HOW WE TREAT RISKS - Malaysiastock.biz...on news of high us stockpile inventory, following which it...

58

Sectionthree

PETRONAS CHEMICALS

GROUP BERHAD

HOW WE TREAT RISKS

Wedetermineourrisksbasedontheconsiderationsofthecomplexities,hazardsandintegratednatureofourmanufacturingprocessesaswellastheexposurestothecyclicalnatureofthepetrochemicalindustrywithitsvolatilemarketandcompetitiveenvironment.

TheidentifiedrisksarecloselymonitoredandmanagedtoensureanyadverseimpactstoPCGbottomlineandgrowthstrategiesareminimised.

1

2

RISKS HOW DOES IT AFFECT US? HOW ARE WE MANAGING IT?

Disruptions

toplant

operations.

ThisriskisinherenttoPCGduetothe

complexityandintegratednatureofPCG

manufacturingprocess.Whilebeing

integratedinoperationprovidesadvantage

andsynergy,PCGisexposedtointerruptions

ofitsoperationsifoneormoreplantsinthe

integratedchainfailedtooperatereliably.

Interruptionstoplantoperationscanbe

causedbyseveralkeyfactorssuchasinherent

hardware/softwaredesigndeficiencies,

equipmentfailure,aswellasdisruptionin

feedstockandutilitiessupply.

Furtherenhanceoperationalexcellence

through:

• Structuredtechnicalcompetencies

programmes.

• AssetLifeManagementprogramto

maximiseassetavailabilityatminimumcost.

• TurnaroundManagement,wheretheplantis

shutdownforinspectionandoverhaulfora

plannedtimeframe.

• Regularplantmaintenanceandinspection

programmes.

• Relevantassuranceandauditprogrammes.

• Closecollaborationwithourfeedstockand

utilitiessupplierstoensurereliablesupplies

toourplants.

BusinessRecoveryPlan(BRP)andBusiness

ContinuityPlan(BCP)arealsoinplaceto

restoretheplanttonormaloperationsand

businesscontinuityrespectively,shoulda

prolongedinterruptionoccur.

MajorHSE

incidents

impacting

people,

environment

andassets.

Ouroperationsentailtheuseofcomplex

manufacturingprocessesandhandling

ofhazardouschemicals.Thus,majorHSE

incidentisaninherentriskforPCGplantsand

facilities.

ContinuouseffortstostrengthenHSEinPCG

areperformedthrough:

• FocusedexecutionofProcessSafety

Management(PSM).

• StrengthenedHSEgovernance.

• EnhancedHSEcommunicationtoallPCG

staffandcontractors,withtrackedaction

plans.

• Productstewardship.

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Sectionthree

How We Treat Risks (Cont’d)

RISKS HOW DOES IT AFFECT US? HOW ARE WE MANAGING IT?

3

4

Cyclicalityof

petrochemical

industryand

volatilityof

productprices.

Cyclicalnatureofpetrochemicalindustryis

aninherentriskforPCG,influencedbymarket

demandandsupplyaswellasthestateofthe

globaleconomy.

Thedecliningofcrudeoilpricesoftensthe

pricesanddemandofseveralPCGproducts.

PCGoperatesinahighlycompetitivemarket,

againstcompetitorswithlargerscaleof

operations,greaterfinancialreservesandmore

operatingflexibility.Mostofourproductsare

commoditybasedandfacepricecompetition.

• Ensureoperationalexcellenceforcost

competitiveness.

• Ensureprudentfiscalmanagement.

• Continuouslystrengthenournetwork,

nurturerelationshipsandunderstand

customers’needs.

Inabilityto

realisegrowth

projects,

hinderingPCG

fromachieving

itsvisionand

aspirations.

Withseveralcapitalprojectscommitted,PCG

needstoensureitsprojectsarecompleted

attherightscopeandwithinscheduleand

budget,tocapturemaximumvalue.

Somecriticalfactorsthatcanensureproject

targetsaremetincludegoodperformance

bycontractorsandsub-contractors,effective

projectmanagement,effectiveoperation

readinessprogrammeandgoodcontrolofthe

joint-ventureprojectmanagement.

• Implementedseveralinitiativestostrengthen

projectandcontractormanagement.

• Ensurecompliancetotheprescribedproject

managementframeworkandguidelines.

• Projectmonitoringatvariouslevels,upto

Boardlevel.

• LeverageonPETRONAS'expertiseinproject

managementanddelivery.

60

Sectionthree

PETRONAS CHEMICALS

GROUP BERHAD

INVESTOR RELATIONS AND SHARE PERFORMANCE

DevelopmentswithintheUS,UKandChinaaffectedemergingmarketssentiment.ReservationsfollowingPresident-electDonaldTrump’swinin early November and fears over an expected US rate hike as wellas changes in tradepolicy renewedpressure on regional currencies.Overall,theMalaysianRinggitcontinuedtodepreciate,althoughitwasbuoyed to an extent by the increase in crude oil price following theOrganisationofthePetroleumExportingCountries(OPEC)’sagreement.ItclosedtheyearatRM4.89againsttheUSDollar,down4.5%fromitsopeningofRM4.29.

TheFTSEBursaMalaysiaKualaLumpurCompositeIndex(FBMKLCI)wasverymuchimpactedbythemovementofbothcrudeoilpricesandtheMalaysianRinggitagainsttheUSDollar.Openingat1,693points,theindexplungedtoitslowestat1,601pointsinJanuarypulleddownbyoilandgasstocks.Theindexthenreacheditshighestat1,728pointsinmid-April,spurredbysignsofChina’seconomicrecovery,astabilisingRinggit and crude oil prices before easing slightly at the end of themonth. The followingmonths saw the index loseground, alongwithregionalpeers,uponanMSCI rebalancingexercise thatsaw reducedweightageonASEANmarketsinMay,andUK’ssurprisevotetoleavethe European Union in June. The index saw some support towardsthe end of the year, along with the OPEC agreement and improvedsentimentsovertheChineseeconomy.Atthetailendoftheyear,theFBMKLCIdeclined3%fromitsinitialopening,tocloseat1,642pointson31December.

PCG’s share pricewas on a downtrend in the early part of the year,affectedby thecrudeoilpriceandabearishmarket.OursharepricefelltoitslowestofRM6.22mid-yearintandemwiththeFBMKLCI,thenbegantomoveupfollowingtheannouncementofoursecondquarterresults,supportedbyourstrongoperationalandfinancialperformance.TheimprovementincrudeoilpriceslentfurthersupporttotheupwardmomentumasthestockoutperformedtheFBMKLCItocloseatRM6.98atyearend,just4%belowitsopeningofRM7.27.

Our Average Daily Traded Volume (ADTV) for 2016was 6.22millionunits,higherthanthe4.63millionrecordedin2015.

2017startedonapositivenote,withmostmajoreconomiesregisteringexpansionandgrowth.TheBrentcrudepricehasclimbedandremainedaboveUSD50perbarrel,supportedbytheOPECagreement.Thelocalboursehasseensomeactivetradealongsideregionalbourses,thoughacautioussentimentprevailswithcontinued focusandconcernsontheUSrate increaseand theoutcomesofnewpoliciesandchangesbeingimplementedbythenewadministration.Nonetheless,oursharepricehasremainedstrong,closingatRM7.50on17February2017andremainingamongthetop10countersoftheFBMKLCIwithamarketcapitalisationofRM60billion.

INVESTOR RELATIONS

2016 PROVED TO BE AN EVENTFUL YEAR, WITH LANDMARK DECISIONS AFFECTING THE GLOBAL ECONOMY AND, SUBSEQUENTLY, THE CAPITAL MARKET. UNCERTAINTIES SURROUNDING THE PRICE OF CRUDE OIL, ALWAYS A SIGNIFICANT ECONOMIC INDICATOR, CONTINUED TO AFFECT MAJOR MARKETS. THE BENCHMARK PRICE OF BRENT HIT ITS LOWEST AT USD26 PER BARREL IN JANUARY ON NEWS OF HIGH US STOCKPILE INVENTORY, FOLLOWING WHICH IT CLIMBED SLOWLY BASED ON PRODUCTION OUTAGES AND TALK OF REGULATING PRODUCTION TO MANAGE THE OVERSUPPLY. WITH THE COMMITMENT BY EXPORTING COUNTRIES TO CUT PRODUCTION ANNOUNCED IN NOVEMBER, BRENT CRUDE SURGED TO CLOSE AT USD57 PER BARREL BY END 2016, AVERAGING USD45 PER BARREL FOR THE YEAR.

PCGrecognisestheimportanceofhavinganeffectivecommunicationchannelbetweentheCompany,ourshareholdersandthegeneralpublic.Assuch,wehavestructuredourInvestorRelationsprogrammeinlinewithourInvestorRelationspolicy,thatservestopromotethesharingofaccurateinformationinatransparentandtimelymanner,inaccordancewithBursaMalaysia'srequirementsandguidelines.

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Sectionthree

Wearecommittedtoprovidingrelevantinformationtoourshareholdersand stakeholders, while being mindful of the legal and regulatoryframework governing the release of material and price sensitiveinformation. The Investor Relations team strives continuously toimprovePCG’svisibilityinboththedomesticandinternationalcapitalmarkets,andaddressinvestorinterestsandconcernsinatimelyandappropriatemanner.

In 2016, PCG held about 100 engagement sessions with keyshareholders, analysts and fund managers, through face-to-facemeetings, conference calls, analyst briefings, investor events, plantvisits,participationinroadshowsandcorporateconferences.

QUARTERLY ANALYST BRIEFINGS

The timely release of financial results on a quarterly basis providesthecapitalmarketswithup-to-dateinformationandanalysisofPCG’sperformance and operations. In conjunction with the release of ourquarterlyfinancialannouncementstoBursaMalaysia,wehostanalystbriefings for both local and foreign participants via webcast andconferencecalls.This facilitates timelymanagementdiscussionandanalysisofthequarterlyresults,aswellasquestionsandanswersforthebriefingparticipants.

Presentation materials for the briefings are made available on ourcorporatewebsiteonthesameday,whilethetranscriptsareverifiedbyathirdpartybeforebeinguploaded.

INVESTOR ENGAGEMENTS AND CORPORATE EVENTS

Asoneof the largest public listed companies inMalaysia, PCG fullysupports events and initiatives organised by Bursa Malaysia in itsefforts toshowcaseMalaysiaasanattractivemarketplace.Assuch,Invest Malaysia conferences have always been among key eventson our calendars. In 2016, we participated in InvestMalaysia KualaLumpur,withaseriesofone-on-oneandgroupmeetingshostedbyourMD/CEOandCFO.

PLANT VISITS

We recognise the need for analysts and investors to appreciate thenatureofourbusiness,henceorganiseregularvisitstoourplants.Thisyear,wehostedourretailshareholdersatPCLDPE,situatedintheKIPC,where presentations on our business, plantmanagement and safetyprocesseswereconducted.Thevisitwaswellreceivedandenabledourshareholders to gain first-hand experience of a plant environment. ItalsoheightenedtheirawarenessofourcommitmenttoEnvironmental,SocialandGovernancepractices.

CAPITAL MARKET FEEDBACK

PCG is well covered with regular reports from around 20 researchhouses.Ourwebsitecontinuestoserveasanimportantlinkwithourinvestors.Interestedstakeholderscanaccessourquarterlyandannualreports, Bursa Malaysia announcements, corporate presentations,analyst briefing transcripts and other relevant corporate news andinformation on the website. We strive continuously to improve ourwebsitetoenhancetheuserexperiencewhilepromotingtransparencyofinformationinlinewithBursaMalaysia’srequirementsandguidelines.ShareholdersarewelcometoraisequeriesbycontactingtheCompanyatanytimethroughouttheyear.

InvestorRelationscanbecontactedat:•Email:[email protected]•Website:www.petronaschemicals.com

Investor Relations and Share Performance (Cont’d)

62

Sectionthree

PETRONAS CHEMICALS

GROUP BERHAD

Investor Relations and Share Performance (Cont’d)

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

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00

50

45

40

35

30

25

20

15

10

5

0

1,800

1,750

1,700

1,650

1,600

1,550

1,500

1,450

1,400

PCGSharePrice(RM)

PCGTradedVolume

(Million)

FBMKLCI

ADTV(Million) PCGSharePrice(RM) FBMKLCI

Closing Price RM Date

High 7.55 8January2016

Low 6.11 9May2016

Average Daily Traded Volume (ADTV)

6,224,044

AR16

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Sectionthree

FINANCIAL CALENDAR

20 FEBRUARY Announcementofunauditedquarterlyreportofconsolidatedresultsforthe4thQuarterEnded31December2016

7 MARCH Dateofentitlementofthe2ndinterimdividendforFinancialYearEnded31December2016

21 MARCH Dateofpaymentofthe2ndinterimdividendforFinancialYearEnded31December2016

23 FEBRUARYAnnouncementofunauditedquarterlyreportofconsolidatedresultsforthe4thQuarterEnded 31December2015

9 MARCHDateofentitlementofthe2ndinterimdividendforFinancialYearEnded31December2015

23 MARCHDateofpaymentofthe2ndinterimdividendforFinancialYearEnded31December2015

30 MARCHDateofNoticeofAnnualGeneralMeetinganddateofissuanceofAnnualReport2015

28 APRILDateof18thAnnualGeneralMeeting

9 MAYAnnouncementofunauditedquarterlyreportofconsolidatedresultsforthe1stQuarterEnded31March2016

9 AUGUSTAnnouncementofunauditedquarterlyreportofconsolidatedresultsforthe2ndQuarterEnded30June2016

24 AUGUSTDateofentitlementofthe1stinterimdividendforFinancialYearEnded31December2016

7 SEPTEMBERDateofpaymentofthe1stinterimdividendforFinancialYearEnded31December2016

2 NOVEMBERAnnouncementofunauditedquarterlyreportofconsolidatedresultsforthe3rdQuarterEnded 30September2016

28 MARCH DateofNoticeofAnnualGeneralMeetinganddateofissuanceofAnnualReport2016

26 APRIL Dateof19thAnnualGeneralMeeting

2016

2017

64

Sectionthree

PETRONAS CHEMICALS

GROUP BERHAD

OUR ACHIEVEMENTS

AS A LEADING CHEMICALS PRODUCER,

PCG constantly strives to operate in a safe manner. In fact, we

strongly believe that something is worth doing only when it is done

in accordance to our HSE culture built on principles that safeguard

the wellbeing of our people as well as the communities and

environment where we operate.

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Sectionthree

Our Achievements (Cont’d)

PETRONAS CHEMICALSGLYCOLS SDN BHD

PETRONAS CHEMICALSFERTILISER KEDAH SDN BHD

PETRONAS CHEMICALS METHANOL SDN BHD

PETRONAS CHEMICALS MTBE SDN BHD

• Laboratory Excellence Award (InstitutKimiaMalaysia)

• Gold Class 1 Award –Occupational,SafetyandHealth(MSOSH)

• Silver AwardinEmployeeHealth&Safety(CICMResponsibleCareAward)

• Merit AwardinProcessSafety(CICMResponsibleCareAward)

• Excellence AwardinPetroleumandPetroleumProduct,MonoethyleneGlycolsandPolyethylene(InstitutKimiaMalaysia)

• 4 Gold Medal AwardsinMiniConventionofUtilities,MNTC,Derivatives&Glycol(MPC)

• Innovative Circle & Creative (ICC) MudaTerbaikinMiniConventionofDerivatives(MPC)

• 6 Gold Medal AwardsinRegionalConventionofUtilities,MNTC,Derivatives,Glycol,Laboratories&Olefins(MPC)

• 3 Star Gold Medal Awards in AnnualProductivity&InnovationConferenceandExposition(APIC)

PETRONAS CHEMICALS ETHYLENE SDN BHD

ASEAN BINTULUFERTILIZER SDN BHD

PETRONAS CHEMICALSAMMONIA SDN BHD

PETRONAS CHEMICALS LDPE SDN BHD

• Gold AwardinDistributionCode(CICMResponsibleCareAward)

• Gold AwardinCommunityAwareness&EmergencyResponseCode(CICMResponsibleCareAward)

• Gold AwardinEmployeeHealth&SafetyCode(CICMResponsibleCareAward)

• Gold AwardinProductStewardshipCode(CICMResponsibleCareAward)

• Gold MeritinOccupational,SafetyandHealthAward(MSOSH)

• Gold AwardforHealthandSafety (RoSPA)

• Occupational Safety & Health Grand Award (MSOSH)

• Silver AwardinEmployeeHealth&SafetyCode(CICMResponsibleCareAward)

• Silver AwardinPollutionPreventionCode(CICMResponsibleCareAward)

• Silver AwardinProcessSafetyCode(CICMResponsibleCareAward)

• Silver AwardinCommunityAwareness&EmergencyResponseCode(CICMResponsibleCareAward)

• Silver AwardinDistributionCode(CICMResponsibleCareAward)

• Silver AwardinProductsStewardship(CICMResponsibleCareAward)

• Gold Merit –ExcellenceinOSHPerformance(MSOSH)


• Merit AwardinCommunityAwareness&EmergencyResponseCode;ProcessSafetyCode;EmployeeHealthandSafetyCode(CICMResponsibleCareAward)

• Gold Award–TeamExcellence Convention,Regional(MalaysianProductivityCorporation)

• Gold Award–InternationalConventiononQualityControlCircle(ICQCC)

• Laboratory Excellence Award (InstitutKimiaMalaysia)

• Gold Award–HealthandSafety(RoSPA)

• Gold Class 1 Award–Occupational,SafetyandHealth(MSOSH)



• Merit inCommunityAwareness&EmergencyResponseCode(CICMResponsibleCareAward)

• Highly Commended Award in ProcessSafetyFocusedLearning

• Laboratory Excellence Award in WaterandHydrocarbonAnalysis(InstitutKimiaMalaysia)

• Anugerah Sumbangsih 2015 (JabatanPendidikanNegeriKedah)

• Anugerah Sumbangsih 2015 (PejabatPendidikanDaerahKualaMuda/Yan)

• Silver AwardinCommunityAwarenessandEmergencyResponseCode(CICMResponsibleCareAward)


• Silver AwardinEmployeeHealthandSafetyCode(CICMResponsibleCareAward)

PCG in the newsPETRONAS CHEMICALS SAYS OIL SLUMP WON'T DERAIL SPENDING PLAN

Petronas Chemicals Bhd., a unit of Malaysia’s state energy company, willspend $4 billion over the next five years to mostly invest in a refinery andpetrochemicals complex spearheaded by its parent in Johor state, borderingSingapore.

Thecompanypredictsa “tougher”2016becauseofaplunge incrudeandanoversupply that’s pushed down product prices, Chief Executive Officer SazaliHamzahsaid inan interviewviae-mail.PetronasChemicals typicallybenefitsfrom higher oil which drives up petrochemical-product prices. The industry’soutlook this year is cloudedby volatility in theoilmarketandslowerChinesedemand,hesaid.

“Manycompanieswill tend tobackoff fromcapital investments,stoppingorshelvingsomeoftheirprojects,”Sazalisaid.“Withourstrongcashposition,wehavetheadvantagetofundourexistingprojectsandgrowthprojectsaswell.”PetroliamNasionalBhd.,theparentcompany,isproceedingwiththe$27billionintegratedrefineryandpetrochemicalscomplexevenasitdeferssomeotherprojects.Petronas,asthecompanyisknown,planstolowercapitalandoperatingexpenditurebyasmuchas20billionringgit($4.8billion)in2016.It joinsglobalpeerssuchasRoyalDutchShellPlc incuttingspendingastheindustrycontendswiththeworstcrudedownturninageneration.

SharesofPetronasChemicalsrose0.3percentto6.82ringgitonWednesday.Theyhaverisen24percentinthepastyear,comparedwitha7.4percentdeclineinthebenchmarkFTSEBursaMalaysiaKLCIIndex.

by Pooi Koon Chong

March 2, 2016, 7:00 AM

68

Sectionthree

PETRONAS CHEMICALS

GROUP BERHAD

18 CNY DINNER WITH VALUED

CUSTOMERS

JAN

15 PCG SIGNS AGREEMENT TO SUPPLY

METHANOL TO CELANESE SINGAPORE

FEB

16 & 17 PCG HOSTS CHINESE

MEDIA & BFM RADIO TO CNY DINNER

11 PCG SIGNS AGREEMENT TO SUPPLY

AMMONIA TO DAEWOO INTERNATIONAL

CORPORATION

5-7 PCG TAKES UTP STUDENTS ON AN

INDUSTRIAL TRIP TO ecoCare EEC & KIPC

MAR

CALENDAR OF EVENTS

23 VOLUNTEERS & LOCALS RID KERTIH

BEACH OF 2 TONNES OF RUBBISH

08 SABAH CHIEF MINISTER VISITS

SAMUR SITE

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69

Sectionthree

28 PCG SIGNS THREE-YEAR UREA DEAL

WITH YVP FERTILIZER CO. LTD

23 PCM SIGNS MEG SUPPLY AND

DELIVERY CONTRACT WITH PETRONAS

CARIGALI SDN BHD

11March-9 April

VOLUNTEERS SPRUCE UP CHILDREN’S

HOME UNDER KEMBARA KEBAJIKAN

1MALAYSIAAPR

20 MEDIA NETWORKING WITH THE STAR

17 GROUNDBREAKING CEREMONY FOR

HR-PIB PLANT

31March-1April

TRANSPORTER FORUM TO ENSURE SAFE

TRANSPORT OF PETROCHEMICALS

Calendar of Events (Cont’d)

12 MEDIA VISITS SAMUR SITE BEFORE

COMMERCIAL OPERATIONS BEGIN

MAY

28 MORE THAN 1,000 SHAREHOLDERS

ATTEND PCG'S 18th AGM

70

Sectionthree

PETRONAS CHEMICALS

GROUP BERHAD


27 PCG HOSTS 600 STAKEHOLDERS AT

AIDILFITRI OPEN HOUSE

24 CELEBRATING AIDILFITRI WITH

SIPITANG MP AND COMMUNITY

JULY

24 PC FERTILISER KEDAH RECOGNISED

WITH THIRD ANUGERAH SUMBANGSIH

24 CELEBRATING GAWAI WITH THE

COMMUNITY IN BINTULU

27-28 ecoCare EEC TAKES

INSTITUT TEKNOLOGI PETRONAS

MANAGEMENT BACK TO NATURE

8 &10 PCG'S DIRECTORS GAIN

FIRST-HAND UNDERSTANDING OF SAMUR

JUN

28 HOSTING EAST COAST MEDIA TO

IFTAR IN KUANTAN

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Sectionthree


06 GOLFING WITH REGIONAL

CUSTOMERS AND STAKEHOLDERS

AUGSEPT

21 AWARENESS PROGRAMME ON

RESPONSIBLE PLASTIC USAGE FOR PCG

STAFF

08 PCG PARTICIPATES IN BURSA BULL

CHARGE RUN 2016

25 SHAREHOLDERS TAKEN ON A TOUR

OF LDPE PLANT IN KERTIH

05 PC ETHYLENE/POLYETHYLENE

SWEEPS MSOSH GRAND AWARD

23 FOUR GOLD AWARDS FOR PCG AT

ICQCC, BANGKOK

17 MECHANICAL COMPLETION AND

PROJECT HANDOVER OF 2-EHACID PLANT

AT BASF PETRONAS CHEMICALS

72

Sectionthree

PETRONAS CHEMICALS

GROUP BERHAD


27-29 ENGAGEMENT WITH PCG'S

CUSTOMERS IN JAPAN

03 PREPARING LABUAN CHILDREN FOR

NEW ACADEMIC YEAR

NOV20 PCG PROMOTES ENVIRONMENTAL

AWARENESS TO SCHOOLCHILDREN

THROUGH ecoCare

14 MEDIA FAMILIARISATION TRIP TO

BASF PETRONAS CHEMICALS SDN BHD'S

PROJECT SITE

20 SCHOOL BASICS AND SCIENCE &

MATHS WORKSHOPS FOR KERTIH

PRIMARY KIDS

06 SCHOOL BASICS, AND SCIENCE

& MATHS WORKSHOPS FOR SIPITANG

PRIMARY KIDS

OCT

28 PCG PARTICIPATES AT CICM RUN

2016

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Sectionthree

12 PROMOTING RIVER CONSERVATION

FOR KUANTAN COMMUNITY

17&18 ENGAGEMENT WITH PCG'S

CUSTOMERS IN CHINA

10&11 ENGAGEMENT WITH PCG'S

CUSTOMERS IN INDIA

30 BASF PETRONAS CHEMICALS

SDN BHD DELIVERS FIRST BATCH OF

2-EHACID TO CHINA CUSTOMER

09 PCG BAGS 24 AWARDS IN THE

PETROCHEMICALS CATEGORY AT THE CICM

RESPONSIBLE CARE AWARDS

DEC

03 PCG WINS SIX IChemE AWARDS


OUR

RESPONSIBILITIES

PETRONAS CHEMICALS GROUP BERHAD

W e u n d e r s t a n d t h a t w e h a v e a m u c h w i d e r

r e s p o n s i b i l i t y t o o u r s t a k e h o l d e r s t h a n m e r e l y

t o m a k e p r o f i t s . I n d e e d , w e b e l i e v e t h a t c a r i n g

f o r o u r s t a k e h o l d e r s – a n d t h e e n v i r o n m e n t – i n

w a y s t h a t a r e n o t d i r e c t l y r e l a t e d t o o u r b u s i n e s s

m a k e s g o o d s u s t a i n a b l e s e n s e . H o w w e d o t h i s i s

o u t l i n e d i n t h i s s e c t i o n .

CONTENTS

75 SustainabilityatPETRONASChemicalsGroupBerhad

76 HowSustainabilityisGoverned

78 IdentifyingourSustainabilityFocusAreas

79 ReportingonOurFocusAreas

88 OurWayForward

*Thecross-referencingiconsreferreadersto

informationelsewhereinthisreport

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75

Sectionfour

SUSTAINABILITY TO US IS ABOUT CREATING VALUE FOR YOU, OUR STAKEHOLDERS. IT IS ABOUT UNDERSTANDING THE IMPACT WE HAVE ON THE PEOPLE WHOSE LIVES WE TOUCH AND ENSURING WE ACHIEVE OUR BUSINESS OBJECTIVES IN A MANNER THAT CREATES THE MOST POSITIVE OUTCOMES FOR EVERYONE. THIS INCLUDES LEAVING AS SMALL AS POSSIBLE AN ENVIRONMENTAL IMPRINT, AS OUR NATURAL SURROUNDINGS ARE CRITICAL TO THE WELL-BEING OF COMMUNITIES THAT LIVE AROUND US.

Sustainabilityhasalwaysbeenintegraltoourbusinessphilosophy.Bygrounding our financial success on ethical environmental and socialconsiderations,we implicitly put in place structures that allowus tomanage potential challenges and risks. Equally as important, ourefforts to engagewith stakeholders serve to build a strong networkofrelationshipsbasedontrust.Managingourconsumptionofnaturalresourcesfurtherprolongsthesustainabilityofourbusinessinthelongterm, while ensuring sufficient resources are conserved tomeet theneedsoffuturegenerations.

Steeredbyfirmprinciplesofcorporategovernance,andagenuinedesiretosecureapositivefutureforourlocalcommunitiesandsocieties,oursustainabilityeffortsgobeyondmerecompliancewithregulations.

Itensureswecreatethemostconduciveworkenvironmentthatallowsouremployeestorealisetheirtruepotential.Anditallowsustoempowerlocalcommunitiesviathecreationofemploymentopportunitiesaswellasthroughthesupportoflocalbusinesses.

Whilewehavealwaysbeendrivenbysoundprinciplesofsustainability,in 2016we adopted amore structured approach to our efforts. Thisyear’ssustainabilityreportingfulfillsBursaMalaysia’srecentlyreleasedsustainabilityframeworkandgoesfurthertofocusonindustryeffortsin sustainability through referencing IPIECA’s* ‘Oil and Gas IndustryGuidance on Voluntary Sustainability Reporting’. Essentially, theseelevatetheeffectivenessofsustainabilityreporting,furtherenhancingourtransparencyandallowingustopresenttoourstakeholdersaclearpictureofwhatwearedoinginmattersthatcount.

THE BOUNDARIES OF OUR REPORTING

This Report comprises sustainability information from subsidiarieswherePCGhasoperationalcontrol,namelycompaniesinwhichwehavemorethan50%ownership.Thesesubsidiariespractiseourapproachinmanagingsustainabledevelopmentissues.

SUSTAINABILITY AT PETRONAS CHEMICALS GROUP BERHAD

*IPIECAistheglobaloilandgasindustryassociationforenvironmentalandsocialissues

76

Sectionfour

PETRONAS CHEMICALS

GROUP BERHAD

Sustainability at PETRONAS Chemicals Group Berhad (Cont’d)

HOW SUSTAINABILITY IS GOVERNED

In early 2016, we set up a Sustainable DevelopmentWorking Committee (SDWC) to guide us on our new sustainability reporting strategy.Thecommittee isalso responsible foroverseeingvarioussystems implemented tomonitorand reportonoursustainabilityperformance,viarepresentationinalltherelevantdepartmentswithinPCG.Inaddition,SDWCmembersworkcloselywiththeircounterpartsateachsubsidiarytoensurestakeholders'valuecreationacrosstheGroup.AlldecisionsbytheSDWCarevettedandapprovedbyourManagementCommittee(MC)andBoardofDirectorswhich,ultimately,takesresponsibilityforthesustainabilityoftheorganisation.

OUR GOVERNANCE STRUCTURE FOR SUSTAINABLE DEVELOPMENT

STRUCTURE

BOARD OF DIRECTORS

SUSTAINABLE DEVELOPMENT WORKING COMMITTEE

SUBSIDIARIES

CHAIRMANHead of Health, Safety and Environment

SECRETARY Technical Professional

(Environmental Management)

MANAGEMENT COMMITTEE

MANUFACTURINGHeadofOperationsManagement

INNOVATION & TECHNOLOGYHeadofProductStewardship&RegulatoryAffairs

CORPORATE AFFAIRS & ADMINISTRATIONHeadofCorporateSocialResponsibility

HUMAN RESOURCE MANAGEMENTHeadofRemuneration&EmployeeRelations

FINANCE-SUPPLY CHAIN MANAGEMENTHeadofSupplyChainManagement

FINANCE-INVESTOR RELATIONSHeadofInvestorRelationsPerformanceManagement

COMMERCIALHeadofPerformancePlanning

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Sectionfour

OPERATIONAL EXCELLENCE MANAGEMENT SYSTEM

HEALTH, SAFETY & ENVIRONMENT POLICY

PCGhasadoptedasinglecommonmanagementsystem,knownas theOperationalExcellenceManagementSystem(OeXMS), todeliversustainableresultsforallouroperations.LeveragingonaPlan-Do-Check-Actcycle,OeXMScombinesourPeople,DocumentsandAssuranceProcessesintoanintegratedmanagementsystem.

Itsimplementationenablesthecontinuousimprovementofouroperationsbyensuring:• Relevantproceduresaredeveloped• Adequateresourcesareallocated• Activitiesareimplementedtoachievespecifiedobjectives• AuditsandinspectionsarecarriedouttoensurecompliancetoPCGrequirements• Managementreviewsareconductedonthesystem’seffectiveness

Inaddition,OeXMSallowsourmanufacturingsitestoattaininternationallyrecognisedmanagementsystemscertificationssuchastheISO9001(forQualityManagement),ISO14001(forEnvironmentalManagement)andOHSAS18001(forOccupationalSafetyandHealthManagement).Thelistofmanufacturingsiteswithsuchcertificationisshownonourwebsiteat:www.petronaschemicals.com.my/HSE/Pages/HSE-Certification.aspx

OurHealth,SafetyandEnvironment(HSE)PolicyoutlinesourHSEaspirationsandcommitments,whichformsasignificantcomponentofoursustainabilityefforts.Guidedbythispolicy,westrive tobe in thetopquartileofHSEperformanceglobally,aimingforzeroincidentsandzerooccupationalillnessorinjury.Thepolicycommitsusto:• ContinuouslyimproveourHSEperformance• Operateourbusinessaccordingtoindustrialbestpracticesandlegalrequirements• CommunicatewithourkeystakeholdersonHSEmatters• RecognisethatHSEiseveryone’sresponsibility

OurHSEPolicycanbeviewedinitsentiretyat:www.petronaschemicals.com.my/HSE/Pages/HSE-Policy.aspx


PETRONAS HSE MANDATORY CONTROL FRAMEWORK AND PETRONAS TECHNICAL STANDARDS

OurHSEmanagementisgovernedbyPETRONAS’HSEMandatoryControlFramework(MCF)whichspecifieskeyrequirementsthatmustbeimplementedinordertosafeguardourworkforce,thepublicandenvironment.WealsoleverageonPETRONASTechnicalStandards(PTS) tomanageHSEand issuesrelatedtosustainabledevelopment.PTSprovidesclearstandardsandguidelinesformanagingkeyactivities,includingthoserelatedtosustainabledevelopment.

Oursustainabledevelopmentisfurthersupportedbythefollowingsystems,policiesandrequirements:

78

Sectionfour

PETRONAS CHEMICALS

GROUP BERHAD

IDENTIFYING OUR SUSTAINABILITY FOCUS AREAS

KeytothedevelopmentofasustainabilityreportingstrategywastodeterminesustainabilityissuesthathavethegreatestimpactonbothPCGaswellasourstakeholders.TheSDWCundertookthetaskbyconductingamaterialityassessmentbasedonthefollowingstructuredapproach:

ITEM SUSTAINABILITY FOCUS AREAS FOCUS AREAS CATEGORIES

Energyuseandgreenhousegasemissions

EnvironmentFreshwaterconsumption

Emissionstoairandwater

Wastegeneration

Occupationalsafety&health

Health&SafetyProcesssafetyandspills

Productstewardship

Corporatesocialinvestment

SocietyAnti-corruption

Workforcediversityandinclusion

Workforcetraininganddevelopment


Our Sustainability Materiality Assessment Matrix

Sign

ificanc

etoStakeho

lders

SignificancetoPCG

Low

Low

Med

Med

High

High

STEP 1:Identification of Sustainability Issues

TheSDWCidentifiedsustainabilityissuesthatarerelevanttothepetrochemicalandoil&gasindustry.ThislistofissueswereobtainedfromIPIECA’s‘OilandGasIndustryGuidanceonVoluntarySustainabilityReporting’.

STEP 2:Assessing the Significance of Each Issue to Stakeholders

Eachsustainabilityissuewasassessedtodeterminetheirsignificancetoourstakeholders.Thiswasdonebyevaluatingeachissuebasedonvariouscriteria,including:

a) opinionsofexternalexperts;b) thelevelofstakeholder

interest;c) relevancetoourindustry;d) governmentalinterest.

STEP 3:Assessing the Significance of Each Issue to PCG

Subsequently,theissueswereassessedtodeterminetheirsignificancetoPCG.Thecriteriausedforthisassessmentinclude:

a) significanceoftheriskposedbytheissue;

b) importanceoftheissuetoourcompany’sgrowth;

c) ourabilitytocontributetotheissue;

d) alignmentwithourcompany’svalues,goalsandpolicies.

STEP 4:Prioritisation of Sustainability Focus Areas

Eachsustainabilityissuewasthenplottedonasustainabilitymaterialityassessmentmatrix.TheissuesthatfallwithintheshadedareasofthematrixwereprioritisedforinitialreportingastheyaresignificanttobothPCGandourstakeholders.

TheseissuesrepresentPCG’sSustainabilityFocusAreas,andaredescribedindetailinsubsequentsectionsofthisReport.

3

3

11

11

4

4

7

7

5

5

2

2

10

10

8

8

6

6

1

1

9

9

SustainabilityIssues

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Sectionfour


ENERGY USE AND GREENHOUSE GAS EMISSIONS

Our energy consumption is closely linked with our greenhouse gas(GHG)emissions.Morethan75%ofourtotalGHGemissionsoriginatesfromourfuel,steamandelectricityconsumption.Asthecostofenergyrisescontinuously,efficientenergymanagementhelpstooptimiseouroperatingcosts,whileconservingnaturalresourcesandmitigatingourimpactonclimatechange.Thisisalsoalignedwithincreasingglobalconcernonclimatechange.

Our energy consumption and GHG emissions are managed throughan Energy & Loss Management System (ELMS), which providesstandardisedrequirements,bestpracticesandworkprocessestailoredtotheenergyneedsofeachmanufacturingsite.Eachmanufacturingsitehasitsowntargetsandinitiativestoreduceitsenergyconsumption.ThesearemonitoredbydedicatedELMSengineers.

Our Energy Intensity andGHGEmissions Intensity improved in 2016from2015duetobetterplantutilisationsupportedbyongoingenergyefficiencyinitiatives.

ENVIRONMENT

REPORTING ON OUR FOCUS AREAS

Energy Efficiency at PC OlefinsAsuccessstoryinenergymanagementrecentlyhasbeenseenatPCOlefins.Beginningin2015,PCOlefinshassignificantlyimproveditsenergyefficiencybyimplementinginitiativestoconservefuelgasandsteam.

PCOlefinsgeneratesfuelgasaspartoftheolefinsmanufacturingprocess. Most of this fuel gas is consumed internally, whilethe excess is flared. To reduce flaring, PC Olefins conducted athorough evaluation of the overall fuel gas system, andmodifieditsplantprocessestoallowthesurplus fuelgas tobedistributedtosurroundingplants. Inaddition,excesssteamgeneratedbyPCOlefins is re-routed toPCDerivativeswhere it isused forprocessheating.

Theseenergymanagementstrategieshelpedtoreduceourenergyconsumption by 1,200,000 gigajoules (GJ) during the year underreview. It also reducedCO2 emissions by 81,000 tonnes,which isequivalenttoremoving17,000carsofftheroadsannually*.

* AscalculatedusingtheUnitedStatesEnvironmentalProtectionAgency’sGHGEquivalenciesCalculator.

2015 20162014

Whatitallmeans:i. Direct GHG Emissions:GHGemittedfromassetsthatare

ownedorcontrolledbyPCGii. Indirect GHG Emissions: GHG emitted to generate

electricityand/orsteampurchasedbyPCGiii. GHG Emission Intensity:TotalGHGemissionsperunitof

productioniv. CO2e:Carbondioxideequivalent

0.91 0.870.76

GREENHOUSE GAS EMISSION

DirectEmissions(MillionTonnesofCO2e)

IndirectEmissions(MillionTonnesofCO2e)

GHGIntensity(TonnesofCO2e pertonneofproduct)

1.35

4.39 4.60

1.32 1.31

4.54

ENERGY INTENSITY (GJ of Energy Consumed per Tonne of Product)

17.61 17.0615.91

2015 20162014

EMISSION REDUCTION

EQUIVALENT TO REMOVING

17,000 CARSOFF THE ROADS ANNUALLY

80

Sectionfour

PETRONAS CHEMICALS

GROUP BERHAD

FRESHWATER CONSUMPTION

We use significant amounts ofwater to generate steam required byourplantsaswellasforcoolingandcleaningpurposes.However,wecloselymonitor all activities involving water as we recognise it is avitalandlimitednaturalresource.Startingfrom2016,ourplantshaveadoptedPETRONAS’GuidelinesonWaterPracticeswhichdefinestheoperatingconditionsandmaintenancepracticesforefficientwateruse.

Ourwaterwithdrawalintensityimprovedin2016asaresultofincreasedplantutilisation.Thismeansweusedlesswaterpertonneofproductduringtheyearunderreview.


EMISSIONS TO AIR AND WATER

ThemanagementofourairandwateremissionsisguidedbyourHSEPolicy,whichcommitsustosafeguardtheenvironmentinareaswherewe operate.Wemanage our emissions by reducing them at source,andthroughtheuseofpollutioncontrolequipment.Wealsomonitortheambientairqualityandwaterqualityofsurroundingriversorseatoensurecompliancewithregulatorylimits.OureffortsareguidedbyPETRONASTechnicalStandards.

OneofourkeyairpollutantsareNOx,whicharegeneratedduringfuelcombustionforenergygeneration.NOxarealsogeneratedwhenwaste

Whatitallmeans:NOx:Nitrogenoxides,acommonairpollutantSOx:Sulphuroxides,acommonairpollutantAir Emission Intensity: Total emission of air pollutants (intonnesofNOxandSOx)perunitofproduction.

EMISSIONS TO AIR

14.54

0.12

2.33

1.84

2.30

0.13

15.46

0.28

13.87

2015 20162014

NOxEmissions(Thousand Tonnes)

SOxEmissions(Thousand Tonnes)

AirEmissionIntensity(TonnesofAirEmissions

perthousandTonnesof

Product)

Whatitallmeans:Freshwater:Non-brackishwater,includingpotablewaterandriverwater.Freshwater Withdrawal:ThevolumeoffreshwaterremovedfrommunicipalwatersuppliesandothersourcesbyPCG.Freshwater Withdrawal Intensity:Totalfreshwaterwithdrawnperunitofproduction.

FRESHWATER WITHDRAWAL

29.73

4.73

4.274.58

31.27 32.31

2015 20162014

QuantityofFreshwaterWithdrawn(MillionCubicMeter)

FreshwaterWithdrawalIntensity(CubicMeterperTonne

ofProduct)

Our air emissions intensity reduced in 2016 as a result of increasedplantutilisationandareductioninflaring.

gascontainingammoniagasisflared.OurSOxemissionsarerelativelylowbecauseweuseprocessedfuelgas,whichislowinsulphur.

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Sectionfour

WASTE GENERATION

Westrivetominimisehazardouswastegenerationatourmanufacturingsites,whilemaximisingopportunitiestorecycle,reuseorrecover(3R)wasteatoffsitefacilities.Forexample,someofourwasteisconvertedinto fuels and lubricants, while other forms of waste are sent tospecialisedfacilitieswherepreciousmetalsarerecoveredfromthem. We quantify, inventorise and store all hazardous waste in dedicatedareas within each manufacturing site. The waste is then sent togovernmentlicensedwastefacilitiesfor3Rordisposal.Properwastemanagement is integral toourefforts tominimise theenvironmentalimpact of our operations. Minimising waste generation conservesnatural resources and improves our bottom line, while 3R reducesconsumptionofnaturalresources.

In2016,wemaintainedouraveragewasterecyclingrateatabove80%.Movingforward,wewillcontinuetostrivetoreduce,reuse,recycleandrecoverourhazardouswaste.


WemonitortheChemicalOxygenDemand(COD)ofourwastewater,whichtellsushowmuchorganicmatterisreleasedintosurroundingwaters. Our COD discharges were higher in 2015 due to a minormethanolleakageatourmethanolplant,whichdidnotresult inanynoticeableenvironmental impact tocoastalwaterssurrounding theplant.Theleakwasrectifiedandadditionalpreventivemeasureswereimplemented,whichhelpedtonormaliseourCODdischargesin2016.

WASTEWATER DISCHARGES

852

0.14

2014

0.21

1,430

2015

0.12

924

2016

WastewaterDischarges(TonnesofCOD

Discharged)

CODDischargeIntensity(TonnesofCODper

ThousandTonnesof

product)

Whatitallmeans:Generated: Quantityofhazardouswasteproduced3R:Quantityofhazardouswastesentforrecycling,reuseorrecoveryFinal Disposal:Quantityofhazardouswastethatislandfilled,incineratedordisposedwithnofurtherbeneficialuse

HAZARDOUS WASTE

20162014 2015

Generated(ThousandTonnesofWaste)

FinalDisposal(ThousandTonnesofWaste)

3R(ThousandTonnesofWaste)

PercentageofWastesentfor3R

80.3%

24.920.0

4.5

22.0

4.4

21.3

5.0

81.3%

27.1

81.3%

26.2

Reducing Acid Waste GenerationABF, our urea manufacturing facility in Bintulu, embarked on aninitiative to reduce the hazardous waste generated during thecleaningofitsammoniastripper.Theammoniastripperisusedtoremove ammonia from ABF’s wastewater. Previously, hazardousacid waste was generated when the stripper was cleaned withhydrochloricacid.Thiswastewassubsequentlysenttoalicensedoffsitefacilityfordisposal.

