ACCA) Malaysia Sustainability Report Award (MaSRA) 2016

Top 20 companies shortlisted in MaSRA 2016

AWARDS AND ACHIEVEMENTS

PAGE: 264

PETRONAS GAS BERHAD

20

15

20

14

1. Focus Malaysia

Ranked ninth in the Most Transparent

Big Stock Award in a research

undertaken by Focus Malaysia, a

leading English business weekly.

2. National Annual Corporate Report Awards (NACRA) 2015

Award winner under Industrial

Products and Technology category.


PGB remains a constituent of the

FTSE4Good Bursa Malaysia Index,

following the 2015 assessment.

PGB was bestowed with the IKM

Laboratory Excellence Award 2015

certified by the Institut Kimia Malaysia

(IKM) [Malaysia Chemical Institute] in

the testing of gas, water and waste

water for each of its laboratory -

GPS, GPK, UK and TSET, all located in

Terengganu; as well as UG in Pahang.

• Jabatan Alam Sekitar Award for

compliance with all stipulated

conditions related to the management

of scheduled wastes.

• IQNet and SIRIM International Quality

Management System ISO 9001:2008.

AW

AR

DS

AW

AR

DS

CERTIFICATIONSCE

RT

IFIC

AT

ION

S

PAGE: 265

ANNUAL REPORT 2016

PAST AWARDS

1. Finance Asia Award

Named the third Best Managed

Company in Malaysia.

2. MSWG-ASEAN Corporate Governance Index 2014

The best corporate governance

practices including transparency and

performance in the Oil and Gas

sector.

3. The Edge Billion Ringgit Club

Best Performing Industrial Stock with

a market capitalisation of more than

RM10 billion in the Industrial sector.

4. Focus Malaysia Award

Named the fourth Most Transparent

Big Stock in Malaysia.

5. National Annual Corporate Report Awards (NACRA) 2014

Award winner in the Industrial

Products and Technology category.


PETRONAS Gas Berhad was included

in the FTSE4Good Bursa Malaysia

Index, a newly-launched Index by the

local bourse, which is designed to

identify companies that demonstrate

strong Environmental, Social and

Governance practices measured

against globally-recognised standards.

09

STAKEHOLDER INFORMATION

268 Analysis of Shareholdings

268 Classification of Shareholders

269 Share Capital

269 List of Substantial Shareholders

269 List of Directors’ Shareholdings

270 List of 30 Largest Shareholders

272 Summary and Usage of

Landed Property,

Plant and Equipment

282 Top 10 Landed Plant,

Property & Equipment

283 Corporate Directory

284 FTSE4Good Index

292 Independent Assurance Statement

294 Notice of Annual General Meeting

298 Administrative Details for the

34th Annual General Meeting

299 Glossary

• Proxy Form

CategoryNo. of

Shareholders% of Total

ShareholdersNo. of Shares

% of Total Shareholdings

Less than 100 643 6.41 3,580 0.00

100 - 1,000 6,774 67.52 6,182,895 0.31

1,001 - 10,000 1,842 18.36 6,198,268 0.31

10,001 - 100,000 468 4.66 18,310,797 0.93

100,001 to less than 5% of issued shares 303 3.02 454,424,743 22.97

5% and above of issued shares 3 0.03 1,493,611,632 75.48

Total 10,033 100.00 1,978,731,915 100.00

Category

No. of Shareholders No. of Shares Shares Percentage

Malaysian Foreigner Malaysian Foreigner Malaysian Foreigner

Individuals 8,444 95 11,709,715 283,709 0.59 0.01

Body Corporate

Banks/Finance companies 65 0 313,029,100 0 15.82 0.00

Investment Trusts/Foundation/

Charities 6 0 139,000 0 0.02 0.00

Other types of companies 189 6 2,225,904 1,363,600 0.11 0.07

Government Agencies/

Institutions 6 0 1,435,000 0 0.07 0.00

Nominees 656 566 1,483,930,257 164,615,630 74.99 8.32

Others 0 0 0 0 0.00 0.00

Total 9,366 667 1,812,468,976 166,262,939 91.60 8.40

* As at 17 February 2017

PAGE: 268

PETRONAS GAS BERHAD

ANALYSIS OF SHAREHOLDINGS*

CLASSIFICATION OF SHAREHOLDERS*

No. NameNo. of Shares

% of TotalShareholding

1. Datuk Mohd Anuar Taib Nil Nil

2. Dato’ Ab. Halim Mohyiddin 5,000 0.00

3. Habibah Abdul Nil Nil

4. Yusa’ Hassan Nil Nil

5. Emeliana Dallan Rice-Oxley Nil Nil

6. Wan Shamilah Wan Muhammad Saidi Nil Nil

7. Heng Heyok Chiang @ Heng Hock Cheng Nil Nil

LIST OF LEADERSHIP TEAM’S SHAREHOLDINGS*

None of the Leadership Team members held any shares in PGB.

* As at 17 February 2017


% of TotalShares

1. CIMB Group Nominees (Tempatan) Sdn Bhd

- Exempt AN for Petroliam Nasional Berhad

- Exempt AN for Petroliam Nasional Berhad (PRF)

1,199,768,000

536,400

60.63

0.03

TOTAL 1,200,304,400 60.66

2. Employees Provident Fund Board 200,491,732 10.13

3. Kumpulan Wang Persaraan (Diperbadankan) 108,079,100 5.46

Share Capital : RM1,978,731,915 comprising 1,978,731,915

Class of Shares : Ordinary Shares

Voting Rights : One Vote Per Ordinary Share (On A Poll)

PAGE: 269

ANNUAL REPORT 2016

SHARE CAPITAL*

LIST OF DIRECTORS’ SHAREHOLDINGS*

LIST OF SUBSTANTIAL SHAREHOLDERS*



1. CIMB GROUP NOMINEES (TEMPATAN) SDN BHD

EXEMPT AN FOR PETROLIAM NASIONAL BERHAD

1,199,768,000 60.63

2. CITIGROUP NOMINEES (TEMPATAN) SDN BHD

EMPLOYEES PROVIDENT FUND BOARD

190,205,132 9.61

3. KUMPULAN WANG PERSARAAN (DIPERBADANKAN) 103,638,500 5.24

4. AMANAHRAYA TRUSTEES BERHAD

AMANAH SAHAM BUMIPUTERA

62,577,300 3.16


AMANAH SAHAM MALAYSIA

29,958,300 1.51

6. CARTABAN NOMINEES (ASING) SDN BHD

EXEMPT AN FOR STATE STREET BANK & TRUST COMPANY (WEST CLT OD67)

22,874,960 1.16


AMANAH SAHAM WAWASAN 2020

20,683,400 1.05


AMANAH SAHAM BUMIPUTERA 2

16,316,300 0.82


AS 1MALAYSIA

15,358,100 0.78

10. MALAYSIA NOMINEES (TEMPATAN) SENDIRIAN BERHAD

GREAT EASTERN LIFE ASSURANCE (MALAYSIA) BERHAD

(PAR 1)

13,515,000 0.68

11. HSBC NOMINEES (ASING) SDN BHD

BBH AND CO BOSTON FOR VANGUARD EMERGING MARKETS STOCK INDEX FUND

12,659,496 0.64


AMANAH SAHAM DIDIK

10,944,000 0.55


EXEMPT AN FOR JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (U.S.A)

10,757,250 0.54

14. AMSEC NOMINEES (TEMPATAN) SDN BHD

MTRUSTEE BERHAD FOR CIMB ISLAMIC DALI EQUITY GROWTH FUND (UT-CIMB-

DALI)

9,461,700 0.48

15. CARTABAN NOMINEES (TEMPATAN) SDN BHD

PAMB FOR PRULINK EQUITY FUND

8,687,000 0.44

PAGE: 270

PETRONAS GAS BERHAD

LIST OF 30 LARGEST SHAREHOLDERSREGISTERED AS AT 17 FEBRUARY 2017



16. MAYBANK NOMINEES (TEMPATAN) SDN BHD

MAYBANK TRUSTEES BERHAD FOR PUBLIC ITTIKAL FUND (N14011970240)

7,300,000 0.37


PUBLIC ISLAMIC DIVIDEND FUND

7,223,000 0.37

18. PERMODALAN NASIONAL BERHAD 6,947,900 0.35


PUBLIC ISLAMIC SELECT ENTERPRISES FUND

5,739,200 0.29


PUBLIC ISLAMIC SECTOR SELECT FUND

4,961,500 0.25

21. MAYBANK NOMINEES (TEMPATAN) SDN BHD

MAYBANK TRUSTEES BERHAD FOR PUBLIC REGULAR SAVINGS FUND

(N14011940100)

4,897,500 0.25

22. CARTABAN NOMINEES (ASING) SDN BHD

GIC PRIVATE LIMITED FOR GOVERNMENT OF SINGAPORE (C)

4,688,400 0.24


PUBLIC ITTIKAL SEQUEL FUND

4,650,800 0.24

24. PERTUBUHAN KESELAMATAN SOSIAL 4,122,600 0.21


EMPLOYEES PROVIDENT FUND BOARD (CIMB PRIN)

3,577,900 0.18


EMPLOYEES PROVIDENT FUND BOARD (NOMURA)

3,342,700 0.17

27. CITIGROUP NOMINEES (ASING) SDN BHD

LEGAL & GENERAL ASSURANCE (PENSIONS MANAGEMENT) LIMITED (A/C

1125250001)

3,325,322 0.17


PUBLIC ISLAMIC EQUITY FUND

3,231,600 0.16


HSBC BK PLC FOR ABU DHABI INVESTMENT AUTHORITY (TRANG)

3,228,065 0.16

30. DB (MALAYSIA) NOMINEE (ASING) SDN BHD

SSBT FUND DU22 FOR CAISSE DE DEPOT ET PLACEMENT DU QUEBEC

2,931,142 0.15

PAGE: 271

ANNUAL REPORT 2016

A summary and usage of the landed property, plant and equipment of PETRONAS Gas Berhad and its subsidiaries as at

31 December 2016:

LocationAcquisitionDate Tenure

Descriptionand usage

Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

TERENGGANU

Gas Processing Plants,

Kertih Km 105,

Jalan Kuantan-Kuala Terengganu,

24300 Kertih, Kemaman,

Terengganu Darul Iman

Lot No. 1903

Lot No. 3541

Lot No. 1902

30.09.1991

30.09.1991

30.09.1991

Leasehold

Expiry:

28.02.2043

(Sub-Lease

60 years)

03.04.2050

(60 years)

26.02.2082

(99 years)

Leasehold land

Plant

GPP 1

GPP 2

GPP 3

GPP 4/DPCU 2

Compressor

station

Office

Administration

building 1

Administration

building 2

Fire station

87.9

34.6

2.7

32.3

24.4

24.1

22.5

25.1

31.4

26.7

28.8

95,998

123,310

123,310

266,400

65,010

1,282

6,892

3,248

2,220,613

PAGE: 272

PETRONAS GAS BERHAD

SUMMARY AND USAGE OF LANDED PROPERTY, PLANT AND EQUIPMENTAS AT 31 DECEMBER 2016



Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

Gas Processing Plants,

Paka Km 8, Kg. Tok Arun,

Off Jalan Santong

23100 Paka, Dungun,


Lot No. 7346

Lot No. 7220

03.08.1997

03.08.1997

Leasehold

Expiry:

13.07.2058

(60 years)

20.06.2058

(60 years)

Leasehold land

Plant

GPP 5

GPP 6

DPCU 3

Office

Administration

building

(Vacant)

189.6

26.9

17.9

17.0

18.3

19.2

200,000

220,000

60,000

12,220

866,341

Export Terminal Operation,

Tanjung Sulong,

24000 Kemaman,


Lot No. 1314

Lot No. 1333

24.07.1993

24.07.1993

Leasehold

Expiry:

19.03.2025

(40 years)

11.03.2027

(40 years)

Leasehold land

Plant

Unit 1, 2, 3, 4

Office

Administration

building

Marine facility

Breakwater

Jetty

9.7

2.8

32.1

32.1

1,146

251,746

PAGE: 273

ANNUAL REPORT 2016




Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

Utilities Plant, Kertih

Kertih Integrated Petrochemical

Complex,

Km 105, Jalan Kuantan-

Kuala Terengganu,

24300 Kertih,

Kemaman,


Lot No. 8065 21.12.1999

Leasehold

Expiry:

19.08.2060

(60 years)

Leasehold land

Plant

CGN B

CGN C

CGN D, E, F

Water plant

CGN G

ASU

Lab & workshop

Control room

Office

Administration

building

37.1

17.1

17.1

16.6

16.6

16.7

15.8

15.8

15.6

15.9

667

667

2,000

2,000

667

15,451

729

1,820

514

461,691

PAHANG

Kuantan Regional

Operations Office Lot 1, Sector 1,

Bandar Indera Mahkota

25200 Kuantan,

Pahang Darul Makmur

Lot No. PT16756 04.01.1989

Leasehold

Expiry:

04.01.2088

(99 years)

Leasehold land

Office

Regional office

11.2

25.2 2,428

7,786

Kuantan Compressor Station,

Kampung Mahkota,

Km 19, Jalan Gambang,

26070 Kuantan,

Pahang Darul Makmur

Lot No. 104462 04.01.1989

Leasehold

Expiry:

26.08.2101

(99 years)

Leasehold land

Plant

Compressor

station

Compressor

station

20.1

23.1

7.2

1,142

4,378

113,967

PAGE: 274

PETRONAS GAS BERHAD



Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

Utilities Plant, Gebeng

Lot 139A, Gebeng Industrial Area,

Phase III,

26080 Kuantan,

Pahang Darul Makmur

Lot No. PT15127

17.11.1999 Leasehold

Expiry:

08.01.2100

(99 years)

Leasehold land

Plant

CGN A

CGN B

CGN C

N2GEN

Water plant

Office

Maintenance

building

Warehouse

18.8

17.1

17.1

17.1

17.1

16.6

15.6

15.6

667

667

667

360

2,000

1,015

1,004

248,246

JOHOR

Segamat Operation Centre,

Gas Transmission System,

KM 10, Lebuhraya

Segamat-Kuantan,

85000 Segamat,

Johor Darul Takzim

Lot No. PTD564 22.09.1991

Leasehold

Expiry:

18.02.2102

(99 years)

Leasehold land

Plant

Compressor

station

Office

Operation centre

61.3

19.0

24.4

2,792

8,080

51,701

Pasir Gudang Regional Operations

Office,

PLO 332, Jalan Perak 4,

Pasir Gudang Industrial Area,

81700 Pasir Gudang,

Johor Darul Takzim

Lot No. PTD84942 23.04.1989

Leasehold

Expiry:

22.04.2088

(99 years)

Leasehold land

Office

Regional office

4.1

24.5 2,428

7,164

PAGE: 275

ANNUAL REPORT 2016




Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

NEGERI SEMBILAN

Seremban Regional Operations

Office,

KM 11, Jalan Seremban – Tampin,

71450 Sg. Gadut, Seremban,

Negeri Sembilan Darul Khusus

Lot No. 21958 16.02.1994 Freehold

Freehold land

Office

Regional office

14.0

25.4 2,428

6,199

SELANGOR

Shah Alam Regional Operations

Office,

Lot 1, Jalan Jemuju Lima 16/13E,

Shah Alam Industrial Area,

Section 16,

40200 Shah Alam,


Lot No. PT606 12.10.1990

Leasehold

Expiry:

11.10.2089

(99 years)

Leasehold land

Office

Regional office

2.9

25.1 2,428

6,933

Meru Compressor Station,

Lot 1586 (G3907),

Mukim of Jeram,

District of Kuala Selangor,


Lot No. PT6875 04.08.1998

Leasehold

Expiry:

10.08.2107

(99 years)

Leasehold land

(Vacant)

5.4 N/A N/A 1,003

PERAK

Sitiawan Regional Operations Office,

Lot 33263,

Jalan Dato’ Ahmad Yunus,

32000 Sitiawan,

Perak Darul Ridzuan

Lot No. PT4535 04.11.1997

Leasehold

Expiry:

27.06.2101

(99 years)

Leasehold land

Office

Regional office

3.2

19.2 1,604

4,577

PAGE: 276

PETRONAS GAS BERHAD



Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

KEDAH

Gurun Regional

Operations Office,

PO Box 31,

KM 1, Jalan Jeniang

08300 Gurun,

Kedah Darul Aman

Lot No. 8173 18.12.1997

Leasehold

Expiry:

22.04.2102

(99 years)

Leasehold land

Office

Regional office

2.9

18.3 1,604

5,171

8.0 km TTM Pipeline land at District

of Kubang Pasu, Kuala Muda,

Pendang,

and Pokok Sena,

Kedah Darul Aman

1.11.2006 Leasehold

Expiry:

31.10.2105

(99 years)

Leasehold land

Pipeline

Pipeline across

8.0 km

24.7

11.8 N/A

750

SARAWAK

Miri Operations Office,

Lot 2075, Block 4,

Jalan Cattleya 2B,

Piasau Industrial Area,

PO Box 1504,

98008 Miri, Sarawak

N/A Pipeline

Meter Station

Pipeline across

42.2 km

N/A – located

along road

reserve area

26.8 2,066 14,236

Bintulu Gas Meter Station,

Kidurong Industrial Area,

Part of Lot 155,

Block 20,

Kemena Land District,

97007 Bintulu, Sarawak

Lot No. 1646 21.10.2004

Leasehold

Expiry:

16.07.2067

(60 years)

Leasehold land

Pipeline

Meter Station

Pipeline across

4.2 km

0.1 20.2 630

84

PAGE: 277

ANNUAL REPORT 2016




Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

MELAKA

LNG Regasification Terminal,

Sungai Udang PSR-1/MG3 Retrofit

Site Office Revamp PETRONAS

Penapisan Sungai Udang, Melaka

01.07.2011

01.10.2012

Leasehold

Expiry:

30.06.2038

(25 years)

30.04.2036

(24 years)

Regasification

Floating Storage

Units

Facilities Jetty

Office

Administration

building

N/A

0.3

3.6

1.5

N/A

3,000

2,806,323

15,157

PIPELINES

PGU I – total gas pipeline

comprises 6 km from Kertih to

Paka, Terengganu & 32 km from

Kertih to Teluk Kalong, Terengganu

and two 40 km of lateral lines

from the GPPs to the Export

Terminal in Tanjung Sulong,



Expiry:

(40, 60 and

99 years)

Pipelines

Pipelines in

leasehold land

Terengganu:

43 lots

Terengganu:

237.3

32.3 N/A 29,765

PAGE: 278

PETRONAS GAS BERHAD



Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

PGU II – total gas pipeline comprises

Sector 1 – 233 km from

Teluk Kalong, Terengganu to

Segamat, Johor,

Sector 2 – 241 km from Segamat,

Johor to Kapar, Selangor, &

Sector 3 – 211 km from Segamat,

Johor to Singapore


Expiry:

(99 years)

Pipelines

Pipelines in

leasehold land

Terengganu:

19 lots

Pahang:

338 lots

Johor:

644 lots

(Inclusive Loop 1

& Loop 2)

Melaka:

139 lots

Negeri

Sembilan:

263 lots

Selangor:

138 lots

Terengganu:

79.8

Pahang:

559.7

Johor:

968.3

Melaka:

191

Negeri

Sembilan:

463.9

Selangor:

295.7

25.1 N/A 518,455

PAGE: 279

ANNUAL REPORT 2016




Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

PGU III – total gas pipeline

comprises

Sector 1 – 184 km from Meru,

Selangor to Lumut, Perak,

Sector 2 – 176 km from Lumut,

Perak to Gurun, Kedah and

Sector 3 – 90 km of NPS 36"

mainline from Gurun to Pauh,

Perlis, Indera Kayangan


Expiry:

(99 years)

Pipelines

Pipelines in

leasehold land

Selangor:

93 lots

WP Kuala

Lumpur:

14 lots

Perak:

362 lots

Penang:

100 lots

Kedah:

261 lots

Perlis:

77 lots

Selangor:

184.6

WP Kuala

Lumpur:

17.9

Perak:

543.9

Penang:

119.5

Kedah:

468.8

Perlis:

87.3

Sector 1:

21.1

Sector

2 & 3:

19.2

N/A

N/A

498,645

PGU Loop 1 – total gas pipeline of

265 km from Kertih, Terengganu to

Segamat, Johor

04.10.1999 N/A Pipelines

Pipelines in

leasehold land

Terengganu:

77 lots

Pahang:

315 lots

Terengganu:

158.9

Pahang:

104.6

17.4 N/A 311,183

PAGE: 280

PETRONAS GAS BERHAD



Land Area

(hectare)

Age of Plant and

Building (years)

Build-up Area

(sq. m)

Net Book Value

as at 31 December

2016 (RM’000)

PGU Loop 2 – total gas pipeline of

226 km from Segamat, Johor to

Meru, Selangor

01.11.2000 N/A Pipelines

Pipelines in

leasehold land

(Part of PGU’s

document of

title)

Melaka:

4 lots

Negeri

Sembilan:

4 lots

Melaka:

1.31

Negeri

Sembilan:

1.1

16.4 N/A 326,141

TOTAL 8,773,877

PAGE: 281

ANNUAL REPORT 2016

Name of Facilities and Location DescriptionNet Book Value

(RM'000)

LNG Regasification Terminal,

Sungai Udang

Floating Storage Units, Jetty Regasification

Unit and Pipelines and Administration Buildings

2,821,480

Gas Processing Plants, Kertih Leasehold land, Plant and Office Buildings 2,220,613

Gas Processing Plants, Santong Leasehold land, Plant and Office Buildings 866,341

PGU II Leasehold land and Pipelines 518,455

PGU III Leasehold land and Pipelines 498,645

Utilities Plants, Kertih Leasehold land, Plant and Office Buildings 461,691

PGU Loop 2 Leasehold land and Pipelines 326,141

PGU Loop 1 Leasehold land and Pipelines 311,183

Export Terminal Leasehold land, Plant and Marine Facility 251,746

Utilities Plants, Gebeng Leasehold land, Plant and Office Buildings 248,246

PAGE: 282

PETRONAS GAS BERHAD

TOP 10 LANDED PLANT, PROPERTY & EQUIPMENT

GAS PROCESSING AND UTILITIES DIVISION

Gas Processing Plant, KertihKM 105, Jalan Kuantan-Kuala

Terengganu

24300 Kertih, Kemaman


T: +(609) 831 2345

F: +(609) 827 1710

Gas Processing Plant, SantongKm 8, Kg. Tok Arun, Off Jalan Santong

23100 Paka, Dungun


T: +(609) 831 2345

F: +(609) 827 4578

Utilities Plant, KertihKertih Integrated Petrochemical

Complex

KM 105, Jalan Kuantan/Kuala

Terengganu



T: +(609) 830 5500

F: +(609) 830 5514

Utilities Plant, GebengLot 139A, Gebeng Industrial Area Fasa III

26080 Kuantan

Pahang Darul Makmur

T: +(609) 586 3300

F: +(609) 586 3311

Tanjung Sulong Export TerminalTanjung Sulong,

24000 Kemaman


T: +(609) 831 2345

F: +(609) 827 1710

GAS TRANSMISSION AND REGASIFICATION DIVISION

Gurun Regional OfficeKM 1, Jalan Jeniang, P.O. Box 31

08300 Gurun

Kedah Darul Aman

T: +(604) 468 5518

F: +(604) 468 5519

Sitiawan Regional OfficeLot 33263, Jalan Dato’ Ahmad Yunus

32000 Sitiawan

Perak Darul Ridzuan

T: +(605) 692 5611/12/13/14

F: +(605) 692 5615

Shah Alam Regional OfficeLot 1, Jalan Jemuju Lima 16/13E

Kawasan Perindustrian Seksyen 16

40200 Shah Alam


T: +(603) 5510 6222

F: +(603) 5510 1528

Seremban Regional OfficeKM 11, Jalan Seremban, Tampin

71450 Sungai Gadut

Negeri Sembilan Darul Khusus

T: +(606) 677 6777

F: +(606) 677 7799

Regas Terminal (Sg. Udang) Sdn Bhdc/o PSRI/MG3 Retrofit Buiding

Petronas Penapisan Melaka

Sungai Udang

76300 Melaka

T: +(607) 352 3801

Pasir Gudang Regional OfficePLO 332, Jalan Perak 4

Kawasan Perindustrian Pasir Gudang

81700 Pasir Gudang

Johor Darul Takzim

T: +(607) 251 0333

F: +(607) 251 0400

Segamat Operation CentreKM 10, Lebuhraya Segamat-Kuantan

85000 Segamat

Johor Darul Takzim

T: +(607) 935 3000

F: +(607) 931 6521

Kuantan Regional OfficeLot 1, Sektor 1, Bandar Indera Mahkota

25200 Kuantan

Pahang Darul Makmur

T: +(609) 573 2811

F: +(609) 573 2813

Kertih Regional OfficeAras 1, Kompleks Pejabat PETRONAS

Wilayah Pantai Timur



T: +(609) 867 3500

F: +(609) 864 0375

Bintulu Operation CentreLot 8, Block 16, Kemena Land District

KM 39.5, Bintulu/Miri Coastal Highway,

97000 Bintulu

P.O. Box 2190, 97011 Bintulu, Sarawak

T: +(6086) 85 4800

F: +(6086) 85 4999

Kimanis Operation CentreLot 2, Block A, Ground Floor

Membakut Jaya

89728 Membakut, Sabah

Miri Regional OfficeLot 1590 & 1591

Eastwood Valley Industrial Area

Jalan Miri By Pass,

P.O. Box 1504

98008 Miri, Sarawak

T: +(6085) 42 2811

F: +(6085) 41 6410

+(6087) 88 6217/224

F: +(6087) 88 6219

PETRONAS GAS BERHAD

Level 49-51, Tower 1, PETRONAS Twin Towers, Kuala Lumpur City Centre, 50088 Kuala Lumpur, Malaysia

T: +(603) 2331 5000

F: +(603) 2051 6992 (General), +(603) 2051 6555 (Corporate Secretary)

PAGE: 283

ANNUAL REPORT 2016

CORPORATE DIRECTORY

Indicator Reference Indicator Description

Page Reference

Biodiversity

EBD02 At Critical sites:

(a) Targets to address biodiversity impact

(b) Commitment to net positive biodiversity impact (or compensation for

negative impact)

103, 133, 151,

134, 220, 221,

235

EBD05 Assessment of biodiversity risks for:

(a) Potential new operations or projects (due diligence)

(b) Existing operations or projects

105, 134, 151,

235

EBD06 Disclosure of biodiversity habitats:

(a) Within or adjacent to business operations

(b) Protected or restored by the company

235

EBD08 To reduce the loss of biodiversity engages with:

(a) Governments or Regulators

(b) International Organisations and NGOs

105, 134, 151,

235

EBD09 Biodiversity Action Plan (BAPs) audits:

(a) At some sites

(b) At all relevant sites

105, 134, 151,

235

EBD17 Policy or commitment statement on biodiversity to:

(a) Address the issue

(b) Reduce or avoid the impact

105, 134, 151

Climate Change

ECC01 Policy or commitment statement on climate change impact including CO2/

GHG emissions to:


(b) Improve efficiency, reduce or avoid the impact

133, 140,

220, 221, 233

ECC02 Recognition of climate change as:

(a) A significant issue

(b) A material issue for their business

133, 140,

220, 221, 233

ECC03 Demonstrating support to mitigating climate change through:

(a) Membership of business associations

(b) Company position on public policy and regulation

232

ECC12 Intensity of operational GHG emissions is:

(a) Measured and disclosed

(b) Reduced

72, 220, 221,

233, 234

PAGE: 284

PETRONAS GAS BERHAD

FTSE4GOOD INDEX


Page Reference

ECC37 Disclosure of results measured against previously disclosed targets to reduce

energy consumption:

(a) Unquantified progress

(b) Quantified progress

221, 234

ECC40 Disclosure of results measured against previously disclosed targets to reduce

operational GHG emissions:

(a) Unquantified progress

(b) Quantified progress

72, 220, 221,

233

Polution and Resources

EPR01 Supplier policy or commitment statement that addresses:

(a) Energy use

(b) Climate change impact including CO2/GHG emissions

134, 152, 191

EPR02 Policy or commitment statement on waste to:


(b) Improve efficiency, reduce or avoid the impact

105, 220, 221,

234

EPR05 Targets to reduce or avoid waste:

(a) Not quantified, process targets

(b) Quantified

220, 234

EPR08 Progress against previously set targets to reduce or avoid waste:

(a) Unquantified, process targets

(b) Quantified targets

220, 234

EPR28 Percentage of sites covered by recognised environmental management systems

such as ISO14001 or EMAS

221, 232

Supply Chain (Environment)

ESC02 Supplier policy or commitment statement that addresses:

(a) Energy use

(b) Climate change impact including CO2/GHG emissions

134, 152, 189,

191, 192


(a) Water use

(b) Biodiversity impacts

134, 152, 189,

191, 192


(a) Environmental issues

(b) Pollution

134, 152, 189,

191, 192


(a) Waste

(b) Resource use

134, 152, 189,

191, 192

PAGE: 285

ANNUAL REPORT 2016

FTSE4GOOD INDEX


Page Reference

ESC08 Environmental policy/policies integrated with suppliers through:

(a) Communication

(b) Training of relevant supplier staff

134, 189, 190,

259

ESC09 Risk Assessment regarding environmental issues for:

(a) Potential new suppliers (due diligence)

(b) Existing suppliers to identify those that are high risk

141, 190, 240,

241

ESC10 Action taken to manage the environmental impact of suppliers through

encouraging:

(a) Reporting

(b) Reduction

134, 152, 191,

192

ESC11 Monitoring of suppliers including:

(a) Physical inspection audits, or report number or proportion of suppliers

monitored or audited

(b) Results and specific action taken on any non-compliances

189, 190

ESC12 Company involvement in initiatives, or commitment to frameworks, on

environmental impacts in supply chain:

(a) Participation in workshops or industry/topic specific initiative or

collaboration

(b) Member in an industry or topic specific related initiative

189, 190, 259

Water Use

EWT12 Percentage of water recycled (non-potable) for use in own operations 220, 235

Health and Safety

SHS01 Policy or commitment statement on health and safety to:

(a) Address the issue as relevant and important

(b) Apply to contractors or other external stakeholders

75, 130, 140,

141, 148, 149,

158, 159, 213

SHS03 Board oversight of health and safety:

(a) Committee reporting into the board or clear board oversight over the issue

(b) Named individual/position responsible at board level

167, 185, 191,

203

SHS05 Employee involvement in health and safety improvements, through:

(a) Participative initiatives such as employee health and safety committees

(b) Management discussions on health and safety with worker representatives

or trade unions

134, 143, 152,

244, 247

SHS08 Performance monitoring and management of health and safety:

(a) Performance and progress against previously set targets

(b) Benchmarking against industry standards

240

SHS10 Independent verification of health and safety data:

(a) Independent verification by third party

(b) International assurance standard used and level of assurance declared

240

PAGE: 286

PETRONAS GAS BERHAD


Page Reference

SHS13 Number of staff trained on health and safety standards within the last year 242

SHS39 Policy or commitment statement on reducing health and safety impact through:

(a) Commitment to continuous improvement

(b) Time-specific, quantitative targets to reduce incidents

78, 131, 141,

149, 159

Human Rights and Community

SHR03 Statement of principles or process by which community investments are made

(a) Defined focus areas

(b) Focus area linked to business strategy

194, 213

SHR10 Human rights impact or risk assessment for:

(a) Potential new projects

(b) Existing company operations

189, 194, 213

SHR16 Mechanisms to facilitate employee engagement and involvement with charitable

partners

(a) Evidence of recognising volunteering

(b) Specific foundations, targets, structures set up

143, 161, 248,

249

Labour Standards

SLS26 Amount of time spent on employee development training

(a) Total hours as a company, or

(b) Average hours per employee

104, 245, 246

SLS29 Employee personal development training:

(a) Policy or commitment statement to provide employee personal

development training

(b) Detailed description of the personal development training that is provided

72, 80, 104,

245

Supply Chain (Social)

SSC02 Supplier policy addresses prevention of forced labour:

(a) Statement addressing issue

(b) Policy/Principles/Code

194, 213

SSC03 Supplier policy addresses non-discrimination or equal opportunities:

(a) Statement addressing issue


194, 213

SSC05 Supplier policy or statement supports the right to collective bargaining:

(a) Refers only to compliance with local law on collective bargaining

(b) Covers the respect or support of the right to collective bargaining

179, 180, 189

SSC06 Supplier policy addresses the elimination of excessive working hours:

(a) Comply/not exceed local law on working hours/overtime

(b) Clear policy on reducing excessive working hours

179, 180, 189

PAGE: 287

ANNUAL REPORT 2016

FTSE4GOOD INDEX


Page Reference

SSC07 Supplier policy supports the right to a minimum or living wage:

(a) Comply with minimum wage

(b) Commitment to exceed minimum wage/meet living wage

179, 180, 189

SSC08 Supplier policy addresses health & safety standards:

(a) Statement addressing issue or limited to legal compliance


179, 180, 189

SSC09 Social Supply Chain policy or code:

(a) Communicated globally to suppliers

(b) Translated into relevant languages

179, 180, 189

SSC11 Social Supply Chain policy integrated into:

(a) Buyer training

(b) Purchasing policy or supplier contract

179, 180, 189

SSC12 Monitoring of suppliers for social issues:

(a) Physical inspection audits, assessments are carried out

(b) Quantification of number or proportion of suppliers monitored or audited

179, 180, 189

SSC17 Capacity building in suppliers:

(a) Supplier training

(b) Supplier mentoring, secondments, or supporting suppliers sharing best

practice

179, 180, 189

Anti Corruption

GAC01 Policy or commitment statement addresses:

(a) Countering bribery

(b) At least 2 different forms of bribery related activities

179, 212

GAC02 Policy or commitment statement addresses:

(a) Anti-corruption

(b) Specific forms of corruption (including but not limited to money

laundering, embezzlement, obstruction of justice)

179, 195, 212

GAC03 Board has oversight of anti-corruption policy:

(a) Covers elements of corruption including bribery

(b) Covers anti-corruption specifically

166, 179, 184

GAC04 Due diligence of new business partners addresses corruption:



179, 195

GAC05 Confidential or anonymous whistle-blowing mechanism for staff:



179, 195

GAC07 Communication of anti-corruption policy to all employees:



179, 195

PAGE: 288

PETRONAS GAS BERHAD


Page Reference

GAC08 Training for staff on the anti-corruption policy:



193, 195

GAC09 Corruption risk assessment for company operations:



179

GAC10 Procedures are in place to address corruption in operations that are assessed

to be ‘high risk’:



179, 189

GAC11 Process for intermediaries (including contractors, agents or joint ventures):

(a) Corruption risk assessment or procedures to address corruption for

intermediaries

(b) Anti-corruption policy is communicated to intermediaries

195

Corporate Governance

GCG01 Separate Chairman and CEO

(a) Separate Chairman and CEO, where Chairman is not independent or his

independence is not declared

(b) Separate Chairman and CEO, where Chairman is independent

169

GCG02 Disclosure of details about Directors:

(a) Expertise

(b) Other Directorships

41 – 47

GCG03 Number of Board Directors 168

GCG04 Number of Independent Directors on the Board 167

GCG05 Number of women on the board 171

GCG06 Commitment to gender diversity on the Board:

(a) Statement of support

(b) Targets in place to improve gender ratio

167

GCG07 Board addresses:

(a) Conflicts of interest

(b) Abuse in related party transactions

41 – 47

GCG08 Periodic evaluation of board effectiveness:

(a) Review with no clear timeframe

(b) Evaluation with a clear timeframe (e.g. annually)

175

GCG09 Disclosure of:

(a) Board committees

(b) Their terms of reference or equivalent

173, 200,

204, 205,

290

PAGE: 289

ANNUAL REPORT 2016

FTSE4GOOD INDEX


Page Reference

GCG10 Disclosure of number of times each committee has met per annum:

(a) The Board

(b) Each Sub-committee

172

GCG11 Disclosure of the attendance rate for:

(a) Some individual Board/subcommittee member attendance rates, or an

average attendance rate

(b) All individual committee member’s attendance rate at Board and sub

committee level

172

GCG14 Disclosure of fixed and variable remuneration for:

(a) Executive board members

(b) Non-executive board members

176, 177

GCG19 Number of working days before the Annual General Meeting that the agenda is

published

178

GCG21 Shareholders have the right to vote on executive remuneration:

(a) Evidence of shareholders voting in the AGM

(b) The right to vote annually is explicitly covered in a company policy

proxy form

GCG22 Shareholders have the right to vote on Director appointments and dismissals:

(a) Evidence of shareholders voting in the AGM

(b) The right to vote annually for election/re-election of all directors is

explicitly covered in a company policy

proxy form

GCG26 Disclosure of voting results

(a) In a limited format (eg. Webcasts)

(b) In an official document

178, 183, 297

GCG42 Does the company provide for one share one vote for all company meeting

resolutions?

proxy form,

297

GCG44 Financial expertise on the audit committee:

(a) At least one independent financial expert on the audit committee

(b) A majority of independent financial experts on the audit committee

199

GCG46 There is a fully non-executive Audit Committee or Audit Board with:

(a) At least half independent members

(b) All independent members

200

GCG47 There is a fully non-executive Remuneration Committee with:

(a) At least half independent members

(b) All independent members

205

GCG49 Disclosure and nature of fees paid to the auditor 202, 203

PAGE: 290

PETRONAS GAS BERHAD


Page Reference

Risk Management

GRM01 Board:

(a) Has oversight of risk management

(b) Reviews the effectiveness of the risk management

179, 185

GRM02 There is a senior executive or committee responsible for risk:

(a) Reporting to the CEO or Board

(b) Separate from Head of Audit or equivalent

185, 191, 203

GRM04 Reference to external standards to inform the company’s risk management

system and reporting transparency:

(a) Risk management standards or frameworks such as ISO31000, COSCO,

IRM, FERMA, BASEL

(b) Reporting standards such as GRI, Integrated Reporting (IIR((c) ,

SASB

186

GRM05 Board applies oversight over:

(a) Code of Conduct or equivalent

(b) ESG risks

179, 195, 212

GRM07 The company’s charter/policy documents or equivalent:

(a) Describes the company’s risk management framework

(b) The framework covers ESG risks

186

GRM08 The company has a corporate-wide approach to non-compliance including:

(a) Procedures to investigate and follow up on any non-compliances identified

(b) Reporting of the number of substantiated claims or incidents of non-

compliance

76, 77, 83,

85, 193

GRM10 The company commits to:

(a) The regular rotation of auditors/audit partner

(b) To tender for a new audit firm on a regular basis

202

GRM11 The company addresses major ESG catastrophic events and incidents through:

(a) Scenario planning or stress testing

(b) Response plans or emergency procedures in place

190

GRM20 There is a confidential or anonymous whistle-blowing or equivalent mechanism

to notify breaches of company codes or policies for:

(a) Staff

(b) External Stakeholders

179, 195, 213

PAGE: 291

ANNUAL REPORT 2016

Board Audit Committee PETRONAS Gas Berhad Level 51, Tower 1PETRONAS Twin Towers50088 Kuala Lumpur

16 February 2017

Dear Sirs,

REVIEW ON METHODS OR PROCEDURES IN DETERMINING AND REVIEWING TRANSACTION PRICES AND TERMS OF RECURRENT RELATED PARTY TRANSACTIONS (RRPT)

1 INTRODUCTION

PETRONAS Gas Berhad (‘PGB’), a subsidiary of Petroliam Nasional Berhad (‘PETRONAS’), is listed on the Main Market of Bursa Malaysia since 1995. PETRONAS Gas Berhad (‘PGB’) business portfolio is divided into four core operations which are Gas Processing, Gas Transmission, Utilities and Regasification.

This letter has been prepared for the purpose of inclusion in the Annual Report for the financial year ended 31 December 2016 pursuant to the waiver for compliance with Paragraph 10.09 of Bursa Malaysia Main Market Listing Requirements granted by Bursa Malaysia based on its letter to PGB dated 27 October 2016 (‘the Waiver’).

As part of the Waiver which was granted for the following agreements;

(i) Nitrogen and Oxygen Supply Agreement with PRPC Refinery Cracker Sdn Bhd and PRPC Polymer Sdn Bhd(ii) Nitrogen Supply Agreement with PRPC Utilities and Facilities Sdn Bhd(iii) Land Lease Agreement with PETRONAS Hartabina Sdn Bhd(iv) Project Management Consultancy Services Agreement for EPCC of Pengerang LNG Regasification Facilities with PTSSB

PGB is required to disclose in its Annual Report after the date of the Exchange’s letter dated 27 October 2016, an independent financial adviser’s opinion that the methods or procedures in determining the transaction price and terms for the agreements stated above are adequate to ensure that the transactions will be carried out on normal commercial terms and will not be to the detriment of its minority shareholders (the ‘Minority Shareholders’).

2 TERMS OF REFERENCE

To comply with the condition attached to the waiver as described above, PricewaterhouseCoopers Capital Sdn Bhd (‘PwCC’) has been appointed as the independent financial adviser to provide an opinion on whether the methods or procedures in determining the transaction price and terms of the agreement stated above (i-iv) are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be to the detriment of Minority Shareholders.

PwCC’s views as set forth in this letter are based on the prevailing market and economic conditions, and our analysis of the information provided to us by PGB up to the date of this letter. Accordingly, this opinion shall not take into account any event or condition which occurs after that date.

PwCC’s work is solely in respect of the review of methods or procedures in determining the transaction prices and the agreements terms and conditions of the services. PWCC is not involved in the formulation of these procedures adopted by the Company.

In the course of our evaluation of the procedures, we have performed the following:

• Performed desktop reviews of standard operating procedures and relevant Board and Management reports that are used to determine and review the transaction prices and terms of the RRPTs under review

• Performed a walkthrough on the RRPTs under review, to assess procedures undertaken to determine transaction prices and terms of the RRPTs

• Held discussions with selected members of Senior Management on the methods and procedures employed by PGB to

determine and review the transaction prices and terms of the RRPTs under review

PAGE: 292

PETRONAS GAS BERHAD

INDEPENDENT ASSURANCE STATEMENT

2 TERMS OF REFERENCE (continued)

• Interviewed Board members, including the Audit Committee Chairman to understand the Board’s role in reviewing the

RRPTs under review

• Developed report highlighting the results of work performed and recommendations for consideration

• Developed our opinion on whether the methods and procedures in determining the transaction prices and terms of

the RRPTs under review are sufficient to ensure that the transactions will be carried out on normal commercial terms

and will not be to the detriment of minority shareholders

Other than the review on the methods and procedures of the transactions as stipulated in this letter, we have not

conducted any other procedures on information included in PGB’s 2016 Annual Report.

3 REVIEW PROCEDURES IN DETERMINING AND REVIEWING THE TRANSACTION PRICE AND TERMS

Details of such review procedures and threshold limits are set out in PGB’s Related Party Transactions Policies and

Procedures document as approved by the Board Audit Committee (‘BAC’) on 10 February 2014. These procedures are

summarised in the Statement of Corporate Governance of this Annual Report, and Shareholders are advised to read the

information carefully.

In our review of procedures for determining the transaction prices of the contracts above (i-iv), we have considered the

following:

a) The Directors’ rationale and the benefits accruing to PGB arising as a result of entering into the RRPT contracts; and

b) The review procedures for each of the contracts stated above (i-iv);

Bursa Malaysia had on 27 October 2016 granted PGB a waiver from complying with Chapter 10.09 of the Main Market

Listing Requirements of Bursa Malaysia, of having to seek shareholders’ approval in relation to the services pertaining to

the contracts stated above (i-iv).

During the period of review, PGB undertook adequate process which involved:

a) Determining suitable tariffs and prices for the contracts above (i-iv);

b) Negotiating with the relevant parties on pricing and terms and conditions in respect of the transactions; and

c) Obtaining the required approvals from the BAC and Board, which were aligned to the approved policies and

procedures.

Based on the result of our review, there were no exceptions relating to the price determination process and terms and

conditions for the contracts stated above (i-iv).

4 OPINION

Our test did not note any material exception as it relates to the methods and procedures undertaken to determine that

the transaction price and terms of the RRPT are carried out on normal commercial terms and will not be to the detriment

of its Minority Shareholders.

We have prepared this letter for the use of PGB in connection with the conditions of the Waiver imposed by Bursa

Malaysia. A copy of the letter may be reproduced in the Annual Report.

Yours faithfully,

PricewaterhouseCoopers Capital Sdn Bhd

PAGE: 293

ANNUAL REPORT 2016

NOTICE IS HEREBY GIVEN THAT the 34th Annual General Meeting of PETRONAS Gas Berhad (the Company) will be

held at Conference Hall 2, Level 3, Kuala Lumpur Convention Centre, Jalan Ampang, 50088 Kuala Lumpur, Malaysia on

Monday, 17 April 2017 at 10.30 a.m. for the following businesses:

AGENDA

1. To receive the Audited Financial Statements for the financial year ended 31 December 2016 together with the Reports

of the Directors and Auditors thereon.

Please refer to Explanatory Note A.

2. To re-elect Habibah Abdul, who retires in accordance with Article 93 of the Constitution of the Company and, being

eligible, offer herself for re-election: (Resolution 1)

Please refer to Explanatory Note B.

3. To re-elect the following Directors pursuant to Article 96 of the Constitution of the Company:

(a) Datuk Mohd Anuar Taib (Resolution 2)(b) Emeliana Dallan Rice-Oxley (Resolution 3)(c) Wan Shamilah Wan Muhammad Saidi (Resolution 4)(d) Heng Heyok Chiang @ Heng Hock Cheng (Resolution 5)

Please refer to Explanatory Note B.

4. To approve the Directors’ Fees of up to RM1 million with effect from 1 January 2017 until the next Annual General

Meeting of the Company payable to Non-Executive Directors. (Resolution 6)

Please refer to Explanatory Note C.

5. To re-appoint KPMG PLT, as Auditors of the Company for the financial year ending 31 December 2017 and to authorise

the Directors to fix their remuneration. (Resolution 7)

Please refer to Explanatory Note D.

6. To transact any other business for which due notice has been given.

By Order of the Board

Intan Shafinas (Tuty) Hussain (LS 0009774) Yeap Kok Leong (MAICSA 0862549)

Company Secretary Company Secretary

Kuala Lumpur

20 March 2017

PAGE: 294

PETRONAS GAS BERHAD

NOTICE OF ANNUAL GENERAL MEETING

NOTES:

Proxy and/or Authorised Representative

1. For the purposes of determining a member who shall

be entitled to attend and vote at the forthcoming 34th

Annual General Meeting (AGM), the Company shall be

requesting the Record of Depositors as at 7 April 2017.

Only a depositor whose name appears on the Record

of Depositors as at 7 April 2017 shall be entitled to

attend and vote at the meeting as well as for

appointment of proxy(ies) to attend and vote on his/her

stead.

2. A member may appoint not more than two proxies to

attend the same meeting. A proxy may but need not

be, a member of the Company and a member may

appoint any person to be his proxy without limitation.

There shall be no restriction as to the qualification of

the proxy.

3. Where a member of the Company is an authorised

nominee as defined under the Securities Industry

(Central Depositories) Act, 1991 (SICDA), it may appoint

at least one proxy but not more than two proxies in

respect of each Securities account it holds with ordinary

shares of the Company standing to the credit of the

said Securities accounts.

4. Where a member of the Company is an exempt

authorised nominee which holds ordinary shares in the

Company for the omnibus account, there is no limit to

the number of proxies which the exempt authorised

nominee may appoint in respect of each omnibus

account it holds. An exempt authorised nominee refers

to an authorised nominee defined under the SICDA

which is exempted from compliance with the provisions

of subsection 25A(1) of SICDA.

5. Where a member or the authorised nominee appoints

two proxies, or where an exempt authorised nominee

appoints two or more proxies, the proportion of

shareholdings to be represented by each proxy must be

specified in the instrument appointing the proxies.

6. The instrument appointing a proxy shall be in writing

under the hand of the appointer or his attorney duly

authorised in writing or if the appointer is a corporation

either under seal or under the hand of an officer or

attorney duly authorised and must be deposited at the

Company’s Share Registrar, Symphony Share Registrars

Sdn. Bhd., Level 6, Symphony House, Pusat Dagangan

Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor,

Malaysia, not less than 48 hours before the time fixed

for holding the meeting.

7. If the Proxy Form is signed under the hand of an officer

duly authorised, it should be accompanied by a

statement reading “signed as authorised officer under

Authorisation Document which is still in force, no notice

of revocation having been received”. If the Proxy Form

is signed by an attorney duly appointed under a power

of attorney, it should be accompanied by a statement

reading “signed under Power of Attorney which is still in

force, no notice of revocation having been received”. A

copy of the Authorisation Document or the Power of

Attorney, which should be valid in accordance with the

laws of the jurisdiction in which it was created and is

exercised, should be enclosed with this Proxy Form.

PAGE: 295

ANNUAL REPORT 2016

NOTICE OF ANNUAL GENERAL MEETING

Explanatory Notes

Note A

Audited Financial Statements for the Financial Year Ended 31 December 2016

The audited financial statements are laid before the

shareholders pursuant to the provisions of Section 244(2)(a)

of the Companies Act 2016. The same is for discussion and

not put forward for voting.

Note B

Re-election of Directors who retire in accordance with Article 93 of the Constitution of the Company

Article 93 of the Constitution of the Company provides that

one-third of the Directors of the Company for the time

being shall retire by rotation at an AGM of the Company

provided always that all Directors, shall retire from office

once at least in each three years but shall be eligible for

re-election at the AGM.

Article 96 of the Constitution of the Company provides that

the directors may at any time appoint any person to be a

director, either to fill a casual vacancy or as an addition to

the existing directors. Any appointed directors shall hold

office only until the next following Annual General Meeting

of the Company and shall be eligible for re-election.

The Nomination and Remuneration Committee of the

Company determines the eligibility of each director standing

for re-election at the AGM based on the performance of the

Directors, taking into account the results of their latest

Board Evaluation, contribution to the Board through their

skills, experience, strengths and qualities, level of

independence and ability to act in the best interest of the

Company in decision making.

The profiles of the retiring Directors are set out in the

Profile of the Board of Directors on pages 41 to 47 of the

2016 Annual Report.

The Board endorsed the Nomination and Remuneration

Committee’s recommendation that the Directors who retire

in accordance with Article 93 and Article 96 of the

Constitution of the Company are eligible to stand for

re-election.

Note C

Non-Executive Directors’ Fees

Pursuant to Section 230(1) of the Companies Act 2016, the

fees of the directors, and any benefits payable to the

directors including any compensation for loss of

employment of a director or former director of a public

company or a listed company and its subsidiaries, shall be

approved at a general meeting.

The fee structure of the Non-Executive Directors (NEDs) of

the Company is as follows:

• Monthly fixed fees for duties as Director/Chairman;

• Meeting allowance for each Board/Board Committee

attended;

• Fuel allowance; and

• Directors and Officers Liability Insurance

The Directors’ fees and meeting allowances for Datuk Mohd

Anuar Taib and Emeliana Dallan Rice-Oxley being the

Non-Independent Non-Executive Directors who are also

employees of Petroliam Nasional Berhad (PETRONAS) and

holding positions of Vice President and above are paid directly

to PETRONAS. They are not entitled to fuel allowance.

The shareholders at the last AGM held on 26 April 2016

approved the Directors’ fees of RM986,000 per annum. The

actual Directors’ fees amount paid to NED for the financial

year ended 31 December 2016 is RM760,000 whilst the

Directors’ fees for NED for the period from 1 January 2017

until the next AGM to be held in year 2018 is estimated to

be RM1 million.

The Directors’ fees proposed for the financial year ending 31

December 2017 until the conclusion of the next AGM

(FYE2017/2018) are calculated based on the number of

scheduled Board’s and Board Committees’ meetings and on

assumption that all the NEDs will remain in office until the

next AGM. This resolution is to facilitate payment of the

Directors’ Fees for FYE2017/2018.

The Board will seek shareholders’ approval at the next AGM

in the event the Directors’ fees proposed is insufficient.

Details of the fees and allowances payable to the NEDs for

the financial year ended 31 December 2016 are enumerated

on page 176 of the 2016 Annual Report.

PAGE: 296

PETRONAS GAS BERHAD

Note D

Re-appointment of Auditors

The Board at its meeting held on 23 February 2017 endorsed

for the re-appointment of KPMG PLT as External Auditors of

the Company for the financial year ending 31 December

2017 be presented to the shareholders for approval.

KPMG had converted its legal entity status from unlimited

liability partnership pursuant to Partnership Act 1961 to

limited liability partnership pursuant to Section 29 of the

Limited Liability Partnerships Act, 2012 (LLP Act 2012)

effective 27 December 2016. Accordingly, KPMG had been

registered in the name of KPMG PLT. In this instance, PLT

means “Perkongsian Liabiliti Terhad”. There was no change

to the Partners serving the Company.

In any event, pursuant to Section 36 of the LLP Act 2012,

any agreements/engagements already made between the

Company and its Group and KPMG will continue to be in

force as if KPMG PLT were a party to the agreements.

Accordingly, all engagement letters signed with KPMG

continue to be in force until these are superseded.

Other Information

The Company has engaged independent scrutineers to

count, audit and validate the votes for each proposal

presented to shareholders.

PAGE: 297

ANNUAL REPORT 2016

REGISTRATION

(1) Registration will start at 8.00 a.m. on 17 April 2017 in front of the Conference Hall 2, Kuala Lumpur

Convention Centre, Kuala Lumpur.

(2) Please produce your original Identity Card (“IC”) to the registration staff for verification. Please make

sure you collect your IC thereafter.

(3) Upon verification, you are required to write your name and sign on the Attendance List placed on the

registration table.

(4) You will also be given an identification tag. No person will be allowed to register on behalf of another

person even with the original IC of that person.

(5) The registration counter will handle only verification of identity and registration.

HELP DESK

(1) Please proceed to the Help Desk for any clarification or enquiry.

(2) The help desk will also handle revocation of proxy’s appointment.

PARKING

(1) Please take note that PETRONAS Gas Berhad (PGB) will not be providing cash reimbursement for

parking. Instead, you are advised to park at Kuala Lumpur Convention Centre or Suria KLCC. Please

bring your parking ticket for validation at the counter near the Conference Hall 2.

(2) By validating the parking ticket, you will not be charged for parking when you leave. Please be advised,

that the parking ticket will expire by 3 p.m. on 17 April 2017. Any additional cost incurred for parking

after 3 p.m. will not be borne by PGB.

(3) Please be advised that PGB will not reimburse any parking costs incurred at any other location. As such,

please observe the abovementioned parking area.

SITE VISIT

(1) Please take note that there will be a registration booth available for the Shareholders’ Visitation

Programme, which will take place at a later date, to be informed by PGB.

