Financial Information | Perusahaan Gas Negara Persero Tbk PT

PT Perusahaan Gas Negara (Persero) Tbk

Annual Report 2014

IDX : PGAS

the story

of PGN

is

the story of

Indonesia

PGN, the principal supplier

and transporter of natural gas

for Indonesia, is an integral

part of the government’s

plans for economic growth,

energy independence, and

national development.

cooking with it; illing up their cars and

buses with it; generating the electricity to

power their homes, hospitals, schools and

shopping malls with it.

Clean natural gas from PGN.

We’re building Indonesia’s future with it.

PGN is woven into the fabric of Indonesia.

2-21 The Story of PGN

1. Highlights of 2014 Performance 24 Financial Highlights 24 Operating Highlights 24 Stock Highlights

2. Report to the Shareholders

29 Report from the Board of Commissioners 33 Report from the Board of Directors 41 Statement Letter of the Members of the

Board of Commissioners and the Board of Director on Annual Report 2014

3. Company Proile

45 PGN’s Group Structure 46 Brief History

48 Business Activity 49 Business Structure

50 PGN’s Gas Source, Pipeline Network and Facility

52 Natural Gas for Nation 54 Organization Structure

56 Vision and Mission of the Company 58 Board of Commissioners Proile 60 Board of Directors Proile 62 Human Resources

68 Composition of Shareholders

70 Information of Subsidiary and Associated Companies

72 Subsidiary and Associated Companies 78 Stock Listing Chronology

79 Securities Listing and Credit Rating Chronology

80 Name and Address of Agencies and or Capital Market Supporting Professional 82 Awards and Certiication

86 Address of Business Units, Subsidiaries and Associated Companies

88 Signiicant Events in 2014

4. Management’s Discussion and Analysis 93 Management’s Discussion and Analysis

5. Good Corporate Governance 139 Good Corporate Governance 143 General Meetings of Shareholders 146 The Board of Commissioners 151 Independent Commissioners 152 The Board of Directors

160 Assessment of the Members of the Board of Commissioners and/or Directors

162 Afiliated Relationships 162 Committees

177 Corporate Secretary 180 Internal Audit Unit 183 Internal Control System 183 Public Accountants 183 Risk Management 187 Corporate Ethics

196 Whistle-blowing System 200 Court Cases Involving PGN 203 Access to Information

6. Corporate Social and Environmental Responsibility 207 Corporate Social and Environmental

Responsibility

210 Environmental Responsibility 216 Labor Practices

224 Occupational Safety and Health Practices 232 Social and Community Development 238 Product and Consumer Responsibility

7. Consolidated Financial Statements 245 Consolidated Financial Statements

8. Cross Reference BAPEPAM 479 Cross Reference Bapepam-

LK Regulation No X.K.6 490 Glossary

20

14

16

18

10

8

20

14

16

18

10

8

4

The Story of PGN

The Story of

a Country

that is Moving

Ahead for Progress.

Jakarta, DKI Jakarta

|

Thanks to

the effort made by the Government

of Indonesia to improve its public

transportation facilities, people now

have the beneit of easy, inexpensive

and eficient transportation to their

work place. This is thanks to the

Transjakarta system’s gas-powered bus

leet. Currently, 80% of Transjakarta

buses are fueled by gas that is

supported by PGN’s infrastructure.

BGG, normally source their gas supplies

from PT Gagas Energi Indonesia (GEI), a

Subsidiary. In 2014, GEI supplied 987,000

LSP (Premium Gasoline Liters Equivalent).

Malls.

Grand City Mall, Surabaya

|

According to the Nielsen Survey

Institute, 52% of the total Asian

population in 2020 will be in

the middle-class segment. With

the growing numbers in this

group, an increase in consumer

spending is expected. This

can be observed from one of

the biggest shopping malls in

Indonesia, Grand Indonesia.

Approximately 2 million people*

visit Grand Indonesia every

month, either to shop or to

engage in the new, modern

Indonesian lifestyle.

*Source: Bisnis.com

RETAIL SALES IN INDONESIA

(TRILLION DOLLARS) _{ACTUAL PROJECTION}

SOURCE: STATISTICA

2008 2009 2010 2011 2012 2013 2014 2015 2016

100 0 300 200 400 500 600

228 226

285 327

335 363 411

474 543

8

The Story of PGN

The Story of

92 Thousand Residential

Customers.

There use of natural gas in households

in Indonesia is increasing, and PGN

is expanding its gas distribution

networks to meet household energy

needs. Currently, more than 92,000

households in Indonesia use natural

gas from PGN. In 2014, PGN launched

the Sayang Ibu program, which is

targeting an increase of 1 million

customers.

Every month, millions of

cubic meters of natural gas

are distributed to residential

customers. In future, PGN will

increase its investment in the

distribution of gas to residential

networks, which will contribute

to the country’s economy.

SOURCE: PGN

HOUSEHOLD NATURAL GAS CONSUMPTION

(IN METER CUBIC)

Q1-2014 Q2-2014 Q3-2014 Q4-2014 0

4,250,000

4,000,000 4,500,000 4,750,000 5,000,000

4,557,406.47 _4,511,463.49 4,549,256.30

double in size over the next ive years*.

10

The Story of PGN

In line with the new outlook of

the Indonesian Government, there

is renewed optimism about the

Indonesian economy. According to the

Boston Consulting Group, Indonesian

people have the greatest optimism,

globally, with regard to their inancial

condition. With the promising

economic growth trends, it is estimated

that approximately 8-9 million people

will be joining the middle class group

each year until the year 2020. This will

drive an increase in demand for energy.

It’s the story of

MONTHLY HOUSEHOLD EXPENDITURE

(IDR IN MILLIONS)

2012 POPULATION

(IN MILLIONS)

29.8% OF POPULATION

52.7% OF POPULATION

TOTAL: 248.2 MILLION; MIDDLE CLASS & ABOVE: 74 MILLION

TOTAL: 267.6 MILLION; MIDDLE CLASS & ABOVE: 141 MILLION

2020 POPULATION

(IN MILLIONS)

7.5 OR MORE 5.0 TO 7.49 3.0 TO 4.99 2.0 TO 2.99 1.5 TO 1.99 1.0 TO 1.49 LESS THAN 1.0

INDONESIA’S POPULATION GROWTH IN NUMBERS AND LEVELS OF PROSPERITY

SOURCES: BOSTON CONSULTING GROUP AND CENTRAL STATISTICS AGENCY

2.5

6.6 16.5

6.9

23.2 49.3

41.6 68.2

44.4 50.5

65.4 47.9

64.5 28.3

Kebarosan Elementary School

12

The Story of PGN

CORPORATE SOCIAL RESPONSIBILTY HUMAN RESOURCES

37

.

5

HUMAN RESOURCES

1

,

509

LSP DELIVERED

POWERING

9.8 MILLION

KILOMETERS

*(ASSUME 1 LSP/10 KM)

*

987,422

54

EMPLOYEES

6

,

161

KM PIPELINE

fund distributed

MILLION

+

13

.

6

AVERAGE YRS.

EMPLOYMENT

EXPERIENCED

WORKFORCE

11 34

in indonesia

OF

P R O V I N C E S

U$D

TOTAL ACCIDENT

HOURS

FREE HOURS

MEDIAN AGE

SERVICE AREA

AS % OF TOTAL

32

.

3

%

11.7

million

to csr and community

development

fund distributed

U$D

12.55

million

to partnership

PROGRAM IN 2014

total shale gas

bcf

reserves in fasken field,usa

*Proven Developed and Undeveloped Reserves

R E SO U RC E FU L

3

,

815

COLLEGES AND

UNIVERSITIES

SOURCE: BADAN PUSAT STATISTIK

BI

LLION

FORECAST TO EXCEED $1 TRILLION BY 2017

SOURCE: INTERNATIONAL MONETARY FUND

INDONESIA’S 2014 GDP

6

.

1

%

2014 RATE OF

UNEMPLOYMENT

5

.

8

%

FORECAST

FOR 2015:

SOURCE: IMF FORECAST

80

CHANGE IN GDP (PPP) PER CAPITA

2009-2019

36

INCREASE IN

POPULATION

COMPLETING

HIGH SCHOOL

2004-2013

%

2019

4

,

559

2014

U$D U$D

in

GDP PER CAPITA

3

,

404

GDP PER CAPITA

by

S

OUR

CE: IMF F

ORECA

S

T

S

OUR

CE: IMF F

ORECA

S

T

6

,

366

1,500,000

CNG POWERED

GOAL TO GROW BY 2020 TO: SOURCE: ASIA-PACIFIC NATURAL GAS VEHICLE ASSOCIATION VEHICLES IN SERVICE (2014)

INDONESIA

103

.

3

SOURCE: BP STATISTICAL REVIEW OF WORLD ENERGY, JUNE 2014

proved

_{RESERVED NATURAL GAS}

TRILLION

80.51

COVER

ELECTRIFICATION RATIO

%

SOURCE : HANDBOOK OF ENERGY & ECONOMIC STATISTICS OF INDONESIA 2014, KEMENTERIAN ESDM

%

856

14

The Story of PGN

Most Indonesian shop at small

shops or markets. However,

with the growing economy and

evolving lifestyles, this will soon

change.