In 2015, the hydrochloric acid was substituted with an acidicwastewaterproducedbyABF’sownoperations.ABFalsomodifieditsstrippertoreduceexposuretohazardouschemicalsduringthecleaningprocess.Oncethestripperisclean,theacidicwastewateristreatedinternallyatABF’sownwastewatertreatmentplant.

Thenewcleaningprocesseliminatesthegenerationofacidwaste,whichinthepastamountedto38.4tonnesperyear.

82

Sectionfour

PETRONAS CHEMICALS

GROUP BERHAD

HEALTH & SAFETY

OCCUPATIONAL SAFETY AND HEALTH

Because we value our workforce, we place the highest priority onoccupationalsafetyandhealth.GuidedbyourHSEPolicy,wetakeeveryreasonablesteptoeliminatetheriskofinjuryandprotectthewell-beingofourworkforceandthepublic.

Ourworkforcewhichcomprisesouremployeesaswellasthoseofourcontractorsreceiveallthenecessarytrainingsinorderforthemtocarryouttheirworksafely.Thisincludesspecifictrainingsonsafetysystemsrelated to chemical handling, working at height, energy isolation,excavationandconfinedspaceentry.

To maintain good HSE performance, we engage regularly with ourworkforce.Forexample,beforeanyspecificjobbeginsataworksite,weholdsafetymeetingscalledtoolboxtalks.Theseshortmeetingsfocusonpotentialhazardsofthejobandreinforcesafeworkpracticesamongourworkers.HSECommittees,comprisingemployeesandmanagementrepresentatives, are also established at all our manufacturing sites.Thesecommitteesdevelop,promoteandevaluatemeasurestoensurethesafetyandhealthofouremployees.

Unfortunately,wehad two fatalitiesduring theyearasa resultofanammonialeakageatSAMURduringtheproject'scommissioning.Havingidentifiedtherootcausesoftheleak,wehavefurtherstrengthenedthesafetyproceduresatallourplantstopreventanyrecurrenceofsimilarincidents.

Whatitallmeans:TRC: Total Recordable Case - refers to the number ofworkplaceinjuriesthatrequiremedicaltreatmentbeyondfirstaidTRCF:TotalRecordableCaseFrequency-thenumberofTRCspermillionman-hoursLTI:LostTimeInjury-thenumberofworkplaceinjuriesresultinginlossofproductiveworktimeLTIF:LostTime InjuryFrequency - thenumberofLTIspermillionman-hours

EMERGENCY EXERCISEWecarriedoutamajoremergencyresponseexerciseon22September2016 involving four plants in the KIPC. Simulating an explosion andfire resulting froman ethylenepipeline leak, the exercise enabled ustoevaluateour readiness tomanageemergencies. Italso testedourinternalcommunicationsaswellasourlinkswithrelevantgovernmentagenciessuchastheFireandRescueDepartment,PoliceDepartment,CivilDefenceForceandlocalmedicalfacilities.

WewereencouragedbytheefficientwayinwhichourCorporateCrisisManagementTeam,theplants’EmergencyManagementTeamsandallpartiesinvolvedcooperatedinthisexercise.Lessonslearnthavebeenusedtofurtherenhanceouremergencypreparedness.

In addition to this exercise, three other manufacturing sites alsoconductedfull-scaleemergencyexercisedrillsin2016.

OCCUPATIONAL SAFETY INCIDENTS - OPERATIONS

0.43

0.16

2015

0.60

0.11

2016

0.10

0.83

2014

OCCUPATIONAL SAFETY INCIDENTS - SAMUR

00

2015

0.65

0.39

2016

0.56

0

2014


1.5

* AverageTRCFforpetrochemicalcompaniesintheUSAwithmorethan1000employeesin2014 Source:USBureauofLaborStatistics

LTIF(LTIpermillionman-hours)

TRCF(TRCpermillionman-hours)

IndustrialBenchmark*

LTIF(LTIpermillionman-hours)

TRCF(TRCpermillionman-hours)

AR16

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Sectionfour

PROCESS SAFETY AND SPILLS

OurHSEPolicyextendstoensuringthesafetyofourplantprocesses.Byguardingagainstfire,explosionsormaterialreleases,wesafeguardourpeople,localcommunitiesandourassetswhilepreventingunplannedshutdowns.

In 2015we established aProcessSafety FocusGroup to spearheadourprocesssafetymanagementstrategy.ComprisingProcessSafetymanagers from the different manufacturing sites, the Focus Groupresolves any process safety challenges faced within PCG. It alsodevelops competency programmes to ensure our Process Safetypractitionerskeepsharpeningtheirskillsinthisfield.

TheFocusGroup is supportedby aPETRONAS-wideProcessSafetyCommunity of Practice (CoP), which continuously raises the bar inbest practices via knowledge sharing among CoPmembers, and bycoachingandmentoringjuniorstaff.

There was a reduction in process safety incidents in 2016, none ofwhichresultedinspillsthatcausedsignificantenvironmentalimpacts.

Whatitallmeans:Significant Process Safety Incidents: Unplanned release ofsignificantquantitiesofhazardousmaterialsfromaprocess


PRODUCT STEWARDSHIP

WeembraceProductStewardship,which is theactofsystematicallyassessing, controlling and communicating HSE and social impactsof all our products and packaging throughout their life cycle, whilemaximising theireconomicbenefits.Wehavemadeaconsciousandvoluntary decision to implement Product Stewardship programmes,knowing this has great impact on our stakeholders, includingemployees,suppliers,retailersandconsumers.

Our commitment to product HSE is codified through endorsementof the chemical industry’s Responsible Care® programme. We alsoengagewithprofessionalswithinthe industryandtradeassociationstokeepabreastwithtrends,andfeelprivilegedtobeabletoshareourknowledge with government agencies to help shape new laws andregulations.

OurProductStewardshipfocusesonthefollowingpriorityareas,whicharebasedonbusinessandindustryrequirements:

1.ProductRegulatoryCompliance• We meet all product regulatory requirements in the countrieswhereourproductsaremadeandsold,andareable to respondappropriatelytocustomerenquiries.

• This includes global chemical management, dangerous goodstransportation, banned/restricted chemical management andHalalAssuranceSystems.

2.ProductRiskCharacterisationandManagement• Weensurenewandexistingproductsaresafeforuseandhandlingthroughouttheentiresupplychain.

• Productrisksaremanagedappropriatelyduringbusinessplanning,R&D, product realisation, distribution, application, disposal andrecycling(ifany).

NUMBER OF SIGNIFICANT PROCESS SAFETY INCIDENTS

3

2015

1

2016

0

2014

84

Sectionfour

PETRONAS CHEMICALS

GROUP BERHAD

CORPORATE SOCIAL RESPONSIBILITY

OUR ACHIEVEMENTS TO DATE:

• We confirmed our polymer products – LDPE (5 grades),LLDPE(5grades)&HDPE(3grades)–complywiththeUSFood and Drug Administration Federal Regulations USFDA21CFR177.1520,CFR178.2010.

• WehavereceivedHalalcertificationformorethan80ofourproductsasof2016.

• WereportedourcomplianceunderKoreaREACHregulations&Taiwan-TCSCAregistrationforexports.

• Weconductedproductstewardshipsessionswithchemicalsbuyersinvariouscountries,mostrecentlyinthePhilippines.

• We committed to complete GPSS for selected products.Five of the summaries are accessible to the public onthe International Council of Chemical Association’s GPSChemicalsportal(http://icca.cefic.org/).

3.ProductSafetyDocumentation&Communication• ProductHSEinformationisprovidedtoallstakeholdersinvolvedin theentire lifecycleofourproducts.This includessafetydatasheets (SDS), labels, safe handling instructions, product safetysummaries,productdossiersanddeclarations.

• SDS,labelsandhazardclassificationaremanagedbyanefficientSAPsystemsupportedbyadedicatedtoxicologyteamandproducttesting.Wealsoengage regularlywithcustomers,suppliersanddistributorsbyorganisingsitevisits,seminarsandtrainings.

4.ProductSustainability• Productsustainabilityprogrammesprovideenvironmental,socialandeconomicbenefitswhilemanagingaproduct’sHSEimpactsthroughout its lifecycle, fromthesourcingof feedstockuntil itsfinal disposal. Awareness of safer chemicals substitution andcarbonfootprintanalysisarebeingconsideredforfutureaction.

OneofourkeyProductStewardshipprogrammesisthedevelopmentofGlobalProductSafetySummaries(GPSS)forselectedproducts.EachGPSS provides information on the typical applications of a product,its physical and chemical properties, and effects on health and the

SOCIETY


environment.Written foreasycomprehension, theseGPSSenableourcustomersandthepublictounderstandhowourproductscanbeusedinasafeandenvironmentallyresponsiblemanner.

We take pride in being able to share some of our success with thecommunitiesthatliveinthevicinityofouroperations.Overtheyears,we have developed some meaningful programmes that strive toempowerthecommunitieswhereweoperate.

OurCSRprogrammesfocusoneducation,communitywell-beingandtheenvironment.In2016,theseprogrammesincludedBack-to-School,Program Cintai SungaiandecoCare.

BACK-TO-SCHOOLThroughthisprogramme,wehelptoimprovetheacademicperformanceofruralschoolchildreninsubjectssuchasscienceandmathematics,in addition to providing them with school supplies. In 2016, weorganisedBack-to-SchoolprogrammesinSipitang,KertihandLabuanwhichsawusprovide1,175underprivilegedschoolchildrenwithbagsandstationerybeforethestartofthenewacademicyear.Forthefirsttime,wealsocollaboratedwithMalay-languagedaily,Berita Harian,torun science andmathematics workshops for students and teachersfrom44primaryschools.

AR16

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Sectionfour


PROGRAM CINTAI SUNGAIOursubsidiary,PCMTBE,runsanannualriverconservationinitiativecalledProgram Cintai Sungai.Thisyear,itwasorganisedatJetiNelayanKampungBalokPantaiinKuantan.Collaboratingwithlocalgovernmentauthoritiesandcommunityrepresentatives,weraisedawarenessamongthelocalcommunityandschoolchildrenoftheneedtokeepBalokRiverclean.Weworkedwiththecommunitytopickuprubbishfromtheriverbanksandrelease‘pollution-absorbingmudballs’into the river, inaddition tocarryingout fun-filledReduce,ReuseandRecycle (3R)activities.Wealsohelped localboatownerspaint theirboatsandgave themfreemedicalcheckups toenhancetheirlivelihoodandwell-being.

ecoCareecoCareisoursignatureenvironment-basedCSRprogramme,conductedincollaborationwiththeMalaysianNatureSociety.Nowinits11thyear,theprogrammeinvolvesreforestationandrehabilitationofmangrovehabitatsalongKertihRiver.Toincreasepublicawarenessoftheimportanceofmangroveconservation,in2013wesetupanecoCareEnvironmentalEducationCentre(EEC),whichhashelpedtogarnergreaterparticipationintheprogramme.Todate,250organisationsandschools,aswellas12,200individualshavevisitedthecentre.Intotal,10,469mangroveseedlingshavebeenplantedonalldegradedpatchesrehabilitatingmorethan11,000squaremetresofareaalongtheKertihRiver.

Thisyear, for thefirst time,weorganiseda two-dayecoCareCommunityProgramme inconjunctionwithMalaysianEnvironmentWeek2016.Duringtheprogramme,membersofthecommunity,students,localauthoritiesandPETRONASstafftookpartinplantingmangroveseedlings.TheyalsoattendedatalkonrecyclingandresponsibleusageofplasticsbytheMalaysianPlasticsManufacturersAssociation.

ecoCareEnvironmentalEducationCentre

86

Sectionfour

PETRONAS CHEMICALS

GROUP BERHAD

WORKFORCE DIVERSITY AND INCLUSION

We value people fromdifferent backgrounds and age groups for thefresh perspectives and insights they bring to our company. This isespecially important as we operate in an increasingly globalisedenvironment. We therefore strive to bring together a diverse groupoftalentswhoarerecruitedbasedonmerit,andwhoaregivenequalopportunitiestogrowandcontributetoourdynamicteam.

Asanequalopportunityemployer,wecreateaworkenvironmentthatiswomen-friendly.Womenwithchildrencanavailofourflexibleworkinghourstobalancetheirjobcommitmentswithpersonalresponsibilities.Westrive toaccommodate requests fromwomen tomove from jobsinourplantstoanofficeenvironment, formoremanageableworkinghours.Withinourheadquartersandplants,wehaveallocateddedicatedroomswithconducivefacilitiesformothers.

Ourwomenexecutivesarefurtherencouragedto jointhePETRONASLeading Women Network to benefit from role-modelling for theirprofessionaldevelopment,andnetworkingopportunitieswith leadersandpeers.

Company-wide,femaleemployeesmakeup18%ofourtotalworkforce.Thisisinfluencedbythelargelymaledominatedrepresentationinourplants. At the seniormanagement level, gender balance is amplifiedwithwomenmakingup27%ofourManagementCommittee.

GENDER DIVERSITY - TOTAL

18.8%

81.2%

19.5%

80.5%

18.0%

82.0%

2015 20162014

Female

Male

GENDER DIVERSITY - BOARD OF DIRECTORS

2015 20162014

Female

Male20%

80%

20%

80%

20%

80%

Diversity is also reflected at the Board level. During the year, a newBoardDiversityPolicywasdevelopedwhichunderlinesitscommitmenttoensureasuitablemixofmembers’profilesastoachieveeffectivestewardship and management. The new policy also reiterates theBoard’saimtohaveatleast30%representationofwomendirectors.


To find out more about PETRONAS’ CoBE and Whistle-Blowing Policy please refer to pages 94, 107 and 124 in Our Governance section.

ANTI-CORRUPTION

WehavezerotoleranceforanyformofbriberyorcorruptionandingrainallouremployeeswithPETRONAS’CodeofConductandBusinessEthics(CoBE)toensureeveryoneupholdsahighlevelofprofessionalismandintegrity.

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Sectionfour


EMPLOYEE RETENTION & CONTRACT STAFF

Asaresultofincreasedfocusonempoweringourfull-timeemployeesandreducingourdependencyoncontractstaff,thenumberofthelatteratPCGdroppedfrom8.6%in2015to5.1%in2016.Atthesametime,ourturnoverratefor2016remainslowat1%.

2015 20162014

7.8%

8.6%

5.1%

PERCENTAGE OF STAFF THAT ARE ON CONTRACT

2015 20162014

EMPLOYEE TURNOVER RATE

1.8% 1.8%

1.0%

WORKFORCE TRAINING AND DEVELOPMENT

Our employees determine the effective execution of PCG’s businessstrategyandoperations.Toensuretheyhavethecapabilitiesrequired,we provide continuous training and development for everyone at alllevelsintheCompany.

LEADERSHIP DEVELOPMENT PROGRAMME

Leadership programmes at the entrance level are designed aroundhelpingindividualsdevelopleadershipskillsandcontinueuntilthelevelof leadingtheself, i.e.becomingcommittedtoowngoals,managingchallengesandrisks,andrecognisingownstrengthsanddevelopmentareas.

Toassistournewmanagersmakethetransitionintoleadershiproles,conditioning programmes are introduced to enhance self-awareness,

equipthemwithessentialknowledgeaswellaskeyskillstoeffectivelyleadthemselvesandotherstoeffectchangeinthebusiness.Ultimately,ourleadersaretrainedtomaketheefficienttransitionintostrategicimplementers.

CAPABILITY DEVELOPMENT PROGRAMMES

Ouremployeedevelopmentprogrammesarefocusedontechnicalandnon-technicalemployees,guidedbyPETRONAS’competencyframework.

Theleadershipteamisheavilyinvolvedinourtraininganddevelopmentprogrammestoensurewehaveapipelineofcompetentstaff.In2015, aspecialcommitteewassetuptosteerourcapabilitiesdevelopmentdirectionanditsexecution.

Variouscompetency-enhancingprogrammesandassessmentshavebeenimplemented,including:

1. DownstreamGroundingProgramme(DGP)thatprovidesnewtechnicalexecutivesandnon-executivesstructuredandsystematicon-the-job-trainingforanoverallperspectiveofthePETRONASDownstreambusiness.Throughtheprogramme–whichrunsforoneyearfortechnicalexecutivesandsixmonthsfornon-executives–theygainknowledgeandskillsinoperations,engineeringandtechnology.

2. AcceleratedCompetencyDevelopment (ACD) thatdevelops technicalexecutives inspecialiseddisciplines toensure targetedcompetencylevelsareachieved.Theyareassignedwithcoachesandprovidedon-the-jobaswellasclassroomtraining. In2016,about1,080technicalexecutives underwent ACD assessments conducted by certified assessors to identify their competency levels and to serve as input forindividualdevelopmentplans.

88

Sectionfour

PETRONAS CHEMICALS

GROUP BERHAD

EMPLOYEE TRAINING

8.7

10.512.0

6.1

2015

8.5

7.4

2016*2014

Training Investment(ThousandRMperEmployee)

Training Man-daysperEmployee

During the year, we spent more on training per employeealthoughtheaveragenumberofdaysspentontrainingdippedslightly from that in 2015. This was due to more efficientfocus on meeting individual needs and filling competencygaps,especiallyinspecialisedareas.

As part of our CSR, in 2016we provided industrial trainingopportunities in both technical and non-technical areasto approximately 275 undergraduates. The students wereassignedtoareasrelatedtotheiracademicbackgrounds.

OUR WAY FORWARD

PCGviewssustainabilityasanongoingjourney,whichrequiresourcontinuousimprovementtomeetfuturechallengesandopportunities.Movingforward,wewillcontinuetostrengthenoursustainabilitystrategyby:


3. DownstreamTechnicalManagersCapabilityAssessment(TMCA)whichassessesthefunctionalcapabilitiesoftechnicalmanagersincarryingouttheirroleinplants.Atotalof25technicalmanagerswereassessedin2016.

4. PETRONASCompetency-basedAssessmentSystem(PECAS)whichascertainsthecompetencyofournon-executivetechnicalemployees,whohavetoundergotheprogrammewithin2.5years.In2016,about1,200staffwereinvolvedinvariousphasesoftheprogramme;andbytheendoftheyear,about350staffhadcompletedit,80%ofwhomcompleteditwithinthe2.5-yeartimeframe.

5. A Capability Development Framework (CDF) for the Commercial teamwas established to provide a structured approach in developing aversatilecommercialteamwithoverallexposuretocriticalrolesinbusiness,leadershipandspecialisedareas.Meanwhile,afeasibilitystudyonaProfessionalCareerPathfortheMarketing&Salesteamwasconducted.

SUCCESSION MANAGEMENT

Successionplanningiscriticalforthecontinuityofourbusinessoperations,ensuringwehavereadyandcredibletalenttofillinleadershipgapsinatimelymanner.OurtalentpoolisnotlimitedtoPCG’sownworkforcebutextendstosuitableleaderswithinthePETRONASGroup.

Incorporating sustainability elements into more sections of PCG’s business

Further strengthening our governance and processes related to sustainability

Enhancing our stakeholder engagement process

Expanding our sustainability reporting to include additional sustainability issues

Periodically reviewing our sustainability materiality assessment

HOW WE ARE

GOVERNED


W e b e l i e v e i n o p e r a t i n g a t t h e h i g h e s t l e v e l o f

i n t e g r i t y a n d t r a n s p a r e n c y, a n d a r e g u i d e d t o d o

s o b y o u r p r i n c i p l e s o f c o r p o r a t e g o v e r n a n c e .

H e r e , w e p r o v i d e a t r a n s p a r e n t a c c o u n t o f w h a t

c o r p o r a t e g o v e r n a n c e m e a n s t o u s a n d h o w w e

e n h a n c e o u r v a l u e t o s t a k e h o l d e r s b y h a v i n g i n

p l a c e a s t r o n g s y s t e m o f c h e c k s a n d b a l a n c e s .

CONTENTS

90 StatementonCorporateGovernance

• BoardAuditCommitteeReport

• NominationandRemunerationCommitteeReport

116 StatementonRiskManagementandInternalControl

*Thecross-referencingiconsreferreadersto

informationelsewhereinthisreport

90

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PETRONAS CHEMICALS

GROUP BERHAD

STATEMENT ON CORPORATE GOVERNANCE

CHAIRMAN’S OVERVIEW

MD ARIF MAHMOOD

CHAIRMAN

DEAR SHAREHOLDERS,

EFFECTIVE CORPORATE GOVERNANCE IS INTEGRAL TO THE SUCCESSFUL DELIVERY OF BUSINESS GOALS FOR OUR MANY AND DIVERSE STAKEHOLDERS, HOW WE WORK IS AS IMPORTANT AS WHAT WE DO. PCG OPERATES UNDER A WELL-DEVELOPED GOVERNANCE FRAMEWORK DESIGNED TO FOSTER TRANSPARENCY, INTEGRITY AND AN INFORMED APPROACH TO RISK MANAGEMENT ACROSS OUR WORLDWIDE BUSINESS. WE HAVE CLEAR STANDARDS OF BEHAVIOUR WE EXPECT FROM EVERYONE WHO WORKS WITH US.

The Board’s role is to review and guide the strategyfor theGroup,appoint the right leadershipandensureeffective implementation whilst monitoring businessperformance and ensuring the timely and effectiveassessment and management of business risks. Ourgoal is to build an enduring and profitable businessadmired by customers and other stakeholders, whilstachievingstrongreturnsforourshareholders.Thiswasa year of excellence for PCG and the Board played aleadingroleinsteeringmajortransactionsdescribedintheManagementDiscussionandAnalysisonpages41to52.AstheGroup’sstrategycontinuestoevolve,theBoard is focused on ensuring that the Group remainson course in achieving its target and long term valuecreation.

IamfortunateasChairmantobeabletocallonabroadand diverse range of skills and perspectives aroundthe boardroom table. In its current composition, ourBoardconsistsofeightDirectors,withvastleadershipexperience across numerous industrial sectors. Withtwofemaledirectors, Iampleasedtosaythatwearewell on our way to achieving the nation's target of30% of Board roles held bywomen.Wewill continuethe pursuit of female directors to ensure continueddiversityintheBoard.

Whilst theBoard isconfident thatPCG iswell-placedto continue to reward shareholders for their supportfor our strategy, we expect operating conditions toremain challenging in a number of our key marketsovertheyearahead.Tothisend,wewillhavealinearfocus on ensuring the Group maintains a rigorousand analytical approach to the management of riskwhilstseekingtoencouragetheentrepreneurshipandinnovationnecessarytodriveperformanceexcellenceanddynamicgrowthacrosstheportfolio.

Md Arif MahmoodChairman

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Statement on Corporate Governance (Cont’d)

OUR APPLICATION OF THE MALAYSIAN CODE ON CORPORATE GOVERNANCE 2012

ThetablebelowsetsouttheobservanceofPCGwiththeprinciplesandrecommendationsofMalaysianCodeonCorporateGovernance2012inrespectof2016.

Principle/Recommendation Page No. Remarks

Principle 1 – Establish Clear Roles and Responsibilities

1.1 TheBoardshouldestablishclearfunctionsreservedfortheBoardandthosedelegatedtomanagement.

94-96,104,118

1.2 TheBoardshouldestablishclearrolesandresponsibilitiesindischargingitsfiduciaryandleadershipfunctions.

95,114

1.3 TheBoardshouldformaliseethicalstandardsthroughacodeofconductandensureitscompliance.

94

1.4 TheBoardshouldensurethattheCompany’sstrategiespromotesustainability.

75-88

1.5 TheBoardshouldhaveprocedurestoallowitsmembersaccesstoinformationandadvice.

104

1.6 TheBoardshouldensureitissupportedbyasuitablyqualifiedandcompetentcompanysecretary.

104,115

1.7 TheBoardshouldformalise,periodicallyreviewandmakepublicitsBoardCharter.

95

Principle 2 – Strengthen Composition

2.1 TheBoardshouldestablishaNominatingCommitteewhichshouldcompriseexclusivelyNon-ExecutiveDirectors,amajorityofwhommustbeindependent.ThechairoftheNominatingCommitteeshouldbetheSeniorIndependentDirector.

111-113

TheNominationandRemunerationCommitteeischairedbyanIndependentDirector,ChingYewChye,whoisnottheSeniorIndependentDirectoridentifiedbytheBoard.TheSeniorIndependentDirector,VimalaV.R.Menon,iscurrentlytheChairmanoftheBoardAuditCommittee.TheCompanyelectstohavedifferentchairmanshipsinBoardAuditCommittee,andNominationandRemunerationCommitteesoastoleverageonthedifferentperspectivesanddynamicswhichemanatesfromsucharrangements,aswellastoensurethateachindependentdirectorhasequitablerolesandresponsibilitiesrespectively.TheCompanyintendstomaintainthecurrentarrangement.

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2.2 TheNominatingCommitteeshoulddevelop,maintainandreviewthecriteriatobeusedintherecruitmentprocessandannualassessmentofDirectors.

97, 104-105,

112

2.3 TheBoardshouldestablishformalandtransparentremunerationpoliciesandprocedurestoattractandretainDirectors.

101-102

ApolicyiscurrentlybeingdevelopedandwillbeputtotheBoardforapprovalinduecourse.AtpresentBoardremunerationremainscompetitiveandisbenchmarkedagainstindustrystandards.

Principle 3 – Reinforce Independence

3.1 TheBoardshouldundertakeanassessmentofitsIndependentDirectorsannually.

104-105,112

3.2 ThetenureofanIndependentDirectorshouldnotexceedacumulativetermofnineyears.Uponcompletionofthenineyears,anIndependentDirectormaycontinuetoserveontheBoardsubjecttotheDirector’sre-designationasaNon-IndependentDirector.

26-33,98

3.3 TheBoardmustjustifyandseekshareholders’approvalintheeventitretainsasanIndependentDirector,apersonwhohasservedinthatcapacityformorethannineyears.

98

3.4 ThepositionsofChairmanandChiefExecutiveOfficershouldbeheldbydifferentindividuals,andtheChairmanmustbeaNon-ExecutivememberoftheBoard.

26-27,96,114

3.5 TheBoardmustcompriseamajorityofIndependentDirectorswheretheChairmanoftheBoardisnotanIndependentDirector.

96

TheChairmanoftheCompanyiscurrentlyaNon-IndependentNon-ExecutiveDirector.ThisispremisedonthehighlevelofintegrationwithPETRONAS’business.TheBoardcurrentlyhasfourIndependentNon-ExecutiveDirectors,threeNon-IndependentNon-ExecutiveDirectorsandoneExecutiveDirector.ThecurrentBoardcompositionisbalancedandcomplieswithParagraph15.02oftheMMLR,as50%oftheBoardmembersareIndependentDirectors.TheCompanyintendstomaintainthecurrentBoardcomposition.

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Principle 4 – Foster Commitment

4.1 TheBoardshouldsetoutexpectationsontimecommitmentforitsmembersandprotocolsforacceptingnewdirectorships.

95,104

4.2 TheBoardshouldensureitsmembershaveaccesstoappropriatecontinuingeducationprogrammes.

98-99

Principle 5 – Uphold Integrity in Financial Reporting

5.1 TheAuditCommitteeshouldensurefinancialstatementscomplywiththeapplicablefinancialreportingstandards.

108-109

5.2 TheAuditCommitteeshouldhavepoliciesandprocedurestoassessthesuitabilityandindependenceofExternalAuditors.

-

ApolicyiscurrentlybeingdevelopedandwillbeputtotheBoardforapprovalinduecourse.AtpresenttheBoardAuditCommitteecontinuestoreviewandmonitorthesuitabilityandindependenceofexternalauditors.

Principle 6 – Recognise and Manage Risks

6.1 TheBoardshouldestablishasoundframeworktomanagerisks.

94, 116-121

6.2 TheBoardshouldestablishaninternalauditfunctionwhichreportsdirectlytotheAuditCommittee.

109-110

Principle 7 – Ensure the Timely and High Quality Disclosure

7.1 TheBoardshouldensuretheCompanyhasappropriatecorporatedisclosurepoliciesandprocedures.

106

7.2 TheBoardshouldencouragetheCompanytoleverageoninformationtechnologyforeffectivedisseminationofinformation.

104,106

Principle 8 – Strengthen Relationship between Company and Shareholders

8.1 TheBoardshouldtakereasonablestepstoencourageshareholderparticipationatgeneralmeetings.

106

8.2 TheBoardshouldencouragepollvoting.

106

Effective2017,generalmeetingswillbeconductedviae-polling.IndependentScrutineersandPollAdministratorwillbeappointedtoconductthepollingprocessandverifytheresultsofthepoll.

8.3 TheBoardshouldpromoteeffectivecommunicationandproactiveengagementswithshareholders.

106


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GROUP BERHAD

HOW WE APPROACH OUR GOVERNANCE

Webelieveeffectivegovernancebeginsatthetop.TheBoardprovidesguidanceandoversight,whilemanagementdefinesandexecutesstrategyandsimultaneouslymanagesrisks.SuccessattheBoardandmanagementlevelatPCGinvolvessettingtherightpriorities,havingtheappropriateteammembersinplace,evaluatingourselves,continuingoureducationandcommunicatingwithourstakeholders.

OUR GOVERNANCE FRAMEWORK

Goodcorporategovernanceenhances thecredibility and reputationof theCompany, aswell aspromotingandsafeguarding the interestsofshareholdersandotherstakeholders.MaintainingagoodandsolidframeworkofcorporategovernancehasbeenandremainsoneofPCG'stoppriorities.

WeuseaCorporateGovernanceFrameworktoidentifyallthekeyparticipantsingoodgovernance,thewaysinwhichtheyrelatetoeachotherandthecontributioneachmakestotheapplicationofeffectivegovernancepoliciesandprocesses.

Assurance providers:

InternalAudit

ExternalAuditBoard

AuditCommittee

ManagementCommittee

NominationandRemunerationCommittee

OUR ETHICS AND STANDARDS

TheGroupadopts andpractises thePETRONASCodeofConduct andBusinessEthics (CoBE)which emphasises andadvances theprinciplesofdiscipline,goodconduct,professionalism,loyalty, integrityandcohesivenessthatarecriticaltothesuccessandwell-beingoftheGroup.TheCoBEcontainsdetailedpolicy statementson thestandardsofbehaviourandethical conduct expectedof each individualof theGroup.TheGroupalsorequiresthatcontractors,sub-contractors,consultants,agentsandrepresentatives,andothersperformingworkorservicesfororonbehalfoftheGrouptocomplywiththerelevantpartsoftheCoBEwhenperformingsuchworkorservices.TheCoBEexpresslyprohibitsimpropersolicitation,briberyandothercorruptactivitiesnotonlybyemployeesanddirectorsbutalsobythirdpartiesperformingworkorservicesfororonbehalfofcompaniesintheGroup.

TheCoBEisaccessibletothepublicforreferenceontheCompany’sofficialwebsiteatwww.petronaschemicals.com.


Shareholders(viatheAGMandAnnualReport)

ManagingDirector/CEO

BoardofDirectors

RiskMan

agem

ent

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Sectionfive


BOARD OF DIRECTORS

The Board CharterTheBoardCharterassignsresponsibilityforstrategicdirectionandcontroloftheGrouptotheBoard.TheBoardexercisesthiscontrolbywayoftheGroup'sgovernanceframework,whichincludesdetailedreportingtotheBoardanditscommittees,andasystemofassurancesoninternalcontrols.TheBoardregularlyreviewstheBoardCharter,whichincludesthosemattersreservedforboarddecision-makingandapprovesthedelegationofauthority tomanagement inspecifiedmatters.Our lastBoardCharter review,heldon20February2017, resulted in theapprovalofaprovisionexplainingtherolesoftheChairman,ManagingDirector/CEO,Non-ExecutiveDirectorsandSeniorIndependentDirectorinadditiontothedutiesandresponsibilitiesoftheBoard,BoardaccountabilityandBoardprocesses.

TheBoardChartersetsoutthepracticesandprocessesadoptedtoenabletheBoardtodischargeitsresponsibilities.TheBoardCharterisavailableontheCompany’swebsite,www.petronaschemicals.comtogetherwiththetermsofreferenceofallitscommittees.TheBoardissatisfiedthatitfulfilledthesedutiesandobligationsduringtheyearunderreview.

The Board’s Responsibilities and DutiesTheBoardischargedwithpromotingthesuccessoftheGroupbydirectingandsupervisingitsaffairsinaresponsibleandeffectivemanner.EachDirectorhasadutytoactingoodfaithandinthebestinterestoftheCompany.TheDirectorsareawareoftheircollectiveandindividualresponsibilitiestoallshareholdersforthemannerinwhichtheaffairsoftheCompanyaremanaged,controlledandoperated.

ThediagrambelowshowsthekeyareasoffocusfortheBoardwhichappearasitemsontheBoard’sagendaatrelevanttimesthroughouttheyear.ConcentrateddiscussionoftheseitemsassiststheBoardinmakingtherightdecisionsbasedonthelong-termopportunitiesforthebusinessanditsstakeholders.

KEY AREAS OF FOCUS FOR THE BOARD

04EnsurethatthereisanappropriatesuccessionplanformembersoftheBoardandKeyPersonnel

05Reviewtheadequacyandintegrityofinternalcontrolsystemsandmanagementinformationsystems,includingsystemsforcompliancewithapplicablelaws,regulations,rules,directivesandguidelines

06Reviewandapprovefinancialstatements

01Review,approveandmonitorannualcorporateplan,

whichincludesoverallcorporatestrategy,operationalplan,marketingplan,humanresourcesplan,financialplan andbudget,riskmanagementplanandinformation

technologyplan

02Overseeandreviewtheperformanceofthebusiness,andto

evaluatewhetherbusinessisbeingproperlymanaged

03Identifyprincipalrisksandensuretheimplementationofappropriatesystemstomonitorandmanagetheserisks

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PROVIDING SOUND LEADERSHIP

Board Balance and CompositionThe Board comprises eight Directors as at 31December2016,ofwhomoneisanExecutiveDirectorandsevenareNon-ExecutiveDirectors.25%ofthedirectorsarewomen.

The Board has determined that four of theNon-Executive Directors are independent inaccordancewiththeMMLRofBursaMalaysia.TheBoardisoftheviewthatallNon-ExecutiveDirectors exercise independent judgement atalltimes.

TheNominationandRemunerationCommitteetakesintoaccountcorporateleadershipskills,experience and expertise required to advancethe strategic direction of the Company whenappointments to the Board are considered.TheBoardensuresthatithastherightbalanceof skills, experience, independence andbusiness knowledge necessary to dischargeitsresponsibilities inkeepingwiththehigheststandards of governance. In the Board’sassessment,allDirectorshavetheknowledge,skills and experience to make a meaningfulcontributiontothebusinessoftheCompany.

The positions of Chairman and ManagingDirector/CEO are held separately by MdArif Mahmood and Datuk Sazali Hamzahrespectively. This segregation ensures aclear distinction between the Chairman’sresponsibility to manage the Board andthe Managing Director/CEO’s responsibilityto manage the Company’s business. Therespective responsibilities of the ChairmanandManagingDirector/CEOaremorefullysetoutonpage114.TheManagingDirector/CEOisassistedby theManagementCommittee inmanagingthebusinessonaday-to-daybasis,whichheconsultsregularly.TheManagementCommitteeensureseffectivesystems,controlsandresourcesareinplacetoexecutebusinessstrategies and decisions taken by the Boardand/ortheManagingDirector/CEO.

Refer to pages 26 to 33 for the profiles of the Directors.

Attendance of Board and Board Committee meetings are provided on page 103.

Right balance of skills and experience to make a meaningful contributionto the business of the Company

BOARD SKILLS AND DIVERSITY

The Board consists of Directors with a diverse range of experience including oil and gas,engineering,financeandcommercial.

BOARD OF DIRECTORS

Non-Independent Non-Executive Director

• MdArifMahmood

• ZakariaKasah

• FreidaAmat

Executive Director

• DatukSazaliHamzah

Independent Non-Executive Director

• VimalaV.R.Menon

• ChingYewChye

• DongSooKim

• DatukTohAhWah

Oil and Gas Industry

Finance/Audit

Economics

Engineering

Commercial/Marketing

Operations

Corporate Planning and Development

Human Resource

Information Technology

Global Petrochemical Consultancy

SKILLS

TENURE4 to 7 years

2 to 4 years

0 to 2 years

3 Directors

2 Directors

3 Directors


Management CommitteeManagementstaffoftheCompanyaresecondedfromPETRONAS.Theirtrainingandsuccessionplanning are aligned to PETRONAS’ Human Resource Policies and Strategies. The BoardensuresthatonlyappropriatepersonnelwiththerelevantskillsandexperienceareappointedtomanagementpositionsoftheCompany.

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BOARD DIVERSITY POLICY

PCGhasadiversitypolicytoensurethatthemixandprofilesofourBoardmembers,intermsofage,ethnicityandgender,providethenecessaryrangeofperspectives,experienceandexpertiserequiredtoachieveeffectivestewardshipandmanagement.WebelievethatatrulydiverseandinclusiveBoardwill leveragedifferences in thought,perspective,knowledge,skill, regionaland industryexperience,culturalandgeographicalbackground,age,ethnicityandgenderwhichwillensurethattheCompanyretainsitscompetitiveadvantage.

Inthisregard,theNominationandRemunerationCommittee(NRC)isempoweredtoreviewandassessthecompositionandperformanceoftheBoardannually,aswellasidentifyingqualifiedcandidatestooccupyBoardpositions.AsforthecompositionoftheBoard,theNRCwilldeterminethebenefitsofdiversityinordertomaintainanoptimummixofskills,knowledgeandexperienceoftheBoard.

TheNRCwillcontinuetofocusondiversitywhenrecommendingnewcandidatesforBoardmemberships,aswellasevaluatingtheperformanceoftheBoardanditsindividualmembers.InconnectionwithitsefforttocreateandmaintainadiverseBoard,theNRCwill:

a) Adheretotherecruitmentandsourcingprocessthatseekstoincludediversecandidates,includingwomeninanydirectorsearch.

b) Assesstheappropriatemixofdiversityincludinggender,ethnicity,age,skills,experienceandexpertiserequiredontheBoardandaddressgaps,ifany.

• Male

• Female

• Male

• Female

• Male

• Female

• Oil&GasIndustry

Commercial/Marketing

CorporatePlanningandDevelopment

Finance/Audit

Engineering

Operations

Economics

HumanResource

InformationTechnology

GlobalPetrochemicalConsultancy

Board Audit Committee

Skills Matrix

Gender

Nomination andRemuneration Committee

40%

60% 67%

33%

14% 20%

17%

11%11%

11%

6%

3%3%

3%

75%

25%

2016

2016

2016 2016

40-49

50-59

Above60

Age

2016 50%

12%

38%

Malay

Chinese

Indian

Korean

Ethnicity

201650%

24%

13%

13%

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PETRONAS CHEMICALS

GROUP BERHAD

c) Make recommendations to theBoard in relation to theappointmentsandmaintainanappropriatemixofdiversity, skills, experienceandexpertiseontheBoard.

d) PeriodicallyreviewandreporttotheBoardonrequirementsinrelationtodiversityontheBoard,ifany.

TheBoardsupportsthecountry’saspirationaltargetof30%representationofwomendirectors.

TheNRCwillreviewannuallythecompositionoftheBoardinrespecttogender,experience,skills,ageandknowledge.Atanygiventime,theBoardmayseektoimproveoneormoreaspectsofitsdiversityandmeasureprogressaccordingly.

RE-ELECTION OF DIRECTORS

UnderArticle93oftheConstitutionoftheCompany,ateveryAnnualGeneralMeeting(AGM),one-thirdoftheDirectorsshallretirefromofficebyrotationandmayofferthemselvesforre-election.TheConstitutionsoftheCompanyalsoprovidethatallDirectorsaresubjecttoretirementbyrotationatleastonceineverythreeyearsandshallbeeligibleforre-election.DirectorswhoareappointedbytheBoardduringtheyeararesubjecttore-electionbyshareholdersatthenextAGMheldfollowingtheirappointments.

AsperRecommendations3.2and3.3ofMCCG2012,thetenureofanindependentdirectorshouldnotexceedacumulativetermofnineyears.Uponcompletionofthenineyears,anindependentdirectormaycontinuetoserveontheboardsubjecttothedirectors’re-designationasanon-independentdirector.Theboardmustjustifyandseekshareholders’approvalintheeventitretainsthedirectorasanindependentdirector.

Currently,noneoftheIndependentNon-ExecutiveDirectorsoftheCompanyhasservedtheBoardformorethannineyears.

DIRECTORS' CONTINUING DEVELOPMENT PROGRAMME

AlltheDirectorshaveattendedtheMandatoryAccreditationProgrammeasrequiredundertheMMLRofBursaMalaysia.

TheDirectorsareregularlyupdatedontheGroup’sbusinessesandthecompetitiveandregulatoryenvironmentinwhichtheGroupoperates.AsanintegralpartoftheorientationprogrammefornewDirectors,theCompanyprovidescomprehensivebriefingsontheGroup’soperationsandfinancialperformanceaswellassitevisitstotheGroup’sfacilities.

TheDirectorsobservePrinciple4ofMCCG2012andrecognisetheimportanceandvalueofattendingconferences,trainingprogrammesandseminarsinordertokeepthemselvesabreastwiththedevelopmentandchangesintheindustriesinwhichtheGroupoperates,aswellastoupdatethemselvesonnewstatutoryandregulatoryrequirements.Duringtheyearunderreview,theDirectorshaveattendedandparticipatedinprogrammes,conferencesandforumsthatcoveredtheareasofcorporategovernance,financial,relevantindustryupdatesandglobalbusinessdevelopmentswhichtheyconsideredasusefulincontributingtotheeffectivedischargeoftheirdutiesasDirectors.TheDirectorsalsoparticipatedinfamiliarisationvisitstotheGroup’splants.