PAGE: 298

PETRONAS GAS BERHAD

ADMINISTRATIVE DETAILS FOR THE 34TH ANNUAL GENERAL MEETING

ABC Anti-Bribery and Corruption

ACC Accelerating Cultural Change

ACD Accelerated Capability Development

AGO Acid Gas Oxidiser

AGRU Acid Gas Removal Unit

ASPIRE ASU1 and ASU2 Power Supply Segregation

ASU Air Separation Unit

BAC Board of Audit Committee

BCM Business Continuity Management

BCP Business Continuity Plan

BLP Building Leaders Programme

BOM Bill of Material

BPC BASF PETRONAS Chemicals Sdn Bhd

BVRA Business Venture Risk Assessment

CAPEX Capital expenditure

CAR Clean Air Regulation

CC Constitution of the Company

CDWC Capability Development Working Committee

CEMS Continuous Emission Monitoring System

CFO Chief Financial Officer

CFP PETRONAS Corporate Financial Policy

CG Corporate Governance

CHRA Chemical Health Risk Assessment

CIMAH Control of Industrial Major Accident Hazards

CIO Chief Integrity Officer

CM Crisis Management

CoBE Code of Business Ethics

COD Commercial Operation Date

COGEN Cogeneration plant

COI Conflict of interest

COP Community of Practice

CoRA Contractor Risk Assessment

CR Corporate Responsibility

CSC Commercial Steering Committee

CSE Confined space entry

CSI Corporate Social Investment

CSR Corporate Social Responsibility

CTI Cost to income

CUF Centralised Utility facilities

DAF Dissolved Air Flotation

DHU Dehydration Unit

DOEFA Downstream Operational Excellence Forum

Awards

DOSH Department of Occupational Safety and

Health

DPR Dividend payout ratio

DPS Dividend per share

DRP Discipline Resource Person

DTA Deferred tax assets

EBITDA Earnings before interest, tax, depreciation

and amortisation

EC Energy Commission

ECER East Coast Economic Region

ECRO PETRONAS East Cost Regional Office

EES Economic, Environment and Social

EPF Employees Provident Fund

EPS Earnings per share

EPU Economic Planning Unit

ERM Enterprise Risk Management

ERP Enterprise Risk Profile

ERR Enterprise Risk Report

ERS Equipment Reliability Strategy

ESG FTSE Environmental, Social and Governance

FGRU Flare Gas Recovery Unit

FID Final Investment Decision

FLL Finance lease liabilities

FOREX Foreign exchange

FSU Floating Storage Unit

GEMA Gebeng Emergency Mutual Aid

GHG Greenhouse Gases

GHSE Group Health, Safety and Environment

GIA Group Internal Audit

GJ Gigajoule

GMB Gas Malaysia Berhad

GP Gas Processing

GPA Gas Processing Agreement

GPK Gas Processing Kertih

GPP Gas Processing Plant

GPS Gas Processing Santong

GPU Gas Processing and Utilities

GSA Gas Supply (Amendment) Act 2016

GT Gas Transmission

GTA Gas Transportation Agreement

GTR Gas Transportation and Regasification

GWh Gigawatt hour

HASN Hari Alam Sekitar Negara

HR Human Resource

HSE Health, Safety and Environment

HSELT HSE Leadership Team

HSEMS HSE Management System

HSEOE Health, Safety, Environment and Operational

Excellence

HSESC Health, Safety and Environment Steering

Committee

PAGE: 299

ANNUAL REPORT 2016

GLOSSARY

GLOSSARY

HSSE Health, Safety, Security and Environment

IA Initial Acceptance

ICQCC International Convention on Quality Control

Circles

ICT Information and Communication Technology

IETS Industrial Effluent Treatment System

IFSSC PETRONAS Integrated Financial Shared

Services Centre

IGS Industrial Gas Solutions Sdn Bhd

IKM Institut Kimia Malaysia

IPP Independent power producers

IPTM Inspection, Testing, Preventive Management

IRP Inspection Reference Plan

ITA Investment tax allowance

JBPM Jabatan Bomba dan Penyelamat Malaysia

JDA Joint Development Area

JV Joint Venture

KIPC Kertih Integrated Petrochemical Complex

KMt Kilometric tonnes

KOMSB Kimanis O&M Sdn Bhd

KPI Key performance indicators

KPSB Kimanis Power Sdn Bhd

KRA Key Results Area

KRI Key Risk Indicators

LDAR Leak Detection and Repair

LINDE Linde Malaysia Sdn Bhd

LNG Liquified Natural Gas

LOA Limits of Authority

LOPC Loss of primary containment

LT Leadership Team

LTI Lost Time Injury

LTIF Loss Time Injury Frequency

MAP Mandatory Accreditation Programme

MASB Malaysian Accounting Standards Board

MASRA Malaysia Sustainability Reporting Awards

MC Management Committee

MCCG 2012 Malaysian Code on Corporate Governance

2012

MCF Mandatory Control Framework

MFRS Malaysian Financial Reporting Standards

MI Mechanical Integrity

MIA Malaysian Institute of Accountants

MIDA Malaysian Industrial Development Authority

MLNG Malaysia LNG Sdn Bhd

MMLR Main Market Listing Requirement

MMSCFD Million standard cubic feet per day

MNm3 Mega normal cubic meters

MNS Malaysian Nature Society

MPC Malaysia Productivity Corporation

MSR Management System Review

MSWG Minority Shareholder Watchdog Group

MT Metric tonne

MTJDA Malaysia-Thailand Joint Development Area

MTPA Million tonnes per annum

NACRA National Annual Corporate Report Awards

NGU Nitrogen Generation unit

NGV Natural Gas vehicals

NRC Nomination and Remuneration Committee

O&M Operation and maintenance

OBIMA Overall Boiler Integrity Management

OE&I Operational Excellence and Improvement

OEE Overall Equipment Efficiency

OeXMS Operational Excellence Management System

OPEX Operating expenditure

OPU Operating units

OSH Occupational Safety and Health

PAT Profit after tax

PBPP Program Bakti Pendidikan

PBS Performance based structure

PCASB PETRONAS Chemicals Ammonia Sdn Bhd

PCB PETRONAS Cultural Beliefs

PCESB PETRONAS Chemical Ethylene Sdn Bhd

PCG PETRONAS Chemical Group

PCOGD PETRONAS Chemical Olefins, Glycol and

Derivatives

PCP Pengerang Cogeneration Plant

PCRRS PETRONAS Credit Risk Rating System

PD&T PETRONAS Project Delivery and Technology

PDIS Procurement Downstream and Indirect

Spend

PDR Product delivery reliability

PECAS PETRONAS Competency Assessment System

PEMS Predictive Emission Monitoring System

PETRONAS Petroliam Nasional Berhad

PFRM Plant and Facilities Risk Management

PGPP Pengerang Gas Pipeline Project

PGSSB Pengerang Gas Solution Sdn Bhd

PGU Peninsular Gas Utilisation

PIC Pengerang Integrated Complex

PIRESS Pipeline Relocation Sungai Skudai

PLC PETRONAS Leadership Centre

PLNG2 Penegerang LNG (Two) Sdn Bhd

PLT Plant Leadership Team

PPE Property, plant and equipment

PAGE: 300

PETRONAS GAS BERHAD

PPMS PETRONAS Project Management System

PPMSB PETRONAS Penapisan (Melaka) Sdn Bhd

PRBI PETRONAS Risk Based Inspection

PRMD Planning and Risk Management Department

PRR Plant Rejuvenation and Revamp

PSC Project Steering Committee

PSIP Program Sentuhan Ilmu PETRONAS

PSKP Program Sentuhan Kasih PETRONAS

PSM Process Safety Management

QA Quality assurance

QASR Quarterly Audit Status Report

QC Quality control

RA Reinvestment Allowance

RAPID Refinery and Petrochemicals Integrated

Development

RCC Risk and Compliance Committee

RCFA Root Cause Failure analysis

RGT Regasification

RGT2 Pengerang LNG Regasification Terminal

RGTEC RGT Minimum Sent Out Capability

Improvement

RGTLD Regas Terminal (Lahad Datu) Sdn Bhd

RGTP LNG Regasification Terminal Pengerang

RGTSU LNG Regasification Terminal Sungai Udang

RMU Risk Management Unit

ROA Return on Asset

ROE Return on Equity

ROSPA Royal Society for the Prevention of

Accidents

ROW Right of way

RPG Recommended Practice Guide

RPT Related Party Transaction

RRPT Recurring Related Party Transaction

RSA Regasification Service Agreement

SCE Safety Criticality Element

SEC Sabah Energy Corporation Sdn Bhd

SID Senior Independent Director

Sm3 Standard cubic meter

SME Subject matter experts

SoE Scheme of Examination

SORMIC Statement of Risk Management and Internal

Controls

SSGP Sabah-Sarawak Gas Pipeline

SSI Special Scheme Inspection

TOR Term of reference

TPA Third Party Access

TSET Tanjung Sulong Export Terminal

TSR Total shareholder’s return

TTS Technical Trade Specialist

UG Utilities Gebeng

UK Utilities Kertih

UT Utilities

WACC Weighted average cost of capital

WBP Whistleblowing Policy

WP Work process

YoY Year on year

ZeTo PETRONAS Zero Tolerance

PAGE: 301

ANNUAL REPORT 2016

This page has been intentionally left blank.

No. of Ordinary Shares Held

CDS Account No.

I/We Tel: (Full Name In Capital Letters)

of (Full Address)

being a Member of PETRONAS Gas Berhad (the Company) hereby appoint:

Full Name (in Block) Proportion of Shareholdings

NRIC/Passport No. No. of Shares %

Address

and/(delete as appropriate)

Full Name (in Block) Proportion of Shareholdings

NRIC/Passport No. No. of Shares %

Address

or failing him/her, the Chairman of the Meeting as my/our proxy to vote for me/us on my/our behalf at the 34th Annual General

Meeting of the Company to be held at the Conference Hall 2, Level 3, Kuala Lumpur Convention Centre, Jalan Ampang, 50088

Kuala Lumpur, Malaysia on Monday, 17 April 2017 at 10.30 a.m. and at any adjournment thereof.

Resolutions For Against

1. Re-election of Habibah Abdul as a Director

2. Re-election of Datuk Mohd Anuar Taib as a Director

3. Re-election of Emeliana Dallan Rice-Oxley as a Director

4. Re-election of Wan Shamilah Wan Muhammad Saidi as a Director

5. Re-election of Heng Heyok Chiang @ Heng Hock Cheng as a Director

6. Directors’ Fees of up to RM1 million with effect from 1 January 2017 until the next

Annual General Meeting of the Company payable to Non-Executive Directors

7. Re-appointment of KPMG PLT, as Auditors of the Company

* Please refer to the Notice of Annual General Meeting for full details of the proposed Resolutions.

(Please indicate with an “X” in the spaces provided whether you wish your vote to be cast for or against the Resolutions. In the

absence of specific directions, your proxy will vote or abstain as he/she thinks fit)

Date: 2017.

Signature/Common Seal of Shareholders

PETRONAS Gas Berhad (101671-H)

PROXY FORM

SYMPHONY SHARE REGISTRARS SDN BHD

Level 6, Symphony House,

Pusat Dagangan Dana 1,

Jalan PJU 1A/46, 47301 Petaling Jaya,

Selangor Darul Ehsan, Malaysia

FOLD HERE

FOLD HERE

AFFIX

STAMP

Notes:

1. For the purposes of determining a member who shall be entitled to attend and vote at the forthcoming 34th Annual General Meeting, the Company shall be requesting

the Record of Depositors as at 7 April 2017. Only a depositor whose name appears on the Record of Depositors as at 7 April 2017 shall be entitled to attend and vote at

the meeting as well as for appointment of proxy(ies) to attend and vote on his/her stead.

2. A member of the Company entitled to attend and vote at the meeting may appoint not more than two proxies to attend and vote on his behalf. A proxy may but need

not be a member of the Company and a member may appoint any person to be his proxy. There shall be no restriction as to the qualification of the proxy.

3. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991 (SICDA), it may appoint at least one

proxy but not more than two proxies in respect of each Securities account it holds with ordinary shares of the Company standing to the credit of the said Securities

accounts.

4. Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for the omnibus account, there is no limit to the

number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account it holds. An exempt authorised nominee refers to an

authorised nominee defined under the SICDA which is exempted from compliance with the provisions of subsection 25A(1) of SICDA.

5. Where a member or the authorised nominee appoints two proxies, or where an exempt authorised nominee appoints two or more proxies, the proportion of

shareholdings to be represented by each proxy must be specified in the instrument appointing the proxies.

6. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or if the appointer is a corporation either

under seal or under the hand of an officer or attorney duly authorised and must be deposited at the Company’s Share Registrar, Symphony Share Registrars Sdn. Bhd.,

Level 6, Symphony House, Pusat Dagangan Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor, Malaysia, not less than 48 hours before the time fixed for holding

the meeting.

7. If the Proxy Form is signed under the hand of an officer duly authorised, it should be accompanied by a statement reading “signed as authorised officer under

Authorisation Document which is still in force, no notice of revocation having been received”. If the Proxy Form is signed by an attorney duly appointed under a power

of attorney, it should be accompanied by a statement reading “signed under Power of Attorney which is still in force, no notice of revocation having been received”. A

copy of the Authorisation Document or the Power of Attorney, which should be valid in accordance with the laws of the jurisdiction in which it was created and is

exercised, should be enclosed with this Proxy Form.

PETRONAS GAS BERHAD (101671-H)

Tower 1, PETRONAS Twin Towers, Kuala Lumpur City Centre

50088 Kuala Lumpur

Tel : (03) 2051 5000 • Fax: (03) 2051 6555

www.petronasgas.com

PETRONAS GAS BERHAD

BEYONDFINANCIALREPORT 2016

GOING

An

nu

al R

epo

rt 2

016

ABOUT OUR REPORTS

RATIONALE

The journey continues for PETRONAS Gas Berhad (PGB) as we strive to attain sustainable world class

standards befitting our role as A Leading Gas Infrastructure and Utilities Company. Our approach is focused

on changing mindsets and pushing boundaries to take the Company’s performance beyond expectations.

Our steadfast focus on improving Company-wide safety and operating efficiencies through our ongoing

3ZERO100 Transformation programme will also serve to enhance our overall sustainability and profitability.

We are continuously working towards our goal of becoming a high performance organisation by completely

transforming our work culture and mindset. We will continue in this vein to sustain our legacy of high

performance, strong leadership and value creation for our shareholders.

In line with this year’s theme, Going Beyond, the cover image depicts PGB’s commitment towards achieving

results that exceed the norm.

Annual Report Regulations Complied

Regulations CompliedFinancial Report

Primary source of

information on our

Group’s financial and

non-financial

performance for

FY2016 and outlook

for FY2017 across our

operations in Malaysia


Market Listing

Requirements

• Companies Act

2016


Market Listing

Requirements

• Companies Act,

1965

• Malaysian Financial

Reporting Standards

Summary of financial

information and full set

of Group’s Audited


Refer to website

www.petronasgas.com

Integrated Reporting

cross-referencing

IR

Navigation icons

THIS REPORTTHIS REPORTINSIDE

AT A GLANCE

2 Facts At A Glance



PERFORMANCE REVIEW


10 5-year Group Financial Information



14 Simplified Group Statement on Financial Position and

Segmental Analysis

18 Key Interest Bearing Assets and Liabilities



OUR RIGHT RESULTS

22 Statement of Directors’ Responsibility in

relation to the Financial Statements

23 Audited Financial Statements

MORE THAN

2,000 mmscfd

SIX GAS PROCESSING PLANTS

processing capacity throughSupply of

INDUSTRIAL UTILITIES

to petrochemical and industrial customers in Kertih and Gebeng

MORE THAN

2,500across Malaysia

kmGAS TRANSMISSION PIPELINE

FACTS AT A GLANCE

OPERATING

300MW

Power Plant in Kimanis, Sabah

PAGE: 2

PETRONAS GAS BERHAD

PETRONAS Gas Berhad (PGB) has been in

business for more than three decades and is

still growing strongOUR STRENGTH

UNDER CONSTRUCTION

Air Separation Unit (ASU) Pengerang, Johor490 mmscfd

LNG Regasification Terminal Pengerang, Johor

Oxygen

Nitrogen

41,000 Nm3/HR

25,900 Nm3/HR

530mmscfd

LNG REGASIFICATION

TERMINALSungai Udang, Melaka

PAGE: 3

ANNUAL REPORT 2016

PAGE: 4

PETRONAS GAS BERHAD

DIVIDENDS

RM1.22016: 62 sen/share

billion

+3%

2015: 60 sen/share


RM42.1billion

2015: RM44.9 billion

-6%

REVENUE


billion

+2%

TOTAL ASSET


billion

+15%

PROFIT AFTER TAX

RM1.72015: RM1.7 billion*

billion

-0.4%

2016 KEY HIGHLIGHTS

* Based on normalised FY2015, excluding tax incentives

and unrealised foreign exchange of RM243.2 million.

PAGE: 5

ANNUAL REPORT 2016

PAGE: 5

ANNUAL REPORT 2016

AIR SEPARATION UNIT PROJECT AT PENGERANG (ASU)

Achieved Final Investment Decision of

USD172 million

Pengerang Gas Solutions Sdn Bhd was

incorporated in August 2016, a joint

venture with Linde Malaysia Sdn Bhd to

undertake the ASU project

EXCELLENT LIQUID PLANTEXTRACTION PERFORMANCE

Achieved 12 months Performance Based

Structure income of RM69 million

EXTERNAL FINANCING

Secured USD500 million term loan


PGB TRANSFORMATION

Completion of 3ZERO100

Transformation which focuses on

improvement of asset integrity, people

& culture and system & process

LNG REGASIFICATION TERMINALPENGERANG PROJECT

Advancing well at 75% completion

and on track to achieve commercial

operations by quarter four of 2017

PAGE: 6

PETRONAS GAS BERHAD

Year 2012 2013 2014 2015 2016

Revenue (RM million) 3,576.8 3,892.1 4,391.7 4,455.9 4,561.3





Total equity (RM million) 9,167.2 10,265.5 10,569.0 11,594.9 12,161.2

Market capitalisation (RM million) 38,624.8 48,043.6 43,848.7 44,917.2 42,147.0

Share price (RM) 19.52 24.28 22.16 22.70 21.30

5-YEAR FINANCIAL SUMMARY

‘12 ‘13 ‘14 ‘15 ‘16

3,5

76

.8

3,8

92

.1

4,3

91.

7

4,4

55

.9

4,5

61.

3

Revenue(RM million)

1,4

04

.9

2,0

78

.9

1,8

42

.1

1,9

85

.9

1,73

6.3

‘12 ‘13 ‘14 ‘15 ‘16


71.

0

105

.1

93

.1

100

.4

87.

9

‘12 ‘13 ‘14 ‘15 ‘16

Earnings Per Share (EPS)(sen)

PAGE: 7

ANNUAL REPORT 2016

50

.0 55

.0

55

.0 60

.0

62

.0

‘12 ‘13 ‘14 ‘15 ‘16

Dividends Per Share(sen)

9,1

67.

2

10,2

65

.5

10,5

69

.0

11,5

94

.9

12,1

61.

2

‘12 ‘13 ‘14 ‘15 ‘16

Total Equity(RM million)

12,4

38

.3

13,2

22

.4

13,2

60

.5

14,3

82

.0

16,5

53

.6

‘12 ‘13 ‘14 ‘15 ‘16

Total Assets(RM million)

38

,62

4.8

48

,04

3.6

43

,84

8.7

44

,917

.2

42

,14

7.0

‘12 ‘13 ‘14 ‘15 ‘16

Market Capitalisation(RM million)

19.5

2

24

.28

22

.16

22

.70

21.

30

‘12 ‘13 ‘14 ‘15 ‘16

Share Price(RM)

PAGE: 8

PETRONAS GAS BERHAD

Item 2012 2013 2014 2015 2016


Normalised profit after tax* (RM million) 1,404.9 1,511.2 1,741.1 1,742.7 1,736.3

2012

1,404.9

2,078.9

1,511.2

1,842.1

1,741.1

1,985.9

1,742.71,736.3

2013 2014 2015 2016

Profit After Tax(RM million)ANALYSIS

2012

• Profit of RM1.4 billion was contributed by three business

segments comprising Gas Processing (GP), Gas

Transportation (GT) and Utilities (UT).

• Compared to 2011, the Group results increased due to gain

on partial disposal of investment in an associate, Gas Malaysia

Berhad of RM100.0 million through initial public offering.

2013

• Profit of RM2.1 billion was contributed by four business

segments comprising GP, GT, UT and newly commissioned

operations, Regasification (RGT).

• Achieved commercial operations of Malaysia’s First LNG

Regasification Terminal in Sg Udang, Melaka (RGTSU) in May

2013.

• Compared to 2012, the Group results improved due to

recognition of deferred tax assets (DTA) arising from

investment tax allowances (ITA) granted by Malaysian

Investment Development Authority (MIDA) amounting to

RM626.4 million.

• Excluding impact of DTA, profit sustained at RM1.5 billion.

2014

• Signing of new Gas Processing Agreement (GPA) and Gas

Transportation Agreement (GTA) with PETRONAS for 20-year

period.

• Kimanis Power Plant achieved full commercial operations in

November 2014.

• Compared to 2013, excluding impact of DTA on ITA from

RGTSU and Kimanis Power Sdn Bhd (KPSB), the Group’s

profit increased attributable to profit contribution from KPSB,

full year contribution from RGTSU and strentghening of GT

revenue base under new GTA.

2015

• Completion of the last series of plant revamp and rejuvenation

project (PRR) for GP segment (PRR for Gas Processing Plant

(GPP) 2 and 3 was completed in 2013 and PRR for GPP4 was

completed in 2015).

• Compared to 2014, the Group’s profit increased as a result of

recognition of tax incentives arising from ITA and

reinvestment allowances granted by MIDA on PRR totalling

RM443.1 million.

• This was partially offset by unrealised foreign exchange

(forex) loss on USD finance lease liabilities totalling RM199.9

million due to weakening of the Ringgit.

• Excluding impact of tax incentives and forex, profit remained

strong at RM1.7 billion.

2016

• Compared to 2015, excluding impact of tax incentives and

forex, profit remained steady at RM1.7 billion.


5-YEAR GROUP FINANCIAL ANALYSIS

PAGE: 9

ANNUAL REPORT 2016

Item 2012 2013 2014 2015 2016


12,438.3

13,222.4 13,260.5

14,382.0

16,553.6

2012 2013 2014 2015 2016

Total Assets(RM million)ANALYSIS

Item 2012 2013 2014 2015 2016

Property, plant and equipment 9,777.9 10,611.1 10,858.5 11,323.8 12,807.5

Fixed assets 5,443.6 8,913.8 9,230.6 9,737.9 9,660.8

Project-in-progress 4,334.3 1,697.3 1,627.9 1,585.9 3,146.7

Cash and cash equivalents 912.1 1,706.2 637.7 1,230.8 1,763.1

ANALYSIS

2012

• Total assets of RM12.4 billion mainly consist of plant,

property and equipment (PPE) from the three business

segments: GP, GT and UT.

2013

• Compared to 2012, total assets further strengthened following

completion of RGTSU and PRR for GPP2 and GPP3.

2014

• Compared to 2013, total assets remained steady at RM13.3

billion mainly consist of PPE from four business segments:

GP, GT, UT and RGT.

2015

• Compared to 2014, total assets of the Group increased was

mainly attributed to higher PPE arising from completion of

PRR for GPP4 and higher cash balances.

2016

• Compared to 2015, total assets surged to RM16.6 billion as

the Group embarked into Malaysia’s Second LNG

Regasification Terminal and Air Separation Unit plant projects

in Pengerang, Johor.

PAGE: 10

PETRONAS GAS BERHAD

Year 2012 2013 2014 2015RM million

2016

Key results Revenue 3,576.8 3,892.1 4,391.7 4,455.9 4,561.3

By segment:Gas Processing 1,511.2 1,497.4 1,480.2 1,533.6 1,557.2 Gas Transportation 1,119.4 1,189.4 1,286.7 1,311.6 1,303.9 Utilities 946.2 867.2 1,008.6 973.6 1,069.1 Regasification – 338.2 616.2 637.1 631.1

By geographical:Peninsular Malaysia 3,559.3 3,873.8 4,365.5 4,428.8 4,545.4 Sabah – – 8.5 8.5 (3.3)Sarawak 17.5 18.3 17.7 18.6 19.2

Interest income 71.5 41.8 36.9 31.8 54.2 Cost of revenue 1,806.8 1,947.3 2,179.5 2,316.5 2,495.4

By segment:Gas Processing 742.5 746.1 778.5 836.6 908.8 Gas Transportation 280.1 287.0 280.0 302.5 328.6 Utilities 784.2 739.5 812.6 837.8 913.2 Regasification – 174.7 308.4 339.6 344.8

Financing costs 20.3 50.1 76.3 90.1 93.9 Administration expenses 156.0 120.0 74.8 89.5 93.1 Operating profit 1,859.6 1,903.7 2,142.1 2,016.9 2,137.1 Earnings before interest, taxes,

depreciation and amortisation 2,463.0 2,628.6 3,180.8 2,837.2 3,023.6 Profit before taxation 1,851.3 1,896.4 2,354.5 2,002.1 2,106.8 Profit for the year 1,404.9 2,078.9 1,842.1 1,985.9 1,736.3 Profit attributables to the shareholders

of the Company 1,405.0 2,078.9 1,843.2 1,987.5 1,739.1

Key statement of financial positionProperty, plant and equipment 9,777.9 10,611.1 10,858.5 11,323.8 12,807.5 Cash & cash equivalents 912.1 1,706.2 637.7 1,230.8 1,763.1 Total assets 12,438.3 13,222.4 13,260.5 14,382.0 16,553.6 Borrowings 1,246.7 841.8 882.3 1,058.3 2,249.5 Total liabilities 3,271.1 2,956.9 2,691.5 2,787.1 4,392.4 Share capital 1,978.7 1,978.7 1,978.7 1,978.7 1,978.7 Reserves 7,188.7 8,287.0 8,555.1 9,460.1 9,988.0 Total equity attributable to the

shareholders of the Company 9,167.4 10,265.7 10,533.8 11,438.8 11,966.7 Non-controlling interests (0.2) (0.2) 35.0 156.1 194.5 Total equity 9,167.2 10,265.5 10,569.0 11,594.9 12,161.2

Share informationEarnings per share (sen) 71.0 105.1 93.1 100.4 87.9 Dividends per share (sen) 50.0 55.0 55.0 60.0 62.0 Net assets (sen) 4.63 5.19 5.32 5.78 6.05 Closing share price 19.52 24.28 22.16 22.70 21.30 Number of ordinary shares (’000) 1,978,732 1,978,732 1,978,732 1,978,732 1,978,732 Market capitalisation (RM million) 38,624.8 48,043.6 43,848.7 44,917.2 42,147.0

5-YEAR GROUP FINANCIAL INFORMATION

PAGE: 11

ANNUAL REPORT 2016

2016In RM Million

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year 2016






of the Company 447.3 403.9 422.8 465.1 1,739.1



2015In RM Million

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year 2015






of the Company 450.0 818.0 305.0 414.5 1,987.5



GROUP QUARTERLY PERFORMANCE

PAGE: 12

PETRONAS GAS BERHAD

KEY PERFORMANCE INDICATORS

The financial indicators assess the Group’s current year performance as compared to the corresponding year.

GROUP PERFORMANCE RATIOS

All analysis below is after excluding impact of tax incentives and unrealised foreign exchange.

39.1%

Normalised 2015

Normalised 2015

2015

2015

2015

2015

2015

2016

2016

2016

2016

2016

12.1%

48.0%

52.0%

44.6%

13.8%

45.3%

54.7%

38.1%

10.5%

Sustained within healthy levels. Due to higher operating costs.

Continuous improvement towards assets

integrity.

Slightly lower due to higher spending on growth

projects yet to generate returns.