SOURCE: WORLD BANK HOUSEHOLD EXPENSES PER CAPITA

2009 2010 2011 2012 2013

0 950

900 1,000 1,050 1,100

958.17

1029.78 990.44

1071.17

927.10

The Story of

Growing Consumer Base.

Karawaci, Banten

| Household

consumption is one of the key

drivers of Indonesia’s economy.

More than 60% of the supply of

natural gas is used by power plants

to supply electricity to homes,

supermarkets, hypermarkets,

shopping malls, small shops,

restaurants, hotels, automotive

showrooms, bakeries, cafes, furniture

stores and anywhere people shop.

by observing trends in people’s

choice of places to work, to shop

and to live. Energy needs in

the household and commercial

sectors are expected to grow

by an average 8% every year,

meaning they will double over

the next 10 years.

16

The Story of PGN

EDUCATION LEVEL % OF POPULATION

2001 2004 2007 2010 2013

0 5% 10% 15% 20% 25% 30% 35%

NON-FORMAL EDUCATION

HIGH SCHOOL GRADUATES AND ABOVE

SOURCE: WORLD BANK

The Story of

Educational Progress.

Bojonegara, West Java

| The future

of Indonesia is shaped by this kind of

classroom. PGN has taken initiative to

contribute to improving the quality of

education in Indonesia. Measures have

been taken to develop educational

facilities and infrastructure in areas

where PGN operates.

PGN’s activities include building

schools, conducting summer camps for

exceptional students, supporting local

art and cultural activities, and providing

trainings and scholarships for teachers.

For PGN, these programs are something

we do to ensure that the story of

P

GN believes that there is an urgent need to

increase the number of educated employees

in order to be able to deliver excellent service

to customers. For this reason, PGN provides

scholarships, both domestic and overseas, for

its employees to continuously improve their

capabilities.

Indonesia’s education policy gives

priority to increasing access to

education for all groups of people.

Glass factories consume a lot of energy.

PGN’s expert staff work together with our

factory customers to provide optimum

solutions for energy consumption.

Mr Djoko Agus, PT Kedaung Group, Glass Industry

Rising incomes for the majority of

Indonesians are driving increasing

demand and generating more PGN

customers from the industrial sector.

manufacturing sector is growing.

Over the years, this sector has made a

signiicant contribution to Indonesia’s

economic growth, amounting to 4.3%

and 4.1% in the last two years. One of

the factors driving this growth is natural

gas. Natural gas is a critical energy

source for numerous manufacturing

industries, such as glass factories in

Surabaya.

20

The Story of PGN

The Role of PGN in Indonesia’s

Advancement.

P

ower plants in Indonesia use various fuel sources.

The policy on fuel diversiication gives priority

to the use of natural gas as an environmentally

friendly and economical fuel source, projected

multiplied in the next 5 years.

2012

2020

(Projected)

COAL 43%

COAL 34%

FOSSIL FUEL 33%

FOSSIL FUEL 28%

NATURAL GAS 16%

NATURAL GAS 28% HYDRO 6%

HYDRO 9% RENEWABLE ENERGY 2%

183

Billion

KWh

313.7

_Billion

KWh

RENEWABLE ENERGY 6%

This is the story of Indonesia, where PGN’s

infrastructure extends across the country, from the

decks of our FSRU ship in the waters of Lampung,

to the installation of more than 6,000 kilometers of

pipelines to distribute high quality natural gas to our

customers. A new Indonesia is developing with the

support of natural gas. Currently, natural gas is the

energy supply of choice for residential customers,

commercial customers and industrial customers.

Today, PGN remains the best gas distributor company

in Indonesia.

FUEL GAS FILLING INFRASTRUCTURE

As part of PGN’s support for Government programs, it is operating Mobile Refueling Units (MRU) to accelerate the oil to gas conversion in the transportation sector. In 2014, MRUs supplied over 600,000 LSP (RON88 gasoline liters equivalent) to various types of vehicles.

Highlights of 2014

Performance

24

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Highlights of 2014 Performance

financial highlights

financial RatiOs

REtURn On EQUitY (%) REtURn On inVEstMEnt (%)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

2014

USD (Audited)

2013* USD (Audited)

2012 USD (Audited) 2011* USD (Audited) 2010** USD

Net Revenues 3,408,590,061 3,001,516,630 2,580,234,140 2,230,397,076 2,178,490,419 Cost Of Revenues (1,943,781,551) (1,583,854,969) (1,107,842,836) (888,467,843) (795,914,325)

Gross Proit 1,464,808,510 1,417,661,661 1,472,391,304 1,341,929,233 1,382,576,094

Other income 50,100,078 27,023,658 21,415,500 20,878,662 10,950,634

Distribution and transmission expense (301,040,403) (292,558,975) (269,894,769) (280,226,926) (246,495,197) General and administrative expense (223,926,062) (216,617,353) (204,389,934) (178,257,491) (136,982,346

Other expenses (7,883,185) (2,156,558) (1,038,741) (6,166,815) (1,835,320)

Operating Proit 982,058,938 933,352,433 1,018,483,360 898,156,663 1,008,213,865

Other income (expenses) (3,293,510) 132,387,542 129,824,667 (26,182,646) (135,188,632) Proit Before Tax Beneit (Expense) 978,765,428 1,065,739,975 1,148,308,027 871,974,017 873,025,233 Tax Expense - Net (231,093,948) (227,938,102) (233,051,777) (170,073,498) (177,185,009)

Proit For The Year 747,671,480 837,801,873 915,256,250 701,900,519 695,840,224

Other Comprehensive Income (Loss) Changes in fair value of available-for-sale

inancial assets 7,258,618 (15,767,821) 7,794,787 1,119,417

-Actuarial gains (losses) (7,275,663) 29,827,072 (8,734,002) -

-Difference in foreign currency

translation of the inancial statements of Subsidiaries, net

(1,118,323) (14,010,436) (1,724,744) (562,756)

490,571

Sub-total (1,135,368) 48,815 (2,663,959) (556,661) 490,571

Income tax effect 1,747,970 (5,717,966) 1,906,393 -

-Other Comprehensive Loss After Tax 612,602 (5,669,151) (757,566) (556,661) 490,571 Total Comprehensive Income For The Year 748,284,082 832,132,722 914,498,684 702,457,180 696,330,795

Proit For The Year Attributable To:

Owners of the parent entity 722,754,065 804,450,586 890,885,456 680,804,733 671,188,743 Non-controlling interests 24,917,415 33,351,287 24,370,794 21,095,786 24,651,481

Total 747,671,480 837,801,873 915,256,250 701,900,519 695,840,224

Total Comprehensive Income For The Year Attributable To:

Owners of the parent entity 723,824,337 798,164,240 889,696,452 681,357,195 671,678,944 Non-controlling interests 24,459,745 33,968,482 24,802,232 21,099,985 24,651,850

Total 748,284,082 832,132,722 914,498,684 702,457,180 696,330,795

EBITDA 1,160,903,166 1,120,408,710 1,209,088,023 1,078,295,431 1,183,188,921

cURREnt RatiO (%)

0 3 1 2 4 5 6 2012 2011

2010 2013 2014

1.71 2.01 4.19 5.50 3.44 0 30 20 10 50 40 70 60 80 2012 2011

2010 2013 2014

43.09 60.86 56.80 68.50 32.26 0 10 5 20 15 30 25 35 2012 2011

2010 2013 2014

25.95 30.94 31.71 33.42 18.68 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000

2009 2010 2011 2012

Pgas shaRE PRicE MOVEMEnt

2010 - 2014

01

DEBt tO EQUitY (%) EBitDa (MilliOn UsD) PRicE EaRning RatiO (%)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

2014

USD (Audited)

2013* USD (Audited)

2012 USD (Audited) 2011* USD (Audited) 2010** USD

Total Assets 6,215,496,359 4,318,010,538 3,908,162,319 3,400,177,005 3,540,157,399 Total Liabilities 3,252,426,584 1,646,866,662 1,553,370,341 1,520,819,736 1,889,141,971 Total Equity 2,963,069,775 2,671,143,876 2,354,791,978 1,879,357,269 1,651,015,428 Capital Expenditure 2,675,964,259 880,741,897 139,599,881 102,483,665 167,035,191 Net Working Capital 770,198,565 894,396,119 1,511,068,613 1,232,909,912 1,093,416,524 Investment in shares of stock 110,101,412 95,331,310 65,952,471 45,000,454 21,490,854

FINANCIAL RATIOS 2014 (Audited) 2013* (Audited) 2012 (Audited) 2011* (Audited) 2010**

