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Strategic and Financial Matters

In the Group Financial Review, it was reported that the increase in revenue across the different segments was marginally offset by decrease in gas processing revenue by RM 17.2 million (1%). This was mainly due to a lower performance based structure (PBS) income as a result of lower Overall Equipment Effectiveness (OEE) plant liquid extraction performance as compared to the base OEE target, which typically already at a high level of efficiency, under the new Gas Processing Agreement. The impact of lower PBS income, however, was cushioned by strengthening of reservation charge under the new structure.

i) What would be the expected level of performance for the OEE plant liquid extraction and how would

this be this be achieved?

ii) Would the Board expect the OEE plant liquid extraction performance to improve in FY 2015?

The answer below is to address question (i) and (ii) above:

Under the previous Gas Processing and Transportation Agreement (GPTA), performance based structure (PBS) income for liquid products was measured based on the export volume and petroleum product prices. This PBS income component contributes about 20% of the total gas processing fee. Under this term, low petroleum product prices and export volume would have an adverse impact to PGB as both of these factors are beyond our control.


Under the new Gas Processing Agreement (GPA) term, we have taken steps to improve the structure by strengthening the Reservation Charge (RC) component to about 97% of the total gas processing fess as PGB should be remunerated based in its availability and efficiency as an infrastructure company. Only the remaining 3% of the total gas processing fee relates to PBS income which is dependent on PGB's ability to extract liquid products.


The Overall Equipment Effectiveness (OEE) that we are measured against will vary from month to month depending on the agreed planned shutdown activities and allowance for unplanned shutdown.

Given the stronger RC component under the new GPA structure, the month to month OEE baseline target is now based on a stretched level efficiency. The PBS income will be affected if there is no more unplanned activities.


Despite the above, we do not expect significant financial impact arising from lower OEE performance as it is a small percentage of the overall fee structure.


Under PGB Transformation plan, there are various plant improvement initiatives focusing on improving plant liquid extraction performance which will translate to an improved PBS income in FY 2015.

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The Kimanis Power Plant (KPP), a joint venture with Yayasan Sabah achieved full commercial operations in November 2014.

What would be the estimated contribution (in percentage) to the net earnings of PGB for FY 2015?

On a full year basis, our 60% ownership in Kimanis Power Sdn Bhd (KPSB) is expected to contribute approximately 3 % - 4 % to PGB's profit.

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It was reported in the Chairman's statement that PGB has benefitted from the first full year operations of its new liquefied natural gas (LNG) Regasification Terminal in Sungai Udang, Melaka.

Could the Board provide an update on the progress of the proposed Lahad Datu Regasification Terminal?

The viability of the LNG Regasification Terminal project in Lahad Datu, Sabah is very much dependent on the government's decision on the gas-fired power plant in Lahad Datu, Sabah.

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What was the nature of impairment losses on property, plant and equipment of RM30.85 million?

Impairment losses on property, plant and equipment of RM 30.85 million relates to plant equipment in Utilities Kertih and Gebeng which have been underutilized and no longer required to be used in production. Accordingly, we have taken prudent steps to impair these equipment.

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Corporate Governance Matter

Under Recommendation 3.3 of the Malaysian Code on Corporate Governance, the Board must justify and seek shareholders' approval in the vent that it retains as an independent director, a person who has served in that capacity for more than 9 years.

We noted that the Company did not put up a separate resolution as recommended under Recommendation 3.3 for Dato' N. Sadasivan N.N. Pillay.

Please Clarify.

Answer:

The Board at its meeting held on 17 February 2015 has deliberated at length and unanimously agreed that Dato' N. Sadasivan N.N. Pillay continues to play an active role as a Senior Independent Non Executive Director and believes that there are notable benefits to be acquired from his long serving tenure and he posses insightful knowledge of the Company's businesses and proceeding. In addition, the Nomination and Remuneration Committee has conducted an assessment on the Independence of Dato' N. Sadasivan N.N. Pillay and agreed that Dato' N. Sadasivan N.N. Pillay be maintained as an Independent Board Member based on the following rationale:

1) He has submitted a written declaration of his independent status to the Board;


2) He continues to fulfil the criteria and definition of an Independent Director as set out under Paragraph

1.01 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (MMLR);


3) During his tenure in the office:
a) he has note transacted or entered into any transactions with, and have not provided

any services to the Group within the scope and meaning set forth in Paragraph 5 of Practice

Note 13 of MMLR;Note 13 of MMLR;

b) he has not developed, established or maintained any significant relationship with the Executive

Directors and major shareholders, Directors and major shareholders, other than normal

engagements and interactions on a professional engagements and interactions on a

professional level as expected of him during the course of discharging his professional level as

expected of him during the course of discharging his duties and responsibilities, which would

impair his independence as an Independent Director; and

c) he has provided sufficient time and discharged their duties and responsibilities without fear or

favour, often providing independent judgement and challenging the conduct of the Group's

business and financial performance

d) he provided effective check and balance in the proceedings of the Board and Board

Committees

e) he exhibited high commitment and devoted sufficient time and attention to his responsibilities

as Independent Non Executive Director.

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