GROUP CORPORATE STRUCTURE as at 5 May 2009

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2 CONTENTS Group Corporate Structure 2-3 Corporate Vision And Mission 4 Corporate Logo 4 Corporate Information 5 Board Of Directors 6-7 Directors Profile 8-9 Senior Management Team Chairman s Statement Group Managing Director / Chief Executive s Message Group Five-Year Financial Statistics, Group Financial Highlights 19 Corporate Social Responsibility 20 Flash Back Statement on Internal Control Corporate Governance Statement Audit Committee Report Financial Statements List Of Properties 116 Analysis Of Shareholdings 117 Substantial Shareholder 117 List Of Directors Interests 118 List Of Thirty Largest Securities Account Holders Notice Of Annual General Meeting Form of Proxy 125 1

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4 GROUP CORPORATE STRUCTURE as at 5 May

5 CORPORATE VISION AND MISSION VISION To be a world class energy provider for the Region, with competitive cost structure and organisational excellence to sustain long term shareholders value. A source of pride and admiration for employees, stakeholders and investors alike. MISSION Sarawak Energy is dedicated to the demonstration of the corporate concept of linked prosperity. Our mission comprises:- 1. To efficiently generate, transmit and distribute electricity to promote quality life and sustain economic growth in the State and Region; 2. To operate the Company on a sound financial basis of profitable growth, increasing shareholders value and creating career opportunities and providing rewards based on performance to our employees; 3. To establish Organisational Trust by ensuring that all structures and systems are in harmony with core values and behaviours; 4. Recognition on the role that business plays in society by initiating innovative ways to improve the lives of the community. The logo, inspired by the vibrant yellow-coloured lightning symbolising power and energy and the three horizontally placed line-pillars incorporating the Sarawak State s colours, represent the core business of the Company that is power generation, transmission and distribution. This new logo defines Sarawak Energy Berhad. The yellow lightning denotes the letter S for Sarawak with its unique strike pose, signifying electricity and power generation which is Sarawak Energy s main core business activity thus thrusting Sarawak Energy Group as the State s flagship energy and utility group. The three identical horizontal line-pillars symbolise the letter E for Energy depicting power transmission and the three-phases of electricity interpreted as the harmonious unison of a smart-partnership between Sarawak Energy and the stakeholders via-avis the government and the public, in generating power and electricity needs for the State and Region at large, hence, complementing the development of Sarawak. The red line-pillar symbolises energy, power, strength as well as determination. These epitomize Sarawak Energy s goals and endeavours in the State s economic growth and in pursuing regional and global power needs. The yellow line-pillar being the State s dominant colour, is depicted on the middle line-pillar and denotes leadership and professionalism of Sarawak Energy s role as a stable and responsible corporate citizen playing a pivotal role in Sarawak s rapid pace of development. The black line-pillar represents integrity, commitment, responsibility and resources, which are vital qualities for any aspect of a sustainable corporate and individual life, and we at Sarawak Energy always value these qualities and strive to inculcate these significant traits in our undertakings. 4

6 CORPORATE INFORMATION DIRECTORS Datuk Abdul Hamed Bin Sepawi Chairman, Independent Non-Executive Director Tan Sri Datuk Amar (Dr) Haji Abdul Aziz Bin Dato Haji Husain Group Managing Director / Chief Executive Non-Independent Executive Director Registered Office / Head Office 4th Floor, Wisma SESCO Petra Jaya Kuching, SARAWAK Tel: Fax: info@sarawakenergy.com.my Datuk Amar Wilson Baya Dandot Non-Independent Non-Executive Director Senator Dato Haji Idris Bin Haji Buang Senior Independent Non-Executive Director Datuk Fong Joo Chung Non-Independent Non-Executive Director Dato Nordin Bin Baharuddin Independent Non-Executive Director SHARE REGISTRAR Symphony Share Registrars Sdn. Bhd. Level 26, Menara Multi-Purpose Capital Square No. 8, Jalan Munshi Abdullah Kuala Lumpur Bursa Malaysia Stock Number Sarawak 2356 AUDIT COMMITTEE Dato Nordin Bin Baharuddin - Chairman Datuk Amar Wilson Baya Dandot Senator Dato Haji Idris Bin Haji Buang NOMINATION & REMUNERATION COMMITTEE Datuk Abdul Hamed Bin Sepawi - Chairman Tan Sri Datuk Amar (Dr) Haji Abdul Aziz Bin Dato Haji Husain Senator Dato Haji Idris Bin Haji Buang International Securities Identification Number (ISIN) MYL Auditors Ernst & Young Principal Financial Institutions RHB Bank Berhad EON Bank Berhad AmInvestment Bank Berhad SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR Senator Dato Haji Idris Bin Haji Buang COMPANY SECRETARY Aisah Eden (LS 03629) 5

7 BOARD OF DIRECTORS TAN SRI DATUK AMAR (DR) HAJI ABDUL AZIZ BIN DATO HAJI HUSAIN Group Managing Director / Chief Executive Non-Independent Executive Director DATUK ABDUL HAMED BIN SEPAWI Chairman, Independent Non-Executive Director DATO HAJI IDRIS BIN HAJI BUANG Senior Independent Non-Executive Director 6

8 DATO NORDIN BIN BAHARUDDIN Independent Non-Executive Director DATUK AMAR WILSON BAYA DANDOT Non-Independent Non-Executive Director DATUK FONG JOO CHUNG Non-Independent Non-Executive Director 7