Gross Proit Ratio (%) 42.97 47.23 57.06 60.17 63.46

Net Proit Margin (%) 21.20 26.80 34.53 30.52 30.81

Margin EBITDA (%) 34.06 37.33 46.86 48.35 54.31

Net Debt/EBITDA (X) 0.50 0 0 0 0.16

EBITDA/Interest Expense(X) 15.36 51.25 56.04 38.91 28.72

EBITDA/(Interest Expense + Principal) (X) 6.47 8.42 11.75 2.43 9.60

Current Ratio (%) 170.62 200.93 419.63 550.22 343.59

Debt to Equity Ratio (%) 63.87 38.41 39.86 58.12 86.15

Debt to Total Asset Ratio (%) 30.45 23.76 24.02 32.12 40.18

Return on Investment (%) 18.68 25.95 30.94 31.71 33.42

Return on Equity (%) 32.26 43.09 60.86 56.80 68.50

ROCE (%) 20.23 25.25 30.92 30.02 32.51

Price Earning Ratio (X) 16.39 11.21 13.11 12.63 18.01

Price to Book Value (X) 4.28 3.62 5.32 4.96 7.98

STOCK DATA 2014 (Audited) 2013* (Audited) 2012 (Audited) 2011* (Audited) 2010**

Weighted Average 24,241,508,196 24,241,508,196 24,241,508,196 24,241,508,196 24,239,658,196 Common Shares Outstanding (share) 24,241,508,196 24,241,508,196 24,241,508,196 24,241,508,196 24,241,508,196

Net Income (loss) per share 0.03 0.03 0.04 0.03 0.03

0 250 750 500 1000 1250 2012 2011

2010 2013 2014

1,120 1,209 1,078 1,183 1,161 0 5 10 15 20 2012 2011

2010 2013 2014

11.21 13.11 12.63 18.01 16.39 0 20 60 40 80 100 2012 2011

2010 2013 2014

38.41 39.86 58.12 86.15 63.87 2013 2014 VOLUME PGAS IHSG 60,000 50,000 40,000 30,000 20,000 10,000 0 2014

Highest Share Closing Price Rp6,175 on 19-20 November 2014

* Restated

** Restated: conversion in 2010 Financial Statement (audited) from Rupiah to USD

26

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Highlights of 2014 Performance

PGAS SHARE PRICE 2014

2014

Q4 Q3 Q2 Q1

Total Outstanding Shares (Share)

24,241,508,196 24,241,508,196 24,241,508,196 24,241,508,196

Market Capitalization (Rp) 145,449,049,176,000 145,449,049,176,000 135,146,408,192,700 124,237,729,504,500

Highest Price (Rp) 6,175 6,100 5,750 5,300

Lowest Price (Rp) 5,675 5,425 5,125 4,250

Closing Price(Rp) 6,000 6,000 5,575 5,125

Trading Volume Averages (Lot)

180,411 165,146 200,198 256,276

PGAS SHARE PRICE 2013

2013

Q4 Q3 Q2 Q1

Total Outstanding Shares (Share) 24,241,508,196 24,241,508,196 24,241,508,196 24,241,508,196

Market Capitalization (Rp) 108,480,749,177,100 126,055,842,619,200 139,388,672,127,000 144,236,973,766,200

Highest Price (Rp) 5,450 5,950 6,350 5,950

Lowest Price (Rp) 4,400 5,050 4,650 4,475

Closing Price(Rp) 4,475 5,200 5,750 5,950

Trading Volume Averages (Lot)* 229,817 251,071 292,799 251,706

* Adjustment with new trading and fraction unit

nUMBER Of cUstOMERs

2010 2011 2012 2013 2014

0 85,000 87,000 89,000 91,000 93,000 95,000 97,000 89,053 91,590 90,364 96,049 88,326

Pgn’s DistRiBUtiOn anD tRansMissiOn VOlUME

2010 2011 2012 2013 2014

0 1,600 1,720 1,700 1,680 1,660 1,640 1,620 1,640.76 1,677.98 1,684.13 1,716.92 1,660.72

MMscfD lEngth Of PiPElinE

nEtWORK (KM)

2010** 2011* 2012 2013 2014

0 5,800 6,150 5,950 6,000 6,050 6,100 5,900 5,850 5,883 5,997 5,912 5,910

PGAS share price movement in 2014 opened at Rp4,600 and closed at end of year at Rp6,000. PGAS’s price was at its peak on 21 November 2014, when it was traded at Rp6,225 and made the highest closing price of Rp6,175 in 19-20 November 2014. As of 31 Descember 2014, PGAS was one of the Top 8 largest companies with market capitalizations among publicly listed companies in the Indonesia stock exchange and was one of the Top 4 state owned enterprises largest of companies with market capitalizations of Rp145.44 trillion.

6,161

* Based on Individual Equipment Worthiness Certiication (SKPP) issued by the Director General of Oil and Gas in 2012, the length of the Sumatera-Java Transmission Pipeline was 1,004 km. ** 32.2 km of transmission pipeline was categorized as distribution

01

Report to the Shareholders

02

28

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

02

Dear Shareholders,

PGN took several steps further towards becoming a world-class gas company in 2014. The Company continued to pursue its long-term strategy of progressive investment in various ields in order to build a balanced energy business with a strong presence upstream, downstream and midstream, while leading the development of the infrastructure and technology that will enable Indonesia to beneit from the vast potential of gas in future.

REPORt tO thE shaREhOlDERs

Report from the Board of commissioners

Bayu Krisnamurthi

30

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Report to the Shareholders

assEssMEnt Of thE BOaRD Of DiREctORs’ PERfORMancE

The Board of Directors successfully steered the Company through some tough challenges during in 2014, meeting the targets set for the year and delivering a 5% increase in sales volume and a 13.6% increase in revenue growth. This year saw a very signiicant increase in the contribution of the upstream business to the Company’s revenues, which serves as a strong endorsement of our strategy of investing in balancing the business. To continue creating value over the long term, it is critical that the Company becomes more independent with regard to sources of gas supply. The Company has progressed this strategy on two fronts.

Firstly, through strategic investment upstream. In 2014 the Company made its irst investment in an overseas asset with the acquisition of a 36% ownership stake in the Fasken shale gas ield in the USA through our upstream subsidiary, PT Saka Energi Indonesia (SEI). This was part of a carefully managed expansion that also saw SEI acquire assets in the Pangkah and South East Sumatera blocks as well as Fasken in 2014. SEI is now the operator of one producing and one exploration

block and has participating interests in ive other blocks, a remarkable achievement in only its third year of operation.

Secondly, the Company has moved decisively into the LNG business. With potentially abundant global supplies available—including from Fasken—LNG will play an increasingly important role in supplementing the Indonesia’s domestic natural gas sources. With the commissioningof the second FSRU facility in Lampung in 2014, PGN has established a major presence in the LNG business in Indonesia, and the Company is now reining innovative technologies that will bring the beneits of LNG to an increasing

number of off-pipeline locations across the archipelago. We believe that gas, by powering electricity generation and industry, household and transportation, has a key role to play in boosting regional economic growth.

Also high on our strategic agenda is the development of gas infrastructure to enable conversion to gas to take place on a much broader scale than has hitherto been possible. This is closely aligned with the Government’s energy policy, which envisages greater domestic utilization of natural gas as an alternative to oil, not least to wean the country off the costly fuel subsidies that have contributed to the current account deicit. We were gratiied that the Government has recognized PGN’s leadership in this regard, and has entrusted the Company with the construction of the highly strategic

Kepodang- Tambaklorok pipeline, the irst phase of the Kalija pipeline that will eventually link Kalimantan and Java.

W

e will continue to

support the utilization

of natural gas as one of

Indonesia’s energy pillars.

Firmanzah M. Zamkhani

02

We appreciate the efforts of the Board of Directors to expand the use of natural gas by the public despite the constraints on doing so. This is evidenced by a series of breakthroughs to overcome the restrictions imposed by the limited availability of natural gas pipeline infrastructure, such as the deployment of Mobile Refueling Units (MRU), and the development and construction of CNG illing stations. PGN has also continued to develop a network of natural gas pipelines to serve households that have not yet been able to enjoy the beneits of natural gas, including through the implementation of the ‘Sayang Ibu’ program. PGN, through its downstream subsidiary

PT Gagas Energi Indonesia(GEI), is taking the lead in connecting households to natural gas, a much cleaner, cheaper and safer solution than LPG. PGN is also promoting the use of CNG to power transportation and is trying to make it easier for CNG users to access CNG through the deployment of MRU in strategic locations such as Monas and by installing CNG dispensers at Pertamina’s illing stations. This, again, is aligned with the Government’s intention to strengthen Indonesia’s energy security and balance of payments by reducing reliance on imported oil.

In 2014 the Company decided to broaden its options for inancing its innovation and expansion agenda. We expect the highly successful issue of PGN’s bond, as well as the arrangement of a syndicated loan on favourable terms, to strengthen the Company’s inancial condition.

cOMMittEE PERfORMancE anD cORPORatE gOVERnancE

Both the Audit Committee and the Risk

Management and Business Expansion Monitoring Committee played an important role during the year in strengthening the integrity and effectiveness of the Company’s governance systems and procedures, particularly those related to inancial reporting, internal controls and risk management.

The underlying improvements we are making across PGN’s governance framework continue to pay off. Our annual independent corporate governance assessment score increased to 92.06% (‘Very Good’) from 91.61% in 2013.

