Business Overview

7. BUSINESS OF OUR GROUP 7. BUSINESS OF OUR GROUP 7.1 OVERVIEW We are the leading integrated petrochemicals producer in Malaysia and one of the largest petrochemicals producers in Southeast Asia, involved primarily in manufacturing, marketing and selling a diversified range of petrochemical products, including olefins, polymers, fertilisers, methanol and other basic chemicals and derivative products. We have a production capacity of over 11 million mtpa, which includes the production capacities of our Subsidiaries as well as our share of the production capacities of our Associates and Jointly Controlled Entity. We were established as part of the PETRONAS Group in order to maximise value from Malaysia’s ample natural gas resources and have over 25 years of experience in the . petrochemicals industry. For the year ended 31 March 2010 and the 4 months ended 31 July 2010, our petrochemical plants achieved an average reliability rate of 96.2% and 95.6%, respectively, and we produced a total of 7.4 million mtpa and 2.9 million mtpa, respectively, of petrochemical products during the same periods. We have two major operating business segments: our olefins and polYmerss.egment arid our fertilisers and methanol segment. Our operations are vertically integrated, and we are well positioned to take full advantage of the synergies in our production processes. We operate 2 IPCs in eastern Peninsular Malaysia, one at Kertih and another at Gebeng. Through our IPCs, we seek to leverage the synergistic linkages and integration both within plants as well as between common infrastructure and support facilities within the IPCs, making the entire manufacturing process more cost effective and efficient. We also operate three manufacturing complexes in Gurun, Bintulu and Labuan that produce fertiliser and methanol products, as well as a PVC plant in Vung Tau, Vietnam. Our production facilities benefit from various support operations of the PETRONAS Group, including those provided by CUFs, and access to ports and a railway link providing an integrated and reliable logistics system. For a more detailed description of production facilities, refer to Section 7.7 of this Prospectus. We have been involved in several large-scale petrochemical projects with multinational joint venture partners. In undertaking these types of projects, we have sought joint venture partners with the appropriate technology, financing capability and marketing and distribution expertise, enabling us to acquire advanced petrochemical expertise and technological know­how. Our joint venture partners have included Dow Chemical, BASF, BP Chemicals, Idemitsu Kosan, Mitsubishi Corporation and Sasol Limited. We have a diversified portfolio of products. We are the I~rgest producer of. methanol by volume in ‘Southeast Asia and.:fourth largest in the world. We are the largest producer of ethylene glycols and the third largest producer of urea in Southeast Asia by volume. We are also the largest producer of LDPE in Southeast Asia based on installed capacity. We are the market leader in the Malaysian petrochemicals industry based on our sales of urea, glycols and methanol, and are the only producer of methanol, urea, paraxylene, MTBE and certain specialty chemicals in Malaysia. For the year ended 31 March 2010, our sales in Malaysia accounted for 44.8% of our revenues, while the remainder was derived from sales in other countries. We continu”e to seek opportunities to establish our products both in Malaysia and in other countries, with a particular emphasis on the growing Asia-Pacific region, including China. . As at 31 March 2010 and 31 July 2010, we had total assets of RM26,892 million and RM25,064 million, respectively. For the year ended 31 March 2010 and the 4 months ended 31 July 2010, we generated PAT of RM2,594 million and RM938 million, respectively, on net revenue of RM12,203 million and RM4,218 million, respectively. 7. BUSINESS OF OUR GROUP (cont’d)
7.2 COMPETITIVE STRENGTHS We are the leading integrated petrochemicals producer in Malaysia and one of the largest in Southeast Asia, with reliable and attractively priced feedstock, operating a number of world class production sites, which are fUlly vertically integrated from feedstock to downstream end-products. Our strong and experienced management team and skilled employees operate these assets according to a culture of operational excellence in order to produce a highly diversified product portfolio which we market from our strategic location close to our key markets through our established and wide distribution and marketing network. We benefit from the reputation, sponsorship and support of the PETRONAS Group, which along with our strong· strategic partnerships with global petrochemical players has allowed us to generate highly attractive and resilient profitability levels. We believe our principal competitive strengths are: 7.2.1 Reliable and attractively priced gas feedstock We have secured a reliable supply for our gas feedstock requirements, pursuant to long­term supply agreements with the PETRONAS Group, at prices we believe to be attractive. The feedstock covered by these agreements, principally, methane, ethane, propane and butane, is delivered to our facilities via the PGU pipeline network, also operated by the PETRONAS Group. We are the only company to which the PETRONAS Group supplies gas feedstock for petrochemicals production, and we currently do not purchase gas feedstock from any other suppliers. Our feedstock sourcing prices vary according to production facility. Ethane is an attractive feedstock because of its high and cost-effective ethylene yield and is our most important feedstock as products from the ethylene value chain are the largest contributor to our revenue. We currently purchase ethane at prices which Nexant believes are in line with those paid by the average Middle Eastern petrochemicals producers. For propane and butane, we are currently paying lower prices than the published Saudi Aramco delivered propane and butane contract prices. We purchase methane as feedstock for our fertiliser plants at an attractive discount to the average of a basket of global urea prices. According to Nexant, we are amongst the lowest cost major producers of ethylene and ethylene derivatives globally. We believe this is a result of our attractive feedstock costs, full vertical integration, and operational excellence. According to Nexant, our ethylene production costs are slightly lower than those of the average Middle Eastern producers while our production costs for polyethylene and ethylene glycols are similar to those of the average Middle Eastern producers. Nexant ranks our urea production costs as slightly higher than those of Indonesian producers, who in turn have costs that are marginally higher than those of the average Middle Eastern producers. 7. BUSINESS OF OUR GROUP (cont’d) 7.2.2 Leadership position in Southeast Asia underpinned by world class production sites We are one of the largest petrochemicals producers in Southeast Asia, enjoying a top three position across a number of our key products, according to Nexant. With respect to methanol, we are the largest producer in Southeast Asia and the fourth largest in the world. Our new Mega Methanol plant in Labuan, with a capacity of 1.7 million mtpa, is the largest methanol plant in Asia, and also one of the largest globally. We are also the largest producer of ethylene glycols and the third largest producer of urea in Southeast Asia by volume. We are also the largest producer of LOPE in Southeast Asia based on installed capacity. In Malaysia, we are the largest producer of olefins, methanol and urea, and the second largest producer of polyolefins. Our leading regional market position is underpinned. by the sophistication and scale of our manufacturing sites. Our production sites comprise a number of world class facilities that employ modern technologies by leading licensors such as Linde, Dow Chemical, Lummus, and Lurgi, which, together with the production facilities of our Associates and Jointly Controlled Entity, have the capacity to produce over 11 million mtpa of petrochemical products.
7.2.3 Fully integrated petrochemicals operations We benefit from a high degree of integration within and across our production facilities, from the intake of feedstock to the manufacture of downstream products. This allows us to achieve highly efficient production, minimising both logistics costs and product wastage in between each step of the production chain. Our high degree of integration also maximises the economies of scale of our facilities and reduces our fixed costs per product unit. Moreover, we believe that the integration of our facilities provides us with operational flexibility to readily alter our product mix and production levels in response to prevailing market conditions. Such flexibility further enhances our operating efficiency, competitiveness and responsiveness, and allows us to achieve greater stability in volumes and sales. Our petrochemicals production base is principally comprised of 2 IPCs at Kertih and Gebeng and 3 production complexes at Labuan, Bintulu and Gurun. Our IPCs are fully vertically integrated production sites, with dedicated pipelines supplying natural gas and other feedstock from the PETRONAS Group, that are connected to our olefin crackers and other chemicals and polymer plants located within the respective IPCs. This vertical integration allows us to fully utilise co-products (such as certain gases and steam) and recycle any by-products throughout the facilities, minimising the amount of wasted feedstock molecules. In addition, each IPC contains a full complement of necessary infrastructure and support services. In particular, each IPC has a CUF onsite which provides electricity, steam, industrial gases, waste water treatment services and other utilities to our production facilities. Moreover, each IPC has its own logistics terminal, warehousing space, and loading and unloading bays for truck deliveries to domestic customers. Finished products for export can also be piped to each IPC’s dedicated port and bulk loading/unloading­facilities for overseas shipping. For the Kertih IPC, we own the port that is located onsite and both IPCs are linked to the Kuantan port by a railway line owned and operated by the PETRONAS Group. 7. BUSINESS OF OUR GROUP (cont’d)
7.2.4 Strong operational excellence We have a strong culture of operational excellence and a disciplined management system that we share with the other companies in the PETRONAS Group. We have built upon the industry-leading practices we have absorbed from our joint ventures and partnerships with leading global petrochemicals operators such as Dow Chemical and BASF to create models of organisational, technical, operational, and managerial excellence. In 2003, we embarked on a systematic approach of Operating Performance Improvement (“OPI”), which was centered on capability development and building a continuous improvement culture, to propel our asset performance towards world-class standards. OPI has played a major role in making changes happen and delivering its impact through leadership at all levels. The OPI impact has been tracked along three dimensions ­opportunity captured, capability built through Technical Path Career Progression and sustainable performance oriented culture. As a result, we have developed a highly reliable and safe operational methodology and work culture, with average plant reliability rate of over 96% and very low rates of recordable incidents or lost time injuries in our facilities. As a result, we have been able to achieve operational excellence with exemplary track record with respect to health, safety and the environment. Additionally, each of our production facilities has its own quality control unit and the quality management system employed by each of them is certified to the appropriate ISO standards, such as ISO 9001 and, for some of our quality testing facilities, ISO 17025. We employ stringent standards to ensure that our products meet or exceed the quality level and specifications that our customers expect from us.
7.2.5 Attractive and diversified product portfolio Our business is highly diversified compared to our peers that are engaged only in commodity chemicals production. Throl.1gh the full vertical integration of our operations, we can leverage our attractively priced feedstock supply to efficiently produce a full range of products along each of the. methane, ethane,propaneand bl:ltane value chains, from upstream olefinsthrbughto’downstream intermediate and. derivative performance. chemicals. Although we began our business in 1985 producing only approximately 0.5 million mtpa of fertiliser products, we have invested significantly to expand and develop our product portfolio since then. We have a demonstrated track record of creating significant value from our ethane, propane, methane and butane feedstocks, and for the year ended 31 March 2010 and the 4 months ended 31 July 2010, we generated revenues of RM9,255 million and RM3,183 million from olefins and polymers, RM2,886 million and RM1,008 million from fertilisers and methanol, respectively. Moreover, in addition to our established portfolio of products, we continue to modify our existing products for new applications as well as to develop and commercialise new products through our research and development efforts. 7. BUSINESS OF OUR GROUP (cont’d) Today, our diversified product portfolio includes ethylene, propylene and a range of their respective derivatives. In addition to urea and methanol, we also produce downstream intermediate and derivative performance chemicals such as ethanolamines, nonyl phenol ethoxylates, surfactants, polyethylene glycol, primary alcohol ethoxylate, and gas treating fluids, which we believe achieve premium pricing due to the fact that they are less commoditised and are protected by higher barriers to entry such as technology and market access. Through our Associates and Jointly Controlled Entity, we also produce acrylics, oxo-alcohols, butanediol, acetic acid and styrene monomer. Our diversified product portfolio combined with our operational flexibility help mitigate the effects of cyclicality of any single product and enable us to record resilient results during economic downturns. Moreover, because we offer a wide range of products to our customers, we are able to cater to our existing customers’ wide array of needs as well as attract new customers, further strengthening the stability of our business. 7.2.6 Strategic location close to key growth markets We believe that demand for petrochemical products in Asia will experience strong growth driven by a combination of non-cyclical factors including wider scale investments in manufacturing industries, rising income levels and growing populations. The strategic location of our production facilities across Malaysia facilitates efficient distribution and transport to our customers both in Malaysia as well as to other countries. The Kertih and Gebeng IPCs together form a petrochemicals hub on the east coast of Peninsular Malaysia that benefits from ready access to rail and road networks to other major industrial areas of Malaysia and to sea ports for marine transportation to international locations. Ships using these key ports located close to our production sites are able to avoid the busy Straits of Malacca, minimising delays in delivery to customers in our principal export destinations in Southeast and Northeast Asia. We believe that the strategic location of our production facilities is a key competitive advantage over Middle Eastern producers that seek to compete with us in similar markets. Combined with our strategic location and our leadership position in Asia, we believe that we are well positioned to take advantage of the positive outlook for demand for petrochemical products in Asia to further grow our business.
7.2.7 Resilient financial performance with high profitability We believe the combination of our attractive feedstock costs, highly efficient operations and attractive end-market dynamics, among other things, has allowed us to enjoy a strong competitive advantage and enabled us to achieve profitability that has been highly resilient to economic cycles, with EBITDA margins averaging 43.4% between the 3 years ended 31 March 2008,31 March 2009 and 31 March 2010, and 34.3% for the 4 months ended 31 JUly 2009 and 31 July 2010, and high cash flow generation, with a cash conversion rate averaging 77.9% between the 3 years ended 31 March 2008, 31 March 2009 and 31 March 2010, and 83.5% for the 4 months ended 31 July 2009 and 31 July 2010. 7. BUSINESS OF OUR GROUP (cont’d)

 

7.2.8 Established and extensive marketing and distribution network Our company has developed a strong marketing and distribution operation with a wide network serving approximately 550 customers in Malaysia and approximately 900 customers in over 25 countries internationally, principally in Asia. Leveraging on our consistent large production volumes, MITCO, as our primary marketing arm, serves a vital link in our integrated business model, enabling us to connect our products with our end-customers. Through our sales, marketing and distribution staff, we enjoy longstanding relationships with many of our customers, and we have been able to grow and maintain market share both domestically and in the countries we export to, and we are able to capitalise on our established reputation as a reliable supplier to expand our reach into new markets. In addition to selling and marketing the products we produce, MITCO also trades petrochemical products, principally to enhance our marketing· capability through increased volumes. By increasing the volume of products it handles, MITCO is able to enhance its visibility in the market and expand its network of suppliers and customers. This enables MITCO to obtain better insights about prices as well as supply and demand conditions for petrochemical products. In addition, MITCO’s trading activities allow us to ensure continuity of supply to our customers when it becomes necessary to procure additional supplies to meet our customers’ requirements.
7.2.9 Strong strategic partnerships with global petrochemical players We have a track record of highly beneficial partnerships with global strategic chemical partners such as BASF, Dow Chemical, Sasol Limited, BP Chemicals, Mitsubishi Corporation and Idemitsu Kosan. Through a number of joint ventures and equity co­investments, we have been able to gain international market access, technology and production know-how, while our partners have benefited from access to attractively priced feedstock and integrated production facilities in strategically located sites. We believe our reputation as a reliable partner allows us to take advantage of market opportunities and mitigate any downsides to such investments through shared facilities and other operational and marketing partnerships. We continue to work with our partners to exchange ideas, collaborate on R&D anq share best practices and know-how as part of our on-going efforts to continuously enhance our capabilities and to remain as a partner of choice for petrochemicals in Southeast Asia.
7.2.10 Reputation, sponsorship and support from the PETRONAS Group Our principal shareholder, PETRONAS, is a fully integrated global oil and gas company, and wholly-owned by the Government of Malaysia. We believe that the “PETRONAS” brand is recognised within the oil and gas industry for its strong culture of shared values, operational excellence, long-term commitment to the countries in which it operates, and reliability as a supplier. These values form the core of our businesses and are a heritage on which we intend to build. 7. BUSINESS OF OUR GROUP (cont’d) Given its significant shareholding in our Company after the offering and its role as the supplier under our long-term feedstock supply agreements, we believe that PETRONAS will continue to be a strong sponsor of our business. In addition, we believe that the importance of our Company to the PETRONAS Group ensures its strong and on-going support in terms of consistency of feedstock supply, business opportunities and managerial and technical resources. We believe this synergy will position us well to participate in and take advantage of future growth opportunities in the petrochemicals business that may arise from further expansion by the PETRONAS Group.
7.2.11 Strong and experienced management team Our management team is composed of highly experienced managers with longstanding leadership experience, as well as significant industry knowledge across the entire petrochemicals value chain. In particular, our President/Chief Executive Officer, Dato’ Tengku Mahamad bin Tengku Mahamut, and the Heads ofoiJr Olefins and Polymers and Fertiliser and Methanol divisions, Abd Manaf bin Abd Hamid and Yusa’ bin Hassan respectively, together have approximately a combined 59 years of experience in the petrochemicals industry. Together with our Chief Financial Officer, Wan Shamilah binti Wan Muhammad Saidi, the key management team has a combined 77 years of experience within PETRONAS. Our management team has broad experience across the spectrum of business activities from operations to sales and marketing, and has a proven track record of successfully implementing capital-intensive projects to increase our production capacities. The team was instrumental in acquiring Dow Chemical’s stake in the OPTIMAL Companies in 2009 and operating these entities as our subsidiaries since the acquisition. Based on this track record, we believe that our management team has the necessary experience and knowledge to successfully manage and grow our business.