9 DIRECTORS PROFILE DATUK ABDUL HAMED BIN SEPAWI Chairman, Independent Non-Executive Director a Malaysian aged 60, joined the Board of Sarawak Energy Berhad and appointed Chairman of the Company on 27 June He is an Independent Non-Executive Director of the Company and attended six out of the seven Board meetings held in year Datuk Abdul Hamed is currently the Chairman of the Nomination & Remuneration Committee. Datuk Abdul Hamed holds a Bachelor of Science from University of Malaya in 1971 and pursued his undergraduate studies in Forestry at the Australia National University from 1974 to He also holds a Masters degree in Forests Products Utilisation from Oregon State University, United States. He was awarded the title of Panglima Gemilang Bintang Kenyalang on 11 September 1999, and Sarawak Entrepreneur of the Year He was a finalist for the Entrepreneur of the Year Malaysia Award At present, Datuk Abdul Hamed is also the Chairman of Syarikat SESCO Berhad, Naim Holdings Berhad, Executive Chairman of Ta Ann Holdings Berhad, Director of Sarawak Plantation Berhad and sits on the boards of several other private limited companies. TAN SRI DATUK AMAR (DR) HAJI ABDUL AZIZ BIN DATO HAJI HUSAIN Group Managing Director / Chief Executive Non-Independent Executive Director a Malaysian aged 58, joined the Board of Sarawak Energy Berhad on 27 June He was appointed as the Group Managing Director of the Company on 1 March 2007 pursuant to his retirement as the State Secretary of Sarawak. He is also an Independent Executive Director of the Company and attended all of the seven Board meetings held in the year He is also a Member of the Nomination & Remuneration Committee. Tan Sri Datuk Amar (Dr) Haji Abdul Aziz holds a Bachelor in Economics majoring in Business Administration from the University of Malaya (1973) and a Masters in Business Administration majoring in Finance in 1978 from Syracuse University, New York. He also attended various training programmes during his public service career including the Project Planning and Management Course in INTAN (1973), the Financial Management Course in Banff School of Management, Alberta (1981), the Wolfson Course in Cambridge University, England (1991), the Human Resource and Personnel Management, University of Pittsburgh (1993) and the Management Development Program in Harvard University Business School, Boston (1994). Besides sitting on the boards of subsidiaries/associates of the Sarawak Energy Group, Tan Sri Datuk Amar (Dr) Haji Abdul Aziz is also a Chairman in Eksons Corporation Berhad and several other private limited companies. DATUK AMAR WILSON BAYA DANDOT Non-Independent Non-Executive Director a Malaysian aged 57, joined the Board of Sarawak Energy Berhad on 31 January He is a Non-Independent Non- Executive Director of the Company and attended six out of the seven Board Meetings held in the year He is currently a Member of the Audit Committee. Datuk Amar Wilson has a degree in Bachelor of Economics from the University of Western Australia and a Masters degree in Development Economics from University of Sussex, United Kingdom. He has also attended a Senior Executive Fellows Programme at JFK School of Government, Harvard University. He first joined Sarawak State Government Office as the Assistant Secretary of Agriculture Sector State Planning Unit in He was an Economist of the International Pepper Community, Jakarta in , and later as Principal Assistant Secretary in the State Planning Unit in He was appointed as Project Director, IADP Kalaka, Saribas, Ministry of Agriculture Malaysia in In 1990, he was appointed as Deputy Director, State Planning Unit, Sarawak. He later assumed the position of Director, State Planning Unit in 1995 and Deputy State Secretary (Planning & Development) in He was then promoted as Deputy State Secretary (Human Resource) and was subsequently appointed as Deputy State Secretary (Administration, Security & Protocol) at the Chief Minister Department. On 1 January 2007, he was appointed as Sarawak State Secretary, a position he held until today. Datuk Amar Wilson also sits on the boards of several subsidiaries of the Sarawak Energy Group and other private limited companies and organisations wherein the State Government of Sarawak has interests. 8