Net profit margin is defined as a ratio

of net profit after tax to revenue.

Gross profit margin is defined as a

ratio of gross profit to revenue.

Cost to Income (CTI) is a measure of

cost of revenue divided by revenue.

Return on Asset (ROA) is an indicator that

measures the Company’s efficiency in using

the total assets to generate profit.

2.3

2.5

Higher attributed to high cash balances.

Current ratio is defined as the Company’s

ability to meet its short term obligations.

PAGE: 13

ANNUAL REPORT 2016

Normalised 2015

2015 2015

2015

2016 2016

2016

Normalised 2015 2015 2016 Normalised 2015 2015 2016

sen

sen

88.2

100.4

87.9

In line with steady profit for the year.

Within the industry average of DPR.

Earnings Per Share (EPS) represents the

portion of the Company’s distributable

income allocated to each equity share.

Dividend Payout Ratio (DPR) is defined as the

percentage of earnings paid to shareholders in dividend.

77.0%

59.8%

70.7%

15.2%

17.4%

14.5%

Respectable returns from investments.

Return on Equity (ROE) is defined as profit

attributable to shareholders divided by the average

shareholders’ equity for the financial year.

60.0

62.0

5.1%

-3.4%

Higher dividend payout in respect of FY2016 in

tandem with strong performance of the Group.

Due to decline of share price during the year.

Dividends Per Share (DPS) is dividends declared

for the shareholders divided by the number of

ordinary shares issued.

Total Shareholder’s Return (TSR) is measure of

share price performance and dividends paid during

the year, divided by the opening share prices.

PAGE: 14

PETRONAS GAS BERHAD


2015

2016

Total Assets

Total Assets

Property, Plant and Equipment 77% Cash and Cash Equivalents 11% Investment in Joint Ventures 4% Trade and Other Receivables 4% Deferred Tax Assets 3% Investment in Associate 1% Long Term Receivables 0%*

Tax Recoverable 0%*

Trade and Other Inventories 0%*

Property, Plant and Equipment 79% Cash and Cash Equivalents 9% Investment in Joint Ventures 4% Trade and Other Receivables 4% Deferred Tax Assets 3% Investment in Associate 1% Trade and Other Inventories 0%*

RM14.4 billion

RM16.6 billion



PAGE: 15

ANNUAL REPORT 2016

2015

2016



Reserves 66% Share Capital 14% Non-Current Borrowings 7% Deferred Tax Liabilities 6% Trade and Other Payables 6% Non-Controlling Interests 1% Deferred Income 0%*


Taxation 0%*

Reserves 60% Non-Current Borrowings 13% Share Capital 12% Deferred Tax Liabilities 7% Trade and Other Payables 6% Non-Controlling Interests 2% Deferred Income 0%*


Taxation 0%*

RM14.4 billion

RM16.6 billion



PAGE: 16

PETRONAS GAS BERHAD







2,575.14,376.4

1,009.1697.0

1,311.61,533.6

2,620.14,321.6

975.3648.4

1,303.91,557.2

SEGMENT OPERATING REVENUE

SEGMENT GROSS PROFIT

SEGMENT ASSETS

2015

2015

2015

2016

2016

2016

RM4.6 billion

RM2.1 billion

RM14.2 billion




2016

2016

2016


PAGE: 17

ANNUAL REPORT 2016







637.1

297.5

4,389.31,184.5

135.8

973.6

631.1

286.3

5,896.31,317.9

155.9

1,069.1

2015

2015

2015

2016

2016

2016

RM2.1 billion

RM12.5 billion

RM4.5 billion

2015

2015

2015

PAGE: 18

PETRONAS GAS BERHAD

2015 2016

As at 31 December

RM million


%

InterestIncome/


As at 31 December

RM million


%

InterestIncome/


Interest earning assets

Cash and cash equivalents 1,230.8 3.9 31.8 1,763.1 3.6 54.2

Interest bearing liabilities

Finance lease liabilities 1,058.3 9.1 (90.1) 1,166.6 9.1 (93.9)

Team loan – – – 795.6 1.7 –*

Loan from corporate

shareholder of a subsidary – – – 287.3 6.5 –*

* Interest expenses are being capitalised as part of projects-in-progress.

2015RM million

2016RM million

Revenue 4,455.9 4,561.3

Purchase of goods and services (1,300.2) (1,386.8)

Value added by the Company 3,155.7 3,174.5

Other income and expenses (32.9) 164.3

Financing costs (90.1) (93.9)

Share of profit after tax of equity accounted associate and jointly controlled entity 75.2 63.6

Value added available for distribution 3,107.9 3,308.5

KEY INTEREST BEARING ASSETS AND LIABILITIES

STATEMENT OF VALUE ADDED

PAGE: 19

ANNUAL REPORT 2016

2015RM million

2016RM million

To employees

Employment costs 326.9 324.5

To government

Taxation 71.9 113.7

To shareholders

Dividends 1,147.8 1,187.2

Non-controlling interest (1.5) (2.8)


Depreciation and amortisation 778.9 877.2

Deferred tax expense/(income) (55.7) 256.8

Retained profit 839.6 551.9

3,107.9 3,308.5

10%

3%

51%

FY2016

36%


To shareholders

To employees

To government

11%

2%37%

FY2015

50%


To shareholders

To employees

To government

DISTRIBUTION OF VALUE ADDED

OUR RIGHT RESULTS

22 Statement of Director’s

Responsibility in relation to the


FINANCIAL STATEMENTS23 Directors’ Report

28 Statement by Directors

28 Statutory Declaration

29 Consolidated Statement of

Financial Position

30 Consolidated Statement of Profit

or Loss and Other

Comprehensive Income


Changes in Equity


Cash Flows

34 Statement of Financial Position

35 Statement of Profit or Loss and

Other Comprehensive Income

36 Statement of Changes in Equity

37 Statement of Cash Flows

38 Notes to the Financial Statements

106 Independent Auditors’ Report

to the Members of

PETRONAS Gas Berhad

The financial statements of the Group and of the Company as set out on pages 29 to 105, are properly drawn up so as to

give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2016 and of the results

of its operations and cash flows for the year ended on that date.

The Directors consider that in preparing the financial statements of the Group and of the Company:

• appropriate accounting policies have been used and consistently applied;

• reasonable and prudent judgements and estimates were made;

• all Malaysian Financial Reporting Standards and the Malaysian Companies Act, 1965 have been followed; and

• are prepared on a going concern basis.

The Directors are responsible for ensuring that the accounting and other records and registers required by the Malaysian

Companies Act, 1965 to be retained by the Company and its subsidiaries have been properly kept in accordance with the

provisions of the said Act.

The Directors also have general responsibilities for taking such steps that are reasonably available to them to safeguard the

assets of the Group and the Company, and to prevent and detect fraud and other irregularities.

PAGE: 22

PETRONAS GAS BERHAD

STATEMENT OF DIRECTOR’S RESPONSIBILITY IN RELATION TO THE FINANCIAL STATEMENTS

The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company

for the financial year ended 31 December 2016.

PRINCIPAL ACTIVITIES

The principal activities of the Company in the course of the financial year remain unchanged and consist of separating

natural gas into its components and storing, transporting and distributing such components thereof for a fee and the sale of

industrial utilities.

The principal activities of the subsidiaries, associate and joint ventures are as stated in note 5, note 6 and note 7 to the

financial statements respectively.

RESULTS

Group Company

RM’000 RM’000

Profit for the year 1,736,301 1,784,854

Attributable to:

Shareholders of the Company 1,739,052 –

Non-controlling interests (2,751) –

DIVIDENDS

During the financial year, the Company paid:

(i) a fourth interim dividend of 17 sen per ordinary share amounting to RM336,384,000 in respect of the financial year

ended 31 December 2015 on 23 March 2016;

(ii) a first interim dividend of 14 sen per ordinary share amounting to RM277,022,000 in respect of the financial year ended

31 December 2016 on 8 June 2016;

(iii) a second interim dividend of 14 sen per ordinary share amounting to RM277,022,000 in respect of the financial year

ended 31 December 2016 on 8 September 2016; and

(iv) a third interim dividend of 15 sen per ordinary share amounting to RM296,810,000 in respect of the financial year ended

31 December 2016 on 2 December 2016.

The Directors had on 23 February 2017 declared a fourth interim dividend of 19 sen per ordinary share amounting to

RM375,959,000 in respect of the financial year ended 31 December 2016.

The financial statements for the current financial year do not reflect the declared interim dividend. The dividend, will be

accounted for in equity as an appropriation of retained profits in the financial statements for the financial year ending 31

December 2017.

PAGE: 23

ANNUAL REPORT 2016

DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2016

RESERVES AND PROVISIONS

There were no material movements to and from reserves and provisions during the year other than as disclosed in the

financial statements.

DIRECTORS OF THE COMPANY

Directors who served since the date of the last report are:

Datuk Mohd Anuar bin Taib (appointed on 1 January 2017)

Habibah binti Abdul

Dato’ Ab. Halim bin Mohyiddin

Yusa’ bin Hassan

Emeliana Dallan Rice-Oxley (appointed on 1 September 2016)

Wan Shamilah binti Wan Muhammad Saidi (appointed on 1 September 2016)

Heng Heyok Chiang @ Heng Hock Cheng (appointed on 1 January 2017)

Datuk Rosli bin Boni (resigned on 1 September 2016)

Pramod Kumar Karunakaran (resigned on 1 September 2016)

Dato’ N. Sadasivan N.N. Pillay (resigned on 1 January 2017)

Lim Beng Choon (resigned on 1 January 2017)

Tan Sri Dato’ Seri Shamsul Azhar bin Abbas (resigned on 1 January 2017)

In accordance with Article 93 of the Company’s Articles of Association, Habibah binti Abdul will retire by rotation from the

Board at the forthcoming Annual General Meeting, and being eligible, offers herself for re-election.

In accordance with Article 96 of the Company’s Articles of Association, Datuk Mohd Anuar bin Taib, Emeliana Dallan

Rice-Oxley, Wan Shamilah binti Wan Muhammad Saidi and Heng Heyok Chiang @ Heng Hock Cheng who respectively were

appointed to fill casual vacancies on the Board, will retire at the forthcoming Annual General Meeting, and being eligible,

offers themselves for re-election.

In accordance with Section 129(6) of the Companies Act, 1965, Dato’ Ab. Halim bin Mohyiddin is retiring at the forthcoming

Annual General Meeting. Dato’ Ab. Halim bin Mohyiddin offers himself for re-appointment and is eligible to be re-appointed.

DIRECTORS’ INTERESTS

The Directors in office at the end of the year who have interests in the shares of the Company and of its related

corporations other than wholly owned subsidiaries (including the interests of the spouses and/or children of the Director

who themselves are not Directors of the Company) as recorded in the Register of Directors’ Shareholdings are as follows:

Number of ordinary shares of RM1.00 each in the Company

Balance at Balance at

Name 1.1.2016 Bought Sold 31.12.2016

Dato’ Ab. Halim bin Mohyiddin 5,000 – – 5,000

PAGE: 24

PETRONAS GAS BERHAD

DIRECTORS’ REPORTFOR THE YEAR ENDED 31 DECEMBER 2016

DIRECTORS’ INTERESTS (CONTINUED)

Number of ordinary shares of RM0.50 each in Malaysia Marine and Heavy Engineering Holdings Berhad

Balance at Balance at

Name 1.1.2016 Bought Sold 31.12.2016

Dato’ Ab. Halim bin Mohyiddin 5,000 – – 5,000

Number of ordinary shares of RM0.10 each in PETRONAS Chemicals Group Berhad

Balance at

Name

1.1.2016/at appointment

date Bought SoldBalance at 31.12.2016

Tan Sri Dato' Seri Shamsul Azhar bin Abbas 20,000 – (20,000) –

Dato’ Ab. Halim bin Mohyiddin

– own 5,000 – – 5,000

– others 5,000 – – 5,000

Wan Shamilah binti Wan Muhammad Saidi 6,000 – – 6,000

None of the other Directors holding office at 31 December 2016 had any interest in the ordinary shares of the Company

and of its related corporations during the financial year.

DIRECTORS’ BENEFITS

Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any

benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by Directors

as shown in the financial statements or the fixed salary of a full time employee of the Company or of related corporations),

by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the

Director is a member, or with a company in which the Director has a substantial financial interest.

There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the

Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body

corporate.

ISSUE OF SHARES

There were no changes in the issued and paid up capital of the Company during the financial year.

OPTIONS GRANTED OVER UNISSUED SHARES

No options were granted to any person to take up unissued shares of the Company during the financial year.

PAGE: 25

ANNUAL REPORT 2016

OTHER STATUTORY INFORMATION

Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to

ascertain that:

(i) there are no bad debts to be written off and adequate provision has been made for doubtful debts; and

(ii) any current assets which were unlikely to be realised in the ordinary course of business have been written down to an

amount which they might be expected so to realise.

At the date of this report, the Directors are not aware of any circumstances:

(i) that would render it necessary to write off any bad debts or provide for any doubtful debts; or

(ii) that would render the value attributed to the current assets in the financial statements of the Group and of the

Company misleading; or

(iii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of

the Company misleading or inappropriate; or

(iv) not otherwise dealt with in this report or the financial statements that would render any amount stated in the financial

statements of the Group and of the Company misleading.

At the date of this report, there does not exist:

(i) any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which

secures the liabilities of any other person; or

(ii) any material contingent liability in respect of the Group or of the Company that has arisen since the end of the

financial year.

No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become

enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will

or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due.

In the opinion of the Directors, the financial performance of the Group and of the Company for the financial year ended 31

December 2016 have not been substantially affected by any item, transaction or event of a material and unusual nature nor

has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this

report.

PAGE: 26

PETRONAS GAS BERHAD

DIRECTORS’ REPORTFOR THE YEAR ENDED 31 DECEMBER 2016

SIGNIFICANT EVENT DURING THE FINANCIAL YEAR

There were no significant events during the financial year other than as disclosed in the financial statements.

SUBSEQUENT EVENTS

There were no material events subsequent to the end of the financial year.

AUDITORS

The auditors, KPMG PLT, (converted from a conventional partnership, KPMG, on 27 December 2016) have indicated their

willingness to accept re-appointment.

Signed on behalf of the Board of Directors

in accordance with a resolution of the Directors:

Datuk Mohd Anuar bin Taib

Yusa’ bin Hassan

Kuala Lumpur, 23 February 2017

PAGE: 27

ANNUAL REPORT 2016

In the opinion of the Directors, the financial statements set out on pages 29 to 104, are drawn up in accordance with

Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies

Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company at 31

December 2016 and of their financial performance and cash flows for the year ended on that date.

In the opinion of the Directors, the information set out in note 36 on page 105 to the financial statements has been

compiled in accordance with the Guidance on Special Matter No.1, Determination of Realised and Unrealised Profits or

Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the

Malaysian Institute of Accountants, and presented based on the format prescribed by Bursa Malaysia Securities Berhad.

Signed on behalf of the Board of Directors

in accordance with a resolution of the Directors:

Datuk Mohd Anuar bin Taib Yusa’ bin Hassan

Kuala Lumpur, 23 February 2017

I, Aida Aziza binti Mohd Jamaludin, the officer primarily responsible for the financial management of PETRONAS GAS BERHAD, do solemnly and sincerely declare that the financial statements set out on pages 29 to 105 are, to the best of my

knowledge and belief, correct and I make this solemn declaration conscientiously believing the declaration to be true, and by

virtue of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the above named

Aida Aziza binti Mohd Jamaludin at Kuala Lumpur in

Wilayah Persekutuan on 23 February 2017.

BEFORE ME:

PAGE: 28

PETRONAS GAS BERHAD

STATEMENT BY DIRECTORS

STATUTORY DECLARATION

31.12.2016 31.12.2015

Note RM’000 RM’000

ASSETS

Property, plant and equipment 3 12,807,524 11,323,848

Prepaid lease payment 4 4,645 4,518

Investment in associate 6 130,162 128,063

Investment in joint ventures 7 605,990 547,647

Deferred tax assets 8 408,042 456,360

Long term receivables 10 47,905 –

TOTAL NON-CURRENT ASSETS 14,004,268 12,460,436

Trade and other inventories 11 68,468 46,367

Trade and other receivables 12 711,914 644,389

Tax recoverable 5,865 –

Cash and cash equivalents 13 1,763,117 1,230,815

TOTAL CURRENT ASSETS 2,549,364 1,921,571

TOTAL ASSETS 16,553,632 14,382,007

EQUITY

Share capital 14 1,978,732 1,978,732

Reserves 15 9,988,048 9,460,067

Total equity attributable to the shareholders of the Company 11,966,780 11,438,799

Non-controlling interests 16 194,469 156,137

TOTAL EQUITY 12,161,249 11,594,936

LIABILITIES

Borrowings 17 2,216,869 1,029,596

Deferred tax liabilities 8 1,131,032 922,594

Deferred income 18 5,907 6,852

TOTAL NON-CURRENT LIABILITIES 3,353,808 1,959,042

Trade and other payables 19 1,006,007 796,539

Borrowings 17 32,568 28,664

Taxation – 2,826

TOTAL CURRENT LIABILITIES 1,038,575 828,029

TOTAL LIABILITIES 4,392,383 2,787,071

TOTAL EQUITY AND LIABILITIES 16,553,632 14,382,007

The notes set out on pages 38 to 105 are an integral part of these financial statements.

PAGE: 29

ANNUAL REPORT 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAT 31 DECEMBER 2016

2016 2015


Revenue 20 4,561,280 4,455,955

Cost of revenue 20 (2,495,424) (2,316,526)

Gross profit 20 2,065,856 2,139,429

Administration expenses (93,086) (89,468)

Other expenses (15,029) (205,211)

Other income 179,345 172,213

Operating profit 21 2,137,086 2,016,963

Financing costs 22 (93,943) (90,055)

Share of profit after tax of equity-accounted associate and joint ventures 63,626 75,202

Profit before taxation 2,106,769 2,002,110

Tax expense 23 (370,468) (16,240)

Profit for the year 1,736,301 1,985,870

Other comprehensive income

Item that may be reclassified subsequently to profit or loss

Net movement from exchange differences 30,743 55,955

Cash flow hedge (51,703) –

Share of cash flow hedge of an equity-accounted joint venture 7,887 28,939

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,723,228 2,070,764

Profit/(loss) attributable to:

Shareholders of the Company 1,739,052 1,987,452

Non-controlling interests 16 (2,751) (1,582)

PROFIT FOR THE YEAR 1,736,301 1,985,870

Total comprehensive income attributable to:

Shareholders of the Company 1,715,219 2,058,705

Non-controlling interests 8,009 12,059

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,723,228 2,070,764

Basic and diluted earnings per ordinary share (sen) 25 87.9 100.4


PAGE: 30

PETRONAS GAS BERHAD

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2016

Attributable to shareholders of the Company

Non-distributable

Share capital

Share premium

Hedging reserve

Foreign currency

translationreserve

Note RM’000 RM’000 RM’000 RM’000

Balance at 1 January 2015 1,978,732 1,186,472 12,546 –

Net movement from exchange differences – – – 42,314

Share of cash flow hedge of an equity-

accounted joint venture – – 28,939 –

Profit for the year – – – –

Total comprehensive income for the year – – 28,939 42,314

Issuance of shares to non-controlling interest – – – –

Dilution of equity shareholding in a subsidiary 26 – – – (5,943)

Dividends – 31.12.2014 interim 24 – – – –


Total transactions with shareholders of the Company – – – (5,943)

Balance at 31 December 2015 1,978,732 1,186,472 41,485 36,371

Balance at 1 January 2016 1,978,732 1,186,472 41,485 36,371

Net movement from exchange differences – – – 19,983

Cash flow hedge – – (51,703) –


accounted joint venture – – 7,887 –

Profit for the year – – – –

Total comprehensive income for the year – – (43,816) 19,983

Issuance of shares to non-controlling interest – – – –



Total transactions with shareholders of the Company – – – –

Balance at 31 December 2016 1,978,732 1,186,472 (2,331) 56,354

continue to next page.


PAGE: 31

ANNUAL REPORT 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016


Distributable

Retainedprofits Total

Non– controlling

interestsTotal

equity

Note RM’000 RM’000 RM’000 RM’000

Balance at 1 January 2015 7,356,128 10,533,878 35,125 10,569,003

Net movement from exchange differences – 42,314 13,641 55,955


accounted joint venture – 28,939 – 28,939

Profit for the year 1,987,452 1,987,452 (1,582) 1,985,870

Total comprehensive income for the year 1,987,452 2,058,705 12,059 2,070,764

Issuance of shares to non-controlling interest – – 102,833 102,833

Dilution of equity shareholding in a subsidiary 26 (177) (6,120) 6,120 –

Dividends – 31.12.2014 interim 24 (296,810) (296,810) – (296,810)


Total transactions with shareholders of the Company (1,147,841) (1,153,784) 108,953 (1,044,831)

Balance at 31 December 2015 8,195,739 11,438,799 156,137 11,594,936

Balance at 1 January 2016 8,195,739 11,438,799 156,137 11,594,936

Net movement from exchange differences – 19,983 10,760 30,743

Cash flow hedge (51,703) (51,703)


accounted joint venture – 7,887 – 7,887

Profit for the year 1,739,052 1,739,052 (2,751) 1,736,301

Total comprehensive income for the year 1,739,052 1,715,219 8,009 1,723,228

Issuance of shares to non-controlling interest – – 30,323 30,323



Total transactions with shareholders of the Company (1,187,238) (1,187,238) 30,323 (1,156,915)

Balance at 31 December 2016 8,747,553 11,966,780 194,469 12,161,249

continued from previous page.


PAGE: 32

PETRONAS GAS BERHAD

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015


CASH FLOWS FROM OPERATING ACTIVITIES

Cash receipts from customers 4,486,543 4,574,476

Cash paid to suppliers and employees (1,657,332) (1,591,607)

2,829,211 2,982,869

Interest income from fund investments 54,227 31,755

Taxation paid (122,403) (168,987)

Net cash generated from operating activities 2,761,035 2,845,637

CASH FLOWS FROM INVESTING ACTIVITIES

Dividends received from associate and joint ventures 31,664 29,165

Prepaid lease payment – (4,133)

Purchase of property, plant and equipment (1,954,614) (1,169,372)

Reimbursement of project cost – 56,236

Proceeds from disposal of property, plant and equipment 478 368

Investment in a joint venture (20,593) –

Loans and advances to a joint venture (47,036) –

Net cash used in investing activities (1,990,101) (1,087,736)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid (1,187,238) (1,147,664)

Financing costs paid (114,188) (88,814)

Drawdown of term loan 776,078 –

Drawdown of loan from corporate shareholder of a subsidiary 287,255 –

Repayment of finance lease liabilities (31,245) (23,861)

Proceeds from shares issued to a non-controlling interest 30,323 102,833

Net cash used in financing activities (239,015) (1,157,506)

NET INCREASE IN CASH AND CASH EQUIVALENTS 531,919 600,395

NET FOREIGN EXCHANGE DIFFERENCE 383 (7,326)

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,230,815 637,746

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 13 1,763,117 1,230,815


PAGE: 33

ANNUAL REPORT 2016

CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2016

31.12.2016 31.12.2015


ASSETS

Property, plant and equipment 3 7,664,844 7,608,286

Investment in subsidiaries 5 2,855,740 2,776,901

Investment in associate 6 76,466 76,466

Investment in joint ventures 7 212,843 192,250

Long term receivables 10 794,642 –

TOTAL NON-CURRENT ASSETS 11,604,535 10,653,903

Trade and other inventories 11 66,140 44,197

Trade and other receivables 12 554,523 553,519

Tax recoverable 5,865 –

Cash and cash equivalents 13 1,606,663 1,116,541

TOTAL CURRENT ASSETS 2,233,191 1,714,257

TOTAL ASSETS 13,837,726 12,368,160

EQUITY

Share capital 14 1,978,732 1,978,732

Reserves 15 9,503,976 8,906,360

TOTAL EQUITY 11,482,708 10,885,092

LIABILITIES

Borrowings 17 795,602 –

Deferred tax liabilities 8 1,131,032 922,594

Deferred income 18 5,907 6,852

TOTAL NON-CURRENT LIABILITIES 1,932,541 929,446

Trade and other payables 19 422,477 550,796

Taxation – 2,826

TOTAL CURRENT LIABILITIES 422,477 553,622

TOTAL LIABILITIES 2,355,018 1,483,068

TOTAL EQUITY AND LIABILITIES 13,837,726 12,368,160


PAGE: 34

PETRONAS GAS BERHAD

STATEMENT OF FINANCIAL POSITIONAT 31 DECEMBER 2016

2016 2015


Revenue 20 3,930,123 3,818,817

Cost of revenue 20 (2,150,554) (1,976,943)

Gross profit 20 1,779,569 1,841,874

Administration expenses (93,854) (89,262)

Other expenses (8,756) (2,158)

Other income 435,185 532,260

Operating profit 21 2,112,144 2,282,714

Financing costs 22 (5,139) –

Profit before taxation 2,107,005 2,282,714

Tax (expense)/income 23 (322,151) 38,834

PROFIT FOR THE YEAR REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,784,854 2,321,548


PAGE: 35

ANNUAL REPORT 2016

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2016


Non-distributable Distributable

Sharecapital

Sharepremium

Retainedprofits Total

Note RM’000 RM’000 RM’000 RM’000

Balance at 1 January 2015 1,978,732 1,186,472 6,546,004 9,711,208

Profit for the year – – 2,321,548 2,321,548

Total comprehensive income for the year – – 2,321,548 2,321,548

Dividends – 31.12.2014 interim 24 – – (296,810) (296,810)


Total distribution to shareholders of the Company – – (1,147,664) (1,147,664)

Balance at 31 December 2015 1,978,732 1,186,472 7,719,888 10,885,092

Balance at 1 January 2016 1,978,732 1,186,472 7,719,888 10,885,092

Profit for the year – – 1,784,854 1,784,854

Total comprehensive income for the year – – 1,784,854 1,784,854



Total distribution to shareholders of the Company – – (1,187,238) (1,187,238)

Balance at 31 December 2016 1,978,732 1,186,472 8,317,504 11,482,708


PAGE: 36

PETRONAS GAS BERHAD

STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015


CASH FLOWS FROM OPERATING ACTIVITIES

Cash receipts from customers 3,851,396 3,941,100

Cash paid to suppliers and employees (1,592,311) (1,390,395)

2,259,085 2,550,705

Interest income from fund investments 69,699 26,390

Taxation paid (122,403) (168,986)

Net cash generated from operating activities 2,206,381 2,408,109

CASH FLOWS FROM INVESTING ACTIVITIES

Repayment of advances from subsidiaries 8,710 64,050

Subscription of additional shares in existing subsidiaries (78,839) (262,134)

Dividends received from a subsidiary, associate and joint ventures 241,717 384,217

Investment in a joint venture (20,593) –

Loans and advances to:

Subsidiaries (694,287) –

Joint venture (47,036) –

Purchase of property, plant and equipment (704,396) (822,879)

Proceeds from disposal of property, plant and equipment 478 368

Net cash used in investing activities (1,294,246) (636,378)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid (1,187,238) (1,147,664)

Drawdown of term loan 769,859 –

Finance costs paid (4,634) –

Net cash used in financing activities (422,013) (1,147,664)

NET INCREASE IN CASH AND CASH EQUIVALENTS 490,122 624,067

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,116,541 492,474

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 13 1,606,663 1,116,541


PAGE: 37

ANNUAL REPORT 2016

STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2016

PETRONAS GAS BERHAD is a public limited liability company, incorporated and domiciled in Malaysia and is listed on the Main

Market of Bursa Malaysia Securities Berhad. The address of the principal place of business and registered office of the

Company is as follows:

Tower 1, PETRONAS Twin Towers Kuala Lumpur City Centre

50088 Kuala Lumpur

The Company is principally engaged in separating natural gas into its components and storing, transporting and distributing

such components thereof for a fee and the sale of industrial utilities. The principal activities of its subsidiaries, associate and

joint ventures are as stated in note 5, note 6 and note 7 to the financial statements respectively.

