7.5 Adaro Energy 2008 Annual Report English

Adaro Energy Annual Report 2008 www.adaro.com 59 Adaro Energy conducts technical marketing throughout the world. Highly qualiied coal combustion consultants retained by Adaro travel to all customers advising on how to optimize their boilers and operations when using Envirocoal. Aside from consistent quality, reliability and dependability, this after sales service and attention provides a top class customer service. Corporate Structure Pre-IPO Structure In mid 2005, an international and local consortium of investors acquired 100 of the shares of Adaro, IBT, Coaltrade and certain intermediate holding companies. Former shareholders, New Hope Corporation Ltd., Consolidated Bulk Handling Pty. Ltd., Andrew Holdings Pty Ltd. and Beheer- en Belegging-smaatchappij Jydeno B.V., along with some of the Indonesian shareholders who joined the international consortium of investors, sold 100.0 of their respective interests to the international consortium. The inancing of the acquisition involved a US 923 million debt inancing senior credit facility and mezzanine, both extended to Arindo Global Netherlands B.V and guaranteed by the directly or indirectly acquired companies, and a 50 million equity inancing. Through an intercompany loan structure, the proceeds from the senior credit facility and the mezzanine facility were lent to the investors to inance the acquisition. This acquisition inancing has been reinanced several times since December 2005, which involved a combination of US400 million 8.5 5 years senior secured notes and US 200 million senior credit facility, until December 2007, when a syndicated term loan and revolving credit facilities of US750 million were extended to Adaro and Coaltrade. After a number of restructurings, PT Padang Karunia, a vehicle controlled by local shareholders, indirectly owned 61 of Adaro Indonesia, 62 of IBT and 59 of Coaltrade via PT Alam Tri Abadi. PT Padang Karunia also directly owned 72 of PT Saptaindra Sejati, the mining contractor. The international consortium controlled their ownership in Adaro Indonesia, IBT and Coaltrade through Ariane Investment Mezzanine Pte. Ltd. “AIM”, Agalia Energy Investments Pte. Ltd. “Agalia” and Ariane Capital Singapore Pte. Ltd “Ariane Capital”. Post-IPO Structure In July 2008, PT Padang Karunia which was renamed PT Adaro Energy Tbk. conducted an Initial Public Offering of 34.8 of 31,985,962,000 shares issued and fully paid at Rp 1,100share, raising approximately Rp 12.2 trillion or US1.3 billion. The shares offered to the public in the IPO were listed on the Indonesia Stock Exchange on July 16, 2008. The proceeds from the IPO were used to increase the investments in ATA whereby ATA would use the fund to buy the shares from the international consortium held under AIM, Agalia and Ariane Capital and purchase minority shares in ATA. The Company has effectively increased its direct and indirect ownership to 100 in Adaro, IBT and Coaltrade from these transactions. The proceeds were also used to purchase shares in SIS owned by some local shareholders which effectively increased the Company’s ownership to 85.92. Some of the proceeds were also used to pay off a portion of the syndicated loan of Adaro and Coaltrade, and to fund capital expenditure and working capital of SIS. Adaro Energy liquidated several intermediate holding companies to simpliied its complex corporate structure inherited from the LBO, in October 2008. Revere Group Ltd., Decimal Investments Ltd., Saluno Investments Pte. Ltd., Rachsing holdings Pte. Ltd., AIM, Ariane Capital and Agalia were liquidated and investments in Biscayne 100, Viscaya 100, RachM100, Rachpore 100, Arindo Holdings 0.3 and Arindo Global 67 were transferred to ATA. There were no changes in the Company’s effective ownership in Adaro, IBT and Coaltrade. Geoff Palmer, General Manager - Marketing • Joined Adaro in March, 1997 • Over 35 years of experience in the mining industry, 20 years in coal operations and 10 in marketing • Managed the wash plant for Westar Mining’s Canadian operations in the 80’s and 90’s • Worked for Kaltim Prima Coal prior to joining Adaro • Graduated from British Columbia Institute of Technology with degree in Physical Metallurgy Equipped with GPS units and well maintained, the hauling rigs and trailers are safe and reliable. Contact Us Governing Adaro Corporate Social Responsibility Financial Report 60 Adaro Energy Annual Report 2008 www.adaro.com In October 2008, ATA acquired a 51.2 interest in SDM, to dredge the channel at the mouth of Barito River and operate a water toll. The target is for Adaro Energy to have a simpliied corporate structure as follows: Royalty ArrearsVAT Refund Audit In May 2006, the Ministry of Energy and Mineral Resources alleged that Adaro Indonesia had underpaid the royalties due from coal sales for the period from 2001 and demanded payment. Adaro strongly rejected the allegation because it had discharged its obligation to pay such royalties by way of an offset against the Government’s obligation to reimburse Adaro Indonesia for its Value Added Tax “VAT” payment as prescribed under the Coal Cooperation Agreement. In September 2006, the Jakarta Administrative Court issued a decision in favour of Adaro. The Jakarta High Administrative Court concurred with the Jakarta Administrative Court in February 2007. On September 26, 2008, the Indonesian Supreme Court concurred with the decision of the Jakarta High Administrative Court and the decision of the Indonesian Supreme Court is inal and binding. However, in June 2006, the Ministry of Energy and Mineral Resources granted authority to the Committee for State Claim Affairs the “Committee” to pursue alleged underpayment on its behalf. In July 2007, the Committee issued a demand for payment to Adaro. As this is an industry-wide problem, similar demands have been made by the Committee to other irst generation companies. In September 2007 the Jakarta Administrative Court granted an order restricting the Committee from taking any further administrative steps on the issue until a inal and binding judgment was delivered. On February 15, 2008, the Jakarta Administrative Court issued a decision in favour of Adaro. The Jakarta High Administrative Court conccurred with the Jakarta Administrative Court on July 1, 2008. In December 2008, the State Development Finance Comptroller BPKP completed an audit on royalties that were allegedly withheld by Adaro and ive other coal miners. The BPKP audit has found that the royalties withheld by the six major Indonesian coal mining companies are almost equal to the amount of VAT refund claims. A inal decision on the matter is pending. Until a VAT refund mechanism is established, Adaro will continue to offset royalty payments with the amount of VAT to be refunded. Alam Tri Abadi Each unit is positioned to be an independent proit centre enabling the Company to have a reliable and competitive coal supply chain which will create optimum value added for its stakeholders. Mine Mouth Power Plant SPV Mining Coal Terminal Trading Contractor Dredging Barito River mouth and channel toll operator Corporate Structure MSW Adaro Jasa Power IBT Coaltrade SDM SIS PT Adaro Energy Tbk 100 100.00 100.00 100.00 51.20