10 DIRECTORS PROFILE DATUK FONG JOO CHUNG Non-Independent Non-Executive Director a Malaysian aged 59, joined the Board of Sarawak Energy Berhad on 31 January He is a Non-Independent Non- Executive Director of the Company and attended six out of the seven Board Meetings held in the year Datuk Fong obtained his Bachelor degree in Law (LLB) (Hons.) from the University of Bristol, United Kingdom in June, He was called to the English Bar by the Honourable Society of Lincoln s Inn in November, Datuk Fong began his professional career in January, 1972 as an advocate, practicing under the firm of Reddi & Co. in Kuching. He retired from the firm in July, He was appointed as the State Attorney-General, Sarawak in August His service as State Attorney-General, Sarawak ended on 31 December, 2007, but he has been retained by the Sarawak Government in an advisory capacity and represented the Government in Court as State Legal Counsel. He served as Councilor with the Kuching Municipal Council and, later, the Council of Kuching City South, from October 1981 until March He was President of the Advocates Association of Sarawak from 1982 until 1984 and was a founder member of the Association. Datuk Fong was conferred the award of Panglima Jasa Negara (PJN) by the Yang di-pertuan Agong, Malaysia in 1999 and Panglima Gemilang Bintang Kenyalang (PGBK) by the Yang di-pertua Negeri, Sarawak in Both awards carry the title Datuk. At present, Datuk Fong also sits on the boards of several other subsidiaries of the Sarawak Energy Group besides holding directorship in Encorp Berhad, Bintulu Port Holdings Berhad, Universal Cable (Sarawak) Sdn. Bhd., Borneo Development Corporation (Sarawak) Sdn. Bhd., Harwood Timber Sdn. Bhd. and Permodalan Assar Sdn. Bhd. He is the President of the Kidney Association of Sarawak, a Trustee of the Sarawak Heart Foundation and a member of the University Council, Curtin University, Miri Campus. SENATOR DATO HAJI IDRIS BIN HAJI BUANG Senior Independent Non-Executive Director a Malaysian aged 55, joined the Board of Sarawak Energy Berhad on 24 June He is an Independent Non-Executive Director of the Company and attended five out of the seven Board Meetings held in the year He is currently a member of the Nomination & Remuneration Committee and the Audit Committee. Senator Dato Haji Idris holds a Bachelor of Laws Degree with Honours from University Buckingham, England and a degree of utter Barrister from the Lincoln s Inn, London. He is the proprietor of Idris-Buang & Associates (since 1985), a legal firm located in Kuching, Sarawak. He was formerly the Chief Political Secretary to YAB Chief Minister of Sarawak, a position he holds from August 2000 to August He was appointed Senator of the Dewan Negara on 28 November Senator Dato Haji Idris also sits on the boards of Hock Seng Lee Berhad where he is an Independent Non-Executive Chairman/Director. He also sits on the board of Amanah Saham Sarawak Berhad and several other private limited companies. DATO NORDIN BIN BAHARUDDIN Independent Non-Executive Director a Malaysian aged 59, joined the Board of Sarawak Energy Berhad on 9 September He is an Independent Non- Executive Director of the Company and attended all the seven Board Meetings held in the year He is currently the Chairman of the Audit Committee. Dato Nordin holds a Bachelor of Science in Economics with Honours from London School of Economics & Political Science. He is a Chartered Accountant with the Malaysian Institute of Accountant (MIA) and a Fellow of Institute of Chartered Accountants in England and Wales. Dato Nordin is active in local professional accounting bodies through his membership of the Malaysian Institute of Certified Public Accountants (MICPA) where he is President and is a Council Member, Chairman of the Disciplinary Committee and Audit Committee of Council and a member of the Financial Reporting Standards Implementation Committee of MIA. He served for two terms on the Malaysian Financial Reporting Foundation and was also a member of the Working Group on Corporate Governance for The Islamic Financial Services Board. Currently Dato Nordin is the Chairman of KUB Malaysia Berhad and his other directorships include Scomi Engineering Berhad, Visdynamic Holdings Berhad and Malaysian Rating Corporation Berhad where he is also the Chairman of the Audit Committee. He also sits on several other private limited companies. 9

11 SENIOR MANAGEMENT TEAM From left to right: Lu Yew Hung General Manager (Network) Phang Chung Tchet General Manager (Engineering & Construction) Hj. Wan Mahmud Bin Wan Abdullah Group General Manager (Internal Audit & Risk Management) Zuraimy Bin Kushaili Group General Manager (Corporate Affairs) Danice Endawie Ita Chief Operating Officer Tan Sri Datuk Amar (Dr) Haji Abdul Aziz Bin Dato Haji Husain Group Managing Director / Chief Executive 10

12 SENIOR MANAGEMENT TEAM From left to right: Aisah Binti Eden Group General Manager (Human Resource) / Group Company Secretary Hj. Sulaiman Bin Hj. Abd. Hamid Group General Manager (Finance) Yong Kiong Choon General Manager (Hydropower Generation) Victor Wong General Manager (Transmission) Stell Sindau General Manager (Gas Power Generation) James Ung General Manager (Coal Power Generation) Ong Chiang Ann General Manager (Sarawak Energy Services Sdn Bhd) 11

13 CHAIRMAN S STATEMENT DATUK ABDUL HAMED BIN SEPAWI Chairman, Independent Non-Executive Director 12

14 CHAIRMAN S STATEMENT It is with great pleasure for me on behalf of the Board of Directors of Sarawak Energy Berhad, to present to you the Annual Report and Audited Financial Statements of the Company and the Group for the financial year ended 31 December SEB ( Sarawak Energy Berhad or the Company ) is in the midst of transformation. It is actively pursuing collaborative efforts with other power utility agencies and academic and business institutions to enhance productivity, exchange of technical skills and ideas and increase revenue. In the years ahead, SEB will continue to explore possibilities with other ASEAN countries for power inter-connectivity and exchange of expertise. At the same time, SEB will also continue to conduct its own studies on new sources of renewable and sustainable energy that will ultimately earned the State of Sarawak as the power hub of the nation. The Mukah Coal-Fired Power Plant has been completed and has gone on full commercial operation in May We have also commenced the construction of the 944 MW Murum Hydro Electric Power project in line with our target to have an installed capacity of 6,000MW by 2015 and 10,000 MW by Internally, SEB continued to look into ways to spur its workforce to meet the challenges of the future. Various HR initiatives are being introduced to streamline and facilitate operations, keep costs down and inevitably to increase profits. With the management acumen shown by our Group Managing Director/Chief Executive, together with the high commitment and full co-operation of all employees as well as continuing confidence from the stakeholders and investors, SEB has shown a favorable outcome in steering and achieving its vision to be a world class power utility, with competitive cost structure and organisational excellence to sustain long-term shareholders value. FINANCIAL REVIEW For the financial year ended 31 December 2008, the Group s revenue improved from RM1.32 billion in 2007 to RM1.34 billion, representing an increase of RM20.1 million. Profit before tax was recorded at RM293.7 million, a decrease of RM107.0 million as compared to RM400.7 million in the previous financial year. The decrease was mainly due to higher fuel costs resulting from higher diesoline price. The better performance in previous financial year was also contributed by the favorable impact arising from the disposal of investment in Encorp Berhad. The Group has registered a Net Assets per share of RM1.88 as at 31 December 2008 as compared to RM1.71 in Year