7.3 BUSINESS STRATEGIES AND FUTURE PLANS Our objective is to maximise our shareholder value by consolidating our position as a market leader in the Asian petrochemicals industry in terms of integration of operations, focus on key growth markets, profitability and return on capit~l.ln the shorter term, we intend to focus on consolidating our petrochemical activities and maximising their efficiency, as well as strengthening our marketing and sales network. In the medium to longer tenTi, we will look to expand our product portfolio and production capacity, including through the development of new production plants using gas and alternate types of feedstock, as well as potentially synergistic and prudent acquisitions to pursue growth. 7.3.1 Consolidation of our petrochemicals activities As we develop our business, we will continue to focus on increasing the efficiency and profitability of our operations. We intend to continue the process of consolidating all of PETRONAS’ petrochemicals activities into a single entity. This multi-phase process began with the Reorganisation, through which all of PETRONAS’ petrochemicals businesses became part of our Group. The subsequent phases, after our IPO, will entail further integration of our Group’s operations and management to achieve reductions in operating costs, higher revenues and greater responsiveness to changing market conditions. 7. BUSINESS OF OUR GROUP (cont’d) We intend to develop centralised management that will enable us to optimally coordinate the operation of all of our production facilities. Centralised production management will enable us to better coordinate the allocation of feedstock and other resources among our various integrated production facilities toward products with the highest demand and profit potential to enable us to maximise our financial performance as a whole. Centralised management is also expected to improve the management of plant turnarounds, capacity improvements and maintenance projects to minimise any disruptions to our operations. Our production functions and inventory management systems will benefit from such coordination and will have a positive impact on our overall output and profitability. Operationally, we will seek to manage our two ethylene crackers at the Kertih IPC as a single resource, allowing us to optimise our use of ethane feedstock. Moreover, we will look to maximise upstream product capacity in order to increase our production capacity for higher value products further downstream. . In addition, through enhanced monitoring of the performance of each component of our integrated production chains, any weaknesses can be more quickly and effectively evaluated and resolved so that optimal production output and efficiency can be maintained. We also intend to streamline and further optimise the use of our resources. In particular, we will consolidate our administrative functions into one centralised corporate head office and will also seek to achieve economies of scale in our procurement including through bulk purchases.
7.3.2 Increase international sales and marketing network We intend to consolidate all our sales and marketing functions into MITCO, allowing us to better coordinate the management of our customer relationships and to benefit from economies of scale. We believe that through a more coordinated approach to sales and marketing, we will be better positioned to increase our international sales and distribution capabilities. This will also enable us to better manage and strengthen our customer relationships both in Malaysia and. in. other countries and facilitate the flow of· end products to customers. In particular, wewiU look to further expand our sales, marketing and distribution network in Asia through increased collaboration with local partners in our targeted markets. These efforts would increase our sales volume and would allow us to widen our customer base, further driving our revenue growth. In the long term, we aim to develop MITCO into a preferred marketer of petrochemical products, building on its expertise gained from marketing our products, its marketing network and the volume and range of products that it manages.
7.3.3 Broaden and deepen our product portfolio We intend to continue to expand our product portfolio, and to increase the range of end­applications our products serve, as well as develop new processes to manufacture our existing products. Our R&D group will continue to focus on the development of new products and new grades of existing products that can meet our customers’ changing requirements. As an example, we are currently developing a specific type of HDPE product with increased durability and particular chemical stability characteristics for lise in the production of pipes. 7. BUSINESS OF OUR GROUP (cont’d) We are also looking to produce products further down the value chain, such as intermediates and differentiated derivative products. We have already begun to move downstream by developing a range of higher value products including performance chemicals such as ethanolamines, nonyl phenol ethoxylates, surfactants, polyethylene glycol and primary alcohol ethoxylate. Overall, we expect the broader range of differentiated products will allow us to achieve premium pricing and to better respond to our customers’ needs and gain new customers that have specific requirements. Ultimately, we believe these products, with their more stable end-markets and higher value will allow us to increase our profitability while at the same time increasing our resilience to economic cycles. 7.3.4 Expand our production capacity We intend to strategically increase our production capacity through enhancements to our existing facilities and potentially through investments in new facilities. We plan to pursue cost-efficient opportunities to increase our output, enhance efficiency and further reduce production costs, including by making changes to the configuration of our production processes. In particular, we are considering making operational improvements to our two ethylene crackers at the Kertih IPC to enable us to extract even greater value from our ethane feedstock. In addition, we are also reviewing debottlenecking projects for certain upstream product processes to maximise our ability to produce higher value added products further downstream. To capitalise further on Malaysia’s advantages as a petrochemicals production hub, including its substantial sources of feedstock and its central geographic location within . Southeast Asia, we intend to examine adding new plants and facilities in Malaysia. We may also review opportunities to expand our production capacity outside Malaysia. We are currently evaluating the expansion of our operations in East Malaysia to take advantage of the natural gas feedstock available in that region. In particular, to enhance our profile as a key producer of ammonia and urea in Southeast Asia, we are studying the possibility of developing a world-scale, greenfield ammonia and. urea production facility that would be sUpplied with natural gas feedstock available off the coast of East Malaysia. This project is currently at a pre-feasibility study phase, and we expect to make a final decision in fiscal year 2012 whether to proceed with the investment. If the project were to proceed, we would be able to build upon our significant expertise and experience gained from the operation of our existing fertiliser production facilities and fully utilise our strong marketing and distribution network for fertilisers. 7. BUSINESS OF OUR GROUP (cont’d) In addition, PETRONAS is currently studying a greenfield project to develop an integrated refinery and petrochemicals complex in Peninsular Malaysia together with international partners that would produce, among other things, naphtha for use as feedstock for petrochemical products. With PETRONAS currently taking the lead in evaluating the project, we expect to become more closely involved in examining the project at a suitable juncture. While it is currently at a pre-feasibility study phase, the project, if it were to proceed and be completed, would permit us to diversify our feedstock source and expand our production capacity for olefins and polymers, including a range of high value derivative products. With PETRONAS as the supplier of naphtha as feedstock, the project would present opportunities for us to leverage on our relationship with PETRONAS to gain a dependable source of feedstock. In addition, the project would reaffirm PETRONAS’ strategic focus on the petrochemicals industry and reinforce Malaysia’s” reputation as one of Southeast Asia’s premier petrochemicals production hubs. ” 7.3.5 Selective synergistic growth acquisitions We will continue to consider selective opportunities to expand both domestically and abroad through incremental strategic acquisitions that are consistent with our focus on our core petrochemicals activities, and that can achieve synergies with our existing operations. We consider each acquisition opportunity carefully, and any potential acquisition would undergo extensive review and evaluation procedures to ensure that such transaction would be beneficial to our business as a whole. For example, in September 2009, Dow Chemical’s 50% interest in OPTIMAL Glycols and OPTIMAL Chemicals, respectively, and 23.75% interest in OPTIMAL Olefins were acquired following a considered review of the acquisition’s potential to benefit our business and add value to our operations. In September 2010, we acquired BP Chemical’s 12.79% interest in Ethylene Malaysia and its 60% interest in Polyethylene Malaysia. In October 2010, we acquired BP Chemical’s remaining 2.21 % interest in Ethylene Malaysia. We inte”nd to continue to explore growth opportunities that complement our products or markets, or enable us to gain footholds in countries where the PETRONAS Group already has oil and gas operations so that we can leverage on the PETRONAS Group’s presence to develop vertically integrated operations in that market. 7.4 HISTORY AND MILESTONES We were incorporated in Malaysia under the Act on 25 March 1998 as a private limited company under the name Kuantan Terminals Sdn Bhd as part of the PETRONAS Group, which has played a leading role in the development of the petrochemicals industry in Malaysia. We changed our name to PETRONAS Chemicals Group Sdn Bhd on 26 October 2009 and recently undertook the Reorganisation to better align and consolidate PETRONAS’ petrochemical businesses. For details regarding the Reorganisation, refer to Section 12.1.2 of this Prospectus. On 27 August 2010, we were converted into a public limited company and changed our name to PETRONAS Chemicals Group Berhad. I Company No.: 459830-K 7. BUSINESS OF OUR GROUP (cont’d) Our operations in the petrochemical business began in 1985 with the production of ammonia and urea. Since then, our operations have grown significantly both organically and through joint ventures with other key players in the industry. We began our first ethylene production in 1995, and the OPTIMAL Companies commenced operations in 2002 as joint ventures with Dow Chemical. We acquired Dow Chemical’s interests in the OPTIMAL Companies in 2009 bringing all 3 of these entities under our control. We have continued to grow our business and expand our operations through the construction of new plants as well as capacity increases in existing plants. In recent years, production capacities at the Gurun and Bintulu production facilities have been expanded, and in 2009, our Mega Methanol plant in Labuan commenced operations, bolstering our position as a leading methanol producer both regionally and globally. On 2 September 2010, we acquired BP Chemicals’ interests in Polyethylene Malaysia and Ethylene Malaysia, making Polyethylene Malaysia our wholly-owned subsidiary and increasing our stake in Ethylene Malaysia. Today, our operations comprise a diverse portfolio of petrochemical products that are sold both domestically and internationally. Certain key dates and milestones for our petrochemicals busin”ess include: 1985……………….. ASEAN Bintulu Fertilizer commenced first commercial production of ammonia and urea in the Bintulu complex . 1992……………….. MTBE Malaysia commenced operations Methanol plant at Labuan acquired from Sabah Gas Industries Sdn Bhd Polypropylene Malaysia commenced operations 1994……………….. MITCO entrusted with the marketing of petrochemical products produced by PETRONAS’ wholly-owned subsidiaries 1995……………….. Polyethylene Malaysia commenced production of polyethylene Ethylene Malaysia commenced production of ethylene 1997……………….. Idemitsu SM, a joint venture with Idemitsu Kosan, commenced operations for production of styrene monomer . 1999……………….. First power generated at the CUF in the Kertih and the Gebeng IPCs PETRONAS Fertilizer commenced operations for production of methanol, ammonia and urea 2000……………….. BASF PETRONAS Chemicals’s Acrylic Acid complex fully operational
Aromatics plant at Aromatics Malaysia commenced operations for production of paraxylene and benzene PETRONAS Ammonia’s plant commenced operations VCM and PVC plants at Vinyl Chloride (Malaysia) commenced operations BP PETRONAS Acetyls, a joint venture with BP Chemicals, started production of acetic acid 2002….. OPTIMAL Companies’ olefins plant, glycols plant and chemicals plant commenced operations PETLIN’s LDPE plant commenced operations Phu My in Vung Tau, Vietnam commenced PVC production Official opening of the PETRONAS Petroleum Industry Complex in Kertih 2004….. Creeping of ASEAN Bintulu Fertilizer’s production facilities in Bintulu complex, expanding production capacities of ammonia and urea by 13% and 25%, respectively 7. BUSINESS OF OUR GROUP (cont’d) 2006……………….. Creeping of PETRONAS Fertilizer’s production facilities in Gurun complex, expanding production capacities of methanol, ammonia and urea by 11 %, 17% and 25%, respectively 2009……………….. Mega Methanol plant in Labuan commissioned
Dow Chemical’s interests in the OPTIMAL Companies’ joint ventures acquired 2010……………….. BP Chemicals’ interests in Polyethylene Malaysia and Ethylene Malaysia acquired
Completion of the Reorganisation 7.5 CORPORATE STRUCTURE We are a holding company and conduct our business throl..\gh our operating sUbsidiaries. Our two main operating segments are our oletins and polymers segment and our fertilisers and methanol segment. In addition to these two main operating business segments, we also own and operate the Kertih Port, which provides port services in connection with the sale and distribution of our petrochemical products. Marketing and sales of our petrochemical products across our two main operating segments are primarily conducted through our subsidiary, MITCO, which closely coordinates our marketing and sales activities with our production operations. We have 17 wholly-owned and majority-owned Subsidiaries, as well as minority interests in 5 Associates and Jointly Controlled Entity. The chart in the following page presents our Subsidiaries as well as our Associates and Jointly Controlled Entity, and our total direct and indirect percentage of ownership in these companies. (The rest of this page has been intentionally left blank) ICompany No.: 459830-K I 7. BUSINESS OF OUR GROUP (cont’d) PETRONAS Other subsidiaries and assocIates100% (1)  Partly-owned Subsidiaries  (2)  Associates  peG Group  (3)  Jointly Controlled Entity

40%1 (2) Kerfth Terminal. -127 ­7. BUSINESS OF OUR GROUP (cont’d) 7.6 PRODUCTS We benefit from integrated operations where, in addition to selling the products to external parties, we use the products as feedstock for the production of other petrochemicals. We produced a total of 7.4 million mtpa and 2.9 million mtpa of petrochemical products during the year ended 31 March 2010 and the 4 months ended 31 July 2010, respectively. We sold 2,905 KT, 2,730 KT and 2,986 KT of olefins and polymers and 2,591 KT, 2,735 KT and 3,211 KT of fertilisers and methanol in the years ended 31 March 2008, 2009 and 2010, respectively. We sold 886 KT and 984 KT of olefins and polymers and 1,107 KT and 1,144 KT of fertilisers and methanol in the 4 months ended 31 July 2009 and 2010, respectively. Polyethylene Malaysia became our Wholly-owned SUbsidiary on 2 September 2010. Hence, for purposes of presenting our historical financial information throughout this Prospectus, of which the disclosure period is up to the 4 months ended 31 July 2010, references to ‘jointly controlled entities’ include Polyethylene Malaysia, whilst references to ‘Subsidiaries’ exclude Polyethylene Malaysia. The following ~able sets forth, for each of our major petrochemical products, the volume of sales to parties external to our Group as well as to our Associates and jointly controlled entities for the periods indicated, as well as the percentage of the relevant segment’s total sales volume accounted for by each product. Year ended 31 March 4 months ended 31 July 2008 2009 2010 2009 2010 (in KT, except percentages) Olefins and Polymers  Paraxylene ……………………  480  16.5%  554  20.3%  527  17.7%  168  19.0%  116  11.8%  Ethylene……………………….  555  19.1  560  20.5  427  14.3  152  17.2  125  12.7  MTBE…………………………..  310  10.7  198  7.3  313  10.5  105  11.9  108  11.0  PVC …………………………….  209  7.2  247  9.0  270  9.0  100  11.3  67  6.8  Propylene……………………..  305  10.5  303  11.1  264  8.8  94  10.6  98  10.0  Polyethylene (HOPE,  LLDPE & LOPE)…………….  273  9.4  274  10.0  237  7.9  63  7.1  93  9.4  Benzene……………………….  274  9.4  228  8.4  214  7.2  72  8.1  51  5.2  Ethylene glycols …………….  1  0.0  3  0.1  194  6.5  2  0.2  104  10.6  N-butane ………………………  118  4.1  55  2.0  93  3.1  35  3.9  32  3.2  Performance and other  chemicals……………………..  150  5.0  100  10.2  Polypropylene ……………….  68  2.3  54  2.0  75  2.5  21  2.3  29  2.9  VCM…..,………….,…………..  193  6.7  104  3.8  70  2.4  29  3.3  28  2.8  Other . petrochemical  products……………………….  119  4.1  150  5.5  152  5.1  45  5.1  33  3.4  Total oletins and  polymers  2,905  100.0%  2,730  100.0%  2,986  100.0%  886  100.0%  984  100.0%  Fertilisers and Methanol  Urea …………………………….  1,296  50.0%  1,347  49.3%  1,329  41.4%  439  39.6%  456  39.9  Methanol ………………………  605  23.4  701  25.6  1,185  36.9  449  40.6  494  43.1  Ammonia………………………  391  15.1  431  15.8  455  14.2  140  12.6  137  12.0  Carbon Monoxide …………..  237  9.1  189  6.9  242  7.5  66  6.0  57  5.0  Oxogas ………………………..  62  2.4  67  2.4  13  1.2  Total fertilisers and  methanol  2,591  100.0%  2,735  100.0%  3,211  100.0%  1,107  100.0%  1,144  100.0%  Total sales volume …………  5,496  100.0%  5,465  100.0%  6,197  100.0%  1,993  100.0%  2,128  100.0%
I Company No.: 459830-K 7. BUSINESS OF OUR GROUP (cont’d) 7.6.1 OIefins and Polymers Our olefins and polymers segment manufactures and sells a wide range of olefin and polymer products, from ethylene and propylene, which are used as basic feedstock for other products, to intermediate products such as ethylene oxide, ethylene glycol, butanol chemicals, as well as various ethylene oxide derivatives, including basic and high performance chemicals. Key products in our olefins and polymers segment include the following: Product  Description  Feedstock  Primary End Uses  Ethylene  An olefinic hydrocarbon  Ethane  Feedstock for production of  recovered from  polyethylene and other derivates,  petrochemical processes  including ethylene oxide, an  in the form of a colourless  intermediate product in the  gas  production of ethylene glycol, ethyl  alcohol, brake fluids, surfactants  and synthetic motor oils; also used  to produce styrene, a raw material  used in the production of plastic  and rubber goods  Propylene  An olefinic hydrocarbon  Propane  Feedstock for the production of  recovered from  polypropylene, acrylic acids, acrylic  petrochemical processes  esters and oxo-alcohols  in the form of a colourless  gas  Polyethylene  A polymer derived from  Ethylene  Feedstock in manufacture of plastic  (LLDPE, HDPE,  polymerisation of ethylene  products, including film, pipes,  LDPE)  wires, cables and ducting  Polypropylene  A polymer derived from  Propylene  Feedstock in manufacture of woven  polymerisation of  bags, plastics, films, ropes, yarn,  propylene  chairs, food and garment packaging  and other industrial and consumer  products  Mono-Ethylene  An organic chemical  Ethylene,  Polyester resins for fibers and PET  Glycol (MEG)  compound derived from  oxygen  containers and bottles, antifreeze,  the oxidation of ethylene  electronic applications and brake  fluid formulation  Di-Ethylene  An organic chemical  Ethylene,  Fiberglass application and brake  Glycols (DEG)  compound derived from  oxygen  fluid formulation  the oxidation of ethylene  VCM  Colourless reactive gas  Ethyl  Feedstock in production of PVC  primarily used to  Dichloride,  manufacture PVC  ethylene,  oxygen  PVC  A versatile thermoplastic  VCM  Feedstock in manufacture of pipes,  polymer produced from  pipe and conduit fittings,  VCM  automobiles, blow moulding,  roofing tiles, bottles, containers,  films, wires and cables  Paraxylene  An aromatic hydrocarbon  Heavy  Production of purified terephthalic  in the form of a colourless,  naphtha  acid, which in turn is used in the  flammable liquid  manufacture of polyester for  packaging applications, soft drink  bottles, fibers and film
7. BUSINESS OF OUR GROUP (cont’d) Product Benzene MTBE N-Butane Performance chemicals Description An aromatic hydrocarbon in the form of a colourless, flammable liquid An organic ether that is volatile, combustible in the form of a colourless liquid that is categorised as an oxygenate due to its ability to boost the oxygen content and octane rating of gasoline Highly flammable, colourless gas Chemicals produced in smaller volume with higher unit values and used for critical applications requiring stringent performance Feedstock Heavy naphtha Propane, butane, methanol Butane Ethylene oxide Primary End Uses Feedstock for styrene monomer production and raw material for derivatives used in manufacture of disposable food containers, cutlery, packing electrical appliances and tyres Gasoline additive to boost octane levels to improve burning of fuel and reduce level of emissions Feedstock for production of butanediol Production of surfactants, personal care products, urethane foam, cement and  construction  applications,  detergents  and  emulsifiers
In addition to the products listed above, our Associates and Jointly Controlled Entity produce and sell certain derivative products, including the following petrochemical products: • acrylics (used primarily for the production of textiles and non-woven fibers, adhesives, paint and paper coatings, detergents and plastic modifiers);
• oxo-alcohols (used to manufacture paints and coatings, cables, wires and floor tiles);
• butanediol (used to produce polyesters, polyurethanes and plasticisers); and
• styrene monomer (feedstock for production of polystyrene and unsaturated polyester resins used in the manufacture of plastic casings, insulation materials and rubber goods).