Improvements were noted on almost all indicators, but particularly in the level of commitment to the sustainable implementation of GCG in the Company. We believe that this continued strengthening of PGN’s corporate governance, as measured by objective indicators, sends a strong signal to our investors and customers that we are committed to being a responsible and accountable organization.

thE cOMPanY’s PROsPEct: thE BOaRD’s PERsPEctiVE

We are conident that the long-term outlook for PGN is bright. As an energy and gas company, operating in a country that is projected to have to fastest growing energy demand in the ASEAN region over the next 5-10 years, demand for the Company’s products is guaranteed. Moreover, our investments are beginning to show signiicant returns. PGN’s LNG facility in Lampung is demonstrating that gas is a feasible solution for power plants, and has already enabled PLN to generate more power

32

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Report to the Shareholders

P

GN has several years of

experience in the energy

business in this country. In

many ways, the progress of

this Company relects the

development of Indonesia.

Bayu Krisnamurthi

President Commissioner

for southern Sumatera and western Java. Our investments in Indonesia and the USA have already strengthened our sources of supply. We are also investing behind a long-term infrastructure and technology development plan that will make gas a sustainable solution for Indonesia, both on and off pipeline.

Gas has an unbeatable value proposition. It is cheap, clean, eficient and abundant, and—particularly in the form of LNG—easy to transport. As worldwide demand for energy increases, the role of gas in the global energy mix is growing in importance, and countries are increasingly turning to gas to fulil their energy needs. We believe that Indonesia, with signiicant reserves of gas and a large untapped energy demand, should do the same.

This will entail substantial, long-term investment in developing the appropriate infrastructure. We believe that, given its demonstrated commitment to developing Indonesia’s gas infrastructure over several decades, its strong comparative advantage in distribution, the expertise it has developed throughout the gas value chain, as well as its status as a national entity, PGN is optimally placed to be entrusted to take the lead in delivering the country’s natural gas needs in future.

changEs in thE cOMPOsitiOn Of thE BOaRD Of cOMMissiOnERs

The Annual General Meeting of Shareholders on March 27, 2014 approved a change

in the the composition ofthe Board of Commissioners. Mr.Kiagus Ahmad Badaruddin resigned from the Board and Mr. A. Edy Hermantoro was appointed as the new Commissioner. We would like to thank Mr. Kiagus Ahmad Badaruddin for his role in the supervision of the Company for the period of May 31, 2007 until March 27, 2014 and we are pleased to welcome Mr. A. Edy Hermantoro as the Commissioner of the Company.

clOsing

On behalf of the Board, I would like to express my appreciation to the Board of Directors and our employees for their ongoing commitment to achieving PGN’s vision and mission and to our customers, shareholders and partners for their cooperation and trust.

PGN has a track record of several decades in the energy business in Indonesia. In many ways, PGN’s progress relects the growth of Indonesia itself, Both Company and country have, in the past, adopted a prudent, steady approach to development. Both have tremendous potential, as well as the capacity to unlock it. Both are now facing unprecedented opportunities for growth. We look forward to realizing these opportunities, with your continued support, in the future.

02

Dear Shareholders,

PGN delivered a strong performance in 2014, passing a number of important milestones in the development of a

well-diversiied business portfolio. In addition, PGN made signiicant strategic investments during the year that have strengthened the Company’s credentials as a sustainable, integrated gas business operating from upstream to downstream.

REPORt tO thE shaREhOlDERs

Report from the Board of Directors

Hendi Prio Santoso

34

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Report to the Shareholders

OUR PERfORMancE in 2014

The Company’s revenue grew by 13.6%, driven by a 5% increase in sales volume as well as a signiicant growth in revenue from the upstream business, which exceeded targets by increasing from USD35 million to USD298 million in 2014. Gross proit and operating proit increased by 3.3% and 5.2%, respectively. Proit For The Year Attributable To Owners of the parent entity was down 10.16%; however, this was largely due to non-cash items booked in 2013 and is not relective of overall performance during the year.

The Company’s assets grew by 43.94%

due to major upstream investments, while equity grew by 10.93%. The Company has maintained healthy inancial ratios, relecting strong inancial discipline and the capacity for further growth. During the year, PGN made strong progress towards its strategic objectives of strengthening our core business while continuing to diversify and consolidate our position in new businesses, both upstream and downstream. We continued to invest behind the Country’s gas infrastructure, beginning construction of the irst phase of the Kalija transmission pipeline to connect the Petronas-Kepodang gas ield in the Java Sea to PLN’s Tambak Lorok power plant in Central Java, and expanding our distribution networks to meet growing demand in western Java while building new distribution pipelines to develop our markets in Lampung and Semarang, Central Java.

The operating environment in 2014 was

dominated by uncertainty. Indonesia continued to grapple with macroeconomic challenges, including the prolonged current account deicit and luctuations in in the exchange rate. This had an impact on the Company as many of our operations and the majority of our investments are denominated in US dollars. Although the presidential election was largely conducted peacefully, there was inevitably some uncertainty over the policy direction that would be taken by the new government. As the year closed, we, along with other players in the energy business, were working to assess the impact of drop in the oil price. While this could potentially impair the value of our upstream assets, in the downstream sector we have not yet seen any inluence on customer appetite for gas. Overall, however, we believe that the recent volatility in the oil price only serves to highlight the advantages of the much greater price predictability of gas.

As the largest integrated gas

Company in Indonesia, PGN

is well-positioned to lead the

country towards a brighter and

more sustainable energy future.

Hendi Prio Santoso Mochtar Riza

Pahlevi Tabrani

02

The strategic growth of our new business portfolio is closely aligned with PGN’s vision of establishing itself as a world class player in gas utilization. As we came to the end of the irst long-term planning phase towards attaining this goal in 2014, we are pleased to report that achievements are ahead of the plan.

In 2011 we embarked on a strategy to

aggressively address the upstream business in order to ensure growth while strengthening the Company’s participation across the gas value chain. In just three years we have already established a signiicant position in the

upstream sector, with six assets in Indonesia (two of which are producing) and an interest in a producing shale gas block in the US, acquired in July 2014. Our participation in US shale gas is an important development in our long-term strategy to gain exposure to this growing sector. SEI, PGN’s upstream subsidiary, is rapidly establishing itself as an operator as well as an investor, with operatorships in one producing and one exploration block.

In the infrastructure sector, the commissioning of our second Floating Storage Regasiication Unit (FSRU) in Lampung marked a major strategic milestone for the Company as LNG is set to play an increasingly important role not only in the growth of our business but in Indonesia’s overall energy landscape. The supply volume from LNG from Lampung and our irst FSRU in Jakarta Bay

is currently being absorbed by the power sector, but we will begin to address other markets in the coming year.

PGN’s downstream subsidiaries all generated proits in 2014 and have continued to deliver on the Company’s commitment to promote the utilization of natural gas in order to reduce the nation’s reliance on oil.

We faced a number of challenges during the year. Given the prevailing conditions in the Country, with rising electricity and fuel prices alongside impending elections, we felt it prudent to defer any price increases. This had an impact on our overall performance; on the upside, however, it served to strengthen our rapport with customers. This is characteristic of the Company’s long-term perspective, preferring sustainable value creation over short-term gains.

The allocation of gas supply remains a challenge for PGN. Under the new administration, however, we have seen some improvement with regard to the management of gas allocation at the regional level. We also believe that the new administration is more receptive of our position—which is that the allocation of limited resources should be made on more fair and transparent grounds, for example by using allocation as a tool to incentivise

infrastructure development.

36

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Report to the Shareholders

in industrial areas by installing branch line connections, the cost of which is shared by the developer of the industrial area. New residential developments, particularly vertical housing developments, are also targets for pipelines. In addition, we have taken over the operation of some 8,000 new household gas connections developed by the Government in various areas including Jakarta, Bogor and Cirebon.

We are also looking into the use of nonpipeline modes such as Compressed Natural

Gas (CNG) and Adsorbed Natural Gas (ANG), to accelerate penetration. CNG is already being supplied to several hundred customers in residential clusters in Semarang, while we are currently reining the technology to make ANG commercially viable. We are targeting an 18% growth in our household customer base in 2015 to almost 110,000 customers.

Over the last two years PGN has been leading the way in promoting gas as a cheaper, cleaner and more sustainable alternative to petroleum-based fuels, particularly in the public transportation sector. Thanks to the Company’s substantial investments in research, development and infrastructure, gas is now a viable solution. PGN has now opened several gas illing stations in the Greater Jakarta area, including mobile refuelling units, and converted all its operational vehicles to gas. We are also working with Pertamina to install natural gas dispensers in gasoline illing stations that are close to our pipelines. The Government has now matched the Company’s commitment by allocating a portion of the country’s natural gas production for use in vehicles, which encourages us to step up our efforts to promote conversion. Large-scale conversion, however, calls for synchronized policies and a clear plan, assurances on both supply and demand, and incentives for conversion. PGN will continue to work alongside the Government to make this happen.

We also need greater commitment from the Government regarding conversion of vehicles to LNG. As detailed later in this report, we have made great strides towards making LNG a viable fuel, particularly for public transport, but our greatest challenge is the lack of any real incentive to convert. Synchronized policies on supply, price, infrastructure and incentives will be required to generate the momentum for large-scale conversion.