15 CHAIRMAN S STATEMENT FUTURE DIRECTION With the new development plans being put in place in tandem with our vision and mission, the Company is confident that it will be able to steer the state into becoming the power house in the Region by year The State of Sarawak is blessed with abundant hydro potentials and coal reserves which need to be developed to become tangible assets both in terms of commercial and socio-economic aspects. This poses an intense challenge to Sarawak Energy Berhad to turn these plans into success stories. APPRECIATION On behalf of my colleagues on the Board, I wish to record our appreciation to the management and staff of the Group for their dedication, efforts and diligent contributions towards achieving our favorable result during the year and I believe this level of commitment will continue to be strengthened as we move forward. I also wish to express our sincere appreciation to our valued stakeholders, shareholders, investors, customers, business associates and professional advisers for their confidence and continued support in the Sarawak Energy Group. DATUK ABDUL HAMED BIN SEPAWI Chairman 14

16 GROUP MANAGING DIRECTOR / CHIEF EXECUTIVE S MESSAGE FOREWORD Praise be to God the Almighty for giving us His grace and bountiful blessings in enabling us to face the challenges and obstacles with continued dedication throughout the year SEB will strive to pursue its vision to be a world class organisation in providing power and energy by optimizing the generation output using ethnic energy resources such as hydro and coal providing power to meet the needs of all strata of the population. Thus, new power generating sources, especially sustainable and renewable energy, and transmission systems need to be further identified and developed. The development of our power and energy resources has been identified as one of the critical factors to spur the State s future economic growth. The Sarawak Corridor of Renewable Energy (SCORE) launched in February 2008 spanning from Tanjung Manis, Sarikei to Similajau, Bintulu is based on energy intensive industries. SCORE is a long-term integrated development strategy to create rural growth centers and improve connectivity and infrastructure with focus on ten priority industries. It should be noted that SEB plays a very significant role in SCORE, particularly in the area of generation and transmission of electricity across the vast span of the corridor and beyond. Mukah Power Generation Sdn. Bhd., a subsidiary of SEB, TAN SRI DATUK AMAR (DR) HAJI ABDUL AZIZ BIN DATO HAJI HUSAIN Group Managing Director / Chief Executive Non-Independent Executive Director 15

17 GROUP MANAGING DIRECTOR / CHIEF EXECUTIVE S MESSAGE was formed to undertake the development of 2 units of 135 MW coal-fired power plant in Mukah on an 865-acre of land located at Matadeng, Mukah The turnkey project commenced in May Thus far, we have managed to secure 135MW with the commissioning of the first generation set of the plant in The second set is expected to be commissioned in May A few mine mouth power plant are being planned in the proximity of the Mukah-Balingian coal deposits. Land studies are currently being carried out to determine the viability of these projects. The coal deposits in the Merit Pilla area may give us the potential to generate coal fired power up to 1200MW in Kapit. With the advancement of technology, coal power generation is no longer seen as an unfriendly system to the environment as proven by our first Sejingkat coal-fired power plant which is used as a benchmark by the Department of Environment in their powerplants audit exercise nationwide. The existing power grid system has also been expanded with the development of a few more EHV substations such as Selangau and Metadeng which were commissioned recently with the commissioning of the Mukah 270MW coal-fired power plant. New major EHV substations at Sungai Asap and Similajau and the transmission lines from Bakun to Similajau are currently under construction. Despite the scarcity and the long term concern of the supply of gas which at the moment forms about 45% (after the full commissioning of the Mukah Coal-Fired Power Plant) of our total generation capacity, we endeavor to maximize the utilization of the available gas supply for our power generation. This strategic move can be seen in the construction of our combined cycle power plant in Bintulu which started in late 2007 and is expected to be completed before the end of This combined cycle plant will be able to generate additional 110MW using the excess heat from the existing open cycle gas generation under Units 7 and 8 plant in Bintulu. ASEAN POWER HUB Being a fully integrated power utility responsible for the generation and distribution of electricity in the State, SEB is poised to become a major power producer in the region through harnessing the abundant renewable energy resources in the State. The Bakun hydroelectric project with a generation capacity of 2400 MW, developed by Sarawak Hidro Sdn. Bhd., is intended to supply power to Semenanjung Malaysia through submarine cables. With existing generation capacity in Semenanjung Malaysia unable to cope with projected increase in demand, power from Sarawak is being sourced. Subject to all requirements being fulfilled, we are confident that the Bakun hydro dam and the submarine underwater cable linking Sarawak and Semenanjung Malaysia will open the door to fulfill the State s vision in becoming the major energy supplier and powerhouse in the region through SEB, based on the development of our massive hydro potentials and abundant coal reserves. Meanwhile, SEB has also embarked on the construction of Murum hydroelectric dam which has a generating capacity of 944 MW. The signing ceremony of the main construction contract of the Murum HEP was held in Yichang, China in October The construction of Limbang hydro dam (195MW) Trusan and Lawas hydro dam (300 MW), Baleh (1400 MW), Metjawah (300 MW) and others will follow suit. By 2020, SEB is expected to develop more than MW of generating capacity which will be able to supply not just to Semenanjung Malaysia and Sarawak organic growth but also the neighbouring ASEAN countries such as Negara Brunei Darussalam and Indonesia. HR INITIATIVES Our newly developed strategic plans will need to be refined and adopted by all our Strategic Business Units. We need to develop capabilities to fully utilize all our resources including our intangible assets comprising human capital, information technology systems and our internal processes. Our human resources need to be developed into a more responsive, highly dedicated and qualityconscious workforces who are innovative and responsive to customers needs. This would mean that the work culture and values need to be tuned and adapted to one with a greater sense of purpose, more professionalism and uncompromising integrity. With these objectives in mind, we have developed a new Performance Management System based on the balanced scorecards where the KPIs (Key Performance Indicators) for all departments, Divisions, Units and individuals are developed based on the Corporate Strategic Plan and the annual budget and taking into account the four perspectives of the Balanced Scorecard, i.e., financial performance, customer value proposition, internal processes and the learning and growth objectives. As part of its restructuring exercise, the SEB Group of Companies has also embarked on the Enterprise Resource Planning (ERP) Project upgrade to enable it to meet the objectives and the challenges of its fast expanding business. The SAP Modules to be implemented include: SAP Financials ( FICO ) Project System ( PS ) Materials Management ( MM ) Customer Care & Services ( CCS ) Plant Maintenance ( PM ) Human Capital Management ( HR ) Fixed Assets ( FA ) Business Intelligence The project carried out in five stages successfully went on live in April In September 2008 the Trainee Engineers Development 16