7. BUSINESS OF OUR GROUP (cont’d) 7.6.2 Fertilisers and Methanol Our fertilisers and methanol segment produces and sells methanol and a range of nitrogen, phosphate and compound fertilisers. Key products in our fertilisers and methanol segment include the following: Product Description Feedstock Primary End Uses Urea A fertiliser with a minimum Ammonia, carbon Commercial fertiliser used in the nitrogen content of dioxide production of many crops; raw approximately 46% by material for the manufacture of weight adhesives, moulding powders, varnishes and foams Ammonia A nitrogen and hydrogen Methane, hydrogen Feedstock for the production of compound in the form of and nitrogen urea and other industrial colourless gas with a applications, including as a characteristicpungent odour refrigerant and latex anti­coagulant Methanol Simplest organic alcohol Methane Used to produce, among other and is a colourless, things, formaldehyde, acetic acid, flammable liquid chloromethanes and methyl methacrylate, which are used in the production of, among other things, resins, adhesives, paints, plastics, flavourings, silicones and plexiglass Carbon Colourless, odourless and Methane, hydrogen Feedstock for production of acetic monoxide tasteless gas that is lighter and nitrogen acid .than air Oxo gas Gas consisting primarily of Methane Feedstock for production of carbon monoxide and butanol hydrogen Acetic acid(1) Chemical intermediate in the Methanol, carbon Raw material for petrochemical form of colourless liquid monoxide intermediates and end-products, including vinyl acetate monomer for coatings and adhesives,· purified terephthalic acid for polyester production, acetate esters, cellulose acetate, acetic anhydride and monochloroacetic acid Note: (1) Produced by ourJointly Controlled Entity. I Company No.: 459830-K 7. BUSINESS OF OUR GROUP (conf’d) 7.7 PRODUCTION FACILITIES All of our production facilities are located in Malaysia, except for a PVC plant that is located in Vietnam. The following map highlights the location and the key products manufactured by us as well as our Associates and Jointly Controlled Entity in Malaysia:
~ .. .~ t~.,~~~~IPC;:~~’:::,~,~~~~~’I. •%~ Ethylene t~~;’-P·~iY~~’tiYI_~6e ….::::/.<:>.. ‘”. “. ~–>.:’..,:..,:,
+Ben~eine&p(Jral<Ylene. …•• ..> ··F;~.V<::M$.PYC···.” ‘.. ‘<:C, •’. ~1~;~:~~ib,c~rb6nMono~dli§x~6~s .i ,~~ EthylEH)eQlycols .” ‘.’ .’ ..’, ‘. ,~”A2etiC6c:idi< ……… ••••• >..>C·· . i1″Sutppol,EthanoJamines;c;IYC:bl §thers; .. ”S~. Methanol. ..: .I~~< ButYlAcetate;”Butyl ACr’llaje •.~••Oth~r· ••·.•..•
PGUlines
Since 1984, PETRONAS Gas, a listed company within the PETRONAS Group, has been processing natural gas sourced at the offshore Terengganu fields and processing and transmitting piped gas to end-users in the power, industrial and commercial sectors in Peninsular Malaysia, as well as power plants in Singapore, via its PGU pipeline system. The PGU pipeline system has a combined capacity of approximately 2,060 million standard cubic feet per day (mmscfd) and approximately 2,550km of main and lateral pipelines. 7. BUSINESS OF OUR GROUP (cont’d) Our production facilities focus on manufacturing processes that are designed to be highly integrated. All of our facilities have dedicated pipelines that supply our feedstock and many of our production facilities located in Peninsular Malaysia receive their gas feedstock through the PGU pipeline system. Common feedstocks and related products enable us to maximise synergies that can be realised from integrated operations. For a more detailed discussion of our production processes, refer to Section 7.8 of this Prospectus. The Kertih IPC focuses mainly on ethane-related products, including ethylene, polyethylene (HOPE, LLOPE and LOPE), VCM, PVC and ethylene glycol. There is also an aromatics plant in the Kertih IPC that produces benzene and paraxylene. The Gebeng IPC focuses mainly on propane and butane-related products, including propylene, polypropylene and MTBE. The Gebeng IPC also includes production facilities operated by our joint venture company with BASF that produce acrylic acids, oxo-alcohols and butanediol products. Our production facilities located in Gurun in Peninsular Malaysia and Labuan and Bintulu in Eastern Malaysia mainly focus on methane-related products, including methanol, ammonia and urea. Idemitsu SM, our joint venture with Idemitsu, produces styrene monomers at its facilities in Pasir Gudang in Peninsular Malaysia. We also own and operate a plant in Vung Tau, Vietnam, that produces PVC. 7.7.1 Kertih IPC The Kertih IPC is located on the east coast of Peninsular Malaysia and consists principally of ethane-based petrochemical projects. Its petrochemical facilities include two ethylene crackers, two polyethylene plants, an ethylene oxide/ethylene glycol plant, a multi-unit derivatives plant, VCM and PVC plants, ammonia/synthesis gas plants, an acetic acid plant and an aromatics complex. Plants We own and operate the following petrochemical plants located at the Kertih IPC: Audited NBVas at  31 July  Nameplate  Commission  2010  Plant  Company  Capacity  Shareholders  Date  (RM 000)  Ethane/Propane  OPTIMAL  600,000  mtpa  PCG (88%)  January 2002  1,238,549  cracker  Olefins  Ethylene; 84,720 mtpa  Sasol (12%)  Propylene  Ethane cracker  Ethylene  400,000  mtpa  PCG (87.5%)  September  674,893  Malaysia  Ethylene  Idemitsu Kosan  1995  (12.5%)
7. BUSINESS OF OUR GROUP (cont’d) Audited  NBVas at  31 July  Nameplate  Commission  2010  Plant  Company  Capacity  Shareholders  Date  (RM 000)  VCM  Vinyl  400,000 mtpa  PCG (100%)  September  237,918  Chloride  VCM  2000  (Malaysia)  PVC  Vinyl  180,000 mtpa  PCG (100%)  October 2000  122,812  Chloride  PVC  (Malaysia)  Ammonia! Oxo  PETRONAS  450,000 mtpa  PCG (100%)  November  494,958  gas  Ammonia  Ammonia;  2001  435,700 mtpa  Oxogas;  246,700 mtpa  Carbon  Monoxide  Aromatics  Aromatics  500,000 mtpa  PCG (70%)  July 2000  434,968  (Paraxylene and Benzene)  Malaysia  Paraxylene; 187,700 mtpa Benzene  MJPX Co. Ltd. (30%)  Ethylene Oxide,  OPTIMAL  385,000 mtpa  PCG (100%)  February 2002  809,688  Ethylene Glycol  Glycols  Ethylene Oxide;  380,000 mtpa  Ethylene Glycols  Ethylene  OPTIMAL  30,000 mtpa  PCG (100%)  April 2002  870,528  derivatives  Chemicals  Ethoxylates;  75,000 mtpa  Ethanolamines;  60,000 mtpa  Glycol Ethers;  140,000 mtpa  Butanol;  50,000 mtpa  Butyl Acetate;  30,000 mtpa  Nonylphenol  Ethoxylates;  15,000 mtpa  Polyethylene  Glycol;  10,000  Polyalkaline  Glycol  Low density  PETLIN  255,000 mtpa  PCG (60%)  February 2002  488,358  Polyethylene  LOPE  Sasol (40%)  Polyethylene  Polyethylene Malaysia  240,000 mtpa HDPEILLDPE; 60,000 mtpa  PCG (100%)  May 1995  171,836  Pipe-grade  compound
7. BUSINESS OF OUR GROUP (cont’d) In addition, our Jointly Controlled Entity operates the following production facilities in the Kertih IPC: Audited  NBVas at  31 July  Nameplate  Commission  2010  Plant  Company  Capacity  Shareholders  Date  (RM 000)
Acetic Acid BP 500,000 mtpa peG (30%) November 271,912 PETRONAS Acetic Acid 2000BP HoldingsAcetyls International B.V. (70%) Feedstock The main feedstocks used by our production facilities located in the Kertih IPC are ethane, propane and heavy naphtha. The gas feedstock is delivered through the PGU network and the heavy naphtha is delivered through another dedicated pipeline directly from the oil refinery operated by PETRONAS Penapisan (Terengganu). Infrastructure The Kertih IPC contains common infrastructure facilities that support the operation of our plants, including the CUF, chemical storage, distribution terminals and centralised warehousing facilities. The CUF at the Kertih IPC is owned and operated by PETRONAS Gas. The CUF commenced operations in 1999 and provides our production facilities located in the Kertih IPC with utilities such as electricity, steam, oxygen, nitrogen, industrial water and wastewater treatment. Each of our subsidiaries that operate production facilities in the Kertih IPC has a long term supply agreement with PETRONAS Gas pursuant to which utilities are provided. Bekalan Air KIPC, a SUbsidiary of PETRONAS, operates the centralised water supply facilities in nearby Dungun and supplies water to our production plants in the Kertih IPC pursuant to long-term supply contracts. Kertih Port, our wholly-owned subsidiary that owns and operates port facilities, has six berths that can accommodate chemical tankers of up to 50,000 dead-weight mt. In addition, Kuantan Railway Services, a 86-km dedicated railway system owned and . operated by the PETRONAS Group, connects the Kertih IPC to Kuantan Port, which is used to transport certain petrochemical products to and from the IPC. Kertih Terminals, a joint venture between us, Dialog Equity Group Sdn Bhd and Vopak Terminal Penjuru Pte Ltd owns and operates the Kertih IPC’s storage and distribution terminal, which provides us with centralised services for the handling, storage and distribution of feedstocks and intermediates as well as finished products and by­
products from the plants in the Kertih IPC. 7. BUSINESS OF OUR GROUP (cont’d) Integration The Kertih IPC’s petrochemical plants are fully integrated both among one another within the IPC as well as with the surrounding infrastructure facilities and other process plants in Kertih, including six gas processing plants (uGPPs”) operated by PETRONAS Gas and an oil refinery operated by PETRONAS Penapisan (Terengganu). The GPPs and oil refinery are part of the PETRONAS Petroleum Industry Complex. Our production facilities located within the Kertih IPC are integrated with one another to maximise synergies across the plants and minimise product loss across our product lines. We use common or related feedstock and common facilities such as the CUF to support our operations. In addition to using the product of one plant as feedstock for a downstream process, our production processes in the Kertih IPC are further integrated through their use of by-products of one plant as raw material for another product. For details of our production processes, refer to Section 7.8 of this ProspectLis. 7.7.2 Gebeng IPC The Gebeng IPC, also located on the east coast of Peninsular Malaysia, is an integrated self-contained petrochemical complex where our propane and butane­based petrochemical projects are centered. We own and operate an MTBE plant, a propane dehydrogenation plant and a polypropylene plant at the G~beng IPC. In addition to our wholly-owned and joint venture operations, the Gebeng IPC also hosts a number of multinational chemical companies, such as BP Chemicals, which owns and operates a purified terephthalic acid plant, and Eastman Chemicals, which owns and operates a copolyester plastic resin plant. Plants We own and operate the following petrochemical plants at Gebeng IPC: Audited NBVas at 31 July Nameplate Commission 2010 Plant Company Capacity Shareholders Date (RM 000) MTBE MTBE 300,000 mtpa PCG (100%) December 428,715 Malaysia MTBE; 80,000 1992 mtpa Propylene; 135,000 mtpa n-butane Propane MTBE 300,000 mtpa PCG (100%) May 2001 738,982 Dehydrogenation Malaysia Propylene Polypropylene Polypropylene 80,000 mtpa PCG (100%) November 76,722 Malaysia Polypropylene 1992 7. BUSINESS OF OUR GROUP (cont’d) In addition, our joint venture company operates the following production facilities in the Gebeng IPC: Audited NBVas at  31 JUly  Nameplate  Commission  2010  Plant  Company  Capacity  Shareholders  Date  (RM 000)  Acrylics  BASF  160,000 mtpa Crude  PCG (40%)  July 2000  72,123  Complex  PETRONAS  Acrylic Acid; 40,000  BASF  Chemicals  mtpa Glacial Acrylic  Nederland  Acid; 100,000 mtpa Butyl Acrylate;  B.Y. (60%)  70,000 mtpa 2-Ethyl  Hexyl Acrylate  Oxo-Alcoholsl  BASF  135,000 mtpa 2­ PCG (40%)  July 2001  210,756  Syngas  PETRONAS  Ethylhexanol;  BASF  Complex  Chemicals  40,000 mtpa  Nederland  Phthalic Anhydride; 100,000 mtpa  BV. (60%)  Palatinol Ah;  165,000 mtpa  Butanols  Butanediol  BASF  100,000 mtpa  PCG (40%)  January 2004  224,337  Complex  PETRONAS  Butanediol  BASF  Chemicals  Nederland  B.V. (60%)
Feedstock The main feedstocks used by our production facilities located in the Gebeng IPC are propane and butane. The gas feedstock to the Gebeng IPC is delivered through the PGU network. Infrastructure The CUF at the Gebeng IPC, which commenced operations in 1999, is owned and operated by PETRONAS Gas. The CUF provides our production facilities located in the Gebeng IPC with utilities such as electricity, steam, nitrogen, industrial water and wastewater treatment. Each of our subsidiaries that operate production facilities in the Gebeng IPC has a long term utilities supply agreement with PETRONAS Gas pursuant to which utilities are provided. We receive our water supply in the Gebeng IPC from the local water authority based on the applicable tariff rates. We use the nearby Kuantan port to transport products from the Gebeng IPC, which minimises warehousing and ground transport costs. We maintain a storage tank for MTBE near the Kuantan port, where we also have a dedicated jetty for MTBE product use. 7. BUSINESS OF OUR GROUP (cont’d) Integration The Gebeng IPC’s petrochemical plants are fully integrated both among one another within the IPC as well as with the surrounding infrastructure facilities. Our production facilities located within the Gebeng IPC are integrated with one another to maximise synergies across the plants and minimise product loss across our product lines. We use common or related feedstock and common facilities such as the CUF to support our operations. In addition to using the product of one plant as feedstock· for a downstream process, our production processes in the Gebeng IPC are further integrated through their use of by-products of one plant as raw material for another product. For details of our production processes, refer to Section 7.8 of this Prospectus. 7.7.3 Labuan Methanol Complex Plants Our methanol production facilities located in Labuan comprise two methanol plants that have a combined capacity of 2.4 million mtpa. Audited NBVas at 31 July Nameplate Commission 2010 Plant Company Capacity Shareholders Date (RM 000) Labuan Methanol PETRONAS 666,000 mtpa PCG (100%) February 1985 424,418 Plant 1 Methanol Methanol Labuan Mega PETRONAS 1,665,000 peG (100%) January 2009 1,946,794 Methanol Plant 2 Methanol mtpa Methanol Feedstock The main feedstock used by our production facilities in Labuan is natural gas purchased from PETRONAS and its subsidiary, PETRONAS Carigali. Natural gas for the methanol plant 1 and the Mega Methanol plant 2 is sourced from several gas fields off the coast of Sabah. Infrastructure Our production complex in Labuan is self-sufficient. The complex has its own electricity supply and also has other supporting facilities, inclUding an air separation unit, water demineralisation facilities, cooling tower and sea water cooling facilities. Power management for both plants is handled internally to ensure stability and continuous availability of power, with emergency backup power supplied by Sabah Electricity Sdn Bhd, the local power utility provider. Water is supplied by the local water authority based on the applicable tariff rates. Each methanol plant has its own intermediate and product storage tanks. The plants are also supported by product loading and dedicated jetty facilities for transport of products. 7. BUSINESS OF OUR GROUP (cont’d) Integration The two methanol plants in Labuan benefit from closely integrated operations with interconnecting facilities to provide flexibility in plant operation, such as the ability for the Mega Methanol plant 2 to supply steam and oxygen to methanol plant 1. Such integrated operational capability increases the overall reliability of the plants. Our methanol plants are also integrated within the broader scheme of our production processes, as a portion of the methanol produced in Labuan is supplied to MTBE Malaysia as a feedstock for its MTBE production. For details of our production processes, refer to Section 7.8 of this Prospectus. 7.7.4 Other petrochemical operations In addition to the petrochemical plants located in the Kertih and Gebeng IPCs and in Labuan, we own and operate several production facilities located in Malaysia and one plant in Vietnam. Plants We own and operate the production facilities listed in the table below: Audited NBVas at 31 July Nameplate Commission 2010 Plant Company Capacity Shareholders Date (RM 000) Bintulu Ureal ASEAN 750,000 mtpa PCG (63.47%) September 46,785 Ammonia Bintulu Urea; 1985Ministry of Finance,Complex Fertilizer 450,000 mtpa Thailand (13%) Ammonia The Republic of Indonesia (13%) National Development Company of the Philippines (9.53%) Temasek Holdings (Pte) Ltd (1 %) Gurun Ureal PETRONAS 66,700 mtpa PCG (100%) May 1999 675,038 Ammonia Fertilizer Methanol; Complex 400,000 mtpa Ammonia; 683,000 mtpa Urea Vung Tau Phu My 100,000 mtpa PCG (93.11%) October 2002 101,301 PVC plant in PVC Vung Tau Shipyard Vietnam Co. (6.89%) Feedstock Natural gas feedstock for our production complexes in Gurun and Bintulu is supplied by PETRONAS. Our production complex in Gurun receives its natural gas feedstock from Kertih and the Trans-Thai Malaysia pipeline via the PGU network, while natural gas feedstock to the Bintulu complex is sourced from off the coast of Borneo. 7. BUSINESS OF OUR GROUP (cont’d) Infrastructure Our production complexes in Bintulu and Gurun are self-sufficient. Each production complex has its own electricity supply and is supported by other utilities and services needed for its manufacturing processes. Emergency backup power is provided from the national grid by local power providers, Syarikat SESCO Berhad in Bintulu and Tenaga Nasional Berhad in Gurun. Each complex also has support facilities such as steam generation, demineralisation water system, cooling water system, wastewater treatment capabilities and product storage. Water to each complex is supplied by the local water authority at a price that is based on the applicable tariff rates. The Gurun complex has distribution and loading facilities, including methanol and ammonia loading for road tankers and bulk urea loading for road trucks. We also utilise the Urea Export Terminal (“UET”), which is located 45 km from Gurun at Butterworth Port in Penang, to transport our urea. The UET is connected to our production complex by railway and is equipped with a bulk urea loading gantry crane. Similarly, the Bintulu production complex has storage facilities for ammonia and urea and uses Bintulu port, an industrial port located 1.6km from our Bintulu production complex, for transportation of those products. In addition, it also has urea loading facilities for road tankers. Integration Our production complex in Gurun that comprises the methanol, ammonia and urea plants benefits from integration among the plants. In addition to the common infrastructure that supports operations, the plants within the complex are also linked to one another to maximise value. Synthesis gas from processing of natural gas is used for the production of methanol as well as ammonia, which are both sold as end products. A substantial portion of the ammonia and carbon dioxide produced by the ammonia plant is used as feedstock for the urea plant. For details of our production processes, refer to Section 7.8 of this Prospectus. In addition to the above, our Associates Idemitsu SM and Malaysian NPK Fertilizer operate the following production facilities in Malaysia: Audited NBV  as at 31 July  Nameplate  Commission  2010  Plant  Company  Capacity  Shareholders  ____D_at_e  (RM 000)  Pasir Gudang  Idemitsu SM  240,000 mtpa  PCG (30%)  February 1997  130,561  styrene  Styrene  Idemitsu Kosan  monomer plant  Monomer  (70%)  NPK Fertilizer  Malaysian  310,000 mtpa  PETRONAS  November  43,004  plant  NPK  NPK  Fertilizer (20%)  2004  Fertilizer  Pertubuhan  Peladang  Kebangsaan  (National Farmers  Organisation)  (80%)
7. BUSINESS OF OUR GROUP (cont’d) 7.8 PRODUCTION PROCESSES Integrated operations The production of our major products, from oletins and polymers to fertilisers and methanol, is closely integrated and benefits from the synergies across our Group. We manufacture our main product lines in our IPCs in Kertih and Gebeng, as well as in our other key production hubs located throughout Malaysia and in Vietnam. Through the IPCs and our other production complexes, we seek to achieve a competitive advantage by integrating petrochemical operations using common or related feedstock and common facilities, both within our self­contained production complexes as well as among various plants, to maximise value across our product lines. One of the elements of this integration within the IPCs is the use of the product of one plant as the feedstock in the process of the plant in the next stage of the production process. This integration enables our plants to capture maximum margins along the product value chain hence decreasing our exposure to cyclicality of the markets and raw materials. In addition to our use of the product of one plant into the next, the IPCs also achieve further integration through their use of by-products of one plant as raw material for another product. For example, the hydrogen produced as a by-product in our production of paraxylene and benzene in our aromatics plant is used as one of the raw materials in the production of ammonia in our ammonia plant. Without this integration, we would likely use the hydrogen as fuel in some other process, and we believe using it in the production of ammonia helps us to achieve greater efficiency and maximise value within our production processes. We believe that this integration strategy enables us to control the value along our production chains, which is important in providing us with a competitive advantage and allowing us to maintain a market leadership position. . 7.8.1 Olefins and Polymers Our two main feedstocks for our oletins and polymers products are ethane and propane. Both of these feedstocks are supplied to the main production sites in the Kertih IPC and the Gebeng IPC from the GPPs in the PETRONAS Kertih Petroleum Industry Complex through the PGU pipeline. For details on raw materials and suppliers, refer to Section 7.10 of this Prospectus. The plants in the IPCs use the feedstock to produce ethylene and propylene, which in turn are used as feedstock for other downstream production processes. The following diagram illustrates our integrated production process flow across our oletins and polymers operations and the synergies in the production processes across all our product lines. 7. BUSINESS OF OUR GROUP (cont’d)
I;I !. I•I: I1I ,I Uerfltlsers and Methanol Business Segment Ethane and propane feedstocks supplied by the GPPs in Kertih are processed in our. facilities to produce ethylene and propylene that are in turn supplied to our various plants to be used in downstream production processes that we or our joint venture company operate. Ethylene is used as feedstock for the manufacture of products such as polyethylene (HOPE, LLOPE and LOPE), VCM, ethylene glycols and styrene monomer. Propylene is used as feedstock for polypropylene and is also used in combination with oxogas and ammonia supplied from our ammonia plant located in the Kertih IPC to produce butanol chemicals. Our MTBE plant is the first plant in the world to use a combined feed of butane and propane to simultaneously produce MTBE and propylene. MTBE is produced using butane supplied through the PGU pipeline and methanol produced by our methanol plants in Labuan, while propylene is produced through the dehydrogenation unit from the propane supplied through the PGU pipeline. MTBE is sold as a finished product and propylene is subsequently fed into our polypropylene plant and acrylics/oxo­alcohol production processes while n-butane is used in the butanediol production process.
I Company No.: 459830-K 7. BUSINESS OF OUR GROUP (cont’d) 7.8.2 Fertilisers and Methanol The products in our fertilisers and methanol segment are manufactured mainly in our production hubs located in Labuan, Gurunand Bintulu utilising methane and hydrogen derived from natural gas that are supplied by PETRONAS and PETRONAS Carigali as well as our upstream production plants. The following diagram illustrates our integrated production process flow across our fertilisers and methanol operations and the synergies in the production processes across those product lines:
: MmE : PROPYLENE ~ !’l_-_~l!T!-~_E • r~mmm:m:m:i~~:O~~~~imiiimm:m:ml’—_-E~:~::r—–_ ~:~ONIA