The holding company as well as the ultimate holding company is Petroliam Nasional Berhad (PETRONAS), a company

incorporated in Malaysia.

The consolidated financial statements of the Company as at and for the financial year ended 31 December 2016 comprises

the Company and its subsidiaries (collectively referred to as the “Group”) and the Group’s interest in an associate and joint

ventures.

1. BASIS OF PREPARATION

1.1 Statement of compliance

The financial statements of the Group and of the Company have been prepared in accordance with Malaysian

Financial Reporting Standards (MFRS), International Financial Reporting Standards and the requirements of the

Companies Act, 1965 in Malaysia.

These financial statements also comply with the applicable disclosure provisions of the Listing Requirements of Bursa

Malaysia Securities Berhad.

As of 1 January 2016, the Group and the Company have adopted amendments to MFRS and IC interpretations

(collectively referred to as “pronouncements”) that have been issued by the Malaysian Accounting Standards Board

(MASB) as described fully in note 33. The adoption of these pronouncements do not have any material impact to

the financial statements of the Group and of the Company.

MASB has also issued new and revised pronouncements which are not yet effective for the Group and the

Company and therefore, have not been adopted for in these financial statements. These new pronouncements

including their impact on the financial statements in the period of initial application are set out in note 34. New and

revised pronouncements that are not relevant to the operation of the Group and of the Company are set out in

note 35.

These financial statements were approved and authorised for issue by the Board of Directors on 23 February 2017.

1.2 Basis of measurement

The financial statements of the Group and the Company have been prepared on the historical cost basis except

that, as disclosed in the accounting policies below, certain items are measured at fair value.

PAGE: 38

PETRONAS GAS BERHAD

NOTES TO THE FINANCIAL STATEMENTS– 31 DECEMBER 2016

1. BASIS OF PREPARATION (CONTINUED)

1.3 Functional and presentation currency

The individual financial statements of each entity in the Group are measured using the currency of the primary

economic environment in which the entity operates (“the functional currency”). The Group’s and the Company’s

financial statements are presented in Ringgit Malaysia (RM), which is the Company’s functional currency.

All financial information is presented in RM and has been rounded to the nearest thousand, unless otherwise stated.

1.4 Use of estimates and judgments

The preparation of the financial statements in conformity with MFRS requires management to make judgments,

estimates and assumptions that affect the application of accounting policies and the reported amounts of assets,

liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are

recognised in the period in which the estimates are revised and in any future periods affected.

In particular, information about significant areas of estimation, uncertainty and critical judgments in applying

accounting policies that have the most significant effect on the amounts recognised in the financial statements are

described in the following notes:

(i) Note 3 : Property, plant and equipment;

(ii) Note 6 : Investment in associate;

(iii) Note 7 : Investment in joint ventures;

(iv) Note 8 : Deferred tax; and

(v) Note 31 : Financial instruments.

2. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these financial

statements and have been applied consistently by the Group and the Company, unless otherwise stated.

2.1 Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Company. The Group controls an entity when it 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. Potential voting rights are considered when assessing control only when such rights are

substantive. The Group considers it has de facto power over an investee when, despite not having the majority of

voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee’s

return.

The financial statements of subsidiaries are included in the consolidated financial statements of the Group from the

date that control commences until the date that control ceases.

All inter-company transactions are eliminated on consolidation and revenue and profits are related to external

transactions only. Unrealised losses resulting from inter-company transactions are also eliminated unless cost

cannot be recovered.

PAGE: 39

ANNUAL REPORT 2016

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.1 Basis of consolidation (continued)

Business combinations

A business combination is a transaction or other event in which an acquirer obtains control of one or more

businesses. Business combinations are accounted for using the acquisition method. The identifiable assets acquired

and liabilities assumed are measured at their fair values at the acquisition date. The cost of an acquisition is

measured as the aggregate of the fair value of the consideration transferred and the amount of any non-controlling

interests in the acquiree. Non-controlling interests are stated either at fair value or at the proportionate share of the

acquiree’s identifiable net assets at the acquisition date.

When a business combination is achieved in stages, the Group remeasures its previously held non-controlling equity

interest in the acquiree at fair value at the acquisition date, with any resulting gain or loss recognised in the profit or

loss. Increase in the Group’s ownership interest in an existing subsidiary is accounted for as equity transactions with

differences between the fair value of consideration paid and the Group’s proportionate share of net assets acquired,

recognised directly in equity.

The Group measures goodwill as the excess of the cost of an acquisition and the fair value of any previously held

interest in the acquiree over the fair value of the identifiable assets acquired and liabilities assumed at the acquisition

date. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

Transaction costs, other than those associated with the issuance of debt or equity securities that the Group incurs in

connection with a business combination, are expensed as incurred.

Non-controlling interests

Non-controlling interests at the end of reporting period, being the portion of the net assets of subsidiaries

attributable to equity interests that are not owned by the Company, whether directly or indirectly through

subsidiaries, are presented in the consolidated statement of financial position and statement of changes in equity

within equity, separately from equity attributable to the shareholders of the Company. Non-controlling interests in

the results of the Group are presented in the consolidated statement of profit or loss and other comprehensive

income as an allocation of the profit or loss and total comprehensive income for the year between non-controlling

interests and shareholders of the Company.

Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even

if doing so causes the non-controlling interests to have a deficit balance.

The Group treats all changes in its ownership interest in a subsidiary that do not result in a loss of control as equity

transactions between the Group and its non-controlling interest holders.

Any difference between the Group’s share of net assets before and after the change, and any consideration

received or paid, is adjusted to or against Group reserves.

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2.1 Basis of consolidation (continued)

Loss of control

Upon the loss of control of a subsidiary, the Group derecognises the assets and liabilities of the former subsidiary,

any non-controlling interests and the other components of equity related to the former subsidiary from the

consolidated statement of financial position. Any surplus or deficit arising on the loss of control is recognised in

profit or loss. If the Group retains any interest in the former subsidiary, then such interest is measured at fair value

at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an available-

for-sale financial asset depending on the level of influence retained.

2.2 Associate

An associate is an entity in which the Group has significant influence including representation on the Board of

Directors, but not control or joint control, over the financial and operating policies of the investee company.

Associate is accounted for in the consolidated financial statements using the equity method. The consolidated

financial statements include the Group’s share of post-acquisition profits or losses and other comprehensive income

of the equity accounted associate, after adjustments to align the accounting policies with those of the Group, from

the date that significant influence commences until the date that significant influence ceases.

The Group’s share of post-acquisition reserves and retained profits less losses is added to the carrying value of the

investment in the consolidated statement of financial position. These amounts are taken from the latest audited

financial statements or management financial statements of the associate.

When the Group’s share of post-acquisition losses exceeds its interest in an equity accounted associate, the

carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of

further losses is discontinued except to the extent that the Group has an obligation or has made payments on

behalf of the associate.

When the Group ceases to have significant influence over an associate, it is accounted for as a disposal of the

entire interest in that associate, with the resulting gain or loss being recognised in profit or loss. Any retained

interest in the former associate at the date when significant influence is lost is re-measured at fair value and this

amount is regarded as the initial carrying amount of a financial asset.

When the Group’s interest in an associate decreases but does not result in a loss of significant influence, any

retained interest is not re-measured. Any gain or loss arising from the decrease in interest is recognised in profit or

loss. Any gains or losses previously recognised in other comprehensive income are also reclassified proportionately

to the profit or loss if that gain or loss would be required to be reclassified to profit or loss on the disposal of the

related assets and liabilities.

Unrealised profits arising from transactions between the Group and its associate are eliminated to the extent of the

Group’s interests in the associate. Unrealised losses on such transactions are also eliminated partially, unless cost

cannot be recovered.

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ANNUAL REPORT 2016


2.3 Joint arrangements

Joint arrangements are arrangements of which the Group has joint control, established by contracts requiring

unanimous consent for decisions about the activities that significantly affect the arrangements’ returns.

Joint arrangements are classified as either joint operation or joint venture. A joint arrangement is classified as joint

operation when the Group or the Company has rights to the assets and obligations for the liabilities relating to an

arrangement. The Group and the Company account for each of its share of the assets, liabilities and transactions,

including its share of those held or incurred jointly with the other investors, in relation to the joint operation. A

joint arrangement is classified as joint venture when the Group has rights only to the net assets of the

arrangements. The Group accounts for its interest in the joint venture using the equity method as described in note

2.2.

2.4 Property, plant and equipment and depreciation

Freehold land and projects-in-progress are measured at cost less any accumulated impairment losses and are not

depreciated. Other property, plant and equipment are measured at cost less accumulated depreciation and

accumulated impairment losses.

Cost includes expenditure that are directly attributable to the acquisition of the assets and any other costs directly

attributable to bringing the assets to working condition for their intended use, and the costs of dismantling and

removing the items and restoring the site on which they are located. The cost of self-constructed assets also

includes the cost of materials and direct labour. Purchased software that is integral to the functionality of the

related equipment is capitalised as part of that equipment.

When significant components of an item of property, plant and equipment have different useful lives, they are

accounted for as separate items (major components) of property, plant and equipment.

The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying

amount of the item if it is probable that the future economic benefits embodied within the component will flow to

the Group or the Company, and its cost can be measured reliably. The carrying amount of the replaced

component is derecognised in the profit or loss. The costs of the day-to-day servicing of property, plant and

equipment are recognised in the profit or loss as incurred.

Buildings are depreciated over 50 years or over the remaining land lease period, whichever is shorter.

Depreciation for property, plant and equipment other than freehold land and projects-in-progress is recognised in

the profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property,

plant and equipment. Property, plant and equipment are not depreciated until the assets are ready for their

intended use.

Lease properties are depreciated over the lease term or the estimated useful lives, whichever is shorter. Leasehold

land is depreciated over the lease term.

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2.4 Property, plant and equipment and depreciation (continued)

The estimated useful lives of the other property, plant and equipment are as follows:

Plant and pipelines 5 – 55 years

Office equipment, furniture and fittings 6 – 7 years

Other plant and equipment 3 – 7 years

Computer hardware and software 5 years

Motor vehicles 4 years

Plant turnaround/major inspection 3 – 6 years

The depreciable amount is determined after deducting residual value. The residual value, useful life and depreciation

method are reviewed at each financial year end to ensure that the amount, period and method of depreciation are

consistent with previous estimates and the expected pattern of consumption of the future economic benefits

embodied in the items of property, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are

expected from its use or disposal. The difference between the net disposal proceeds, if any, and the net carrying

amount is recognised in the profit or loss.

2.5 Leased assets

A lease arrangement is accounted for as finance or operating lease in accordance with the accounting policy as

stated below. When the fulfilment of an arrangement is dependent on the use of a specific asset and the

arrangement conveys a right to use the asset, it is accounted for as a lease in accordance with the accounting

policy below although the arrangement does not take the legal form of a lease.

Finance lease

A lease is recognised as a finance lease if it transfers substantially to the Group and the Company all the risks and

rewards incidental to ownership. Upon initial recognition, the leased asset is measured at an amount equal to the

lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the

asset is accounted for in accordance with the accounting policy applicable to that asset. The corresponding liability

is included in the statement of financial position as financial lease liabilities.

Minimum lease payments made under finance leases are apportioned between the finance costs and the reduction of

the outstanding liability. The finance costs, which represent the difference between the total leasing commitments

and the fair value of the assets acquired, are recognised in the profit or loss and allocated over the lease term so as

to produce a constant periodic rate of interest on the remaining balance of the liability for each accounting period.

Contingent lease payments, if any, are accounted for by revising the minimum lease payments over the remaining

term of the lease when the lease adjustment is confirmed.

Leasehold land which in substance is a finance lease is classified as property, plant and equipment.

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ANNUAL REPORT 2016


2.5 Leased assets (continued)

Operating lease

All leases that do not transfer substantially to the Group and the Company all the risks and rewards incidental to

ownership are classified as operating leases and, the leased assets are not recognised on the Group’s and the

Company’s statement of financial position.

Payments made under operating leases are recognised as an expense in the profit or loss on a straight-line basis

over the term of the lease. Lease incentives received are recognised as a reduction of rental expense over the lease

term on a straight-line basis. Contingent rentals are charged to profit or loss in the reporting period in which they

are incurred.

Leasehold land which in substance is an operating lease is classified as prepaid lease payments.

Prepaid lease payments

The payment made on entering into a lease arrangement or acquiring a leasehold land are accounted for as

prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefits provided.

Leasehold land is classified into long lease and short lease. Long lease is defined as a lease with an unexpired lease

period of 50 years or more. Short lease is defined as a lease with an unexpired lease period of less than 50 years.

2.6 Investments

Long term investments in subsidiaries, associate and joint ventures are stated at cost less impairment loss, if any, in

the Company’s financial statements, unless the investment is classified as held for sale. The cost of investment

includes transaction costs.

The carrying amount of these investments includes fair value adjustments on shareholder’s loans and advances, if

any.

2.7 Intangible asset – goodwill

Goodwill arising from business combinations is initially measured at cost as described in note 2.1. Following the

initial recognition, goodwill is measured at cost less any accumulated impairment loss. Goodwill is not amortised but

instead, it is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate

that the carrying value may be impaired.

In respect of equity accounted associate, the carrying amount of goodwill is included in the carrying amount of the

investment. The entire carrying amount of the investment is reviewed for impairment when there is objective

evidence of impairment.

2.8 Financial instruments

A financial instrument is recognised in the statement of financial position when, and only when, the Group or the

Company becomes a party to the contractual provisions of the instrument.

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2.8 Financial instruments (continued)

(i) Financial assets

Initial recognition

Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables,

held-to-maturity investments or available-for-sale financial assets, as appropriate. The Group and the Company

determine the classification of financial assets at initial recognition.

Financial assets are recognised initially at fair value, normally being the transaction price plus, in the case of

financial assets not at fair value through profit or loss, any directly attributable transaction costs.

Purchases or sales under a contract whose terms require delivery of financial assets within a timeframe

established by regulation or convention in the marketplace concerned (regular way purchases) are recognised

on the trade date, i.e. the date that the Group and the Company commit to purchase or sell the financial asset.

Fair value adjustments on shareholder’s loans and advances at initial recognition, if any, are added to the

carrying value of investments in the Company’s financial statements.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss

Fair value through profit or loss category comprises financial assets that are held for trading, including

derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging

instrument), contingent consideration in a business combination and financial assets that are specifically

designated into this category upon initial recognition.

Financial assets categorised as fair value through profit or loss are subsequently measured at their fair value with

gains or losses recognised in the profit or loss. The methods used to measure fair value are stated in note

2.22.

Loans and receivables

Loans and receivables category comprises debt instruments that are not quoted in an active market.

Subsequent to initial recognition, financial assets categorised as loans and receivables are measured at

amortised cost using the effective interest method as described in note 2.8(vi).

Held-to-maturity investments

The Group and the Company did not have any held-to-maturity investments during the year ended 31

December 2016 and the year ended 31 December 2015.

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ANNUAL REPORT 2016



(i) Financial assets (continued)

Available-for-sale financial assets

Available-for-sale category comprises investment in equity and debt securities instruments that are not held for

trading.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair

value cannot be reliably measured are measured at cost. Other financial assets categorised as available-for-sale

are subsequently measured at fair value with unrealised gains and losses recognised directly in other

comprehensive income and accumulated under available-for-sale reserve in equity until the investment is

derecognised or determined to be impaired, at which time the cumulative gain or loss previously recorded in

equity is reclassified to the profit or loss.

All financial assets, except for those measured at fair value through profit or loss, are subject to review for

impairment (see note 2.9(i)).

(ii) Financial liabilities

Initial recognition

Financial liabilities are classified as financial liabilities at fair value through profit or loss and borrowings (i.e.

financial liabilities measured at amortised cost), as appropriate. The Group and the Company determine the

classification of financial liabilities at initial recognition.

Financial liabilities are recognised initially at fair value less, in the case of financial liabilities measured at

amortised cost, any directly attributable transaction costs.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss

Fair value through profit or loss category comprises financial liabilities that are derivatives (except for a

derivative that is a financial guarantee contract or a designated and effective hedging instrument), contingent

consideration in a business combination and financial liabilities that are specifically designated into this category

upon initial recognition.

Financial liabilities categorised as fair value through profit or loss are subsequently measured at their fair values

with the gain or loss recognised in profit or loss.

Loans and borrowings

Subsequent to initial recognition, loans and borrowings are measured at amortised cost using the effective

interest method as described in note 2.8(vi).

Gains and losses are recognised in the profit or loss when the liabilities are derecognised, as well as through

the amortisation process.

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PETRONAS GAS BERHAD




(iii) Hedge accounting

Cash flow hedge

A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk

associated with a recognised asset or liability or a highly probable forecast transaction and could affect the

profit or loss. In a cash flow hedge, the portion of the gain or loss on the hedging instrument that is

determined to be an effective hedge is recognised in other comprehensive income and the ineffective portion

is recognised in profit or loss.

Subsequently, the cumulative gain or loss recognised in other comprehensive income is reclassified from equity

into profit or loss in the same period or periods during which the hedged forecast cash flows affect profit or

loss. If the hedge item is a non-financial asset or liability, the associated gain or loss recognised in other

comprehensive income is removed from equity and included in the initial amount of the asset or liability.

However, loss recognised in other comprehensive income that will not be recovered in one or more future

periods is reclassified from equity into profit or loss.

Cash flow hedge accounting is discontinued prospectively when the hedging instrument expires or is sold,

terminated or exercised, the hedge is no longer highly effective, the forecast transaction is no longer expected

to occur or the hedge designation is revoked. If the hedge is for a forecast transaction, the cumulative gain or

loss on the hedging instrument remains in equity until the forecast transaction occurs. When the forecast

transaction is no longer expected to occur, any related cumulative gain or loss recognised in other

comprehensive income on the hedging instrument is reclassified from equity into profit or loss.

(iv) Derivative financial instruments

The Group and the Company use derivative financial instruments such as forward currency contracts to

manage certain exposures to fluctuations in foreign currency exchange rates.

Such derivative financial instruments are initially recognised at fair value on the date on which a derivative

contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial

assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains and losses arising from changes in fair value on derivatives during the year, other than those

accounted for under hedge accounting as described in note 2.8(iii), are recognised in the profit or loss.

An embedded derivative is recognised separately from the host contract and accounted for as a derivative if,

and only if, it is not closely related to the economic characteristics and risks of the host contract and the host

contract is not categorised as fair value through profit or loss. The host contract, in the event an embedded

derivative is recognised separately, is accounted for in accordance with policy applicable to the nature of the

host contract.

In general, contracts to sell or purchase non-financial items to meet expected own use requirements are not

accounted for as financial instruments. However, contracts to sell or purchase commodities that can be net

settled or which contain written options are required to be measured at fair value, with gains and losses

recognised in the profit or loss.

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ANNUAL REPORT 2016



(v) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial

position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is

an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

(vi) Amortised cost of financial instruments

Amortised cost is computed using the effective interest method. This method uses effective interest rate that

exactly discounts estimated future cash receipts or payments through the expected life of the financial

instrument to the net carrying amount of the financial instrument. Amortised cost takes into account any

transaction costs and any discount or premium on settlement.

(vii) Derecognition of financial instruments

Financial assets

A financial asset is derecognised when the rights to receive cash flows from the asset have expired, or the

Group and the Company have transferred their rights to receive cash flows from the asset or have assumed an

obligation to pay the received cash flows in full without material delay to a third party under a “pass-through”

arrangement without retaining control of the asset or substantially all the risks and rewards of the asset. On

derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration

received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that

had been recognised in equity is recognised in the profit or loss.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired.

On derecognition of a financial liability, the difference between the carrying amount of the financial liability

extinguished or transferred to another party and the consideration paid, including any non-cash assets

transferred or liabilities assumed, is recognised in the profit or loss.

2.9 Impairment

(i) Financial assets

All financial assets (except for financial assets categorised as fair value through profit or loss, investment in

subsidiaries, investment in associate and investment in joint ventures) are assessed at each reporting date to

determine whether there is any objective evidence of impairment as a result of one or more events having an

impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter

how likely, are not recognised. For an investment in an equity instrument, a significant or prolonged decline in

the fair value below its cost is an objective evidence of impairment. If any such objective evidence exists, then

the impairment loss of the financial asset is estimated.

An impairment loss in respect of loans and receivables is recognised in profit or loss and is measured as the

difference between the asset’s carrying amount and the present value of estimated future cash flows

discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through

the use of an allowance account.

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2.9 Impairment (continued)

(i) Financial assets (continued)

An impairment loss in respect of available-for-sale financial assets is recognised in profit or loss and is

measured as the difference between the asset’s acquisition cost (net of any principal repayment and

amortisation) and the asset’s current fair value, less any impairment loss previously recognised. Where a decline

in the fair value of an available-for-sale financial asset has been recognised in other comprehensive income,

the cumulative loss in other comprehensive income is reclassified from equity to profit or loss.

An impairment loss in respect of unquoted equity instrument that is carried at cost is recognised in profit or

loss and is measured as the difference between the financial asset’s carrying amount and the present value of

estimated future cash flows discounted at the current market rate of return for a similar financial asset.

Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for

sale is not reversed through profit or loss.

If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively

related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is

reversed, to the extent that the asset’s carrying amount does not exceed what the carrying amount would have

been had the impairment not been recognised at the date the impairment is reversed. The amount of the

reversal is recognised in profit or loss.

(ii) Other assets

The carrying amounts of other assets, other than inventories, deferred tax assets, non-current assets and financial

assets, are reviewed at each reporting date to determine whether there is any indication of impairment.

If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised if

the carrying amount of an asset or the cash-generating-unit to which it belongs exceeds its recoverable

amount. Impairment losses are recognised in the profit or loss.

A cash-generating-unit is the smallest identifiable asset group that generates cash flows from continuing use

that are largely independent from other assets and groups. An impairment loss recognised in respect of a

cash-generating-unit is allocated first to reduce the carrying amount of any goodwill allocated to the unit and

then to reduce the carrying amounts of the other assets in the unit on a pro-rata basis.

The recoverable amount of an asset or cash-generating-unit is the greater of its value in use and its fair value

less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present

value using a pre-tax discount rate that reflects current market assessments of the time value of money and

the risks specific to the asset or cash-generating-unit. For an asset that does not generate largely independent

cash inflows, the recoverable amount is determined for the cash-generating-unit to which the asset belongs.

An impairment loss in respect of goodwill is not reversed in the subsequent period. In respect of other assets,

impairment losses recognised in prior periods are assessed at the end of each reporting period for any

indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a

change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the

extent that the asset’s carrying amount does not exceed the carrying amount that would have been

determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of

impairment losses are credited to the profit or loss in the year in which reversals are recognised.

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ANNUAL REPORT 2016


2.10 Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and bank balances, and deposits with licensed financial

institutions and highly liquid investments which have an insignificant risk of changes in value. For the purpose of

statement of cash flows, cash and cash equivalents are presented net of bank overdrafts and deposits restricted, if

any.

2.11 Inventories

Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling

price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Cost of material stores and spares consists of the invoiced value from suppliers and import duty charges and is

determined on a weighted average basis.

Cost of liquefied gases and water is determined on a weighted average basis.

2.12 Provisions

A provision is recognised if, as a result of a past event, the Group and the Company have a present legal or

constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will

be required to settle the obligation. Provisions are determined by discounting the expected future net cash flows

at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the

liability. Where discounting is used, the accretion in the provision due to the passage of time is recognised as

finance cost.

The amount recognised as a provision is the best estimate of the expenditure required to settle the present

obligation at the reporting date. Provisions are reviewed at each reporting date and adjusted to reflect the current

best estimate.

Possible obligations whose existence will only be confirmed by the occurrence or non-occurrence of one or more

future events, not wholly within the control of the Group, are not recognised in the financial statements but are

disclosed as contingent liabilities unless the possibility of an outflow of economic resources is considered remote.

2.13 Employee benefits

Short term benefits

Wages and salaries, bonuses and social security contributions are recognised as an expense in the year in which

the associated services are rendered by employees of the Group and of the Company.

Defined contribution plans

As required by law, companies in Malaysia make contributions to the state pension scheme, the Employees

Provident Fund (EPF).

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PETRONAS GAS BERHAD



2.14 Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the profit or

loss except to the extent it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax

Current tax is the expected tax payable on the taxable income for the year, using the statutory tax rates at the

reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax

Deferred tax is provided for, using the liability method, on temporary differences at the reporting date between the

tax bases of assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax

liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all

deductible temporary differences, unabsorbed capital allowances, unutilised reinvestment allowances, unutilised

investment tax allowances, unutilised tax losses and other unused tax credits to the extent that it is probable that

future taxable profit will be available against which the deductible temporary differences, unabsorbed capital

allowances, unutilised reinvestment allowances, unutilised investment tax allowances, unutilised tax losses and

other unused tax credits can be utilised.

Deferred tax is measured at the tax rates that are expected to apply in the period when the assets is realised or

the liability is settled, based on the laws that have been enacted or substantively enacted by the end of the

reporting period.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and

assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on

different tax entities, where they intend to settle current tax liabilities and assets on a net basis or their tax assets

and liabilities will be realised simultaneously.

Deferred tax asset is reviewed at each reporting date and is reduced to the extent that it is no longer probable

that the future taxable profits will be available against which the related tax benefit will be realised.

Unutilised reinvestment allowance and unutilised investment tax allowance, being tax incentives that is not a tax

base of an asset, is recognised as a deferred tax asset to the extent that it is probable that the future taxable

profits will be available against which the unutilised tax incentive can be utilised.

2.15 Foreign currency transactions

In preparing the financial statements of individual entities in the Group, transactions in currencies other than the

entity’s functional currency (foreign currencies) are translated to the functional currencies at rates of exchange

ruling on the transaction dates.

Monetary assets and liabilities denominated in foreign currencies at reporting date are retranslated to the

functional currency at the exchange rate at that date.

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ANNUAL REPORT 2016


2.15 Foreign currency transactions (continued)

Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at reporting date,

except for those that are measured at fair value, are retranslated to the functional currency at the exchange rate

at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost

in foreign currency are not retranslated.

Gains and losses on exchange arising from retranslation are recognised in the profit or loss.

On consolidation, the assets and liabilities of subsidiaries with functional currencies other than Ringgit Malaysia, are

translated into Ringgit Malaysia at the exchange rates ruling at the reporting date, except for goodwill and fair

value adjustments arising from business combinations before 1 April 2011 which are treated as assets and liabilities

of the acquirer company pursuant to the adoption of MFRS framework.

The income and expenses are translated at the exchange rates at the date of transactions or an average rate that

approximates those rates. All resulting exchange differences are taken to the foreign currency translation reserve

within equity.

2.16 Borrowing costs and foreign currency exchange differences relating to project-in-progress

Borrowing costs which are directly attributable to the acquisition, construction or production of qualifying assets,

which are assets that necessarily take a substantial period of time to be prepared for their intended use or sale,

are capitalised as part of the cost of those assets.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for

the assets is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the

asset for its intended use or sale are in progress.

Capitalisation of borrowing costs ceases when all activities necessary to prepare the qualifying asset for its

intended use or sale are completed.