BUsinEss PROsPEcts

growing natural gas consumption

One of the new President’s irst actions upon taking ofice was to mandate the greater use of gas as support of the strategy to strengthen energy security, reduce dependence on oil and ease the burden on the National Budget caused by fuel imports. PGN is fully support this energy conversion program, having already made substantial investments in recent years to bring the beneits of natural gas to a broader base of customers, from the power generation sector, industry, household and transportation. Urban households in Indonesia are still largely reliant for their cooking and water heating needs on LPG. LPG prices, being linked to the price of oil, are volatile, and almost half of national consumption needs are imported. Our target is to connect 1 million households to natural gas, which offers a cheaper, safer and cleaner energy solution. This is an ambitious goal, given that we currently have less than 100,000 household customers, but one that we believe is achievable.

The principal hurdle is the high cost of investment, particularly the challenging ‘last mile’ connection. PGN is therefore exploring innovative and cost-effective ways to connect industry and households to natural gas. For example, we are linking this initiative with the development of pipeline infrastructure

02

Government’s infrastructure acceleration program by contributing to the expansion of the country’s electricity generation capacity, not only by supplying gas to the power sector but also, where feasible, to participate in the power generating sector ourselves, through our downstream entity, GEI. This will beneit not only PGN but PLN, the Government and other stakeholders.

Developing gas infrastructure

PGN remains Indonesia’s largest single contributor to the development of the infrastructure that will enable natural gas to play a more central role in Indonesia’s energy future, by initiating, building and operating the Country’s most extensive transmission and distribution pipeline networks that supply a range of customers, including power plants, manufacturers, commercial enterprises, hospitals and households. We are also building gas illing stations to support gas-powered vehicles. Most of this investment has come from the Company’s own inancial resources.

In 2014 PGN continued to make substantial investments that will enable the Government to pursue its energy conversion program, including the Lampung FSRU project and the Kepodang-Tambak Lorok pipeline, which is scheduled for commissioning in August 2015. Currently, however, our pipeline networks are largely concentrated around the sources of supply. The next step—and part of our masterplan—is to facilitate a more rational use of gas resources by integrating these discrete networks to make one contiguous pipeline system that will span the island of Java from east to west and connect up with the Trans-Sumatera pipeline. A key challenge, however, is the absence of privilege regarding gas supplies for domestic consumption, and as a result,

developing land-based LNG facilities to ensure a secure supply. We are working with GDF Suez, one of the world’s leading players in LNG, to develop options for this scenario. By making natural gas economically transportable over long distances, LNG signiicantly opens up the geographical and economic opportunities for the utilization of natural gas. For Indonesia and for PGN in particular, it makes it commercially viable to secure supplies from remote locations, including, in the future, from our shale gas interests in the USA and we have invested in developing LNG storage and regasiication facilities in areas of heavy demand to make this possibility a reality. This is a major investment, however and we are working on more viable solutions, such as mini LNG, to bring gas to areas where there is a lower concentration of demand or where pipelines connections are not feasible. At the initial phase, we are exploring options for building terminals at strategic points along the route from our key sources of LNG supply in the Tangguh ield in West Papua to our FSRU in Lampung. By meeting the as yet untapped demand from the power generation, industry and commercial sectors, mini LNG has the potential to be a major facilitator of economic growth in Eastern Indonesia. To cover capital expenditure in 2014 and 2015, the Company issued a USD 1.35 billion bond, which was heavily oversubscribed, and signed a syndicated USD 650 million loan agreement with ive banks. PGN secured the loan on very favourable terms, relecting lenders’ conidence in the Company and enabling us to deliver infrastructure at a lower cost.

38

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Report to the Shareholders

Reorganization

The transition and rapid expansion of our business has placed new and unprecedented demands on the organisation. To accommodate some of these demands, we have integrated all our infrastructure development projects under one roof, the Project Management Ofice (PMO). This has already strengthened project coordination and signiicantly accelerated execution: by the end of 2014, investment absorption had reached almost 80% compared to just 40-50% in previous years and we are targeting 90% by the end of this year. With projects now consolidated into fewer but higher value packages, they are attracting better quality contractors, and we are already seeing the beneits in terms of a more professional approach to safety, quality and timeliness. Further reorganization is planned as PGN focuses more on the strategic side of the business and increasingly devolves the

operational aspects to subsidiaries, enabling us to plan and monitor progress and support more effectively. This transition is expected to be complete within two to three years.

human capital Development

In 2012, in support of PGN’s vision of becoming a World Class Energy Company, we launched a long-term strategy to upgrade managerial and technical competencies across the board and ensure a strong succession pipeline. This initiative also grew from the recognition that the advent of the integrated ASEAN economic community in 2015 would demand more of the knowledge, competencies and responsiveness of our workforce. Giving our employees’ exposure to best the practices of world-class companies through short-term training, visits and placements is therefore an important component of our training and development portfolio.

During the year we launched the STAR program, which will be the core of our succession

planning strategy. Aimed at identifying the Company’s best talent and developing their managerial competencies through an accelerated program, it is focused initially on meeting succession needs at VP and AVP level. The Company has undergone a rapid and fundamental transition over the last three years to become an integrated energy solution provider with a vastly expanded scope of business. Throughout the transition, we have made great efforts to ensure that our employees remain engaged with the process by providing various channels for regular dialog, such as quarterly ‘Town Hall Meetings’ between the Board of Directors and staff. Members of the Board of Commissioners and the labour union also frequently take part, and interactive video conferencing is used to ensure wide geographical representation. All employees are encouraged to provide feedback and input to management at any time; this is actively reviewed and acted upon.

corporate governance

We remain committed to embedding the principles of good governance in the Company as we believe that transparent, responsible and accountable business practices and ethics are critical to the Company’s long-term future and our ability to create value for our customers, shareholders and other stakeholders. During the year we worked with the Anti-Corruption Commission (KPK) to develop guidelines on gratuities. Best practice demands that we also have board manuals, a code of ethics and a whistleblowing system to support governance

02

2014. The effectiveness of corporate governance at PGN is assessed yearly through an

independent audit. Our 2014 score of 92.061 (very good) continued the upward trend of improvement over the last three years.

social Responsibility, safety and Environment

In the interests of sustaining the Company’s performance over the long term and being a responsible corporate citizen, PGN has a strong commitment to building goodwill and trust by minimising any adverse impacts of our operations on the environment and by engaging proactively with our stakeholders, including the communities close to our areas of operation.

PGN’s corporate responsibility is built around empowering people and communities, particularly through economic empowerment and education. PGN has a strong track record of supporting micro enterprises, many of which have grown to become important drivers of their respective economies. By continuing to focus on traditional artisan enterprises such as hand-woven sulam cloth, batik and bronze jewellery, we are not only empowering local communities but contributing to the preservation of Indonesia’s cultural heritage at the same time.

Thousands of students are beneiting from our education program. More than 1000 scholarships were awarded to college students at 15 universities in 2014, while many more children were able to learn in more conducive conditions thanks to our school building renovation program.

investing in increasing safety, reliability and environmental sustainability across our operations is a core priority and a key element of our responsibility to the communities in which we operate as well as to our customers, employees, business partners and shareholders. We are working to embed a safety culture through raising hazard awareness and training on safety across the business and have

continued to see improvements in our safety performance.

Several initiatives have been introduced to reduce energy consumption and costs, including energy audits and a company-wide transition to green energy, beginning with the use of solar cells for outside lighting and repeater towers and the conversion of our leet of operational vehicles to gas.

OUtlOOK

We will continue to monitor movements in the oil price and the implications for our business. However, we believe that it should not unduly inluence our long-term infrastructure development program and capital expenditure will therefore proceed as planned. We will also closely monitor potential upstream opportunities.

Our business is closely aligned with the Government’s energy objectives: conversion to natural gas has been identiied as one of the key measures to reduce the current account deicit by reducing dependence on oil imports. The President’s recent inauguration of several PGN projects also sends a strong signal of

40

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Report to the Shareholders

support for the Company’s infrastructure development strategy. We are also seeing signs of a more transparent and equitable approach to gas allocation. All these factors give us

conidence for the Company’s prospects over the coming year.

clOsing

In 2014 PGN reinforced the foundations for the next phase of long-term, sustainable growth. This would not have been possible without the full commitment of all our employees. I’d like to thank them, as well as the Government, our customers and business partners, for their continued support.

Like Indonesia, PGN has vast potential for growth. The natural gas business in Indonesia is still largely under-penetrated. Over the last year PGN has demonstrated its capabilities at every stage of the gas value chain, and, as the nation’s largest integrated gas Company, it is exceptionally well positioned to lead the Country towards a brighter, more sustainable energy future.

Hendi Prio Santoso

02

We the undersigned declare that all the information included in the Annual Report 2014 of PT Perusahaan Gas Negara (Persero) Tbk has been fully disclosed and we are responsible for the truthfulness of the content of the Company’s Annual Report.

This is our declaration, which has been made truthfully.