j ‘PJ;l’RPt’.A4 “e\ti!iz~~ “, UREAUREA r——+~ AMMONIAAMMONIANATURAL GAS METHANOl L._.._~~~~~_?~_____ i ~Jointly Controlled Entity _ Olefins and Polymers Business Segment Methanol is primarily produced in our two methanol plants located in Labuan using natural gas as feedstock. The methanol produced in Labuan is sold to third-parties as well as supplied to our plant in the Gebeng IPC as feedstock for its production of MTBE. Methanol is also produced in our production complex in Gurun. Urea and ammonia are produced at our production complexes in Gurun and Bintulu using natural gas feedstock. Ammonia is mainly used as feedstock to produce urea. A plant in our Kertih IPC also produces ammonia, as well as carbon monoxide and oxogas that are supplied as feedstock for the downstream production of ethylene glycol, acetic acid and other chemicals. ICompany No.: 459830-K I 7. BUSINESS OF OUR GROUP (cont’d) 7.9 PLANT PERFORMANCE The production facilities of our Subsidiaries are monitored by tracking a number of performance indicators commonly used in the petrochemicals industry. The following table sets forth the achieved key performance indicators for the production facilities of our Subsidiaries’ for the periods indicated:  Year ended 31 March  4 months ended 31 July  2008  2009  2010  2009  2010  Capacity  Capacity  Capacity  Capacity  Capacity  Plant  Utilisation Reliability  Utilisation  Reliability  Utilisation Reliability  Utilisation  Reliability  Utilisation Reliability  (in “!o)  Olefins and Polymers  OPTIMAL Oletins  Ethylene  81.1  92.8  97.3  98.0  85.2  99.0  57.1  95.4  86.6  95.5  Propylene  84.8  92.8  86.3  97.7  80.3  99.0  51.7  95.4  86.3  87.0  Ethylene Malaysia  Ethylene  98.2  100.0  75.7  94.0  92.4  98.4  83.8  95.8  98.1  100.0  Vinyl Chloride (Malaysia)  VCM  86.1  97.3  80.9  97.0  77.3  92.0  76.7  100.0  66.0  100.0  PVC  96.2  94.3  101.9  99.0  86.5  99.0  92.4  100.0  52.4  100.0  Phu My  PVC  102.3  98.7  93.0  98.9  104.9  99.8  107.6  99.8  89.4  99.3  Aromatics Malaysia  Paraxylene  83.5  90.4  105.4  98.9  99.5  98.3  93.8  97.5  68.2  83.8  Benzene  87.7  96.2  100.5  98.3  94.2  98.3  65.1  97.5  59.5  83.6  OPTIMAL Glycols(l)  Ethylene Oxide  76.1  95.1  105.9  95.1  93.0  97.8  61.6  100.0  89.2  97.7  Ethylene Glycol  66.8  95.1  105.4  95.1  86.4  97.8  56.0  100.0  74.8  97.9  OPTIMAL Chemicals(l)  Chemical derivatives  60.5  89.8  76.3  95.2  76.0  95.0  47.5  97.0  79.7  95.1  Butanol  65.4  91.3  74.3  98.6  67.2  94.7  31.3  100.0  81.7  100.0  PETLIN  LOPE  95.3  91.2  97.6  94.6  84.0  94.4  55.4  93.6  91.7  89.5  MTBE Malaysia  MTBE  94.4  94.5  57.9  72.0  90.4  94.1  96.3  93.6  94.2  92.1  Propane Dehydrogenation  83.6  92.3  83.6  99.0  86.4  95.2  89.5  89.3  106.2  97.1  -144­
ICompany No.: 459830-K 7. BUSINESS OF OUR GROUP (cont’d) Year ended 31 March  4 months ended 31 July  2008  2009  2010  2009  2010  Capacity  Capacity  Capacity  Capacity  Capacity  Plant  Utilisation  Reliability  Utilisation  Reliabilit~_  Utilisation  ~eliability  Utilisation  Reliability  Utilisation  Reliability  (in “!o)  Polypropylene Malaysia  Polypropylene  76.1  92.9  56.3  83.0  98.5  95.0  98.5  88.3  105.1  94.2  Polyethylene Malaysia(2)  HOPE and LLOPE  104.3  94.2  76.8  98.1  88.2  92.5  73.0  90.9  79.5  93.6  Fertilisers and Methanol  ASEAN Bintulu Fertilizer  Ammonia  83.1  87.4  92.5  95.0  97.1  94.4  101.2  97.8  97.7  93.6  Urea  81.9  98.2  90.0  97.1  95.1  98.8  98.5  97.8  97.6  100.0  PETRONAS Ammonia  Ammonia  88.2  99.8  87.8  99.9  95.5  99.2  76.0  95.2  93.8  100.0  Oxogas  95.8  100.0  88.6  98.1  97.5  98.4  84.1  97.5  95.9  100.0  Carbon monoxide  96.0  99.0  76.6  98.6  98.2  99.2  80.4  97.8  69.1  100.0  PETRONAS Fertilizer  Methanol  84.0  94.1  57.3  92.1  57.6  91.0  55.0  96.7  50.3  80.8  Ammonia  96.1  94.9  99.5  93.7  92.2  94.4  94.6  98.2  89.5  88.3  Urea  97.0  93.9  99.0  94.0  93.1  95.0  96.1  98.8  90.9  97.6  PETRONAS Methanol  Methanol  95.3  99.8  106.3  99.4  55.0  88.0  60.1  80.4  63.5  99.3  Notes:  (1)  Became our Subsidiary in September 2009 when we acquired al/ of DOW Chemicals’ interests.  (2)  Became our Subsidiary on 2 September 2010 when we acquired al/ of BP Chemical’s interest.
-145 ­7. BUSINESS OF OUR GROUP (cont’d) We seek to operate our production facilities at optimal levels of capacity utilisation that takes into consideration the prevailing general economic conditions, demand for our products and our costs of revenue. Some of our production facilities are currently operating at below full capacity, while our reliability rates at most of our plants are relatively high. Therefore, we are in a position to readily grow our business by expanding our production volumes at our current production facilities to meet any increased demand for our products. Capacity utilisation is total production (including off-specifications products) expressed as a percentage of nameplate capacity during the year. Reliability is calculated by dividing the number of actual operating days for the period by the total number of available operating days adjusted for scheduled shutdowns during the period. For information about our production volume, refer to Section 7.6 of this Prospectus. For details of the nameplate capacities of our production facilities, refer to Section 7.7 of this Prospectus. Capacity utilisation is affected by the number of lost days of production due to unscheduled plant shutdowns. From time to time, unscheduled shutdowns occur due to various reasons, including external factors such as disruption in power supply or equipment breakdown. Capacity utilisation at the methanol plant 1 in Labuan was adversely impacted during the year ended 31 March 2010 due to our decision to shut down the plant in light of a water supply shortage caused by a third party’s delay in completing additional water supply facilities in connection with the Mega Methanol plant 2 coming into operation. We expect that the water supply issue will be fully remedied by early 2011. Despite our decision to shut down plant 1, our overall production of methanol increased during this period due to the Mega Methanol plant 2 coming online, more than offsetting the decreased production from the shutdown of plant 1. Our MTBE plant was shut down for approXimately 126 days during the year ended 31 March 2009 due to upgrading of computer control systems and repair of a processing unit during the scheduled turnaround period. As a result of the upgrade and repair work on the plant during the year ended 31 March 2009 when it recorded a reliability rate of 72.0%, the plant has increased its reliability rate to 94.1 % for the year ended 31 March 2010. 7.9.1 Maintenance Our production facilities are shut down periodically for scheduled maintenance and occasionally for unscheduled corrective maintenance and catalyst changes. Turnarounds, which involve a complete shutdown and a comprehensive maintenance check, are typically required at least once every 18 months in order to comply with regulatory requirements. Turnarounds enhance product yields and quality, increase plant efficiency and safety, reduce the possibility of future unscheduled plant shutdowns, and allow required regUlatory equipment inspections to be performed. However, as a result of our improved asset reliability and integrity programs that were implemented, our plants have been granted extensions from the Department of Occupational Safety & Health (“DOSH”) so that turnarounds may be conducted at three to five year intervals, depending on business conditions and the relevant pli:mt’s operating status. These extensions for turnarounds have contributed to reduction of our long-term maintenance costs and improvement of our asset utilisation. In addition to the benefits resulting from a periodic comprehensive inspection, turnarounds also offer opportunities to carry out debottlenecking projects to increase capacity through equipment modifications to remove operational constraints. 7. BUSINESS OF OUR GROUP (cont’d) As turnarounds occur every three to five years, we also conduct periodic scheduled maintenance of our product facilities that are smaller and less complex which take a shorter amount of time. Moreover, we continuously monitor the performance and health of our equipment in our production facilities and perform any necessary online maintenance on our facilities without shutting down operations to ensure that appropriate measures are taken to optimise the long-term reliability of key equipment and the production processes as a whole. Online maintenance helps to minimise downtime of our plants and allows them to operate at higher capacity utilisation while performing at high reliability rates. 7.9.2 Business interruptions There has not been any material interruption to our business activities during the past 12 months. 7.9.3 Quality control Product quality is extremely important in our industry, and we place great emphasis on quality control of all our products to strive to meet the highest standard for petrochemical products that we produce. Each of our production facilities has its own quality control unit and the quality management system employed by each of them is certified to the appropriate ISO standards, such as ISO 9001 and, for some of our quality testing facilities, ISO 17025. Our quality management systems in place at each of our production facilities undergo both annual internal and external audits to ensure compliance to established procedures and measure effectiveness of control systems. External audits of our quality management systems are conducted and certified by SIRIM, the Malaysian national standards development and inspection agency for international certification bodies. Our quality control processes for our products and facilities are conducted at each of our plants through “in process” testing of products at various stages of production to effectively detect and remedy any deviation from our established product quality standards. For example, our methanol plants carry out around-the-clock testing on the plants’ processes, including tests relating to gases, water treatment and boiler systems and the crude, rundown and pure methanol, to ensure that the pure chemical-grade methanol we produce is subject to stringent analytical tests using the United States Federal grade AA specification guidelines and also meets the highest Japanese quality standard for methanol. Additionally, the methanol plants work to ensure that pollution levels, including noise and effluent, comply with the requirements of the Malaysian Department of Environment and DOSH. We have a total of 164 personnel dedicated to quality control and management systems, including 13 certified chemists. 7. BUSINESS OF OUR GROUP (cont’d) 7.10 RAW MATERIALS Our costs of raw materials constituted 53.5%, 55.8% and 58.0% of our cost of revenue for the years ended 31 March 2008, 2009 and 2010, respectively, and 51.2% and 53.6% of our cost of revenue for the 4 months ended 31 July 2009 and 2010, respectively. The primary feedstocks for our petrochemical production processes are ethane, propane, methane, butane and heavy naphtha. We obtain ethane, propane, methane and butane primarily from PETRONAS. PETRONAS provides these feedstocks to us through the PGU pipeline network from the GPPs operated by PETRONAS Gas in Kertih, which process the natural gas sourced in offshore Peninsular Malaysia into methane, ethane, propane and butane. A portion of our methane feedstock is also sourced from off the coast of East Malaysia, and this is supplied to us by both PETRONAS and PETRONAS Carigali. Our heavy naphtha is supplied by PETRONAS Penapisan (Terengganu). We believe that we are uniquely positioned to take advantage of built-in synergies within our Company, as well as those achieved through our close relationship with companies in the PETRONAS Group. The table below sets forth certain information regarding the principal raw materials we use, the principal uses of such raw materials and the principal source/suppliers of such raw materials. Feedstock volume Raw material (31 March 2010) Principal use(s) Principal supplier(s) 000 Methane -C1 69,024 mmBtu Feedstock for methanol, PETRONAS; ammonia and urea PETRONAS Carigali Ethane-Cz 1,038 mt Feedstock for ethylene PETRONAS Propane -C3 700 mt Feedstock for propylene PETRONAS Butane -C4 360 mt Feedstock for n-butane PETRONAS and MTBE Heavy naphtha 902 mt Feedstock for paraxylene PETRONAS Penapisan and benzene (Terengganu) Ethane and propane are the primary raw materials that we process in our. crackers to produce ethylene and propylene, which are key feedstocks in .the manufacture of many of our petrochemical products.. Methane, heavy naphtha arid butane are also important raw materials we use to manufacture our petrochemical products as well as other key feedstocks . used in downstream production processes. Raw materials from the companies in the PETRONAS Group are purchased pursuant to supply contracts that generally provide for a delivery of supplies to us for a fixed term with take-or-pay obligations for specified quantities. While pricing terms differ among the supply contracts, prices we pay for the raw materials are generally attractive relative to prevailing market prices. Pricing under some of our feedstock supply contracts is determined through a formula that is linked to prices quoted in published industry benchmarks while other feedstock supply contracts provide for a fixed price. Some of our feedstock supply contracts with PETRONAS Group companies contain clauses providing that, if there is a substantial change in circumstances that seriously prejudices or is expected to seriously prejudice either party, either party can require both parties to consult together in a spirit of mutual understanding and co-operation to determine whether and what revision to the terms and conditions of the contract is necessary. Thus, consultations about changes in pricing and other terms may. take place under such clauses or otherwise as have occurred in the past after the Government of Malaysia adopted an overall policy of gradually phasing out the discounted gas prices available to various sectors of the Malaysian economy. For further details on feedstock contracts, please refer to Section 5.2.1 of this Prospectus. 7. BUSINESS OF OUR GROUP (cont’d) In addition to the feedstock listed in the above table, our production facilities also use ethylene and propylene mostly as feedstock for the production of polymers and derivatives. Ethylene and propylene are produced primarily in the Kertih IPC and the Gebeng IPC and distributed primarily through pipelines to other plants and facilities within those complexes, with the remainder being distributed to plants and facilities located elsewhere. Our production capacities for ethylene and propylene at plants operated by OPTIMAL Olefins, Ethylene Malaysia and MTBE Malaysia have historically been sufficient to provide adequate supply of feedstock to our downstream manufacturing processes. Suppliers Companies of the PETRONAS Group are our primary suppliers of raw materials used in our production processes, including ethane, propane, butane, methane and heavy naphtha. There is no supplier other than the companies of the PETRONAS Group that has accounted for 10 percent or more of our total purchases for the years ended 31 March 2008,2009 and 2010 and for the 4 months ended 31 July 2010. 7.11 SALES AND MARKETING MITCO, our wholly-owned subsidiary, serves as the main sales and marketing arm for our petrochemical products. Leveraging on the consistent large production volumes of petrochemical products from our production facilities, MITCO serves as a vital link in our integrated value chain of business activities allowing us to offer and package a wide portfolio of products to our customers. MITCO has approximately 90 employees engaged in marketing and sales. While some of our plants sell their products directly to customers, most of our marketing and sales are handled by MITCO. A substantial portion of petrochemical products we produce are sold through MITCO. Sales by MITCO accounted for approximately 59%, 63% and 60% for the years ended 31 March 2008, 2009 and 2010, respectively, and 67% and 59% for the 4 months ended 31 JUly 2009 and 31 July 2010, respectively of the sales of petrochemical products of our Group. MITCO has entered into marketing agreements with most of our operating companies to market the products manufactured by those companies. Through this arrangement, MITCO receives a stable supply of products for sale into the market. The commercial and operational terms of the arrangement between MITCO and the contracting operating companies are reviewed regularly. IVIITCO primarily markets our petrochemical products in the domestic and Asia Pacific region. MITCO markets methanol, ammonia and urea for our fertilisers and methanol segment, and markets a range of olefins, polymers, vinyls, glycols, aromatics and other products, such as MTBE, for our olefins and polymers segment. Sales of olefins and polymers account for the majority of MITCO’s sales. 7. BUSINESS OF OUR GROUP (cont’d) 7.12 PRINCIPAL MARKETS AND CUSTOMERS We market and sell our products both in Malaysia and in various other countries. Sales in Malaysia accounted for 56.6%, 48.4% and 44.8% and sales to other countries accounted for 43.4%,51.6% and 55.2% of all our sales for the years ended 31 March 2008, 2009 and 2010, respectively. For the 4 months ended 31 July 2009 and 2010, sales in Malaysia accounted for 46.5% and 45.2%, respectively, and sales to other countries accounted for 53.5% and 54.8%, respectively, of all our sales. We believe that our partnerships with our customers are the most critical aspect of our business that complements our various strengths. We benefit from longstanding relationships with many of our customers and we have been able to grow and maintain market share both domestically and in our key international markets. We also leverage from our established reputation as a reliable supplier of petrochemical products to expand our reach into new markets. In addition, our marketing and sales efforts benefit from our diversified product portfolio that is supported by our operational experience, integrated production facilities and our excellent track record in timely meeting our customers’ needs. No single customer has contributed 10 percent or more of our total revenue for the years ended 31 March 2008, 2009 and 2010 or for the 4 months ended 31 July 2010. MITCO Labuan Co Ltd (“MITCO Labuan”), a subsidiary of PETRONAS, distributes our products to end­customers. Sales to MITCO Labuan contributed approximately 12.2%, 13.”4%, 11.2% and 13.9% of our total revenue for the years ended 31 March 2008, 31 March 2009, 31 March 2010 and 4 months ended 31 JUly 2010. Barring unforeseen circumstances, by mid 2011, MITCO Labuan’s business related to petrochemical marketing and trading will be assumed and undertaken by us. 7.12.1 Malaysian market We have a diverse customer base of approximately 550 customers in Malaysia, comprising principally distributors, traders and manufacturers serving the packaging, household, construction and agricultural markets, as well as manufacturers of industrial products. We are the sole producer of methanol, granular urea, ammonia, MTBE, paraxylene and certain specialty chemicals in Malaysia. In Malaysia, our products are sold both to local distributors and traders and directly to end users. We are the sole producer in Malaysia of granular urea in the domestic fertilisers market for direct application in the agricultural sectors. Our granular urea is also sold to glue and fertiliser compound manufacturers. Our methanol sales in the Malaysian market are to our own operating unit for the production of MTB~ as well as to local distributors or traders and, in lesser quantities,. to formaldehyde manufacturers. Polymers, inclUding LDPE, PVC and polypropylene resins, are primarily sold to our customers in Malaysia for the manufacture of film, packaging, pipes and profiles. Customer relationship management is key to our sales efforts in the Malaysian market. We continue to enhance the level of service and product offerings. To increase our brand recognition and expand our customer base in Malaysia, we participate in trade exhibitions as well as advertise our products in local industry publications. 7. BUSINESS OF OUR GROUP (cont’d) In order to facilitate distribution of our products, we have a network of inland transporters, including MISC Integrated Logistics Services Sdn Bhd, a company within the PETRONAS Group, to deliver our products throughout Malaysia, Thailand and Singapore. These transporters are chosen on the basis of cost, reliability and regional reach. The proximity of our production facilities to key customers allows us to minimise warehousing needs and enhance reliability of product delivery to customers. 7.12.2 Other countries We also sell our products to a broad range of apprOXimately 900 customers in more than 25 countries. Our major markets outside of Malaysia include Southeast Asia, Northeast Asia, the Indian subcontinent, Australia and New Zealand. Key competitive determinants in these markets for petrochemical products are price, product quality, reliability and flexibility on delivery and customer relationships. Our products are exported primarily to end-users and distributors and traders in key markets. Our overseas representatives in China. Indonesia, India, the Philippines, Thailand, Vietnam, the United Arab Emirates and South Africa engage in widening our market and customer base, gathering market intelligence as well as ensuring that we meet the requirements of local business operations. To facilitate distribution of our products in international markets, we enter into contracts with selected transporters through time charter, contract of affreightments and spot charter market. These contracts typically have terms of one or two years. We believe that our ability to meet our customers’ delivery requirements is key to maintaining our established reputation as a reliable supplier of petrochemical products. Our ability to be flexible in delivering small parcel size and “just-in-time” delivery are important in retaining our traditional market. We also utilise the Kertih Kuantan Railway Services system to transport products from our plants in the Kertih IPC to the main port in Kuantan for distribution to various destinations. 7.12.3 Sales information The following tables set forth sales amounts, sales as a percentage of total sales and volume for our key products by market for the periods indicated(l). Year ended 31 March 2008  2009 ­ 2010  (RM  (RM  (RM  million)  %  KT  million)  %  KT  million)  %  KT  Sales in Malavsia  Olefins and polymers  5,945  46.2  1,783  4,808  38.8  1,599  4,524  37.0  1,555  Ethylene…………….  1,777  13.8  533  1,476  11.9  540  1,077  8.8  393  Propylene ………….  1,097  8.5  300  1,047  8.5  291  788  6.4  260  Paraxylene…………  447  3.5  119  529  4.3  166  484  4.0  142  MTBE………………..  741  5.8  261  496  4.0  189  429  3.5  172  Ethylene glycols….  251  2.1  96  Polypropylene …….  251  2.0  56  175  1.4  40  251  2.1  56  PVC ………………….  218  1.7  64  192  1.5  59  213  1.7  72  N-butane……………  281  2.2  118  162  1.3  55  197  1.6  93  Benzene ……………  514  4.0  144  187  1.5  61  190  1.5  68  Polyethylene (LOPE,  LLOPE and HOPE)  ………………………..  118  0.9  23  125  1.0  25  144  1.2  31  Performance and  other chemicals…..  108  0.9  27  VCM …………………  210  1.6  81  166  1.3  68  78  0.6  34  Other petrochemical  products …………….  291  2.2  84  253  2.1  105  314  2.6  111  Fertilisers and  methanol  1,218  9.5  1,191  1,110  9.0  879  886  7.3  963
7. BUSINESS OF OUR GROUP (cont’d) 4 months ended 31 July 2009 2010 (RM (RM million) million) % KT % KT VCM………………….. 27 0.8 13 35 0.812 Benzene…………….. 56 1.7 24 31 0.712 Other petrochemical products ………………………… 52 1.6 28 57 1.426 Fertilisers and methanol 248 7.7 287 253 6.0 268 Urea………………… 143 4.4 136 142 3.4 144 Carbon monoxide. 55 1.7 66 56 1.357 Methanol………….. 38 1.2 67 49 1.262 Oxogas ……………. 7 0.2 13 Ammonia …………. 5 0.2 5 6 0.15 Others 18 0.6 27 0.6 Sales of general merchandise 1 0.1 14 0.3 Rendering of services 17 0.5 13 0.3 Total sales in Malaysia…….. 1,511 46.5% 811 1,908 45.2% 809
Sales in other countries Oletins and polymers 1,070 32.9 362 1,555 36.9 443 Performance and other chemicals ………………………. 388 9.2 84 Polyethylene (LDPE, LLOPE & HOPE) …………….. 193 5.9 55 367 8.7 84 Paraxylene……….. 424 13.0 125 255 6.0 80 PVC ………………… 186 5.7 70 126 3.0 41 MTBE………………. 56 1.7 21 100 2.4 38 Benzene ………….. 112 3.5 48 96 2.3 39 Ethylene glycols… 5 0.2 2 94 2.2 38 VCM ……………….. 36 1.1 16 46 1.116 Ethylene…………… 15 0.5 6 32 0.810 Polypropylene …… 8 0.2 226 0.6 6 Other petrochemical products ………………………. 35 1.1 1725 0.6 7
Fertilisers and methanol 671 20.6 820 755 17.9 876 Methanol………….. 259 7.9 382 341 8.1 432 Urea………………… 308 9.5 303 282 6.7 312 Ammonia …………. 104 3.2 135 132 3.1 132 Total sales in other countries… 1,741 ‘53.5% 1,182 2,310 54.8% 1,319 Total •……………………. 3,252 100.0% 1,993 4,218 100.0% 2,128