The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is the weighted

average of the borrowing costs applicable to borrowings that are outstanding during the year, other than

borrowings made specifically for the purpose of financing a specific qualifying asset, in which case the actual

borrowing cost incurred on that borrowing less any investment income on the temporary investment of that

borrowings, will be capitalised.

Exchange differences arising from foreign currency borrowings, although regarded as an adjustment to borrowing

costs, are not capitalised but instead recognised in the profit or loss in the period in which they arise.

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2.17 Revenue

Revenue from gas processing services is recognised in the profit or loss based on actual and estimates of work

done in respect of services rendered for separating natural gas into its components.

Revenue from gas transportation services is recognised in the profit or loss based on services rendered for

transporting and distributing the processed gas.

Revenue from sale of industrial utilities is recognised in the profit or loss based on utilities distributed to the buyer

at pre-determined rates.

Revenue from regasification of liquefied natural gas is recognised in the profit or loss based on actual and

estimates of work done in respect of services rendered for conversion of natural gas from liquid to gas.

2.18 Financing costs

Finance costs comprise interest payable on borrowings.

All interest and other costs incurred in connection with borrowings are expensed as incurred, other than

capitalised in accordance with the accounting policy state in note 2.16. The interest component of finance lease

payments is accounted for in accordance with the policy set out in note 2.5.

2.19 Deferred income

Deferred income is recognised in the profit or loss on a time proportion basis over the agreed contract period or

applicable period.

2.20 Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares.

Basic EPS is calculated by dividing the profit and loss attributable to ordinary shareholders of the Company by the

weighted average number of ordinary shares outstanding during the period.

Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted

average number of ordinary shares outstanding during the period, for the effects of all dilutive potential ordinary

shares, if any.

2.21 Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn

revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s

other components, and for which discrete financial information is available. All operating segment’s operating

results are reviewed regularly by the chief operating decision maker to make decisions about resources to be

allocated to the segment and to assess its performance.

PAGE: 53

ANNUAL REPORT 2016


2.22 Fair value measurements

Fair value of an asset or a liability, except for lease transactions, is determined as the price that would be received

to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the

measurement date. The measurement assumes that the transaction to sell the asset or transfer the liability takes

place either in the principal market or in the absence of a principal market, in the most advantageous market.

Financial instruments

The fair value of financial instruments that are actively traded in organised financial markets are determined by

reference to quoted market bid prices at the close of business at reporting date. For financial instruments where

there is no active market, fair value is determined using valuation techniques. Such techniques may include using

recent arm’s length market transactions; reference to the current fair value of another instrument that is

substantially the same; discounted cash flow analysis or other valuation models.

Non-financial assets

For non-financial asset, the fair value measurement takes into account a market participant’s ability to generate

economic benefits by using the asset in its highest and best use or by selling it to another market participant that

would use the asset in its highest and best use.

When measuring the fair value of an asset or a liability, the Group/Company uses observable market data as far as

possible. Fair value are categorised into different levels in a fair value hierarchy based on the input used in the

valuation technique as follows:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable input).

The fair value of an asset to be transferred between levels is determined as of the date of the event or change in

circumstances that caused the transfer.

PAGE: 54

PETRONAS GAS BERHAD


3. PROPERTY, PLANT AND EQUIPMENT

Group At 1.1.2016 AdditionsDisposals/ write-offs

31.12.2016 RM’000 RM’000 RM’000

At cost

Freehold land 4,504 – –

Leasehold land 539,602 1,785 –

Buildings 342,123 – (43)

Plant and pipelines 19,357,895 89,619 (64,400)

Office equipment, furniture and fittings 39,993 385 (1,550)

Other plant and equipment 285,089 2,305 (641)

Computer hardware and software 99,657 48 (3,217)

Motor vehicles 28,664 2,555 (2,592)

Plant turnaround/major inspection 541,757 50,014 (139,142)

Projects-in-progress 1,585,944 2,209,411 –

22,825,228 2,356,122 (211,585)

Group At 1.1.2016Charge for

the yearDisposals/ write-offs

31.12.2016 RM’000 RM’000 RM’000

Accumulated depreciation & impairment losses:

Freehold land – – –


Buildings 123,711 7,224 (8)


Office equipment, furniture and fittings 29,830 2,652 (1,550)

Other plant and equipment 93,729 11,253 (638)

Computer hardware and software 81,047 8,107 (3,215)

Motor vehicles 23,451 2,660 (2,592)


Projects-in-progress – – –

11,501,380 877,084 (211,422)


PAGE: 55

ANNUAL REPORT 2016

3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

GroupTransfers/

adjustment

Translationexchange

difference At 31.12.2016

31.12.2016 RM’000 RM’000 RM’000

At cost

Freehold land – – 4,504

Leasehold land – – 541,387

Buildings 11,502 – 353,582

Plant and pipelines 57,032 – 19,440,146

Office equipment, furniture and fittings 925 – 39,753

Other plant and equipment 127,342 – 414,095

Computer hardware and software 7,593 – 104,081

Motor vehicles 129 – 28,756

Plant turnaround/major inspection 448,968 – 901,597

Projects-in-progress (680,326) 31,636 3,146,665

(26,835)* 31,636 24,974,566

GroupTransfers/

adjustment

Translationexchange


31.12.2016 RM’000 RM’000 RM’000




Buildings – – 130,927

Plant and pipelines (3,554) – 11,304,357

Office equipment, furniture and fittings (5) – 30,927

Other plant and equipment – – 104,344

Computer hardware and software – – 85,939

Motor vehicles – – 23,519



– – 12,167,042


* Relates to transfer to inventory and project costs recovered from customers and joint venture amounting to RM10,469,000 and

RM16,366,000 respectively.

PAGE: 56

PETRONAS GAS BERHAD



Group At 1.1.2015 AdditionsDisposals/ write-offs

31.12.2015 RM’000 RM’000 RM’000

At cost

Freehold land 4,504 – –

Leasehold land 538,876 726 –

Buildings 264,561 – (74)


Office equipment, furniture and fittings 36,318 282 (549)

Other plant and equipment 243,561 11,047 (11,199)

Computer hardware and software 92,908 821 (120)

Motor vehicles 28,915 2,199 (2,460)

Plant turnaround/major inspection 532,160 – (43,407)

Projects-in-progress 1,627,856 1,206,072 –

21,823,245 1,222,393 (242,411)



31.12.2015 RM’000 RM’000 RM’000




Buildings 93,635 30,148 (74)


Office equipment, furniture and fittings 27,377 2,745 (549)

Other plant and equipment 93,859 5,833 (11,065)

Computer hardware and software 74,427 6,736 (120)

Motor vehicles 23,178 2,722 (2,460)



10,964,784 776,818 (240,222)


PAGE: 57

ANNUAL REPORT 2016


GroupTransfers/

adjustment

Translationexchange


31.12.2015 RM’000 RM’000 RM’000

At cost

Freehold land – – 4,504


Buildings 77,636 – 342,123

Plant and pipelines 1,087,665 – 19,357,895

Office equipment, furniture and fittings 3,942 – 39,993


Computer hardware and software 6,048 – 99,657



Projects-in-progress (1,327,687) 79,703 1,585,944

(57,702)* 79,703 22,825,228

GroupTransfers/

adjustment

Translationexchange


31.12.2015 RM’000 RM’000 RM’000



Leasehold land 6 – 123,544

Buildings 2 – 123,711

Plant and pipelines (4,649) – 10,678,904

Office equipment, furniture and fittings 257 – 29,830


Computer hardware and software 4 – 81,047


Plant turnaround/major inspection (733) – 347,164


– – 11,501,380


* Relates to adjustments upon finalisation of cost previously accrued and reimbursement of project cost amounting to RM18,631,000 and


PAGE: 58

PETRONAS GAS BERHAD



Company At 1.1.2016 AdditionsDisposals/ write-offs

Transfers/ adjustment At 31.12.2016

31.12.2016 RM’000 RM’000 RM’000 RM’000 RM’000

At cost

Freehold land 4,504 – – – 4,504

Leasehold land 539,602 1,785 – – 541,387

Buildings 326,334 – (43) 11,504 337,795

Plant and pipelines 16,001,601 1,747 (64,400) 57,774 15,996,722

Office equipment, furniture and

fittings 30,787 336 (1,550) 925 30,498

Other plant and equipment 254,548 2,305 (641) 121,989 378,201

Computer hardware and software 98,802 27 (3,217) 5,755 101,367

Motor vehicles 28,575 2,554 (2,593) 129 28,665

Plant turnaround/major inspection 524,270 155 (139,141) 448,968 834,252

Projects-in-progress 816,771 763,156 – (673,879) 906,048

18,625,794 772,065 (211,585) (26,835)* 19,159,439

Company At 1.1.2016Charge for



31.12.2016 RM’000 RM’000 RM’000 RM’000 RM’000


Freehold land – – – – –

Leasehold land 123,544 6,865 – – 130,409

Buildings 123,500 6,804 (8) – 130,296

Plant and pipelines 10,221,612 513,488 (64,278) (3,554) 10,667,268

Office equipment, furniture and fittings 26,405 1,259 (1,550) – 26,114

Other plant and equipment 88,340 8,801 (638) (5) 96,498

Computer hardware and software 81,004 7,625 (3,215) – 85,414

Motor vehicles 23,426 2,638 (2,592) – 23,472

Plant turnaround/major inspection 329,677 141,029 (139,141) 3,559 335,124

Projects-in-progress – – – – –

11,017,508 688,509 (211,422) – 11,494,595

* Relates to transfer to inventory and project costs recovered from customers and joint venture amounting to RM10,469,000 and


PAGE: 59

ANNUAL REPORT 2016


Company At 1.1.2015 AdditionsDisposals/ write-offs


31.12.2015 RM’000 RM’000 RM’000 RM’000 RM’000

At cost

Freehold land 4,504 – – – 4,504

Leasehold land 538,876 726 – – 539,602

Buildings 264,561 – (74) 61,847 326,334

Plant and pipelines 15,057,418 1,223 (184,602) 1,127,562 16,001,601


fittings 27,590 264 (549) 3,482 30,787

Other plant and equipment 245,136 10,957 (11,199) 9,654 254,548

Computer hardware and software 92,876 803 (120) 5,243 98,802

Motor vehicles 28,823 2,199 (2,460) 13 28,575

Plant turnaround/major inspection 514,665 – (43,407) 53,012 524,270

Projects-in-progress 1,437,203 640,530 – (1,260,962) 816,771

18,211,652 656,702 (242,411) (149)* 18,625,794

Company At 1.1.2015Charge for



31.12.2015 RM’000 RM’000 RM’000 RM’000 RM’000


Freehold land – – – – –

Leasehold land 116,683 6,855 – 6 123,544

Buildings 93,635 29,938 (74) 1 123,500

Plant and pipelines 9,940,442 466,865 (182,547) (3,148) 10,221,612


fittings 25,303 1,389 (549) 262 26,405

Other plant and equipment 91,441 4,366 (11,065) 3,598 88,340

Computer hardware and software 74,425 6,695 (120) 4 81,004

Motor vehicles 23,176 2,700 (2,460) 10 23,426

Plant turnaround/major inspection 309,102 64,715 (43,407) (733) 329,677

Projects-in-progress – – – – –

10,674,207 583,523 (240,222) – 11,017,508

* Relates to adjustments upon finalisation of cost previously accrued amounting to RM149,000.

PAGE: 60

PETRONAS GAS BERHAD



Group Company

Carrying amount Carrying amount

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Freehold land 4,504 4,504 4,504 4,504

Leasehold land 410,978 416,058 410,978 416,058

Buildings 222,655 218,412 207,499 202,834

Plant and pipelines 8,135,789 8,678,991 5,329,454 5,779,989

Office equipment, furniture and fittings 8,826 10,163 4,384 4,382

Other plant and equipment 309,751 191,360 281,703 166,208

Computer hardware and software 18,142 18,610 15,953 17,798

Motor vehicles 5,237 5,213 5,193 5,149

Plant turnaround/major inspection 544,977 194,593 499,128 194,593

Projects-in-progress 3,146,665 1,585,944 906,048 816,771

12,807,524 11,323,848 7,664,844 7,608,286

Included in additions to project-in-progress of the Group is finance cost capitalised during the year of RM12,642,000

(2015: RM Nil) at effective interest rate of 1.2%.

Restrictions of land title

The titles of certain land are in the process of being registered in the Company’s name.

Leased floating storage unit

The Group leases certain plant and pipelines under a finance lease agreement with a net book value of RM810,036,000

(2015: RM768,670,000). During the year, there was addition amounting to RM87,861,000 (2015: RM Nil) to the leased

floating storage unit amount.

Leasehold land

Included in the carrying amounts of leasehold land are:

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Leasehold land with unexpired lease period of more

than 50 years 130,288 288,977 130,288 288,977

Leasehold land with unexpired lease period of less

than 50 years 280,690 127,081 280,690 127,081

410,978 416,058 410,978 416,058

PAGE: 61

ANNUAL REPORT 2016

4. PREPAID LEASE PAYMENT

Group At 1.1.2016 Additions

Translation exchange difference At 31.12.2016

31.12.2016 RM’000 RM’000 RM’000 RM’000

At cost

Leasehold land

– long lease 4,547 – 202 4,749


the year

Translation exchange


31.12.2016 RM’000 RM’000 RM’000 RM’000

Accumulated amortisation

Leasehold land

– long lease 29 68 7 104

Group At 1.1.2015 Additions



31.12.2015 RM’000 RM’000 RM’000 RM’000

At cost

Leasehold land

– long lease – 4,133 414 4,547


the year



31.12.2015 RM’000 RM’000 RM’000 RM’000

Accumulated amortisation

Leasehold land

– long lease – 26 3 29

Carrying amount

2016 2015

Group RM’000 RM’000

Leasehold land

– long lease 4,645 4,518

PAGE: 62

PETRONAS GAS BERHAD


5. INVESTMENT IN SUBSIDIARIES

Company

2016 2015

RM’000 RM’000

Investment at cost:

– unquoted shares

At beginning of the year 2,776,901 2,514,767

Additional investment during the year 78,839 262,134

At end of the year 2,855,740 2,776,901

Details of the subsidiaries are as follows:

Name of entity Principal activitiesCountry of

incorporationEffective ownership and

voting interest

2016 2015

% %

Pengerang LNG (Two) Sdn. Bhd. Intended to manage and operate

LNG regasification terminal

Malaysia 65 65

Regas Terminal (Sg. Udang)

Sdn. Bhd.

Manage and operate LNG

regasification terminal

Malaysia 100 100

Regas Terminal (Pengerang)

Sdn. Bhd.

Dormant Malaysia 100 100

Regas Terminal (Lahad Datu)

Sdn. Bhd.

Dormant Malaysia 100 99

6. INVESTMENT IN ASSOCIATE

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Investment at cost:

– quoted shares in Malaysia 76,466 76,466 76,466 76,466

Share of post-acquisition profits and reserves 53,696 51,597 – –

130,162 128,063 76,466 76,466

Market value of quoted shares 469,325 456,024 469,325 456,024

PAGE: 63

ANNUAL REPORT 2016

6. INVESTMENT IN ASSOCIATE (CONTINUED)

Details of the associate are as follows:



voting interest

2016 2015

% %

Gas Malaysia Berhad Selling, marketing, distribution and

promotion of natural gas

Malaysia 14.8 14.8

Although the Group has less than 20% of the ownership in the equity interest of Gas Malaysia Berhad, the Group has

determined that it has significant influence over the financial and operating policy of the associate through representation

on the associate’s board of directors.

2016 2015

RM’000 RM’000

Group’s share of results

Share of total comprehensive income for the year 18,763 17,693

Other information

Dividends received 16,664 21,965

7. INVESTMENT IN JOINT VENTURES

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Investment at cost:

– unquoted shares 212,843 192,250 212,843 192,250

Share of post-acquisition profits and reserves 393,147 355,397 – –

605,990 547,647 212,843 192,250

The Group’s involvement in joint arrangements are structured through separate vehicles which provide the Group rights

to the net assets of these entities. Accordingly, the Group has classified these investments as joint ventures.

PAGE: 64

PETRONAS GAS BERHAD


7. INVESTMENT IN JOINT VENTURES (CONTINUED)

2016 2015

RM’000 RM’000

Group’s summarised financial information

As at 31 December

Non-current assets 1,981,721 1,882,842

Current assets 315,481 347,668

Non-current liabilities (1,015,201) (1,020,364)

Current liabilities (272,321) (297,167)

Net assets 1,009,680 912,979

Included in the net assets are:

Cash and cash equivalents 194,988 231,719

Non-current liabilities (excluding other payables and provisions) (1,015,201) (1,020,364)

Current liabilities (excluding trade and other payables and provisions) (131,228) (99,790)

Group’s share of net assets 605,990 547,647

2016 2015

RM’000 RM’000

Year ended 31 December

Profit for the year 75,335 99,140

Other comprehensive income 13,145 48,233

Total comprehensive income for the year 88,480 147,373

Included in the total comprehensive income are:

Revenue 249,724 252,774

Depreciation and amortisation (895) (367)

Interest income 88,834 90,508

Interest expense (55,355) (58,725)

Tax (expenses)/income (2,515) (5,725)

RM’000 RM’000

Group’s share of results

Share of profit from continuing operations 44,863 57,509

Share of other comprehensive income 7,887 28,939

Share of total comprehensive income 52,750 86,448

Other information

Dividends received 15,000 7,200

PAGE: 65

ANNUAL REPORT 2016

7. INVESTMENT IN JOINT VENTURES (CONTINUED)

Group’s share of the net assets and results is significantly contributed by Kimanis Power Sdn. Bhd. Details of the joint

ventures are as follows:



voting interest

2016 2015

% %

Kimanis Power Sdn. Bhd.* Generation and sale of electricity Malaysia 60 60

Kimanis O&M Sdn. Bhd.* Provision of operation and

maintenance services

Malaysia 60 60

Pengerang Gas Solutions Sdn. Bhd.* Construction, ownership and

operations of an air separation plant

Malaysia 51 –

Industrial Gases Solutions Sdn. Bhd. Selling, marketing, distribution and

promotion of industrial gas

Malaysia 50 50

* Although the Group has more than 50% of the ownership in the equity interest of these entities, the Group has determined that it does not

have sole control over these entities considering that strategic and financial decisions of the relevant activities of these entities require

unanimous consent by all shareholders.

8. DEFERRED TAX

The components and movements of deferred tax liabilities and assets during the year prior to and after offsetting are as

follows:

Group At 1.1.2016

Charged/(credited) to profit

or loss At 31.12.2016

31.12.2016 RM’000 RM’000 RM’000

Deferred tax liabilities

Property, plant and equipment 1,218,480 120,800 1,339,280

Deferred tax assets

Deferred income 16,911 (18,556) (1,645)

Unutilised investment tax allowance (769,157) 154,512 (614,645)

(752,246) 135,956 (616,290)

Net deferred tax 466,234 256,756 722,990

PAGE: 66

PETRONAS GAS BERHAD


8. DEFERRED TAX (CONTINUED)

Group At 1.1.2015


or loss At 31.12.2015

31.12.2015 RM’000 RM’000 RM’000



Deferred tax assets

Deferred income 16,684 227 16,911

Unutilised investment tax allowance (604,998) (164,159) (769,157)

(588,314) (163,932) (752,246)

Net deferred tax 521,887 (55,653) 466,234

Company At 1.1.2016


or loss At 31.12.2016

31.12.2016 RM’000 RM’000 RM’000



Deferred tax assets

Deferred income 16,911 (18,556) (1,645)

Unutilised investment tax allowance (154,466) 154,466 –

(137,555) 135,910 (1,645)

Net deferred tax 922,594 208,438 1,131,032

Company At 1.1.2015


or loss At 31.12.2015

31.12.2015 RM’000 RM’000 RM’000



Deferred tax assets

Deferred income 16,684 227 16,911

Unutilised investment tax allowance – (154,466) (154,466)

16,684 (154,239) (137,555)

Net deferred tax 1,033,321 (110,727) 922,594

PAGE: 67

ANNUAL REPORT 2016

8. DEFERRED TAX (CONTINUED)

Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against

current tax liabilities and when the deferred taxes relate to the same tax authority. The amounts determined after

appropriate offsetting are as follows:

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Deferred tax assets

Deferred tax liabilities 206,603 158,331 – –

Deferred tax assets (614,645) (614,691) – –

(408,042) (456,360) – –


Deferred tax liabilities 1,132,677 1,060,149 1,132,677 1,060,149

Deferred tax assets (1,645) (137,555) (1,645) (137,555)

1,131,032 922,594 1,131,032 922,594

Net deferred tax 722,990 466,234 1,131,032 922,594

9. DERIVATIVE

Group Group

Nominalvalue

Carrying amount

Nominalvalue

Carrying amount

2016 2016 2015 2015

Note RM'000 RM'000 RM'000 RM'000

Derivative assets held for trading at fair value through profit or loss

Forward foreign exchange 9,298 15 18,200 112

Derivative liabilities held for trading at fair value through profit or loss

Forward foreign exchange – – (121,131) (998)

Included within:

Trade and other receivables 12 – 15 – 112

Trade and other payables 19 – – – (998)

PAGE: 68

PETRONAS GAS BERHAD


9. DERIVATIVE (CONTINUED)

Company Company

Nominalvalue

Carrying amount

Nominalvalue

Carrying amount

2016 2016 2015 2015

Note RM'000 RM'000 RM'000 RM'000

Derivative assets held for trading at fair value through profit or loss

Forward foreign exchange 12 7,261 12 – –

In the normal course of business, the Company enters into derivative financial instruments to manage the Company’s

normal business exposures in relation to foreign currency exchange rates consistent with its risk management policies

and objectives.

The forward foreign exchange contract has maturity of less than one year after the end of the reporting period.

10. LONG TERM RECEIVABLES

Group Company

2016 2015 2016 2015

Note RM'000 RM'000 RM'000 RM'000

USD term loans and advances:

Due from subsidiary 10.1 – – 746,737 –

Due from joint venture 10.2 47,905 – 47,905 –

47,905 – 794,642 –

10.1 Term loans and advances due from subsidiary is unsecured, bears interest at a rate of 6.5% per annum and

repayable in tranches at their various due dates from 2018 to 2028.

10.2 Term loans and advances due from joint venture is unsecured, bears interest at a rate of 5.5% per annum and

repayable in tranches at their various due dates from 2021 to 2025.

PAGE: 69

ANNUAL REPORT 2016

11. TRADE AND OTHER INVENTORIES

Group Company

2016 2015 2016 2015

RM'000 RM'000 RM'000 RM'000

Liquefied gases and water 4,335 2,144 4,335 2,144

Maintenance materials and spares 64,133 44,223 61,805 42,053

68,468 46,367 66,140 44,197

Recognised in profit or loss:

Inventories recognised as cost of sales 46,189 30,660 44,213 30,265

12. TRADE AND OTHER RECEIVABLES

Group Company

2016 2015 2016 2015

Note RM'000 RM'000 RM'000 RM'000

Current

Trade receivables 14,430 13,933 14,430 13,933

Other receivables 12.1 107,539 28,733 25,089 14,311

Deposits 1,092 1,001 1,076 1,001

Prepayments 16,443 22,045 2,189 252

Derivative assets 9 15 112 12 –

Amount due from:

Holding company 12.2 323,419 350,708 262,755 287,456

Subsidiaries – – – 8,710

Related companies 12.3 209,374 198,390 209,370 198,389

Joint ventures 12.4 695 16,726 695 16,726

Related parties 12.5 38,907 12,741 38,907 12,741

711,914 644,389 554,523 553,519

12.1 Included in other receivables for the year are goods and service tax (GST) receivables amounting to RM82,450,000

(2015: RM14,023,000) for the Group.

PAGE: 70

PETRONAS GAS BERHAD


12. TRADE AND OTHER RECEIVABLES (CONTINUED)

12.2 The amount due from holding company relates to:

Group Company

2016 2015 2016 2015

RM'000 RM'000 RM'000 RM'000

Trade 301,903 306,136 245,756 250,658

Non-trade 21,516 44,572 16,999 36,798

323,419 350,708 262,755 287,456

Included in amount due from holding company for the year are goods and service tax (GST) receivables

amounting to RM21,320,000 (2015: RM34,169,000) for the Group and RM16,817,000 (2015: RM26,459,000) for the

Company.

12.3 The amount due from related companies arose in the normal course of business relates to:

Group Company

2016 2015 2016 2015

RM'000 RM'000 RM'000 RM'000

Trade 136,705 83,268 136,705 83,268

Non-trade 72,669 115,122 72,665 115,121

209,374 198,390 209,370 198,389

12.4 The amount due from joint ventures arose in the normal course of business relates to:

2016 2015

Group/Company RM'000 RM'000

Trade 656 1,786

Non-trade 39 14,940

695 16,726

12.5 The amount due from related parties are trade in nature and is in relation to associates and joint ventures of the

holding company.

PAGE: 71

ANNUAL REPORT 2016

13. CASH AND CASH EQUIVALENTS

Group Company

2016 2015 2016 2015

RM'000 RM'000 RM'000 RM'000

Cash with PETRONAS Integrated Financial Shared

Services Centre 1,716,979 1,217,024 1,560,525 1,103,983

Cash and bank balances 46,138 13,791 46,138 12,558

1,763,117 1,230,815 1,606,663 1,116,541

The Group’s and the Company’s cash and bank balances are held in the In-House Account (IHA) managed by

PETRONAS Integrated Financial Shared Service Centre (IFSSC) to enable more efficient cash management for the Group

and the Company.

Included in cash with IFSSC and cash and bank balances are interest-bearing balances (including fund investments)

amounting to RM1,762,975,000 (2015: RM1,229,442,000) for the Group and RM1,606,521,000 (2015: RM1,116,399,000)

for the Company.

14. SHARE CAPITAL

Company

2016 2015

RM’000 RM’000

Authorised:

2,000,000,000 ordinary shares of RM1 each 2,000,000 2,000,000

Issued and fully paid:

1,978,732,000 ordinary shares of RM1 each 1,978,732 1,978,732

15. RESERVES

Share Premium

Share premium comprises the premium paid on subscription of shares in the Company over and above the par value of

the shares.

Hedging Reserve

This reserve records the portion of the gain or loss on hedging instruments in a cash flow hedge that is determined to

be an effective hedge in accordance with accounting policy stated in note 2.8(iii).

Foreign Currency Translation Reserve

The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the

financial statements of subsidiaries whose functional currency are different from that of the Company’s functional

currency as well as foreign currency differences arising from the translation of monetary items that are considered to

form part of a net investment in a foreign operation.

PAGE: 72

PETRONAS GAS BERHAD


16. NON-CONTROLLING INTERESTS

This consists of the non-controlling interests’ proportion of share capital and reserves of partly-owned subsidiaries.

17. BORROWINGS

Group Company

2016 2015 2016 2015

Note RM'000 RM'000 RM'000 RM'000

Non-current

Secured

Finance lease liabilities 17.1 1,134,012 1,029,596 – –

Unsecured

Term loan 17.2 795,602 – 795,602 –

Loan from corporate shareholder of a

subsidiary 17.3 287,255 – – –

Total non-current unsecured borrowings 1,082,857 – 795,602 –

Total non-current borrowings 2,216,869 1,029,596 795,602 –

Current

Secured

Finance lease liabilities 17.1 32,568 28,664 – –

Total borrowings 2,249,437 1,058,260 795,602 –

Terms and debt repayment schedule:

Under 1 1–2 2–5 Over 5

year years years years

Total RM'000 RM'000 RM'000 RM'000

Group

Secured

Finance lease liabilities 1,166,580 32,568 38,719 140,061 955,232

Unsecured

Term loan 795,602 – – 795,602 –

Loan from corporate shareholder

of a subsidiary 287,255 – – 287,255 –

1,082,857 – – 1,082,857 –

2,249,437 32,568 38,719 1,222,918 955,232

Company

Unsecured

Term loan 795,602 – – 795,602 –

PAGE: 73

ANNUAL REPORT 2016

17. BORROWINGS (CONTINUED)

17.1 The finance lease liabilities are in relation to charter hire of floating storage units from a related company and are

payable as follows:

2016 2015

Minimumlease

payments Interest Principal

Minimumlease

payments Interest Principal

Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Less than one year 129,288 96,720 32,568 124,132 95,468 28,664

Between 1 – 2 years 140,269 101,550 38,719 123,793 92,765 31,028

Between 2 – 5 years 421,189 281,128 140,061 371,718 259,387 112,331

More than 5 years 1,494,912 539,680 955,232 1,443,121 556,884 886,237

2,185,658 1,019,078 1,166,580 2,062,764 1,004,504 1,058,260

17.2 The unsecured term loans bears interest at rates ranging from 1.2% to 2.0% per annum and are due for full

repayment in 2021.