Jakarta, 13 March 2015

President Director

HENDI PRIO SANTOSO

President Commissioner

BAYU KRISNAMURTHI

Director of Commerce and Operations

JOBI TRIANANDA HASJIM

Commissioner

FIRMANZAH

Director of Investment Planning and Risk Management

MUHAMMAD WAHID SUTOPO

Commissioner

M. ZAMKHANI

Director of Technology and Development

DJOKO SAPUTRO

Director of Finance

MOCHTAR RIZA PAHLEVI TABRANI

Commissioner

A. EDY HERMANTORO

Director of General Affairs and Human Resources

HENDI KUSNADI

Independent Commissioner

PUDJA SUNASA

Independent Commissioner

WIDYA PURNAMA

STATEMENT LETTER

MEMBERS OF THE BOARD OF COMMISSIONERS

AND THE BOARD OF DIRECTORS

REGARDING

RESPONSIBILITY FOR THE CONTENT OF

THE ANNUAL REPORT 2014

The Floating Storage and Regasiication Unit (FSRU) Lampung was commissioned by PGN LNG in 2014 in the waters of Lampung Timur District, Lampung Province, with a capacity of 240 MMSCFD. FSRU Lampung will help ensure the supply of gas in Java and Sumatera.

03

NAME

PT Perusahaan Gas Negara (Persero) Tbk LINE OF BUSINESS

Transmission and distribution of natural gas OWNERSHIP

Government of Indonesia 56,96%

Public 43,04%

DATE OF ESTABLISHMENT

13 May 1965

LEGAL BASIS

PP No.19/1965

AUTHORIZED CAPITAL Rp7,000,000,000,000

ISSUED AND FULLY PAID CAPITAL Rp2,424,150,819,600

HEAD OFFICE

PT Perusahaan Gas Negara (Persero) Tbk

Jl. K.H. Zainul Ariin No. 20, Jakarta 11140, Indonesia

T. (62-21) 633 4838, 633 4848, 633 4861

F. (62-21) 633 3080, PO BOX 1119 JKT www.pgn.co.id

STOCK EXCHANGE REGISTRATION

The Company’s shares has been registered at Jakarta Stock Exchange and Surabaya Stock Exchange on 15 December 2003 with its Share Code: PGAS

CONTACT CENTER

1500 645

Company Proile

03

industry, primarily to improve the quality of life of society.

44

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

03

Pt Perusahaan gas negara (Persero) tbk

SBU I SBU II SBU Transmisi

Sumatera - Jawa SBU III

PT Gagas Energi Indonesia

PT PGN LNG Indonesia

100%

100%

99.93%

99.91%

59.87%

100%

100%

40%

PT PGAS Telekomunikasi Nusantara

PT PGAS Solution

PT Transportasi Gas Indonesia

PT Saka Energi Indonesia

PT Nusantara Regas PT Permata

Graha Nusantara (PERMATA)

Strategic Business Unit (SBU) Subsidiaries

Associated Entities PGN has three distribution sales areas (SBU I, II, III) and one

transmis-sion service area (SBU Sumatera-Jawa Transmistransmis-sion) as well as eight subsidiaries which engage in various lines of businesses.

46

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Company Proile

1859

1965

1994

2008

2009

2011

PT Perusahaan Gas Negara (Persero) Tbk., widely known as PGN with ticker code PGAS on the Indonesian Stock Exchange, is a pioneering state-owned company dating back to 1859, when it was named L.J.N. Eindhoven & CO Gravenhage.

On 13 May 1965, pursuant to

Government Regulation No. 19/1965, the Company was designated as a State-Owned Company and known as Perusahaan Gas Negara (PGN), and became the oficial date of inception.

In accordance with Law No. 40 year 2007 regarding Limited Liability Companies and related to a stock split, the Company’s Articles of Association was amended by Deed No. 50 dated 13 Juni 2008 jo. Deed No. 8 dated 2 July 2008.

To optimize the strengths and competencies that have been developed over time by leveraging opportunities for future business expansion, in 2009 the Company set up a subsididary company named PT PGAS Solution which engages in the provision of services related to engineering, operations and maintenance,

EPC contractors, and trade.

PGN established two subsidiaries, respectively engaged in upstream and downstream natural gas business. The upstream subsidiary is PT Saka Energi Indonesia (SEI) while the downstream subsidiary is PT Gagas Energi Indonesia (GEI). PGN ownership stands at 99% of both subsidiaries with 1% owned by by PT PGAS Solution.

The Company’s change in status was accompanied by an expansion in the scope of its business, from natural gas distribution to encompass transmission as well, in which PGN functioned

as transporter.

03

1998

2003

2007

2012

2014

MAS

commitment to service

The Company’s shares were listed on Jakarta Stock Exchange and Surabaya Stock Exchange on 15 December 2003 under the stock trading code PGAS.

On 11 March 2007, the Company successfully conducted Gas-In (irst gas channeling) which was followed by the gas commercialization from Pertamina’s Pagardewa gas ield through the South Sumatera-West Java pipeline to a Company customer in Cilegon (PT Krakatau Daya Listrik). On 25 October 2007, Minister of SOE inagurated SSWJ pipeline phase II for Grissik - Pagardewa segment.

PGN established a subsidiary company, PT PGN LNG Indonesia (PGN LNG). The scope of PGN LNG business among others are procuring LNG and natural gas supply, deviation activity including regasiication to the buyer, as well as other business activities.

PGN successfully completed the Grissik – Duri Transmission Pipeline and subsequently established a subsidiary in the business of Transmission, namely PT Transportasi Gas Indonesia (TGI).

PGN established subsidiary company PT Permata Graha Nusantara (Permata). The scope of Permata’s business among others covers property management, manpower outsourcing services, management facilities, and proitization of company’s resources and assets.

48

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Company Proile

BUsinEss actiVitiEs

linEs Of BUsinEss

In accordance with the Articles of Association of PT Perusahaan Gas Negara (Persero) Tbk as most recently amended by Deed No. 11 dated 6 April 2011, PGN’s lines of businesses are:

1. Planning, construction and development of natural gas downstream business which covers processing, transportation, storage and commercial activities.

2. Planning, construction and development of production, supply, channeling and distribution of manufactured gas (hydrocarbon gas).

3. In addition to the core business, the Company may engage in other ancillary businesses that are directly related to and/or support its core business, in accordance with prevailing laws and regulations.

PRODUcts OR sERVicEs PRODUcED

As a State-Owned Company that engages in natural gas transmission and distribution, with reference to the Oil and Natural Gas Law No. 22 year 2001 which requires the separation of upstream and downstream entities, PGN focuses on the downstream business, namely connecting Natural Gas Producers with Natural Gas Users.

In the interests of the management, PGN has divided its operational activity into 4 (four) main business segments, namely:

1. Transmission/Transportation Business, 2. Distribution/Commercial Business, 3. Oil and Gas Upstream,

4. Other Business Segments (Construction and

Maintenance Services, LNG, Fiber Optic Capacity and Property Rental).

Based on PSAK No. 5 (as revised in 2009) regarding operational segment, for the purpose of management assessment and reporting, starting in 2013 the Company also reported oil and gas activities as a business segment of the Company. This is inline with the upstream business strategy which has been conducted since 2011.

Innovation for Indonesia The Tower Yoke used by FSRU Lampung utilizes the most advanced technology. This technology enables the Tower to spin in accordance with the direction of the ocean current, ensuring the reliability of gas distribution.

03

Off-Taker

Dtt

PGN and TGI serve as a gas transporter through transmission pipelines by charging a toll free

PGN as an aggregator purchases gas from various gas suppliers and distributes it to costumers through PGN’s distribution pipelines

PwePlt try,

Cooeclel

Custoe

Gas supply producers

Tra

G

Sce

A A

gr

A

r

! A

gr

C o"ess

St t

BUsinEss stRUctURE

PGN has four business segments. 85.35% of PGN’s revenue comes from its distribution business, 8.74% from oil and gas, 5.47% from the trasmission business and 0.44% from other business segments.

50

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Company Proile

Pgn’s gas sOURcEs, PiPElinE nEtWORK anD facilitiEs

Pertamina EP Asset 1 Field P. Susu 55.07 BSCF

Pertamina EP Asset 1 Sumur Benggala-1 2.19 BSCF

Premier oil Natuna Sea 25 BBTUD

ConocoPhillips Coridor PSC 2,623.64 BSCF

Medco E&P Lematang Lematang PSC 36.04 BSCF

FSRU Lampung 9 BSCF

MEDAN

Labuhan Maringgai Station

#$%#

&'() ))

#$%# &'() ))

#$%#

&'()

#$%# &'()

970 MMScfd Transmission Pipeline Sumsel - Jawa Barat Pertamina EP Asset 2 1,006.05 BSCF

Panaran Station, Batam

Inti Daya Latu Prima (Gas ex - Jambi Merang) 11.69 BSCF

400 MMScfd Transmission Pipeline Grissik - Singapura

DURI

Medco E&P Indonesia South & Central Sumatera PSC 41.90 BSCF

Pagardewa Station

Grissik Station

400 MMScfd Transmission Pipeline Grissik - Duri

03

*+,*

-. /0 0

*+,* -. /0 0

LAPINDO BRANTAS BRANTAS PSC 112.58 BSCF

BBG & WNE, IKD SNR (Gas Ex-TSB) 158.56 BSCF

Muara Bekasi Station

Bojonegara Station

*+,*

-./0

*+,* -./0

*+,*

-./0 0

SANTOS

MADURA OFFSHORE PSC 351.00 BSCF

HUSKY CNOOC MADURA STRAIT PSC 146.00 BSCF FSRU Jawa Barat

Nusantara Regas 2.00 BSCF

*+,*

-./0 0

*+,* -./0 0

PERTAMINA TAC ELLIPSE JATIRANGON TAC 41.43 BSCF PERTAMINA EP ASSET 3 19.53 BSCF GAGAS ENERGI INDONESIA (Gas - ex Pertamina EP Asset 3) 8.98 BSCF

PHE WMO

WEST MADURA OFFSHORE PSC 75.29 BSCF

GAGAS ENERGI INDONESIA (Gas-ex WMO PSC) 7.44 BSCF

Natural Gas Source 1 MMScf = 1,000 MMBTU @ GHV=1,000 BTU/SCF Station

52

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Company Proile

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natURal gas fOR thE natiOn

Natural gas reserve in Indonesia is sizeably bigger than oil reserve.