Duringtheyear,theDirectorsparticipatedinseminarsandtrainingprogrammesinvariouscapacitiessuchasdelegatesand/orspeakersasperdetailsbelow:

Directors Training/Conferences Date

MDARIFMAHMOOD •PETRONASDownstreamDigitalWorkshop•PETRONASDownstreamCommercialExcellence•BainSoutheastAsiaTransformationLeadersForum•PETRONASCulturalBeliefsWorkshop•OffshoreTechnologyConferenceAsia2016•VopakGlobalMindsConference•DownstreamOperationalExcellenceForumandAward

19-20January20165February20162March20168March201622March20165October201617October2016


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Directors Training/Conferences Date

DATUKSAZALIHAMZAH

•StrategicConversationWorkshop•DownstreamCommercialExellenceTransformation•PCGTownhall2016•AsiaRefiningTechnologyConference(ARTC)2016• 9thReliability,AssetManagementandSafetyAsia2016•VisittoPICProjectSite,Pengerang

12January201627January201611March201620April201625April20168August2016

VIMALAV.R.MENON

•NewAuditor'sReport-SharingtheUKExperience•CorporateGovernanceBreakfastSeries-ImprovingBoardRiskOversightEffectiveness

•EnsuringOrganisation'sSustainabilitythroughIntegratedStrategicCorporateRiskManagementPrograms

•SitevisittoPICProjectSite,Pengerang,Johor•BusinessSustainability•GeneralandDetailedSustainabilityStatementsinAnnualReport2017•BestPracticesforBoardExcellence• 5thPETRONASBoardAuditCommitteeForum

13January201626February2016

11July2016

23July201615July201625July20163August201616August2016

CHINGYEWCHYE •BursaMalaysia/MIA-MICPA-FutureofAuditorReporting:TheGameChangerforBoardroom

•McKinsey&CompanyLeadingtheDigitalandAnalyticsRevolution• ReviewofSecuritiesCommissionDraftMalaysianCodeofCorporateGovernance2016•VisittoPICProjectSite,Pengerang•MAICSA&BursaMalaysia:HowtoLeverageonAGMsforBetterEngagementwithShareholders

9March2016

2June20166June20168August201621November2016

DONGSOOKIM •WhatDoesItTaketoWininGlobalEnvironment?•LeadersMakeItHappenThroughPeople•ClimateChangeisReal:WhatistheRoleofaLeader?•LeadershipintheGlobalBusinessandImpacttotheCompetitiveness•VisittoPICProjectSite,Pengerang

6March20169April20165June201614July20168August2016

DATUKTOHAHWAH •VisittoPICProjectSite,Pengerang•EmbracingtheBoard’sRoleinCorporateTransformation

8August201612October2016

ZAKARIAKASAH •BestPracticesforBoardExcellence 3August2016

FREIDAAMAT •TheAGM-ThePracticalInsightandManagingShareholders’Expectation•VisittoPICProjectSite,Pengerang• 5thPETRONASBACForum•TheInsideStoryoftheAnnualReport:WhatDirectorsMustKnow

21June20168August201616August201623September2016


Aside from the attendance of training and conferences, during the year under review, the PCG Board had an independent sessionwith thecommercialteam,tofurtherunderstandcommercialexcellenceinitiativesandcommercialkeyoperationalactivities.

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Overview of various agenda items on the Board and Board Committees meetings 2016

• Q42015BusinessPerformanceandAuditedFinancialStatements

• FY2015AnnualReportStatements• Q42015InternalAuditStatusReport• BoardEffectivenessEvaluationFY2015• FY2016KPIsforManagingDirector/CEO

• Update/approvalonvariousPCGprojects

• ReviewStrategiesandImplementationProgressofCommercialExcellence

• Q12016BusinessPerformanceandQuarterlyResults• Q12016CorporateRiskProfileMonitoringUpdate• Q12016InternalAuditStatusReport• ProgressStatusofInternalAuditPlanFY2016• FY2016KPIsforHeadofInternalAuditDepartment• Update/approvalonvariousPCGprojects/

agreements• InternalSelectionCriteriaofIndependentBoard

Member

• Q22016BusinessPerformanceandQuarterlyResults• Q22016CorporateRiskProfileMonitoringUpdate• Q22016InternalAuditStatusReport• ProgressStatusofInternalAuditPlanFY2016• Update/approvalonvariousPCGprojects/agreements• FY2016PeriodicPerformanceReviewandDevelopment

PlanofPCGKeyPersonnel

• Update/approvalonvariousPCGprojects/agreements

• BoardDiversityPolicy&SeniorExecutivePolicy

JAN FEB MAR APR MAY JUNE

JUL AUG SEP OCT NOV DEC

BoardBoardAuditCommitteeNominationandRemuneration Committee

BoardBoardAuditCommitteeNominationandRemuneration Committee


• Q32016BusinessPerformanceandQuarterlyResults• Q32016CorporateRiskProfileMonitoringUpdate• Q32016InternalAuditStatusReport• ProgressStatusofInternalAuditPlanFY2016• Update/approvalonvariousPCGprojects/agreements• BusinessPlansandBudgetFY2017-2021• CorporateRiskProfileReviewforFY2017• SustainableDevelopmentStrategy• IndependentDirectors’Feedbackontheperformance ofPCGKeyPersonnel• Re-electionofDirectors• BoardSelectionCriteria• BoardSkillMatrix

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DIRECTORS' FEES

TheapproachtoDirectors'feesisalignedwithourstrategicobjectives,allowsustoattract,motivateandretainhighcalibertalent,andaspartof our risk framework, does not promote excessive risk-taking. Thedesignofourfeesarchitecturecomplieswithregulatoryrequirements,embraces market practices and trends, and provides attractive andbalancedrewards.

Non-Executive DirectorsOurfeesstructureforNon-ExecutiveDirectorsaredesignedtoattractandretainhighcaliberBoardmemberswhoareappropriatelypaidfortheirtimeandeffort.ThefeesstructureofNon-ExecutiveDirectorsoftheCompanyisasfollows:

• Fees for duties as Directors and additional fees for undertakingresponsibilitiesasChairmanoftheBoard;and

• Meetingallowancesforeachmeetingattended.

ThefeesforNon-ExecutiveDirectorsaredeterminedbytheBoardandsubjecttotheapprovaloftheshareholdersoftheCompanyattheAGM.MeetingallowancesforalltheNon-ExecutiveDirectorsaredeterminedby theBoard. The shareholders at theCompany’sAGMheld in 2013approvedfortheCompanytopayDirectors’ feesuptoRM1.5millionperannum.

TheDirectors’feesandmeetingallowancesforcertainNon-IndependentNon-Executive Directors who are also employees of PETRONAS andholding positions of Vice President and above are paid directly toPETRONAS. The presence and participation of the Non-IndependentNon-Executive Directors who are employees of PETRONAS give theBoardadeeperinsightintoPETRONAS'operations.

AnnualFees

Board - RM108,000(Chairman)- RM432,000(Non-ExecutiveIndependentDirectors)

- RM144,000(Non-ExecutiveNon-IndependentDirectors)

MeetingAllowances(BoardandallBoardCommittees)

Board - RM24,000(Chairman)- RM98,000(Non-ExecutiveIndependentDirectors)


BoardAuditCommittee - RM17,500(Chairman)- RM52,500(Non-ExecutiveIndependentDirectors)


NominationandRemunerationCommittee

- RM17,500(Chairman)- RM35,000(Non-ExecutiveIndependentDirectors)

AnnualGeneralMeeting - RM4,000(Chairman)- RM14,000(Non-ExecutiveIndependentDirectors)


TheCompanyalsoreimbursesallexpensesincurredbytheDirectors,whererelevant,inthecourseofcarryingouttheirdutiesasDirectors.

Executive DirectorTheremunerationpackagefortheExecutiveDirectoroftheCompanyis balanced between fixed and performance-linked elements. Aportionof theExecutiveDirector’scompensationpackage isvariableinnatureand isKPI-based,which includes theGroup’sperformance.AsanExecutiveDirector,heisnotentitledtoreceivedirectors’feesormeetingallowances.

DatukSazaliHamzah,ManagingDirector/CEOandanExecutiveDirectoroftheCompany,isanemployeeofPETRONASandissecondedtotheCompany.Inconsiderationforhisservice,theCompanyisrequiredtopay PETRONAS a fee to cover all payroll related costs and benefitsordinarilyincurredbyhiminthecourseofhisemployment.Duringtheyear, the Company paid RM1,164,000 for his services as ManagingDirector/CEOoftheCompany.


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Fortheyearunderreview,thebreakdownoftheDirectors’remunerationisasfollows:

Nominationand

Board Audit RemunerationBoard Committee Committee

Directors’ Meeting Meeting MeetingFee Allowance^ Allowance* Allowance* Total

Name of Directors (RM) (RM) (RM) (RM) (RM)

Executive Director

DatukSazaliHamzah Nil Nil Nil Nil Nil

Non-Executive Directors

MdArifMahmood 108,000 28,000 - - 136,000**

VimalaV.R.Menon 72,000 28,000 17,500 17,500 135,000

ChingYewChye 72,000 28,000 17,500 17,500 135,000

DongSooKim 216,000 28,000 17,500 17,500 279,000

DatukTohAhWah 72,000 28,000 17,500 - 117,500

ZakariaKasah 72,000 21,000 - - 93,000**

FreidaAmat 72,000 24,000 10,000 - 106,000

Total 684,000 185,000 80,000 52,500 1,001,500

^ IncludingAGM'sattendance* MeetingallowancespaidarebasedonthenumberofmeetingsattendedbytheDirectors**FeespaidtoPETRONAS

TheDirectors’remunerationisbroadlycategorisedintothefollowingbands:

Range of RemunerationNumber of Directors

Executive Non-Executive

RM50,000andbelow - -

RM50,001toRM100,000 - 1

RM100,001toRM150,000 - 5

RM150,001toRM300,000 - 1

RM700,000andabove 1^ -

^ ExecutiveDirector'spayrollrelatedcostsandbenefitspaidtoPETRONAS


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OUR GOVERNANCE PROCESSES

Board and Board Committee AttendancePCGBoardmeetsinpersonatleastquarterlyperannumandonotheroccasionswhenaBoarddecisionisrequiredonmajorissues.DetailsofDirectors’attendanceattheGeneralMeetings,BoardandBoardCommitteemeetingsheldin2016aresetoutinthefollowingtable.TheoverallattendancerateofDirectorsatBoardmeetingswas96%(2015:95%).

Directors Meetings Attended/Held

Name of Directors BoardBoard Audit Committee

Nomination & Remuneration

Committee AGM

Executive Director

DatukSazaliHamzah 7/7 - - 1/1

Non-Executive Directors

MdArifMahmood 6/7 - - 1/1

ZakariaKasah 6/7 - - 1/1

FreidaAmat 7/7 5/5 - 1/1

Independent Non-Executive Directors

VimalaV.R.Menon 7/7 5/5 5/5 1/1

ChingYewChye 7/7 5/5 5/5 1/1

DongSooKim 7/7 5/5 5/5 1/1

DatukTohAhWah 7/7 5/5 - 1/1


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GROUP BERHAD

KEEPING THE BOARD INFORMED

PriortoeachBoardmeeting,theagendaandasetofBoardpapersencompassingqualitativeandquantitativeinformationrelevanttothebusinessofthemeetingarecirculatedtoallDirectorsnotlessthanfivebusinessdaysbeforethemeetingdates.ThisenablestheDirectorstohavesufficienttimetoperusetheBoardpapersandseekclarificationsorfurtherdetailsfromthemanagementortheCompanySecretarybeforeeachmeetingtoensurepreparednessforthemeeting.AnyDirectormayrequestmatterstobeincludedintheagenda.Urgentpapersmaybepresentedandtabledatmeetingsundersupplementalagenda.Boardpaperspreparedarecomprehensiveandincludesobjectives,background,criticalissues,implications, risks,strategicfit (applicableonly for investmentdecisionpapers), recommendationsandotherpertinent information toenableinformeddecisionmakingbytheBoard.

Presentationsandbriefingsbythemanagementandrelevantexternalconsultants,whereapplicable,arealsoheldatBoardmeetingstoadvisetheBoardandfurnishrelevantinformationandclarificationfortheBoardtoarriveataconsidereddecision.

Access toBoardpapersandother relevant informationarecarriedoutonline throughacollaborativesoftwarewhichallows theDirectors tosecurelyaccessBoarddocumentsandcollaboratewithotherBoardmembersandtheCompanySecretaryelectronically.TheonlineaccessibilityfacilitatestheDirectorstoreadandreviewdocumentsorcommunicatewithothermembersduringtheBoardmeetingsoratanyothertime.

TheDirectorshavedirectaccesstotheSeniorManagementandhaveunrestrictedaccesstoanyinformationrelatingtotheGrouptoenablethemtodischargetheirduties.TheDirectorsalsohavedirectaccesstotheadviceandservicesoftheCompanySecretaryandareregularlyupdatedonnewstatutoryandregulatoryrequirementsrelatingtothedutiesandresponsibilitiesoftheDirectors.TheDirectors,whetherasafullboardorintheirindividualcapacity,mayseekindependentprofessionaladviceattheCompany’sexpenseinfurtheranceoftheirduties.

THE BOARD AND ITS COMMITTEES

ThefollowingchartexplainstheresponsibilitiesandtheworkthateachBoardCommitteeundertookonbehalfoftheBoardin2016uptothedateofthisreport(theperiod).ThetermsofreferenceandmembershipofallBoardCommitteesaredisclosedinfullonthewebsitesofPCG and Bursa Malaysia.TheyarealsoavailableinwritinguponrequesttotheCompanySecretary.

BOARD

BoardAuditCommittee

Nominationand RemunerationCommittee

DetailsoftheBoardAuditCommittee,includingitsmembershipandworkdoneduringtheperiodaresetoutintheBoardAuditCommitteeReportonpages108to110ofthisAnnualReport.

Details of the Nomination and Remuneration Committee, includingits membership and work done during the period are set out in theNominationandRemunerationCommitteeReportonpages111to113ofthisAnnualReport.

BOARD EFFECTIVENESS EVALUATION (BEE)

TheNRCisresponsibletoassisttheBoardtoassesstheeffectivenessofindividualDirectors,theBoardasawholeanditscommitteesandthecontributionofeachindividualDirectors.Thisisundertakenuponthecompletionofeveryfinancialyear.

SinceDecember2010,PCGhasbeenconductingeffectivenessevaluationsforitsBoardandSub-Committees.In2016,PCGappointedaconsultanttoassistintheBEE.TheevaluationscompriseaBoardEvaluation,aCommitteeEvaluation,BoardSkillsandExperienceMatrixandIndividualDirectorSelfandPeerEvaluation.ThepurposeoftheseevaluationsaretomeasuretheeffectivenessandperformanceoftheBoardandSub-CommitteesaswellasaddresstheareasforimprovementindischargingtheirroleasDirectorsoftheCompany.


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Thequestionnaireon theBEEareprepared incorporatingapplicablebestpractices.The indicators for theperformanceof theBoard includeamongotherstheBoard’scomposition,planning,process,conduct,communicationwiththemanagementandstakeholdersaswellasstrategyandplanningfortheCompany.TheperformanceindicatorsforindividualDirectorsincludetheDirectors’roles,leadershipandcontributiontotheCompany.

TheChairmanoftheNRCisactively involvedthroughouttheBEEprocess.TheChairmanoftheNRChasthe libertytoholddiscussionswithappointedconsultantandtheChairmanoftheBoard.


BOARD EFFECTIVENESS EVALUATION

OUR PROCESS

DISTRIBUTION OF QUESTIONNAIRE

INDIVIDUAL ENGAGEMENT

SUMMARY OBSERVATIONS AND CONCLUSIONS

GroupDynamicsandEffectiveness

StructureandComposition

Communication

NRC DISCUSSION

BOARD DISCUSSION

ACTION PLAN INITIATIVES

Fortheyearunderreview,theresultsweresatisfactoryandconformtoindustrybenchmarks.

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GROUP BERHAD


COMMUNICATING EFFECTIVELY WITH SHAREHOLDERS/INVESTORS

The Board understands the importance of effective dialogue withshareholdersand investors.Webelieve thatcommunicationwithourshareholdersisatwo-wayprocess.Welistencarefullytotheviewsandfeedbackwereceivefromallofourshareholders.Inthepastyear,theManagingDirector/CEOtogetherwiththeChiefFinancialOfficerandtheCompany’s InvestorRelationsUnit conducted regular dialogueswithits institutionalshareholdersandanalysts,andheldquarterlyanalystbriefingstofurtherexplaintheGroup’squarterlyfinancialresults.TheeffectofthisresultedinbetterunderstandingoftheGroup’sfinancialperformanceandoperations.Periodically,visitstotheGroup’sfacilitiesorplantsarealsoorganisedtofacilitatebetterappreciationandinsightintotheGroup’sbusinessesandoperations.

In addition, the Company actively updates its website (www.petronaschemicals.com) with the latest information on thecorporate and business aspects of the Group. Press releases,announcements to Bursa Malaysia, analyst briefings and quarterlyresultsof theGrouparealsomadeavailableonthewebsiteandthisserves to promote accessibility of information to the Company’sshareholders and all other market participants. Communicationand feedback from investors can also be directed to email [email protected] or alternatively, it can beaddressedto:

SAFARAH ZEBA M SALIMHeadofInvestorRelationsPerformanceManagement

PETRONAS CHEMICALS GROUP BERHAD Level14,Tower1,PETRONASTwinTowers,KualaLumpurCityCentre,50088KualaLumpur

Inaddition,mattersofconcerntotheGroupfromshareholdersorotherstakeholderscanbeaddressedtoSeniorIndependentDirectorwhoisalsotheChairmanoftheBoardAuditCommittee,VimalaV.R.Menonatvimala.menon@petronas.com.myordirectedtothefollowingaddress:

VIMALA V.R. MENONSeniorIndependentDirector

PETRONAS CHEMICALS GROUP BERHAD Level15,Tower1,PETRONASTwinTowers,KualaLumpurCityCentre,50088KualaLumpur

THE ANNUAL GENERAL MEETING (AGM)

TheAGM is the principal forumof open dialoguewith shareholders.The notice and agenda of AGM together with Forms of Proxy aregiven to shareholders at least 21 days before theAGM,which givesshareholderssufficienttimetopreparethemselvestoattendtheAGMortoappointproxiestoattendandvoteontheirbehalf.EachitemofspecialbusinessincludedinthenoticeoftheAGMwillbeaccompaniedbyanexplanatorystatementontheeffectsoftheproposedresolution.

At each AGM, shareholders are encouraged and given sufficientopportunityaswellastimebytheBoardtoraisequestionsonissuespertaining to theAnnualReport, resolutions being proposed and thebusiness of the Company or the Group in general prior to seekingapproval from members and proxies on the resolutions. The Board,seniormanagement,externalauditorsandotheradvisors,asapplicableare present at the AGM to provide answers and clarifications toshareholders.TheChairman informson theavailabilityofpoll votingby shareholders onmatters raised during the AGM. An independentscrutineer is appointed to oversee the AGM process. Starting from2017,allgeneralmeetings'resolutionswillbedecidedviaane-pollingplatform.

TheminutesoftheAGMareaccessibletothepublicforreferenceonPCG'sofficialwebsiteatwww.petronaschemicals.com.

ACCOUNTABILITY AND AUDIT

Financial ReportingThe Board is committed to provide a fair and objective assessmentof the financial position and prospects of theGroup in the quarterlyfinancial results,annualfinancialstatements,AnnualReportsandallother reports or statements to shareholders, investors and relevantregulatoryauthorities.

TheStatementofResponsibilitybyDirectorsinrespectofpreparationoftheannualauditedfinancialstatementsissetoutonpage132ofthisAnnualReport.

Related Party Transactions and Conflict of Interest SituationsTheCompanyhasestablishedpoliciesandproceduresonrelatedpartytransactions and conflict of interest situations, including recurrentrelatedpartytransactions,toensurethattheyareundertakenonnormalcommercial terms and are not to the detriment of the Company’sminorityshareholders.

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All related party transactions, except for recurrent related partytransactionswhicharewaivedbyBursaMalaysiafromcomplyingwiththerequirementofParagraph10.09oftheMMLR,arereviewedbytheBoardAuditCommitteeandapprovedbytheBoard.

The Statement on Risk Management and Internal Control includesan overview of the Group’s policies and procedures on related partytransactions,includingrecurrentrelatedpartytransactions,assetoutonpage124ofthisAnnualReport.

Whistleblowing PolicyTheCompanyhasadoptedthePETRONASWhistleblowingPolicywhichprovidesanavenuefortheGroupemployeesandmembersofthepublictodiscloseanyimproperconductinaccordancewiththeproceduresasprovidedunderthepolicy.

Under the Whistleblowing Policy, a whistleblower will be accordedwithprotectionofconfidentialityof identity, to theextent reasonablypracticable. An employee who whistleblows internally will also beprotectedagainstanyadverseanddetrimentalactionsfordisclosingany improper conduct committed or about to be committed withinthe Group, to the extent reasonably practicable, provided that thedisclosure ismadeingoodfaith.Suchprotection isaccordedeveniftheinvestigationlaterrevealsthatthewhistleblowerismistakenastothe facts, rules and procedures involved. The process is undertakenbyPETRONAS'WhistleblowingCommittee.ThepolicyandproceduresareaccessibletothepublicforreferenceontheCompany'swebsiteatwww.petronaschemicals.com.

Risk Management and Internal ControlThe Board continues to maintain and review its risk managementprocessesand internalcontrolprocedurestoensureasoundsystemof riskmanagement and internal control to safeguard shareholders’investmentsandtheassetsoftheCompanyandtheGroup.

The Statement on Risk Management and Internal Control whichprovides an overview of the state of risk management and internalcontrolswithintheGroupissetoutonpages116to126ofthisAnnualReport.

Trading on Insider InformationTheBoardandprincipalofficersofPCGareprohibitedfromtradinginsecuritiesbasedonpricesensitiveinformationandknowledgeacquiredbyvirtueoftheirpositionswhichhasnotbeenpubliclyannounced.

NoticesontheclosedperiodfortradinginPCG’ssharesaresenttotheDirectorsandprincipalofficersonaquarterlybasisasareminderontheprohibitiontotradeduringtheidentifiedtimeframewhentheDirectorsandtheprincipalofficersareprohibitedfromdealinginPCG’sshares.

Duringtheyearunderreview,neithertheBoardnortheprincipleofficershavebreachedtheaboveruling.

Selection of VendorsPCG has adopted the PETRONAS tendering process and governingprinciples that are embedded in the PETRONAS Supply ChainManagementPolicyforvendors’selection.Generally,themainselectioncriteriaisbasedontechnicallyacceptableandcommerciallylowestbid.PCG has established Tender Committees to carry out independentassessmentonbidders’ proposals and to ensure tenderingactivitiesarecarriedoutaspertheTenderCommittees’TermsofReference.

Thetenderingprocessisasfollows:


Tender Plan Approval

Technical Evaluation

Commercial Evaluation

Award Recommendation

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PETRONAS CHEMICALS

GROUP BERHAD

Senior Independent Director

VimalaV.R.Menon

Independent Non-Executive Directors

ChingYewChyeDongSooKim

DatukTohAhWah

Non-Independent Non-Executive

DirectorFreidaAmat

CompositionTheBoardhasestablishedtheBoardAuditCommitteewithmembersasfollows:

OURWORKCONTINUEDTOFOCUSONTHEINTEGRITYOFTHEGROUP’SFINANCIALREPORTING,THERIGOUROFTHEEXTERNALANDINTERNALAUDITPROCESSESASWELLASTHEEFFECTIVENESSOFTHEGROUP’SMANAGEMENTOFRISKANDINTERNALCONTROLS.

BOARD AUDIT COMMITTEE REPORT

Terms of ReferenceThe terms of reference sets out the authority, dutiesand responsibilities of the Board Audit Committee.The terms of reference, which can be found on www.petronaschemicals.com, are consistent with theMMLRofBursaMalaysiaand theMCCG2012.All therequirements under the terms of reference are fullycompliedwith.

The Committee and its WorkWearepleased topresentour report for thefinancialyearended31December2016incompliancewithParagraph15.15oftheMMLRofBursaMalaysia.

ThemembershipoftheCommitteehasbeenselectedwiththeaimofprovidingthe wide range of financial and commercial expertise necessary to meet itsresponsibilities. Additionally, in compliance with Paragraph 15.09 (1)(b) of theMMLR of BursaMalaysia and theMCCG 2012 all five Board Audit CommitteemembersareNon-ExecutiveDirectors includingfour IndependentDirectorswhofulfilthecriteriaofindependenceasdefinedintheMMLRofBursaMalaysia.NoneoftheIndependentDirectorshaveappointedalternatedirectors.

The Chairman of the Board Audit Committee, Vimala V.R. Menon and FreidaAmat are both qualified accountants. Vimala V.R. Menon is a Member of theMalaysianInstituteofAccountantsandalsoaFellowoftheInstituteofCharteredAccountants in England andWales (ICAEW) whilst Freida Amat is a Fellow ofthe Association of Chartered Certified Accountants (ACCA). In this regard, theCompanyisincompliancewithParagraph15.09(c)(i)undertheMMLRofBursaMalaysiawhichrequiresatleastonememberoftheBoardAuditCommitteetobeaqualifiedaccountant.

VimalaV.R.Menon,whosatisfiestheprescribedcriteriaofaSeniorIndependentDirector (SID), has been appointed as the SID to act as the representative oftheBoard towhomanyconcernspertaining to theGroupmaybeconveyedbyshareholdersandotherstakeholders.Since2011,shehasbeenthefocalchannelbetween the Independent Directors and the Chairman onmatters thatmay bedeemedtobesensitiveaswellasachannelfortheshareholdersandstakeholderstoconveytheirissuesandconcerns,ifany.

Under Paragraph 15.20 of the MMLR of Bursa Malaysia, the performance ofthe Board Audit Committee is assessed through an annual Board CommitteeEffectivenessEvaluation.

MeetingsTheBoardAuditCommitteemetfivetimesduring theyearended31December2016.DetailsofattendanceoftheBoardAuditCommitteemembersareasfollows:

Name of Members No. of meetings attended

VimalaV.R.Menon 5/5

ChingYewChye 5/5

DongSooKim 5/5

DatukTohAhWah 5/5

FreidaAmat 5/5

Byinvitation,theManagingDirector/CEO,ChiefFinancialOfficer,HeadofInternalAuditandexternalauditorsareinvitedtoattendBoardAuditCommitteemeetingstoappropriatelybriefandfurnishthemembersoftheBoardAuditCommitteewithrelevantinformationandclarificationtorelevantitemsontheagenda.

At the conclusion of each meeting, recommendations are made for themanagement to improve the internal controls, procedures and systems of theCompanyandtheGroup,whererelevant.

Statement on Corporate Governance (Cont’d)Board Audit Committee Report

VIMALA V.R. MENON

CHAIRMAN

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The Board Audit Committeemeets at least quarterly with additionalmeetings convened as andwhen necessary. BoardAudit Committeemeetings for 2016 were scheduled in November 2015 to allow theDirectors to plan ahead and fit the meetings into their respectiveschedules.

The agenda and a set of meeting papers encompassing qualitativeandquantitative information relevant to thebusinessof themeetingaredistributedviaelectronicapplicationtotheBoardAuditCommitteemembersnotlessthanfivebusinessdaysfromthemeetingdates.

AllproceedingsofBoardAuditCommitteemeetingsareduly recordedin theminutes of eachmeeting. Signedminutes of eachBoardAuditCommitteemeeting are properly kept by the Company Secretarywhoactsas theBoardAuditCommittee’sSecretary.ThedraftBoardAuditCommittee minutes are circulated to the Board Audit CommitteememberssubsequenttotheBoardAuditCommitteemeetingbutpriortotheBoardmeeting.ThisassiststheBoardAuditCommitteeChairmantoeffectivelyconveytotheBoardmattersdeliberatedattheBoardAuditCommitteemeeting.

During the year under review, the Board Audit Committee had twoprivatesessionswiththeexternalauditorswithoutthepresenceofthemanagement.

SUMMARY OF ACTIVITIES OF THE BOARD AUDIT COMMITTEE

Duringtheyearended31December2016,theBoardAuditCommitteecarried out the following activities in discharging its functions andduties:

External Audit»ReviewedandrecommendedthetermsofengagementandfeesofexternalauditorsfortheBoard’sapproval.

»Reviewedandapprovedtheexternalauditors'auditplanandscopefortheyearunderreview.

»Reviewedtheexternalauditreport.

»Reviewedtheindependenceandobjectivityoftheexternalauditorsandtheeffectivenessofservicesprovided.

During the financial year under review, PCG engaged KPMGPLT, theexternalauditors,fornon-auditservices.Totalfeespaidtotheexternalauditorsareasfollows:

Particulars RM Million

Totalstatutoryauditfees2016 775

Totalnon-auditfeesfor2016 582

Percentageofnon-auditfeesoverstatutoryauditfees 75%

Non-audit fees paid to the external auditorsmainly relate to limitedreviewsontheGroup'squarterlyfinancialresults.

Internal Audit »Reviewed and approved the annual internal audit plan to ensureadequacyofresources,competenciesandcoverageofentitiesbasedonriskassessment.

»Reviewedinternalauditreportsontheeffectivenessandadequacyof governance, risk management, operational and complianceprocesses.

»Reviewed the adequacy and effectiveness of agreed correctiveactions undertaken bymanagement on significant and secondaryissuesraised.

»Reviewed the adequacy of resources and competencies of staffwithin the Internal Audit Department to execute the internal auditplan.

»Reviewed thestatusofagreedcorrectiveactions for internalauditissuesonaquarterlybasis.

»Reviewed the Key Performance Indicators (KPIs) of the Head ofInternalAudit.

Financial Results»Reviewed thequarterlyfinancial resultsprior to theapprovalby theBoard, to ensure compliance to the MMLR of Bursa Malaysia, theapplicable financial reporting standards as well as other relevantlegal and regulatory requirements. The review and discussionwereconductedwith theManagingDirector/CEOand theChiefFinancialOfficeroftheCompany.

»ReviewedtheauditedfinancialstatementsfortheyearunderreviewpriortotheapprovalbytheBoard,toensurethattheywerepreparedin accordance with the provisions of the Companies Act, 1965 inMalaysiaandtheapplicablefinancialreportingstandards.ThereviewanddiscussionwereconductedwiththeManagingDirector/CEOandtheChiefFinancialOfficeroftheCompany.

» Reviewed and deliberated specific key areas affecting the Group’sfinancial results, and endorsed recommendations made byManagement.Thekeyareasdeliberatedincludeassessmentsonthefollowingareas:

a) Impairment indicators on property, plant and equipment anddetailedimpairmenttesting.

b) Recognitionofdeferredtaxassetsandtheprobabilityoffutureutilisation.

c) Recognition of provisions including provisions fordecommissioningandrestorationcosts.

d) Carryingvalueofinventoriesandanywrite-offsthereon.

e) Revenueandexpensesrecognition.

Corporate Governance»Reviewed the impact of relevant regulatory changes and ensuredcompliancebytheCompanyandtheGroup.

Related Party Transactions (RPT)/Recurrent Related Party Transactions (RRPT)»ReviewedRPTs/RRPTsforapprovalorendorsementbytheBoardtoensurecompliancetotheCompany’spoliciesandprocedures.

TheStatementonRiskManagementandInternalControlincludesanoverview of the Group’s policies and procedures on RPTs, includingRRPTs,assetoutonpage124oftheAnnualReport.

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GROUP BERHAD

e) AuditonplantmaintenancemanagementatPCOlefins,PCGlycolsandPCDerivatives.

f) AuditonmanagementofecoCareProgramme.g) AuditonlegalandcorporatesecretariatactivitiesfortheGroup.h) AuditoncashandbankmanagementatPCGsubsidiaries.i) AuditoninformationsecurityoftheprocesscontrolnetworkatPCG

plants.i) AuditonGoods&ServicesTaximplementationfortheGroup.j) AuditonplantmaintenancemanagementatPCAromatics.k) AuditonindirectandwithholdingtaxesmanagementfortheGroup.l) Audit on procurement, inventory and warehousemanagement at

PCGsubsidiaries.

Key control issues, positive observation, risks and relevantrecommendations for improvement, alongwith the agreed correctiveactions are highlighted to theBoardAudit Committee in the internalaudit reports.TheIADalsomonitorstheprogressofthesecorrectiveactions and reports the status to the Board Audit Committee on aquarterlybasis.

SubsequenttotheBoardAuditCommitteereview,theresultingreportsfromtheauditswereforwardedtothemanagement.Themanagementis responsible for ensuring that agreed corrective actions areimplementedwithintherequiredtimeframe.TheprogressandstatusofthesecorrectiveactionsarereportedtotheBoardAuditCommitteeonaquarterlybasis.

The Group continues its commitment to equip the internal auditorswith adequate knowledge and proficiencies to discharge theirduties and responsibilities. Annually, internal auditors go throughindividual functional competency assessment to determine learningand development programmes necessary to further enhance theircompetencies.ThefunctionalcompetencyassessmentadoptedbyIADispartofPETRONAScapabilitydevelopmentprogramme for internalauditors. The assessment takes into consideration the Institute ofInternal Auditors Global Internal Audit Competency DevelopmentFramework’scorecompetenciesincluding:

- Internalauditdelivery- Personalskills- Technicalexpertise- Internalauditmanagement- Professionalethics

ThetotalcostsincurredbytheinternalauditfunctionoftheCompanyandtheGroupforthefinancialyearwasRM4,200,000.

REPORTING TO THE EXCHANGE

The Board Audit Committee is of the view that the Group is not inbreachoftheMMLRofBursaMalaysiathatwarrantsreportingtoBursaMalaysia.

Vimala V.R. MenonChairmanBoardAuditCommittee

Risk Management»Reviewedandendorsedallpolicies,frameworks,guidelinesandotherkeycomponentsofriskmanagementforimplementationwithintheCompanyandthroughouttheGroup.

»ReviewedandendorsedthecorporateriskprofilefortheGroup.

»Reviewed the progress of ongoing risk management activities toidentify, evaluate, monitor and manage critical risks including theCompany’sBusinessContinuityManagementPolicyandFramework.

Annual Reporting»The Board Audit Committee reviewed the Board Audit CommitteeReportandStatementonRiskManagementandInternalControlforthefinancialyearended31December2016toensurethattheywereprepared in compliance with the relevant regulatory requirementsandguidelines.

Internal Audit FunctionThe Board Audit Committee is supported by an in-house internalaudit function, the InternalAuditDepartment (IAD), indischarging itsgovernance responsibilities stated in the Board Audit Committee’sTermsofReference.TheIADundertakesasystematicanddisciplinedapproachtoevaluateandimprovetheeffectivenessofgovernance,riskmanagementandcontrolprocesseswithintheGroup.

Zulaini Ahmad, the Head of IAD reports directly to the Board AuditCommittee. The Board Audit Committee approves the internal auditplan and the KPIs of Head of IAD and reviews IAD’s annual budgetandresourcerequirements.Quarterly,theHeadofIADcommunicatesthe results of internal audit engagements performed to the BoardAuditCommittee,aswellasreportsonIAD’sperformanceagainsttheapprovedinternalauditplan.

The IAD adopts the Institute of Internal Auditors’ InternationalProfessionalPracticesFramework(IPPF)whichincludestheDefinitionofInternalAuditing,theCodeofEthics,andtheInternationalStandardsfor the Professional Practice of Internal Auditing. In performing theaudit engagements, the internalauditorsadhere to IAD’sestablishedproceduresandguidelines,aswellasrelevantpoliciesandproceduresadoptedbytheGroup.

TheIADcontinuestoadoptarisk-basedapproachtoensurethattheauditplansareprioritisedbasedontheGroup’skey risks. Inderivingthe audit plan, inputs are gathered from various sources includingtheriskprofileoftheGroup,businessplansandstrategies,pastauditissues and feedback from external auditors, Board Audit CommitteeandManagement.

Duringtheyearunderreview,theIADperformedreviewsonvariouskeybusinessandriskareasoftheGroupaspertheapprovedinternalauditplan andpresented the reports for the followingaudits to theBoardAuditCommittee:a) Audit on the operations of international subsidiaries and

representativeoffices.b) AuditonsalesandmarketingactivitiesofCommercialDivision.c) Audit on plant operations and maintenance management at PC

FertiliserKedahd) AuditonbusinesscontinuitymanagementfortheGroup.


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MeetingsTheNomination andRemuneration Committeemet five times during the yearended 31 December 2016 and details of attendance of the members are asfollows:

Name of Members No. of meetings attended

ChingYewChye 5/5

VimalaV.R.Menon 5/5

DongSooKim 5/5

The Managing Director/CEO and Head of Human Resource Management areinvitedtoattendthemeetingstoappropriatelybriefandfurnishthemembersoftheNomination andRemunerationCommitteewith the necessary informationandclarificationtorelevantitemsontheagenda.

At a meeting of the Nomination and Remuneration Committee held on 25November2016whereperformanceofthekeymanagementpersonnelweredeliberated, Datuk Toh Ah Wah, an Independent Non-Executive Director whoisnotamemberof theNominationandRemunerationCommitteewas invitedto provide his input and views on the performance of the key managementpersonnel.

TheNominationandRemunerationCommitteemeetingsfor2016werescheduledinNovember2015tofacilitatetheDirectorstoplanaheadandfittheNominationandRemunerationCommitteemeetingsintotheirrespectiveschedules.Thisisalsotoprovidethememberswithamplenoticeofthemeetings.

Theagendaandasetofmeetingpapersrelevanttothebusinessofthemeetingaredistributedviaelectronicapplication to theNominationandRemunerationCommitteemembersnotlessthanfivebusinessdaysfromthemeetingdates.

AllproceedingsoftheNominationandRemunerationCommitteemeetingsaredulyrecordedintheminutesofeachmeeting.SignedminutesofeachNominationandRemunerationCommitteemeetingisproperlykeptbytheSecretarywhoactsastheNominationandRemunerationCommittee'sSecretary.Thedraftminutesof meetings are circulated to the Nomination and Remuneration CommitteememberssubsequenttoaCommitteemeetingbutpriortoBoardmeeting.Thisassists theNomination andRemunerationCommitteeChairman to effectivelyconveytotheBoard,mattersdeliberatedattheNominationandRemunerationCommittee meeting. The minutes of the Nomination and RemunerationCommitteemeetingsarealsodistributedtomembersoftheBoardofDirectorsfortheirnotation.

THENOMINATIONANDREMUNERATIONCOMMITTEECONTINUESITSWORKOFENSURINGTHEBOARDCOMPOSITIONISOPTIMUMANDTHATOURGOVERNANCEISEFFECTIVE.

NOMINATION AND REMUNERATION COMMITTEE REPORT

CompositionThe Board has established the Nomination andRemunerationCommitteewithmembersasfollows:

The composition of the Nomination and RemunerationCommitteecomplieswiththerequirementsof theMCCG2012where its members are exclusively non-executive directors.MCCG 2012 requires a majority to be independent. AllmembersoftheNominationandRemunerationCommitteeareindependentdirectorswhofulfilthecriteriaofindependenceasdefinedinParagraph15.08AoftheMMLRofBursaMalaysia.

Independent Non-Executive DirectorChingYewChyeDongSooKim

Terms of ReferenceThe summary terms of reference of the Nominationand Remuneration Committee as set out on www.petronaschemicals.com are consistent with theMMLRofBursaMalaysiaandtheMCCG2012.Alltherequirements under the terms of reference are fullycompliedwith.

Statement on Corporate Governance (Cont’d)Nomination and Remuneration Committee Report

CHING YEW CHYE

CHAIRMAN

Senior

IndependentDirector

VimalaV.R.Menon

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Board Appointment ProcessThe Company practises a formal and transparent procedure forappointmentofnewdirectors.NominationofdirectorstotheBoardismadeeitherbyPETRONASbeingthemajorityshareholderorthroughengagement of a professional recruitment firm to find suitablecandidates to fill the positions of the Independent Non-ExecutiveDirectors.

AllnomineestotheBoardarefirstconsideredbytheNominationandRemunerationCommittee,takingintoconsiderationthemixofskills,competencies, experience, integrity, time commitment and otherqualitiesrequiredtoeffectivelydischargehisorherroleasadirector.Boarddiversityisimportanttofacilitateoptimaldecisionmakingbyharnessingdifferentinsightsandperspectives.

Board Effectiveness EvaluationEvery year, under thepurviewof theNominationandRemunerationCommittee,aBoardEffectivenessEvaluationisundertakentoassesstheeffectivenessofthefollowing:

»TheBoardasawholeandthevariousBoardCommittees.

»Contributionofeachindividualdirector.»Independenceoftheindependentdirectors.

Pursuant to Paragraph 15.20 of the MMLR of Bursa Malaysia, theNomination and Remuneration Committee had at its meeting heldon25November2016,reviewedtheperformanceoftheBoardAuditCommitteeand is satisfied that theBoardAuditCommitteeand itsmembers discharged their functions, duties and responsibilities inaccordancewithitstermsofreference.

On15February2017,theNominationandRemunerationCommitteereviewedtheresultsofthelatestBoardEffectivenessEvaluationandnotedonareaswhichnecessitatefurtherimprovements.

Directors’ Re-ElectionThe Nomination and Remuneration Committee is responsible forrecommending to theBoard, directorswho are eligible to stand forre-electionattheAGMoftheCompany.Therecommendationisbasedonamongothers,theperformanceofthedirectors,contributiontotheBoard,skills,experience,qualities,levelofindependenceandabilitytoactinthebestinterestoftheCompany.

The directors may seek re-election at the AGM of the CompanypursuanttoArticle93andArticle99oftheCompany’sConstitution.

Article 93 of the Company's Constitution provides that one third ofthedirectorsoftheCompanyshallretirebyrotationattheAGMandbeingeligiblemayoffer themselves for re-election.With thecurrentcompositionofeightdirectors,twodirectorsaretoretireatthenextAGMpursuanttothisArticle.

TheNominationandRemunerationCommitteeatitsmeetingheldon25 November 2016, recommended the re-elections of the followingDirectorswhohadexpressedtheirintentiontoseekforre-electionattheforthcomingAGMforapprovaloftheBoard:

»ChingYewChye»DatukTohAhWah

There is no new appointment of Directors during the year underreview. Hence, the retirement of newly appointed director and re-electionthereonpursuanttoArticle99oftheCompany'sConstitutionisnotapplicable.


1

2

3

4

5

6

7

8

CircumstancesgivingrisetotheappointmentofDirectors

Deliberateselectioncriteriacombiningcompetenciesandattributesrequired

Searchforcandidates

Interviewcandidates

NRCendorsecandidateforBoardapproval

Boardapproval

Orientation/Induction

Continuoustrainingandannualperformanceassessment

TheprocessflowforBoardappointmentisdepictedbelow:

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SUMMARY OF ACTIVITIES OF THE NOMINATION AND REMUNERATION COMMITTEE

Duringtheyearended31December2016,theNominationandRemunerationCommitteecarriedoutthefollowingactivitiesindischargingitsfunctionsandduties:

» Board Effectiveness Evaluation• Assessed theperformanceof theBoardasawhole, itssub-committeesand itsmembers through theBoardEffectivenessEvaluationexercise.

» Board Membership• ReviewedtheBoardSkillsMatrixandcompetencyoftheBoardmembers.• RecommendedBoardmembersstandingforre-electionattheAGM.• RecommendedtheBoardselectionprocess.• ReviewedBoardSelectionCriteria.

» Performance Management• Reviewed2016PerformancePlanningandKeyPerformanceIndicatorsforManagingDirector/CEO.• Reviewed2016PerformancePlanning,KeyPerformanceIndicatorsandDevelopmentPlansforKeyPersonnel.• ReviewedtheDirectors’professionaldevelopment.

Ching Yew ChyeChairmanNominationandRemunerationCommittee


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THE DIVISION OF ROLES BETWEEN THE CHAIRMAN AND THE MANAGING DIRECTOR/CEO

ThereisacleardivisionofresponsibilitiesbetweentheChairmanandManagingDirector/CEO.

Roles of the ChairmanThe Chairman is primarily responsible for the orderly conduct andfunctionoftheBoardandensuresitseffectivenessonallaspectsofitsroles.

i) LeadingtheBoardinsettingthevaluesandethicalstandardsofPCG.

ii) ChairingtheBoardmeetingsandstimulatingdebatesonissuesandencouragingpositivecontributionsfromeachDirector.

iii) ConsultingwiththeCompanySecretaryinsettingtheagendaforBoardmeetingsandensuringthatallrelevantissuesareontheagenda.

iv) Maintaining a relationship of trust with and between theManagingDirector/CEOandNon-ExecutiveDirectors.

v) Ensuringtheprovisionofaccurate,timelyandclearinformationtoDirectors.

vi) Ensuring effective communication with shareholders andrelevantstakeholders.

vii) Conducting performance assessment of Board members, itsCommittees and individual Directors, including assessment oftheindependenceofIndependentDirectors.

viii) FacilitatingeffectivecontributionofNon-ExecutiveDirectorsandensuringconstructivediscussionsatBoardmeetings.

ix) Ensuring that all Directors are properly briefed on issuesarising at Boardmeetings and there is sufficient time allowedfor discussion on complex or contentious issues and whereappropriate, arranging for informal meetings beforehand toenablethoroughpreparations.

x) AllowingeveryBoardresolutiontobevotedonandensuringthewillofthemajorityprevails.

xi) Casting his/her votes in accordance with the prescribedCompany'sConstitution.

xii) EnsuringthatallBoardmembers,upontakinguptheiroffice,arefully-briefedonthetermsoftheirappointment,timecommitment,dutiesandresponsibilities,andthebusinessofPCG.

xiii) Acting as liaison between the Board and Management, andbetweentheBoardandtheManagingDirector/CEO.