17.3 Loan from corporate shareholder of a subsidiary bears interest at a rate of 6.5% per annum and are repayable in

tranches at their various due dates from 2018 to 2028.

18. DEFERRED INCOME

2016 2015

Group/Company Note RM’000 RM’000

At beginning of the year 7,839 12,877

Addition 1,507 1,268

Less: recognised in the profit or loss (2,494) (6,306)

At end of the year 6,852 7,839

Analysis of deferred income:

Current 19 945 987

Non-current 5,907 6,852

6,852 7,839

Deferred income mainly relates to the payments received in advance or the right to receive payments from third party

amounting to RM Nil (2015: RM41,000) and a related party amounting to RM6,852,000 (2015: RM7,798,000) for the

rights given to these parties to use the Company’s properties over a period of time or early termination of supply

contract with the Company. The deferred income is subsequently recognised in the profit or loss on a time

apportionment basis over the specified period.

PAGE: 74

PETRONAS GAS BERHAD


19. TRADE AND OTHER PAYABLES

Group Company

2016 2015 2016 2015

Note RM’000 RM’000 RM’000 RM’000

Other payables and accruals 19.1 822,805 627,692 328,037 402,656

Derivative liabilities 9 – 998 – –

Amount due to:

Holding company 19.2 101,516 69,590 83,407 68,785

Related companies 19.2 80,741 97,272 10,088 78,368

Deferred income 18 945 987 945 987

1,006,007 796,539 422,477 550,796

19.1 Included in other payables and accruals are amounts owing to suppliers and contractors for purchase of property,

plant and equipment for the Group of RM553,853,000 (2015: RM279,178,000) and for the Company of

RM113,199,000 (2015: RM72,089,000). Also included in other payables is interest payable of RM Nil (2015:

RM7,918,000) for the Group.

19.2 The amount due to holding company and related companies are non-trade in nature and arose in the normal

course of business.

20. REVENUE AND GROSS PROFIT

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Revenue

– gas processing fees 1,557,175 1,533,622 1,557,175 1,533,622

– gas transportation fees 1,303,877 1,311,611 1,303,877 1,311,611

– sale of industrial utilities 1,069,071 973,584 1,069,071 973,584

– regasification fees 631,157 637,138 – –

Total 4,561,280 4,455,955 3,930,123 3,818,817

Cost of revenue

– cost of gas processing (908,803) (836,669) (908,803) (836,669)

– cost of gas transportation (328,574) (302,465) (328,574) (302,465)

– cost of industrial utilities (913,177) (837,809) (913,177) (837,809)

– cost of regasification (344,870) (339,583) – –

Total (2,495,424) (2,316,526) (2,150,554) (1,976,943)

Gross profit 2,065,856 2,139,429 1,779,569 1,841,874

PAGE: 75

ANNUAL REPORT 2016

21. OPERATING PROFIT

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Included in operating profit are the following charges:

Audit fees 439 395 275 262

Depreciation of property, plant and equipment 877,084 776,818 688,509 583,523

Loss on unrealised foreign exchange 7,766 203,123 6,750 71

Impairment of receivables 353 – 353 –

Property, plant and equipment

– expensed off 365 2,428 365 1,828

– written off 74 2,087 74 2,087

Rental of

– equipment and motor vehicles 15,942 16,644 8,936 9,395

– land and buildings 10,924 10,457 8,338 9,295

Staff costs

– wages, salaries and others 281,798 283,240 273,063 273,416

– contributions to Employees Provident Fund 42,714 43,702 41,458 42,425

and crediting:

Dividend income in Malaysia from

– subsidiary (unquoted) – – 210,053 355,052

– associate (quoted) – – 16,664 21,965

– joint venture (unquoted) – – 15,000 7,200

Gain on realised foreign exchange 12,925 10,931 11,039 1,319

Gain on disposal of property, plant and equipment 389 266 389 266

Interest income from fund investments 54,227 31,755 69,699 26,390

Reimbursement of project cost – 17,165 – –

Rental income on land and buildings 4,673 4,646 5,133 5,108

22. FINANCING COSTS

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Interest expense recognised in profit or loss

– Finance lease liabilities 93,943 90,055 – –

– Term loan – – 5,139 –

93,943 90,055 5,139 –

PAGE: 76

PETRONAS GAS BERHAD


23. TAX EXPENSE/(INCOME)

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Current tax expense

– current year 156,312 113,020 156,312 113,020

– over provision in prior year (42,600) (41,127) (42,600) (41,127)

Total current tax expense 113,712 71,893 113,712 71,893

Total deferred tax expenses/(income) 256,756 (55,653) 208,438 (110,727)

Total tax expenses/(income) recognised in

profit or loss

370,468 16,240 322,151 (38,834)

Tax expense on share of profit of associate 4,203 4,846 – –

Tax expenses on share of profit of joint ventures 1,304 3,340 – –

Total tax expenses/(income) 375,975 24,426 322,151 (38,834)

A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to total tax

expense at the effective income tax rate of the Group and of the Company is as follows:

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Profit for the year 1,736,301 1,985,870 1,784,854 2,321,548


Profit excluding tax 2,112,276 2,010,296 2,107,005 2,282,714

Taxation at Malaysian statutory tax rate of 24%

(2015: 25%) 506,946 502,574 505,681 570,679

Non-deductible expenses 14,597 63,860 7,874 1,660

Effect of unabsorbed capital allowance and unutilised

tax losses recognised (9,477) (21,012) – –

Income not subject to tax (1,918) (910) – –

Tax exempt income (12,862) (6,297) (70,093) (101,010)

Tax incentives (78,711) (462,933) (78,711) (469,036)

418,575 75,282 364,751 2,293

Over provision in prior year (42,600) (50,856) (42,600) (41,127)


PAGE: 77

ANNUAL REPORT 2016

24. DIVIDENDS

Company

2016 2015

RM’000 RM’000

Ordinary

Interim paid:

2014 – Third interim dividend of 15 sen per ordinary share – 296,810

2015 – First interim dividend of 14 sen per ordinary share – 277,022

2015 – Second interim dividend of 14 sen per ordinary share – 277,022

2015 – Third interim dividend of 15 sen per ordinary share – 296,810

2015 – Fourth interim dividend of 17 sen per ordinary share 336,384 –

2016 – First interim dividend of 14 sen per ordinary share 277,022 –

2016 – Second interim dividend of 14 sen per ordinary share 277,022 –

2016 – Third interim dividend of 15 sen per ordinary share 296,810 –

1,187,238 1,147,664

The Directors had on 23 February 2017 declared a fourth interim dividend of 19 sen per ordinary share amounting to

RM375,959,000 in respect of the financial year ended 31 December 2016.

The financial statements for the current financial year do not reflect the declared interim dividend. The dividend will be

accounted for in equity as an appropriation of retained profits in the financial statements for the financial year ending

31 December 2017.

The net dividend per ordinary share for the respective financial year ended 31 December takes into account the total

interim dividends declared for the financial year as follows:

Company

2016Sen

2015Sen

First interim dividend per ordinary share declared and paid – net 14 14

Second interim dividend per ordinary share declared and paid – net 14 14

Third interim dividend per ordinary share declared and paid – net 15 15

Fourth interim dividend per ordinary share declared but not paid – net 19 17

62 60

PAGE: 78

PETRONAS GAS BERHAD


25. EARNINGS PER SHARE

Basic earnings per share

The calculation of basic earnings per ordinary share (EPS) at 31 December 2016 was based on the Group’s net profit

attributable to shareholders of the Company of RM1,739,052,000 (2015: RM1,987,452,000), over the number of ordinary

shares outstanding during the year of 1,978,732,000 (2015: 1,978,732,000).

Diluted earnings per share

The Company has not issued any dilutive potential ordinary shares, hence, the diluted EPS is the same as the basic EPS.

26. ACQUISITION OF NON-CONTROLLING INTEREST IN A SUBSIDIARY AND FORMATION OF A JOINT VENTURE

Acquisition of non-controlling interest in Regas Terminal (Lahad Datu) Sdn. Bhd. (RGTLD)

On 10 February 2016, the Company had acquired the remaining 1% equity interest in its subsidiary, Regas Terminal

(Lahad Datu) Sdn. Bhd. from a non-controlling party, Sabah Energy Corporation Sdn. Bhd. (SEC) for a purchase

consideration of RM1,000 upon termination of the Shareholders Agreement signed between SEC and PETRONAS Gas

Berhad. Accordingly, the Group increased its ownership in RGTLD from 99% to 100%. The impact of the above

acquisition is not material in relation to the consolidated net profit for the year.

Formation of Pengerang Gas Solutions Sdn. Bhd. (PGSSB)

On 12 August 2016, the Company had entered into a Shareholders Agreement (SHA) with Linde Malaysia Sdn. Bhd.

(Linde) for the formation of a joint venture company to undertake the development of an Air Separation Unit Plant (ASU)

to be located in Pengerang, Johor.

Pursuant to the terms of the SHA, the Company had on 15 August 2016, acquired 51 ordinary shares of RM1 each

representing 51% of the issued and paid-up capital of Pengerang Gas Solutions Sdn. Bhd. (PGSSB) for a consideration of

RM51. The other 49% equity interest in PGSSB is owned by Linde.

The Group has classified PGSSB as a joint venture considering that strategic and financial decisions of PGSSB requires

unanimous consent from both shareholders.

PAGE: 79

ANNUAL REPORT 2016

27. CAPITAL COMMITMENTS

Outstanding commitments in respect of capital expenditure at the end of the financial year not provided for in the

financial statements are:

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Property, plant and equipment

Approved and contracted for

Less than one year 1,162,510 1,237,301 74,268 164,153

Between one and five years 304,787 1,791,391 172,232 327,278

1,467,297 3,028,692 246,500 491,431

Approved but not contracted for

Less than one year 567,372 847,472 462,545 529,605

Between one and five years 1,974,809 966,432 1,929,964 768,915

2,542,181 1,813,904 2,392,509 1,298,520

4,009,478 4,842,596 2,639,009 1,789,951

Share of capital expenditure of joint ventures

Approved and contracted for

Less than one year 133,468 – – –

Between one and five years 128,449 – – –

261,917 – – –

Approved but not contracted for

Less than one year 11,157 4,151 – –

Between one and five years 43,932 5,070 – –

55,089 9,221 – –

317,006 9,221 – –

Total commitments 4,326,484 4,851,817 2,639,009 1,789,951

28. RELATED PARTY DISCLOSURES

Related parties

For the purposes of these financial statements, parties are considered to be related to the Group or the Company if the

Group or the Company has the ability, directly or indirectly, to control or jointly control the party or exercise significant

influence over the party in making financial and operating decisions, or vice versa or where the Group or the Company

and the party are subject to common control. Related parties may be individuals or other entities.

PAGE: 80

PETRONAS GAS BERHAD


28. RELATED PARTY DISCLOSURES (CONTINUED)

Related parties (continued)

The Group’s and the Company’s related parties include subsidiaries, associate, joint ventures as well as the holding and

the ultimate holding company, Petroliam Nasional Berhad (PETRONAS) and its related entities. The Group’s related

parties also include:

(i) Government of Malaysia and its related entities as the Company’s holding company, PETRONAS is wholly-owned by

the Government of Malaysia; and

(ii) Key management personnel defined as those persons having authority and responsibility for planning, directing and

controlling the activities of the Group either directly or indirectly and an entity that provides key management

personnel services to the Group. Key management personnel includes all Directors of the Group.

Key management personnel compensation

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Directors

Fees 652 547 652 547

Other short term employee benefits (including

estimated monetary value of benefits-in-kind) 34 29 34 29

686 576 686 576

The Company paid management fee to the holding company in relation to services of key management personnel of the

Company as disclosed below.

In addition to the transactions detailed elsewhere in the financial statements, the Group and the Company had the

following transactions with related parties during the financial year:

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Government of Malaysia’s related entities:

Tenaga Nasional Berhad

Purchase of electricity (59,909) (82,266) (40,665) (63,214)

Sales of industrial utilities 40,375 69,018 40,375 69,018

TNB Repair and Maintenance Sdn. Bhd.

Provision of repair and maintenance services (16,371) (44,649) (16,371) (44,649)

State Secretary, Johor (Incorporated)

Land acquisition – (4,133) – –

PAGE: 81

ANNUAL REPORT 2016


Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Holding company:

Gas processing fee income 1,557,175 1,533,622 1,557,175 1,533,622

Gas transportation fee income 1,303,877 1,311,611 1,303,877 1,311,611

Regasification fee income 631,157 637,138 – –

Interest income from fund investments 53,591 31,661 50,339 26,390

Internal gas consumption and performance incentive 2,326 26,812 2,326 26,812

Agent services fee income 3,738 9,456 3,738 9,456

Reimbursement of project cost – 56,236 – –

Purchase of fuel gas (569,631) (496,533) (569,631) (496,533)

Insurance expense (19,900) (15,171) (14,883) (12,307)

Information, communication and technology charges (35,058) (26,101) (34,307) (25,610)

Corporate security charges (9,872) (10,543) (9,549) (10,309)

Rental of office premises (8,338) (9,295) (8,338) (9,295)

Supply chain and management services (10,537) (11,334) (10,133) (10,679)

Management fees (787) (737) (787) (737)

Internal audit services (1,178) (197) (1,178) (197)

Fees for representation on the Board of Directors (74) (172) (74) (172)

Related companies:

Bekalan Air KIPC Sdn. Bhd.*

Purchase of treated water (6,164) (13,153) (6,164) (13,153)

Management fee income 444 888 444 888

CEFS Response

Contribution for emergency response services (1,411) (1,223) (1,411) (1,223)

Gas Asia Terminal (L) Pte. Ltd.

Time charter services (236,582) (186,293) – –

Lease and rental of building (846) (931) – –

MISC Integrated Logistic Sdn. Bhd.

Transportation services (646) (576) (646) (576)

PETRONAS Carigali Sdn. Bhd.

Project management fee income 434 567 434 567

Operations and maintenance services income 68,053 40,793 68,053 40,793

Purchase of pipeline – (61,574) – (61,574)

PETRONAS Chemicals Ammonia Sdn. Bhd.

Sale of industrial utilities 131,253 116,398 131,253 116,398

Compressed air maintenance fees (405) (238) (405) (238)

Laboratory services (27) (16) (27) (16)

PETRONAS Chemicals Aromatics Sdn. Bhd.


* No longer a related company of the Group effective 1 July 2016.

PAGE: 82

PETRONAS GAS BERHAD



Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Related companies (continued):

PETRONAS Chemicals Derivatives Sdn. Bhd.


PETRONAS Chemicals Ethylene Sdn. Bhd.


PETRONAS Chemicals LDPE Sdn. Bhd.


PETRONAS Chemicals MTBE Sdn. Bhd.


Rental of equipments (159) (155) (159) (155)

Fire water services (157) – (157) –

PETRONAS Dagangan Berhad

Fuel card services (641) (856) (633) (850)

Purchase of petroleum products (681) (1,667) (681) (1,667)

PETRONAS ICT Sdn. Bhd.

ICT services (8,860) (9,239) (8,655) (8,795)

PETRONAS Management Training Sdn. Bhd.

Training and development related costs (4,383) (3,180) (4,326) (3,180)

PETRONAS Penapisan (Melaka) Sdn. Bhd.

Lease of land for pipeline route (76) (76) – –

Rental of office premises – (14) – –

Lease of land for office building (11) (11) – –

PETRONAS Penapisan (Terengganu) Sdn. Bhd.

Marine facilities income 2,130 1,932 2,130 1,932

PETRONAS Refinery and Petrochemical Sdn. Bhd.

Management fee 8,405 7,738 8,405 7,738

PETRONAS Technical Services Sdn. Bhd.

Technical consultancy fees (81,616) (52,126) (36,760) (30,021)

PETRONAS Technical Training Sdn. Bhd.

Training and development related costs (8,101) (9,506) (7,966) (9,289)

PETRONAS Technology Ventures Sdn. Bhd.

Purchase of chemicals (521) (583) (521) (583)

Purchase of software (197) (200) (197) (200)

PrimeSourcing International Sdn. Bhd.

Supply of parts and materials (1,803) (36,049) (1,803) (36,049)

Sungai Udang Port Sdn. Bhd.

Marine services (6,706) (6,876) – –

Freshwater transfer services (143) (170) – –

Vinyl Chloride (Malaysia) Sdn. Bhd.


Voltage Renewables Sdn. Bhd.

Sale of industrial utilities 137 137 137 137

PAGE: 83

ANNUAL REPORT 2016


Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Subsidiaries:

Regas Terminal (Lahad Datu) Sdn. Bhd.

Management fee income adjustment – – – (1,307)

Regas Terminal (Sg. Udang) Sdn. Bhd.

Management fee income – – 2,659 5,627

Rental income of warehouse – – 103 103

Pipeline maintenance fee income – – 1,161 1,161

Lab sampling fee income – – 14 20

Annual access right fee income – – 357 357

Pengerang LNG (Two) Sdn. Bhd.

Management fee income – – 2,865 2,865

Joint venture:

Industrial Gases Solutions Sdn. Bhd.


Associates and joint ventures of the holding company:

BASF PETRONAS Chemicals Sdn. Bhd.


BP PETRONAS Acetyls Sdn. Bhd.


Kertih Terminals Sdn. Bhd.


Trans Thai-Malaysia (Malaysia) Sdn. Bhd.

Access right of way fee income 2,095 2,095 2,095 2,095

Annual operations and maintenance fee income 4,732 5,462 4,732 5,462

PAGE: 84

PETRONAS GAS BERHAD



The Directors of the Company are of the opinion that the above transactions have been entered into in the normal

course of business and have been established on a commercial basis. The above has been stated at transacted amount.

Included in the fees for representation on the Board of Directors are fees paid directly to holding company in respect

of certain directors who are appointees of the holding company.

Information regarding outstanding balances at reporting date arising from related party transactions are disclosed in

note 10, note 12, note 17, note 18 and note 19.

29. OPERATING SEGMENTS, PRODUCTS AND SERVICES

The Group has four reporting segments, as described below, which are the Group’s strategic business units. The

strategic business units offer different products and services, and are managed separately because they require different

technology and marketing strategies. For each of the strategic business units, the Group’s Chief Operating Decision

Maker which is the Board of Directors, reviews internal management reports at least on a quarterly basis. The following

summary describes the operations in each of the Group’s reportable segments:

• Gas processing – activities include processing of natural gas from gas fields offshore the East Coast of Peninsular

Malaysia into salesgas and other by-products such as ethane, propane and butane.

• Gas transportation – activities include transportation of the processed gas to PETRONAS’ end customers throughout

Malaysia and export to Singapore.

• Utilities – activities include manufacturing, marketing and supplying of industrial utilities to the petrochemical

complexes in the Kertih and Gebeng Industrial Area.

• Regasification – activities include regasification of liquefied natural gas (LNG) for PETRONAS.

Performance is measured based on segment gross profit. Segment gross profit is used to measure performance as

management believes that such information is the most relevant in evaluating the results of the segments.

PAGE: 85

ANNUAL REPORT 2016

29. OPERATING SEGMENTS, PRODUCTS AND SERVICES (CONTINUED)

GroupBusiness segments

Gas Processing

Gas Transportation Utilities Regasification Total

31.12.2016 RM’000 RM’000 RM’000 RM’000 RM’000

Revenue 1,557,175 1,303,877 1,069,071 631,157 4,561,280

Segment results 648,371 975,303 155,895 286,287 2,065,856

Unallocated income 71,230

Operating profit 2,137,086

Financing costs (93,943)

Share of profit after tax of equity-

accounted associate and joint

ventures 63,626

Profit before taxation 2,106,769

Tax expense (370,468)

Profit for the year 1,736,301

Included in the measure of segment profit are:

Depreciation and amortisation (437,465) (83,116) (167,519) (188,576) (876,676)

Unallocated depreciation and

amortisation – – – – (408)

PAGE: 86

PETRONAS GAS BERHAD




Gas Processing


31.12.2015 RM’000 RM’000 RM’000 RM’000 RM’000

Revenue 1,533,622 1,311,611 973,584 637,138 4,455,955

Segment results 696,953 1,009,146 135,775 297,555 2,139,429

Unallocated expenses (122,466)

Operating profit 2,016,963

Financing costs (90,055)

Share of profit after tax of equity-

accounted associate and joint

ventures 75,202

Profit before taxation 2,002,110

Tax expense (16,240)

Profit for the year 1,985,870

Included in the measure of segment profit are:

Depreciation and amortisation (346,636) (79,359) (157,186) (193,295) (776,476)

Unallocated depreciation and

amortisation – – – – (342)

PAGE: 87

ANNUAL REPORT 2016



Gas Processing


31.12.2016 RM’000 RM’000 RM’000 RM’000 RM’000

Segment assets 4,321,607 2,620,049 1,317,878 5,896,336 14,155,870

Investment in associate 130,162

Investment in joint ventures 605,990

Unallocated assets 1,661,610

Total assets 16,553,632

Included in the measure of segment assets are:

Capital expenditure 372,981 165,429 219,989 1,584,056 2,342,456

Unallocated capital expenditure – – – – 13,666


Gas Processing


31.12.2015 RM’000 RM’000 RM’000 RM’000 RM’000

Segment assets 4,376,359 2,575,063 1,184,502 4,389,278 12,525,202

Investment in associate 128,063

Investment in joint ventures 547,647

Unallocated assets 1,181,095

Total assets 14,382,007

Included in the measure of segment assets are:

Capital expenditure 425,453 124,587 104,305 565,690 1,220,035

Unallocated capital expenditure – – – – 2,358

Segment results

The total segment results include items directly attributable to a segment as well as those that can be allocated on a

reasonable basis. Unallocated expenses mainly comprises forex gain or loss, other corporate income and expenses.

PAGE: 88

PETRONAS GAS BERHAD



Segment assets

The total of segment assets are measured based on all assets of a segment, excluding interest bearing assets and

corporate assets as these are managed on a group basis.

The segmental information in respect of the associate and joint ventures is not presented as the contribution of the

associate and joint ventures and the carrying amounts of investment in the associate and joint ventures have been

reflected in the statement of profit or loss and other comprehensive income and statement of financial position of the

Group. Details of the associate and joint ventures are disclosed in note 6 and note 7 to the financial statements

respectively.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to

be used for more than one period.

Products and services segments

2016 2015

Group RM’000 RM’000

Gas processing fee 1,557,175 1,533,622

Gas transportation fee 1,303,877 1,311,611

Utilities

– Electricity 473,604 449,883

– Steam 325,011 293,415

– Industrial gases 205,958 165,517

– Others 64,498 64,769

Regasification fee 631,157 637,138

4,561,280 4,455,955

Geographical information for revenue and non-current assets is not presented as the Group is pre-dominantly operating

in Malaysia.

30. HOLDING AND ULTIMATE HOLDING COMPANY

The holding company as well as the ultimate holding company is Petroliam Nasional Berhad (PETRONAS), a company

incorporated in Malaysia.

PAGE: 89

ANNUAL REPORT 2016

31. FINANCIAL INSTRUMENTS

Categories of financial instruments

The table below provides an analysis of financial instruments categorised as follows:

(i) Loans and receivables (L&R);

(ii) Fair value through profit or loss (FVTPL);

– Held for trading (HFT); and

(iii) Loans and borrowings (L&B).

L&R/ (FL)

FVTPL–HFT

Total carrying amount

Group Note RM’000 RM’000 RM’000

2016Financial assets

Long term receivables 10 47,905 – 47,905

Trade and other receivables (excluding prepayments

and GST receivables) 12 591,686 15 591,701

Cash and cash equivalents 13 1,763,117 – 1,763,117

2,402,708 15 2,402,723


Borrowings 17 (1,082,857) – (1,082,857)

Finance lease liabilities 17 (1,166,580) – (1,166,580)

Trade and other payables (excluding deferred income) 19 (1,005,062) – (1,005,062)

(3,254,499) – (3,254,499)

2015

Financial assets




1,804,855 112 1,804,967


Finance lease liabilities 17 (1,058,260) – (1,058,260)

Trade and other payables (excluding deferred income) 19 (794,554) (998) (795,552)

(1,852,814) (998) (1,853,812)

PAGE: 90

PETRONAS GAS BERHAD


31. FINANCIAL INSTRUMENTS (CONTINUED)

Categories of financial instruments (continued)

L&R/ (FL)

FVTPL–HFT

Total carrying amount

Company Note RM’000 RM’000 RM’000

2016Financial assets

Long term receivables 10 794,642 – 794,642




2,936,810 12 2,936,822


Borrowing 17 (795,602) – (795,602)

Trade and other payables (excluding deferred income) 19 (421,532) – (421,532)

(1,217,134) – (1,217,134)

2015

Financial assets


and GST receivables) 12 526,808 – 526,808


1,643,349 – 1,643,349


Trade and other payables (excluding deferred income) 19 (549,809) – (549,809)

(549,809) – (549,809)

PAGE: 91

ANNUAL REPORT 2016


Financial risk management

The Group and the Company are exposed to various risks that are particular to its core business which consists of

separating natural gas into its components and storing, transporting and distributing such components thereof for a fee,

the sale of industrial utilities and the regasification of liquefied natural gas for a fee. These risks, which arise in the

normal course of the Group’s and the Company’s business, comprise credit risk, liquidity risk and market risk relating to

interest rates and foreign currency exchange rates.

The Group has policies and guidelines in place that sets the foundation for a consistent approach towards establishing

an effective financial risk management across the Group.

Risk taking activities are undertaken within acceptable level of risk or risk appetite, whereby the risk appetite level

reflects business considerations and capacity to assume such risks. The risk appetite is established at Board level, where

relevant, based on defined methodology and translated into operational thresholds.

The Group’s and the Company’s goal in risk management is to ensure that the management understands, measures and

monitors the various risks that arise in connection with their operations. Policies and guidelines have been developed to

identify, analyse, appraise and monitor the dynamic risks facing the Group and the Company. Based on this assessment,

the Group and the Company adopt appropriate measures to mitigate these risks in accordance with their view of the

balance between risk and reward.

Credit risk

Credit risk is the potential exposure of the Group and of the Company to losses in the event of non-performance by

counterparties. The Group’s and the Company’s exposure to credit risk arise from their operating activities, primarily

from their receivables from customers and fund investments. The credit risk arising from the Group’s and the Company’s

normal operations are controlled by individual operating units in line with PETRONAS’ policies and guidelines.

Receivables

The Group and the Company minimise credit risk by entering into contracts with highly credit rated counterparties.

Potential counterparties are subject to credit assessment and approval prior to any transaction being concluded and

existing counterparties are subject to regular reviews, including re-appraisal and approval of granted limits. The

creditworthiness of counterparties is assessed based on an analysis of all available quantitative and qualitative data

regarding business risks and financial standing, together with the review of any relevant third party and market

information. Reports are prepared and presented to the management that cover the Group’s overall credit exposure

against limits and securities.