Compressor Station to increase the gas pressure in the pipelines.

PT Perusahaan Gas Negara (Persero) Tbk. supplies domestic natural gas to all segments. Using natural gas sources from Indonesia, PGN together with its Subsidiaries conducts the complete energy chain from oil and gas exploration, transmission and distribution all the way to PGN customers. The natural gas that PGN distributes constitutes as an environmentally friendly and economical source of energy by power plants and public transportation to household needs such as cooking.

Liquifaction Facility to convert LNG to readily distributed natural gas.

FSRU convert the LNG to high quality natural gas. FSRU Lampung is located offshore of South Sumatera. LNG carrier brings the LNG

03

Metering Regulating Station

SPBG

CNG Station

Industrial Customers

9

9

9

9

9

8

9

Commercial

Customers

Residential Customers Power Plant

Gas Filling Station

Mobile Refueling Unit (MRU)

6

7

On Shore Receiving Facility (ORF)

The ORF is a facility that ensures the quality of the natural gas.

Power plant which is powered by natural gas can operate more eficiently and environmently more friendly.

Natural gas became the essential energy source for hotels, restaurants, hospitals, and also industrial estates. Eficient yet eco-friendly energy source to increase the competitive advantages for our Industrial Segment Customers.

Natural gas has huge beneits for Residential customers due to its eficiency.

PGN operate Gas Filling Station at Pondok Ungu Bekasi, Ketapang Jakarta, Bogor and also MRUs at Monas Jakarta and Pluit Jakarta.

Mobile Refueling Unit (MRU) is the solution for gas illing station for transportation with CNG technology. It also can be the source natural gas in the clustered area.

54

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Company Proile

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Internal Audit PRAMONO HARJANTO Technology Research and Development R. ARMAN WIDHYMARMANTO Coordinator of Commercial Division MUGIONO Budget Division ARIADI Engineering Division R. ARMAN WIDHYMARMANTO Marketing Division AHMAD CAHYADI Treasury Division

JOKO HERU SUTOPO

Development Division R. ARMAN WIDHYMARMANTO Corporate Sales Division Operation Division KRIS HANDONO WILLY ROSWALDI Accounting Division SAHAT SIMARMATA Information Technology and Communication Division ROEDY POERWANTO Gas Supply Division

Division of OSH & EM

IVANNA LAKSMINI DEVI FERONICA YULA WARDHANI Corporate Finance Division SHIRLEY SHINTA Coordinator of Infrastucture Division MUGIONO Corporate Social Responsibility Division ENIK INDRIASTUTI

Director of Technology and Development

DJOKO SAPUTRO

Director of Commercial and Operations

JOBI TRIANANDA H.

Director of Finance

M. RIZA PAHLEVI TABRANI

CORPORATE

OPERATIONAL UNIT /

PROJECT

President Director HENDI PRIO SANTOSO PROJECT TRANSMISSION AND DISTRIBUTION

03

Organization & Business Process Division

SURJADI

Strategic Planning Division

HARIMANTO

Human Resources Division

WING ANTARIKSA

Business Development & Portfolio Control Division

NUSANTARA SUYONO

Corporate Communication Unit

RIDHA ABABIL

Logistics Division

SUPRIJANTI

Transformation and Performance Control

Division

CHAEDAR

Government Relations Unit

SANTIAJI GUNAWAN

General Services and Corporate Security

Division

WAHYU IRIANTO

Risk Management Division

IRAWATI

Investor Relation Unit

NUSANTARA SUYONO

Legal Unit

RACHMAT HUTAMA

Asset Management Division

SUPRIJANTI

Director of Human Resources & General

Affairs

HENDI KUSNADI

Director of Investment Planning and Risk

Management

M. WAHID SUTOPO

As of 31 December 2014

Strategic Management Unit

ANTONIUS ARIS SUDJATMIKO

Company Secretariat

DESIMA E. SIAHAAN

Corporate Secretary

56

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Company Proile

56

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n anD MissiOn

VisiOn

T

o be a world class energy

company in the gas sector

by 2020.

03

The Company’s Vision and Mission have been approved by the Board of Directors,

as established in the Decree of the Board of Directors of PT Perusahaan Gas Negara (Persero) Tbk No: 000303.K/HM.03/UT/2015 dated 8 January 2015.

To enhance the added value

of the Company for stakeholders through:

• Customers: Solutions to fulill energy needs that are

safe, deliver additional value, economical, and increase

competitiveness.

• Society: Improving social welfare and sustainable economic

growth though energy self suficiency and environmental

conservation efforts;

• Shareholders/Investors: Creating optimal and sustainable value

for the Company through internal and external synergies

58

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Company Proile

Indonesian citizen, born in Magelang on 13 November 1966 (48 years old). He joined the Company for the first time as a Commissioner on 22 May 2012. He holds a Bachelor Degree in Accounting from UGM Yogyakarta and an MBA in Finance from Rutgers University, USA. He was most recently employeed as a Deputy for Primary Industry at the Ministry of State-Owned Enterprise, until present.

The legal basis of his appointment as a Commissioner of PGN is the 2012 AGMS Resolution dated 22 May 2012.

He has no affiliation with any members of the Board of Directors or other members of the Board of Commissioners, or the major and/or controlling shareholder.

M. ZAMKHANI

C

ommissioner

Indonesian citizen, born in Surabaya on 7 Juli 1976 (38 years old). He joined the Company as a Commissioner for the first time on 17 April 2013. He holds a Bachelor Degree in Management from Faculty of Economics of the University of Indonesia, a Master Degree from University of Lille, a Master Degree in Management from the Faculty of Economics from University of Indonesia, and a Doctorate Degree from University of Paris (France). His last working experience was as Special Advisor to the President of the Republic of Indonesia in Economic Affairs until 2014.

The legal basis of his appointment as a Commissioner of PGN was a 2013 AGMS Resolution dated 17 April 2013.

He has no affiliation with any members of the Board of Directors or other members of the Board of Commissioners, or the major and/or controlling shareholder.

FIRMANZAH

C

ommissioner

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Es Of thE BOaRD Of cOMMissiOnERs

BAYU KRISNAMURTHI

Pr

esident Commissioner

Indonesian citizen, born in Manado on 18 October 1964 (50 years old). He joined the Company for the first time as President Commissioner on 22 May 2012. He holds a Bachelor Degree in Agribusiness from IPB, a Master of Agricultural Economics Science from IPB, and a Doctorate in Agricultural Economics from IPB. He was last employed as the Deputy Minister of Trade for the period 2011 – 2014.

The legal basis for his initial appointment as President Commissioner of PGN was a Resolution of the 2012 Annual General Meeting of Shareholders (AGMS) dated 22 May 2012. He has no affiliation with any members of the Board of Directors or other members of the Board of Commissioners, or the major and/or controlling shareholder

03

Indonesian citizen, born on 7 October 1956 (58 years old). He first joined the Company as Commissioner on 27 March 2014. He holds a Bachelor Degree in Geological Engineering from UPN Veteran Yogyakarta and a Master Degree in Business Policy from University of Indonesia. His last working experience was as General Director of Oil and Natural Gas at the Ministry of Energy and Mineral Resources until 2014.

The legal basis of his appointment as a Commissioner of PGN was a 2014 AGMS Resolution dated 27 March 2014.

He has no affiliation with any members of the Board of Directors or other members of the Board of Commissioners, or the major and/or controlling shareholder.

A. EDY HERMANTORO

C

ommissioner

Indonesian citizen, born in Cirebon on 11 February 1952 (62 years old). He was reappointed as Commissioner of the Company on 6 April 2011, where he previously served as a Commissioner of the Company from 2002-2008. He aslo served as the Chairman of Remuneration Committee from 5 July 2007 to 13 June 2008, Head of the Remuneration and Nomination Committee and member of the Insurance Committee as well as GCG Commitee from 19 April 2011 to 29 May 2012. He earned a bachelor degree in Petroleum Engineering from Bandung Institute of Technology in 1980.