18 GROUP MANAGING DIRECTOR / CHIEF EXECUTIVE S MESSAGE Programme (TEDP) was launched involving a pioneer batch of twenty-two trainee engineers with the aim of: training a pool of engineers who would be competent to fill vacant positions; building up technical human capital as a succession planning initiative; complementing the government Graduates Training Scheme designed for engineers. The training that the participants undergo could span between one to two years comprising structured classroom training as well as on the job training (OJT) at various operation and maintenance premises. OTHER INITIATIVES SEB is vigorously pursuing other initiatives to maintain its status as the power utility in the country. Syarikat SESCO Berhad, a subsidiary of SEB, and Press Metal Berhad (PMB) inked the Power Purchase Agreement (PPA) on 1 July Under the terms of the PPA, SESCO undertakes to supply electricity to PMB s aluminium smelting plant in Balingian commencing middle of On 7 May 2009, SEB and Tenaga Nasional Berhad (TNB) took their joint collaboration to a new level when they formalized the power supply arrangement at the signing of Heads of Agreement (HoA). Under the terms of the HoA, SEB will supply to TNB 3000 MW from the year 2017 to 2020 and 5000 MW from 2021 to A joint committee has been established to oversee and facilitate the implementation of the terms of the agreement. In September 2008, SEB signed a memorandum of understanding (MoU) with JKR and UNIMAS to undertake research and development, and collaboration activities through cooperative research, joint courses, training and industrial attachment, and joint consultancy activities. The R & D activities resulting from the MoU is intended to focus on the development of competency, skills enhancement and professional advancement which is vital for the development of human capital in the state. The year 2008 also saw SEB marking its first foray into the retail business by launching its first consumer product targeted for the energy-conscious market the SEB Energy Saving bulbs. This is one of the ways in which the company can generate revenue and mitigate the shortfall in energy availability. The potential reduction in electricity consumption through the use of the energy saving bulbs would be up to 16.8 MW state-wide. This would have a significant impact on SEB s power generating capacity and can help reduce SEB s dependency on diesel, particularly at the non-grid stations. Another wholly-owned subsidiary, the Sarawak Power Generation Sdn. Bhd. (SPG), reached an important milestone with the signing of our first ever Clean Development Mechanism (CDM) agreement and Emission Reduction Purchase Agreement (ERPA) with Mitsubishi Corporation of Japan for the Bintulu Combined-Cycle Gas Turbine STG No. 9 Project (CCGT). The project involves the conversion of the existing two open-cycle gas generating sets (GT 7 and GT 8) in the Bintulu Power Station to one block of combined-cycle power generating plant with a total capacity 330 MW of which 110 MW is new generation. This project is eligible for CDM because it generates electricity without polluting the environment with greenhouse gases. The resultant reduction in emission of greenhouse gases will be sold to our CDM partners Mitsubishi Corporation through Certified Emission Reduction (CER) credits. CONCLUSION SEB will continue to be in the forefront spearheading the role to transform Sarawak, the largest State in Malaysia, to become the largest supplier of the nation s power needs through the development of its rich natural resources - vast hydro power potential and abundant coal deposits. Thus, in the next five to ten years, Sarawak is poised to see a quantum leap in its development through transformational change in its economic, social and industrial landscape through the implementation of SCORE. I fully appreciate the important role played by each and every one of our employees and therefore with the support and blessing from our Board and as importantly the confidence and trust of our shareholders I shall ensure that Sarawak Energy Group will be able to achieve its objectives. The transformation and progression of SEB is an on-going journey. Hence, I would like to take this opportunity to thank everyone who has assisted me and the management in this process of Sarawak Energy throughout I can assure all of you that given the dedication that we have in doing our job so far, and the passion shown by everybody in trying to achieve our objectives, I am confident that we can expect not only to achieve but to exceed our targets in As we move forward, we must not be afraid of the challenges ahead. We must push for more reformative steps to enhance our efficiency, effectiveness and productivity which will eventually lead to an upsurge in our bottom-line. In this regard, the company needs the support of its employees and stakeholders all the way. I am fully committed to steer the company forward and I strongly believe that we can achieve our goal if we strengthen our resources and grasp the opportuniities with determination and grit. Together, we can perform wonders. TAN SRI DATUK AMAR (DR) HAJI ABDUL AZIZ BIN DATO HAJI HUSAIN Group Managing Director / Chief Executive Sarawak Energy Berhad 17

