Business Activities Material Cases In process and in connection to the Company

- 79 - customer base, and the Company believes that it is strongly placed to take advantage of any positive demand growth for petrochemicals in Indonesia.  Indonesia’s leading petrochemical producer The Company is the largest integrated petrochemical producer in Indonesia. It is the only domestic producer of ethylene and styrene monomer in Indonesia. With the commencement of commercial operation of its butadiene plant, the Company will also be the only domestic producer of butadiene in Indonesia. Additionally, it is one of the only two domestic producers of propylene and polyethylene. It is also the largest polypropylene producer in Indonesia. According to Nexant, in 2012, the Company was the sole producer of ethylene in Indonesia and had a market supply share of approximately 44, 31, 29, and 100 of olefin, polyethylene, polypropylene, and styrene monomer domestic market respectively. In September 2013, the Company expects to commence op eration following the completion of the Company’s newly-constructed butadiene plant. The 100 kt per annum facility will be the only butadiene plant in Indonesia. The Company expects to continue extending the Company’s leadership position in Indonesia’s petrochemical industry through further increases its production capacity in both existing and new products.  High degree of operational integration to optimize production efficiency, flexibility and cost-savings The Company benefits from a high degree of integration within its production facilities and across the polyolefins value chain, from the intake of feedstock to the production of downstream products. This allows the Company to take advantage of efficiencies in its production operations, minimizing both logistics costs and product wastage in between each step of the production chain. Its high degree of integration also permits the Company to maximize economies of scale of its facilities and reduces its fixed costs per product unit. The production facilities comprise a naphtha cracker, two polyethylene trains, three polypropylene trains, two styrene monomer plants and a butadiene plant, which when operated on an integrated basis allow the Company to consume on average between 50 and 60 of the ethylene produced by the Company as feedstock for its polyethylene plant and styrene monomer plant. The Company also consumes the majority of the propylene produced by its naphtha cracker as feedstock for the Company’s three polypropylene trains. The pygas and mixed C 4 production are mainly sold to the export markets and other by-products produced are either used internally as fuel to power the co-generation plants and boilers, or sold in the open market. Upon the completion of the new butadiene plant, majority of th e Company’s mixed C 4 production will be internally consumed as raw material for the production of butadiene. The integration of the Company’s plant is further enhanced by the presence of extensive infrastructure and auxiliary facilities, such as storage tanks and warehouses, power generation utilities, process and utility pipelines, jetties and transport facilities, a water treatment plant, cooling water and seawater systems, air systems and process control rooms, which the Company believes that it will enhance its competitive position. The Company believes that its extensive infrastructure and auxiliary facilities would minimize its capital expenditure for future debottlenecking or capacity expansion projects. It also has a 45 km long pipeline network that is used in transporting ethylene feedstock. This pipeline adds significant value to the Company’s operation as it enables the Company to supply ethylene in an efficient and cost-competitive manner to the customers. The modular set-up of the Company’s plant allows the two polyethylene trains, three polypropylene trains, two styrene monomer plants and butadiene plant to operate independently from each other as well as independently from the naphtha cracker, thereby minimizing production disruptions despite the integration of its plants.  Strategic location close to key customers in Indonesia The Company believes that the strategic location of its production facilities, combined with Company’s leadership position in the Indonesian petrochemical market, positions it favourably to take advantage of the positive outlook for demand for petrochemical products in Indonesia and further grow Company’s business. The Company’s production facilities are integrated with five of its ethylene and propylene customers’ facilities through the Company’s dedicated 45 km pipeline network. The dedicated pipeline links allow the Company to maintain a captive customer base, as the Company is the only supplier which able to deliver ethylene or propylene directly to these customers through pipeline networks. Due to those dedicated pipeline links and the close proximity of its production facilities to those key customers, the Company believes that it can deliver the products more cost-effectively compared to other competing petrochemical producers many of which are primarily importers, thereby giving the Company a strong competitive advantage. The ability to supply some loyal customers through dedicated pipeline linkages, and others with smaller volume deliveries on a more regular b asis also reduces customers’ storage requirements and therefore reducing their working capital and inventory requirements. This results in cost savings for customers when they obtain supplies from the Company as opposed to alternative suppliers without dedicated pipeline linkages.