He served as Head of General Bureau in Ministry of Energy and Mineral Resources (2001-2004) and Inspector I also at Ministry of Energy and Mineral Resources (2004-2007), and as Inspector General in Ministry of Energy and Mineral Resources from 2007 to 2012.

The legal basis of his appointment as an Independent Commissioner of PGN was a 2011Annual AGMS Resolution dated 6 April 2011.

He has no affiliation with any members of the Board of Directors or other members of the Board of Commissioners, or the major and/or controlling shareholder.

Indonesian citizen, born in Pare-Pare on 26 July 1954 (60 years old). He joined the Company as Independent Commissioner since 6 April 2011 and as member of GCG Committee, Insurance and Business Risk Committee since 19 April 2011. He graduated and holds a Bachelor Degree in Electrical Engineering from Sepuluh November Institute of Technology, Surabaya and earned a Master Degree in Management from Bandung Institute of Technology. Previously he served as President Director of PT Indosat, Tbk (2002-2004) and President Director of PT Pertamina (Persero) (2004-2006). The legal basis of his first appointment as an Independent Commissioner of PGN was a 2011 AGMS Resolution dated 6 April 2011.

He has no affiliation with any members of the Board of Directors or other members of the Board of Commissioners, or the major and/or controlling shareholder.

PUDJA SUNASA

Independent Commissioner

WIDYA PURNAMA

Criteria Explanation Page 13. Recent Developments in Financial

Accounting Standards and Other Regulations

Description of FAS/regulations that have been issued but are not yet effective, which have not been applied by the company, stating:

1. Type and effective date of the new FAS/ regulations

2. Nature of the change that is not yet effective or the change in accounting policy; and

3. Effect of initial application of the new AS and regulations on the Financial Statements

306-308

14. Disclosure related to the Financial Instrument

Items that must be disclosed:

1. Requirements, conditions and policies for each group of inancial instruments

2. Classiication of inancial instruments

3. Fair value of each group of inancial instruments

4. Explanation of the risks related to the inancial instruments: market risk, credit risk and liquidity risk

5. Purpose and policy on inancial risk management

274-286 442-458

15. Publication of the Financial

Statements Items to be disclosed include:_{1. Date of authorization for the publication of the Financial Statements;} and

2. Party responsible for authorizing the Financial Statements

247 261

490

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Bapepam Cross Reference

AMDAL Abbreviation of “Analisis Mengenai Dampak Lingkungan” analysis of environment impact, environment management plan and environment monitoring plan

Bapepam - LK Abbreviation of “Badan Pengawas Pasar Modal – Lembaga Keuangan” the Indonesian Capital Market Supervisory Agency as denoted in Law No. 8 year 1995

BBL Barrel, unit of volume usually used to measure oil. 1 barrel = 159 liters BBM Abbreviation of “Bahan Bakar Minyak” or petroleum-based fuel BCF Billion Cubic Feet, a unit of volume used to measure natural gas BEI Abbreviation of “Bursa Efek Indonesia”, the Indonesia Stock Exchange BEJ Abbreviation of “Bursa Efek Jakarta”, the Jakarta Stock Exchange BES Abbreviation of “Bursa Efek Surabaya”, the Surabaya Stock Exchange

BOE Barrels of Oil Equivalent, is a unit which is used to convert natural gas unit to it’s equivalent oil unit. (1 BOE = 6 MCF)

BP Migas Abbreviation of “Badan Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi”, the Upstream Oil and Gas Business regulator, a government agency that was established pursuant to the Oil and Gas Law juncto Government Regulation No 42 year 2002 to control upstream activities in the oil and gas business

BPH Migas Abbreviation of “Badan Pengatur Hilir Minyak dan Gas Bumi”, the regulator for Downstream Oil and Gas Business Activities. A government body that was established based on Oil and Gas Law juncto Government Regulation No 67 year 2002 juncto Presidencial Decree No 86 year 2002, to control and supervise supply and distribution of natural gas and it’s transportation through pipelines in downstream business activity.

BSCF Billion Standard Cubic Feet

BTU British Thermal Unit, a caloric unit used to measure gas energy

BUMN Abbreviation of “Badan Usaha Milik Negara” or State-Owned Enterprise as denoted in Law No 19 year 2003.

CAGR Compound Annual Growth Rate

CBM Coal Bed Methane

CCGS Company Corporate Governance Scorecard

CII Customer Importance Index

CF Cubic Feet, a volume unit used to measure natural gas 1CF = 0,028 m3 COSO Committee of the Sponsoring Organizations of the Treadway Commission

CNG Compressed Natural Gas

CRMP Certiied Risk Management Professional

CSC Central Safety Committee

CSI Customer Satisfaction Index

DAB#3 Dispute Adjudication Board #3

Distribution Activity of natural gas distribution through pipelines

DMO Domestic Market Obligations

DOH Abbreviation of “Daerah Operasi Hulu” the upstream operation region

ECSC Executive Central Safety Committee

EIB European Investment Bank

ESA Employee Stock Allocation, a program airned to provide an opportunity to all employees to own the Company’s shares

FSRT Floating Storage & Regasiication Terminal FSRU Floating Storage & Regasiication Unit

GMS General Meeting of Shareholders

GRC Governance, Risk Management and Compliance

GSA Gas Sales Agreement

GTA Gas Transportation Agreement

GSPA Gas Sales and Purchase Agreement

Hilir Downstream Business activities that are cored or based on production, transportation, storage and/or commercial activities.

Hulu Upstream Business activities that are cored or based on exploration and exploitation activities. IBRD International Bank for Reconstruction and Development

IEA International Energy Agency

IFRS International Financial Reporting Standards

IPO Initial Public Offering, a share offering to the public as stipulated in Law No 8 year 1994. ISO International Organization for Standardization

JBIC Japan Bank for International Cooperation (Previously Export-Import Bank of Japan). JCI Jakarta Composite Index. An index of all stocks that are traded on the Indonesia Stock

Exchange

KSEI PT Kustodian Sentra Efek Indonesia, the Indonesian Central Securities Depository. LC Letter of Credit, a payment method for export/import transactions

LHKPN State Oficials’ Wealth Report

LNG Liqueied Natural Gas

LPEI Indonesia Export Financing Institution

LPG Liqueied Petroleum Gas, which consists of propane ad butane gas.

LTIF Lost Time Injury Frequency

MCF Million Cubic Feet

MMBBL Million Barrels

MMBOE Million Barrels of Oil Equivalent

MMBTU Million British Thermal Units

MMBTUD Million British Thermal Units per Day

MMSCF Million Standard Cubic Feet, a standard unit for measuring gas volume which is adjusted to a certain temperature and pressure which is equal to 1,000 MMBTU. MMSCFD Million Standard Cubic Feet Per Day

MRC Multi Reporting Currency

MSCF Thousand Standard Cubic Feet.

MSPA Master Sale and Purchase Agreement

NAP Network Access Provider

OHSAS Occupational Health and Safety Management System

Oil and Gas Law No 22 year 2001 Law No 22 year 2001 of the Republic of Indonesia regarding Oil and Natural Gas

OJK Indonesia Financial Service Authority

OSH & EM Occupational Safety and Health & Environmental Management

Producer Gas producer which has objective to produce oil and gas in certain area, which has activities to ind oil and gas reserves, drilling, reinery and other supporting activities.

PGNEF PGN Euro Finance

PIA Professional Internal Auditor

PMC Project Management Consultant

POD Plan Of Development

PPOB Payment Point Online Bank

PSC Production Sharing Contract in the exploration and exploitation of oil and gas PSI Pounds per Square Inch, a unit for measuring gas pressure. 1 bar = 14.5 PSI

492

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

Bapepam Cross Reference

QIA Qualiied Internal Auditor

RCA Risk Containment Audit

RJPP Rencana Jangka Panjang Perusahaan, or Corporate Long-Term Plan

RKAP Rencana Kerja dan Anggaran Perusahaan, or Corporate Work Plan and Budget

ROE’s Regionally Owned Enterprises

ROV Remotely Operated Underwater Vehicle

RUPS Abbreviation of “Rapat Umum Pemegang Saham” General Meeting of Shareholders RUPSLB Abbreviation of “ Rapat Umum Pemegang Saham Luar Biasa” or Extraordinary General

Meeting of Shareholders.

SBU Strategic Business Unit

SER Social and Environmental Responsibility

SME Small or Medium Enterprise

SOE State Owned Enterprise

TCF Trillion Cubic Feet

TGI PT Transportasi Gas Indonesia (Transgasindo), a subsidiary of the Company that is involved in the gas transportation business. 59.75% of its share are owned by PGN. Transmission The transmission of gas from its source or storage place through a transmission pipeline.

TSAF Total Sickness Absence Frequency

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PT Perusahaan Gas Negara (Persero) Tbk

Jl. K.H. Zainul Ariin No. 20 Jakarta 11140, Indonesia

T +6221 633 4838

F +6221 633 3080 www.pgn.co.id

Contact Center T 1500 645

E contact.center@pgn.co.id Jl. K.H. Zainul Ariin No. 20 Jakarta 11140, Indonesia