Note: (1) Consists of sales to our Associates and jointly controlled entities and parties extemal to our Company. The olefins and polymers segment is the largest contributor to our revenues. Sales of olefins and polymer products contributed 77.9%, 69.5% and 75.8% of our total revenues for the years ended 31 March 2008, 2009 and 2010, respectively, and 71.2% and 75.5% of our total revenues for the 4 months ended 31 July 2009 and 2010, respectively. The fertiliser and methanol segment is the second largest contributor to our revenues. Sales of fertiliser and methanol products contributed 21.2%, 30.0% and 23.7% of our total revenues for the years ended 31 March 2008, 2009 and 2010, respectively, and 28.3% and 23.9% of our total revenues for the 4 months ended 31 July 2009 and 2010, respectively. 7. BUSINESS OF OUR GROUP (cont’d) We also derive revenues from our other businesses segment, which consists primarily of the operations of Kertih Port. Kertih Port operates the marine port facilities in the Kertih IPC for the shipping of petrochemical products and feedstocks to and from Kertih. Our other businesses segment contributed 0.9%, 0.5% and 0.5% of our total revenues for the financial years ended 31 March 2008, 2009 and 2010, respectively, and 0.5% and 0.6% of our total revenues for the 4 months ended 31 July 2009 and 2010, respectively. 7.13 COMPETITION We compete with other petrochemical players on the basis of product and service offerings, pricing, timing of deliveries and overall customer service. Petrochemical companies also attempt to differentiate themselves based on customer relations, market position, facility scale, feedstock costs, proprietary products and process technologies. Our competitors include some of the world’s largest chemical companies and major integrated oil companies that have strong financial resources and also are vertically integrated with their own raw material resources. . Petrochemical product prices are determined largely by external market factors including supply and demand balances and feedstock costs that to some extent are beyond our control. We, like our competitors, generally sell our products at prices we negotiate based on prevailing market prices. In the polymers market in Malaysia, we compete primarily with other Malaysian producers, such as Titan Chemicals Corp. Berhad (whose proposed acquisition by Honam Petrochemicals Corp. has been announced in July 2010), as well as non-Malaysian producers who have entered the petrochemicals market in Malaysia, including companies such as ExxonMobil, SABIC, Equate and PTI Group. With respect to those petrochemical products for which we are the sole local producers, such as certain urea, methanol, aromatics and some specialty chemicals, we face lesser competition in Malaysia. In markets of other countries, our competitors include companies from countries in the Middle East such as Iran, Kuwait, Qatar, Saudi Arabia, and countries in the Asia-Pacific region, including China, Indonesia, Singapore, Taiwan, Thailand, South Korea and Japan. In addition to petrochemical companies, we also compete with traders such as Mitsubishi Corporation, Marubeni Corporation, Mitsui & Co.; as well as· other integrated oil· and petrochemical companie~, suchas.ExxonMobil, Reliance Industries, PTI Group and SABIC. 7.14 HEALTH, SAFETY AND ENVIRONMENTAL MATTERS We have a comprehensive health, safety and environmental (UHSEU) management policy and systems covering environmental protection and conservation, people safety, health and asset. 7.14.1 Environmental Compliance Our environmental compliance policy covers a range of areas, including air, water and noise pollution, as well as the disposal of gas, liquid and solid wastes and the protection of the local ecology. Environmental protection is one of the important criteria we use when selecting new technologies, plants and equipment. We implement these policies partly through the inclusion of inbuilt control equipment and pollution monitoring in our plant design and partly through an emphasis on control procedures and pollution management as an integral part of the training provided by process licensors on plant operating and maintenance procedures. 7. BUSINESS OF OUR GROUP (cont’d) Our environmental management policy requires full compliance with all local, state and federal laws and regulations concerning environmental protection and related matters, including those that govern the use, storage, transportation and disposal of toxic and hazardous materials. Our operations are monitored by several governmental entities, including the Department of Environment, which is responsible for enforcing pollution control regulations and policies in Malaysia. Malaysian law requires those companies, including manufacturers, whose business activities are expected to have a potential significant impact on the environment, to prepare environmental impact assessments, environmental monitoring plans and environmental management plans (together, an “environmental impact assessment report”) in connection with certain operations that are considered likely to have an impact on the environment. An environmental impact assessment report must be submitted to a commission consisting of representatives of various federal and local government agencies and non-governmental organisations before the construction of a facility. Once the commission approves the environmental impact assessment report, which sets out various compliance standards and other obligations, amendments to the environmental impact assessment report must be provided to a similar commission in connection with the commencement of the subject company’s operations. For our existing facilities, all appropriate environmental requirements were completed. We maintain compliance with environmental regulations promUlgated by local and national governing bodies. The results of inspections and other compliance requirements are typically within the required specifications. We report the compliance related data on a regular basis to the local regulatory office and the HSE Division of the PETRONAS Group. We believe that our operations are in compliance in all material respects with applicable environmental laws and regulations currently in effect in Malaysia. We are not aware of any environmental violations or incidents that have led to claims or any environmental proceedings or investigations to which we are, or to which we expect to become, a party. 7.14.2 Health and Safety The health and safety of our employees are of critical importance to us, and we are required to comply with a range of health and safety laws and regulations. We review our health and safety standards on an ongoing basis and our operations are SUbject to health and safety inspections by government authorities throughout the year. Our health and safety policies center around the guiding principle that each employee is responsible not only for his or her own safety, but also for the safety of fellow workers. Our ongoing training programs apply to all phases of our safety system, from plant site equipment and its usage, to safety documentation and material safety data. All levels of our operations are included in a monthly safety awareness meeting. We also conduct walk-through inspections to verify safety conditions and employee activities. We believe that our health and safety activities instill a strong sense of safety awareness among our employees. For the year ended 31 March 2008, 2009 and 2010, our lost time injury frequency was 0.13, 0.07 and nil, respectively. For the 4 months ended 31 JUly 2010, our lost time injury frequency remained low at 0.35. We have a fully equipped fire station along with a core group of firemen in many of our plants and production complexes. In addition, we benefit from the services of Central Emergency and Fire Services Response, a company that has an emergency response team that includes firemen and emergency medical personnel. The team provides fire fighting expertise and equipment and, with their assistance, emergency training is conducted on an on-going basis and drills are also conducted periodically. 7. BUSINESS OF OUR GROUP (cont’d) At our facilities, we use qualified inspectors to maintain the integrity of our plants. We conduct routine inspections of static equipment by various methods. Our static equipment inspectors are responsible for our compliance with local and national regulations regarding pressure vessels and fire equipment. We also have inspectors for all rotating equipment. Results of our inspections are reported and registered with DaSH. We maintain compliance with health and safety regulations promulgated by local and national governing bodies. The results of inspections and other compliance requirements are typically within the required specifications. We report the compliance related data on a regular basis to the local regulatory office and the HSE Division of the PETRONAS Group. For compliance with stack emissions, heat stress and noise survey requirements, we engage third party providers for such analyses. These analyses are conducted on a quarterly basis and as and when required and are reported to respective regulatory offices. Additionally, we have in place a management system for health, safety and environment that enables us to effectively manage the minimum environment management standard that we have established that is in line with international best practices. A number of our plants are also certified to Occupation Health and Safety Assessment Series standards, which are international occupational health and safety management system specifications intended to help organisations control their occupational health and safety risks. Each of our operating companies is required to report its key HSE performance indicators on a monthly basis to our HSE Division who will analyse, alert and recommend mitigations to the operating companies and to our management. HSE assurance is conducted by an external party every 3 to 5 years at all operating companies, including major contractors, and the results are reported to our Board. In addition, we conduct an internal compliance audit on an annual basis at all of our plants. We also organise various HSE forums and workshops where industrial HSE best practices and lessons are shared and discussed. Furthermore, we organise an annual HSE conference·· for all. personnel, contractors and· partners. where international experts share and discuss the latest HSEknowledge and developments. In addition, we are planning to launch “Zero Tolerance Rules” for all our operations to ensure all high-risk activities are carried out safely. Emphasising the principle of zero tolerance against non-compliance for HSE matters, the policy aims to improve our safety performance. 7.15 RISK MANAGEMENT AND INSURANCE Risk management is embedded in our business activities, as we seek to manage the key risks impacting our business objectives. Our risk management framework involves identifying and analysing risks affecting our objectives, the formulation of response strategies and monitoring and reporting risks on a regular basis. 7. BUSINESS OF OUR GROUP (cant’d) Our business continuity plan is intended to address unexpected and unknown risks for the recovery of critical business processes and systems in a cost-effective and timely manner and to minimise the impact of any disruption to our business operations. These risks may have an impact not only on the affected facility, but also on other downstream production facilities given that our operations are closely integrated across product lines. Our recovery plan involves the identification and protection of our critical business processes and functions required to maintain an acceptable level of operations in the event of a sudden and unexpected interruption in these processes and functions and their supporting resources. Our operations are subject to numerous operating risks, including fire, seismic events, floods, machinery breakdown, product liability, employer’s liability and cargo damage. These risks and hazards could result in damage to or destruction of our production facilities, personal injury, environmental damage and business interruption. To protect ourselves against such risks, we carry insurance against property damage and consequent business interruption through “all risks” policies provided through the umbrella insurance coverage under the PETRONAS Group. Our insurance is underwritten by registered insurance companies in Malaysia and is, in turn, reinsured by major international insurance companies. Our existing “all risks” policies are in force until.31 March 2011 and are renewed annually. Our “all risks” coverage has a maximum indemnification limit of approximately RM7 billion for each combined single loss (i.e. physical loss or damage combined with business interruption following physical loss or damage), without limit to the total amount of indemnification per year. Our “all risks” insurance coverage is subject to standard industry exclusions, namely terrorism, war and certain other events. We do not believe that it is economically prudent to obtain terrorism insurance, especially since certain other significant risks would not be covered by this type of insurance, and accordingly, we do not currently carry terrorism insurance. While separate terrorism insurance coverage is available, premiums for such coverage are expensive, especially for chemical facilities, and the policies are subject to high deductibles. Terrorism insurance coverage typically excludes coverage for losses from acts of foreign governments as well as nuclear, biological and chemical attacks. In addition to these policies, we maintain other insurance policies for specified risks, including marine and transport insurance and other types of coverage that are not included in our “all risks” policies. We believe our insurance coverage is in accordance with industry standards in Malaysia and in the region. 7.16 EMPLOYEES To promote unity of culture and consistency of employment terms, we follow the PETRONAS model where executives and managerial and professional staff in the companies of the PETRONAS Group are usually employed by PETRONAS and seconded to a particular company within the PETRONAS Group. As of 30 September 2010, we employed a total of 4,030 permanent staff, 108 contract staff (direct hire) and 185 contract staff (third party manpower-supplied staff). As of 31 July 2010,31 March 2010,31 March 2009 and 31 March 2008, the petrochemicals businesses of PETRONAS which became part of the PCG Group through the Reorganisation had a total of 4,038, 4,139, 4,293 and 4,106 permanent staff, 108, 118, 146 and 143 contract staff (direct hire) and 193, 201, 166 and 129 contract staff (third party manpower-supplied staff), respectively. 7. BUSINESS OF OUR GROUP (cont’d) As of 30 September 2010. our permanent staff, contract staff (direct hire) and contract staff (third party manpower-supplied staff) were located in the following locations: Eastern IPes Northern Malaysia Kuala (Kertih & Malaysia (Labuan Employee Type Lumpur Gebeng) (Gurun) & Bintulu) Overseas 944 1,595 472 863 156Permanent staff…………………………… 8 55 11 33 1Contract staff (direct hire) ……………… 656212 42 4Contract staff (third party manpower supplied staff) ……………………………… 1,017 1,712 495 938 161TotaL…………………………………………
The following table sets forth the number of employees for each of our business segments as at 31 March 2008, 31 March 2009, 31 March 2010, 31 July 2010 and as at 30 September 2010. As at 30  As at 31 March  As at 31 July  September  Business  2008  2009  2010  2010  2010
Olefins and polymers . 2,410 2,497 2,363 2,324 2,311 Fertilisers and methanol . 1,591 1,718 1,688 1,610 1,612 Corporate office and others . 377 390 407 405 400 Total. . 4,378 4,605 4,458 4,339 4,323 The following table sets forth the number of employees by job function as at 31 March 2008, 31 March 2009,31 March 2010,31 July 2010 and as at 30 September 2010. As at30 As at 31 March As at 31 July September Job Function 2008 2009 2010 2010 2010 Executive directors ………………….. 12 12 12 9 12
Managerial and professional …….. 434 454 439 413 415
Technical and supervisory………… 3,123 3,304 3,247 3,181 3,179
Clerical and related functions ……. 502 545 491 477 468
Sales and marketing………………… 294 277 256 245 240
General workers ……………………… 13 13 13 14 9
Total……………………………………… 4,378 4,605 4,458 4,339 4,323
As of 30 September 2010, 1,842 employees, or approximately 43% of our employees, were unionised. They are represented by six unions: the 4 chapters of Kesatuan Kakitangan Petroliam Nasional Berhad (“KAPENAS”) union, in Peninsular Malaysia (Semenanjung), Wilayah Persekutuan Labuan, Sabah and Sarawak, Kesatuan Pekerja-Pekerja OPTIMAL Chemicals (“KEPKO”) and Phu My Trade Union. We have signed three-year collective agreements with our KAPENAS and KEPKO unionised employees and a two-year collective agreement with our Phu My Trade Union employees. The agreements with three KAPENAS unions (Semenanjung, Wilayah Persekutuan Labuan and Sarawak) were signed on 11 March 2008, and the agreement with Sabah was signed on 7 March 2008, in all cases, with an effective date of 1 JUly 2007. The agreement with KEPKO was signed on 20 July 2010 with an effective date of 1 April 2010. Under each of the three-year collective agreements, in the event that.a new agreement has not been signed before the expiration of the three-year term of the current agreement, the current agreement will continue to be effective until a superceding agreement is entered into. The agreement with Phu My Trade Union was signed 7. BUSINESS OF OUR GROUP (cont’d) on 25 February 2008. We believe we have a good relationship with our employees, and we have not experienced any strikes or material disruptions due to labour disputes. Pursuant to the requirements under Malaysian law, we contribute amounts into the Employee Provident Fund, a mandatory employee retirement fund that is administered by a board appointed by the government of Malaysia. For the current and preceding years, we have no legal obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services. We do not maintain any other retirement, pension or severance plans or have any unfunded pension liabilities. We believe that our employees are key assets that playa pivotal role toward our continuous growth and we recognise the importance of retaining quality employees. It is our policy to encourage the development and training of our employees for the improvement of overall skill sets for the enhancement of productivity. We believe that professional training and development is an on-going process and encourage our employees to improve their skills and knowledge through hands-on training and field experience. We benefit from PETRONAS Group’s structured training and development system which manages the development of our executives’ skills in a comprehensive manner. This structured approach to training and development links the capabilities required to implement business strategies to individual needs to ensure that our employees have the requisite skills and knowledge to successfully perform their roles. To support this effort, PETRONAS appoints dedicated persons as skill group advisors whose responsibility is to lead the planning and implementation of development efforts for our executives in business and technical skills. In addition, we offer our technical executives with an opportunity to progress their careers as technical professionals, as an alternative to managerial career progression, under a scheme established by PETRONAS in 2000. PETRONAS Management Training Sdn Bhd (“PMTSB”) is a subsidiary of PETRONAS that provides management and technical training for the companies in the PETRONAS Group, including us. There are two primary training institutions operated by· PMTSB, namely PETRONAS Management Training Centre (“PERMATA”), which provides management and leadership training, and Institut Teknologi Petroleum PETRONAS (“INSTEP”), which provides technical training. PERMATA and INSTEP are equipped with comprehensive and state-of­the-art training facilities and resources that are available to our employees. The programs that are offered by the training centers reflect our commitment to building a capable and skilled workforce. The training programs encompass a wide range of skills and knowledge for employees of all levels and disciplines, and aim to ensure that our employees are equipped with a solid foundation in management and leadership skills and the requisite technical know-how, both of which are essential qualities in the successful operation of our business as well as organisational growth. While promoting the professional development of our employees, the programs also instill the core values of the PETRONAS Group that guide our Company. 7. BUSINESS OF OUR GROUP (cont’d) 7.17 RESEARCH AND DEVELOPMENT Our R&D activities are primarily business-driven, designed to develop business opportunities for us. Accordingly, a key element of our strategy is to enhance customer relationships with value-added services including product development and improvement that is adapted to our customers’ particular needs. As such, most of our R&D activities are based on the requirements of our domestic and overseas customers for new or improved products or grades that would be suitable for certain applications. We also conduct research into products that can help position us to take advantage of markets in the future. These R&D activities are managed by our two technology centers dedicated to our petrochemicals business, the PETRONAS Polymer Technology Center (“PPTC”) and PETRONAS Fertilizer Technology Center (“PFTC”). These centers also collaborate with our technology partners, research institutes, universities and industry players. PPTC was established to harness innovative approaches and new product development for our polymer products and plays a pivotal role in enhancing our competitiveness in the polymer industry domestically and internationally. It provides technical services for customers, makes improvements to existing product grades, creates new grades to meet our customers’ requirements and deploys new technology derived from our R&D efforts to create new products and applications. For example, PPTC, working together with Vinyl Chloride (Malaysia) and a technology partner, recently developed a modified polyVinyl chloride compound that has been specifically formulated for pressure pipe applications, such as water transmission, that require strength and durability. Our current R&D projects for new products include degradable polymers, biopolymers and functionalised polymers for pipe coating and packaging applications. PFTC was formed to further our R&D efforts relating to the application of urea and other fertilisers, including the development of enhanced fertilisers that are compatible with the agricultural industry’s move towards sustainability. PFTC conducts R&D in collaboration with external research and academic entities such as the Universiti Putra Malaysia, Malaysian Agriculture Research and Development Institute and Malaysian Rubber Board. PFTC’s main activities focus on optimising usage of urea and fertilisers for crops in Malaysia as well as to identify problems associated with their usage and proVide solutions to them. To create greater awareness, PFTC also provides information and technical advice on the safe and proper methods of urea and fertiliser usage, such as fertiliser recommendation for various crops, effectiveness of urea compared to other fertilisers and recommendation on new forms of fertilisers. Both PPTC and PFTC are located within the PCG Group at PETRONAS Twin Towers, Kuala Lumpur City Centre. We conduct our R&D activities at the PETRONAS Research Laboratory in Bangi as well as at our research partners’ facilities. Our product development and improvement projects are mainly conducted at the lab facilities of the respective manufacturing plants of our Subsidiaries, Associates and Jointly Controlled Entity. PPTC and PFTC are staffed with dedicated teams of trained and dedicated technical professionals. PPTC has 27 staff members, including management, product technologists and application technologists, whilst PFTC has 3 staff members. PPTC and PFTC are each headed by a Senior Manager who works closely with the heads of our business segments. In addition to these technology centers, we benefit from the resources of PETRONAS Group’s Technology & Engineering (“T&E”) division. Many of our R&D efforts undertaken by our technology centers are conducted in conjunction with and are supported by PETRONAS Group’s T&E division. The terms and arrangements of our R&D projects that are undertaken in conjunction with the PETRONAS Group are typically determined on a project-by-project basis. For 3 of our current R&D projects, funding is being provided by the PETRONAS Research Fund. The intellectual property related to these particular projects belongs to PETRONAS and we are given the rights to use the intellectual property under a license. I Company No.: 459830-K 7. BUSINESS OF OUR GROUP (cont’d) 7.18 AWARDS AND RECOGNITIONS We have been recognised as one of the leading producers of petrochemicals products in the Asia-Pacific region. Our recent awards and recognitions include: Year Award/Recognition Recipient Awarding Body Awarded • Silver Award PETRONAS Fertilizer Royal Society of 2010 Prevention of Accidents (“ROSPA”) • Gold Award in Occupational, ASEAN Bintulu Fertilizer, ROSPA 2009 Health & Safety PETRONAS Ammonia
• Notable Achievement in ASEAN Bintulu Fertilizer, Prime Minister’s Hibiscus 2009
Environmental Performance Ethylene Malaysia, Award Polyethylene Malaysia