Roles of the Senior Independent Director

TheSeniorIndependentDirectoractsasthepointofcontactbetweenthe Independent Directors and Chairman on sensitive issues andhasbeenidentifiedasadesignatedcontacttowhomshareholders’concerns or queriesmay be raised, as an alternative to the formalchannelofcommunicationwithshareholders.

Roles of the Managing Director/CEO

TheManagingDirector/CEOisresponsiblefortheoveralloperationsofthebusiness,organisationaleffectivenessandtheimplementationoftheGroup’sstrategiesandpolicies.HeisassistedbytheManagementCommittee inmanagingthebusinessonday-to-daybasis,whichheconsults regularlyandshallbesupportedby theBoardmembers inundertakingthefollowingresponsibilities:

i) TodevelopandrecommendtotheBoardthelong-termstrategyand vision for PCG that leads to the creation of long-termprosperityandstakeholdervalue.

ii) TodevelopandrecommendtotheBoardtheoperationalplanandbudgetthatsupportPCG'slong-termstrategy.

iii) To foster a corporate culture that promotes ethical practices,encourages individual integrity and the fulfillment of PCG’scorporatesocialresponsibilities.

iv) To maintain a positive and ethical working environment thatis conducive to attracting, retaining and motivating a diverseworkforceatalllevels.

v) To recommend suitable management structure and operatingauthority levelswhich includedelegationsof responsibilities totheManagement.

vi) To ensure an effective Management team and to develop anappropriatesuccessionplan.

vii) To formulate and oversee implementation of major corporatepolicies.

viii) TobeaccountabletotheBoardforthefinancialmanagementandreporting,includingforecastsandbudgetsofPCG.

ix) Tomake reports to theBoardperiodicallyonfinancialposition,KPIs,marketconditionsandbusinessdevelopment.

x) ToserveasspokespersonforPCG.xi) TorefertotheBoardCommitteesonmattersasrequested.

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COMPANY SECRETARY

Both Company Secretaries of PCG are qualified to act as companysecretaryunderSection235oftheCompaniesAct,2016.Oneofthemhasa legalqualificationand theother isaFellowof theMalaysianInstitute of Chartered Secretaries and Administrators. Both act asadvisors to the Board, particularly with regard to the Company'sConstitution,Boardpoliciesandprocedures,anditscompliancewithregulatoryrequirements,legislations,guidelinesandcodes. TheCompanySecretariesensurethatdiscussionsanddeliberationsat the Board and Board Committeemeetings arewell documented,and subsequently communicated to the Management Committeeforappropriateactions.TheCompanySecretariesupdatetheBoardon the follow-up of its decisions and recommendations by theManagementCommittee. TheCompanySecretariesconstantlykeepabreastwiththeevolvingregulatory changes and developments in corporate governancethrough continuous training. The Board is satisfied with theperformance and support rendered by the Company Secretaries indischargingtheirfunctions.

Relationship with External Auditors

TheCompanymaintainsaprofessionalandtransparentrelationshipwithitsexternalauditors,KPMGPLT.TheBoardAuditCommitteemettheexternalauditorseveryquartertoreviewthescopeandadequacyof the Group’s audit process, quarterly results, annual financialstatements and audit findings. In addition to regular quarterlymeetings, the Board Audit Committee held two separate meetingswith external auditors without the presence of the Management.At themeeting, theexternalauditorshighlighted to theBoardAuditCommitteeonmattersthatwarranttheCommittee’sattention.


The role of the Board Audit Committee in relation to the externalauditors isdescribed in theBoardAuditCommitteeReportonpage109ofthisAnnualReport.

Statement by the Board on Compliance

The Board has deliberated, reviewed and approved this Statement.The Board considers and is satisfied that the Group has fulfilledits obligations under the relevant chapters of the MMLR of BursaMalaysiaandtheMCCG2012oncorporategovernanceandapplicablelawsandregulationsthroughouttheyearended31December2016.

ThisstatementismadeinaccordancewiththeresolutionoftheBoarddated20February2017.

ADDITIONAL COMPLIANCE INFORMATION - MATERIAL CONTRACTS

TherewerenomaterialcontractsorloansenteredintobytheCompanyoritssubsidiariesinvolvingDirectors’ormajorshareholders’interests,either still subsisting at the end of the year ended 31 December2016orenteredintosincetheendofthepreviousperiod,exceptasdisclosedintheauditedfinancialstatements.

Md Arif MahmoodChairman

Datuk Sazali HamzahManagingDirector/CEO

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PETRONAS CHEMICALS

GROUP BERHAD

STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

PCG HAS INTERNAL CONTROL SYSTEMS AND RISK MANAGEMENT FRAMEWORK IN PLACE TO ENSURE THE SMOOTH RUNNING OF THE BUSINESS. IT IS PCG’S AIM TO MANAGE RISK AND TO CONTROL ITS BUSINESS AND FINANCIAL AFFAIRS ECONOMICALLY, EFFICIENTLY AND EFFECTIVELY SO AS TO BE ABLE TO SEIZE PROFITABLE BUSINESS OPPORTUNITIES IN A DISCIPLINED WAY TO AVOID OR MITIGATE RISKS THAT CAN CAUSE LOSS, REPUTATIONAL DAMAGE OR BUSINESS FAILURE AND ENHANCE RESILIENCE TO EXTERNAL EVENTS. THE STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL IS MADE PURSUANT TO PARAGRAPH 15.26(B) OF THE MMLR OF BURSA MALAYSIA WHEREBY 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.

BOARD ACCOUNTABILITY

The Board acknowledges the importance of maintaining a soundinternal control system and a robust risk management practice forgood corporate governance with the objective of safeguarding theshareholders'investmentandtheGroup’sassets.TheBoardaffirmsitsoverallresponsibilityforreviewingtheadequacyandtheintegrityoftheGroup’s riskmanagementand internalcontrolsystemwhichensurescompliancewithapplicablelaws,regulationsandguidelines. The Group has established a process for identifying, evaluating,monitoringandmanagingsignificant risks thatmaymateriallyaffectthe achievement of corporate objectives. This process is beingimplemented throughout the Group and the Board will continue toreviewthisprocessperiodicallyandenhanceitwhererelevant.

RISK MANAGEMENT

As part of PCG's journey to become proactive and responsive inmanagingrisks,thePETRONASResiliencyModelwasadoptedtofocusonthreekeyfocusareas;namelyEnterpriseRiskManagement,CrisisManagement and Business Continuity Management to strengthenour approach in managing risks to ensure that PCG can effectivelysafeguard its business and respond to a crisis, regardless of itsmagnitude.

KEY FOCUS AREAS

Enterprise Risk Management (ERM)

Astructuredandholisticapproachtoidentify,assess,treat andmonitor risks. The aim is toREDUCE thelikelihoodandimpactofallidentifiedriskstoenhancethe organisation’s ability to achieve its strategicobjectives.

Crisis Management (CM)

A comprehensive set of processes that aims toprepare the organisation toRESPOND andmanagecrises in the risk areas to protect and save people,environment,assetandreputation.

Business Continuity Management (BCM)

A holistic management process that aims to buildthe capability of an organisation to RECOVER and continue delivery of products or services atacceptable predefined levels following a prolongeddisruptiveincident.

Riskisinherentinourbusinessandthemarketsinwhichweoperate.Thechallengeistoidentifyrisksandthenmanagethesesothattheycanbeminimised, accepted, transferredor avoided. This demandsaproactive approach to riskmanagement and an effective group-wideriskmanagementframework.

Our overall risk management process is overseen by the Board asan element of solid corporate governance. We recognise that riskmanagement is the responsibility of everyone within PCG. Ratherthan being a separate and standalone process, risk management isintegrated into business processes including strategy development,business planning, capital allocation, investment decisions, internalcontrolandday-to-dayoperations.

PCGconsidersthesecontrolsystemsareappropriateforthesize,diversityandcomplexityoftheGroup’soperations,andtheiradequacyandintegrity are being reviewed andmonitored by the Board Audit Committee to ensure their compliancewith applicable laws, regulations andguidelines. TheDirectorsrecognisethatsuchsystemscanonlyprovideareasonableandnotabsoluteassurancethatsignificantriskswhichimpacttheGroup’sstrategiesandobjectivesarewithinlevelsappropriatetotheGroup’sbusinessasapprovedbytheBoard.Thekeyelementsoftheprocessbywhichthesystemsofinternalcontrolandriskmanagementaremonitoredaresetoutbelow.

OUR RISK MANAGEMENT PHILOSOPHY

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Statement on Risk Management and Internal Control (Cont’d)

RISK MANAGEMENT FRAMEWORK

OurenhancedERMFrameworkandrelevantguidelinesaregenerallyalignedwithISO31000:2009,andstandardisedthroughoutPCG.

GOVERNANCE

RISKTREATMENT

CONTEXT SETTING

CONTINUALIMPROVEMENT

RISK ASSESSMENT

RISKMONITORING &

REVIEW

ERM FRAMEWORK

• RiskPolicy• RiskOrganisationandStructure• RolesandResponsibilities

• RiskTreatmentStrategy• RiskTreatmentPlan

• ExternalContext• InternalContext• RiskAppetite• RiskCriteria

• RiskIdentification• RiskAnalysis• RiskEvaluation

• RiskReportingandMonitoring• RiskInformationSystem

• Assurance• SystemMonitoringandReview• CapabilityBuilding

PCG Risk Policy

AllentitiesacrossPCGshalladoptandcommunicatethePCGRiskPolicy:

“PETRONASChemicalsGroupshalladoptandimplementriskmanagementbestpracticesbyidentifying,assessing,treatingandmonitoringrisksaswellaseffectivelyrespondingtocrises.

In theeventofprolongeddisruption,businesscontinuitypracticesshallbeadoptedto restoreandensurecontinuityofPETRONASChemicalsGroup’skeybusinessactivities.”

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PCG RISK OVERSIGHT STRUCTURE

BOARD OF DIRECTORS

Reviewandapproveannualcorporateplan,whichincludesoverallcorporatestrategy,operationalplan,marketingplan,humanresourcesplan,financialplanandbudget,riskmanagementplanandinformationtechnologyplan.

Identifyprincipalrisksandensuretheimplementationofappropriatesystemstomanagetheserisks.

BOARD COMMITTEE LEVEL

BOARD AUDIT COMMITTEE

Toreviewtheadequacyandeffectivenessofriskmanagementpracticesandprocedures. ToreviewriskprofileoftheGrouponaquarterlybasis.

MANAGEMENT LEVEL RISK MANAGEMENT COMMITTEE

ResponsiblefortheoveralloversightoftheGroupriskmanagementactivities.

OPERATIONAL LEVEL MANUFACTURING

Responsiblefortheplantandfacilitiesriskmanagement.

COMMERCIAL

Responsibleforthecommercialriskmanagement.

SharebestpracticesandlessonslearnedwithPCGplantsandfacilitiesriskfraternities.

ReviewandendorsecredittermsforPCG’scustomersandsuppliers.

Sharebestpracticesandlessonslearnedoncommercialrisks.

RISK GOVERNANCE AND OVERSIGHT

Our riskgovernancestructure facilitates risk identificationandescalationwhilstprovidingassurance to theBoard. Itassignsclear rolesandresponsibilities,facilitatesimplementationwithguidelinesandtoolsaswellasconsistsofthedifferent layersofrolesandresponsibilitiesasexplainedbelow:

Inadditiontoourriskgovernancestructures,ourriskmanagementisbackedupbya3-lineDefenceModelthatdistinguishesthethreegroupswhichareinvolvedineffectiveriskmanagement.

1st LINE OF DEFENCE 2nd LINE OF DEFENCE 3rd LINE OF DEFENCE

BusinessLine(RiskOwner) RiskManagementUnitorFunctions InternalAudit

Toestablishtheidentification,assessment,treatmentandmonitoringofrisks

Toestablish,implementandreviewriskmanagementandcontrolsystems

Toprovideforindependentandobjectiveassuranceontheoveralladequacy,integrityandeffectivenessofriskmanagementandinternal

controlsystems

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RISK MANAGEMENT PROCESS

TheriskprofileoftheGrouphasbeenestablishedbasedonERMconcept.ThecriticalrisksidentifiedareregularlyreviewedwherebythestatusofkeyriskindicatorsandriskmitigationsofcriticalrisksaredeliberatedattheRiskManagementCommitteeandpresentedtotheBoardAuditCommitteeonaquarterlybasis.Eachcriticalriskhasadedicatedownerwhoisresponsiblefortheeffectiveimplementationofcontrolmeasures,monitoringandtrackingofkeyriskindicatorsperformance,identifyingadditionalriskmitigationsandimplementingthesemitigations.Therisksandmitigationsarecommunicatedtothelineonatimelybasistoensureawarenessatalllevels.

PCGsubscribestothefollowingstructuredriskmanagementsystemsandprocesseswhichareinlinewithPETRONAStoshowrigorouspracticesofriskmanagementarebeingappliedinvariousareas:

PETRONAS Health Safety Environment Management System (HSEMS)tomanageHSEriskandensurethatoperationsareintandemwithHSE

regulatoryrequirementsandindustrybestpractices.

Counterparty Risk Assessmenttoensuresystematicidentification,assessmentandmitigationtomanageriskassociatedwithcreditand

performancewhichisinlinewithPETRONASCorporateFinancialPolicyandPETRONASCreditGuidelines.Eachcounterpartiesareassignedwith

creditratingswhicheventuallyfacilitatethebusinessdecisionmaking.

Contractor Risk Assessment (CoRA)toensuresystematicidentification,assessmentandmitigationofcontractors’relatedriskswhicharecritical

totheirperformance.CoRAisundertakenaspartoftheprocurementprocesspriortoselectionofcontractor.

Turnaround Risk Assessment (TaRA) toensuresystematicidentification,assessmentandmitigationofrisksforturnaroundactivitieswhichare

criticalforsmoothexecution.

Project Risk Assessment (PRA) toensuresystematicidentification,assessmentandmitigationtomanageriskassociatedwithprojectswhichisin

linewithPETRONASProjectManagementSystemrequirements.


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COMPLIANCE UNDER OUR RISK MANAGEMENT FRAMEWORK

Theinculcationofcompliancecultureisakeyaspectofaneffectiveriskmanagement.Insupportingcomplianceculture,theGroupacknowledgestheimportanceofriskassuranceprogrammestoprovideassurancetostakeholdersthatthesystemsofriskmanagementandinternalcontrolsareimplementedandcompliedwith.Fortheyearunderreview,theGroupestablished its risk assurance programmes based on an annual riskassuranceplanthatwaspresentedtoPCGRiskManagementCommittee. TheGroupconductedtwoTier1self-assessmentsperyearwherebyallsubsidiariesarerequiredtoperformself-assessmentandvalidationontheircompliancetotherequirementsstipulatedunderERMFrameworkand proposes gap closure actions, if any. The Group also undertookTier 2 risk assurance programmes in which PCG Risk ManagementDepartment validates the implementation of ERM systems andeffectiveness of agreed riskmitigations at PCG subsidiaries. The riskManagementCommitteereviewstheriskassurancereportandmonitorstheappropriatecorrectiveactions tobeclosed timely. Inaddition, thestatusofriskassuranceprogressandgapclosuresarereportedtoRiskManagementCommitteeonquarterlybasis. Tomitigate any riskmanifesting and resulting in prolonged businessdisruption, the Group has established BCM Framework that providesasystematicapproach tocontinuedeliveryofproductsorservices tothecustomers. Theactivitieshavebeendetailedout intoaBusinessContinuityPlan(BCP)andBusinessRecoveryPlan(BRP)thatdescribethe organisation structure, roles and responsibilities of each parties,requiredresourcesandthespecificrecoverystrategies.TheGrouphasestablishedBCP for Product Supply to address abrupt and prolongedoutageofproductsupply,thatcouldaffectproductdeliverytocustomers.Additionally,theGrouphasdevelopedBCPforPETRONASTwinTowerstocater for inaccessibilityofworkplace, failureofcritical ICTsystemsandprolongedunavailabilityofkeypersonnel.


CONTROLENVIRONMENT

RISK ASSESSMENT

• Demonstratesacommitmentto integrityandethicalvalues

• The board of directors demonstrates

independence from management andexercises oversight of the development andperformanceofinternalcontrol

• Managementestablishes,withboardoversight,

structures, reporting lines, and appropriateauthorities and responsibilities in the pursuitofobjectives

• Demonstrates a commitment to attract,

develop, and retain competent individuals inalignmentwithobjectives

• Holdsindividualsaccountablefortheirinternal

control responsibilities in the pursuit ofobjectives

• Specifiesobjectiveswithsufficientclaritytoenabletheidentificationandassessmentofrisksrelatingtoobjectives

• Identifies risks to the achievement of its

objectives across the entity and analysesrisksasabasisfordetermininghowtherisksshouldbemanaged

• Considersthepotentialforfraudinassessing

riskstotheachievementofobjectives • Identifiesandassesseschanges thatcould

significantly impact the system of internalcontrol

INTERNAL CONTROL Management is primarily responsible for the design, implementationandmaintenanceof internalcontrols,while theBoardand theBoardAuditCommitteeoverseetheactionsofmanagementandmonitortheeffectivenessof thecontrols thathavebeenput inplace.TheGroupendeavourstoachievethe17principlesoftheCommitteeofSponsoringOrganisations of the Treadway Commission (COSO) Framework oneffectiveinternalcontrolsasillustratedbelow:

Operations, Reporting & Compliance

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SectionfiveCONTROL

ACTIVITIES

MONITORING ACTIVITIES

INFORMATION AND

COMMUNICATION

• Selects and develops control activities thatcontribute to the mitigation of risks to theachievementofobjectivestoacceptablelevels

• Selectsanddevelopsgeneralcontrolactivities

over technology tosupport theachievementofobjectives

• Deployscontrolactivitiesthroughpoliciesthatestablish what is expected and proceduresthatputpoliciesintoaction

• Selects, develops, and performs ongoingand/or separate evaluations to ascertainwhether thecomponentsof internalcontrolarepresentandfunctioning

• Evaluatesandcommunicatesinternalcontrol

deficiencies in a timely manner to thoseparties responsible for taking correctiveaction,includingseniormanagementandtheboardofdirectors,asappropriate

• Obtains or generates and uses relevant,qualityinformationtosupportthefunctioningofinternalcontrol

• Internallycommunicatesinformation,including

objectives and responsibilities for internalcontrol,necessarytosupportthefunctioningofinternalcontrol

• Communicateswithexternalpartiesregarding

matters affecting the functioning of internalcontrol


JointventureandassociatecompaniesarenotincludedinourGroupinternal controls as these companies fall under the purview of theirrespective majority shareholders. The interests of the Group aresafeguardedthroughGrouprepresentativestotherespectiveBoardsofjointventureandassociatecompanies,inadditiontotheregularreviewofmanagementaccounts.

INTERNAL AUDIT

Internal audits are undertaken to provide independent assessmentson theadequacy, efficiencyandeffectivenessof theGroup’s internalcontrols. The Group has its own dedicated internal audit functionthatprovidesasystematicanddisciplinedapproach toevaluateandimprovetheeffectivenessofcontrolandgovernanceprocesseswithintheGroup.Itmaintainsitsimpartiality,proficiencyanddueprofessionalcareandreportsdirectlytotheBoardAuditCommittee.

The Group’s internal audit function adopts the Institute of InternalAuditors’InternationalProfessionalPracticesFramework(IPPF)whichincludes the Definition of Internal Auditing, the Code of Ethics, andthe International Standards for the Professional Practice of InternalAuditing.

TheinternalauditfunctionreviewstheinternalcontrolsofselectedkeyactivitiesoftheGroup’sbusinessesbaseduponanannualinternalauditplanwhichispresentedtotheBoardAuditCommitteeforapproval.Theannual audit plan is established primarily on a risk based approach.TheBoardAuditCommittee reviewsaudit reportsand thenecessarycorrectiveactionsasadvisedbytheManagement.TheManagementis responsible for ensuring that corrective actions are implementedaccordingly.Inaddition,thestatusoftheclosuresofauditissuesarereportedtotheBoardAuditCommitteeonaquarterlybasis.

AUDIT COMPETENCIES In 2016, all internal audit activities were performed internally by ateam of 18 internal audit personnel from selected backgrounds andcompetencies,asfollows:

DISCIPLINENO. OF INTERNAL AUDIT

PERSONNEL%

Accounting&Finance 14 78

PlantOperations 3 16

SupplyDistributionOperations 1 6

Todate,fiveofourinternalauditpersonnelhavereceivedprofessionalcertificationfromvariousrecognisedprofessionalbodies.

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OTHER KEY ELEMENTS OF INTERNAL CONTROL SYSTEMS

InfurtherancetotheBoard’scommitmenttomaintainasoundsystemofinternalcontrol,theBoardcontinuestomaintainandimplementastrongcontrolstructureandenvironmentfortheproperconductoftheGroup’sbusinessoperationsasfollows:

» Board of Directors TheBoardmeetsatleastquarterlyandhassetascheduleofmatters,whichisrequiredtobebroughttoitsattentionfordiscussion,thusensuringthatitmaintainsfullandeffectivesupervisionoverappropriatecontrols.TheManagingDirector/CEOleadstheManagementinpresentationofboardpapersandensuresManagementprovidesdetailedexplanationofpertinentissues.InarrivingatanydecisionrequiringBoard’sapproval,assetoutintheLimitsofAuthoritymanual,thoroughdeliberationanddiscussionbytheBoardisaprerequisite.Inaddition,theBoardiskeptupdatedontheGroup’sactivitiesanditsoperationsonaregularbasis.

» Board Audit Committee TheBoardhasdelegatedthedutyofreviewingandmonitoringtheeffectivenessoftheGroup’ssystemofinternalcontrolstotheBoardAuditCommittee.

TheBoardAuditCommitteeassumestheoveralldutiesofreviewingwiththeexternalauditorstheirauditplan,auditreport,aswellastheirfindingsandrecommendationspursuanttotheyearendaudit.TheBoardAuditCommitteealsoevaluatestheadequacyandeffectivenessof theGroup’s riskmanagementand internalcontrolsystems through reviewsof internalcontrol issues identifiedby internalauditorsandManagement.Throughouttheyear,theBoardAuditCommitteewasupdatedondevelopmentsinMMLRofBursaMalaysia,MFRSaswellasnewlegalandregulatoryrequirements.

TheBoardAuditCommitteemeetsat leastquarterlyandhasfullandunimpededaccesstotheinternalandexternalauditorsaswellasallemployeesoftheGroup.

FurtherinformationrelatingtotheactivitiesoftheBoardAuditCommitteeissetoutintheBoardAuditCommittee’sreportaspresentedonpages108to110ofthisAnnualReport.

» Organisation Structure and Management Committee Anorganisationalstructure,which isaligned to thebusinessandoperational requirements,andwithclearlydefined linesof responsibility,accountabilityandlevelsofauthority,isinplacetoassistinimplementingtheGroup’sstrategiesandday-to-daybusinessactivities.

TheCompanyhasaManagementCommitteewhichservesinanadvisorycapacitytotheManagingDirector/CEOinaccomplishingthevision,strategiesandobjectivessetfortheGroup.

VariousfunctionalcommitteeshavealsobeenestablishedacrosstheGrouptoensuretheGroup’sactivitiesandoperationsareproperlyalignedtowardsachievingtheorganisationalgoalsandobjectives.


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» Financial Control Framework TheGrouphas implementedaFinancialControlFrameworktoensurekey internalcontrolsystemsareadequateandeffectiveatall times.Theframeworkmandatesstrictprocessestoimprovefinancialreportinganddisclosuresoastoprotectstakeholdersfromthepossibilityofinaccurateaccounting.KeycomponentsoftheFinancialControlFrameworkrequirementsare:


» Limits of Authority TheGrouphas establishedLimitsofAuthoritywhichdefine theappropriate approvingauthority to governandmanagebusinessdecisionprocess.TheLimitsofAuthoritysetsoutaclearlineofaccountabilityandresponsibilitywhichservesasareferenceinidentifyingtheapprovingauthorityforvarioustransactionsincludingmattersthatrequireBoard’sapproval.ItprovidesaframeworkofauthorityandaccountabilitywithintheGroupandfacilitatesdecisionmakingattheappropriatelevelintheGroup'shierarchy.

» Group Policies TheGrouphas inplacepolicieswhichgoverntheday-to-dayworkingsof thebusinesssuchasHSE,plantoperationsandhumanresourcemanagement.TheGrouphasalsoadoptedPETRONASCorporateFinancialPolicywhichsetsforththepolicyforfinancialmanagementactivitiesembeddingtheprinciplesoffinancialriskmanagement.TheCorporateFinancialPolicygovernsfinancialriskmanagementpracticesacrosstheGroup.Itprescribesaframeworkinwhichfinancialriskexposureisidentifiedandmanaged.

» Operating Procedures and Guidelines The Group has developed operating procedures and guidelines which covers business planning, capital expenditure, financial operation,performancereporting,HSE,plantoperations,marketingandsales,supplychainmanagement,humanresourcemanagementandinformationsystem.Thesedefinetheproceduresforday-to-dayoperationsandactasguidelinestothepropermeasurestobeundertakeninagivensetofcircumstances.Theproceduresandguidelinesarealsoreviewedonaregularbasistoensurecontinuingrelevanceandeffectiveness.

» Business Plan and Budget TheGroupundertakesanannualbudgetingandforecastingexercisewhichincludesdevelopmentofbusinessstrategiesforthenextfiveyearsandtheestablishmentofKPIsagainstwhichtheoverallperformanceoftheGroup,includingtherespectiveperformanceofbusinesssegmentsandcompanieswithintheGroup,canbemeasuredandevaluated.DetailedoperatingandcapitalexpenditurerequirementsaretabledtotheBoardforapprovalpriortothecommencementofanewfinancialyear.TheGroup’sperformancesarereportedinternallyonamonthlybasistotheManagementCommittee.TheGroup’squarterlyperformancesarealsopresentedtotheBoardwithcomparisontoapprovedplansaswellasagainstpriorperiods.TheGroup’sstrategicdirectionisalsoreviewedthrougharigorousassessmentprocesstakingintoaccountchangesinmarketconditionsandsignificantbusinessrisks.

Certificationontheaccuracyofthereportedfinancialstatementbyseniormanagement.

Establishmentofadequateinternalcontrolsandreportingmethodsaswellasproperdocumentationofallprocesses.

Mandatoryselfandinterdepartmentaltestofcontrols.

Identificationofthecontrolgapsandtherequiredmitigationaction.

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PETRONAS CHEMICALS

GROUP BERHAD

» Information and Communications Technology Informationandcommunicationstechnologyisextensivelydeployedin the Group to automate work processes, where possible and toefficientlycollectkeybusinessinformation.TheGroupcontinuestoenhance its information and communication systems in ensuringthat itcanactasanenabler to improvebusinessprocesses,workproductivity and decision making throughout the Group. Systemreviews are conducted periodically to confirm adequate controlsareinplacetoensureadherencetotheGroup’sbusinessobjectives,policiesandprocedures.

» Tender Committee Tender committee structure which comprises cross functionalrepresentativeshasbeenestablishedtoreviewallmajorpurchasesandcontracts.Thetendercommitteesprovidetheoversightfunctionon tendering matters prior to approval by the relevant approvingauthoritiesassetoutbytheLimitsofAuthority.

» Employees Performance Management The Group selects talents for employment through a structuredrecruitment process. The professionalism and competency ofstaff arecontinuously enhanced throughastructured traininganddevelopmentprogramme.AperformancemanagementsystemisinplacewhichmeasuresstaffperformanceagainstagreedKPIsonaperiodicbasis.

» Whistleblowing Policy TheGrouphasadoptedthePETRONASWhistleblowingPolicywhichprovides an avenue for theGroup employeesandmembers of thepublic to disclose any improper conduct in accordance with theproceduresasprovidedunderthepolicy.

Under theWhistleblowingPolicy, awhistleblowerwill be accordedwithprotectionofconfidentialityofidentity,totheextentreasonablypracticable. An employeewhowhistleblows internally will also beprotectedagainstanyadverseanddetrimentalactionsfordisclosingany improperconductcommittedorabout tobecommittedwithinthe Group, to the extent reasonably practicable, provided that thedisclosureismadeingoodfaith.Suchprotectionisaccordedevenif the investigation laterrevealsthatthewhistleblower ismistakenas to the facts, rules and procedures involved. The process isundertaken by PETRONAS' Whistleblowing Committee. The policyand procedures are accessible to the public for reference on theCompany'swebsiteatwww.petronaschemicals.com.

RELATED PARTY TRANSACTION (RPT) AND CONFLICT OF INTEREST (COI)

TheGrouphasestablishedpoliciesandprocedureswithregardstoRPTandCOItoensurefullcompliancetotheMMLRofBursaMalaysia.


DirectorsandofficersoftheCompanyanditsGroupshallnot enter into transactions with related parties unlessthesetransactionsarecarriedoutonnormalcommercialtermsandarenottothedetrimentoftheGroup’sminorityshareholders.

1

All sourcing and sales of PCG's products, generalmerchandise shared facilities shall be based on marketnegotiated pricing terms and conditions and/or pricingformulasquotedagainstinternationalpricebenchmarks.

2

Wheneverpracticable,atleasttwootherquotationsshouldbesought,withorganisationsofsimilarstanding.3

All RPTs except for RRPTs which are waived by BursaMalaysia from complying with the requirement ofParagraph 10.09 of the MMLR will be reviewed by theBoardAuditCommitteepriortotheapprovalbyeithertheBoardortheshareholders.

4

TheBoardAuditCommitteeisresponsibletoensurethatthepoliciesandprocedures relating toRPTs/RRPTsandCOI situations are sufficient to ensure thatRPTs/RRPTsarecarriedoutonnormalcommercialtermsandnottothedetrimentoftheGroup’sminorityshareholders.

5

On an annual basis, all Directors and any related partyoftheGroupwilldeclare inwritinganannualdeclarationform, designed to elicit information about potentialrelationshipsand/orCOIsituations,involvingtheirinterest,either directly or indirectly. All Directors and any relatedpartyoftheGroupshallalsonotifyinwritingofanyinterestinRPTorCOIsituationwhenitbecomesknowntothem.

6

The Group’s Legal and Corporate Secretariat performsreviewsonallcommercialcontracts.Systembasedrecordsare maintained to capture the RPTs/RRPTs which havebeen entered into. Processes concerning negotiations,tendering and analysis carried out for transactionsbetweenrelatedpartiesareappropriatelydocumentedandretained tosupportandevidence that such transactionshavebeencarriedoutonnormalcommercialtermsandarenotdetrimentaltotheGroup’sminorityshareholders.

7

The policies and standard operating procedures require the useof various methods to ensure that RPTs are conducted on normalcommercial terms, which are consistent with the Group’s normalbusinesspracticesandpolicies,andwillnotbetothedetrimentoftheGroup’sminorityshareholders.Suchmethods include the reviewanddisclosureproceduresasfollows:

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Sectionfive

TheCompanyhasbeengrantedawaiver fromcomplyingwiththerequirementofParagraph10.09of theMMLRofBursaMalaysia includinghavingtoseekshareholders’approvalinrelationtothesupply,sale,purchase,provisionandusageofcertaingoods,servicesandfacilitieswhichformpartofPETRONASGroupintegratedoperations.

PCGformspartoftheintegratedoilandgasvaluechainofthePETRONASGroup.ThetransactionssuchasthesupplyofrawmaterialsarevitaltoPCG'soperations,andalternativesupplieswillnotbereadilyavailableasPETRONASGroupisamajorsupplierandattimes,thesolesupplierofsuchrawmaterials.DuetotheintegratednatureofPCG'sbusinessoperationswiththePETRONASGroup,thewaiverisofparticularsignificancetoensurePCGdoesnotexperienceanydisruptiontoitsoperations.

ThedetailsoftheRRPTsincurredduringtheyearthatwerewaivedbyBursaMalaysiaarepresentedonpage126ofthisAnnualReport.

MANAGEMENT’S ACCOUNTABILITY

ManagementisaccountabletotheBoardfortheimplementationoftheprocessesinidentifying,evaluating,monitoringandreportingofrisksandinternalcontrolasprescribedabove.TheManagingDirector/CEOhasprovidedtheBoardwithassurancethattheGroupriskmanagementandinternalcontrolsystemisoperatingadequatelyandeffectively,inallmaterialaspects,toensureachievementofcorporateobjectives.InprovidingtheaboveassurancebyManagingDirector/CEO,similarassuranceshavealsobeenobtainedfromManagementCommitteemembersconfirmingtheadequacyandeffectivenessofriskmanagementpracticeandinternalcontrolsystemwithintheirrespectiveareas.

CONCLUSION

Basedon theabove, theBoard isof theview that thesystemof internalcontrol instituted throughoutPCG issoundandprovidesa levelofconfidenceonwhichtheBoardreliesforassurance.Intheyearunderreview,therewasnosignificantcontrolfailureorweaknessthatwouldresultinmateriallosses,contingenciesoruncertaintiesrequiringseparatedisclosureinthisAnnualReport.

TheBoardandManagementwillcontinuetoreviewandstrengthentheGroup’sriskmanagementandinternalcontrolsystemtoensureongoingadequacyandeffectivenessofthesystemofinternalcontrolandriskmanagementpracticestomeetthechangingandchallengingoperatingenvironment.

REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS

TheexternalauditorshavereviewedthisStatementonRiskManagementandInternalControlpursuanttothescopesetoutinRecommendedPracticeGuide(RPG)5(Revised2015),GuidanceforAuditorsonEngagementstoReportontheStatementonRiskManagementandInternalControlincludedintheAnnualReportissuedbytheMalaysianInstituteofAccountants(MIA)forinclusionintheannualreportoftheGroupfortheyearended31December2016,and reported to theBoard thatnothinghascometo theirattention thatcause themtobelieve that thestatementintendedtobeincludedintheannualreportoftheGroup,inallmaterialrespects:

(a) hasnotbeenpreparedinaccordancewiththedisclosuresrequiredbyparagraphs41and42oftheStatementonRiskManagementandInternalControl:GuidelinesforDirectorsofListedIssuers,or

(b) isfactuallyinaccurate.

RPG5 (Revised2015)doesnot require theexternalauditors toconsiderwhether theDirectors’StatementonRiskManagementand InternalControlcoversallrisksandcontrols,ortoformanopinionontheadequacyandeffectivenessoftheGroup’sriskmanagementandinternalcontrolsystemincludingtheassessmentandopinionbytheBoardofDirectorsandmanagementthereon.Theauditorsarealsonotrequiredtoconsiderwhethertheprocessesdescribedtodealwithmaterialinternalcontrolaspectsofanysignificantproblemsdisclosedintheannualreportwill,infact,remedytheproblems.

ThisStatementonRiskManagementandInternalControlismadeinaccordancewiththeresolutionoftheBoarddated20February2017.


Datuk Sazali HamzahManagingDirector/CEO

Md Arif Mahmood Chairman

126

Sectionfive

PETRONAS CHEMICALS

GROUP BERHAD


RecurrentRelatedPartyTransactionsthatwerewaivedbyBursaMalaysiafromcomplyingwiththerequirementofParagraph10.09oftheMMLR.

Transacting Parties Nature of transactions For Year Ended 31 December 2016

RM ‘000

Integrated Operations of Our Group

PCGGroupandPETRONASanditssubsidiaries(PETRONASGroup)

(i) Supplyoffuelandfeedstock(suchasethane,propane,butane,drygas,naphtha,naturalgas)byPETRONASGroup

4,758,556

(ii) Supplyofutilities,electricityandwaterbyPETRONASGroup 755,382

(iii) UpgradingandpipelineworksontheLabuanGasTerminalbyPETRONASChemicalsMethanol(Labuan)SdnBhd

Nil

(iv) GranttoPETRONASGroupfortherightofusageoffacilitiesandpassageofcommoditiestofacilitatethereceiptanddistributionofpetrochemicalsandrelatedproducts

539

(v) ProvisionofoperatingandmaintenanceservicesbyPETRONASGroup 1,594

(vi) PurchaseofmarinedieseloilfromPETRONASGroup 1,711

Services rendered within the PETRONAS Group

(vii) ProvisionofvesselscreeningservicesbyPETRONASMaritimeSdnBhd Nil

(viii) Provisionoffreight,transportationandwarehousingservicesbyMISCBerhadanditssubsidiaries(MISCGroup)

80,021

Others

(ix) SalesofpetrochemicalproductsandotherrelatedproductstoPETRONASGroup 880,821

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OUR

NUMBERS


T h e f i n a l p r o o f o f o u r p e r f o r m a n c e l i e s i n o u r

f i n a n c i a l r e s u l t s . I n t h e f o l l o w i n g p a g e s w e w i l l

p r e s e n t t o y o u a d e t a i l e d a c c o u n t o f h o w w e

h a v e i m p r o v e d i n a l l t h e k e y p a r a m e t e r s t h a t

c o u n t f r o m o u r r e v e n u e t o o u r p r o f i t m a r g i n s .

W e w i l l a l s o p r o v i d e i n f o r m a t i o n o n o u r a s s e t s ,

l i a b i l i t i e s a n d c a s h f l o w.

CONTENTS

128 Directors’ Report

132 Statement by Directors

133 Statutory Declaration

134 Statements of Financial Position

135 StatementsofProfitorLossandOther

ComprehensiveIncome

136 StatementsofChangesinEquity

139 StatementsofCashFlows

141 NotestotheFinancialStatements

197 IndependentAuditors’Report

201 ListofProperties

205 AnalysisofShareholdings

209 Corporate Directory

211 NoticeofAnnualGeneralMeeting(AGM)

214 AdministrativeDetailsofPETRONASChemicals

GroupBerhad19thAGM

• Proxy Form

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PETRONAS CHEMICALS

GROUP BERHAD

TheDirectorshavepleasureinsubmittingtheirreportandtheauditedfinancialstatementsoftheGroupandoftheCompanyforthefinancialyearended31December2016.

PRINCIPAL ACTIVITIES

TheprincipalactivityoftheCompanyinthecourseofthefinancialyearremainedunchangedasinvestmentholding.

Theprincipalactivitiesofsubsidiaries,jointventuresandassociatesarestatedinNote26toNote28tothefinancialstatements.

RESULTS

Group Company

RM Mil RM Mil

Profitfortheyear 3,222 4,831

Attributableto:

ShareholdersoftheCompany 2,932 4,831

Non-controllinginterests 290 -

DIVIDENDS

Duringthefinancialyear,theCompanypaid:

(i) asecondinterimdividendof10senperordinaryshareamountingtoRM800millioninrespectofthefinancialyearended31December2015on23March2016;and

(ii) afirstinterimdividendof7senperordinaryshareamountingtoRM560millioninrespectofthefinancialyearended31December2016on7September2016.

TheDirectorshavedeclaredasecondinterimdividendof12senperordinaryshareamountingtoRM960millioninrespectofthefinancialyearended31December2016whichispayableon21March2017.Thedividendwillberecognisedandaccountedforinequityasanappropriationofretainedprofitsinthesubsequentfinancialyear.

TheDirectorsdonotrecommendanyfinaldividendtobepaidforthefinancialyearunderreview.

RESERVES AND PROVISIONS

Therewerenomaterialmovements to and from reservesandprovisionsduring thefinancial year other thanasdisclosed in thefinancialstatements.

DIRECTORS’ REPORTfor the year ended 31 December 2016

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DIRECTORS OF THE COMPANY

Directorswhoservedsincethedateofthelastreportare:

MdArifbinMahmoodDatukSazalibinHamzahVimalaa/pV.R.MenonChingYewChyeDongSooKimDatukTohAhWahZakariabinKasahFreidabintiAmat

InaccordancewithArticle93oftheCompany’sArticlesofAssociation,ChingYewChyeandDatukTohAhWahretirebyrotationfromtheBoardattheforthcomingAnnualGeneralMeetingand,beingeligible,offerthemselvesforre-election.

DIRECTORS’ INTERESTS

TheDirectorsinofficeattheendofthefinancialyearwhohaveinterestsinthesharesoftheCompanyandofitsrelatedcorporationsotherthanwhollyownedsubsidiaries(includingtheinterestsofthespousesand/orchildrenoftheDirectorswhothemselvesarenotDirectorsoftheCompany)asrecordedintheRegisterofDirectors’Shareholdingsareasfollows:

Number of ordinary shares of RM0.10 each in the Company

Balance at Balance at

Name 1.1.2016 Bought Sold 31.12.2016

Direct interest

MdArifbinMahmood 20,000 - - 20,000

Vimalaa/pV.R.Menon 20,000 - - 20,000

ChingYewChye 20,000 - - 20,000

DongSooKim 20,000 - - 20,000

ZakariabinKasah 6,000 - - 6,000

FreidabintiAmat 6,000 - - 6,000

Number of ordinary shares of RM1.00 each in PETRONAS Gas Berhad

Balance at Balance at

1.1.2016 Bought Sold 31.12.2016

Indirect interest

FreidabintiAmat 1,0001 - - 1,000

1 Indirect interest in shares held through spouse by virtue of Section 134(12)(c) of the Companies Act, 1965.

NoneoftheotherDirectorsholdingofficeat31December2016hadanyinterestinthesharesoftheCompanyandofitsrelatedcorporationsduringthefinancialyear.

Directors’ Report (Cont’d)for the year ended 31 December 2016

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PETRONAS CHEMICALS

GROUP BERHAD

DIRECTORS’ BENEFITS

Sincetheendofthepreviousfinancialyear,noDirectoroftheCompanyhasreceivedorbecomeentitledtoreceiveanybenefit(otherthantheamountofemolumentsorbenefitsincludedintheaggregateamountreceivedordueandreceivablebytheDirectorsasshowninthefinancialstatementsorthefixedsalaryofafull timeemployeeoftheCompanyoroftherelatedcorporations)byreasonofacontractmadebytheCompanyorarelatedcorporationwiththeDirectororwithafirmofwhichtheDirectorisamember,orwithacompanyinwhichtheDirectorhasasubstantialfinancialinterest. TherewerenoarrangementsduringandattheendofthefinancialyearwhichhadtheobjectofenablingDirectorsoftheCompanytoacquirebenefitsbymeansoftheacquisitionofsharesinordebenturesoftheCompanyoranyotherbodycorporate.

ISSUE OF SHARES

Therewerenochangesintheauthorised,issuedandpaidupcapitaloftheCompanyduringthefinancialyear.

OPTIONS GRANTED OVER UNISSUED SHARES

NooptionsweregrantedtoanypersontotakeupunissuedsharesoftheCompanyduringthefinancialyear.

OTHER STATUTORY INFORMATION

BeforethefinancialstatementsoftheGroupandoftheCompanyweremadeout,theDirectorstookreasonablestepstoascertainthat:

i) allknownbaddebtshavebeenwrittenoffandadequateprovisionmadefordoubtfuldebts,and

ii) anycurrentassetswhichwereunlikelytoberealisedintheordinarycourseofbusinesshavebeenwrittendowntoanamountwhichtheymightbeexpectedsotorealise.

