Subsidiaries Adaro Energy 2008 Annual Report English

136 Adaro Energy Annual Report 2008 www.adaro.com Adaro in Summary From Us to You Running Adaro Management Report Owning Adaro PT ADARO ENERGY Tbk Schedule 54 FORMERLY PT PADANG KARUNIA AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2008 AND 2007 Expressed in million Rupiah, unless otherwise stated

1. GENERAL continued

c. Coal Cooperation Agreement

Adaro’s activities are governed by the Coal Cooperation Agreement “CCA” which was entered into by Adaro and PT Tambang Batubara Bukit Asam Persero Tbk “PTBA”, formerly Perusahaan Negara Tambang Batubara, on 16 November 1982. Based on Presidential Decree No. 751996 dated 25 September 1996 and the amendment of CCA No. J2Ji.DU5282 between PTBA and Adaro on 27 June 1997, all rights and obligations of PTBA under the CCA were transferred to the Government of the Republic of Indonesia represented by the Minister of Mines and Energy, effective from 1 July 1997. Under the terms of the CCA, Adaro acts as a contractor for the Government which is responsible for coal mining operations in an area located in South Kalimantan. Commencing on 1 July 1999, Adaro adopted the sales-based cash royalty method in accordance with government regulations to satisfy the Government’s production entitlement. Adaro commenced its 30 year operating period on 1 October 1992 with coal produced from the Paringin area of interest. Adaro is entitled to 86.5 of the coal produced with the remaining 13.5 being the Government’s share of production. Adaro’s sales reflect 100 of the revenue generated from coal production and the government royalty expense is recorded a s a cost of revenue.

d. Cooperation Agreement

On 25 August 1990, IBT entered into a Basic Agreement with PT Persero Pelabuhan Indonesia III formerly Perum Pelabuhan III for the construction, development and operation of a Public Coal Port in Pulau Laut, South Kalimantan. On 10 November 1994, IBT and PT Persero Pelabuhan Indonesia III amended the Basic Agreement to become a Cooperation Agreement. Under the terms of the Cooperation Agreement, IBT commenced its 30-year operating period on 21 August 1997. Pursuant to the Cooperation Agreement, IBT has an obligation to pay royalties to PT Persero Pelabuhan Indonesia III based on a certain percentage of revenue from coal bulk terminal management services. As at 31 December 2008, the rate charged to IBT was 4 2007: 4.

e. Coal reserves

Based on the report from Terence Willsteed Associates dated 13 March 2009, the coal reserves of Adaro as at 31 December 2008, were as follows in million tonnes - unaudited: Coal reserves Proven reserves Probable reserves Total Tutupan 432 156 588 Wara 1 198 84 282 630 240 870

f. Exploitationdevelopment area

Total Production Tonnes Name of Location Exploration Licence Acquisition Date Due Date Total Exploration Expenditure US Total Proven Reserves Tonnes Current Year Accumulated Total Production Paringin 24,202,386 - Wara 4,795,349 198,000,000 Tutupan PKP2B - 16 November 1982 1 October 2022 7,703,097 432,000,000 38,482,461 289,528,834 Total 36,700,832 630,000,000 1991 - 2008 Adaro does not have any new exploration areas. Adaro Energy Annual Report 2008 www.adaro.com 137 Contact Us Governing Adaro Financial Report Corporate Social Responsibility PT ADARO ENERGY Tbk Schedule 55 FORMERLY PT PADANG KARUNIA AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2008 AND 2007 Expressed in million Rupiah, unless otherwise stated

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Group’s consolidated financial statements were prepared and finalised by the Board of Directors on 16 March 2009. Presented below are the significant accounting policies adopted in preparing the consolidated financial statements of the Group, which are in conformity with accounting principles generally accepted in Indonesia. The consolidated financial statements are also prepared in conformity with the Regulations of the Capital Market and Financial Institution Supervisory Board Bapepam LK No. VIII.G.7 for Guidance on Financial Statement Presentation and Circular Letter of Bapepam LK No. SE -02BL2008 dated 31 January 2008 for Guidance on the Preparation and Disclosure of Financial Statements of an Issuer or Public Company in the General Mining Industry.

a. Basis of preparation of the consolidated financial statements

The consolidated financial statements have been prepared on the basis of historical cost, except for financial instruments, which are carried at fair value. The consolidated statement of cash flows have been prepared based on the direct method by classifying the cash flows on the basis of operating, investing and financing activities. For the purpose of the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, cash in banks and short-term investments with a maturity of three months or less, net of overdrafts. Figures in the consolidated financial statements are expressed in million Rupiah, unless otherwise stated.

b. Principles of consolidation

The consolidated financial statements include the accounts of the Company and subsidiaries in which the Company dir ectly or indirectly has ownership of more than 50 of voting rights, or if equal to or less than 50, the Company has the ability to control the subsidiaries. The subsidiaries are consolidated from the date on which effective control is transferred to the Company and are no longer consolidated from the date of disposal. The effect of all transactions and balances between companies in the Group has been eliminated in preparing the consolidated financial statements. The accounting policies adopted in prepar ing the consolidated financial statements have been consistently applied by the subsidiaries unless otherwise stated. The accounts of the foreign operations that are integral to the Company are translated as if the foreign operations’ transactions were the Company’s own transactions. Exchange differences arising from a monetary item that, in substance, forms part of the Groups net investment in a foreign entity is classified as equity in the Group’s consolidated financial statements until the disposal of the net investment, at which time an exchange difference is recognised as income or expense. The exchange rates of United States Dollars “US Dollars” to Rupiah Rupiah full amount used in respect of the consolidation process of domestic and foreign subsidiaries which are not integral to the Company’s operations for 31 December 2008 and 2007 were as follows: Exchange rates at Average the balance sheet date exchange rates 2008 2007 2008 2007 US Dollars 1Rupiah 10,950 9,419 9,680 9,136 The proportionate share of minority shareholders in the net assets of subsidiaries is presented as “minority interest” in the consolidated balance sheet. Minority interest is not recognised in respect of subsidiaries with a deficit in equity, unless the minority shareholders have a contractual obligation to fund the deficit. The proportionate share of minority shareholders in net incomeloss prior to acquisition is recorded as pre-acquisition incomeloss in the consolidated statement of income. Goodwill represents the excess of the acquisition cost over the fair value of the Group’s share of the net assets of the acquired subsidiaries at the date of acquisition. Goodwill is amortised over a period of 5 - 20 years using the straight-line method. Management determines the estimated useful life of goodwill based on its evaluation at the time of the acquisition, considering inherent factors to acquired companies.