• Grand Award in Occupational ASEAN Bintulu Fertilizer Malaysian Society of 2009
Safety & Health Occupational Safety and Health (“MSOSH”)

• Merit Awards on Distribution Ethylene Malaysia, Chemical Industries 2009 Code and Employee Health & Polyethylene Malaysia Council of Malaysia Safety Code (“CICM”)
• Best New Entry Award PETRONAS Ammonia ROSPA 2009
• Grand Award on PETRONAS Ammonia MSOSH 2008 Occupational Safety & Health
• Sabah Industry Excellence PETRONAS Methanol Ministry of Industry 2008 Award Development
• Certificate of Excellence, PETRONAS Methanol MITI 2008 Quality Management Excellence Award
• Gold Award MTBE Malaysia MSOSH 2008
• Gold Merit Award PETRONAS Fertilizer MSOSH 2008
• Responsible Care Gold OPTIMAL Glycols CICM 2006 Award for Distribution Code and Silver Award for Pollution Prevention Code

ICompany No.: 459830-K 7. BUSINESS OF OUR GROUP (cont’d) 7.19 TECHNOLOGY AND INTELLECTUAL PROPERTY 7.19.1 Technology licences We utilise advanced manufacturing technologies and processes at our production facilities. None of the technology licensors have any relationship, direct or indirect with our Group. The following table sets forth the major technologies used in our key production facilities: Plant Company Olefins and Polymers Ethane/ Propane OPTIMAL Cracker Olefins  Licensor L1NDEAG (Germany)  Ethylene Oxide/ Ethylene Glycol….  OPTIMAL Glycols  Union Carbide Corporation (United States)  Ethylene Derivatives  OPTIMAL Chemicals  Union Carbide Corporation (United States)  Dow Chemical (United States)  Ethylene  Ethylene Malaysia  ABB LUMMUS Crest Inc. (Netherlands)  HOPE, LLDPE……  Polyethylene Malaysia  Ineos Europe Limited (United Kingdom)(1)  MTBE..  MTBE Malaysia  Nikki-Universal Co. Ud (Japan)  MTBE Malaysia  Institut Francais du PetroIe (“IFP”) (France)
Technology or Trademark LINDE Ethylene Technology METEORTM Technology LP OXO™ Process Ethylene Oxide Derivatives Technology Dow Ethylene Oxide Derivatives Technology LUMMUS Ethylene Technology Innovene Gas Phase Process • • BUTAMERTM OLEFLEXTM Huels Complete Saturation Process IFP Etherification Catalytic Reactor Technology Molecular Sieve Methanol Recovery And Oxygenate Removal Technology Validity of rights The rights granted by the licensor shall remain valid throughout the lifetime of OPTIMAL Olefins’s plant. The rights granted to use the technology is irrevocable in accordance with the terms of the ag reement. The rights granted to use the technology is irrevocable in accordance with the terms of the agreement. The rights granted to use the technology is irrevocable in accordance with the terms of the agreement. The rights granted to use the technology is irrevocable in accordance with the terms of the agreement. The rights to use such technology and process shall survive the termination of the agreement. The rights to use such technology and process shall remain valid unless revoked in accordance with the terms of the agreement.(2) -162 ­I Company No.: 459830-K I 7. BUSINESS OF OUR GROUP (cont’d) Plant Company Propane MTBE dehydrogenation.. Malaysia Polypropylene .. “.. Polypropylene Malaysia VCM ………………… Vinyl Chloride (Malaysia) PVC .. Vinyl Chloride (Malaysia) PVC .. Phu My LDPE .. PETLIN Aromatics Aromatics Malaysia Fertilisers and Methanol Gurun PETRONAS Urea/Ammonia Fertilizer Complex . Licensor Universal Oil Products LLC (United States) Union Carbide Corporation (United States) Mitsui Toatsu Chemicals (Japan) EVC Nederlands B.V. (Netherlands) INOVYLSV. (Belgium) STAMICARBON B.V. (Netherlands) Universal Oil Products LLC (United States) HALDOR TOPS0E AfS (“Haldor”) (Denmark)(3) SNAMPROGETII S.pA, (Italy) Technology or Trademark • OLEFLEXTM Process
• Huels Selective Hydrogenation Process

UN/POL™ PP Process Pollution free oxygen based oxychlorination technology with total gas recycle system PVC Process PVC Process Single Train High Pressure CTR Technology • CCR Plalforming™ Process for Aromatics Production
• Sulfolane™ Process & BTX Fractionation Xylene & Heavy Aromatics Fractionation
• Isomar™ Process
• TatorayTM Process Parex™
• Naphtha Hydrotreater
• Catalytic Reformer

Ammonia Process Carbon Dioxide (“COn Separation Snamprogelli Urea process -163­Validity of rights The rights to use such processes shall survive the termination of the agreement. The rights to use the process shall survive the termination of the agreement. The rights to use the technology shall survive the expiration of the agreement. The right to use the process shall be valid so long as the license agreement between EVC Nederlands BV. and Technip Geoproduction dated 12 October 1998 is assigned to Vinyl Chloride (Malaysia). The rights granted to use the process shall survive the expiration of the agreement. The rights granted to use the technology under the license are irrevocable in accordance with the terms of the agreement. The rights to use such processes shall survive the termination of the agreement.” The rights to use such processes shall survive the expiration of the agreement. The rights to use the process shall remain valid throughout the lifetime of PETRONAS Fertilizer’s plant. I Company No.: 459830-K 7. BUSINESS OF OUR GROUP (cant’d) Technology or Plant Company Licensor Trademark Validity of rights
YARA Fertilizer Urea Granulation Process The rights to use the process shall remain valid throughout the lifetime of Technology B.V. PETRONAS Fertilizer’s plant. (Netherlands)
Bintulu ASEAN UHDE GMBH UHDE Ammonia process The rights to use such processes are irrevocable and shall be valid for the Urea/Ammonia Bintulu (Germany) lifetime of ASEAN Bintulu Fertilizer’s plant. Complex Fertilizer STAMICARBON Urea Process The rights to use such processes shall survive the termination of the BV. (Netherlands) agreement.CO2 Stripping Urea Process YARA Fertilizer Urea Granulation Process The rights to use the process shall survive the termination of the Technology BV. agreement. (Netherlands)
Labuan PETRONAS Lurgi Kohle UNO LURGI Low Pressure Combined The rights to use the technology shall survive the termination of the Methanol Plant…. Methanol Mineraloltechnik Reforming Process Technology agreement. GMBH (Germany) LURGI MegaMethanol® Ammonia Plant….. PETRONAS HALDOR TOPS0E Ammonia Process The rights to use the process shall survive the termination of the Ammonia NS (Denmark) agreement. Notes: (1) Ineos Europe Limited acquired Innovene Group from BP Chemicals Ltd. The rights granted to Polyethylene Malaysia were further to a licence agreement between BP Chemicals Ltd and Polyethylene Malaysia. BP Chemicals Ltd had previously transferred the licensing business to the Innovene Group.
(2) IFP has signed with Chemical Research and Licensing Co. (“CR&L’) and Union Carbide Corporation (“UCC’) mandatory contracts under which IFP has received the rights for MTBE Malaysia to use the technical data and knowledge relating to the process as developed by IFP, CR&L and UCC.
(3) Haldor has the right to grant PETRONAS Fertilizer a sublicense for carbon dioxide removal process owned and licensed by Universal Oil Products LLC.