Atthedateofthisreport,theDirectorsarenotawareofanycircumstances:

i) thatwouldrendertheamountwrittenoffforbaddebts,ortheamountoftheprovisionfordoubtfuldebtsintheGrouporintheCompanyinadequatetoanysubstantialextent,or

ii) thatwouldrenderthevalueattributedtothecurrentassetsinthefinancialstatementsoftheGroupandoftheCompanymisleading,or

iii) whichhavearisenwhichrenderadherencetotheexistingmethodofvaluationofassetsorliabilitiesoftheGroupandoftheCompanymisleadingorinappropriate,or

iv) nototherwisedealtwithinthisreportorthefinancialstatementsthatwouldrenderanyamountstatedinthefinancialstatementsoftheGroupandoftheCompanymisleading.

Atthedateofthisreport,theredoesnotexist:

i) anychargeontheassetsoftheGrouporoftheCompanythathasarisensincetheendofthefinancialyearandwhichsecurestheliabilitiesofanyotherperson,or

ii) anycontingentliabilityinrespectoftheGrouporoftheCompanythathasarisensincetheendofthefinancialyear.


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Nocontingentliabilityorother liabilityofanycompanyintheGrouphasbecomeenforceable,or is likelytobecomeenforceablewithintheperiodoftwelvemonthsaftertheendofthefinancialyearwhich,intheopinionoftheDirectors,willormaysubstantiallyaffecttheabilityoftheGroupandoftheCompanytomeettheirobligationsasandwhentheyfalldue.

IntheopinionoftheDirectors,thefinancialperformanceoftheGroupandoftheCompanyforthefinancialyearended31December2016havenotbeensubstantiallyaffectedbyanyitem,transactionoreventofamaterialandunusualnaturenorhasanysuchitem,transactionoreventoccurredintheintervalbetweentheendofthatfinancialyearandthedateofthisreport.

AUDITORS

Theauditors,KPMGPLT(convertedfromaconventionalpartnership,KPMG,on27December2016),haveindicatedtheirwillingnesstoacceptre-appointment.

SignedonbehalfoftheBoardofDirectorsinaccordancewitharesolutionoftheDirectors:

MD ARIF BIN MAHMOOD DATUK SAZALI BIN HAMZAHDirector Director

KualaLumpur,Date:20February2017


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PETRONAS CHEMICALS

GROUP BERHAD

IntheopinionoftheDirectors,thefinancialstatementssetoutonpages134to195,aredrawnupinaccordancewithMalaysianFinancialReportingStandards,InternationalFinancialReportingStandardsandtherequirementsoftheCompaniesAct,1965inMalaysiasoastogiveatrueandfairviewofthefinancialpositionsoftheGroupandoftheCompanyasat31December2016andoftheirfinancialperformanceandcashflowsforthefinancialyearendedonthatdate.

IntheopinionoftheDirectors,theinformationsetoutinNote38onpage196tothefinancialstatementshasbeencompiledinaccordancewiththeGuidanceonSpecialMatterNo.1,Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issuedbytheMalaysianInstituteofAccountants,andpresentedbasedontheformatprescribedbyBursaMalaysiaSecuritiesBerhad.

SignedonbehalfoftheBoardofDirectorsinaccordancewitharesolutionoftheDirectors:

MD ARIF BIN MAHMOOD DATUK SAZALI BIN HAMZAHDirector Director

KualaLumpur,Date:20February2017

STATEMENT BY DIRECTORS

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STATUTORY DECLARATION

I, Rashidah binti Alias@Ahmad, the officer primarily responsible for the financialmanagement of PETRONASChemicalsGroupBerhad, dosolemnlyandsincerelydeclarethatthefinancialstatementssetoutonpages134to196,aretothebestofmyknowledgeandbelief,correctand Imakethissolemndeclarationconscientiouslybelievingthedeclarationtobetrue,andbyvirtueoftheStatutoryDeclarationsAct,1960.

SubscribedandsolemnlydeclaredbytheabovenamedRashidahbintiAlias@AhmadatKualaLumpurinWilayahPersekutuanon20February2017

BEFOREME:

134

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PETRONAS CHEMICALS

GROUP BERHAD

Group Company

2016 2015 2016 2015

Note RM Mil RM Mil RM Mil RM Mil

ASSETS

Property,plantandequipment 3 18,543 16,597 12 13

Investmentsinsubsidiaries 4 - - 16,881 16,188

Investmentsinjointventuresandassociates 5 1,363 1,280 1,159 1,075

Intangibleassets 6 3 5 - -

Longtermreceivables 7 83 8 7,011 -

Deferredtaxassets 8 462 389 - -

TOTAL NON-CURRENT ASSETS 20,454 18,279 25,063 17,276

Tradeandotherinventories 9 1,383 1,404 - -

Tradeandotherreceivables 10 2,639 1,692 553 4,381

Taxrecoverable 69 129 - 7

Fundinvestments 12 - 622 - 622

Cashandcashequivalents 13 7,403 8,707 1,254 1,793

TOTAL CURRENT ASSETS 11,494 12,554 1,807 6,803

TOTAL ASSETS 31,948 30,833 26,870 24,079

EQUITY

Sharecapital 14 800 800 800 800

Reserves 15 26,242 23,983 25,693 22,222

Total equity attributable to shareholders of the Company 27,042 24,783 26,493 23,022

Non-controlling interests 16 1,271 1,807 - -

TOTAL EQUITY 28,313 26,590 26,493 23,022

LIABILITIES

Deferredtaxliabilities 8 874 814 1 2

Otherlongtermliabilitiesandprovisions 17 308 355 76 165

TOTAL NON-CURRENT LIABILITIES 1,182 1,169 77 167

Borrowings 18 23 30 - -

Tradeandotherpayables 19 2,208 2,902 292 890

Current tax payables 180 142 8 -

Dividendpayable 42 - - -

TOTAL CURRENT LIABILITIES 2,453 3,074 300 890

TOTAL LIABILITIES 3,635 4,243 377 1,057

TOTAL EQUITY AND LIABILITIES 31,948 30,833 26,870 24,079

STATEMENTS OF FINANCIAL POSITION as at 31 December 2016

Thenotessetoutonpages141to196areanintegralpartofthesefinancialstatements.

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STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 31 December 2016

Group Company

2016 2015 2016 2015


Revenue 20 13,860 13,536 4,401 2,796

Costofrevenue (8,536) (8,989) - -

Gross profit 5,324 4,547 4,401 2,796

Sellinganddistributionexpenses (704) (615) - -

Administrationexpenses (667) (582) (173) (194)

Otherexpenses (196) (391) (267) (6)

Otherincome 289 798 860 346

Operating profit 21 4,046 3,757 4,821 2,942

Netfinancingincome/(costs) 22 47 (11) 60 2

Shareofprofitofequity-accountedjointventures andassociates,netoftax 17 87 - -

Profit before taxation 4,110 3,833 4,881 2,944

Taxexpense 23 (888) (742) (50) (14)

Profit for the year 3,222 3,091 4,831 2,930

Other comprehensive income

Items that may be reclassified subsequently to profit or loss

Foreigncurrencytranslationdifferences 641 362 - -

Shareofothercomprehensiveincomeof equity-accountedjointventuresandassociates 46 197 - -

Total other comprehensive income for the year 687 559 - -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 3,909 3,650 4,831 2,930

Profit attributable to:

ShareholdersoftheCompany 2,932 2,782 4,831 2,930

Non-controllinginterests 290 309 - -

PROFIT FOR THE YEAR 3,222 3,091 4,831 2,930

Total comprehensive income attributable to:

ShareholdersoftheCompany 3,619 3,341 4,831 2,930

Non-controllinginterests 290 309 - -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 3,909 3,650 4,831 2,930

Basicearningsperordinaryshare(sen) 24 36.7 34.8 - -


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GROUP BERHAD

STATEMENTS OF CHANGES IN EQUITY for the year ended 31 December 2016

Attributable to shareholders of the Company

Non-distributable Distributable

Group

Sharecapital

(Note 14)RM Mil

Sharepremium

RM Mil

Foreigncurrency

translationreserve

(Note 15)RM Mil

Mergerreserve

(Note 15)RM Mil

Otherreserves(Note 15)

RM Mil

RetainedprofitsRM Mil

TotalRM Mil

Non-controlling

interestsRM Mil

Totalequity

RM Mil

Balance at 1 January 2015 800 8,071 74 (204) 138 13,843 22,722 1,755 24,477

Foreigncurrency translationdifferences - - 362 - - - 362 - 362

Shareofothercomprehensiveincome ofequity-accounted

jointventuresandassociates - - - - 197 - 197 - 197

Totalothercomprehensiveincomefortheyear - - 362 - 197 - 559 - 559

Profitfortheyear - - - - - 2,782 2,782 309 3,091

Total comprehensive income for the year - - 362 - 197 2,782 3,341 309 3,650

Redemptionofredeemablepreferencesharesinsubsidiaries - - - - 152 (152) - (111) (111)

DividendstoshareholdersoftheCompany (Note25) - - - - - (1,280) (1,280) - (1,280)

Dividendsto non-controllinginterests - - - - - - - (146) (146)

Total transactions with equity holders of the Group - - - - 152 (1,432) (1,280) (257) (1,537)

Balance at 31 December 2015 800 8,071 436 (204) 487 15,193 24,783 1,807 26,590


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Group

Sharecapital

(Note 14)RM Mil

Sharepremium

RM Mil

Foreigncurrency

translationreserve

(Note 15)RM Mil

Mergerreserve

(Note 15)RM Mil

Otherreserves(Note 15)

RM Mil


TotalRM Mil

Non-controlling

interestsRM Mil

Totalequity

RM Mil

Balance at 1 January 2016 800 8,071 436 (204) 487 15,193 24,783 1,807 26,590

Foreigncurrency translationdifferences - - 641 - - - 641 - 641

Shareofothercomprehensiveincome ofequity-accounted

jointventuresandassociates - - - - 46 - 46 - 46

Totalothercomprehensiveincomefortheyear - - 641 - 46 - 687 - 687

Profitfortheyear - - - - - 2,932 2,932 290 3,222

Total comprehensive income for the year - - 641 - 46 2,932 3,619 290 3,909

Redemptionofredeemablepreferencesharesinsubsidiaries - - - - 17 (17) - (11) (11)

DividendstoshareholdersoftheCompany (Note25) - - - - - (1,360) (1,360) - (1,360)

Dividendsto non-controllinginterests - - - - - - - (815) (815)

Total transactions with equity holders of the Group - - - - 17 (1,377) (1,360) (826) (2,186)

Balance at 31 December 2016 800 8,071 1,077 (204) 550 16,748 27,042 1,271 28,313

Statements of Changes in Equity (Cont’d)for the year ended 31 December 2016


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GROUP BERHAD

Statements of Changes in Equity (Cont’d)for the year ended 31 December 2016



Company

Sharecapital

(Note 14)RM Mil

Sharepremium

RM Mil

Mergerrelief

(Note 15)RM Mil


Totalequity

RM Mil

Balance at 1 January 2015 800 8,071 7,176 5,325 21,372

Profitandtotalcomprehensiveincomefortheyear - - - 2,930 2,930

DividendstoshareholdersoftheCompany(Note25) - - - (1,280) (1,280)

Balance at 31 December 2015 800 8,071 7,176 6,975 23,022

Balance at 1 January 2016 800 8,071 7,176 6,975 23,022

Profitandtotalcomprehensiveincomefortheyear - - - 4,831 4,831

DividendstoshareholdersoftheCompany(Note25) - - - (1,360) (1,360)

Balance at 31 December 2016 800 8,071 7,176 10,446 26,493


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STATEMENTS OF CASH FLOWS for the year ended 31 December 2016

Group Company

2016 2015 2016 2015


CASH FLOWS FROM OPERATING ACTIVITIES

Cashreceiptsfromcustomers 13,443 13,591 90 140

Cashpaidtosuppliersandemployees (8,946) (8,883) (168) (104)

4,497 4,708 (78) 36

Interestincomereceived 260 350 75 91

Taxationpaid (799) (724) (36) (21)

Net cash generated from/(used in) operating activities 3,958 4,334 (39) 106

CASH FLOWS FROM INVESTING ACTIVITIES

Increaseininvestmentsinsubsidiaries - - (1,398) (662)

Increaseininvestmentsinanassociate (84) (284) (84) (284)

Financialassistancetoasubsidiary - - (24) (76)

Redemptionofpreferencesharesinsubsidiaries - - 460 309

Dividendsreceivedfrom:

-subsidiaries - - 4,043 2,642

-jointventuresandassociates 64 154 62 154

Purchaseofproperty,plantandequipment (3,428) (2,858) (5) (7)

Proceedsfromdisposalofproperty,plantandequipment 2 3 - -

Withdrawal/(Placement)ofIslamicdeposits 622 (622) 622 (622)

Net cash (used in)/generated from investing activities (2,824) (3,607) 3,676 1,454

CASH FLOWS FROM FINANCING ACTIVITIES

Dividendspaidto:

-PETRONAS (875) (824) (875) (824)

-others(thirdparties) (485) (456) (485) (456)

-non-controllinginterests (773) (146) - -

Paymenttonon-controllinginterestsonredemptionofsharesbyasubsidiary (11) (111) - -

Drawdownofrevolvingcreditfacility 8 30 - -

Balance carried forward (2,136) (1,507) (1,360) (1,280)


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2016 2015 2016 2015


CASH FLOWS FROM FINANCING ACTIVITIES (continued)

Balancebroughtforward (2,136) (1,507) (1,360) (1,280)

Repaymentof:

-financeleaseliabilities (55) (55) - -

-revolvingcreditfacility (16) - - -

Loantoasubsidiary - - (2,481) (1,771)

Loanrepaymentbysubsidiaries - - - 7

Interestincomefromloanstosubsidiaries - - 220 108

Paymentforsettlementofforwardforeign exchangecontract (4,366) - (4,366) -

Proceedfromsettlementofforwardforeign exchangecontract 3,811 - 3,811 -

Net cash used in financing activities (2,762) (1,562) (4,176) (2,936)

Net cash flows from operating, investing and financing activities (1,628) (835) (539) (1,376)

Effectofforeigncurrencytranslationdifferences 294 (383) - -

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,334) (1,218) (539) (1,376)

NET FOREIGN EXCHANGE DIFFERENCES ON CASH HELD 30 118 - -

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 8,707 9,807 1,793 3,169

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 7,403 8,707 1,254 1,793

CASH AND CASH EQUIVALENTS

Cashandbankbalancesanddeposits 13 7,403 8,707 1,254 1,793

Statements of Cash Flows (Cont’d)for the year ended 31 December 2016


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NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

1.1 Statement of compliance

ThefinancialstatementsoftheGroupandoftheCompanyhavebeenpreparedinaccordancewithMalaysianFinancialReportingStandards(MFRS),InternationalFinancialReportingStandardsandtherequirementsoftheCompaniesAct,1965inMalaysia.

ThesefinancialstatementsalsocomplywiththeapplicabledisclosureprovisionsoftheListingRequirementsoftheBursaMalaysiaSecuritiesBerhad.

Asof1January2016,theGroupandtheCompanyhaveadoptedamendmentstoMFRSandICInterpretations(collectivelyreferredtoas“pronouncements”)thathavebeenissuedbytheMalaysianAccountingStandardsBoard(MASB)asdescribedfullyinNote33.

The adoption of these pronouncements does not have anymaterial impact to the financial statements of the Group and of theCompany.

MASBhasalsoissuednewandrevisedpronouncementswhicharenotyeteffectivefortheGroupandtheCompanyandtherefore,havenotbeenadoptedforinthesefinancialstatements.ThesepronouncementsincludingtheirimpactonthefinancialstatementsintheperiodofinitialapplicationsaresetoutinNote34.NewandrevisedpronouncementsthatarenotrelevanttotheoperationsoftheGroupandoftheCompanyaresetoutinNote35.

ThesefinancialstatementswereapprovedandauthorisedforissuebytheBoardofDirectorson20February2017.

1.2 Basis of measurement

ThefinancialstatementsoftheGroupandoftheCompanyhavebeenpreparedonhistoricalcostbasisexceptforcertainitemswhicharemeasuredatfairvalueasdisclosedinaccountingpoliciesbelow.

1.3 Functional and presentation currency

TheindividualfinancialstatementsofeachentityintheGrouparemeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(“thefunctionalcurrency”).TheGroup’sandtheCompany’sfinancialstatementsarepresentedinRinggitMalaysia(RM),whichistheCompany’sfunctionalcurrency.Allfinancialinformationhavebeenroundedtothenearestmillion,unlessotherwisestated.

1.4 Use of estimates and judgments

The preparation of financial statements in conformity with MFRS requires management to make judgments, estimates andassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsofassets,liabilities,incomeandexpenses.Actualresultsmaydifferfromtheseestimates.

Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedinthe

yearinwhichtheestimatesarerevisedandinanyfutureyearsaffected.

Inparticular,informationaboutsignificantareasofestimationuncertaintyandcriticaljudgmentsinapplyingaccountingpoliciesthathavethemostsignificanteffectontheamountsrecognisedinthefinancialstatementsaredescribedinthefollowingnotes:

(i) Note3 : Property,plantandequipment;(ii) Note8 : Deferredtax;and(iii) Note17 : Otherlongtermliabilitiesandprovisions.

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Notes to the Financial Statements (Cont’d)

2. SIGNIFICANT ACCOUNTING POLICIES

TheaccountingpoliciessetoutbelowhavebeenappliedconsistentlytoallperiodspresentedinthesefinancialstatementsandhavebeenappliedconsistentlybytheGroupandtheCompany,unlessotherwisestated.

2.1 Basis of consolidation

(i) Subsidiaries

SubsidiariesareentitiescontrolledbytheCompany.TheGroupcontrolsanentitywhenitisexposedto,orhasrightsto,variablereturnsfromitsinvolvementwiththeentityandhastheabilitytoaffectthosereturnsthroughitspowerovertheentity.Potentialvotingrightsareconsideredwhenassessingcontrolonlywhensuchrightsaresubstantive.TheGroupconsidersithasdefactopoweroveraninvesteewhen,despitenothavingthemajorityofvotingrights,ithasthecurrentabilitytodirecttheactivitiesoftheinvesteethatsignificantlyaffecttheinvestee’sreturn.

ThefinancialstatementsofsubsidiariesareincludedintheconsolidatedfinancialstatementsoftheGroupfromthedatethatcontrolcommencesuntilthedatethatcontrolceases.

SubsidiariesthatwereacquiredfromPETRONASuponInitialPublicOffering(IPO)areconsolidatedusingthemergermethodofaccounting.Othersubsidiariesareconsolidatedusingtheacquisitionmethodofaccounting.

Underthemergermethodofaccounting,theresultsofentitiesorbusinessesundercommoncontrolareaccountedforasiftheacquisitionhadoccurredatthedatethatcommoncontrolwasestablished.Theassetsandliabilitiesacquiredarerecognisedatthecarryingamountsintheconsolidatedstatementsoffinancialposition.Thedifferencebetweenthecostofacquisitionandthenominalvalueofthesharesacquiredtogetherwiththesharepremiumaretakentomergerreserve(oradjustedagainstanysuitablereserveinthecaseofdebitdifferences).TheothercomponentsofequityoftheacquiredentitiesareaddedtothesamecomponentswithintheGroup.

All intercompany transactions are eliminated on consolidation and revenue and profits relate to external transactions only.

Unrealisedlossesresultingfromintercompanytransactionsarealsoeliminatedunlesscostcannotberecovered.

Business combinations

Abusinesscombinationisatransactionorothereventinwhichanacquirerobtainscontrolofoneormorebusinesses.Businesscombinationsareaccountedforusingtheacquisitionmethod.Theidentifiableassetsacquiredandtheliabilitiesassumedaremeasuredattheirfairvaluesattheacquisitiondate.Thecostoftheacquisitionismeasuredastheaggregateofthefairvalueoftheconsiderationtransferredandtheamountofanynon-controllinginterestintheacquiree.Non-controllinginterestsarestatedeitheratfairvalueorattheproportionateshareoftheacquiree’sidentifiablenetassetsattheacquisitiondate.

Whenabusinesscombinationisachievedinstages,theGroupremeasuresitspreviouslyheldnon-controllingequityinterestintheacquireeatfairvalueattheacquisitiondate,withanyresultinggainorlossrecognisedintheprofitorloss.IncreaseintheGroup’sownershipinterest inanexistingsubsidiaryisaccountedforasequitytransactionswithdifferencesbetweenthefairvalueofconsiderationpaidandtheGroup’sproportionateshareofnetassetsacquiredrecogniseddirectlyinequity.

TheGroupmeasuresgoodwillastheexcessofthecostofanacquisitionandthefairvaluesofanypreviouslyheldinterestintheacquireeoverthefairvalueoftheidentifiableassetsacquiredandliabilitiesassumedattheacquisitiondate.Whentheexcessisnegative,abargainpurchasegainisrecognisedimmediatelyinprofitorloss.

Transactioncosts,otherthanthoseassociatedwiththeissuanceofdebtorequitysecurities,thattheGroupincursinconnectionwithabusinesscombinationareexpensedasincurred.

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.1 Basis of consolidation (continued)

(i) Subsidiaries (continued)

Non-controlling interests

Non-controllinginterestsattheendofreportingperiod,beingtheportionofthenetassetsofsubsidiariesattributabletoequityintereststhatarenotownedbytheCompany,whetherdirectlyorindirectlythroughsubsidiaries,arepresentedintheconsolidatedstatementsoffinancialpositionandstatementsofchanges inequitywithinequity,separatelyfromequityattributabletotheshareholdersoftheCompany.Non-controllinginterestsintheresultsoftheGrouparepresentedintheconsolidatedstatementsofprofitorlossandothercomprehensiveincomeasanallocationoftheprofitorlossandtotalcomprehensiveincomefortheyearbetweenthenon-controllinginterestsandshareholdersoftheCompany.

Lossesapplicabletothenon-controllinginterestsinasubsidiaryareallocatedtothenon-controllinginterestsevenifdoingsocausesthenon-controllingintereststohaveadeficitbalance.

TheGrouptreatsallchangesinitsownershipinterestinasubsidiarythatdonotresultinalossofcontrolasequitytransactionsbetweentheGroupanditsnon-controllinginterestholders.AnydifferencebetweentheGroup’sshareofnetassetsbeforeandafterthechange,andanyconsiderationreceivedorpaidisadjustedtooragainstGroupreserves.

Loss of control

Uponlossofcontrolofasubsidiary,theGroupderecognisestheassetsandliabilitiesoftheformersubsidiary,anynon-controllinginterestsand theothercomponentsofequity related to the formersubsidiary from theconsolidatedstatementsoffinancialposition.Anysurplusordeficitarisingonthelossofcontrolisrecognisedinprofitorloss.IftheGroupretainsanyinterestintheprevioussubsidiary,thensuchinterestismeasuredatfairvalueatthedatethatcontrolislost.Subsequently,itisaccountedforasanequity-accountedinvesteeorasanavailable-for-salefinancialassetdependingonthelevelofinfluenceretained.

(ii) Joint arrangements

JointarrangementsarearrangementsinwhichtheGrouphasjointcontrol,establishedbycontractsrequiringunanimousconsentfordecisionsabouttheactivitiesthatsignificantlyaffectthearrangements’returns.

Jointarrangementsareclassifiedaseitherjointoperationorjointventure.AjointarrangementisclassifiedasjointoperationwhentheGrouportheCompanyhasrightstotheassetsandobligationsfortheliabilitiesrelatingtoanarrangement.TheGroupandtheCompanyaccountforeachof itsshareoftheassets, liabilitiesandtransactions, including itsshareofthoseheldorincurredjointlywiththeotherinvestors,inrelationtothejointoperation.AjointarrangementisclassifiedasjointventurewhentheGrouportheCompanyhasrightsonlytothenetassetsofthearrangement.TheGroupaccountsforitsinterestinthejointventureusingtheequitymethodasdescribedinNote2.1(iii).

(iii) Associates

AssociatesareentitiesinwhichtheGrouphassignificantinfluenceincludingrepresentationontheBoardofDirectors,butnotcontrolorjointcontrol,overthefinancialandoperatingpoliciesoftheinvesteecompany.

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2.1 Basis of consolidation (continued)

(iii) Associates (continued)

Associates are accounted for in the consolidated financial statements using the equitymethod. The consolidated financialstatementsincludetheGroup’sshareofpost-acquisitionprofitorlossandothercomprehensiveincomeoftheequity-accountedassociates,afteradjustmentstoaligntheaccountingpolicieswiththoseoftheGroup,fromthedatethatsignificantinfluencecommencesuntilthedatethatsignificantinfluenceceases.

TheGroup’sshareofpost-acquisitionreservesandretainedprofitslesslossesisaddedtothecarryingvalueoftheinvestmentintheconsolidatedstatementsoffinancialposition.Theseamountsaretakenfromthelatestauditedfinancialstatementsormanagementfinancialstatementsoftheassociates.

WhentheGroup’sshareofpost-acquisitionlossesexceedsitsinterestinanequity-accountedassociate,thecarryingamountofthatinterest(includinganylongterminvestments)isreducedtonilandtherecognitionoffurtherlossesisdiscontinuedexcepttotheextentthattheGrouphasanobligationorhasmadepaymentsonbehalfoftheassociate.

WhentheGroupceasestohavesignificantinfluenceoveranassociate,itisaccountedforasadisposaloftheentireinterestinthatassociate,withtheresultinggainorlossbeingrecognisedinprofitorloss.Anyretainedinterestintheformerassociateatthedatewhensignificantinfluenceislostismeasuredatfairvalueandthisamountisregardedastheinitialcarryingamountofafinancialasset.

WhentheGroup’s interest inanassociatedecreasesbutdoesnotresult in lossofsignificant influence,anyretained interestisnot re-measured.Anygainor lossarising fromthedecrease in interest is recognised inprofitor loss.Anygainsor lossespreviouslyrecognisedinothercomprehensiveincomearealsoreclassifiedproportionatelytotheprofitorlossifthatgainorlosswouldberequiredtobereclassifiedtoprofitorlossonthedisposaloftherelatedassetsandliabilities.

UnrealisedprofitsarisingfromtransactionsbetweentheGroupanditsassociatesareeliminatedtotheextentoftheGroup’sinterestsintheassociates.Unrealisedlossesonsuchtransactionsarealsoeliminatedpartially,unlesscostcannotberecovered.

2.2 Property, plant and equipment and depreciation

Itemsofproperty,plantandequipmentarestatedatcostlessaccumulateddepreciationandaccumulatedimpairmentlosses,ifany.Projects-in-progressisstatedatcostlessaccumulatedimpairmentlosses,ifany,andisnotdepreciated.

Costincludesexpendituresthataredirectlyattributabletotheacquisitionoftheasset.Thecostofself-constructedassetsincludes

thecostsofmaterialsanddirect labour,anyothercostsdirectlyattributable tobringing theassets toworkingcondition for theirintendeduse,andthecostsofdismantlingandremovingtheassetsandrestoringthesiteonwhichtheyarelocated.Forqualifyingassets,borrowingcostsarecapitalised inaccordancewiththeaccountingpolicyonborrowingcosts.Purchasedsoftwarethat isintegraltothefunctionalityoftherelatedequipmentiscapitalisedaspartofthatequipment.

When significant components of an itemof property, plant and equipment have different useful lives, they are accounted for asseparateitems(majorcomponents)ofproperty,plantandequipment.

Thecostofreplacingacomponentofanitemofproperty,plantandequipmentisrecognisedinthecarryingamountoftheitemifitisprobablethatthefutureeconomicbenefitsembodiedwithinthecomponentwillflowtotheGrouportheCompanyanditscostcanbemeasuredreliably.Thecarryingamountofthereplaceditemofproperty,plantandequipmentisderecognisedwithanycorrespondinggain or loss recognised in profit or loss accordingly. The costs of the day-to-day servicing of property, plant and equipment arerecognisedinprofitorlossasincurred.

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2.2 Property, plant and equipment and depreciation (continued)

Depreciationforproperty,plantandequipmentotherthanprojects-in-progress, isrecognisedintheprofitor lossonastraight-linebasisovertheestimatedusefullivesofeachcomponentofanitemofproperty,plantandequipment.Property,plantandequipmentarenotdepreciateduntiltheassetsarereadyfortheirintendeduse.

Buildingsaredepreciatedovertheirusefullivesorovertheremaininglandleaseperiod,whicheverisshorter.

LeasedassetsaredepreciatedovertheshorteroftheleasetermandtheirusefullivesunlessitisreasonablycertainthattheGroupwillobtainownershipbytheendoftheleaseterm.

Theestimatedusefullivesofproperty,plantandequipmentforthecurrentandcomparativeyearsareasfollows:

Leaseholdland 30-99yearsBuildings 14-66yearsPlantandequipment 3-67yearsOfficeequipment,furnitureandfittings 5-7yearsComputersoftwareandhardware 5yearsMotorvehicles 3-5years

Thedepreciableamount isdeterminedafterdeducting residualvalue.The residualvalue,useful lifeanddepreciationmethodarereviewed at the end of each reporting period to ensure that the amount, period andmethod of depreciation are consistentwithpreviousestimatesandtheexpectedpatternofconsumptionofthefutureeconomicbenefitsembodiedintheitemsofproperty,plantandequipment.

Anitemofproperty,plantandequipmentisderecognisedupondisposalorwhennofutureeconomicbenefitsareexpectedfromitsuseordisposal.Thedifferencebetweenthenetdisposalproceeds,ifany,andthenetcarryingamountisrecognisedintheprofitorloss.

2.3 Leased assets

Aleasearrangementisaccountedforasfinanceoroperatingleaseinaccordancewiththeaccountingpolicyasstatedbelow.Whenthefulfilmentofanarrangementisdependentontheuseofaspecificassetandthearrangementconveysarighttousetheasset,itisaccountedforasaleaseinaccordancewiththeaccountingpolicybelowalthoughthearrangementdoesnottakethelegalformofalease.

(i) Finance lease

A lease is recognised as a finance lease if it transfers substantially to theGroup or theCompany all the risks and rewardsincidentaltoownership.Uponinitialrecognition,theleasedassetismeasuredatanamountequaltothelowerofitsfairvalueandthepresentvalueoftheminimumleasepayments.Subsequenttoinitialrecognition,theassetisaccountedforinaccordancewiththeaccountingpolicyapplicabletothatasset.Thecorrespondingliabilityisincludedinthestatementsoffinancialpositionaslongtermliabilitiesandotherpayables.

Minimum lease payments made under finance leases are apportioned between the finance costs and the reduction of theoutstandingliability.Financecosts,whichrepresentthedifferencebetweenthetotalleasingcommitmentsandthefairvalueoftheassetsacquired,arerecognisedintheprofitorlossandallocatedovertheleasetermsoastoproduceaconstantperiodicrateofinterestontheremainingbalanceoftheliabilityforeachaccountingperiod.

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2.3 Leased assets (continued)

(i) Finance lease (continued)

Contingentleasepayments,ifany,areaccountedforbyrevisingtheminimumleasepaymentsovertheremainingtermoftheleasewhentheleaseadjustmentisconfirmed.

Leaseholdlandwhichinsubstanceisafinanceleaseisclassifiedasproperty,plantandequipment.

(ii) Operating lease

All leases thatdonot transfersubstantially to theGroupand theCompanyall the risksand rewards incidental toownershipareclassifiedasoperatingleases,andtheleasedassetsarenotrecognisedontheGroup’sandtheCompany’sstatementsoffinancialposition.

Paymentsmadeunderoperatingleasesarerecognisedasanexpenseintheprofitorlossonastraight-linebasisoverthetermofthelease.Leaseincentivesreceivedarerecognisedasareductionofrentalexpenseovertheleasetermonastraight-linebasis.

Leaseholdlandwhichinsubstanceisanoperatingleaseisclassifiedasprepaidleasepayments.

2.4 Investments

Longterminvestmentsinsubsidiaries,jointventuresandassociatesarestatedatcostlessimpairmentlosses,ifany,intheCompany’sfinancialstatements,unlesstheinvestmentsareclassifiedasheldforsaleordistribution.Thecostofinvestmentsincludestransactioncosts.

Thecarryingamountoftheseinvestmentsincludesfairvalueadjustmentsonshareholder’sloansandadvances,ifany(Note2.6(i)).

2.5 Intangible asset

Intangibleasset,whichcomprisesalicenseobtainedfromathirdparty,ismeasuredoninitialrecognitionatcost.

Following initial recognition, intangible asset is carried at cost less accumulated amortisation and any accumulated impairmentlosses.

Amortisationforintangibleassetisrecognisedintheprofitorlossonastraight-linebasisovertheestimatedeconomicusefullife.Theamortisationmethodandtheusefullifeforintangibleassetarereviewedateachreportingdate.Intangibleassetisassessedforimpairmentwheneverthereisanindicationthatitmaybeimpaired.

Theestimatedusefullifeforthecurrentandcomparativeyearsis10years.

Subsequent expenditure on intangible asset is capitalised onlywhen it increases the future economic benefits embodied in thespecificassettowhichitrelates.Allotherexpendituresarerecognisedinprofitorlossasincurred.

2.6 Financial instruments

Afinancialinstrumentisrecognisedinthestatementsoffinancialpositionwhen,andonlywhen,theGrouportheCompanybecomesapartytothecontractualprovisionsoftheinstrument.

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2.6 Financial instruments (continued)

(i) Financial assets

Initial recognition

Financialassetsareclassifiedasfinancialassetsatfairvaluethroughprofitorloss,orloansandreceivables,asappropriate.TheGroupandtheCompanydeterminetheclassificationoffinancialassetsatinitialrecognition.

Financialassetsarerecognisedinitiallyatfairvalue,normallybeingthetransactionpriceplus,inthecaseoffinancialassetsnotatfairvaluethroughprofitorloss,anytransactioncoststhataredirectlyattributabletotheacquisitionorissueofthefinancialinstrument.

Purchasesorsalesunderacontractwhichtermsrequiredeliveryoffinancialassetswithinatimeframeestablishedbyregulationorconvention inthemarketplaceconcerned(“regularwaypurchases”)arerecognisedonthetradedate i.e. thedatethattheGrouportheCompanycommitstopurchaseorsellthefinancialasset.

Fair value adjustments on shareholder’s loans and advances at initial recognition, if any, are added to the carrying value ofinvestmentsintheCompany’sfinancialstatements.

TheGroup’sandtheCompany’sfinancialassetsincludecashandcashequivalents,fundinvestments,tradeandotherreceivables,loansandadvances,andderivativefinancialinstruments.

Subsequent measurement

Thesubsequentmeasurementoffinancialassetsdependsontheirclassificationasfollows:

Financialassetsatfairvaluethroughprofitorloss

Fairvaluethroughprofitorlosscategorycomprisesfinancialassetsthatareheldfortrading,includingderivatives(exceptforaderivativethatisafinancialguaranteecontractoradesignatedandeffectivehedginginstrument)andfinancialassetsthatarespecificallydesignatedintothiscategoryuponinitialrecognition.

Financialassetscategorisedasfairvaluethroughprofitorlossaresubsequentlymeasuredattheirfairvaluewithgainsorlossesrecognisedintheprofitorloss.ThemethodsusedtomeasurefairvaluearestatedinNote2.7.

Loans and receivables

Loans and receivables category comprises debt instruments that are not quoted in an activemarket. Subsequent to initialrecognition,financialassetscategorisedasloansandreceivablesaremeasuredatamortisedcostusingtheeffectiveinterestmethod(Note2.6(v)).

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(ii) Financial liabilities

Initial recognition

Financial liabilitiesareclassifiedasfinancial liabilitiesat fair value throughprofitor loss,orfinancial liabilitiesmeasuredatamortisedcost,asappropriate.TheGroupandtheCompanydeterminetheclassificationoffinancialliabilitiesatinitialrecognition.

Financial liabilities are recognised initially at fair value less, in the case of loans and borrowings, any directly attributabletransactioncosts.

The Group’s and the Company’s financial liabilities include borrowings, trade and other payables, and derivative financialinstruments.

Subsequent measurement

Thesubsequentmeasurementoffinancialliabilitiesdependsontheirclassificationasfollows:

Financialliabilitiesatfairvaluethroughprofitorloss

Fairvalue throughprofitor losscategorycomprisesfinancial liabilities thatarederivativesfinancial instrument (except foraderivativethatisafinancialguaranteecontractoradesignatedandeffectivehedginginstrument)andfinancialliabilitiesthatarespecificallydesignatedintothiscategoryuponinitialrecognition.

Financialliabilitiescategorisedasfairvaluethroughprofitorlossaresubsequentlymeasuredattheirfairvaluewithgainsorlossesrecognisedintheprofitorloss.

Financial liabilities measured at amortised cost

Subsequentto initial recognition,financial liabilitiesaremeasuredatamortisedcostusingtheeffective interestmethod(seeNote2.6(v)).

Gainsandlossesarerecognisedintheprofitorlosswhentheliabilitiesarederecognisedaswellasthroughtheamortisationprocess.

(iii) Derivative financial instruments

TheGroupusesderivativefinancialinstrumentssuchasforwardratecontractstomanagecertainexposurestofluctuationsinforeigncurrencyexchangerates.

Derivativefinancialinstrumentsareinitiallyrecognisedatfairvalueonthedateonwhichaderivativecontractisenteredintoandaresubsequentlyremeasuredatfairvalue.Derivativesfinancialinstrumentsarecarriedasfinancialassetswhenthefairvalueispositiveandasfinancialliabilitieswhenthefairvalueisnegative.

Anygainsorlossesarisingfromchangesinfairvalueonderivativesfinancialinstrumentsduringtheyeararerecognisedintheprofitorloss.

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(iii) Derivative financial instruments (continued)

Anembeddedderivativeisrecognisedseparatelyfromthehostcontractandaccountedforasaderivativeif,andonlyif,itisnotcloselyrelatedtotheeconomiccharacteristicsandrisksofthehostcontractandthehostcontractisnotcategorisedasfairvaluethroughprofitorloss.Thehostcontract,intheeventanembeddedderivativeisrecognisedseparately,isaccountedforinaccordancewiththepolicyapplicabletothenatureofthehostcontract.

Ingeneral,contractstosellorpurchasenon-financialitemstomeetexpectedownuserequirementsarenotaccountedforasfinancial instruments. However, contracts to sell or purchase commodities that can be net settled orwhich containwrittenoptionsarerequiredtoberecognisedatfairvalue,withgainsandlossesrecognisedintheprofitorloss.

(iv) Offsetting of financial instruments Financialassetsandfinancialliabilitiesareoffsetandthenetamountisreportedinthestatementsoffinancialpositionif,and

onlyif,thereisacurrentlyenforceablelegalrighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasisortorealisetheassetsandsettletheliabilitiessimultaneously.

(v) Amortised cost of financial instruments

Amortisedcostiscomputedusingtheeffectiveinterestmethod.Thismethoduseseffectiveinterestratethatexactlydiscountsestimatedfuturecashreceiptsorpaymentsthroughtheexpectedlifeofthefinancialinstrumenttothenetcarryingamountofthefinancialinstrument.Amortisedcosttakesintoaccountanytransactioncostsandanydiscountorpremiumonsettlement.

(vi) Derecognition of financial instruments

Financial assets

Afinancialassetisderecognisedwhentherightstoreceivecashflowsfromtheassethaveexpiredor,theGrouportheCompanyhastransferreditsrightstoreceivecashflowsfromtheassetorhasassumedanobligationtopaythereceivedcashflowsinfullwithoutmaterialdelaytoathirdpartyundera“pass-through”arrangementwithoutretainingcontroloftheassetorsubstantiallyalltherisksandrewardsoftheasset.

Onderecognitionofafinancialasset, thedifferencebetweenthecarryingamountandthesumoftheconsiderationreceived(includinganynewassetobtainedlessanynewliabilityassumed)andanycumulativegainorlossthathadbeenrecognisedinequityisrecognisedintheprofitorloss.

Financial liabilities

Afinancialliabilityisderecognisedwhentheobligationundertheliabilityisdischarged,cancelledorexpired.Onderecognitionofafinancialliability,thedifferencebetweenthecarryingamountofthefinancialliabilitiesextinguishedortransferredtoanotherpartyandtheconsiderationpaid,includinganynon-cashassetstransferredorliabilitiesassumed,isrecognisedintheprofitorloss.

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2.7 Fair value measurements

Fairvalueofanassetoraliability,exceptforleasetransactions,isdeterminedasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Themeasurementassumesthatthetransactiontoselltheassetortransfertheliabilitytakesplaceeitherintheprincipalmarketorintheabsenceofaprincipalmarket,inthemostadvantageousmarket.

Thefairvalueoffinancialinstrumentsthatareactivelytradedinorganisedfinancialmarketsisdeterminedbyreferencetoquotedmarketbidpricesatthecloseofbusinessattheendofreportingdate.Forfinancialinstrumentswherethereisnoactivemarket,fairvalueisdeterminedusingvaluationtechniques.Suchtechniquesmayincludeusingrecentarm’slengthmarkettransactions,referencetothecurrentfairvalueofanotherinstrumentthatissubstantiallythesame,discountedcashflowanalysisorothervaluationmodels.Wherefairvaluecannotbereliablyestimated,assetsarecarriedatcostlessimpairmentlosses,ifany.

Fornon-financialasset,thefairvaluemeasurementtakesintoaccountamarketparticipant’sabilitytogenerateeconomicbenefitsbyusingtheassetinitshighestandbestuseorbysellingittoanothermarketparticipantthatwouldusetheassetinitshighestandbestuse.

Whenmeasuringthefairvalueofanassetoraliability,theGrouportheCompanyusesobservablemarketdataasfaraspossible.Fairvaluesarecategorisedintodifferentlevelsinafairvaluehierarchybasedontheinputusedinthevaluationtechniqueasfollows:• Level1 – Quotedprices(unadjusted)inactivemarketsforidentifiableassetsorliabilities.• Level2 – Inputs other than quoted prices includedwithin Level 1 that are observable for the asset or liability, either directly (i.e.asprices)orindirectly(i.e.derivedfromprices).

• Level3 – Inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(unobservableinput).

The Group and the Company recognise transfer between levels of fair value hierarchy as of the date of the event or change incircumstancesthatcausedthetransfers.

2.8 Impairment

(i) Financial assets

Allfinancialassets(exceptforfinancialassetscategorisedasfairvaluethroughprofitorloss,andinvestmentsinsubsidiaries,joint ventures andassociates) are assessedat each reportingdate to determinewhether there is anyobjective evidenceofimpairmentasa resultofoneormoreeventshavingan impactontheestimatedfuturecashflowsof theasset. Ifanysuchobjective evidence exists, then the financial asset’s recoverable amount is estimated. Losses expected as a result of futureevents,nomatterhowlikely,arenotrecognised.

Animpairmentlossinrespectofloansandreceivablesisrecognisedinprofitorlossandismeasuredasthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflowsdiscountedattheasset’soriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedthroughtheuseofanallowanceaccount.

If,inasubsequentperiod,thefairvalueofadebtinstrumentincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognisedinprofitorloss,theimpairmentlossisreversed,totheextentthattheasset’scarryingamountdoesnotexceedwhatthecarryingamountwouldhavebeenhadtheimpairmentnotbeenrecognisedatthedatetheimpairmentisreversed.Theamountofthereversalisrecognisedinprofitorloss.

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2.8 Impairment (continued)

(ii) Other assets

The carrying amounts of other assets, other than inventories anddeferred tax assets, are reviewedat each reportingdatetodeterminewhetherthereisanyindicationof impairment.Thecarryingamountsarereviewedmorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemaybeimpaired,asdescribedintherespectiveassets’accountingpolicies.