85.92 99.99

99.92 Owning Adaro Adaro in Summary From Us to You Management Report Running Adaro Corporate Overview Adaro Energy Annual Report 2008 www.adaro.com 61 Corporate Strategy and Growth Targets Our business model is one of integration of the coal supply chain to improve control and reliability, lower costs and become more eficient. In implementing this model we focus on increasing our reserves, improving cost eficiency, developing our infrastructure, fostering strong community relations and developing and retaining our long term loyal blue chip customers. For 2009, Adaro Energy continues to target 42-45 million tonnes of production although the actual number may end up in the lower part of that range. In the beginning of 2009, production was continuing as planned, despite the wet weather conditions. In the next ive years Adaro Energy plans to increase production capacity to 80 million tonnes per year. However, given the changing conditions in the global economy, Adaro Energy is making adjustments regarding how to best achieve this growth, with a view to maximizing shareholder value and minimizing risk. The different options to achieve 80 million tonnes a year include building an overland conveyor over half the original distance, upgrading the existing road, andor building in-pit conveyors. The planned overland conveyor would signiicantly reduce transportation costs, but is not essential to ramp up annual production to 80 million tonnes. Further Integration from Pit to Port An important part of Adaro Energy’s business model is to further increase the vertical and horizontal integration of the operations, so as to further improve control and eficiency. In 2009, Adaro Energy will likely not make large growth investments. However, as well as making investments to improve the infrastructure and routine investments such as procuring mining equipment and purchasing land, Adaro Energy will be making investments to further integrate the operations. Government Regulations and Requirements Price Renegotiations On December 11, 2008, Adaro Energy announced that Adaro Indonesia had temporarily suspended deliveries and declared force majeure to three customers after negotiations with them failed to achieve a required new price by December 3, 2008. The repricing negotiations and the deadline were required by the Government of Indonesia. By the end of 2008, Adaro had made progress in price renegotiations having reached an agreement with two buyers, and the proposed settlement was pending Government’s approval. Adaro is hopeful of achieving a satisfactory outcome. The outcome of the price renegotiations is not expected to impact on Adaro’s 2009 volume or price guidance. Impact of the New Mining Law On December 16, 2008, Indonesia passed Law Number 4 of 2009, which is known as the new Mining Law. The new Mining Law, which came into effect on January 12, 2009 and which supersedes the previous Mining Law, known as Law No. 11 of 1967, contains many provisions, such as those concerning maximum concession size, royalties and taxes, using afiliated parties and subsidiaries, using foreign contractors, etc. The impact of the new mining law cannot be determined until the government issues its regulations on how the new mining law will be implemented. Adaro Energy’s legal department, together with external counsel, is reviewing the new Mining Law in regards to Adaro Energy’s operations and expansion plans. Customer Service Management Progam Adaro provides global support to customers through two marketing ofices and an extensive network of representatives. These ofices and representatives provide administrative assistance on deliveries and a clear communications link between Adaro and its customers.Adaro’s technical support team is available for expert advice on the handling and combustion of Envirocoal. Team members include a consulting combustion engineer with more than 30 years experience in the utilization of sub-bituminous coals and lignites in power stations and other specialist consultants on power plant operations. The team makes regular visits to all the plants world wide using envirocoal and provides expert advice on its utilization in power plant and industrial boiler operations. Advice is also available on an as-required basis to all customers. Adaro sells on either an FOB or CIF basis as required by the customer. Adaro’s shipping department in its Jakarta ofice is available to provide expert and independent advice on the optimal logistics solution for each customer as freight markets change. Adaro’s operational staff are expert in the handling and storage of “Envirocoal”. This advice, including on-site visits before and during coal deliveries, is available to all customers. Legal staff Bima Sinung and Sylvia Trianasari assess the potential impact of the new mining law. Contact Us Governing Adaro Corporate Social Responsibility Financial Report