-164 ­7. BUSINESS OF OUR GROUP (cont’d) As demonstrated by the data in the table above, we use advanced technology from various sources, including some of the leading companies in the petrochemicals industry. These technologies include process-related technologies that relate to the ways in which certain of our plants operate, as well as product-related technologies that relate to the specific formulation of particular products, including some technologies used to produce proprietary chemical products. The terms of the licences for the technologies we use vary. Some of the process­related technologies are intended to be used for the expected life of the plant, while the product-related technologies typically are only intended to be used as long as we produce the specific product to which the licence relates. Some of our technology agreements include obligations for the provider of the technology to offer us on-going technical support in the use of the technology and others require such provider to make available upgrades to the technology, helping us ensure that our production processes and products do not become obsolete. Our payments to the technology providers take a variety of forms, including lump-sum payment arrangements, royalty payments based on either the volume of sales or production, and time-based fees where our payments depend on how long we use the technology. We are able to change from the technologies that we currently use to· alternative technologies, but such changes may require changes to our plant and equipment, as well as lower production levels or temporary halts in production to adapt to the new technologies. The costs incurred for such technology modifications may be significant, but they are typically less costly than installing a new plant and equipment. Our general policy for technology acquisition is to obtain highly advanced, yet proven technologies. We believe this policy allows us to produce our products on a competitive basis, but without the risks associated with developing and deploying untried technologies. 7.19.2 Information technology Our information technology infrastructure comprises integrated computer systems to support key functions, including our business enterprise systems software that manages logistics, financial information, human resource management, customer relationship management and corporate financial management. Our business enterprise systems software is licensed through PETRONAS. This licence entitles us to utilise all related proprietary information and selected third party databases. Our computer hardware, including our servers, are leased from and maintained by third party providers. Our offices and production facilities in Kuala Lumpur and other locations throughout Malaysia are interconnected, enabling more efficient and effective management of information across our corporate structure and contributing to improved levels of service, delivery and performance. 7.19.3 Trademarks We use a number of trademarks, trade names and service marks in connection with our business. Several of our subsidiaries license the “PETRONAS” name and the corporate logo from PETRONAS. In addition, we market using a number of brand names and trade names, including the following: Product  Brand NamefTrademark  Granulated urea  Agrenas  Degradable bags made from our polyethylene  Ecoplus  PVC  Polinas and Polyvinas  LOPE  PETLIN
7. BUSINESS OF OUR GROUP (cont’d) Product Brand NamefTrademark Polypropylene Propelinas Polyethylene Etilinas “Agrenas,” “Ecoplus” and “Polinas” brands are all licensed from PETRONAS whereas the registered proprietors of the “PETLlN”, “Propelinas”, “Polyvinas” and “Etilinas” brands are PETLlN, Polypropylene Malaysia, Phu My and Polyethylene Malaysia respectively. A number of these marks are, or are in the process of being, registered in Malaysia and other countries, including China, Singapore, Vietnam, Bangladesh, Cambodia, Indonesia, Philippines, Sri Lanka and Thailand. 7.19.4 Patents and Other Intellectual Property We are not dependent on any patents or other intellectual property rights for our business operations other than those listed in Section 7.19.1 of this Prospectus. 7.19.5 Dependency on licenses, trademarks, patents and other intellectual property Save as disclosed in Sections 7.19.1,7.19.2,7.19.3 and 10 of this Prospectus, our Group is not dependent on any other major licences, permits, registrations, patents and other intellectual property rights for our business operations. 7.19.6 Dependency on commercial and financial contracts The following contracts, being contracts within the ordinary course of business, are contracts on which the Group is highly dependent and are material to our Group’s business or profitability: 7.19.6.1 Vinyl Chloride (Malaysia) (i) Agreement for the sale and purchase of dry gas dated 1 November 2000 and made between PETRONAS and Vinyl Chloride (Malaysia) whereby PETRONAS has agreed to sell and deliver dry gas to Vinyl Chloride (Malaysia) and Vinyl Chloride (Malaysia) has agreed to purchase and pay PETRONAS for the dry gas delivered for cash consideration to be calculated based on the agreed rate set out therein and upon the terms and sUbject to the conditions therein contained. The. agreement is effective for a period of 15 years commencing on 16 November 1999 to 15 November 2014 and shall thereafter be automatically renewed on a year-to-year basis unless otherwise terminated in accordance with the terms thereof.
(ii) Agreement for the terminal usage dated 5 February 1999 and made between Kertih Terminals and Vinyl Chloride (Malaysia) Whereby Kertih Terminals has agreed to provide Vinyl Chloride (Malaysia) with storage facilities, pumps, piping, ancillary facilities, common facilities and such other facilities and Vinyl Chloride (Malaysia) has agreed to accept such provision for cash consideration to be calculated at the agreed rate set out therein and upon the terms and subject to the conditions therein contained. The agreement is effective from 5 February 1999 for a period of 20 years commencing on 1 October 1999 to 30 September 2019 and shall thereafter be automatically renewed for additional periods of 10 years each unless otherwise terminated in accordance with the terms thereof.

7. BUSINESS OF OUR GROUP (cont’d) (iii) Agreement for the sale and purchase of utilities dated 28 June 2004 and made between PETRONAS Gas and Vinyl Chloride (Malaysia) whereby PETRONAS Gas has (i) agreed to sell and deliver to Vinyl Chloride (Malaysia) utilities comprising intermediate pressure steam, gaseous nitrogen. gaseous oxygen and demineralised water and (ii) agreed to treat effluents of Vinyl Chloride (Malaysia) and Vinyl Chloride (Malaysia) has agreed to the above for cash consideration to be calculated at the agreed rates set out therein upon the terms and subject to the conditions therein contained. The agreement is effective from 11 March 2000 until 31 December 2021 unless otherwise terminated in accordance with the terms thereof. (iv) Agreement for the sale and purchase of electricity dated 28 June 2004 and made between PETRONAS Gas and Vinyl Chloride (Malaysia) whereby PETRONAS Gas has agreed to supply to Vinyl Chloride (Malaysia) electricity and Vinyl Chloride (Malaysia) has agreed to purchase and pay PETRONAS Gas for such electricity supplied for cash consideration to be calculated based on the agreed rate and upon the terms and subject to the conditions therein contained. The agreement is effective from 19 August 1999 to 31 December 2021 unless otherwise terminated in accordance with the terms thereof.
(v) Agreement for the supply of water dated 8 June 2009 and made between Vinyl Chloride (Malaysia) and Bekalan Air KIPC whereby Bekalan Air KIPC has agreed to supply water to Vinyl Chloride (Malaysia) and Vinyl Chloride (Malaysia) has agreed to purchase and pay Bekalan Air KIPC for such water supplied for cash consideration to be calculated at the agreed tariff and upon the terms and subject to the conditions therein contained. The agreement is effective for the period from 3 September 2001 to 7 August 2022 unless otherwise terminated in accordance with the terms thereof.

7.19.6.2 OPTIMAL Companies (i) Agreement for the sale and purchase of dry gas dated 23 November 2001 and made between PETRONASandthe OPTIMAL Companies whereby PETRONAS has agreed to sell and deliver dry gas to the OPTIMAL Companies and the OPTIMAL Companies has agreed to purchase and pay PETRONAS for such dry gas delivered for cash consideration to be calculated based on the agreed rate set out therein and upon the terms and subject to the conditions therein contained. The agreement is effective for a period of 15 years commencing on 1 July 2001 to 30 June 2016 and shall thereafter be automatically renewed on a year-to-year basis unless otherwise terminated in accordance with the terms thereof. 7. BUSINESS OF OUR GROUP (cont’d) (ii) (iii) (iv)
(v)

Agreement for the sale and purchase of electricity dated 18 September 2000 as supplemented by a supplementary agreement dated 10 February 2010 both made between PETROI’JAS Gas and the OPTIMAL Companies whereby PETRONAS Gas has agreed to supply to the OPTIMAL Companies electricity and the OPTIMAL Companies has agreed to purchase and pay PETRONAS Gas for such electricity supplied for cash consideration to be calculated based on the agreed rate and upon the terms and subject to the conditions therein contained. The agreement is effective from 18 September 2000 for a period of 20 years commencing from 1 May 2002 to 30 April 2022 and shall continue in effect in 5 years increments unless otherwise terminated in accordance with the terms thereof. Agreement for the sale and purchase of utilities dated 18 September 2000 as supplemented by a supplementary agreement dated 10 February 2010 both made between PETRONAS Gas and the OPTIMAL Companies whereby PETRONAS Gas has agreed to sell and deliver to the OPTIMAL Companies utilities comprising high pressure steam, high pressure gaseous nitrogen, low pressure gaseous nitrogen, high pressure gaseous oxygen and demineralised water for cash consideration to be calculated at the agreed rates set out therein upon the terms and subject to the conditions therein contained. The agreement is effective from 18 September 2000 for a period of 20 years commencing from 1 May 2002 to 30 April 2022 and shall continue in effect in 5 years increments unless otherwise terminated in accordance with the terms thereof. Agreement for the supply of water dated 16 May 2006 and made between Bekalan Air KIPC and the OPTIMAL Companies whereby Bekalan Air KIPC has qgreed to supply to OPTIMAL Companies water and OPTIMAL Companies has agreed to purchase and pay Bekalan Air KIPC for such water supplied for cash consideration to be calculated at the agreed tariff and upon the terms and subject to the conditions therein contained. The agreement is effective for the period from February 2001 to 7 August 2022 unless otherwise terminated in accordance with the terms thereof. Agreement for the sale and purchase of ethane and propane dated 11 February 1999 and made between PETRONAS and OPTIMAL Olefins, as supplemented by the supplementary agreement dated 18 December 2007, whereby PETRONAS has agreed to sell and deliver ethane and propane to OPTIMAL Olefins and OPTIMAL Olefins has agreed to purchase and pay PETROI’JAS for such ethane and propane delivered for cash consideration to be calculated based on the agreed formula set out therein and upon the terms and subject to the conditions therein contained. The agreement is effective from 11 February 1999 for a period of 21 years commencing from 1 December 2002 to 30 November 2023 unless otherwise terminated in accordance with the terms thereof. 7. BUSINESS OF OUR GROUP (cont’d) 7.19.6.3 PETLIN (i) Agreement for the sale and purchase of propane dated 28 February 2003 and made between PETRONAS and PETLIN whereby PETRONAS has agreed to sell and deliver propane to PETLIN and PETLIN has agreed to purchase and pay PETRONAS for such propane delivered for a cash consideration to be calculated at an agreed rate and upon the terms and subject to the conditions therein contained. The agreement shall be effective on 25 March 2002 for a period of 20 contract years commencing from 1 January 2003 unless otherwise terminated in accordance with the terms thereof.
(ii) Agreement for the sale and purchase of electricity dated 1 August 2001 as supplemented by a supplementary agreement dated 10 March 2009 both made between PETROI\JAS Gas and PETLIN whereby PETRONAS Gas has agreed to supply PETLIN electricity· and PETLIN has agreed to purchase and pay PETRONAS Gas for the electricity supplied for cash consideration to be calculated based on the agreed rate and upon the terms and subject to the conditions therein contained. The agreement is effective from 1 February 2001 until 31 March 2023 unless otherwise terminated in accordance with the terms thereof.

(iii) Agreement for the supply of water dated 1 June 2006 and made between PETLIN and Bekalan Air KIPC whereby Bekalan Air KIPC has agreed to supply to PETLIN water and PETLIN has agreed to purchase and pay Bekalan Air KIPC for the water supplied for cash consideration to be calculated at the agreed tariff and upon the terms and subject to the conditions therein contained. The agreement· is effective for the period from 3 September 2001 to 6 August 2022 unless otherwise terminated in accordance with the terms thereof. (iv) Agreement for the sale and purchase of utilities dated 1 August 2001 as supplemented by a supplementary agreement dated 10 March 2009 both made between PETRONAS Gas and PETLIN whereby PETRONAS Gas has agreed to sell and. deliver to PETLIN utilities comprising high pressure steam, high pressure gaseous nitrogen, low pressure gaseous nitrogen and demineralised water and PETLIN has agreed to purchase and pay PETRONAS Gas for the utilities provided for cash consideration to be calculated based on the agreed rates set out therein and upon the terms and subject to the conditions therein contained. The agreement is effective from 16 April 2001 until 31 March 2023 unless otherwise terminated in accordance with the terms thereof. 7.19.6.4 PETRONAS Ammonia (i) Agreement for the sale and purchase of dry gas dated 2 August 2000 and made between PETRONAS and PETRONAS Ammonia, as supplemented by the side letters dated 10 December 2003, 14 May 2004 and 7 May 2009, whereby PETROI\JAS has agreed to sell and deliver dry gas to PETRONAS Ammonia and PETRONAS Ammonia has agreed to purchase and pay PETRONAS for such dry gas delivered for cash consideration to be calculated based on the tariff set out therein and in accordance with the terms and subject to the conditions contained therein. The agreement is effective from 29 July 2000 until 28 July 2020 unless otherwise terminated in accordance with the terms thereof. Pursuant to the side letter dated 7 May 2009, 7. BUSINESS OF OUR GROUP (cont’d) (ii) (iii) (iv)
(v)

PETRONAS and PETRONAS Ammonia agreed to, amongst others, revise the price of the dry gas. Agreement for the sale and purchase of hydrogen gas dated 11 September 2008 and made between PETRONAS Penapisan (Terengganu) and PETRONAS Ammonia whereby PETRONAS Penapisan (Terengganu) has agreed to sell and deliver hydrogen gas to PETRONAS Ammonia and PETRONAS Ammonia has agreed to purchase and pay PETRONAS Penapisan (Terengganu) for such hydrogen gas delivered for cash consideration to be calculated based on the agreed tariff set out “in therein and in accordance with the terms and subject to the conditions contained therein. The agreement is effective from 9 December 2005 until 30 June 2011 unless otherwise terminated in accordance with the terms thereof. Agreement for the sale and purchase of hydrogen gas dated 27 December 2007 and ” made between PETRONAS Gas and PETRONAS AmmoniawherebyPETRONAS Ammonia has agreed to sell and deliver to PETRONAS Gas hydrogen gas and PETRONAS Gas has agreed to purchase and pay PETRONAS Ammonia for such hydrogen gas delivered for cash consideration to be calculated based on an agreed tariff set out therein and upon such other terms and conditions contained therein. The agreement is effective from 3 May 2007 until 31 December 2021 unless otherwise terminated in accordance with the terms thereof. Agreement for the terminal usage dated 13 February 1999 and made between Kertih Terminals and PETRONAS Ammonia whereby Kertih Terminals has agreed to provide PETRONAS Ammonia with storage facilities, pumps, piping, ancillary facilities, common facilities and such other facilities and PETRONAS Ammonia has agreed to accept such provision for cash consideration to be calculated at the agreed rate set out therein and upon the terms and subject to the conditions therein contained The agreement is effective from 13 February 1999 for a period of 20 years commencing from 1 April 2000 to 31 March 2020 and shall thereafter be automatically renewed for additional periods of 10 years each unless otherwise terminated in accordance with the terms thereof. Agreement for the sale and purchase of carbon monoxide dated 18 December 1998 as supplemented by supplemental qgreement dated 9 December 2005 both made between PETRONAS Ammonia and BP PETRONAS Acetyls whereby PETRONAS Ammonia has agreed to sell and deliver carbon monoxide to BP PETRONAS Acetyls and BP PETRONAS Acetyls has agreed to purchase and pay PETRONAS Ammonia for such carbon monoxide supplied for cash consideration to be calculated based on the agreed tariff set out therein and in accordance with the terms and subject to the conditions contained therein. The agreement is effective from 18 December 1998 unless otherwise terminated in accordance with the terms thereof. 7. BUSINESS OF OUR GROUP (cont’d) (vi) (vii) (viii) Agreement for the sale and purchase of utilities dated 21 January 2004 as supplemented by the supplementary agreements dated 31 October 2005 and 23 June 2009 and made between PETRONAS Gas and PETRONAS Ammonia whereby PETRONAS Gas has agreed to supply to PETRONAS Ammonia utilities comprising high pressure steam, high pressure GAN, low pressure GAN, demineralised water and raw water and effluent treatment as well as purchase and receive condensate returns from PETRONAS Ammonia and PETRONAS Ammonia has agreed to purchase and pay PETRONAS Gas for such utilities and effluent treatment supplied for cash consideration as well as to supply to PETRONAS Gas condensate returns, all to be calculated based on the agreed rates set out therein and in accordance with the terms and subject to the conditions contained therein. The agreement is effective from 20 February 2000 until 31 December 2021 unless otherwise terminated in accordance with the terms thereof. Compressed Air Sharing Agreement dated 1 March 2010 and made between PETRONAS Gas and PETRONAS· Ammonia whereby PETRONAS Gas has agreed to operate and· maintain the compressed air facility in proper working order and condition. By virtue of an amount of capital contribution of RM1,314,083.11 fully paid by PETRONAS Ammonia for the construction and installation of the compressed air facility, PETRONAS Ammonia had become the beneficial owner of the compressed air facility to the extent of such contribution. Further to the capital contribution, PETRONAS Ammonia has agreed to pay PETRONAS Gas monthly consumption charges, actual monthly costs for maintenance work and actual monthly maintenance or capital replacement work costs for cash consideration to be calculated in accordance with the terms and subject to the conditions contained therein. The agreement is effective from 20 February 2000 until 31 December 2021 unless otherwise terminated in accordance with the terms thereof. Agreement for the sale and purchase of electricity dated 5 February 2002 as supplemented by the supplementary agreement dated 23 June 2009 and made between PETRONAS Gas and PETRONAS Ammonia whereby PETRONAS Gas has agreed to sell and supply electricity to PETRONAS Ammonia and PETRONAS Ammonia has agreed to purchase and pay PETRONAS Gas for such electricity supplied for cash consideration to be calculated at the agreed rate set out therein and in accordance with the terms and subject to the conditions contained therein. The agreement is effective from 7 February 2000 until 31 December 2021 unless otherwise terminated in accordance with the terms thereof. 7. BUSINESS OF OUR GROUP (cont’d) (ix) Fire Water Sharing Agreement dated 25 June 2008 and made between PETRONAS Gas and PETRONAS Ammonia whereby PETRONAS Gas has agreed to construct, operate and maintain a fire water facility and to supply fire water to PETRONAS Ammonia. By virtue of an amount of capital contribution of RM4,854,854.20 fully paid by PETRONAS Ammonia for the construction and installation of the fire water facility, PETRONAS Ammonia had become the beneficial owner of the fire water facility to the extent of such contribution. Further to the capital contribution, PETRONAS Ammonia shall pay to PETRONAS Gas actual costs for maintenance work, water, power, diesel consumption, actual water, power and diesel consumption charges in the event of drills and emergency and actual maintenance or capital replacement work for cash consideration to be calculated in accordance with the with the terms and SUbject to the conditions contained therein. The agreement is effective from 20 February 2000 until 31 December 2021 unless otherwise terminated in accordance with the terms thereof. 7.19.6.5 MTBE Malaysia (i) Agreement for the sale and purchase of dry gas dated 6 March 1997 as supplemented by the addendums thereof, including the addendum dated 30 April 2002, and a supplemental agreement dated 9 December 2003, all made between PETRONAS and MTBE Malaysia whereby PETRONAS has agreed to sell and deliver dry gas to MTBE Malaysia and MTBE Malaysia has agreed to purchase and pay PETRONAS for such dry gas delivered for cash consideration to be calculated based on an agreed rate set out therein and in accordance with the terms and SUbject to the conditions contained therein. The agreement is effective from 1 JUly 1996 until 30 June 1011 unless otherwise terminated in accordance with the terms thereof.
(ii) Agreement for the sale and purchase of propane and butane dated 3 September 2009 and made between PETRONAS and MTBE Malaysia whereby PETRONAS has agreed to sell and deliver propane and butane to MTBE Malaysia and MTBE Malaysia has agreed to purchase and pay PETRONAS for such propane and butane supplied for cash consideration to be calculated based on the agreed rate set out therein and in accordance with the terms and subject to the conditions therein contained. The Agreement is effective for a period of 10 contract years from 1 August 2008 unless otherwise terminated in accordance with the terms thereof.