Ifanysuch indicationexists, theasset’s recoverableamount isestimated.An impairment loss is recognised if thecarryingamountofanassetor thecash-generatingunit towhich itbelongsexceeds its recoverableamount. Impairment lossesarerecognisedintheprofitorloss.

Acash-generatingunitisthesmallestidentifiableassetgroupthatgeneratescashflowsfromcontinuingusethatarelargelyindependentfromotherassetsandgroups.Animpairmentlossrecognisedinrespectofacash-generatingunitisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentoreducethecarryingamountsoftheotherassetsintheunitonapro-ratabasis.

Therecoverableamountisthegreateroftheasset’sfairvaluelesscostsofdisposalanditsvalueinuse.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Foranassetthatdoesnotgeneratelargelyindependentcashinflows,therecoverableamountisdeterminedforthecash-generatingunittowhichtheassetbelongs.

An impairment loss in respectofgoodwill isnot reversed in thesubsequentperiod. In respectofotherassets, impairmentlossesare reversed if therehasbeenachange in theestimatesusedtodetermine the recoverableamount.An impairmentlossisreversedonlytotheextentthattheasset’scarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendetermined,netofdepreciationoramortisation,ifnoimpairmentlosshadbeenrecognised.

Reversalsofimpairmentlossesarecreditedtotheprofitorlossintheyearinwhichthereversalsarerecognised.

2.9 Inventories

Inventoriesarestatedatthelowerofcostandnetrealisablevalue.Costincludesrawmaterialcostsandproductionoverheadsandisdeterminedonaweightedaveragebasis.

Netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusiness,lesstheestimatedcostsofcompletionandthe

estimatedcostsnecessarytomakethesale.

Costofstores,sparesandothersconsistsoftheinvoicedvaluefromsuppliersandimportdutychargesandisdeterminedonaweightedaveragebasis.

2.10 Cash and cash equivalents

Cashandcashequivalentsconsistofcashonhandandbankbalances,depositswithlicensedfinancialinstitutionsandhighlyliquidinvestmentswhichhaveaninsignificantriskofchangesinfairvaluewithoriginalmaturitiesofthreemonthsorless,andareusedbytheGroupandtheCompanyinthemanagementoftheirshorttermcommitments.Forthepurposeofthestatementsofcashflows,cashandcashequivalentsarepresentednetofbankoverdraftsanddepositsrestricted,ifany.

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2.11 Provisions

Aprovisionisrecognisedif,asaresultofapastevent,theGrouportheCompanyhasapresentlegalorconstructiveobligationthatcanbeestimatedreliably,andit isprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.Futureoperatinglossesarenotprovidedfor.Provisionsaredeterminedbydiscountingtheexpectedfuturenetcashflowsatapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheliability.Wherediscountingisused,theaccretionintheprovisionduetothepassageoftimeisrecognisedasfinancecost.

Theamountrecognisedasaprovisionisthebestestimateofthenetexpenditurerequiredtosettlethepresentobligationatthereportingdate.Provisionsarereviewedateachreportingdateandadjustedtoreflectthecurrentbestestimate.

Possibleobligations,whoseexistencewillonlybeconfirmedby theoccurrenceornon-occurrenceofoneormore futureeventsnotwhollywithinthecontroloftheGroup,arenotrecognisedinthefinancialstatementsbutaredisclosedascontingentliabilitiesunlessthepossibilityofanoutflowofeconomicresourcesisconsideredremote.

2.12 Employee benefits

(i) Short term employee benefits

Wagesandsalaries,bonusesandsocialsecuritycontributionsarerecognisedasanexpenseintheyearinwhichtheassociatedservicesarerenderedbyemployeesoftheGroupandtheCompany.

(ii) Defined contribution plans

Asrequiredbylaw,companiesinMalaysiamakecontributionstothestatepensionscheme,theEmployeesProvidentFund(EPF).Suchcontributionsarerecognisedasanexpenseinprofitorlossasincurred.

2.13 Taxation

Taxontheprofitorlossforthefinancialyearcomprisescurrentanddeferredtax.Incometaxisrecognisedintheprofitorloss.

(i) Current tax

Currenttaxexpenseistheexpectedtaxpayableonthetaxableincomeforthefinancialyear,usingthestatutorytaxratesatthereportingdate,andanyadjustmenttotaxpayableinrespectofpreviousfinancialyears.

(ii) Deferred tax

Deferredtaxisprovidedfor,usingtheliabilitymethod,ontemporarydifferencesatthereportingdatebetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements.Inprinciple,deferredtaxliabilitiesarerecognisedfor all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences,unabsorbedcapitalallowances,unusedreinvestmentallowances,unusedinvestmenttaxallowances,unusedtaxlossesandotherunusedtaxcreditstotheextentthatitisprobablethatfuturetaxableprofitwillbeavailableagainstwhichthedeductibletemporarydifferences,unabsorbedcapitalallowances,unusedreinvestmentallowances,unusedinvestmenttaxallowances,unusedtaxlossesandotherunusedtaxcreditscanbeutilised.

Deferred tax isnot recognised for the initial recognitionofgoodwill and the initial recognitionofanassetor liability inatransactionwhichisnotabusinesscombinationandthataffectsneitheraccountingnortaxableprofitnorloss.

Deferredtaxismeasuredatthetaxratesthatareexpectedtoapplyintheperiodwhentheassetisrealisedortheliabilityissettled,basedonthelawsthathavebeenenactedorsubstantivelyenactedbytheendofthereportingperiod.

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2.13 Taxation (continued)

(ii) Deferred tax (continued)

Deferredtaxassetsandliabilitiesareoffsetifthereisalegallyenforceablerighttooffsetcurrenttaxliabilitiesandassets,andtheyrelatetoincometaxesleviedbythesametaxauthorityonthesametaxableentity,orondifferenttaxentities,wheretheyintendtosettlecurrenttaxliabilitiesandassetsonanetbasisortheirtaxassetsandliabilitieswillberealisedsimultaneously.

Deferredtaxassetisreviewedattheendofeachreportingdateandisreducedtotheextentthatitisnolongerprobablethatthefuturetaxableprofitwillbeavailableagainstwhichtherelatedtaxbenefitcanberealised.

2.14 Foreign currency transactions

InpreparingthefinancialstatementsofindividualentitiesintheGroup,transactionsincurrenciesotherthantheentity’sfunctionalcurrency(foreigncurrencies)aretranslatedtothefunctionalcurrenciesatratesofexchangerulingonthetransactiondates.

Monetaryassetsand liabilitiesdenominated in foreigncurrenciesat the reportingdatehavebeenretranslatedto the functionalcurrencyatratesrulingonthereportingdate.

Non-monetary assetsand liabilitiesdenominated in foreigncurrencieswhicharemeasuredat fair valueare retranslated to the

functionalcurrencyattheforeignexchangeratesrulingatthedatewhenthefairvaluewasdetermined.Non-monetaryitemsthataremeasuredintermsofhistoricalcostinforeigncurrencyarenotretranslatedatthereportingdate.

Gainsandlossesonexchangearisingfromretranslationarerecognisedintheprofitorloss,exceptfordifferencesarisingontheretranslationofavailable-for-saleequityinstruments,whicharerecognisedinequity.

Onconsolidation,theassetsandliabilitiesofsubsidiarieswithfunctionalcurrenciesotherthanRinggitMalaysiaaretranslatedintoRinggitMalaysiaattheexchangeratesrulingatreportingdate.

Theincomeandexpensesaretranslatedattheexchangeratesatthedatesofthetransactionsoranaverageratethatapproximatesthoserates.Allresultingexchangedifferencesaretakentotheforeigncurrencytranslationreservewithinequity.

In theconsolidatedfinancialstatements,whensettlementofamonetary itemreceivable fromorpayable to theGroup’s foreignoperationisneitherplannednorlikelyintheforeseeablefuture,foreignexchangegainsandlossesarisingfromsuchamonetaryitemareconsideredto formpartofanet investment ina foreignoperationandare reclassifiedtoothercomprehensive incomeand presented under foreign currency translation reserve in equity. Upon disposal of the investment, the cumulative exchangedifferencespreviouslyrecordedinequityarereclassifiedtotheconsolidatedprofitorloss.

2.15 Revenue

Revenuefromthesaleofpetrochemicalproductsandtheirrelatedproductsinthecourseofordinaryactivitiesismeasuredatfairvalueof the consideration receivedor receivable, net of returns and allowances, tradediscounts and volume rebates.Revenueisrecognisedwhenpersuasiveevidenceexists,usually intheformofanexecutedsalesagreement,thatthesignificantriskandrewardsofownershiphavebeentransferredtothecustomer,recoveryoftheconsiderationisprobable,theassociatedcostsandpossiblereturnofgoodscanbeestimatedreliably,thereisnocontinuingmanagementinvolvementwiththegoods,andtheamountofrevenuecanbemeasuredreliably.Ifitisprobablethatdiscountswillbegrantedandtheamountcanbemeasuredreliably,thenthediscountisrecognisedasareductionofrevenueasthesalesarerecognised.

Dividendincomeisrecognisedintheprofitorlossonthedatetherighttoreceivepaymentisestablished.

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2.15 Revenue (continued)

Revenuefromservicesrenderedisrecognisedintheprofitorlossbasedontheactualandestimatedthroughputvolumeandportcharges.

2.16 Interest income

Incomearisingfromassetsyieldinginterestarerecognisedonatimeproportionbasisthattakesintoaccounttheeffectiveyieldontheassets.

2.17 Financing costs

Finance costs comprise interest payable on borrowings and profit sharemargin on Islamic financing facilities, as well as anyaccretioninprovisionduetothepassageoftime.

All interestandothercosts incurred inconnectionwithborrowingsareexpensedas incurred,otherthanborrowingcostdirectlyattributabletotheacquisition,constructionorproductionofqualifyingassets(assetsthatnecessarilytakeasubstantialperiodoftimetogetreadyfortheirintendeduseorsale),whicharecapitalisedaspartofthecostofthoseassets.

Thecapitalisationofborrowingcostsaspartofthecostofaqualifyingassetcommenceswhenexpenditurefortheassetsisbeingincurred,borrowingcostsarebeingincurredandactivitiesthatarenecessarytopreparetheassetforitsintendeduseorsaleareinprogress.Capitalisationofborrowingcostsissuspendedorceaseswhensubstantiallyalltheactivitiesnecessarytopreparethequalifyingassetforitsintendeduseorsaleareinterruptedorcompleted.

Investmentincomeearnedonthetemporaryinvestmentofspecificborrowingspendingtheirexpenditureonqualifyingassetsisdeductedfromtheborrowingcostseligibleforcapitalisation.

2.18 Equity instruments

Instrumentsclassifiedasequityaremeasuredatcostoninitialrecognitionandarenotremeasuredsubsequently.

(i) Issue expenses

Costsdirectlyattributabletotheissueofinstrumentsclassifiedasequityarerecognisedasadeductionfromequity.

(ii) Ordinary shares

Ordinarysharesareclassifiedasequity.

2.19 Basic earnings per ordinary share

TheGrouppresentsbasicearningspersharedataforitsordinaryshares. BasicearningspershareiscalculatedbydividingtheprofitorlossattributabletoordinaryshareholdersoftheGroupbytheweighted

averagenumberofordinarysharesoutstandingduringtheyear.

2.20 Operating segment

AnoperatingsegmentisacomponentoftheGroupthatengagesinbusinessactivitiesfromwhichitmayearnrevenuesandincurexpenses(includingrevenuesandexpensesthat relatetotransactionswithanyof thecomponentsof theGroup,andforwhichdiscretefinancial information isavailable)whoseoperatingresultsarereviewedregularlybythechiefoperatingdecisionmaker,whichinthiscaseistheManagingDirector/ChiefExecutiveOfficer(MD/CEO),tomakedecisionsaboutresourcestobeallocatedtothesegmentsandtoassesstheperformanceoftheGroup.

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3. PROPERTY, PLANT AND EQUIPMENT

Group2016

At 1.1.2016

RM MilAdditions

RM Mil

Disposals/write-offs

RM MilTransfers

RM Mil

Translationexchange

differenceRM Mil

At 31.12.2016

RM Mil

At cost:

Leaseholdland 291 - - - - 291

Buildings 1,396 1 - 47 2 1,446

Plantandequipment 22,159 42 (20) 552 2 22,735

Officeequipment,furnitureandfittings 102 1 (1) 13 1 116

Computersoftwareandhardware 276 2 (1) 29 2 308

Motorvehicles 41 1 (1) 3 - 44

Projects-in-progress 7,193 2,996 (244) (644) 484 9,785

31,458 3,043 (267)^ - 491 34,725

^ Includedindisposals/write-offsofprojects-in-progressarewrite-offsrelatingtothecancellationofelastomersprojectwhichwaspartoftheRefineryandPetrochemicalsIntegratedDevelopment(RAPID)projectinPengerang,JohoramountingtoRM244million.

At 1.1.2016

RM Mil

Chargefor the year

RM Mil


RM Mil

Impairmentloss

RM MilTransfers

RM Mil

Translationexchange

differenceRM Mil

At 31.12.2016

RM Mil

Accumulated depreciation and impairment losses:

Leaseholdland 77 4 - - - - 81

Buildings 582 30 - - - - 612

Plantandequipment 13,906 1,265 (15) 5 - - 15,161

Officeequipment,furnitureandfittings 78 8 (1) - - - 85

Computersoftwareandhardware 183 26 (1) - - - 208

Motorvehicles 35 2 (2) - - - 35

14,861 1,335 (19) 5 - - 16,182

Includedintheaccumulateddepreciationandimpairmentlossesofproperty,plantandequipmentareimpairmentlossescarriedforwardofRM271million.

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3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Group2015

At 1.1.2015

RM MilAdditions

RM Mil


RM MilTransfers

RM Mil

Translationexchange

differenceRM Mil

At 31.12.2015

RM Mil

At cost:

Leaseholdland 291 - - - - 291

Buildings 1,396 1 (9) 8 - 1,396

Plantandequipment 21,445 121 (42) 635 - 22,159

Officeequipment,furnitureandfittings 91 2 (1) 10 - 102

Computersoftwareandhardware 243 4 (5) 34 - 276

Motorvehicles 36 6 (1) - - 41

Projects-in-progress 4,376 2,760 (1) (687) 745 7,193

27,878 2,894 (59) - 745 31,458

At 1.1.2015

RM Mil

Chargefor the year

RM Mil


RM MilTransfers

RM Mil

Translationexchange

differenceRM Mil

At 31.12.2015

RM Mil


Leaseholdland 73 4 - - - 77

Buildings 553 32 (3) - - 582

Plantandequipment 12,728 1,207 (29) - - 13,906

Officeequipment,furnitureandfittings 69 10 (1) - - 78

Computersoftwareandhardware 165 23 (5) - - 183

Motorvehicles 35 1 (1) - - 35

13,623 1,277 (39) - - 14,861

Includedintheaccumulateddepreciationandimpairmentlossesofproperty,plantandequipmentwereimpairmentlossescarriedforwardofRM266million.

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2016 2015

Group RM Mil RM Mil

Carrying amount:

Leaseholdland

-withunexpiredleaseperiodofmorethan50years 77 78

-withunexpiredleaseperiodoflessthan50years 133 136

210 214

Buildings 834 814

Plantandequipment 7,574 8,253

Officeequipment,furnitureandfittings 31 24

Computersoftwareandhardware 100 93

Motorvehicles 9 6

Projects-in-progress 9,785 7,193

18,543 16,597

Includedintheproperty,plantandequipmentoftheGroupareplantandequipmentwithcarryingamountofRM128million(2015:RM162million)underfinanceleasearrangements.

Impairment review

Duringtheyear,duetothedeclineinsalepricesofproducts,animpairmenttestwasperformedononeoftheGroup’smethanevaluechainwhichcomprisesaplantcurrentlyundercommissioningandclassifiedasprojects-in-progresswithacarryingvalueamountingtoRM6,893million(2015:RM6,108million).Therecoverablevalueofthisplantwasarrivedatusingvalue-in-usemethod,determinedbydiscountingfuturecashflowsprojectedtobegeneratedbytheplantbasedonvariousassumptions.Whiletheestimatedrecoverablevalueishigherthanthecarryingvalueoftheplant,thereareinherentuncertaintiesovertheassumptionssincetheplantiscurrentlyatcommissioningstage.

Theassumptionsincludeprojectedproductionandsalesvolume,andpricewhichareparticularlysensitive,uncertainorrequiresignificant

judgmentandhence,havesignificantriskswhichcouldresultinanimpairmentlosstothecarryingamountoftheplantwithinthenextfinancialyear.Inparticular:

i. Adeclineofmorethan13%oftheprojectedsalesvolumewouldtriggeranimpairmentloss;and

ii. Adeclineofmorethan13%oftheprojectedpricewouldtriggeranimpairmentloss.

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Company2016

At 1.1.2016

RM 000Additions

RM 000


RM 000Transfers

RM 000

At 31.12.2016

RM 000

At cost:

Officeequipment,furnitureandfittings 996 43 - 29 1,068

Computersoftwareandhardware 13,801 213 - 103 14,117

Motorvehicles 369 - - - 369

Projects-in-progress 3,554 3,995 (3,155) (132) 4,262

18,720 4,251 (3,155) - 19,816

At 1.1.2016

RM 000

Charge forthe yearRM 000


RM 000Transfers

RM 000

At 31.12.2016

RM 000


Officeequipment,furnitureandfittings 148 208 - - 356

Computersoftwareandhardware 4,786 2,798 - - 7,584


5,303 3,006 - - 8,309

2015

At 1.1.2015

RM 000Additions

RM 000


RM 000Transfers

RM 000

At 31.12.2015

RM 000

At cost:

Officeequipment,furnitureandfittings 27 59 - 910 996

Computersoftwareandhardware 12,485 - - 1,316 13,801


Projects-in-progress 3,518 12,098 (9,836) (2,226) 3,554

16,399 12,157 (9,836) - 18,720

At 1.1.2015

RM 000

Charge forthe yearRM 000


RM 000Transfers

RM 000

At 31.12.2015

RM 000


Officeequipment,furnitureandfittings 1 147 - - 148

Computersoftwareandhardware 2,142 2,644 - - 4,786

Motorvehicles 323 46 - - 369

2,466 2,837 - - 5,303

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2016 2015

Company RM 000 RM 000

Carrying amount:

Officeequipment,furnitureandfittings 712 848

Computersoftwareandhardware 6,533 9,015

Motorvehicles - -

Projects-in-progress 4,262 3,554

11,507 13,417

4. INVESTMENTS IN SUBSIDIARIES

2016 2015

Company RM Mil RM Mil

Investmentsinunquotedshares,atcost 17,402 16,430

Less:Impairmentlosses (521) (242)

16,881 16,188

Duringtheyear,theGroupcancelledanelastomersprojectwhichwastobeundertakenbyasubsidiaryaspartoftheRAPIDprojectinPengerang,Johor.Consequently,theCompanyhasimpairedthetotalinvestmentinthesubsidiaryamountingtoRM255million.

Summarisedfinancialinformationofnon-controllinginterestshasnotbeenincludedasthenon-controllinginterestsofthesubsidiariesarenotindividuallymaterialtotheGroup.

DetailsofsubsidiariesarestatedinNote26tothefinancialstatements.

5. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES

Group Company

2016 2015 2016 2015

RM Mil RM Mil RM Mil RM Mil

Investmentsinunquotedshares,atcost 1,028 944 1,159 1,075

Shareofpost-acquisitionprofitsandreserves 335 336 - -

1,363 1,280 1,159 1,075

SummarisedfinancialinformationhasnotbeenincludedasthejointventuresandassociatesarenotindividuallymaterialtotheGroup.

DetailsofjointventuresandassociatesarestatedinNote27andNote28tothefinancialstatementsrespectively.

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6. INTANGIBLE ASSET

Group

At 1.1.2015

RM Mil

Addition/charge for

the yearRM Mil

At 31.12.2015/

1.1.2016RM Mil

Addition/charge for

the yearRM Mil

At 31.12.2016

RM Mil

Licence:

-Atcost 23 - 23 - 23

-Accumulatedamortisation 16 2 18 2 20

2016 2015

RM Mil RM Mil

Carryingamount 3 5

7. LONG TERM RECEIVABLES

Group Company

2016 2015 2016 2015


Prepayments 83 8 - -

Loansduefromsubsidiaries - - 7,011 -

83 8 7,011 -

IncludedintheCompany’sloansduefromsubsidiariesareloansamountingtoRM7,011millionorUSD1,563million(2015:Nil),whichbearinterestratesrangingfrom1.74%to4.52%(2015:Nil)perannum.Settlementoftheloansisnotexpectedwithinthenexttwelvemonths.

8. DEFERRED TAX

Deferred tax liabilitiesandassetsareoffsetwhen there isa legallyenforceable right tosetoffcurrent taxassetsagainstcurrent taxliabilitiesandwhenthedeferredtaxesrelatetothesametaxationauthority.Theamountsdeterminedafterappropriateoffsettingareasfollows:

2016 2015

Group RM Mil RM Mil

Deferred tax assets

Deferredtaxliabilities 456 408

Deferredtaxassets (918) (797)

(462) (389)

Deferred tax liabilities

Deferredtaxliabilities 1,310 1,387

Deferredtaxassets (436) (573)

874 814

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8. DEFERRED TAX (CONTINUED)

Thecomponentsandmovementsofdeferredtaxliabilitiesandassetsduringtheyearpriortooffsettingareasfollows:

Group2016

At 1.1.2016

RM Mil

Charged/(Credited) toprofit or loss

(Note 23)RM Mil

Translationexchange

differenceRM Mil

At 31.12.2016

RM Mil


Property,plantandequipment 1,795 (30) - 1,765

Others - 1 - 1

1,795 (29) - 1,766

Deferred tax assets

Property,plantandequipment (67) 4 - (63)

Unusedreinvestmentallowances (8) 1 - (7)

Unusedinvestmenttaxallowances (1,043) 123 - (920)

Unusedtaxlosses (116) 1 - (115)

Unabsorbedcapitalallowances - (6) - (6)

Pre-commencement expenses (45) (100) (10) (155)

Others (91) 3 - (88)

(1,370) 26 (10) (1,354)

425 (3) (10) 412

IncludedintheabovenetdeferredtaxassetisanamountofRM251million(2015:RM252million)whichhasbeenrecognisedbasedontheassumptionthatcertainsubsidiarieswillgeneratesufficientprofitsupontheimplementationoftollingarrangementswithintheGroup’sintegratedvaluechain.

Thedeferred taxassetsonpre-commencementexpensesare in relation to taxbenefitswhichhavebeenapprovedby theMinistryofFinance.

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8. DEFERRED TAX (CONTINUED)

Group2015

At 1.1.2015

RM Mil

Charged/(Credited)to profit or loss

(Note 23)RM Mil

Translationexchange

differenceRM Mil

At 31.12.2015

RM Mil


Property,plantandequipment 1,867 (72) - 1,795

Others 2 (2) - -

1,869 (74) - 1,795

Deferred tax assets

Property,plantandequipment (68) 1 - (67)

Unusedreinvestmentallowances (8) - - (8)

Unusedinvestmenttaxallowances (1,078) 35 - (1,043)

Unusedtaxlosses (160) 44 - (116)

Unabsorbedcapitalallowances (15) 15 - -

Pre-commencement expenses - (41) (4) (45)

Others (74) (17) - (91)

(1,403) 37 (4) (1,370)

466 (37) (4) 425

Unrecognised deferred tax assets

Nodeferredtaxhasbeenrecognisedforthefollowingitems(statedatgross):

2016 2015

Group RM Mil RM Mil

Unusedtaxlosses 603 492

Unusedinvestmenttaxallowances 115 38

Unabsorbedcapitalallowance 21 -

739 530

Theunusedtaxlosses,unusedinvestmenttaxandcapitalallowancesdonotexpireunderthecurrenttaxlegislation.Deferredtaxassetshavenotbeenrecognisedinrespectoftheseitemsbecauseitisnotprobablethatfuturetaxableprofitwillbeavailableagainstwhichthesubsidiariescanutilisethebenefits.

Company2016

At1.1.2016

RM Mil


(Note 23)RM Mil

At31.12.2016

RM Mil


Others 2 (1) 1

2015

At 1.1.2015

RM Mil


(Note 23)RM Mil

At 31.12.2015

RM Mil


Others 2 - 2

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9. TRADE AND OTHER INVENTORIES

2016 2015

Group RM Mil RM Mil

Petrochemicalproducts:

Rawmaterials 19 14

Finishedgoods 574 530

Stores,sparesandothers 790 860

1,383 1,404

10. TRADE AND OTHER RECEIVABLES

Group Company

2016 2015 2016 2015


Tradereceivables 10.1 1,475 1,220 - -

AmountduefromPETRONAS 10.2

-Non-trade 40 108 3 1

Amountduefromsubsidiaries 10.3

-Non-trade - - 140 81

-Loansandadvances 11 - - - 4,215

-Dividendreceivable - - 296 -

Amountduefromjointventuresandassociates 10.3

-Trade 184 83 - -

-Non-trade 2 2 - 1

Amountduefromrelatedcompanies 10.3

-Trade 152 103 - -

-Non-trade 106 6 99 1

Otherreceivables,depositsandprepayments 665 162 14 82

Derivativeassets 11 15 9 1 -

2,639 1,693 553 4,381

Less:Impairmentlosses

-Otherreceivables,depositsandprepayments - (1) - -

2,639 1,692 553 4,381

10.1 IncludedintradereceivablesisanamountduefromcorporateshareholderofasubsidiaryofRM61million(2015:RM55million).

10.2 IncludedinamountduefromPETRONASisGSTrecoverableofRM22million(2015:RM61million)fortheGroupandRM3million(2015:RM1million)fortheCompany.

10.3 Tradeamountisunsecuredandundernormaltradeterms.Non-tradeamountisunsecuredandrepayableondemand.

Therewerenotradereceivablesandtradepayablesthatweresetoffforpresentationpurposes.

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11. DERIVATIVE ASSETS/(LIABILITIES)

Group Company

2016 2015 2016 2015


Derivative assets

Current

Forwardforeignexchangecontracts 15 9 1 -

Included within:

Tradeandotherreceivables 10 15 9 1 -

Derivative liabilities

Current

Forwardforeignexchangecontracts (17) (720) (1) (715)

Included within:

Tradeandotherpayables 19 (17) (720) (1) (715)

Inthepreviousyear, includedintheGroup’sandtheCompany’sderivative liabilitiesareforwardforeignexchangecontractsenteredinrelationtoaloanduefromasubsidiaryamountingtoRM4,215million(Note10).

Inthenormalcourseofbusiness,theGroupandtheCompanyenterintoderivativefinancialinstrumentstomanageitsnormalbusinessexposuresinrelationtoforeigncurrencyexchangeratesinaccordancewiththeGroup’sandtheCompany’sriskmanagementpoliciesandobjectives.

12. FUND INVESTMENTS

Group Company

2016 2015 2016 2015


Loans and receivables

Islamicdepositswithlicensedfinancialinstitutions - 622 - 622

Inthepreviousyear,fundinvestmentsarosefromplacementswithgovernmentrelatedfinancial institutionswithoriginalmaturitiesofmorethanthreemonths.

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13. CASH AND CASH EQUIVALENTS

Group Company

2016 2015 2016 2015


Islamicdepositswithlicensedfinancialinstitutions - 309 - 309

CashwithPETRONASIntegratedFinancialSharedService Centre(IFSSC) 7,230 8,368 1,254 1,484

Cashandbankbalances 173 30 - -

7,403 8,707 1,254 1,793

TheGroup’sandtheCompany’scashandbankbalancesareheldinanIn-HouseAccount(IHA)managedbyPETRONASIFSSCtoenablemoreefficientcashmanagementfortheGroupandfortheCompany.

Included in cashwith PETRONAS IFSSC and cash and bank balances for the Group and the Company are interest-bearing balancesamountingtoRM7,331million(2015:RM8,395million)andRM1,254million(2015:RM1,484million)respectively.

14. SHARE CAPITAL

Group and Company

2016 2015

RM Mil RM Mil

Authorised:

15,000,000,000ordinarysharesofRM0.10each 1,500 1,500

Issued and fully paid:

8,000,000,000ordinarysharesofRM0.10each 800 800

15. RESERVES

Merger reserve

Group

Merger reserve arose fromdifferences between the nominal value and share premiumof ordinary shares issued by the Company asconsideration for the acquisitionof companies that are accountedusing themergermethodof accountingand thenominal valueofordinarysharesandsharepremiumofthecompanies.

Company

MergerreliefoftheCompanyispremiumarisingfromissuanceofsharesfortheacquisitionofsubsidiariesthatfulfilledtheconditionsofSection60(4)oftheCompaniesAct,1965inMalaysia.

Foreign currency translation reserve

ForeigncurrencytranslationreservecomprisesallforeigncurrencydifferencesarisingfromthetranslationofthefinancialstatementsofsubsidiarieswhosefunctionalcurrenciesarenotRinggitMalaysia,andtheGroup’snetinvestmentinforeignoperations.

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15. RESERVES (CONTINUED)

Other reserves

Otherreservescompriseprimarilycapitalredemptionreservecreateduponredemptionofpreferenceshares,andtheGroup’sshareofitsjointventureandassociatecompanies’reserves.

16. NON-CONTROLLING INTERESTS

Thisconsistsofthenon-controllinginterests’proportionofequityandreservesofpartly-ownedsubsidiaries.

17. OTHER LONG TERM LIABILITIES AND PROVISIONS

Group Company

2016 2015 2016 2015


Finance lease liabilities 17.1 137 183 - -

Provisions 17.2 162 162 76 165

Otherpayables 9 10 - -

308 355 76 165

17.1 Finance lease liabilities

Group

2016 2015

Note

Minimum leasepayments

RM MilInterestRM Mil

PrincipalRM Mil

Minimum leasepayments

RM MilInterestRM Mil

PrincipalRM Mil

Lessthan1year 19.1 55 9 46 55 11 44

Between1to2years 55 7 48 55 9 46

Between2to5years 95 6 89 142 13 129

Morethan5years - - - 8 - 8

205 22 183 260 33 227

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17. OTHER LONG TERM LIABILITIES AND PROVISIONS (CONTINUED)

17.2 Provisions

2016 2015

Group Note RM Mil RM Mil

Non-current 162 162

Current 19 38 45

200 207

Themovementofprovisionsisasfollows:

RM Mil

At 1.1.2016 207

Provisionsmade 87

Provisionsreversed (63)

Provisionsutilised (41)

Unwindingofdiscountfactor 10

At 31.12.2016 200

TheGroup’sprovisionscomprise:

i. Provisions fordecommissioningactivitiesandonerouscontracts in relation to thediscontinuationof theGroup’svinylandpolypropylenebusinesses.

Provision for decommissioning activities includes dismantling/demolishing and removal of equipment, structures andfoundation,aswellassiteremediation.

Provisionforonerouscontractsisinrelationtoterminationofcontractualobligationwithcommittedcharges.

Theprovisionshavebeenmadebasedonpresent valueofestimateddecommissioningamountandnegotiatedsettlementamountpayableoveraperiodrangingfrom2to5years(2015:2to6years)usingadiscountrateof8.6%(2015:8.6%).

ii. Provisionfordecommissioningofproperty,plantandequipmentinrelationtoasubsidiary’sobligationtodecommissionandremove all property, plant and equipment, and to restore land subleased to its original condition upon expiry in 2040. Thecorrespondingassetof anamount equivalent to theprovision is alsocreatedandwill bedepreciatedover the termof thesublease.

Theprovisionhasbeenmadebasedonpresentvalueofestimateddecommissioningamountusingadiscountrateof4.8%.

2016 2015

Company Note RM Mil RM Mil

Non-current 76 165

Current 19 32 32

108 197

168

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17. OTHER LONG TERM LIABILITIES AND PROVISIONS (CONTINUED)

17.2 Provisions (continued)

Themovementofprovisionsisasfollows:

RM Mil

At 1.1.2016 197

Provisionsreversed (74)

Provisionsutilised (24)

Unwindingofdiscountfactor 9

At 31.12.2016 108

TheCompany’sprovisioncomprisesprovisionforfinancialassistanceinrelationtoissuanceofredeemablepreferenceshares(RPS)tomeetasubsidiary’sobligationinrespectofdecommissioningactivitiesandotherrelatedexpenses.Theprovisionhasbeenmadebasedonpresentvalueofestimatedfundingrequirementsfordecommissioningcostsandsettlementofonerouscontractsoveraperiodof5years(2015:6years)usingadiscountrateof8.6%(2015:8.6%).

18. BORROWINGS

2016 2015

Group RM Mil RM Mil

Revolvingcreditfacility-unsecured 23 30

Revolvingcreditfacilityrelatestoafacilitygrantedbyalicensedfinancialinstitutiontoasubsidiary,whichbearsinterestatanaveragerateof4.36%(2015:4.45%)perannum.

19. TRADE AND OTHER PAYABLES

Group Company

2016 2015 2016 2015


Tradepayables 66 155 - -

Otherpayables 19.1 1,112 956 128 43

AmountduetoPETRONAS 19.2

-Trade 345 288 - -

-Non-trade 118 240 19 58

Amountduetosubsidiaries 19.2

-Non-trade - - 111 37

Amountduetorelatedcompanies 19.2

-Trade 329 258 - -

-Non-trade 183 240 1 5

Provisions 17.2 38 45 32 32

Derivativeliabilities 11 17 720 1 715

2,208 2,902 292 890

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19. TRADE AND OTHER PAYABLES (CONTINUED)

19.1 IncludedinotherpayablesfortheGroupisthecurrentportionoffinanceleaseliabilitiesamountingtoRM46million(2015:RM44million).

19.2 Tradeamountisunsecuredandundernormaltradeterms.Non-tradeamountisunsecuredandrepayableondemand.

20. REVENUE

Group Company

2016 2015 2016 2015


Salesofpetrochemicalproducts,net 13,808 13,490 - -

Dividendincome - - 4,401 2,796

Others 52 46 - -

13,860 13,536 4,401 2,796

21. OPERATING PROFIT

Group Company

2016 2015 2016 2015


Includedinoperatingprofitarethefollowingcharges:

Auditors’remuneration* 2 3 1 1

Amortisationofintangibleassets 6 2 2 - -

Depreciationofproperty,plantandequipment 3 1,335 1,277 3 3

Lossonforeignexchange:

-realised - 374 3 6

-unrealised 2 67 - -

Lossondisposalofproperty,plantandequipment 4 13 - -

Rentalof:

-plant,machinery,equipmentandmotorvehicles 49 50 3 2

-landandbuildings 43 49 15 15

Staffcosts:

-wages,salariesandothers 758 714 84 109

-contributionstoEmployeesProvidentFund 104 103 16 18

Impairmentlosseson:

-property,plantandequipment 3 5 - - -

-investmentsinsubsidiaries - - 255 -

Inventorieswrittendowntonetrealisablevalue 2 21 - -

Property,plantandequipmentwrittenoff 3 244 5 - -

Provisionforplantdecommissioning 17 4 - - -

170

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21. OPERATING PROFIT (CONTINUED)

Group Company

2016 2015 2016 2015


andcredits:

Gainonforeignexchange:

- realised 17 361 - -

- unrealised - 36 416 2

Dividendincome:

- subsidiaries - - 4,339 2,642

- jointventuresandassociates - - 62 154

Interestincome:

- others 261 360 64 101

- subsidiaries - - 220 108

Managementfee - - 77 66

Reversalof:

- impairmentlossesoninvestmentinasubsidiary - - - 40

- provisionsforplantdecommissioning andonerouscontracts 17 63 65 - -

- provisionforfinancialassistancetoasubsidiary 17 - - 74 29

Gainondisposalofproperty,plantandequipment - 2 - -

Gainonderivativefinancialinstruments - 5 - -

* Theauditors’remunerationincludesthefollowing:

Group Company

2016 2015 2016 2015

RM 000 RM 000 RM 000 RM 000

Statutoryaudit

KPMG 775 761 150 150

Otherauditors 616 497 - -

Non-auditfees

KPMG 582 650 540 650

Otherauditors 140 1,000 118 103

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22. NET FINANCING (INCOME)/COSTS

Group Company

2016 2015 2016 2015


Unwindingofdiscountfactorforotherlongtermliabilitiesandprovisions 21 29 9 16

Unrealisedlossonforwardforeignexchangecontract - 618 - 618

Netrealisedgainonforwardforeignexchangecontract (160) - (160) -

Unrealisedforeignexchangegainonloantoasubsidiary - (636) - (636)

Realisedforeignexchangelossonloantoasubsidiary 91 - 91 -

Interestonrevolvingcreditfacility 1 - - -

(47) 11 (60) (2)

Unrealisedand realisedgainor losson forward foreignexchangecontractarose from forward foreignexchangecontractsentered inrelationtoloanduefromasubsidiary.

23. TAX EXPENSE

Group Company

2016 2015 2016 2015


Current tax expenses

Current year 913 841 52 28

Overprovisioninprioryear (22) (62) (1) (14)

891 779 51 14

Deferred tax expenses

Originationandreversaloftemporarydifferences (64) (74) (1) -

Underprovisioninprioryear 61 37 - -

(3) (37) (1) -

888 742 50 14

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23. TAX EXPENSE (CONTINUED)

Areconciliationofincometaxapplicabletoprofitbeforetaxationatthestatutoryincometaxratetoincometaxexpenseattheeffectiveincometaxrateisasfollows:

2016 2015

Group % RM Mil % RM Mil

Profitbeforetaxation 4,110 3,833

TaxationatMalaysianstatutorytaxrate 24 986 25 958

Non-deductibleexpenses,netofnon-assessableincome 1 60 2 61

Taxexemptincomeandincentives (1) (61) (2) (83)

Effectofchangesintaxrates* - - - (5)

EffectoflowertaxrateunderGlobalIncentiveforTrading(GIFT) (4) (170) (3) (114)

Effectofnetdeferredtaxbenefitsnotrecognised 1 50 - 3

Recognitionofpreviouslyunrecognisedtaxlosses (1) (60) (1) (27)

Others 1 44 (1) (26)

21 849 20 767

Under/(over)provisioninprioryears,net 39 (25)

Taxexpense 888 742

* Inthepreviousyear,effectofchangesintaxratesarosefromthedifferencebetweencorporateincometaxrateof25%anddeferredtaxrateof24%beingtheratesubstantivelyenactedbytheGovernmentinBudget2014announcement.

2016 2015

Company % RM Mil % RM Mil

Profitbeforetaxation 4,881 2,944

TaxationatMalaysianstatutorytaxrate 24 1,171 25 736

Non-deductibleexpenses,netofnon-assessableincome (2) (122) - 8

Taxexemptincome (20) (998) (24) (716)

2 51 1 28

Overprovisioninprioryears (1) (14)

Taxexpense 50 14

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24. BASIC EARNINGS PER ORDINARY SHARE

Basic earnings per ordinary share

Thecalculationofbasicearningsperordinaryshareforyearended31December2016wasbasedontheprofitattributabletoshareholdersoftheCompanyandnumberofordinarysharesoftheCompanyasfollows:

Group 2016 2015

In RM million

ProfitfortheyearattributabletoshareholdersoftheCompany 2,932 2,782

In millions of shares

Numberofsharesissuedat31December 8,000 8,000

In sen

Basicearningsperordinaryshare 36.7 34.8

Diluted earnings per ordinary share

Nodilutedearningspershareisdisclosedinthesefinancialstatementsasthereisnodilutivepotentialordinaryshare.

25. DIVIDENDS

Sen per share Total amount Date of payment

Group and Company RM Mil

2016

Secondinterimordinaryforfinancialyearended31December2015 10 800 23 March 2016

Firstinterimordinaryforfinancialyearended31December2016 7 560 7 September 2016

1,360

2015

Secondinterimordinaryforfinancialyearended31December2014 8 640 24March2015

Firstinterimordinaryforfinancialyearended31December2015 8 640 9 September 2015

1,280

Afterthefinancialyearend,thefollowingdividendwasapprovedbytheDirectors:

Sen per share Total amount

RM Mil

Secondinterimordinaryforfinancialyearended31December2016 12 960 Thedividendwillberecognisedandaccountedforinequityasanappropriationofretainedprofitsinthesubsequentfinancialyear.

TheDirectorsdonotrecommendanyfinaldividendtobepaidforthefinancialyearunderreview.

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26. SUBSIDIARIES AND ACTIVITIES

TheGroupincludesthefollowingsubsidiaries:

Name of companyEffective ownership

interest (%)Country of

incorporation Principal activities2016 2015

PETRONASChemicalsAmmonia Sdn.Bhd.*

100 100 Malaysia Productionandsaleofammonia,syngasandcarbonmonoxide.

PETRONASChemicalsDerivativesSdn.Bhd.*

100 100 Malaysia Production and sale of ethylene oxide derivatives,propylenederivativesandrelatedchemicalproducts.

PETRONASChemicalsFertiliserKedahSdn.Bhd.*

100 100 Malaysia Productionandsaleofurea,ammoniaandmethanol.

PETRONASChemicalsFertiliserSabahSdn.Bhd.

100 100 Malaysia Production and sale of ammonia and urea. Thecompanyiscurrentlycommissioningitsplant.

PETRONASChemicalsGlycols Sdn.Bhd.*

100 100 Malaysia Productionandsaleofethyleneoxide,ethyleneglycolandotherrelatedby-products.

PETRONASChemicalsMarketing Sdn.Bhd.

100 100 Malaysia Marketingofpetrochemicalproducts.

PETRONASChemicalsMarketing(Labuan)Ltd.

100 100 Malaysia Marketingofpetrochemicalproducts.

PCM(Thailand)CompanyLimited* 100 100 Thailand Marketingofpetrochemicalproducts.

PCM(China)CompanyLimited** 100 100 China Marketingofpetrochemicalproducts.

PETRONASChemicalsMethanol Sdn.Bhd.

100 100 Malaysia Productionandsaleofmethanol.

PETRONASChemicalsMTBE Sdn.Bhd.

100 100 Malaysia Production and sale of methyl tertiary butyl ether(MTBE),propyleneandn-butane.

PETRONASChemicalsPolyethyleneSdn.Bhd.

100 100 Malaysia Processingofethyleneintopolyethylene.

KertihPortSdn.Bhd.* 100 100 Malaysia Owning, operating and managing Kertih MarineFacilities.

PolypropyleneMalaysiaSdn.Bhd. 100 100 Malaysia Production and sale of polypropylene and itsderivatives.Thecompanyhasceasedproduction.

VinylChloride(Malaysia)Sdn.Bhd.* 100 100 Malaysia Productionandsaleofvinylchloridemonomer(VCM)and polyvinyl chloride (PVC). The company hasceasedproduction.

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26. SUBSIDIARIES AND ACTIVITIES (CONTINUED)



incorporation Principal activities2016 2015

PRPCGlycolsSdn.Bhd. 100 100 Malaysia Thecompanyhastransferreditsassetsandliabilitiesto a related company and remained dormantthereafter.

PRPCPolymersSdn.Bhd. 100 100 Malaysia Productionandsaleofproductswithinethane,propanechainsandethanederivatives.Thecompanyhasyettoconstructitsplant.

PRPCElastomersSdn.Bhd. 100 100 Malaysia The company has ceased operation and remaineddormantthereafter.

PTPCMKimiaIndonesia 100 - Indonesia Marketing of petrochemical products. The companyhasnotcommencedoperationduringtheyear.

PETRONASChemicalsOlefins Sdn.Bhd.*

88 88 Malaysia Productionandsaleofethylene,propyleneandotherhydrocarbonby-products.

PETRONASChemicalsEthylene Sdn.Bhd.

87.50 87.50 Malaysia Processingofethaneintoethylene.

PETRONASChemicalsAromatics Sdn.Bhd.

70 70 Malaysia Productionandsaleofparaxylene,benzeneandotherby-products.