19 GROUP FIVE-YEAR FINANCIAL STATISTICS PERFORMANCE RM 000 RM 000 RM 000 RM 000 RM 000 Revenue 1,339,266 1,319,208 1,177, , ,800 Profit before taxation 293, , , ,315 75,610 Taxation (16,974) (63,316) (6,679) (44,600) (32,634) Profit for the year 276, , , ,715 42,976 Minority interest (1,110) (1,949) (2,022) (4,024) (5,044) Profit attributable to equity holders of the Company 275, , , ,691 37,932 Net dividends 63,006 56,201 45,462 42,652 12,639 ASSETS EMPLOYED Property, plant and equipment 4,875,994 4,341,983 3,765,040 3,758, ,337 Prepaid land lease payments 125, , , ,028 37,109 Investments and goodwill - - 2,686 2, ,342 Non-current receivable ,595 Deferred tax assets 34, Bank and cash balances 766, , , , ,167 Other net current assets / (Liabilities) (134,483) 41, ,416 (107,324) 68,331 Associated companies 45,314 35,279 55,098 48,163 1,709,406 Total 5,712,861 5,458,204 4,742,464 4,328,936 2,923,287 FINANCED BY Equity attributable to equity holders of the Company 2,865,428 2,595,994 2,305,090 2,089,556 2,662,010 Minority interests 17,257 16,147 14,406 12,404 90,004 Non-current liabilities 2,459,774 2,470,359 2,045,225 1,810, ,184 Deferred taxation 370, , , ,973 23,089 Total 5,712,861 5,458,204 4,742,464 4,328,936 2,923,287 SELECTED RATIOS Net tangible assets per share (RM) Net earnings per share (Sen) Gross dividend per share (Sen)

20 GROUP FINANCIAL HIGHLIGHTS 1, ,400 1, , ,200 1, , RM (Million) RM (Million) REVENUE PROFIT FOR THE YEAR (RM) (Sen) NET TANGIBLE ASSETS PER SHARE NET EARNINGS PER SHARE 19

21 CORPORATE SOCIAL RESPONSIBILITY (CSR) WHAT DO WE STAND FOR? Sarawak Energy Berhad has a long standing tradition of contributing to society and its employees for we believe in striking a balance between profitability and giving back to the communities as well as employees. We are driven by the belief in good corporate governance and integrity. As a caring organisation, SEB and its group of companies will continue to reinforce its presence in the State of Sarawak not only through vigorous development projects but also in the heart and mind of the people to involve itself in corporate social responsibility programs. SEB CORE CSR THRUSTS Within the platforms of education, sports development, and community- & nation-building, SEB will continue to carry out activities that create a value proposition for all parties concerned. Education In March 2008, Sarawak Energy Berhad launched an English development program for the children in Lubok Antu, Sarawak, where our Batang Ai Hydro Power Station is located. The three-month program which is aimed at developing the children s listening, reading and writing skills as well as building self-confidence, was launched by Group Managing Director / Chief Executive. SEB also contributed to Pusat Pembangunan Kemahiran Sarawak during its open day, Anugerah Pelajar Islam Cemerlang peringkat negeri Sarawak and partially funded the publication of the book, Arkitek Bandaraya Terbilang in In recognizing the difficult times for graduates to secure jobs in the current economic conditions, the company also launched the Trainee Engineers Development Program. This program is aimed at providing the platform for young engineers to be trained with the right skills and on-the-job training for a period between one (1) to two (2) years. Trainees who excel during the program would be offered more permanent jobs within the SEB group. Sports and Recreations In August 2008, SEB organised the Sarawak Energy Badminton Challenge Trophy tournament to unearth new talents among the badminton fraternity and also to inculcate better understanding and rapport between SEB and their major clients and customers. In December same year, SEB organised the SEB GOLF OPEN TOURNAMENT at Sarawak Club Golf & Resort course. It was participated by heads of government departments, business associates and clients of SEB. SEB also participated in the TNB Technical Games held at ILSAS Kuala Lumpur in June 2008 to learn new as well as exchange technical skills and to foster closer rapport with our counterparts in the power utility industry, notably TNB and SESB. During the holy month of Ramadan, SEB organised several Majlis Berbuka Puasa functions for charitable and welfare organisations throughout the State, presenting gifts and monetary assistance to the needy and less fortunate. With regard to staff welfare, Annual Dinner and Family Day functions were organised in all major stations. They were aimed at enhancing the esprit-de-corp among fellow employees and inculcate good family values. SEB employees also voluntarily participated in blood donation campaigns for a noble cause through the quarterly Blood Donation program and during the Annual Safety campaign at the various administrative regions. SEB also participated in the Hari Kemerdekaan celebration, Maulidur Rasul and Ma al Hijrah activities, as well as the Yang Di-Pertua Negeri s Birthday parade. Community & Nation-Building For SEB, giving back to the society is a norm and a practice that it will always continue to sustain. Throughout 2008, SEB and its group of companies embarked on a number of social projects. This was done both through its participation in various social programs or by granting monetary assistance to non-profitable organisations within the State. Among the beneficiaries are Persatuan Orang-Orang Cacat Penglihatan Islam Malaysia,Pertubuhan Kebajikan Anak-anak Yatim (PERYATIM), Skuad 69 PDRM Sarawak, PERKATA Sarawak, Angkatan Zaman Mansang, Laila Taib Cancer Charitable Trust Dinner, Badan Pengawas Saham Minority Berhad, International Baram Regatta, Kelab Penerangan-Program Kembara Jalur Gemilang 2008, Sarawak Chambers of Commerce & Industry, Kapit Merdeka Celebration Trust Fund and Asian Strategy & Leadership Incorporated Sdn Bhd. In tandem with the development of the Murum Hydroelectric Project which is currently under construction, the company also assures that the local communities are not adversely affected. Together with the relevant government agencies, various dialogues and community events have been organised to ensure these communities are given the proper information with regard to the project. As a responsible corporate citizen, the company also ensures that in carrying out the various projects, the environmental aspects are not taken lightly. In this respect, a pro-active approach has been taken by the company in adhering to the environmental laws in the State of Sarawak and taking into account the applicable laws are fully adhered to and that the views of all concerned such as the government agencies and the local community are taken into account. Being a highly visible corporate entity in the State, SEB is always committed towards sustaining a meaningful co-existence with the surrounding community. Our CSR initiatives will continue to strengthen our relationship and place SEB in the hearts and minds of the society. 20