Depending on the types of transactions and counterparty’s creditworthiness, the Group and the Company further

mitigate and limit risks related to credit by requiring other credit enhancements such as cash deposits and bank

guarantees. No collateral or other credit enhancement is required for amounts due from related parties.

As at the reporting date, the maximum exposure to credit risk arising from receivables is represented by the carrying

amounts in the statement of financial position. The ageing of trade receivables as at the reporting date is analysed on

page 93.

PAGE: 92

PETRONAS GAS BERHAD



Credit risk (continued)

Receivables (continued)

Group Company

2016 2015 2016 2015

At net Note RM’000 RM’000 RM’000 RM’000

Current 481,372 410,795 425,225 355,317

Past due 1 to 30 days (455) 839 (455) 839

Past due 31 to 60 days – – – –

Past due 61 to 90 days – – – –

Past due more than 90 days 11,684* 6,230 11,684* 6,230

492,601 417,864 436,454 362,386

Representing:

Trade receivables 12 14,430 13,933 14,430 13,933

Amounts due from holding company 12.2 301,903 306,136 245,756 250,658

Amounts due from related companies 12.3 136,705 83,268 136,705 83,268

Amounts due from joint ventures 12.4 656 1,786 656 1,786

Amounts due from related parties 12.5 38,907 12,741 38,907 12,741

492,601 417,864 436,454 362,386

As at the reporting date, significant receivables relate to amounts due from holding company and amounts due from

related companies.

* Included in the amount due more than 90 days is an amount due from a related party amounting to RM11,200,000 which has been agreed

to be fully settled in 2017.

Fund investments

The Group and the Company are also exposed to counterparty credit risk from financial institutions through fund

investments activities which was managed by IFSSC on behalf of the Group comprising primarily money market

placement. These exposures are managed in accordance with existing policies and guidelines that define the parameters

within which the investment activities shall be undertaken in order to achieve the Group’s investment objective of

preserving capital and generating optimal returns above appropriate benchmarks within allowable risk parameters.

Investments are only made with approved counterparties who met the appropriate rating and other relevant criteria, and

within approved credit limits, as stipulated in the policies and guidelines. The treasury function is governed by a

counterparty credit risk management framework.

As at the reporting date, the maximum exposure to credit risk arising from fund investments is represented by the

carrying amounts in the statement of financial position.

The fund investments are unsecured, however, in view of the sound credit rating of counterparties, management does

not expect any counterparty to fail to meet its obligation.

PAGE: 93

ANNUAL REPORT 2016


Liquidity risk

Liquidity risk is the risk that suitable sources of funding for the Group’s and the Company’s business activities may not

be available. In managing its liquidity risk, the Group and the Company maintain sufficient cash and liquid marketable

assets.

Maturity analysis

The table below summarises the maturity profile of the Group’s and of the Company’s financial liabilities as at the

reporting date based on undiscounted contractual payments:

GroupCarrying amount

Contractualinterest/

profit rates per annum

Contractual cash flow*

Within 1year

1 – 2years

2 – 5years

More than5 years

2016 RM’000 % RM’000 RM’000 RM’000 RM’000 RM’000

Term Loan 795,602 1.7 852,474 12,222 12,222 828,030 –

Loan from corporate

shareholder of a

subsidiary 287,255 6.5 352,155 18,879 99,855 205,687 27,734

Finance lease liabilities 1,166,580 9.1 2,185,658 129,288 140,269 421,189 1,494,912


(excluding deferred

income) 1,005,062 – 1,005,062 1,005,062 – – –

3,254,499 4,395,349 1,165,451 252,346 1,454,906 1,522,646

2015

Finance lease liabilities 1,058,260 9.1 2,062,764 124,132 123,793 371,718 1,443,121


(excluding deferred

income) 795,552 – 795,552 795,552 – – –

1,853,812 2,858,316 919,684 123,793 371,718 1,443,121

* The contractual cash flow is inclusive of the principal and interest payments.

PAGE: 94

PETRONAS GAS BERHAD



Liquidity risk (continued)

Maturity analysis (continued)

CompanyCarrying amount

Contractualinterest/

profit rates per annum

Contractual cash flow*

Within 1year

1 – 2years

2 – 5years

More than5 years

2016 RM’000 % RM’000 RM’000 RM’000 RM’000 RM’000

Term Loan 795,602 1.7 852,474 12,222 12,222 828,030 –


(excluding deferred

income) 421,532 – 421,532 421,532 – – –

1,217,134 1,274,006 433,754 12,222 828,030 –

2015


(excluding deferred

income) 549,809 – 549,809 549,809 – – –

549,809 549,809 549,809 – – –

* The contractual cash flow is inclusive of the principal and interest payments.

Market risk

Market risk is the risk or uncertainty arising from changes in market prices and their impact on the performance of the

business. The market price changes that the Group and the Company are exposed to includes interest rates, foreign

currency exchange rates and other indices that could adversely affect the value of the Group’s and of the Company’s

financial assets, liabilities or expected future cash flows.

Interest rate risk

The Group’s and the Company’s investments in fixed rate debt instruments are exposed to a risk of change in their fair

value due to changes in interest rates. The Company’s variable rate borrowings are exposed to a risk of change in cash

flows due to changes in interest rates. Short term receivables and payables are not significantly exposed to interest rate

risk.

All interest rate exposures are monitored and managed proactively in line with PETRONAS’ policies and guidelines.

PAGE: 95

ANNUAL REPORT 2016


Market risk (continued)

Interest rate risk (continued)

The interest rate profile of the Group’s and of the Company’s interest-bearing financial instruments based on carrying

amounts as at reporting date is as follows:

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Fixed rate instruments

Financial assets 47,905 12,418 794,642 12,416

Financial liabilities (1,453,835) (1,058,260) – –

(1,405,930) (1,045,842) 794,642 12,416

Floating rate instruments

Financial assets 1,762,975 1,217,024 1,606,521 1,103,983

Financial liabilities (795,602) – (795,602) –

967,373 1,217,024 810,919 1,103,983

Cash flow sensitivity analysis for variable rate instrument

A change of 40 and 50 basis points (b.p.s) in interest rates for financial asset and financial liabilities respectively at the

end of the reporting period would have increased pre-tax profit or loss by the amounts shown below. The analysis

assumes that all other variables, in particular foreign currency rates, remain constant.

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Changes in interest b.p.s (+/-)

Financial assets 40 b.p.s 50 b.p.s 40 b.p.s 50 b.p.s

Financial liabilities 50 b.p.s 50 b.p.s 50 b.p.s 50 b.p.s

Profit or loss 3,074 6,085 2,448 5,520

For the Group’s and the Company’s interest-bearing financial assets and liabilities that are fixed rate instrument

measured at amortised cost, a change in interest rate is not expected to have material impact on the Group’s and the

Company’s profit or loss.

PAGE: 96

PETRONAS GAS BERHAD




Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of

changes in foreign currency exchange rates.

The Group and the Company are exposed to varying levels of foreign currency risk when they enter into transactions

that are not denominated in the respective companies’ functional currencies or when foreign currency monetary assets

and liabilities are translated at the reporting date.

The Group and the Company operate predominantly in Malaysia and transact mainly in Ringgit Malaysia.

The Group’s and the Company’s foreign currency management policy is to minimise economic and significant

transactional exposure arising from currency movements. For major capital projects, the Group and the Company

perform assessment of potential foreign currency risk exposure at the investment decision phase to determine the

appropriate foreign currency risk management strategy. When deemed necessary and appropriate, the Group and the

Company will enter into derivative financial instruments to hedge and minimise their exposure to the foreign currency

movements.

The Group’s and the Company’s exposure to foreign currency risk (a currency which is other than the functional

currency of the Group entities), based on carrying amounts as at the reporting date are as follows:

Group Company

Denominatedin

Denominatedin

Denominatedin

USD MYR USD

2016 RM’000 RM'000 RM’000

Financial assets

Long term receivables 47,905 – 794,642

Trade and other receivables 20,436 – –

Derivative asset 15 – 12

68,356 – 794,654


Borrowing (795,602) – (795,602)

Finance lease liabilities (1,166,580) – –

Trade and other payables (101,759) (23,412) (31,114)

(2,063,941) (23,412) (826,716)

Net exposure (1,995,585) (23,412) (32,062)

PAGE: 97

ANNUAL REPORT 2016



Foreign currency risk (continued)

Group Company

Denominatedin

Denominatedin

Denominatedin

USD MYR USD

2015 RM’000 RM'000 RM’000

Financial assets

Trade and other receivables 19,680 – –


Finance lease liabilities (1,058,260) – –

Trade and other payables (56,629) (21,481) (35,602)

(1,114,889) (21,481) (35,602)

Net exposure (1,095,209) (21,481) (35,602)

Currency risk sensitivity analysis

Sensitivity analysis for a given market variable provided in this note, discloses the effect on profit or loss as at 31

December 2016 assuming that a reasonably possible change in the relevant market variable had occurred at 31 December

2016 and had been applied to the risk exposures in existence at that date to show the effects of reasonably possible

changes in price on profit or loss and equity to the next annual reporting date. Reasonably possible changes in market

variables used in the sensitivity analysis are based on implied volatilities, where available, or historical data for equity and

commodity prices and foreign exchange rates where relevant. Reasonably possible changes in interest rates are based

on management judgment and historical experience.

The sensitivity analysis is hypothetical and should not be considered to be predictive of future performance because the

Group’s actual exposure to market prices is constantly changing with changes in the Group’s portfolio of among others,

debt and foreign currency contracts where relevant. Changes in fair values or cash flows based on a variation in a

market variable cannot be extrapolated because the relationship between the change in market variable and the change

in fair value or cash flows may not be linear. In addition, the effect of a change in a given market variable is calculated

independently of any change in another assumption and mitigating actions that would be taken by the Group. In reality,

changes in one factor may contribute to changes in another, which may magnify or counteract the sensitivities.

PAGE: 98

PETRONAS GAS BERHAD




Currency risk sensitivity analysis (continued)

The following table demonstrates the indicative pre-tax effects on the profit or loss of applying reasonably foreseeable

market movements in the following currency exchange rates:

Group Company

Appreciation in foreign

currency rateEffect on reserves

Effect on profit/(loss)

Effect on reserves

Effect on profit/(loss)

2016 % RM’000 RM’000 RM’000 RM’000

USD 10 (196,218)* (3,340) – (3,206)

MYR 10 – (2,341) – –

2015

USD 10 – (109,521) – (3,560)

MYR 10 – (2,148) – –

A depreciation in the above foreign currency rates would have had equal but opposite effect, on the basis that all other

variables remain constant.

* The effect on reserve relates to USD borrowings used to finance projects undertaken by a subsidiary of the Group which has USD functional

currency and foreign currency exposure arising from USD finance lease liabilities recognised in reserves on adoption of hedge accounting as

disclosed below:

Hedging activities

The USD finance lease liabilities payments are designated to hedge cash flow risk in relation to future storage fees

denominated in USD. The finance lease liabilities payments largely matches the nominal value of the storage fees

receipts and are settled on monthly basis.

During the year, a loss of RM51,703,000 (2015: RM Nil) was recognised in equity and no ineffective portion was

recognised in the profit or loss that arises from cash flow hedges amounts.

Carrying Expected Under 1-2 2-5 Over 5

amount cash flow 1 year years years years

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

31.12.2016

Cash outflows (521,761) (1,166,580) (32,568) (38,719) (140,061) (955,232)

Cash inflows 514,413 1,153,746 34,836 38,138 137,962 942,810

(7,348) (12,834) (2,268) (581) (2,099) (12,422)

PAGE: 99

ANNUAL REPORT 2016


Fair value information

The carrying amounts of cash and cash equivalents, short term receivables and payables and short term borrowings

reasonably approximate their fair values due to the relatively short term nature of these financial instruments.

The following table analyses financial instruments carried at fair value and those not carried at fair value for which fair

value is disclosed, together with their fair values and carrying amounts shown in the statement of financial position.

Fair value of financial

instruments carried

at fair value

Fair value offinancial

instruments not carried

at fair value Total fair Carrying

Level 2 Level 3 value amounts

Group RM’000 RM’000 RM’000 RM’000

2016

Financial assets

Long term receivables – 47,905 47,905 47,905

Derivative assets 15 – 15 15

15 47,905 47,920 47,920


Finance lease liabilities – 1,166,580 1,166,580 1,166,580

Term loan – 795,602 795,602 795,602

Loan from corporate shareholder of subsidiary – 287,255 287,255 287,255

– 2,249,437 2,249,437 2,249,437

2015

Financial assets



Finance lease liabilities – (1,058,260) (1,058,260) (1,058,260)

Derivative liabilities (998) – (998) (998)

(998) (1,058,260) (1,059,258) (1,059,258)

PAGE: 100

PETRONAS GAS BERHAD



Fair value information (continued)

Fair value of financial

instruments carried

at fair value

Fair value offinancial

instruments not carried

at fair value Total fair Carrying

Level 2 Level 3 value amounts

Company RM’000 RM’000 RM’000 RM’000

2016

Financial assets

Long term receivables – 794,642 794,642 794,642


12 794,642 794,654 794,654


Term loan – 795,602 795,602 795,602

The fair value of finance lease liabilities has been estimated using the discounted cash flows method.

The fair value of forward exchange contracts is estimated by discounting the difference between the contractual forward

price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on

government bonds).

Income/(expense), net gains and losses arising from financial instruments

Interest income

Interest expense Others Total

Group RM’000 RM’000 RM’000 RM’000

2016

Financial instruments at fair value through

profit or loss

– Held for trading – – 2,369 2,369

Loans and receivables 54,227 – 2,437 56,664

Financial liabilities at amortised cost – (93,943) – (93,943)

Total 54,227 (93,943) 4,806 (34,910)

2015


profit or loss

– Held for trading – – (861) (861)


Financial liabilities at amortised cost – (90,055) (202,262) (292,317)

Total 31,755 (90,055) (192,192) (250,492)

PAGE: 101

ANNUAL REPORT 2016


Income/(expense), net gains and losses arising from financial instruments (continued)

Interest income

Interest expense Others Total

Company RM’000 RM’000 RM’000 RM’000

2016


profit or loss

– Held for trading – – 1,846 1,846


Financial liabilities at amortised cost – – – –

Total 69,699 – 3,936 73,635

2015

Loans and receivables 26,390 – – 26,390

Financial liabilities at amortised cost – – 1,248 1,248

Total 26,390 – 1,248 27,638

32. CAPITAL MANAGEMENT

The Group and the Company define capital as its total equity and debt. The objective of the Group’s and the

Company’s capital management is to maintain an optimal capital structure and ensure availability of funds in order to

meet financial obligations, support business growth and maximise shareholder’s value. As a subsidiary of PETRONAS, the

Group’s and the Company’s approach in managing capital is set out in the PETRONAS Group Corporate Financial Policy.

The Group and the Company monitor and maintain a prudent level of total debt to total asset ratio and ensure

compliance with all covenants under debt and shareholders’ agreements and regulatory requirements, if any.

There were no changes in the Group’s and the Company’s approach to capital management during the year.

PAGE: 102

PETRONAS GAS BERHAD


33. ADOPTION OF NEW AND REVISED PRONOUNCEMENTS

As of 1 January 2016, the Group has adopted the following amendments to MFRSs that have been issued by the MASB

as listed below.

Effective for annual periods beginning on or after 1 January 2016

Amendments to MFRS 5 Non-current Assets Held for Sale and Discontinued Operations (Annual Improvements

2012-2014 Cycle)

Amendments to MFRS 7 Financial Instruments: Disclosures (Annual Improvements 2012-2014 Cycle)

Amendments to MFRS 11 Joint Arrangements: Accounting for Acquisition of Interests in Joint Operations

Amendments to MFRS 101 Presentation of Financial Statements: Disclosure Initiative

Amendments to MFRS 116 Property, Plant and Equipment: Clarification of Acceptable Methods of Depreciation and

Ammortisation

Amendments to MFRS 119 Employee Benefits (Annual Improvements 2012-2014 Cycle)

Amendments to MFRS 127 Separate Financial Statements: Equity Method in Separate Financial Statements

Amendments to MFRS 134 Interim Financial Reporting (Annual Improvements 2012-2014 Cycle)

Amendments to MFRS 138 Intangible Assets: Clarification of Acceptable Methods of Depreciation and Ammortisation

The initial application of the abovementioned pronouncements do not have material impact to the financial statements

of the Group and the Company.

34. PRONOUNCEMENTS YET IN EFFECT

The following pronouncements that have been issued by the MASB will become effective in future financial reporting

periods and have not been adopted by the Group and the Company in these financial statements.


Amendments to MFRS 12 Disclosure of Interests in Other Entities (Annual Improvements to MFRS Standards

2014-2016 Cycle)

Amendments to MFRS 107 Statement of Cash Flows: Disclosure Initiative

Amendments to MFRS 112 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses


MFRS 9 Financial Instruments (2014)

MFRS 15 Revenue from Contracts with Customers

Clarifications to MFRS 15 Revenue from Contracts with Customers

IC Interpretation 22 Foreign Currency Transactions and Advance Consideration

Amendments to MFRS 128 Investment in Associates and Joint Ventures (Annual Improvements to MFRS

Standards 2014-2016 Cycle)


MFRS 16 Leases

PAGE: 103

ANNUAL REPORT 2016

34. PRONOUNCEMENTS YET IN EFFECT (CONTINUED)

Effective for a date yet to be confirmed

Amendments to MFRS 10, Consolidated Financial Statements: Sale or Contribution of Assets between an Investor

and its Associate or Joint Venture

Amendments to MFRS 128, Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an

Investor and its Associate or Joint Venture

The Group and the Company are expected to apply the abovementioned pronouncements beginning from the

respective dates the pronouncements become effective. The initial application of the abovementioned pronouncements

are not expected to have any material impacts to the financial statements of the Group and the Company except as

mentioned below:

(i) MFRS 15 Revenue from Contracts with Customers

MFRS 15 replaces the guidance in MFRS 111 Construction Contracts, MFRS 118 Revenue, IC Interpretation 13

Customer Loyalty Programmes, IC Interpretation 15 Agreements for Construction of Real Estate, IC Interpretation 18

Transfers of Assets from Customers and IC Interpretation 131 Revenue – Barter Transactions Involving Advertising

Services. The Group is currently assessing the financial impact that may arise from the adoption of MFRS 15.

(ii) MFRS 9 Financial Instruments

MFRS 9 replaces the guidance in MFRS 139 Financial Instruments: Recognition and Measurement on the

classification and measurement of financial assets and financial liabilities, and on hedge accounting. The Group is

currently assessing the financial impact that may arise from the adoption of MFRS 9.

(iii) MFRS 16 Leases

MFRS 16 replaces the existing guideline in MFRS 117, Leases, IC Interpretation 4 Determining whether an

Arrangement contains a Lease, IC Interpretation 115 Operating Leases-Incentives, and IC Interpretation 127

Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The Group is currently assessing the

financial impact that may arise from the adoption of MFRS 16.

35. NEW PRONOUNCEMENTS NOT APPLICABLE TO THE GROUP AND THE COMPANY

The MASB has issued amendments which are not yet effective, but for which are not relevant to the operations of the

Group and of the Company and hence, no further disclosure is warranted.


Amendments to MFRS 1 First-Time Adoption of Malaysian Financial Reporting Standards (Annual Improvements to

MFRS Standards 2014-2016 Cycle)

Amendments to MFRS 2 Share Based Payment – Classification and Measurement of Share-Based Payment

Transactions

Amendments to MFRS 4 Insurance Contracts – Applying MFRS 9 Financial Instruments with MFRS 4 Insurance

Contracts

Amendments to MFRS 140 Investment Property – Transfers of Investment Property

PAGE: 104

PETRONAS GAS BERHAD


36. DISCLOSURE OF REALISED AND UNREALISED PROFITS

The retained profits as at the end of reporting period consist of:

Group Company

2016 2015 2016 2015

RM’000 RM’000 RM’000 RM’000

Total retained profits/(accumulated losses) of the Company and its subsidiaries:

– realised 9,064,518 8,494,324 9,439,942 8,642,552

– unrealised (706,298) (666,789) (1,122,438) (922,664)

8,358,220 7,827,535 8,317,504 7,719,888

Total share of retained profits/(accumulated losses) from associated company:

– realised 76,584 74,949 – –

– unrealised (22,887) (23,351) – –

53,697 51,598 – –

Total share of retained profits from joint ventures:

– realised 158,812 109,266 – –

– unrealised 184,962 204,645 – –

343,774 313,911 – –

Consolidation adjustments (8,138) 2,695 – –

Total retained profits 8,747,553 8,195,739 8,317,504 7,719,888

The realised and unrealised profits are compiled based on the Guidance on Special Matter No.1, Determination of

Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad

Listing Requirements, issued by the Malaysian Institute of Accountants on 20 December 2010.

PAGE: 105

ANNUAL REPORT 2016

Report on the Financial Statements

Opinion

We have audited the financial statements of PETRONAS Gas Berhad, which comprise the statements of financial position as

at 31 December 2016 of the Group and of the Company, and the statements of profit or loss and other comprehensive

income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then

ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 38

to 104.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of

the Company as at 31 December 2016, and of their financial performance and their cash flows for the year then ended in

accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of

the Companies Act, 1965 in Malaysia.

Basis for Opinion

We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on

Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the

Financial Statements section of our auditors’ report. We believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion.

.

Independence and Other Ethical Responsibilities

We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct

and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for

Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical

responsibilities in accordance with the By-Laws and the IESBA Code.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial

statements of the Group and of the Company for the current year. These matters were addressed in the context of our audit

of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not

provide a separate opinion on these matters.

PAGE: 106

PETRONAS GAS BERHAD

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PETRONAS GAS BERHAD (COMPANY NO. 101671-H) (INCORPORATED IN MALAYSIA)

Key Audit Matters (continued)

Valuation of property, plant and equipment (RM3,136,288,000)

Refer to Note 2.4 – Significant accounting policy: Property, plant and equipment and depreciation and Note 3 – Property,

plant and equipment.

The Group and Company has material property, plant and equipment including projects-in-progress recognised as at the

balance sheet date. Due to the softening of the oil and petrochemical related industries in which the Group’s and Company’s

customers are operating in, there is a risk that the demands for the Company’s Utilities services may be lowered and thus, a

higher risk of impairment of the relevant plants. Similarly, there is risk on impairment of the project-in-progress relating to

the construction of a regasification terminal in light of the uncertain economic conditions.

It is a significant area that our audit focuses on because it requires us to exercise judgment in evaluating management's

assessment of impact of the softening oil and petrochemical related industries on its valuation of the Group's and Company’s

property, plant and equipment.

We performed the following audit procedures, among others:

• considered the status of the major project-in-progress and assessed whether there are indications of cancellation or

down-sizing; and

• evaluated and challenged the indicators of impairment in respect of property, plant and equipment in light of the current

market challenges faced by the Utilities segment’s customers.

Adoption of cash flow hedge (RM51,703,000)

Refer to Note 2.8 (iii) – Significant accounting policy: Financial instruments – hedge accounting and Note 31 – Financial

instruments.

The Group has significant finance lease liabilities denominated in US Dollar (USD). The finance lease liabilities are therefore

significantly exposed to the fluctuation of foreign exchange, principally from USD. During the year, the Group adopted cash

flow hedge accounting with the view to hedge the variability in cash flow arising from the fluctuation of foreign exchange.

It is a significant area that our audit focuses on because of a heightened risk arising from the new implementation of cash

flow hedge in the Group. Hedge accounting is complex and it includes initial assessment of the effectiveness of the hedge

relationships; the result of this assessment determines whether or not hedge accounting is permitted. The Group maybe

exposed to risk of error due to the complexity involved in the calculation.

We performed the following audit procedures, among others:

• assessed the hedge designations and effectiveness testing retrospectively, at inception and prospectively;

• evaluated the management’s assertion on the highly probable forecast cash flows by agreeing the contractual cash flows

to the underlying agreement; and

• tested inputs into the cash flow hedge model by agreeing historical data to underlying documents and agreeing external

inputs such as USD foreign exchange rate to independent third party data.

PAGE: 107

ANNUAL REPORT 2016

Information Other than the Financial Statements and Auditors’ Report Thereon

The Directors of the Company are responsible for the other information. The other information comprises the information

included in the annual report, but does not include the financial statements of the Group and of the Company and our

auditors’ report thereon.

Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do

not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the

other information identified above and, in doing so, consider whether the other information is materially inconsistent with

the financial statements of the Group and of the Company or our knowledge obtained in the audit, or otherwise appears to

be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date

of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report

that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Financial Statements

The Directors of the Company are responsible for the preparation of financial statements of the Group and of the Company

that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting

Standards and the requirements of the Companies Act, 1965 in Malaysia. The Directors are also responsible for such internal

control as the Directors determine is necessary to enable the preparation of financial statements of the Group and of the

Company that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements of the Group and of the Company, the Directors are responsible for assessing the

ability of the Group and of the Company to continue as a going concern, disclosing, as applicable, matters related to going

concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the

Company or to cease operations, or have no realistic alternative but to do so.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company

as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes

our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in

accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a

material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually

or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of

these financial statements.

PAGE: 108

PETRONAS GAS BERHAD

INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF PETRONAS GAS BERHAD (COMPANY NO. 101671-H) (INCORPORATED IN MALAYSIA)

Auditors’ Responsibilities for the Audit of the Financial Statements (continued)

As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we

exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company,

whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence

that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement

resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional

omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate

in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the

Group and of the Company.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related

disclosures made by the Directors.

• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit

evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt

on the ability of the Group or of the Company to continue as a going concern. If we conclude that a material

uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial

statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our

conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or

conditions may cause the Group or the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company,

including the disclosures, and whether the financial statements of the Group and of the Company represent the

underlying transactions and events in a manner that gives a true and fair view.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within

the Group to express an opinion on the financial statements of the Group. We are responsible for the direction,

supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and

significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding

independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear

on our independence, and where applicable, related safeguards.

From the matters communicated with the Directors, we determine those matters that were of most significance in the audit

of the financial statements of the Group and of the Company for the current year and are therefore the key audit matters.

We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or

when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report

because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of

such communication.

PAGE: 109

ANNUAL REPORT 2016

Report on Other Legal and Regulatory Requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and

its subsidiaries have been properly kept in accordance with the provisions of the Act.

(b) We have considered the accounts and the auditors’ reports of all the subsidiaries of which are indicated in note 5 to the

financial statements, being accounts that have been included in the consolidated accounts.

(c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Company’s financial

statements are in form and content appropriate and proper for the purposes of the preparation of the financial

statements of the Group and we have received satisfactory information and explanations required by us for those

purposes.

(d) Our audit reports on the accounts of the subsidiaries did not contain any qualification or any adverse comment made

under Section 174(3) of the Act.

Other Reporting Responsibilities

The supplementary information set out in Note 36 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad

and is not part of the financial statements. The Directors are responsible for the preparation of the supplementary information

in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the

Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute

of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary

information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia

Securities Berhad.

Other Matter

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies

Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this

report.

KPMG PLT ADRIAN LEE LYE WANG(LLP0010081-LCA & AF 0758) Approval Number: 2679/11/17(J)

Chartered Accountants Chartered Accountant

Petaling Jaya,

Date: 23 February 2017

PAGE: 110

PETRONAS GAS BERHAD

INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF PETRONAS GAS BERHAD (COMPANY NO. 101671-H) (INCORPORATED IN MALAYSIA)

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