ASEANBintuluFertilizerSdn.Bhd. 63.47 63.47 Malaysia Processingofnaturalgasintoureaandammonia.

PETRONASChemicalsLDPESdn.Bhd.*

60 60 Malaysia Production and sale of low-density polyethylenepellets(LDPE).

PCMChemicalIndiaPrivateLimited* 0.01 0.01 India Marketingandbusinesspromotionalservices.

* AuditedbyfirmsofauditorsotherthanKPMG.** AuditedbyamemberfirmofKPMGInternational.

Duringtheyear,theCompany,viaitswholly-ownedsubsidiary,PETRONASChemicalsMarketingSdn.Bhd.,incorporatedawholly-ownedsubsidiary,PTPCMKimiaIndonesia(PCMI)inIndonesia.

During the year,PETRONASChemicalsEthyleneSdn.Bhd. andPETRONASChemicalsPolyethyleneSdn.Bhd. changed their principalactivitiesfromproductionandsalesofethylenetoprocessingofethaneintoethylene,andfromproductionandsalesofpolyethylenetoprocessingofethyleneintopolyethylenerespectively.

176

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27. JOINT VENTURES AND ACTIVITIES

TheGroupincludesthefollowingjointventures:



incorporation Nature of relationship2016 2015

KertihTerminalsSdn.Bhd. 40 40 Malaysia ProvidesbulkchemicalstorageandhandlingservicestotheGroup.

BPPETRONASAcetylsSdn.Bhd. 30 30 Malaysia PurchasescarbonmonoxidefeedstockfromtheGroupforproductionandsaleofaceticacid.

28. ASSOCIATES AND ACTIVITIES

TheGroupincludesthefollowingassociates:



incorporation Nature of relationship2016 2015

BASFPETRONASChemicalsSdn.Bhd. 40 40 Malaysia Purchasespropyleneandn-butanefeedstockfromtheGroupforproduction,marketingandsaleofacrylic,oxoandbutanediolproducts.

IdemitsuSM(Malaysia)Sdn.Bhd. 30 30 Malaysia Purchases ethylene feedstock from the Group forproduction,marketingandsaleofstyrenemonomer.

MalaysianNPKFertilizerSdn.Bhd. 20 20 Malaysia PurchasesureafeedstockandutilitiesfromtheGroupforproductionandsaleofNPKfertiliserproducts.

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29. CAPITAL COMMITMENTS

Outstandingcommitmentsinrespectofcapitalexpenditurenotprovidedforintheconsolidatedfinancialstatementsattheendofthereportingyearare:

2016 2015

Group RM Mil RM Mil

Property, plant and equipment

Approvedandcontractedfor 6,216 7,843

Approvedbutnotcontractedfor 4,719 9,401

10,935 17,244

IncludedinthecapitalcommitmentsareRM9,302million(2015:RM14,666million)relatingtodevelopmentofpetrochemicalplantswhicharepartoftheRAPIDprojectinPengerang,JohorandRM864million(2015:RM1,458million)forthenewworldscalefertiliserplantinSipitang,Sabah.

30. RELATED PARTIES DISCLOSURES For thepurposesof thesefinancialstatements,partiesareconsidered tobe related to theGroupor theCompany if theGroupor the

Companyhastheability,directlyorindirectly,tocontrolorjointlycontrolthepartyorexercisesignificantinfluenceoverthepartyinmakingfinancialandoperatingdecisions,orviceversa,orwheretheGrouportheCompanyandthepartyaresubjecttocommoncontrol.Relatedpartiesmaybeindividualsorotherentities.

Relatedpartiesalsoincludekeymanagementpersonneldefinedasthosepersonshavingauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesoftheGroupeitherdirectlyorindirectly.ThekeymanagementpersonnelincludealltheDirectorsoftheGroup,andcertainmembersofseniormanagementoftheGroup.

TheGroup’sandtheCompany’srelatedpartiesincludesubsidiaries,jointventures,associatesaswellastheGovernmentofMalaysiaanditsrelatedentities.

(a) Key management personnel compensation

2016 2015

Group and Company RM 000 RM 000

Directors remuneration:

- Fees 773 718

TheCompanypaidmanagementfeestotheholdingcompanyinrelationtoservicesofkeymanagementpersonneloftheCompanyasdisclosedinNote30(b).

178

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30. RELATED PARTIES DISCLOSURES (CONTINUED)

(b) Significant transactions with related parties

Inadditiontothetransactionsdetailedelsewhereintheconsolidatedfinancialstatements,theGrouphadthefollowingtransactionswithrelatedpartiesduringtheyear:

Group Note2016

RM Mil2015

RM Mil

PETRONAS:

Purchaseofprocessedgasandnaturalgas (3,176) (3,075)

Managementfees 30.1 (9) (10)

Centralisedmanagementservices (39) (39)

Securitycharges (17) (16)

Information,communicationandtechnologycharges (73) (61)

Rentalofofficespace (21) (22)

InterestincomefromPETRONASIFSSC 250 328

Projectexpenses (20) (401)

Subsidiaries of PETRONAS:

Salesofpetrochemicalproducts 881 1,037

Purchaseofheavynaphtha (1,458) (1,706)

Purchaseofprocessedgasandnaturalgas (125) (82)

Purchaseofutilitiesandmaterialsandsupplies (755) (663)

Traininganddevelopmentrelatedcosts (20) (28)

Purchaseofwarehouseandtransportationservices (80) (76)

Provisionofoperatingandmaintenanceservices 2 3

Purchaseofmarinediesel (2) (5)

Technicalretainerfee (56) (61)

Projectexpenses (355) (273)

Joint ventures and associates of the Group:

Salesofpetrochemicalproducts 1,312 1,316

Renderingofservices 17 14

Purchaseofpetrochemicalproducts (28) (34)

Purchaseofwarehouseandtransportationservices (161) (144)

Corporate shareholder of the Group: 30.2

Salesofpetrochemicalproducts 552 594

Purchaseofpetrochemicalproducts - (10)

Managementfees (1) (1)

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Sectionsix



(b) Significant transactions with related parties (continued)

Group2016

RM Mil2015

RM MilNote

Government related entities:

Salesofpetrochemicalproducts 94 104

Interestincome 16 13

Purchaseofelectricity (105) (100)

30.1ManagementfeespaidtoholdingcompanyrelatetopaymentforservicesofcertainkeymanagementpersonneloftheGroup.

30.2 Alltheamountsoutstandingareunsecuredandexpectedtobesettledwithcash.Thebalancesmayalsobesubjectedtointerestrateat8.15%(2015:8.35%)perannum.

Company Note2016

RM 0002015

RM 000

PETRONAS:

FeesforrepresentationontheBoardofDirectors 30.3 (229) (229)

Managementfees 30.4 (1,282) (1,513)

Centralisedmanagementservices (2,495) (753)

Information,communicationandtechnologycharges (7,377) (5,682)

Rentalofofficespace (14,847) (14,307)

InterestincomefromPETRONASIFSSC 55,151 68,168

Subsidiaries:

Interestincome 219,906 107,920

Dividendincome 4,338,772 2,642,570

Managementfeeincome 77,435 66,350

Loanandadvances (2,480,573) (1,771,119)

Joint ventures and associates:

Dividendincome 62,081 153,699

Government related entities:

Interestincome 15,581 13,359

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GROUP BERHAD



(b) Significant transactions with related parties (continued)

30.3 FeesforrepresentationontheBoardofDirectorspaiddirectlytoholdingcompanyrelatetopaymentoffeesforDirectorswhoareappointeesoftheholdingcompany.

30.4 ManagementfeespaidtoholdingcompanyrelatetopaymentforservicesofcertainkeymanagementpersonneloftheCompany.

Informationregardingoutstandingbalancesarisingfromrelatedpartytransactionsasat31December2016isdisclosedinNotes10,13,17and19.

TheDirectorsoftheCompanyareoftheopinionthattheabovetransactionshavebeenenteredintointhenormalcourseofbusinessandhavebeenestablishedonacommercialbasis.

OtherrelatedpartytransactionshavenotbeenincludedasthetransactionsarenotsignificanttotheGroup.

31. OPERATING SEGMENTS

Formanagementpurposes,theGrouphastworeportablesegments,asdescribedbelow,whicharetheGroup’sstrategicbusinessunits.Thestrategicbusinessunitsofferdifferentproductsandservices,andaremanagedseparatelybecausetheyrequiredifferenttechnologyandmarketingstrategies.ThefollowingsummarydescribestheoperationsineachoftheGroup’sreportablesegments:

• OlefinsandDerivatives–activitiesincludemanufacturingandmarketingofawiderangeofolefinandpolymerproducts,whichareusedasbasicfeedstockforotherproducts,tointermediateproductsincludingbasicandhighperformancechemicals.

• FertilisersandMethanol–activitiesincludemanufacturingandmarketingmethanolandarangeofnitrogen,phosphateandcompoundfertilisers.

Managementmonitorstheoperatingresultsofthebusinessunitsseparatelyforthepurposeofmakingdecisionsaboutresourceallocationandperformanceassessment.Segmentperformanceisevaluatedbasedonoperatingprofitor lossandismeasuredconsistentlywithoperatingprofitorlossintheconsolidatedfinancialstatements.

Performance ismeasuredbasedonsegmentprofitafter taxas included in the internalmanagement reports thatare reviewedby theMD/CEO,whoistheGroup’schiefoperatingdecisionmaker.Segmentprofit isusedtomeasureperformanceasmanagementbelievesthatsuchinformationisthemostrelevantinevaluatingtheresultsofthesegmentsrelativetootherentitiesthatoperatewithintheseindustries.

Transferpricesbetweenoperatingsegmentsareestablishedinamannersimilartotransactionswiththirdparties.

Other non-reportable segment comprisesoperations related to investmentholding companyandport serviceswhichprovideproductdistributioninfrastructuretotheGroup,whichonlycontributes0.4%(2015:0.3%)oftheGroup’srevenueandrepresents13.0%(2015:9.0%)oftheGroup’sassets.

Segment assets

Thetotalofsegmentassetsaremeasuredbasedonallassetsofasegment,as included inthe internalmanagementreportsthatarereviewedbytheMD/CEO.Segmenttotalassetisusedtomeasurethereturnofassetsofeachsegment.

Segment liabilities

TheGroupsegmentliabilitiesaremeasuredandmanagedonagroupbasisandarenotallocatedtooperatingsegments.

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31. OPERATING SEGMENTS (CONTINUED)

Group

Olefins and Derivatives

RM Mil

Fertilisers and Methanol

RM MilOthersRM Mil

Elimination and adjustment

RM MilTotal

RM Mil

2016

Segment profit 2,159 999 64 - 3,222

Includedinthemeasureofsegmentprofitare:

Revenuefromexternalcustomers 9,744 4,063 53 - 13,860

Inter-segmentrevenue 13 165 45 (223) -

Depreciationandamortisation (804) (514) (19) - (1,337)

Property,plantandequipmentwrittenoff (244) - - - (244)

Interestincome 148 46 287 (220) 261

Financing(costs)/income (19) (3) 69 - 47

Shareof(loss)/profitofjointventuresandassociates (30) 15 32 - 17

Taxexpense (754) (71) (63) - (888)

Segment assets 13,752 13,923 4,293 (20) 31,948

Included in the measure of segment assetsare:

Investmentsinjointventuresandassociates 1,152 119 92 - 1,363

Additionstonon-currentassetsotherthanfinancialinstrumentsanddeferredtaxassets 2,089 801 153 - 3,043

2015

Segment profit 1,993 1,059 39 - 3,091

Includedinthemeasureofsegmentprofitare:

Revenuefromexternalcustomers 9,495 3,995 46 - 13,536

Inter-segmentrevenue 12 192 40 (244) -

Depreciationandamortisation (800) (459) (20) - (1,279)

Property,plantandequipmentwrittenoff - - (5) - (5)

Interestincome 158 98 212 (108) 360

Financing(costs)/income (25) (4) 18 - (11)

Shareof(loss)/profitofjointventuresandassociates 32 13 42 - 87

Taxexpense (645) (75) (22) - (742)

Segment assets 14,808 13,279 2,780 (34) 30,833

Included in the measure of segment assetsare:

Investmentsinjointventuresandassociates 1,072 110 98 - 1,280

Additionstonon-currentassetsotherthanfinancialinstrumentsanddeferredtaxassets 896 1,985 13 - 2,894

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31. OPERATING SEGMENTS (CONTINUED)

Geographical information

Geographical revenue isdeterminedbasedon locationofcustomers.Theamountspresentedfornon-currentassetsarebasedonthegeographicallocationoftheassetsanddonotincludefinancialinstruments(includinglongtermreceivables,investmentinjointventuresandassociates)anddeferredtaxassets.

GroupRevenue

RM Mil

Non-current assetsRM Mil

2016

Malaysia 4,530 18,543

Asia:

-China 3,010 1

-Indonesia 1,895 -

-Thailand 1,388 2

-Others 2,778 -

Restoftheworld 259 -

13,860 18,546

2015

Malaysia 4,989 16,599

Asia:

-China 2,179 2

-Indonesia 1,599 -

-Thailand 1,261 1

-Others 3,111 -

Restoftheworld 397 -

13,536 16,602

Major customers

Noneofthecustomersindividuallycontributestomorethan10%oftheGroup’srevenue.

32. FINANCIAL INSTRUMENTS

Categories of financial instruments

Thefollowingtablesprovideananalysisoffinancialinstrumentscategorisedasfollows:

(i) Loansandreceivables(L&R);(ii) Fairvaluethroughprofitorloss(FVTPL)

-Heldfortrading(HFT);and(iii) Financialliabilitiesmeasuredatamortisedcost(FL).

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32. FINANCIAL INSTRUMENTS (CONTINUED)

Categories of financial instruments (continued)

2016 2015

Group Note

L&R/(FL)

RM Mil

FVTPL- HFT

RM Mil

TotalcarryingamountRM Mil

L&R/(FL)

RM Mil

FVTPL- HFT

RM Mil


Financial assets

Tradeandotherreceivables* 10 2,092 15 2,107 1,576 9 1,585

Fundinvestments 12 - - - 622 - 622

Cashandcashequivalents 13 7,403 - 7,403 8,707 - 8,707

9,495 15 9,510 10,905 9 10,914


Otherlongtermliabilities* 17 (216) - (216) (345) - (345)

Borrowings 18 (23) - (23) (30) - (30)

Tradeandotherpayables* 19 (2,175) (17) (2,192) (2,146) (720) (2,866)

Dividendpayable (42) - (42) - - -

(2,456) (17) (2,473) (2,521) (720) (3,241)

*ThesebalancesexcludebalanceswhicharenotwithinthescopeofMFRS139,Financial Instruments: Recognition and Measurement.

2016 2015

Company Note

L&R/(FL)

RM Mil

FVTPL- HFT

RM Mil


L&R/(FL)

RM Mil

FVTPL- HFT

RM Mil


Financial assets

Longtermreceivables 7 7,011 - 7,011 - - -

Tradeandotherreceivables* 10 552 1 553 4,298 - 4,298

Fundinvestments 12 - - - 622 - 622

Cashandcashequivalents 13 1,254 - 1,254 1,793 - 1,793

8,817 1 8,818 6,713 - 6,713


Tradeandotherpayables* 19 (259) (1) (260) (143) (715) (858)

*ThesebalancesexcludebalanceswhicharenotwithinthescopeofMFRS139,Financial Instruments: Recognition and Measurement.

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Financial risk management

TheGroupandtheCompanyareexposedtovariousfinancialrisksthatareparticulartoitscorebusinessofpetrochemical.Theserisks,whichariseinthenormalcourseoftheGroup’sandtheCompany’sbusiness,comprisecreditrisk,liquidityriskandmarketriskrelatingtointerestrates,foreigncurrencyexchangeratesandprices.

The Group adopts PETRONAS Group RiskManagement Framework and Guideline that sets the foundation for the establishment ofeffectiveriskmanagementacrosstheGroup.

Risk taking activities are undertakenwithin acceptable level of risk or risk appetite,whereby the risk appetite level reflects businessconsiderations and capacity to assume such risks. The risk appetite is established at Board level, where relevant, based on definedmethodologyandtranslatedintooperationalthresholds.

TheGroup’sandtheCompany’sgoal in riskmanagement is toensure that themanagementunderstands,measuresandmonitors the

variousrisksthatariseinconnectionwiththeiroperations.Policiesandguidelineshavebeendevelopedtoidentify,analyse,appraiseandmonitorthedynamicrisksfacingtheGroupandtheCompany.Basedonthisassessment,eachbusinessunit/Companyadoptsappropriatemeasurestomitigatetheserisksinaccordancewiththebusinessunit’s/Company’sviewofthebalancebetweenriskandreward.

Credit risk

CreditriskisthepotentialexposureoftheGroupandtheCompanytolossesintheeventofnon-performancebycounterparties.TheGroup’sandtheCompany’sexposurestocreditriskariseprincipallyfromitsreceivablesfromcustomersandintercompanyloansandadvances.CreditrisksarecontrolledbyindividualoperatingunitsinlinewithPETRONASGroupRiskManagementFrameworkandGuideline.

Intercompany loans and advances

TheCompanyprovidesunsecuredloansandadvancestosubsidiaries.TheCompanymonitorstheresultsofthesubsidiariesregularly.Asattheendofthereportingperiod,themaximumexposuretocreditriskisrepresentedbytheircarryingamountsinthestatementsoffinancialposition.

Receivables

TheGroupminimisescreditriskbyensuringthatallpotentialcounterpartiesaresubjecttocreditassessmentandapprovalpriortoanytransactionbeingconcluded.Existingcounterpartiesarealsosubjecttoregularreviews,includingre-appraisalandapprovalofgrantedlimits.Thecreditworthinessofcounterpartiesisassessedbasedonananalysisofallavailablequantitativeandqualitativedataregardingbusinessrisksandfinancialstanding,togetherwiththereviewofanyrelevantthirdpartyandmarketinformation.ReportsarepreparedandpresentedtothemanagementthatcovertheGroup’sandtheCompany’soverallcreditexposureagainstlimitsandsecurities,exposurebysegmentandoverallqualityoftheportfolio.

Dependingonthetypesoftransactionsandcounterpartycreditworthiness,theGroupfurthermitigatesandlimitsrisksrelatedtocreditbyrequiringcollateralorothercreditenhancementssuchascashdeposits,letterofcreditorbankguarantees.

Exposuretolossesincreaseswithconcentrationsofcreditriskwhichmayexistwhenanumberofcounterpartiesareinvolvedinsimilaractivitiesoroperate inthesameindustrysectororgeographicalarea,whichmayresult intheirabilitytomeetcontractualobligationsbeingimpactedbychangesineconomic,politicalorotherconditions.

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Credit risk (continued)

Receivables (continued)

TheGroup’ssignificantconcentrationofcreditriskforreceivablesattheendofthereportingdatebysegmentisasfollows:

Group2016

RM Mil2015

RM Mil

OlefinsandDerivatives 1,525 1,133

FertilisersandMethanol 522 349

Others 45 94

2,092 1,576

Asattheendofthereportingyear,themaximumexposuretocreditriskarisingfromreceivablesisequaltothecarryingamount.TheGroupusesageinganalysistomonitorthecreditqualityoftradereceivables.TheGrouphastakenreasonablestepstoensurethatreceivablesthatareneitherpastduenorimpairedarestatedattheirrealisablevalues.

TheageingoftradereceivablesandamountduefromPETRONAS,relatedcompaniesandassociateswhicharetradeinnatureasattheendofthereportingyearisanalysedbelow:

Group2016

RM Mil2015

RM Mil

At net

Current 1,809 1,406

Pastdue1to30days 2 -

1,811 1,406

WithrespecttotheGroup’stradereceivables,therearenoindicationsasofthereportingdatethatthedebtorswillnotmeettheirpaymentobligations,otherthanthosethatareimpaired.

Liquidity risk

LiquidityriskistheriskthattheGroupandtheCompanywillnotbeabletomeetitsfinancialobligationasastheyfalldue.TheGroup’sandtheCompany’sexposuretoliquidityriskarisesprincipallyfromitstradeandotherpayablesandborrowings.Inmanagingitsliquidityrisk,theGroupmonitorsandmaintainsalevelofcashandcashequivalentsdeemedadequatebymanagementtofinancetheGroup’sandtheCompany’soperationsandtomitigatetheeffectsoffluctuationsincashflows.

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Liquidity risk (continued)

Maturity analysis

The table belowsummarises thematurity profile of theGroup’s andCompany’s financial liabilities as at the reporting date basedonundiscountedcontractualpayments:

Group

CarryingamountRM Mil

Contractualinterest rates

per annum%

Contractualcash flows

RM Mil

Within1 year

RM Mil1-2 years

RM Mil2-5 years

RM Mil

More than5 yearsRM Mil

2016


Finance lease liabilities 183 5.00 205 55 55 95 -

Provisions 117 - 132 37 67 28 -

Borrowings 23 4.36 23 23 - - -

Tradeandotherpayables 2,091 - 2,091 2,091 - - -

Dividendpayable 42 - 42 42 - - -

Derivativeliabilities 17 - 17 17 - - -

2,473 2,510 2,265 122 123 -

2015


Finance lease liabilities 227 5.00 260 55 55 142 8

Provisions 207 - 236 46 131 45 14

Borrowings 30 4.45 31 31 - - -

Tradeandotherpayables 2,057 - 2,057 2,057 - - -

Derivativeliabilities 720 - 720 720 - - -

3,241 3,304 2,909 186 187 22

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Liquidity risk (continued)

Maturity analysis (continued)

Company

CarryingamountRM Mil

Contractualinterest rates

per annum%

Contractualcash flows

RM Mil

Within1 year

RM Mil

2016


Tradeandotherpayables 259 - 259 259

Derivativeliabilities 1 - 1 1

260 260 260

2015


Tradeandotherpayables 143 - 143 143

Derivativeliabilities 715 - 715 715

858 858 858

Market risk

Marketrisk istheriskoruncertaintyarisingfromchanges inmarketpricesandtheir impactontheperformanceof thebusiness.Themarketprice changesarising fromfinancial instruments that theGroupand theCompanyare exposed to includes interest ratesandforeigncurrencyexchange rates thatcouldadverselyaffect thevalueof theGroup’sand theCompany’sfinancialassets, liabilitiesorexpectedfuturecashflows.

Interest rate risk

TheGroup’sandtheCompany’svariablerateinstrumentsareexposedtoariskofchangeincashflowsduetochangesininterestrateswhilstfixedrateinstrumentsareexposedtoariskofchangeintheirfairvalueduetochangesininterestrates.Shorttermreceivablesandpayablesarenotsignificantlyexposedtointerestraterisk.

Inmanaginginterestraterisk,theGroupandtheCompanymaintainabalancedportfoliooffixedandfloatingrateinstruments.AllinterestrateexposuresaremonitoredandmanagedproactivelybasedonadoptedPETRONASGroupRiskManagementFrameworkandGuideline.

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Market risk (continued)

Interest rate risk (continued)

TheinterestrateprofileoftheGroup’sandtheCompany’sinterest-bearingfinancialinstrumentsbasedoncarryingamountasatreportingdateisasfollows:

Group Company

2016 2015 2016 2015


Fixed rate instruments

Financial assets 101 958 5,527 5,146

Financial liabilities (183) (227) - -

(82) 731 5,527 5,146

Floating rate instruments

Financial assets 7,230 8,368 2,738 1,484

Financial liabilities (23) (30) - -

7,207 8,338 2,738 1,484

TheGroup’sandtheCompany’sfinancialassetsandliabilitiesaremeasuredatamortisedcost,anyreasonablepossiblechangeininterestrateisnotexpectedtohavematerialimpactontheGroup’sandtheCompany’sprofitorloss.

Foreign exchange risk

The Group and the Company are exposed to varying levels of foreign exchange risk when they enter into transactions that are notdenominatedintherespectivecompanies’functionalcurrenciesandwhenforeigncurrencymonetaryassetsandliabilitiesaretranslatedatthereportingdate.ThemainunderlyingeconomiccurrenciesoftheGroup’sandtheCompany’scashflowsareRinggitMalaysiaandUSDollar.

TheGroup’sandtheCompany’sforeignexchangemanagementpoliciesaretominimiseeconomicandsignificanttransactionalexposuresarisingfromcurrencymovements.TheGroupmainlyreliesonthenaturalhedgegeneratedbythefactthatsomeoftheir revenueandexpensesaredenominatedinUSDollar.Inaddition,theGroup,whereapplicable,hedgeusingderivativeinstrumentsinrespectofcurrentandforecastedtransactions.

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Foreign exchange risk (continued)

TheGroup’sandtheCompany’ssignificantexposuretoforeigncurrencyrisk,basedoncarryingamountsasatthereportingdateisasfollows:

Group

Denominated in

USDRM Mil

EURORM Mil

JPYRM Mil

2016

Financial assets

Tradeandotherreceivables 633 - -

Cashandcashequivalents 16 - -

649 - -


Tradeandotherpayables (30) (14) -

Derivativeassets/liabilitiesatnominalvalue (561) - -

Net exposure 58 (14) -

2015

Financial assets

Tradeandotherreceivables* 5,373 - -

Cashandcashequivalents 5 - -

5,378 - -


Tradeandotherpayables* (558) (7) (4)

Derivativeassets/liabilitiesatnominalvalue (4,751) - -

Net exposure 69 (7) (4)

*Theseamountsincludeforeigncurrencyriskexposurearisingfromintra-groupbalances.

Most of theGroup’s foreign denominated financial currency financial instruments are inUSDollar and since the net exposure is notmaterial,anyreasonablepossiblechangeintheexchangerateinUSDollarisnotexpectedtohaveamaterialimpactontheGroup’sprofitorloss.

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Foreign exchange risk (continued)

Company

Denominated in USD

2016RM Mil

2015RM Mil

Financial assets

Longtermreceivables 7,011 -

Tradeandotherreceivables 9 4,215

7,020 4,215


Tradeandotherpayables (10) -

Derivativeliabilitiesatnominalvalue - (4,215)

Net exposure 7,010 -

Thefollowingtabledemonstratestheindicativepre-taxeffectsontheprofitorlossofapplyingreasonableforeseeablemarketmovementsonthenetexposureatthereportingdateinthefollowingcurrencyexchangerate:

2016Appreciation in foreign currency rate

%Profit/(Loss)

RM Mil

USD 10 701

A decrease in change in currency rate abovewould have had equal but opposite effect, on the basis that all other variables remainconstant.

Price risk

TheGroupisexposedtopricerisksthatincludefeedstockandproductpriceriskandbasisriskwhichmayaffectthevalueoftheGroup’sassets,liabilitiesorexpectedfuturecashflows.Priceriskistheriskoffinanciallossduetofluctuationandvolatilityoffeedstockpricesonpurchasesandproductpricesontrades.Basisrisk,ontheotherhand,istheriskoffinanciallossasaresultofdifferentpricingtermoftrades.

TheGroupisguidedbyindustrypracticesandminimisesitspriceriskexposurebyproactivelyandcontinuouslyidentifying,measuring,monitoring,mitigatingandreportingpriceriskwithinthecontextofacomprehensiveriskmanagementframework.

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Fair value information

Thecarryingamountsofcashandcashequivalents,andshorttermreceivablesandpayablesreasonablyapproximatetheirfairvaluesduetotherelativelyshorttermnatureofthesefinancialinstruments.

Thefollowingtableanalysesfinancialinstrumentscarriedatfairvalueandthosenotcarriedatfairvalueforwhichfairvalueisdisclosed,togetherwiththeirfairvaluesandcarryingamountsshowninthestatementsoffinancialposition.

Fair value of financial instruments carried at fair value

Fair value of financial instruments

not carried at fair valueCarrying amount

GroupLevel 2RM Mil

TotalRM Mil

Level 3RM Mil

TotalRM Mil

TotalRM Mil

2016

Financial assets

Forwardforeignexchangecontracts 15 15 - - 15


Forwardforeignexchangecontracts (17) (17) - - (17)

Finance lease liabilities - - (136) (136) (137)

(17) (17) (136) (136) (154)

2015

Financial assets




Finance lease liabilities - - (183) (183) (183)

(720) (720) (183) (183) (903)

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Fair value information (continued)

Fair value of financial instruments carried at fair value

Fair value of financial instruments

not carried at fair valueCarrying amount

CompanyLevel 2RM Mil

TotalRM Mil

Level 3RM Mil

TotalRM Mil

TotalRM Mil

2016

Financial assets

Longtermreceivables - - 7,011 7,011 7,011


1 1 7,011 7,011 7,012



2015



Forward foreign exchange contracts

The fair value of forward foreign exchange contracts is based on the fair value difference between forward exchange rates and thecontractedrates.

Finance lease liabilities

Thefairvalueoffinanceleaseliabilitieswhichisdeterminedfordisclosurepurposesiscalculatedbasedonthepresentvalueoffutureprincipalandinterestcashflows,discountedatthemarketrateofinterestattheendofthereportingperiod.

Long term receivables

Thefairvalueoflongtermreceivablesiscalculatedbasedonthepresentvalueoftheprojectedrepaymentofloans,discountedatthemarketrateofinterestattheendofthereportingperiod.

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Income/(expense), net gains and losses arising from financial instruments

2016 2015

Group

Interest incomeRM Mil

Interest expense

RM MilOthersRM Mil

TotalRM Mil


Interest expense

RM MilOthersRM Mil

TotalRM Mil

Loansandreceivables 261 - (47) 214 360 - 707 1,067

Financial instruments atfairvaluethroughprofitorloss -Heldfortrading - - 93 93 - - (608) (608)

Financial liabilities measuredat amortisedcost - (1) 38 37 - - (120) (120)

261 (1) 84 344 360 - (21) 339

2016 2015

Company


Interest expense

RM MilOthersRM Mil

TotalRM Mil


Interest expense

RM MilOthersRM Mil

TotalRM Mil

Loansandreceivables 284 - 325 609 209 - 636 845

Financial instruments atfairvaluethroughprofitorloss -Heldfortrading - - 150 150 - - (618) (618)

Financial liabilities measuredat amortisedcost - - 7 7 - - (4) (4)

284 - 482 766 209 - 14 223

Othersrelatetogainsandlossesarisingfromfinancialinstrumentssuchasimpairmentloss,realisedandunrealisedforeignexchangegainsorlosses,andfairvaluegainsorlosses.

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33. ADOPTION OF NEW AND REVISED PRONOUNCEMENTS

Asof1January2016,theGroupandtheCompanyadoptedthefollowingpronouncementsthatareapplicableandhavebeenissuedbyMASBaslistedbelow:

Effective for annual periods beginning on or after 1 January 2016

AmendmentstoMFRS5 Non-current Assets Held for Sale and Discontinued Operations (Annual Improvements 2012-2014 Cycle) AmendmentstoMFRS11 Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations AmendmentstoMFRS101 Presentation of Financial Statements – Disclosure Initiative AmendmentstoMFRS119 Employee Benefits (Annual Improvements 2012-2014 Cycle) AmendmentstoMFRS127 Separate Financial Statements: Equity Method in Separate Financial Statements AmendmentstoMFRS134 Interim Financial Reporting (Annual Improvements 2012-2014 Cycle)

TheinitialapplicationoftheabovementionedpronouncementsdonothaveanymaterialimpacttothefinancialstatementsoftheGroupandtheCompany.

34. NEW AND REVISED PRONOUNCEMENTS YET IN EFFECT

ThefollowingpronouncementsthathavebeenissuedbytheMASBwillbecomeeffectiveinfuturefinancialreportingperiodsandhavenotbeenadoptedbytheGroupand/ortheCompanyinthesefinancialstatements:


AmendmentstoMFRS12 Disclosure of Interests in Other Entities (Annual Improvements 2014 – 2016 Cycle) AmendmentstoMFRS107 Statement of Cash Flows: Disclosure Initiative AmendmentstoMFRS112 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses


MFRS9 Financial Instruments (2014) MFRS15 Revenue from Contracts with Customers AmendmentstoMFRS15 Revenue from Contracts with Customers: Clarifications ICInterpretation22 Foreign Currency Transactions and Advance Consideration


MFRS16 Leases The Group and the Company are expected to apply the abovementioned pronouncements beginning from the respective dates the

pronouncementsbecomeeffective.TheinitialapplicationoftheabovementionedpronouncementsarenotexpectedtohaveanymaterialimpacttothefinancialstatementsoftheGroupandtheCompanyexceptasmentionedbelow:

i. MFRS 9 Financial Instruments MFRS9replacestheguidanceinMFRS139Financial Instruments: Recognition and Measurementontheclassificationandmeasurement

offinancialassets.

ii. 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, ICInterpretation15Agreements for Construction of Real Estate, ICInterpretation18Transfers of Assets from Customers andICInterpretation131Revenue – Barter Transactions Involving Advertising Services.

iii. MFRS 16 Leases MFRS16replacesexistingleasesguidanceinMFRS117Leases,ICInterpretation4Determining whether an Arrangement contains a

Lease,ICInterpretation115Operating Leases – Incentives,andICInterpretation127Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

TheGroupandtheCompanyarecurrentlyassessingtheimpactofadoptingtheabovepronouncements.

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35. NEW PRONOUNCEMENTS NOT APPLICABLE TO THE GROUP AND THE COMPANY

TheMASBhasissuedpronouncementswhicharenotyeteffective,butforwhicharenotrelevanttotheoperationsoftheGroupandtheCompanyandhence,nofurtherdisclosureiswarranted.


AmendmentstoMFRS1 First-time Application of Malaysian Financial Reporting Standards (Annual Improvements 2014 – 2016 Cycle) AmendmentstoMFRS2 Share-based Payment: Classification and Measurement of Share-based Payment Transactions AmendmentstoMFRS4 Insurance Contracts: Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts AmendmentstoMFRS128 Investments in Associates and Joint Ventures (Annual Improvements 2014 – 2016 Cycle) AmendmentstoMFRS140 Investment Property: Transfer of Investment Property

Effectiveforannualperiodsbeginningonorafteradateyettobeconfirmed

AmendmentstoMFRS10and MFRS128 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

36. CAPITAL MANAGEMENT

TheGroupdefinescapitalasthetotalequityanddebtoftheGroup.TheobjectiveoftheGroup’sandtheCompany’scapitalmanagementistomaintainanoptimalcapitalstructureandensuringavailabilityoffundsinordertosupportitsbusinessandrelatedshareholdersvalue.AsasubsidiaryofPETRONAS,theGroupadoptsPETRONASGroupCorporateFinancialPolicyinmanagingitscapital.

TheGroupmonitorsandmaintainsaprudentleveloftotaldebttototalassetsratiotooptimiseshareholdersvalueandtoensurecompliancewithcovenants.

TherewerenochangesintheGroup’sandtheCompany’sapproachtocapitalmanagementduringtheyear.

UndertherequirementofBursaMalaysiaPracticeNoteNo.17/2005,theGroupisrequiredtomaintainconsolidatedshareholders’equityequaltoornotlessthan25%oftheissuedandpaid-upcapitalandsuchshareholders’equityisnotlessthanRM40million.TheGrouphascompliedwiththisrequirement.

37. HOLDING COMPANY

TheimmediateandultimateholdingcompanyisPetroliamNasionalBerhad(PETRONAS),acompanyincorporatedinMalaysia.

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38. SUPPLEMENTARY FINANCIAL INFORMATION ON THE BREAKDOWN OF REALISED AND UNREALISED PROFITS OR LOSSES

ThebreakdownoftheretainedearningsoftheGroupandoftheCompanyasat31December2016intorealisedandunrealisedprofits,pursuanttoParagraphs2.06and2.23ofMainMarketListingRequirementsofBursaMalaysiaSecuritiesBerhad,isasfollows:

Group Company

2016 2015 2016 2015


Totalretainedprofits/(losses)oftheCompanyanditssubsidiaries:

- realised 20,774 19,348 10,031 6,977

- unrealised (492) (518) 415 (2)

20,282 18,830 10,446 6,975

Totalretainedprofits/(losses)fromjointventuresandassociates:

- realised 155 199 - -

- unrealised (26) (19) - -

129 180 - -

Totalrealisedandunrealised 20,411 19,010 10,446 6,975

Less:Consolidationadjustments (3,663) (3,817) - -

TotalGroupretainedprofitsasperconsolidatedaccounts 16,748 15,193 10,446 6,975

The determination of realised and unrealised profits is based on the Guidance on SpecialMatter No.1,Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued byMalaysianInstituteofAccountantson20December2010.

ThedisclosureofrealisedandunrealisedprofitsaboveissolelyforcomplyingwiththedisclosurerequirementsstipulatedinthedirectiveofBursaMalaysiaandshouldnotbeappliedforanyotherpurposes.

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INDEPENDENT AUDITORS’ REPORT to the members of PETRONAS Chemicals Group Berhad

(Company No. 459830-K)

(Incorporated in Malaysia)

Report on the Audit of the Financial Statements

Opinion

WehaveauditedthefinancialstatementsofPETRONASChemicalsGroupBerhad(“PCG”),whichcomprisethestatementsoffinancialpositionasat31December2016oftheGroupandtheCompany,andthestatementsofprofitorlossandothercomprehensiveincome,changesinequityandcashflowsoftheGroupandtheCompanyfortheyearthenended,andnotestothefinancialstatements,includingasummaryofsignificantaccountingpolicies,assetoutonpages141to196. Inouropinion,thefinancialstatementsgiveatrueandfairviewofthefinancialpositionoftheGroupandtheCompanyasat31December2016andoftheirfinancialperformanceandtheircashflowsfortheyearthenendedinaccordancewithMalaysianFinancialReportingStandards,InternationalFinancialReportingStandardsandtherequirementsoftheCompaniesAct,1965inMalaysia.

Basis for Opinion

We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditors’ Responsibilities for the Audit of the Financial Statements section ofthisreport.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.

Independence and Other Ethical Responsibilities

Weare independentof theGroupandof theCompany inaccordancewith theBy-Laws (on Professional Ethics, Conduct and Practice)of theMalaysianInstituteofAccountants(“By-Laws”)andtheInternationalEthicsStandardsBoardforAccountants’Code of Ethics for Professional Accountants (“IESBACode”),andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeBy-LawsandtheIESBACode.

Key Audit Matters

Keyauditmattersarethosemattersthat,inourprofessionaljudgment,wereofmostsignificanceinourauditofthefinancialstatementsoftheGroupandoftheCompanyforthecurrentfinancialyear.ThesematterswereaddressedinthecontextofourauditofthefinancialstatementsoftheGroupandtheCompanyasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.

Property, plant and equipment

Refertonote2.2(accountingpolicy)andnote3ofthefinancialstatements.

ThereisariskofimpairmentoftheGroup’sproperty,plantandequipmentasaresultofdecliningpricesofseveralproducts,that,inturnreducestheprofitmargins.Therecoverabilityofthecarryingamountsofproperty,plantandequipmentofthecashgeneratingunitsaredependentupontherecoverablevalues(determinedusingthenetcashflows)ofthecashgeneratingunitsoftheaffectedplants.Thisisoneoftheareasthatourauditfocusesonbecausethereareinherentuncertaintiesandsignificantmanagementjudgmentinvolvedinforecastinganddiscountingfuturecashflowsoftheaffectedcashgeneratingunitstoarriveattherecoverablevalues.Theinherentuncertaintiesamongstothersincludeappropriatenessofsignificantassumptionsanddiscountrates.

Inthisarea,ourauditproceduresincluded,amongstothers:

• evaluatedtheimpairmenttestmodelbycomparingitwiththerequirementsoffinancialreportingstandards;

• assessedtheappropriatenessofthediscountratesusedbycomparingthesewithourexpectationsbasedonourknowledgeoftheindustryinwhichtheGroupoperates;

• assessedthosesignificantandhighlysensitiveassumptions,suchasthelongtermoutlookofpricesforfinishedproductsandrawmaterials,todeterminethatthesewereappropriateandsupportablebycomparingthemwithinternalandexternalsources;

• readthereportofandinterviewedaspecialistengagedbytheGroupinvalidatingtherecoverablevalueofoneofthecashgeneratingunitsoftheaffectedplant;and

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Independent Auditors’ Report (Cont’d)to the members of PETRONAS Chemicals Group Berhad



• consideredtheadequacyofthedisclosuresontheimpairmentassessmentforthecashgeneratingunitsofwhichtheassumptionsappliedwereparticularly sensitive, uncertain or required significant judgment andhence, hada significant riskwhich could result in amaterialadjustmenttothecarryingamountoftheplantswithinthenextfinancialyear.

Deferred tax assets

Refertonote2.13(ii)(accountingpolicy)andnote8ofthefinancialstatements.

Wheredeferredtaxassetsarerecognised,managementjudgmentisrequiredtoassesstheutilisationofthebalancebyreferencetoprojectionsoffuturetaxableincome.Theperiodsoverwhichthedeferredtaxassetsareexpectedtoberecoveredcanbeextensive.Thisisoneoftheareasthatourauditfocusesonbecausethereareinherentuncertaintiesinvolvedinprojectingfuturetaxableincome,inparticular,whenthedeferredtaxassetsarerecognisedbysubsidiarieswhichcontinuetobelossmaking. Inthisarea,theauditproceduresincluded,amongstothers:

• assessedtheadequacyoftheauditproceduresperformedbythecomponentauditorstoreviewtherecogniseddeferredtaxassetastwoofthesubsidiariesintheGroupthathadrecognisedsignificantdeferredtaxassetsareauditedbyanotherfirmofauditors;and

• evaluated the likelihood of successful implementation of the proposed tolling arrangements within the Group’s integrated value chaininvolvingtheaforesaidtwosubsidiariesandtheappropriatenessoftheGroup’sassessmentthatitisprobablethatsufficienttaxableincomewouldbegeneratedtoutilisethedeferredtaxassets.

Provision for financial assistance

Refertonote2.11(accountingpolicy)andnote17ofthefinancialstatements.

TheCompanymadeaprovisiontoprovidefinancialassistancetooneofitssubsidiaries.Thisisoneoftheareasthatourauditfocusesonbecausethereareinherentuncertaintiesandsignificantjudgmentinvolvedinforecastinganddiscountingfuturecashflowsoftheobligationtoprovidefinancialassistancetothesaidsubsidiary.

Inthisarea,theauditproceduresincluded,amongstothers:

• assessed those significant assumptions, the extent of the constructive and contractual obligation that is needed to be fulfilled by thesubsidiary,todeterminethatthesewereappropriateandjustifiedbycomparingthemwithinternalandexternalsources;and

• determinedtheadequacyof theprovisionby reading thefinancialstatementsof thesubsidiaryandassessed itssolvencyandfinancialstanding.

Information Other than the Financial Statements and Auditors’ Report Thereon

TheDirectorsof theCompanyare responsible for theother information. Theother information comprises the information included in theDirectors’ReportandStatementonRiskManagementandInternalControl(butdoesnotincludethefinancialstatementsoftheGroupandoftheCompanyandourauditors’reportthereon),whichweobtainedpriortothedateofthisauditors’report,andtheremainingpartsoftheAnnualReport,whichareexpectedtobemadeavailabletousaftertheauditors’reportdate.

OuropiniononthefinancialstatementsoftheGroupandoftheCompanydoesnotcovertheother informationandwedonotandwillnotexpressanyformofassuranceconclusionthereon.

InconnectionwithourauditofthefinancialstatementsoftheGroupandoftheCompany,ourresponsibilityistoreadtheotherinformationidentifiedaboveand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsoftheGroupandoftheCompanyorourknowledgeobtainedintheaudit,orotherwiseappearstobemateriallymisstated.If,basedontheworkwehaveperformedontheotherinformationthatweobtainedpriortothedateofthisauditors’report,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.Wehavenothingtoreportinthisregard.