22 FLASH BACK 2008 Launching of Sarawak Corridor of Renewable Energy (SCORE) Launching of Sarawak Corridor of Renewable Energy (SCORE) Signing of Memorandum of Understanding (MoU) in Bintulu, 2008 Site visit by the Group Managing Director / Chief Executive to Selangau Substation Site visit by the Group Managing Director / Chief Executive to Bintulu Combine Cycle Gas Turbine Plant 21

23 FLASH BACK 2008 SEB Badminton Challenge Trophy SEB Corporate Golf Tournament Site visit by the Group Managing Director / Chief Executive to Sarikei Office Auxiliary Police Annual Conference Auxiliary Police Annual Conference 22

24 FLASH BACK 2008 Papua New Guinea delegation s visit to Sejingkat Power Corporation SEB s participation in POWER-GEN ASIA Exhibition 2008 Signing of Heads of Agreement (HOA) between Sarawak Energy Berhad and Tenaga Nasional Berhad Blood Donation Campaign Donation to Rumah Sri Kenangan 23

25 FLASH BACK 2008 Ramah Tamah Aidil Fitri 2008 Ramah Tamah Aidil Fitri 2008 Ramah Tamah Aidil Fitri - Mukah, 2008 Visit to Rumah Sri Kenangan Visit to Rumah Sri Kenangan 24

26 FLASH BACK 2008 Annual Dinner 2008 Selamat Hari Gawai Function 2008 Annual Family Day 2008 SEB s participation in TNB s Technical Games Competition SEB s participation in TNB s Technical Games Competition 25

27 STATEMENT ON INTERNAL CONTROL 1.0 INTRODUCTION The Board of Directors (Board) is committed to maintaining an effective control structure and environment for the proper conduct of the Sarawak Energy Berhad Group s business operations and is pleased to provide the following statement, which outlines the nature and scope of internal control of the Group during the financial year under review. 2.0 BOARD RESPONSIBILITY The Board recognises the importance of sound internal controls and risk management systems and corporate governance. The Board acknowledges that it is ultimately responsible for the Group s system of internal control, which includes the establishment of an appropriate control environment and framework, as well as reviewing the adequacy and integrity of risk management, governance and compliance functions. The system of internal control covers financial, operational, management information systems, risk management and compliance with relevant laws, regulations, rules, directives and guidelines. The internal control operating within the Group is designed to meet the business objectives and to manage the risks to which the Group is exposed. It is emphasised however, that any internal control system provides only reasonable and not absolute assurance against material misstatement, loss and fraud. 3.0 ENTERPRISE - WIDE RISK MANAGEMENT As part of its efforts to discharge its duties and responsibilities of maintaining a sound system of internal control and ensuring its continuing adequacy and integrity, the Board has in February 2008 approved the establishment of a formalised Enterprise Wide Risk Management (EWRM) Framework for the Group. The EWRM Framework includes a method of identifying, analysing, assessing and monitoring the Group s risks and it is an ongoing and a continuous process. The ongoing process is to identify, evaluate and manage significant risks that affect the achievement of the Group s strategic business objectives. This process includes implementing the risk management policy, which would drive the risk management activities of the Group as well as establishment of a risk management oversight structure to oversee these activities. Additionally, this process includes a review of the adequacy of the present system of internal control to manage principal risks identified. For the financial year under review, the Board, through the Audit Committee (AC) and Group Managing Director s Committee (GMDC) has reviewed the progress of implementation of the risk management framework and status of implementation of action plans developed by business units and support functions to mitigate the identified strategic and other principal risks of the Group through quarterly consolidated reports prepared and presented by Risk Management Division (RMD) during the committees meetings. RMD is responsible for coordinating and facilitating the EWRM activities groupwide through all the appointed risk owners, co-owners and person in-charge for each business units and support functions within the Group. In addition, the AC and Board also ensure that management implements all the action plans within the agreed timeframe while RMD monitors the status of their implementation and report the progress to the AC and Board on quarterly basis. 26