(iii) Agreement for the sale and purchase of electricity dated 31 December 2001 as supplemented by a first supplementary agreement dated 3 April 2008 and second supplementary agreement dated 17 March 2009 and made between PETRONAS Gas and MTBE Malaysia whereby PETRONAS Gas has agreed to sell and supply to MTBE Malaysia electricity and MTBE Malaysia has agreed to purchase and pay PETRONAS Gas for such electricity supplied for cash consideration to be calculated at the agreed rate and in accordance with the terms and SUbject to the conditions therein contained. The Agreement is effective from 16 February 2000 until 31 December 2021 unless otherwise terminated in accordance with the terms thereof. -172­7. BUSINESS OF OUR GROUP (cant’d) (iv) Agreement for the sale and purchase of utilities dated 14 March 2003 as supplemented by a supplementary agreement dated 28 April 2006 and 31 March 2009 all made between PETRONAS Gas and MTBE Malaysia whereby PETRONAS Gas has agreed to sell and deliver to MTBE Malaysia utilities comprising high pressure steam, gaseous nitrogen, demineralised water, cooling water, potable water and raw water for cash consideration to be calculated at the agreed rates set out therein upon the terms and SUbject to the conditions therein contained. The agreement is effective from 16 February 2000 until 31 December 2021 unless otherwise terminated in accordance with the terms thereof. 7.19.6.6 PETRONAS Methanol (i) Agreement for the sale and purchase of natural gas dated 28 December 1994 and made between PETRONAS Gas Supply (Labuan) Sdn Bhd and PETRONAS Methanol, which has since been assigned to PETRONAS Cadgali pursuant to a deed of assignment dated 5 February 1996 between PETRONAS Gas Supply (Labuan) Sdn Bhd and PETRONAS Carigali, as supplemented by the side letter dated 5 August 2010, and made between PETRONAS Carigali and PETRONAS Methanol to provide for supply of additional quantities and the revised price, whereby PETRONAS Carigali has agreed to sell and deliver natural gas to PETRONAS Methanol and PETROI\lAS lVIethanol has agreed to purchase and pay PETRONAS Carigali for such natural gas delivered for cash consideration to be calculated based on the formula set out therein and in accordance with the terms and subject to the conditions contained therein. The agreement is effective from 1 June 1992 unless otherwise terminated in accordance with the terms thereof. Pursuant to the side letter dated 5 August 2010, PETRONAS and PETRONAS Methanol agreed to, amongst others, revise the price of the natural gas.
(ii) Agreement for the sale and purchase of natural gas for PML Plant 2 dated 4 January 2010 and made between PETRONAS and PETRONAS Methanol whereby PETRONAS has agreed to sell and deliver natural gas to PETRONAS Methanol and PETRONAS Methanol has agreed to purchase and pay PETRONAS for such natural gas delivered for cash consideration to be calculated based on the agreed rates set out therein and in accordance with the terms and subject to the conditions contained therein. The agreement is effective for a period of 20 contract years from 28 February 2008 unless otherwise terminated in accordance with the terms thereof.

7.19.6.7 PETRONAS Fertilizer (i) Agreement for the sale and purchase of dry gas dated 13 July 2000, as amended by an addendum dated 7 May 2009 both made between PETRONAS and PETRONAS Fertilizer whereby PETRONAS delivered dry gas to PETRONAS Fertilizer’s fertiliser plant in Gurun, Kedah which are used as feed stock, fuel and for power generation at the said plant. The agreement is effective from 1 October 1998 to 31 January 2018 and thereafter shall be automatically renewed on a year-to-year basis unless otherwise terminated in accordance with the terms thereof. Pursuant to the addendum dated 7 May 2009, PETRONAS and PETRONAS Fertilizer agreed to, amongst others, revise the price of dry gas. 7. BUSINESS OF OUR GROUP (cont’d) (ii) Agreement for the sale and purchase of electricity dated 1 April 2010 and made between Tenaga Nasional Berhad (“TNB”) and PETRONAS Fertilizer whereby TNB has agreed to supply on a firm standby supply to PETRONAS Fertilizer electricity and PETRONAS Fertilizer has agreed to purchase and pay TNB for such electricity supplied at the agreed rate and upon the terms and subject to the conditions therein contained. The agreement is effective from 1 April 2010 and shall be void and cease to have any effect on the expiration or termination of the agreement. 7.19.6.8 Aromatics Malaysia (i) Agreement for the sale and purchase of dry gas dated 2 August 2000 as supplemented by an addendum dated 13 August 2003, and made between PETRONAS and Aromatics Malaysia whereby PETRONAS has agreed to sell and deliver dry gas to Aromatics Malaysia and Aromatics Malaysia has agreed to purchase pnd pay PETRONAS for such dry gas delivered for cash consideration to be calculated based on the agreed rate set out therein and upon the terms and subject to the conditions therein contained. The agreement is effective from 1 November 1999 until 31 October 2019 and shall thereafter be automatically renewed on a year-to-year basis unless otherwise terminated in accordance with the terms thereof.
(ii) Agreement for the sale and purchase of electricity dated 18 January 2002 as supplemented by a side letter dated 30 June 2008 and a supplementary agreement dated 31 December 2008, all made between PETRONAS Gas and Aromatics Malaysia whereby PETRONAS Gas has agreed to supply to Aromatics Malaysia electricity and Aromatics Malaysia has agreed to purchase and pay PETRONAS Gas for such electricity supplied for cash consideration to be calculated based on the agreed rate and upon the terms and subject to the conditions therein contained. The agreement is effective from 27 January 2000 to 31 August 2021 unless otherwise terminated in accordance with the terms thereof.

(iii) Agreement for the sale and purchase of naphtha dated 3 March 2002 and made between PETRONAS and Aromatics Malaysia, Whereby PETRONAS has agreed to supply to Aromatics Malaysia naphtha and Aromatics Malaysia has agreed to purchase and pay PETRONAS for such naphtha supplied for cash consideration to be calculated based on the agreed rate and upon the terms and subject to the conditions therein contained. The agreement is effective from 1 April 2000 and shall continue thereafter unless otherwise terminated in accordance with the terms thereof. The agreement has since been novated by PETRONAS to PETRONAS Penapisan (Terengganu). 7. BUSINESS OF OUR GROUP (cont’d) 7.19.6.9 Ethylene Malaysia (i) Agreement for the sale and purchase of ethane dated 13 June 1994 and made between PETRONAS and Ethylene Malaysia, as supplemented by a supplementary agreement dated 18 September 2001, whereby PETRONAS has agreed to sell and deliver ethane to Ethylene Malaysia and Ethylene Malaysia has agreed to purchase and pay PETRONAS for such ethane delivered for cash consideration to be calculated based on the agreed formula set out therein and upon the terms and subject to the conditions therein contained. The agreement is effective from 13 June 1994 and for a period of 20 years commencing from 1 October 1996 to 1 October 2016 unless otherwise terminated in accordance with the terms thereof. Pursuant to a supplemental agreement dated 18 September 2001, PETRONAS agreed to, amongst others, supply additional amount of ethane to Ethylene Malaysia and the parties further agreed to revise the price of ethane.
(ii) Agreement for sale and purchase of dry gas dated 6 March 1997 and made between PETRONAS and Ethylene Malaysia, as supplemented by the addendums to the agreement for the sale and purchase of dry gas dated 30 October 2001 and 13 August 2003 and a side letter dated 28 November 2007, whereby PETRONAS has agreed to supply dry gas to Ethylene Malaysia and Ethylene Malaysia has agreed to purchase and pay PETRONAS for the dry gas supplied for cash consideration to be calculated based on the agreed rate set out therein and upon the terms and subject to the conditions therein contained. The agreement is for a period of 15 years commencing on 1 July 1996 to 30 June 2011 and shall thereafter be automatically renewed on a year-to-year basis unless otherwise terminated in accordance with the terms thereof.

(iii) Agreement for the sale and purchase of electricity dated 4 December 1994 and made between TNB and Ethylene Malaysia whereby TNB has agreed to supply to Ethylene Malaysia electricity and Ethylene Malaysia has agreed to purchase and pay TI\IB for such electricity supplied at the agreed rate and upon the terms and sUbject to the conditions therein contained. The agreement is effective from 4 December 1994 unless otherwise terminated in accordance with the terms thereof. 7.19.6.10 ASEAN Bintulu Fertilizer PETRONAS has agreed to sell and deliver natural gas to ASEAN Bintulu Fertilizer and ASEAN Bintulu Fertilizer has agreed to purchase and pay PETRONAS for the natural gas delivered for cash consideration to be calculated based on the agreed rates as set out in the letter from PETRONAS to ASEAN Bintulu Fertilizer dated 3 February 2009 and as applicab!e from 1 October 2005, pending the finalisation and execution of a formal agreement between the parties. 7. BUSINESS OF OUR GROUP (cont’d) 7.20 CORPORATE SOCIAL RESPONSIBILITY We aspire to create sustainable value for society and are committed to contributing to the well-being of the local communities in which we operate. To that end, we are actively involved in a broad range of corporate social responsibility (“CSR”) programs in many areas, such as education and environmental protection, and engage in interactive activities with the local authorities, public awareness programs and other social responsibility programs. Our CSR activities have included programs such as ECOCARE (mangroves replantation program), development of an environmental center, beach cleaning project, biodiversity study of Kertih coastal area in conjunction with the University of Malaysia, Terengganu and recycling campaigns at local school and community centers. In addition, many of our CSR activities that we participate in are part of broader programs and initiatives sponsored by the PETRONAS Group. Among these initiatives is the Program Bakti Pendidikan PETRONAS (“BAKTI”), a structured and integrated long-term education program focusing on borderline under performing school children. The BAKTI program enhances the teaching approach to improveacadernic achievements specifically in mathematics, English· and science for students. . 7.21 GOVERNING LAWS AND REGULATIONS Our business is regulated by, and in some instances required to be licensed under specific laws of Malaysia. The relevant laws and regulations governing our Group and which are material to our operations are summarised below. The following does not purport to be an exhaustive description of all relevant laws and regulations of which our business is subject to. 7.21.1 Petroleum Development Act 1974 and Industrial Co-ordination Act 1975 The manufacture and marketing of petrochemical products is governed by the Petroleum Development Act 1974 and the Industrial Co-ordination Act 1975. Downstream operations including the manufacture of petrochemical products as well as the marketing or distribution of the same are governed by the Petroleum Development Act 1974 and Petroleum Regulations 1974. Under the Petroleum Development Act1974 and Petroleum RegUlations 1974, the permission of the Prime Minister via the .Secretary-General, MITI is required in relation to the manufacture of petrochemical prOducts from petroleum and the permission of the Prime Minister via the Secretary-General, Ministry of Domestic Trade and Consumer Affairs is required in relation to the sale and distribution of petrochemical products from petroleum. Pursuant to the Industrial Co-ordination Act 1975 and the Industrial Co-ordination (Exemption) Order, 1976, a licence is required for any manufacturing activity with shareholders’ funds of RM2.5 million and above or employing 75 or more full-time paid employees. A licence will have to be obtained for the manufacture of specified products at each separate manufacturing site. Licences are typically issued in accordance with national economic and social objectives and to promote the orderly development of manufacturing activities in Malaysia. They are issued by the MITI, subject to conditions of the licence, and are non-transferable save with the prior approval of MIT!. 7. BUSINESS OF OUR GROUP (cont’d) 7.21.2 Occupational Safety and Health Act 1994 (“OSHA”) We are also subject to the OSHA. Under the OSHA, we have a general duty to our employees to provide and maintain the plants and systems of work that are, so far as is practicable, safe and without risks to health, provide information, instruction, training and supervision to ensure, so far as is practicable, the safety and health of our employees at work, and to provide a working environment, which is as far as possible safe, without risks to health, and adequate as regards facilities for their welfare at work. We also have a duty to ensure, so far as is practicable, that other persons, not being their employees, who may be affected thereby are not thereby exposed to risks to their safety or health. As we employ more than 100 employees, we are obliged under OSHA to employ a safety and health officer, who is tasked with ensuring the due observance of the statutory obligations as regards workplace health and safety and the promotion of a safe conduct of work at the place of work. We have also set up a health and safety committee, which we consult in promoting and developing measures to ensure the safety and health at the place of work of the employees, and in checking the effectiveness of such measures. 7.21.3 Environmental Quality Act 1974 The Environmental Quality Act 1974 restricts pollution of the atmosphere, noise pollution, pollution of the soil, pollution of inland waters without a licence, prohibits the discharge of oil into Malaysian waters, discharge of wastes into Malaysian waters without a licence, and prohibits open burning. The agency responsible for implementing and monitoring Malaysia’s environmental regulations and policies is the Malaysian Department of Environment and the local environmental authority. 7.21.4 Atomic Energy Licensing Act 1984 The dealing in or possession or disposal of any radioactive material, nuclear material, prescribed substance or irradiating apparatus is prohibited unless carried out pursuant to a valid licence issued under the Atomic Energy Licensing Act 1984 by the Atomic Energy Licensing Board under the Ministry of Science, Technology and . Innovation for such purpose and use as specified in the licence. Every licensee shall comply with all such directives as may be issued from time to time for the protection of the health and for the safety of workers and all other persons from ionizing radiation, including but not limited to conditions of exposure, occupational, medical, accidental or emergency exposure, exposure of members of the public, and dose limitation. 8. FINANCIAL INFORMATION Polyethylene Malaysia became our wholly-owned sUbsidiary on 2 September 2010. Hence, for purposes of presenting our historical financial information throughout this Prospectus in relation to disclosure periods up to the 4 months ended 31 JUly 2010, references to ‘jointly controlled entities’ include Polyethylene Malaysia, whilst references to ‘Subsidiaries’ exclude Polyethylene Malaysia. 8.1 HISTORICAL FINANCIAL INFORMATION The following selected historical audited combined financial information as at or for the years ended 31 March 2008, 31 March 2009 and 31 March 2010, and as at or for the 4 months ended 31 July 2009 and 31 July 2010, have been derived from the audited combined financial statements of our Group and should be read in conjunction with the Accountants’ Report and related notes in Section 9 a~d with Section 8.2 of this Prospectus. Prospective investors should note that we are part of the PETRONAS Group and prior to the Reorganisation, did not operate independently as a group. The combined financial statements have been carved out from the consolidated financial statements of the PETRONAS Group and, where appropriate, adjustments have been made to specifically present only our combined financial position, results of operations and cash flows. The financial information presented in the combined financial statements do not incorporate the effects of the Reorganisation and IPO and as such, may not be the same as the consolidated financial statements of our Group after incorporating the abovementioned events. Further, such financial information from the combined financial statements does not purport to predict our Group’s financial position, results of operations and cash flows of our business. Please refer to Section 12.1 and Section 8.9 of this Prospectus for further information on the Reorganisation and Pro Forma Consolidated Statements of Financial Position of our Group. The audited combined financial statements of our Group were not subject to any audit qualification for the years ended 31 March 2008,31 March 2009, 31 March 2010 and for the 4 months ended 31 July 2010. Audited Unaudited(l) Audited Year ended 31 March 4 months ended 31 July 2008 2009 2010 2009 2010 (RM million except for share and margin data) Revenue 12,855 12,367 12,203 3,252 4,218 Cost of revenue (6,499) (7,500) (8,561) (2,395) (3,010) Gross profit 6,356 4,867 3,642 857 1,208 Selling and distribution expenses (337) (335) (351) (118) (127) Administration expenses (319) (320) (318) (100) (98) Other expenses (55) (111 ) (127) (15) (46) Other income 283 342 403 76 133 Operating profit 5,928 4,443 3,249 700 1,070 Financing costs (81 ) (57) (62) (16) (24) Share of profit after tax and minority interest of equity accounted Associates and jointiy controiied entities 273 25 181 56 172 PST 6,120 4,411 3,368 740 1,218 Tax expense (1,491 ) (962) (774) (153) (280) 4,629 3,449 2,594 587 938PAT

 

 

Comments are closed