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Responsibilities of Directors for the Financial Statements

TheDirectorsoftheCompanyareresponsibleforthepreparationoffinancialstatementsoftheGroupandoftheCompanythatgiveatrueandfairviewinaccordancewithMalaysianFinancialReportingStandards,InternationalFinancialReportingStandardsandtherequirementsoftheCompaniesAct,1965inMalaysia.TheDirectorsarealsoresponsibleforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsoftheGroupandoftheCompanythatarefreefrommaterialmisstatement,whetherduetofraudorerror.

InpreparingthefinancialstatementsoftheGroupandoftheCompany,theDirectorsareresponsibleforassessingtheabilityoftheGroupandoftheCompanytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlesstheDirectorseitherintendtoliquidatetheGrouportheCompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.

Auditors’ Responsibilities for the Audit of the Financial Statements

OurobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsoftheGroupandoftheCompanyasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditors’reportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithapprovedstandardsonauditinginMalaysiaandInternationalStandardsonAuditingwillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements. Aspart of an audit in accordancewith approved standards on auditing inMalaysia and International Standards onAuditing,we exerciseprofessionaljudgementandmaintainprofessionalscepticismthroughouttheaudit.Wealso:

• IdentifyandassesstherisksofmaterialmisstatementofthefinancialstatementsoftheGroupandoftheCompany,whetherduetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.

• Obtainanunderstandingofinternalcontrolrelevanttotheauditinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheinternalcontroloftheGroupandoftheCompany.

• EvaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesandrelateddisclosuresmadebytheDirectors.

• ConcludeontheappropriatenessoftheDirectors’useofthegoingconcernbasisofaccountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheabilityoftheGrouporoftheCompanytocontinueasagoingconcern.Ifweconcludethatamaterialuncertaintyexists,wearerequiredtodrawattentioninourauditors’report to the relateddisclosures in thefinancialstatementsof theGroupandof theCompanyor, if suchdisclosuresare inadequate, tomodifyouropinion.Ourconclusionsarebasedontheauditevidenceobtaineduptothedateofourauditors’report.However,futureeventsorconditionsmaycausetheGrouportheCompanytoceasetocontinueasagoingconcern.

• Evaluatetheoverallpresentation,structureandcontentofthefinancialstatementsoftheGroupandoftheCompany,includingthedisclosures,andwhetherthefinancialstatementsoftheGroupandoftheCompanyrepresenttheunderlyingtransactionsandeventsinamannerthatgivesatrueandfairview.

• Obtainsufficientappropriateauditevidence regarding thefinancial informationof theentitiesorbusinessactivitieswithin theGroup toexpressanopiniononthefinancialstatementsoftheGroup.Weareresponsibleforthedirection,supervisionandperformanceofthegroupaudit.Weremainsolelyresponsibleforourauditopinion.

WecommunicatewiththeDirectorsregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.




200

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PETRONAS CHEMICALS

GROUP BERHAD

Wealsoprovide theDirectorswitha statement thatwehavecompliedwith relevant ethical requirements regarding independence, and tocommunicatewiththemallrelationshipsandothermattersthatmayreasonablybethoughttobearonourindependence,andwhereapplicable,relatedsafeguards.

FromthematterscommunicatedwiththeDirectors,wedeterminethosemattersthatwereofmostsignificanceintheauditofthefinancialstatementsoftheGroupandoftheCompanyforthecurrentyearandarethereforethekeyauditmatters.Wedescribethesemattersinourauditors’reportunlesslaworregulationprecludespublicdisclosureaboutthematterorwhen,inextremelyrarecircumstances,wedeterminethatamattershouldnotbecommunicatedinourauditors’reportbecausetheadverseconsequencesofdoingsowouldreasonablybeexpectedtooutweighthepublicinterestbenefitsofsuchcommunication.

Report on Other Legal and Regulatory Requirements

InaccordancewiththerequirementsoftheCompaniesAct,1965inMalaysia,wealsoreportthefollowing:

a) Inouropinion,theaccountingandotherrecordsandtheregistersrequiredbytheActtobekeptbytheCompanyanditssubsidiariesofwhichwehaveactedasauditorshavebeenproperlykeptinaccordancewiththeprovisionsoftheAct.

b) Wehaveconsideredtheaccountsandtheauditors’reportsofthesubsidiariesofwhichwehavenotactedasauditors,whichareindicatedinNote26tothefinancialstatements,beingaccountsthathavebeenincludedintheconsolidatedfinancialstatements.

c) WearesatisfiedthattheaccountsofthesubsidiariesthathavebeenconsolidatedwiththeCompany’sfinancialstatementsareinformandcontentappropriateandproperforthepurposesofthepreparationofthefinancialstatementsoftheGroupandwehavereceivedsatisfactoryinformationandexplanationsrequiredbyusforthosepurposes.

d) TheauditreportsontheaccountsofthesubsidiariesdidnotcontainanyqualificationoranyadversecommentmadeunderSection174(3)oftheAct.

Other Reporting Responsibilities

ThesupplementaryinformationsetoutinNote38isdisclosedtomeettherequirementofBursaMalaysiaSecuritiesBerhadandisnotpartofthefinancialstatements.TheDirectorsareresponsibleforthepreparationofthesupplementaryinformationinaccordancewithGuidanceonSpecialMatterNo.1,DeterminationofRealisedandUnrealisedProfitsorLossesintheContextofDisclosurePursuanttoBursaMalaysiaSecuritiesBerhadListingRequirements, as issuedby theMalaysian Institute ofAccountants ("MIAGuidance") and thedirectiveofBursaMalaysiaSecuritiesBerhad. Inouropinion,thesupplementary informationisprepared, inallmaterialrespects, inaccordancewiththeMIAGuidanceandthedirectiveofBursaMalaysiaSecuritiesBerhad.

Other Matter

ThisreportismadesolelytothemembersoftheCompany,asabody,inaccordancewithSection174oftheCompaniesAct,1965inMalaysiaandfornootherpurpose.Wedonotassumeresponsibilitytoanyotherpersonforthecontentofthisreport.

KPMG PLT Thong Foo Vung(LLP0010081-LCA&AF0758) Approvalnumber:02867/08/2018JCharteredAccountants CharteredAccountant

PetalingJaya,Selangor

Date:20February2017




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Sectionsix

LIST OF PROPERTIES

No.

Name of registered owner/Beneficial owner:

Acquisition date

Existing use

Land area: Age of Plant & building:

NBV as at 31/12/2016:

Lot. no./Leasehold period (sq metre unless

otherwise stated)

(Years) (RM ‘000)

1 PETRONAS Chemicals Derivatives Sdn Bhd, PETRONAS Chemicals Olefins Sdn Bhd and PETRONAS Chemicals Glycols Sdn Bhd (eacha1/3partowner)

H.S.(D)3385,PTNo.10535,MukimKertih,Kemaman,Terengganu

Leaseholdof60years,expiringon29August2060

H.S.(D)3316,PTNo.9015,MukimKertih,Kemaman,Terengganu

Leaseholdof60years,expiringon29August2060

PajakanNegeriNo.Hakmilik7594,No.Lot8068,MukimKertih,Kemaman,Terengganu

Leaseholdof60years,expiringon 29August2060

30.08.2000

30.08.2000

30.08.2000

Industrialland-TNBsub-station

Industrialland-Wastewaterandtreatment substation

Industrialland-Plantforproductionofethylenederivatives

3,886

260,469

611,075

16

16

16

299,432

2 PETRONAS Chemicals Methanol Sdn Bhd

No.205350607,Kg.Rancha-Rancha, WilayahPersekutuanLabuan

Leaseholdfor99years,expiringon31 December 2082

31.8.2004 Industrialland-Plantforproductionofmethanol

14hectares 12 1,363,625

3 PETRONAS Chemicals Methanol Sdn Bhd

No.206291590,Kg.Rancha-Rancha, WilayahPersekutuanLabuan

Leasefor51years,expiringon30 December 2043

01.06.1992 Industrialland-Plantforproductionofmethanolandadministrationoffice

34 acres 25 467,454

4 PETRONAS Chemicals MTBE Sdn Bhd

H.S.(D)9688P.T.No.4538,MukimSungaiKarang,Kuantan,Pahang

Leaseholdfor66years,expiringon14July2058

17.11.1992 Industrialland-PlantforproductionofMTBE

36hectares 24 126,077

202

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PETRONAS CHEMICALS

GROUP BERHAD

No.


Acquisition date

Existing use


NBV as at 31/12/2016:


otherwise stated)

(Years) (RM ‘000)


H.S.(D)34911,No.P.T.15128,MukimSungaiKarang,Kuantan,Pahang

Leaseholdfor99years,expiringon8January2100

09.01.2001 Industrialland-Propanedehydrogenationplant

34 acres 16 493,594


H.S.(D)34912,No.P.T.15129,MukimSungaiKarang,Kuantan,Pahang


09.01.2001 Emergencyresponsebuilding

15 acres 16 6,632

7 Polypropylene Malaysia Sdn Bhd

H.S.(D)9686,No.LotP.T.4536, MukimSungaiKarang,Kuantan,Pahang

Leaseholdfor66years,expiringon14July2058

15.07.1992 Industrialland-Plantforproductionofpolypropylene

20hectares 24 10,426

8 PETRONAS Chemicals Fertiliser (Kedah) Sdn Bhd

PajakanNegeriNo.Hakmilik1010,No.Lot10750BandarGurun,KualaMuda,Kedah

Leaseholdfor99yearsexpiringon22April2102

01.11.1999 Commercial/industrialland-Plantforproductionofureaandammonia

699,100 17 282,384

9 PETRONAS Fertiliser (Kedah) Sdn Bhd

PajakanNegeriNo.Hakmilik3396-3399,No.Lot174-177,Seksyen6,Gurun,KualaMuda,Kedah

Leaseholdfor99yearsexpiringon12 February 2105

01.11.1999 Commercial/industrialland-Plantforproductionofureaandammonia

201,233 17 81,283

List of Properties (Cont’d)

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Sectionsix

No.


Acquisition date

Existing use


NBV as at 31/12/2016:


otherwise stated)

(Years) (RM ‘000)

10 ASEAN Bintulu Fertilizer Sdn Bhd

No.323,Lot35,Block20,KemenalandDistrict,Bintulu,Sarawak

Leaseholdfor99years,expiringon19 February 2083

01.04.1983 Mixedzone/townland-Plantforproductionofureaandammonia

38hectares 34 199,239

11 ASEAN Bintulu Fertilizer Sdn Bhd

No.321,Lot2233-2239,Block26,KemenalandDistrict,Bintulu,Sarawak

Leaseholdfor60years,expiringon8May2046

08.02.2005 Mixedzone/townland-Dwellinghouse

8,298 12 1,428

12 PETRONAS Chemicals Ethylene Sdn Bhd, PETRONAS Chemicals Polyethylene Sdn Bhd


Leaseholdfor51years,expiringon16June2052

02.04.1993 Industrialland-Plantforproductionofethylene/polyethylene

567,800 24 459,446

13 PETRONAS Chemicals Ethylene Sdn Bhd


Leaseholdfor60years,expiringon23October2054

31.05.1995 Industrialland-Storagefacilityforwater

191,200 22 4,762

14 PETRONAS Chemicals Ammonia Sdn Bhd*


Leaseholdfor60years,expiringon19August2060

01.08.2000 Industrialland-Plantforproductionofammoniaandanyotherrelatedgas

98,490 16 315,187

15 PETRONAS Chemicals Ammonia Sdn Bhd

PT15786,Lot5276,MukimKertih,Kemaman,Terengganu


30.12.2011 Industrialland-KIPCSharedFacilitieswhichincludestheadministrative,laboratoryandworkshopbuildings

96,208 5 31,804


204

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PETRONAS CHEMICALS

GROUP BERHAD

No.


Acquisition date

Existing use


NBV as at 31/12/2016:


otherwise stated)

(Years) (RM ‘000)

16

PETRONAS Chemicals LDPE Sdn Bhd


Leaseholdfor60years,expiringon19August2060

20.08.2000 Industrialland-PlantforproductionofLDPE

184,677 16 106,349

17 Kertih Port Sdn Bhd


Leasehold for60years,expiringon5March2060

02.08.2000 Industrialland-OperationsofKertihPort(Jettyandmarinerelatedfacilities)

43,100 16 340,827



Leaseholdfor60years,expiringon5March2060

02.08.2000 Industrialland-Gasandoilpipelines(Reclaimationarealand&CoastalStripLand)

41,400 16 431



Leaseholdfor51years,expiringon16June2052

31.03.1993 Industrialland-administrationcomplexandotherrelatedfacilities.

58,570 24 17,025

20 Vinyl Chloride (Malaysia) Sdn Bhd




Leaseholdfor60years,expiringon18 December 2056

01.09.1998

01.09.1998

Industrialland-IntegratedPVCmanufacturingplant

Industrialland-IntegratedPVCmanufacturingplant

187,958

121,400

18

18

3,911


AR16

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Sectionsix

ANALYSIS OF SHAREHOLDINGS as at 17 February 2017

ShareCapital : RM800,000,000comprising8,000,000,000sharesClassofShares : OrdinarysharesVotingRights : Onevoteperordinaryshare(onapoll)

Size of HoldingsNo. of

Shareholders% of Total

ShareholdersNo. of

Shares% of

Shareholdings

Lessthan100 157 0.91 1,268 0.00

100-1,000 5,865 33.84 5,178,466 0.06

1,001-10,000 8,949 51.64 37,287,379 0.47

10,001-100,000 1,597 9.21 46,575,214 0.58

100,001tolessthan5%ofissuedshares 761 4.39 1,967,142,330 24.59

5%andaboveofissuedshares 2 0.01 5,943,815,343 74.30

Total 17,331 100.00 8,000,000,000 100.00

LIST OF DIRECTORS’ SHAREHOLDINGSAs at 17 February 2017

No. Name No. of Shares% of

Shareholdings

1 MdArifMahmood 20,000 0.00

2 DatukSazaliHamzah - -

3 VimalaVRMenon 20,000 0.00

4 ChingYewChye 20,000 0.00

5 DongSooKim 10,000 0.00

6 DatukTohAhWah - -

7 ZakariaKasah 6,000 0.00

8 FreidaAmat 6,000 0.00

LIST OF MANAGEMENT’S SHAREHOLDINGSAs at 17 February 2017


Shareholdings

1 RashidahAlias 6,000 0.00

2 MohdYusriMohamedYusof 6,000 0.00

3 AkbarMdThayoob 6,000 0.00

4 AbdulAzizOthman 6,000 0.00

5 MohamadIskandarBakeri - -

6 NoorLilyZuriatiAbdullah - -

7 DrRossForrestGilmour - -

8 Datin Zarina Zakaria - -

9 SitiAzlinaAbdLatif - -

10 AhmadZakiDaud - -

206

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PETRONAS CHEMICALS

GROUP BERHAD

Category of Shareholders

No. ofShareholders

% ofShareholders

No. ofShares

% ofShareholdings

Malaysian Foreign Malaysian Foreign Malaysian Foreign Malaysian Foreign

Individual 13,755 128 79.37 0.74 59,587,565 1,119,041 0.75 0.01

BodyCorporate- Bank/FinanceCompanies 86 0 0.49 0 776,262,010 0 9.71 0

- InvestmentTrusts/Foundation/Charities 3 0 0.02 0 470,000 0 0.01 0

- Othertypesofcompanies 247 7 1.43 0.04 10,343,000 84,000 0.13 0

GovernmentAgencies/ Institutions 4 0 0.02 0 1,250,000 0 0.02 0

Nominees 2,388 713 13.78 4.11 6,443,628,305 707,256,079 80.54 8.83

Others 0 0 0 0 0 0 0 0

Total 16,483 848 95.11 4.89 7,291,540,880 708,459,120 91.16 8.84

LIST OF TOP 30 HOLDERS

No. Name No. of shares% of

Shareholdings

1 CIMBGROUPNOMINEES(TEMPATAN)SDNBHDEXEMPTANFORPETROLIAMNASIONALBERHAD 5,148,000,000 64.35

2 CITIGROUPNOMINEES(TEMPATAN)SDNBHDEMPLOYEESPROVIDENTFUNDBOARD 795,815,343 9.95

3 AMANAHRAYATRUSTEESBERHADAMANAHSAHAMBUMIPUTERA 266,062,000 3.33

4 KUMPULANWANGPERSARAAN(DIPERBADANKAN) 244,848,800 3.06

5 CARTABANNOMINEES(ASING)SDNBHDEXEMPTANFORSTATESTREETBANK&TRUSTCOMPANY(WESTCLTOD67) 69,198,100 0.86

6 MALAYSIANOMINEES(TEMPATAN)SENDIRIANBERHADGREATEASTERNLIFEASSURANCE(MALAYSIA)BERHAD(PAR1) 51,798,600 0.65

7 AMANAHRAYATRUSTEESBERHADAMANAHSAHAMWAWASAN2020 49,255,100 0.62

8 HSBCNOMINEES(ASING)SDNBHDBBHANDCOBOSTONFORVANGUARDEMERGINGMARKETSSTOCKINDEXFUND 45,559,022 0.57

9 HSBCNOMINEES(ASING)SDNBHDEXEMPTANFORJPMORGANCHASEBANK,NATIONALASSICIATION(U.S.A) 43,076,125 0.54

10 MAYBANKNOMINEES(TEMPATAN)SDNBHDMAYBANKTRUSTEESBERHADFORPUBLICITTIKALFUND 38,000,000 0.48

11 AMSECNOMINEES(TEMPATAN)SDNBHDMTRUSTEEBERHADFORCIMBISLAMICDALIEQUITYGROWTHFUND(UT-CIMB-DALI) 33,251,500 0.42

12 CARTABANNOMINEES(TEMPATAN)SDNBHDPAMBFORPRULINKEQUITYFUND 32,616,600 0.41

13 AMANAHRAYATRUSTEESBERHADPUBLICISLAMICDIVIDENDFUND 28,731,400 0.36

14 CITIGROUPNOMINEES(TEMPATAN)SDNBHDEMPLOYEESPROVIDENTFUNDBOARD(NOMURA) 27,818,500 0.35

Analysis of Shareholdings (Cont’d)as at 17 February 2017

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Sectionsix

LIST OF TOP 30 HOLDERS (CONTINUED)

No. Name No. of shares% of

Shareholdings

15 CITIGROUPNOMINEES(TEMPATAN)SDNBHDEXEMPTANFORAIABHD 24,038,700 0.30

16 AMANAHRAYATRUSTEESBERHADPUBLICISLAMICSELECTENTERPRISESFUND 23,993,200 0.30

17 CARTABANNOMINEES(ASING)SDNBHDGICPRIVATELIMITEDFORGOVERNMENTOFSINGAPORE(C) 23,634,800 0.30

18 MAYBANKNOMINEES(TEMPATAN)SDNBHDMAYBANKTRUSTEESBERHADFORPUBLICREGULARSAVINGSFUND(N140119490100) 16,467,800 0.21

19 CITIGROUPNOMINEES(ASING)SDNBHDEXEMPTANFORCITIBANKNEWYORK(NORGESBANK14) 15,823,200 0.20

20 AMANAHRAYATRUSTEESBERHADAMANAHSAHAMMALAYSIA 15,540,100 0.19

21 CITIGROUPNOMINEES(TEMPATAN)SDNBHDEMPLOYEESPROVIDENTFUNDBOARD(CIMBPRIN) 15,418,500 0.19

22 PERMODALANNASIONALBERHAD 14,980,200 0.19

23 AMANAHRAYATRUSTEESBERHADPUBLICISLAMICEQUITYFUND 14,821,000 0.19

24 AMANAHRAYATRUSTEESBERHADAMANAHSAHAMDIDIK 14,616,400 0.18

25 MALAYSIANOMINEES(TEMPATAN)SENDIRIANBERHADGREATEASTERNLIFEASSURANCE(MALAYSIA)BERHAD(PAR3) 14,004,900 0.18

26 CITIGROUPNOMINEES(ASING)SDNBHDEXEMPTFORANCITIBANKNEWYORK(NORGESBANK9) 12,665,475 0.16

27 CITIGROUPNOMINEES(ASING)SDNBHDLEGAL&GENERALASSURANCE(PENSIONSMANAGEMENT)LIMITED(A/C1125250001) 12,419,549 0.16

28 CITIGROUPNOMINEES(ASING)SDNBHDUBSAG 12,327,136 0.15

29 HSBCNOMINEES(ASING)SDNBHDEXEMPTANFORJPMORGANCHASEBANK,NATIONALASSOCIATION(JPMELABAIFAPG) 12,182,100 0.15

30 HSBCNOMINEES(ASING)SDNBHDHSBCBKPLCFORABUDHABIINVESTMENTAUTHORITY(TRANG) 11,186,800 0.14


208

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PETRONAS CHEMICALS

GROUP BERHAD


LIST OF SUBSTANTIAL SHAREHOLDERS


Shareholdings

1 PETROLIAMNASIONALBERHADSHAREHELDUNDERCIMBGROUPNOMINEES(TEMPATAN)SDNBHD

5,148,000,000 64.35

2 EMPLOYEESPROVIDENTFUNDBOARDSHAREHELDUNDERCITIGROUPNOMINEES(TEMPATAN)SDNBHD:EMPLOYEESPROVIDENTFUNDBOARD 795,815,343EMPLOYEESPROVIDENTFUNDBOARD(NOMURA) 27,818,500EMPLOYEESPROVIDENTFUNDBOARD(CIMBPRIN) 15,418,500EMPLOYEESPROVIDENTFUNDBOARD(AFFIN-HWG) 8,414,800EMPLOYEESPROVIDENTFUNDBOARD(FTEMPLETON) 7,451,300EMPLOYEESPROVIDENTFUNDBOARD(AMINV) 6,250,500EMPLOYEESPROVIDENTFUNDBOARD(AMUNDI) 4,408,000EMPLOYEESPROVIDENTFUNDBOARD(ABERDEEN) 3,205,000EMPLOYEESPROVIDENTFUNDBOARD(F.TEMISLAMIC) 1,870,600EMPLOYEESPROVIDENTFUNDBOARD(ASIANISLAMIC) 1,547,100EMPLOYEESPROVIDENTFUNDBOARD(ABERISLAMIC) 1,495,200EMPLOYEESPROVIDENTFUNDBOARD(ARIM) 1,050,000

795,815,343 9.95

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Sectionsix

CORPORATE DIRECTORY

WHOLLY OWNED SUBSIDIARIES

1. PETRONAS Chemicals Ammonia Sdn Bhd KompleksPentadbiran PetrokimiaPETRONAS KM105,JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305000 Fax : +6098305222

2. PETRONAS Chemicals Derivatives Sdn Bhd AdministrationBuilding PETRONASPetroleumIndustryComplex KM106,JalanKualaTerengganu-Kuantan 24300Kertih TerengganuDarulIman Tel : +6098307700 Fax : +6098307759

3. PETRONAS Chemicals Fertiliser Kedah Sdn Bhd KM3,JalanJeniang P.O.Box22 08300Gurun

KedahDarulAman Tel : +6044666666 Fax : +6044685200

4. PETRONAS Chemicals Fertiliser Sabah Sdn Bhd WDT32,PETRONASOffice SAMURProject 89857,Sipitang Sabah Tel : +6087813872 Fax : +6087813852

6. PETRONAS Chemicals Glycols Sdn Bhd AdministrationBuilding, PETRONASPetroleumIndustryComplex KM106,JalanKualaTerengganu-Kuantan 24300Kertih TerengganuDarulIman Tel : +6098307700 Fax : +6098307759

7. PETRONAS Chemicals Marketing Sdn Bhd Level19,Tower2,PETRONASTwinTowers KualaLumpurCityCentre 50088KualaLumpur Tel : +60323315000 Fax : +60323311747

8. PETRONAS Chemicals Marketing (Labuan) Ltd Level19,Tower2,PETRONASTwinTowers KualaLumpurCityCentre 50088KualaLumpur Tel : +60323315000 Fax : +60323311747

9. PCM (Thailand) Company Limited 5thFloor,BangkokCityTower 179SouthSathornRoad KwaengTungmahamek KhetSathornBangkok 10120Thailand Tel : +6626795600 Fax : +6626795511

10. PCM (China) Company Limited Room10-011,10th Floor No.1000LujiazuiRingRoad HangSengBankTower PudongNewArea Shanghai200120

China Tel : +862168871445 Fax : +86211445ext211

11. PETRONAS Chemicals Methanol Sdn Bhd KawasanPerindustrianRancha-Rancha P.O.Box80079 87010FederalTerritoryLabuan Tel : +6087594000 Fax : +6087594979

12. PETRONAS Chemicals MTBE Sdn Bhd Lot111/112 KawasanPerindustrianGebeng 26080Kuantan PahangDarulMakmur Tel : +6095856700 Fax : +6095834090/4743

13. PETRONAS Chemicals Polyethylene Sdn Bhd Lot3834 KawasanBukitTengah,KM105 JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098302000 Fax : +6098273940

14. Kertih Port Sdn Bhd Lot3633,KawasanBukitTengah KM105,JlnKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305648/5796 Fax : +6098305618/5623/5639

15. Polypropylene Malaysia Sdn Bhd Lot111/112 KawasanPerindustrianGebeng 26080Kuantan PahangDarulMakmur Tel : +6095856700 Fax : +6095834090/4743

210

Sectionsix

PETRONAS CHEMICALS

GROUP BERHAD

16. Vinyl Chloride (M) Sdn Bhd Aras1,KompleksPentadbiranPetrokimiaPETRONAS Km105JalanKuantan-KualaTerengganu 24300,KertehKemaman TerengganuDarulIman Tel : +6098305000 Fax : +60323311747

17. PRPC Polymers Sdn Bhd PRPC Glycols Sdn Bhd PRPC Elastomers Sdn Bhd Tower1,PETRONASTwinTowers KualaLumpurCityCentre 50088KualaLumpur Tel : +60328582174 Fax : +60328582444

18. PT PCM Kimia Indonesia Menara165,Lantai14 J1.TBSimatupangKav1 CilandakTimur JakartaSelatan 12560Indonesia Tel : +622129406682 Fax : +622129406683

PARTLY OWNED SUBSIDIARIES

19. PETRONAS Chemicals Olefins Sdn Bhd AdministrationBuilding PETRONASPetroleumIndustryComplex KM106,JalanKualaTerengganu-Kuantan 24300Kertih TerengganuDarulIman Tel : +6098307700 Fax : +6098307759

20. PETRONAS Chemicals Ethylene Sdn Bhd Lot3834,KawasanBukitTengah KM105,JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098302000 Fax : +6098273940

21. PETRONAS Chemicals Aromatics Sdn Bhd c/oPETRONASPenapisan(T)SdnBhd KM105JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098303007 Fax : +6098303188

22. ASEAN Bintulu Fertilizer Sdn Bhd KM18,JalanTanjungKidurong P.O.Box482 97008Bintulu,Sarawak Tel : +6086231000/232000 Fax : +6086251043

23. PETRONAS Chemicals LDPE Sdn Bhd Lot9717,PETRONASPetroleumIndustryComplex KM105,JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305068 Fax : +6098305858/5990

24. PCM Chemical India Pvt Ltd 704,TolstoyHouse 14-15,TolstoyMarg NewDelhi-110001 Tel : +911123738715 Fax : +911123738712

JOINT VENTURES

25. Kertih Terminals Sdn Bhd Tingkat1,KompleksPentadbiranKPSB Lot3633KawasanBukitTengah KM105,JalanKuantan-KualaTerengganu 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305788 Fax : +6098305665

26. BP PETRONAS Acetyls Sdn Bhd KompleksPentadbiran PetrokimiaPETRONAS 24300Kertih,Kemaman TerengganuDarulIman Tel : +6098305300 Fax : +6098305321

ASSOCIATES

27. BASF PETRONAS Chemicals Sdn Bhd JalanGebeng2/1 KawasanPerindustrianGebeng 26080Kuantan PahangDarulMakmur Tel : +6095855000 Fax : +6095834623

28. Idemitsu SM (Malaysia) Sdn Bhd PLO408,OffJalanPekeliling PasirGudangIndustrialEstate 81700PasirGudang JohorDarulTakzim Tel : +6072525350 Fax : +6072528281

29. Malaysian NPK Fertilizer Sdn Bhd Batu2,JalanJeniang P.O.Box24 08300Gurun KedahDarulAman Tel : +6044684075 Fax : +6044684619

Corporate Directory (Cont’d)

AR16

211

Sectionsix

NOTICE OF ANNUAL GENERAL MEETING

Agenda 1. ToreceivetheAuditedFinancialStatementsforthefinancialyearended31December2016togetherwiththeReports

oftheDirectorsandAuditorsthereon.

Please refer to Explanatory Note A. 2. Tore-electthefollowingDirectorswhoretirebyrotationpursuanttoArticle93oftheCompany’sConstitutionand

beingeligible,offersthemselvesforre-election:

a) ChingYewChyeb) DatukTohAhWah

Please refer to Explanatory Note B 3. ToapproveDirectors’ feesofup toRM1.5millionwitheffect from1January2017until thenextAnnualGeneral

MeetingoftheCompanypayabletoNon-ExecutiveDirectors.

Please refer to Explanatory Note C.

4. To approve re-appointment of KPMGPLT, as Auditor of the Company for the ensuing year and to authorise theDirectorstofixtheirremuneration.

Please refer to Explanatory Note D.

5. Totransactanyotherbusinessofwhichduenoticehasbeengiven.

By Order of the Board

Noor Lily Zuriati Abdullah (LS0010101) Kang Shew Meng (MAICSA 0778565)Company Secretaries

KualaLumpur28March2017

(Resolution1)(Resolution2)

(Resolution3)

(Resolution4)

NOTICE IS HEREBY GIVEN THAT the19thAnnualGeneralMeetingoftheCompanywillbeheldatTamingsariBallroom,TheRoyaleChulanHotelKualaLumpur,5JalanConlay,50450KualaLumpur,MalaysiaonWednesday,26thApril2017at10.30a.m.totransactthefollowingbusinesses:

212

Sectionsix

PETRONAS CHEMICALS

GROUP BERHAD

Notes:-1. OnlydepositorswhosenamesappearintheRecordofDepositorsasatTuesday,18April2017shallberegardedasmembersandentitledto

attend,speakandvoteattheMeeting.

2. AmemberoftheCompanywhoisentitledtoattendandvoteatthemeetingisentitledtoappointnotmorethantwoproxiestoattendandvoteinhis/herstead.AproxymaybutneednotbeamemberoftheCompany,anadvocate,anapprovedcompanyauditor,orapersonapprovedbytheRegistrar.

WhereamemberoftheCompanyappointstwoproxies,theappointmentshallbeinvalidunlessthememberspecifiestheproportionofhisshareholdingstoberepresentedbyeachproxy.

3. WhereamemberoftheCompanyisanauthorisednomineeasdefinedundertheSecuritiesIndustry(CentralDepositories)Act,1991,itmayappointatleastoneproxybutnotmorethantwoproxiesinrespectofeachsecuritiesaccountitholdswithordinarysharesoftheCompanystandingtothecreditofthesaidsecuritiesaccount.

4. Theinstrumentappointingaproxyshallbeinwritingunderthehandsoftheappointororofhisattorneydulyauthorisedinwritingoriftheappointorisacorporation,eitherunderitscommonseal,orunderthehandofitsofficeroritsdulyauthorisedattorney.

5. Iftheinstrumentappointingaproxyissignedunderthehandofanofficerdulyauthorised,itshouldbeaccompaniedbyastatementreading“signed as authorised officer under AuthorisationDocumentwhich is still in force, no notice of revocation having been received”. If theinstrumentappointingaproxyissignedbyanattorneydulyappointedunderapowerofattorney,itshouldbeaccompaniedbyastatementreading“signedunderPowerofAttorneywhichisstill inforce,nonoticeofrevocationhavingbeenreceived”.AcopyoftheAuthorisationDocumentor thePowerofAttorney,whichshouldbevalid inaccordancewith the lawsof the jurisdiction inwhich itwascreatedand isexercised,shouldbeenclosedwiththeinstrumentappointingaproxy.

6. TheinstrumentappointingaproxymustbedepositedattheofficeoftheCompany’sShareRegistrar,SymphonyShareRegistrarsSdnBhd,Level6,SymphonyHouse,PusatDaganganDana1,JalanPJU1A/46,47301PetalingJaya,SelangorDarulEhsan,Malaysiaatleast48hoursbeforethemeeting,orifthemeetingisadjournedatleast48hoursbeforethetimefixedfortheadjournedmeeting.

7. Explanatory Notes

Note A TheauditedfinancialstatementsarelaidbeforetheshareholderspursuanttotheprovisionsofSection244(2)(a)oftheCompaniesAct,2016.

Thesameisfordiscussionandnotputforwardforvoting.

Note B Re-election of Directors who retire in accordance with Article 93 of the Company’s Constitution

1. Articles93oftheCompany’sConstitutionprovidesthatone-thirdoftheDirectorsforthetimebeing,oriftheirnumberisnotamultipleof three, thenumbernearest toone-thirdwithaminimumofone,shall retire fromofficeandanelectionofDirectorsshall takeplacePROVIDEDALWAYSthateachDirectorshallretireatleastonceineverythreeyearsbutshallbeeligibleforre-election.ADirectorretiringatameetingshallretainofficeuntilthecloseofthemeetingwhetheradjournedornot.WithcurrentBoardsizeofeight,twoDirectorsaretoretireinaccordancewithArticle93oftheCompany’sConstitution.

2. TheNominationandRemunerationCommittee(NRC)oftheCompanydeterminestheeligibilityofeachdirectorstandingforre-electionattheAGMbasedontheperformanceoftheDirectors,takingintoaccounttheresultsoftheirlatestBoardEvaluation,contributiontotheBoardthroughtheirskills,experience,strengthsandqualities,levelofindependenceandabilitytoactinthebestinterestoftheCompanyindecision-making.

TheprofilesoftheretiringDirectorsaresetoutintheProfileoftheBoardofDirectorsonpages29and31,ofthe2016AnnualReport.TheBoardendorsedtheNRC’srecommendationthattheDirectorswhoretireinaccordancewithArticle93oftheCompany’sConstitutionareeligibletostandforre-election.

Notice of Annual General Meeting (Cont’d)

AR16

213

Sectionsix

InviewthattherewasnoDirectorappointedduringthefinancialyearunderreview,thereisnoretirementpursuanttoArticle99oftheCompany’sConstitution.

Note C PursuanttoSection230(1)oftheCompaniesAct2016,thefeesofthedirectors,andanybenefitspayabletothedirectorsincludingany

compensationforlossofemploymentofadirectororformerdirectorofapubliccompanyoralistedcompanyanditssubsidiaries,shallbeapprovedatageneralmeeting.

ThefeesstructureoftheNon-ExecutiveDirectors(NEDs)oftheCompanyisasfollows:• MonthlyfixedfeesfordutiesasDirector/Chairman;• MeetingallowanceforeachBoard/BoardCommitteeattended;and• DirectorsandOfficersLiabilityinsurance.

TheDirectors’feesandmeetingallowanceforMdArifMahmoodandZakariaKasahbeingtheNon-IndependentNon-ExecutiveDirectorswhoarealsoemployeesofPetroliamNasionalBerhad(PETRONAS)andholdingpositionsofVicePresidentandabovearepaiddirectlytoPETRONAS.

Theshareholders,atthe15thAnnualGeneralMeetingheldon22May2013,hasapprovedtheannuallimitoftheDirectors’feesuptoRM1.5millionfromfinancialyearcommencing1January2013.TheactualDirectors’feesamountpaidtoNEDsforthefinancialyearended31December2016isRM1,001,500.

TheDirectors’ feesfrom1January2017until theconclusionof thenextAnnualGeneralMeetingareestimatednot toexceedRM1.5million.TheBoardwillseekshareholders’approvalatthenextAGMintheeventtheDirectors’feesproposedareinsufficient.

DetailsofthefeespaidtotheDirectorsforthefinancialyearended31December2016aredisclosedonpage102oftheStatementon

CorporateGovernanceinthe2016AnnualReport.

Note D TheBoardatitsmeetingheldon20February2017recommendedthere-appointmentofKPMGPLTasexternalAuditorsoftheCompany

forthefinancialyearending31December2017forapprovaloftheshareholders.

KPMGPLThasmetthecriteriaprescribedbyParagraph15.21oftheMainMarketListingRequirementsofBursaMalaysiaSecuritiesBerhad.

KPMGhadconverted its legalentitystatus fromUnlimitedLiabilityPartnershippursuant toPartnershipAct1961 toLimitedLiabilityPartnershippursuanttoSection29oftheLimitedLiabilityPartnershipsAct2012(LLPAct2012)effective27December2016.Accordingly,KPMGhadbeenregisteredinthenameofKPMGPLT.Inthisinstance,PLTmeans“PerkongsianLiabilitiTerhad”.TherewasnochangetothePartnersservingtheCompany.

Inanyevent,pursuanttoSection36oftheLLPAct2012anyagreements/engagementsalreadymadebetweentheCompanyanditsGroupandKPMGwillcontinuetobeinforceasifKPMGPLTwereapartytotheagreements.Accordingly,allengagementletterssignedwithKPMGcontinuetobeinforceuntilthesearesuperseded.

Other Information TheCompanyhasengagedindependentscrutineerstocount,auditandvalidatethevotesforeachproposalpresentedtoshareholders.

Notice of Annual General Meeting (Cont’d)

214

Sectionsix

PETRONAS CHEMICALS

GROUP BERHAD

ADMINISTRATIVE DETAILSPETRONAS CHEMICALS GROUP BERHAD 19TH ANNUAL GENERAL MEETING

Registration

1) Registrationwillstartat8.15a.m.on26April2017infrontoftheTamingsariBallroom,TheRoyaleChulanHotelKualaLumpur,Malaysia.

2) PleaseproduceyouroriginalIdentityCard(IC)totheregistrationstaffforverification.PleasemakesureyoucollectyourICthereafter.

3) Uponverification,youarerequiredtowriteyournameandsignontheattendancelistplacedontheregistrationtable.

4) Youwillalsobegivenanidentificationtag.Nopersonwillbeallowedtoenterthemeetingroomwithouttheidentificationtag.Therewillbenoreplacementintheeventthatyouloseormisplacetheidentificationtag.

5) Nopersonwillbeallowedtoregisteronbehalfofanotherperson,evenwiththeoriginalICofthatperson.

6) Theregistrationcounterwillhandleonlyverificationofidentityandregistration.

Help Desk

7) PleaseproceedtotheHelpDeskforanyclarificationorenquiry.

8) TheHelpDeskwillhandlerevocationofproxy’sappointment.

Parking

9) Pleasetakenotethattransportationisatattendees’owncost.

10) ThereisnodedicatedparkingspaceforAGMattendees.However,youmayparkyourvehicleatparkingarealocatedattheRoyaleChulanHotelKualaLumpur,5JalanConlay,50450KualaLumpur,Malaysia.

Annual Report

11) PCG’sAnnualReportforFinancialYear2016isavailableat:

http://www.petronaschemicals.com http://www.bursamalaysia.com

PROXY FORMPETRONASCHEMICALSGROUPBERHAD(COMPANYNO:459830-K)

No.ofOrdinarySharesHeld

CDSAccountNo.

I/We................................................................................................................................................................................................................................(Full Name In Capital Letters)

of....................................................................................................................................................................................................................................(Full Address)

beingaMember/Members*ofPETRONASCHEMICALSGROUPBERHAD,doherebyappoint:

FullName(inBlock) NRIC/PassportNo. ProportionofShareholdings

No.ofShares %

Address

and/or*

FullName(inBlock) NRIC/PassportNo. ProportionofShareholdings

No.ofShares %

Address

orfailinghim/her,theChairmanoftheMeeting,asmy/our*proxytovoteforme/us*andonmy/our*behalfatthe19thAnnualGeneralMeetingoftheCompanytobeheldatTamingsari Ballroom, The Royale Chulan Hotel Kuala Lumpur, 5 Jalan Conlay, 50450 Kuala Lumpur, Malaysia on Wednesday,26April2017at10.30a.m.andatanyadjournmentthereof.

Pleaseindicatewithan“X”inthespaceprovidedbelowwhetheryouwishyourvotestobecastfororagainsttheResolutions.Intheabsenceofspecificdirections,yourproxywillvoteorabstainfromvotingashe/shethinksfit.

No. Resolutions For Against

1. Re-electionofChingYewChyeasaDirector.

2. Re-electionofDatukTohAhWahasaDirector.

3. Directors’feesofuptoRM1.5millionwitheffectfrom1January2017untilthenextAnnualGeneralMeetingoftheCompanypayabletoNon-ExecutiveDirectors.

4. Re-appointmentofKPMGPLTasAuditors.

PleaserefertotheNoticeofAnnualGeneralMeetingforfulldetailsoftheproposedResolutions.

Aswitnessmy/ourhandthis................................. day................................. 2017.

......................................................................

Signature/CommonSealofShareholder(s)*deletewhichevernotapplicable

Notes:-

1. OnlydepositorswhosenamesappearintheRecordofDepositorsasatTuesday,18April2017shallberegardedasmembersandentitledtoattend,speakandvoteattheMeeting.

2. AmemberoftheCompanywhoisentitledtoattendandvoteatthemeetingisentitledtoappointnotmorethantwoproxiestoattendandvoteinhis/herstead.AproxymaybutneednotbeamemberoftheCompany,anadvocate,anapprovedcompanyauditor,orapersonapprovedbytheRegistrar.

WhereamemberoftheCompanyappointstwoproxies,theappointmentshallbeinvalidunlessthememberspecifiestheproportionofhisshareholdingstoberepresentedbyeachproxy.

3. WhereamemberoftheCompanyisanauthorisednomineeasdefinedundertheSecuritiesIndustry(CentralDepositories)Act,1991,itmayappointatleastoneproxybutnotmorethantwoproxiesinrespectofeachsecuritiesaccountitholdswithordinarysharesoftheCompanystandingtothecreditofthesaidsecuritiesaccount.

4. Theinstrumentappointingaproxyshallbeinwritingunderthehandsoftheappointororofhisattorneydulyauthorisedinwritingoriftheappointorisacorporation,eitherunderitscommonseal,orunderthehandofitsofficeroritsdulyauthorisedattorney.

5. If the instrumentappointingaproxy issignedunder thehandofanofficerdulyauthorised, it shouldbeaccompaniedbyastatement reading “signedasauthorisedofficerunderAuthorisationDocumentwhichisstill inforce,nonoticeofrevocationhavingbeenreceived”. Iftheinstrumentappointingaproxyissignedbyanattorneydulyappointedunderapowerofattorney,itshouldbeaccompaniedbyastatementreading“signedunderPowerofAttorneywhichisstillinforce,nonoticeofrevocationhavingbeenreceived”.AcopyoftheAuthorisationDocumentorthePowerofAttorney,whichshouldbevalidinaccordancewiththelawsofthejurisdictioninwhichitwascreatedandisexercised,shouldbeenclosedwiththeinstrumentappointingaproxy.

6. TheinstrumentappointingaproxymustbedepositedattheofficeoftheCompany’sShareRegistrar,SymphonyShareRegistrarsSdnBhd,Level6,SymphonyHouse,PusatDaganganDana1,JalanPJU1A/46,47301PetalingJaya,SelangorDarulEhsan,Malaysiaatleast48hoursbeforethemeeting,orifthemeetingisadjournedatleast48hoursbeforethetimefixedfortheadjournedmeeting.

foldhere

foldhere

Symphony Share Registrars Sdn BhdLevel6,SymphonyHousePusatDaganganDana1JalanPJU1A/4647301PetalingJayaSelangorDarulEhsanMalaysia

AffixStamphere

www.petronaschemicals.com

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