28 STATEMENT ON INTERNAL CONTROL 4.0 CONTROL STRUCTURE Apart from risk management activities, the Board has also set up the key elements of the Group control structure to maintain an effective control environment. One of the key elements of the control environment includes the basic principles and values of the organisation such as integrity, commitment and credibility which formed part of the organisation s culture. Some of the other elements of the Group s control structure include the following:- Board and Management Committees The Company has established Board and Management Committees to promote corporate governance and transparency. Specific terms of reference and authority are assigned to the Committees within their scope. Board Committees Audit Committee (AC) Board Tender Committee (BTC) Group Establishment and Disciplinary Committee (GEDC) Nomination & Remuneration Committee (NRC) Management Committees Group Managing Director s Committee (GMDC) Management Tender Committee (MTC) Regional Tender Committee (RTC) Board Meetings The Board maintains full and effective supervision over key issues affecting the Group. This is done through regularly scheduled meetings, where the agenda is set and agreed by the Chairman and Senior Management. Board papers are circulated to members ahead of the meetings. All important matters are dealt with and decided on after the required information is presented and deliberated. Management Meetings The Group s Management conducts monthly senior management meetings which comprise Group Managing Director/Chief Executive, Chief Operating Officer and business units and departmental heads. The purpose of these meetings is to deliberate and decide on policy and operational matters affecting the Group. Organisation Structure The Board has implemented a clearly defined structure that is aligned to Group s strategic and operational requirements. The Group structure is departmentalised to enable better focus on both core business and support functions. Additionally, clear lines of accountability and responsibilities have been established for each department and operating units. Management Information Systems The Board recognises the importance of leveraging on management information systems to enable faster information for decision making and assisting operations to be run effectively and efficiently. During the year, the following systems were initiated and implemented: 27

29 STATEMENT ON INTERNAL CONTROL 4.0 CONTROL STRUCTURE (Cont d.) Management Information Systems (Cont d.) 1) SAP ECC 6.0 Functional Upgrade Implementation This IT Applications Roadmap is for the implementation of a single integrated Enterprise Planning System for the Group. The project covers eleven companies of the Group and they are implemented to support the objectives of the Group s organisational restructuring exercise and to meet the challenges of its fast expanding business activities. Among others, the scope of the project includes the following modules:- Industry Solution for Utilities Customer Care Services for Syarikat SESCO Berhad (SESCO) Project Systems Financial and Controlling Business Intelligence Plant Maintenance Material Management Fixed Asset Management Human Resource/Human Capital Management E Portal (e-recruitment) The project is scheduled for live run in April ) Enterprise Management System (EMS) EMS is a web-based, centralised server software application system implemented to support the EWRM framework of reporting and monitoring risks. The system enables the recording of risks, controlling and tracking of implementation of action plans to manage risks. 3) E Bidding System The System is implemented in SESCO, the Group s major and wholly owned subsidiary company to facilitate the company in managing the tendering process in a more effective and efficient manner through the website and it is designed to meet the following key objectives:- Reduce administrative cost of printing and delivery of tender documents Allow greater flexibility and speed for the vendors to obtain tender documents Facilitate vendors to purchase tender documents through website and making payment through electronic banking system Facilitate online tender bid submission Group Policies and Procedures The Group has put in place approved policies and procedures to govern the financial and operational functions of the Group. The objectives of these are to ensure that internal controls are embedded in operations. Among others, the key policies and procedures implemented are as follows:- Group Financial Policies & Procedures General Instructions on Purchasing & Contracts (GIPC 2006) Group Terms & Conditions of Service (TACOS) Risk Management Policy & Procedures Policy, Procedures & Guidelines on Vehicles Fleet Management 28

30 STATEMENT ON INTERNAL CONTROL 4.0 CONTROL STRUCTURE (Cont d.) Group Policies and Procedures (Cont d.) During the year, the following revisions/amendments were introduced to enhance the existing policies and procedures: Review of the Limits of Financial Authority under the Group Financial Policies & Procedures to streamline and improve controls over financial transactions Establishment of the Group Establishment & Disciplinary Committee to replace the existing Establishment & Disciplinary Committee of SESCO Revision of GIPC 2006 to incorporate amendments to the authority limits and composition of the various tender committees within the Group Revision of Group TACOS to match new position grades to employees benefits such as travelling entitlements & allowances, medical provisions, housing & vehicle loan entitlements etc Distribution System Losses In March 2008, the Distribution Losses Taskforce was formed and mobilised to look into the increasing trend of system losses in SESCO and to formulate specific action plans to evaluate the distribution losses and determine the quantum of both technical and non-technical losses. The objectives of the taskforce are as follows:- To draw up specific action plans with clear timelines covering short, medium and long term plans To measure and compute accurately both technical and non-technical distribution losses To identify feeders, substations and transformers that have high percentage of losses for immediate mitigation measures To install smart meters at strategic locations of 33kV and 11kV networks To advise Revenue Management Division at Headquarters and Revenue Processing Units at all the regions on areas of high losses for immediate follow through actions To put in place effective procedures and workflows for the regions and power stations to measure, compute and monitor distribution losses on regular basis 5.0 MONITORING & REVIEW Business Planning & Budgeting Review The Board places emphasis on a long-term plan to ensure that the Group realises its mission and objectives. For this purpose, a Strategic Plan for Long Term Power System Development in Sarawak was drawn up by the Group Managing Director to guide the organisation in achieving its vision of becoming the Powerhouse for the Region and a World Class Energy Provider. Based on the strategies identified in the Strategic Plan, Annual Business Plan and Budget and Key Performance Indicators are drawn up and approved by the Board. This is to ensure accountability and achievement of the Group s objectives and strategies. The Business Plans include the budget, new project proposals and capital budget. Measurement of performance are regularly monitored through the GMD Monthly Report incorporating key project progress, financial and operational key performance indicators and departmental initiatives. These reports are tabled to the Board by the GMD at every board meeting. 29