Media Release

PETRONAS GAS BERHAD

Type

Announcement

Subject

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS)

RECURRENT RELATED PARTY TRANSACTIONS

Description

EXECUTION OF GAS PROCESSING AGREEMENT, GAS TRANSPORTATION AGREEMENTS AND AGENT SERVICES AGREEMENT FOR THE PERIOD 1 APRIL 2014 TO 31 DECEMBER 2033 BY PETRONAS GAS BERHAD WITH PETROLIAM NASIONAL BERHAD (PETRONAS)

1. INTRODUCTION

Pursuant to Paragraph 9.03 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) (“MMLR”), the Board of Directors of PETRONAS Gas Berhad (“PGB”) is pleased to announce that on 31 March 2014, PGB has entered into the following new agreements with Petroliam Nasional Berhad (“PETRONAS”) for a duration of twenty (20) contract years effective from 1 April 2014 until 31 December 2033, pursuant to the expiry of the existing Gas Processing and Transmission Agreement dated 31 March 1995 (“GPTA”) on 31 March 2014:

a. Gas Processing Agreement (“GPA”);

b. Gas Transportation Agreements (“GTAs”) which comprise of GTA Peninsular Malaysia, GTA Sabah and GTA Sarawak; and

c. Agent Services Agreement (“ASA”).

(hereinafter collectively referred to as “new Agreements”).

The GTA Sabah is an additional gas transportation services provided to PETRONAS for its customers in Kimanis, which commenced operations in January 2014.

The new Agreements are regarded as recurrent related party transactions (“RRPT”) of a revenue or trading nature which are necessary for the day-to-day operations and are in the ordinary course of business of PGB Group pursuant to Paragraph 10.09 of the MMLR.

2. BACKGROUND ON THE GPA AND GTAs

The existing GPTA, entered between PETRONAS and PGB on 31 March 1995 for a duration of twenty (20) years, was effective from 1 April 1994 and expiring on 31 March 2014. The scope under the existing GPTA consisted of the following scopes:

a. Gas processing services; and

b. Gas transportation services for Peninsular Malaysia and Miri Bintulu as well as agent services.

Pursuant to the expiry of the existing GPTA, PGB has on 31 March 2014 entered into the new GPA, GTAs and ASA with PETRONAS for a duration of another twenty (20) contract years, effective from 1 April 2014 until 31 December 2033.

Under these new Agreements, PGB will continue to provide gas processing, gas transportation and agent services to PETRONAS.

The gas will be transported to PETRONAS’ customers via PGB’s pipeline systems in Peninsular Malaysia, Sabah and Sarawak.

In anticipation of gas market liberalisation and Third Party Access (“TPA”) implementation as part of the 10th Malaysian Plan, the new Agreements have been segregated into one (1) GPA, three (3) GTAs for Peninsular Malaysia, Sabah and Sarawak and one (1) ASA respectively to provide clear demarcation of services as well as remuneration structure between processing and transportation of gas.

In consideration for the above services, PETRONAS agrees to pay PGB a gas processing fee for the processing services and gas transportation fee for the transportation services that covers reasonable capital costs and operating expenses as an infrastructure company.

The GPA, GTAs and ASA provide for revisions of the remuneration terms prior to expiry of each term, whereby the intervals of each term are as follows:

· 1st term shall be effective from 1 April 2014 to 31 December 2018;

· 2nd term shall be effective from 1 January 2019 to 31 December 2023;

· 3rd term shall be effective from 1 January 2024 to 31 December 2028; and

· 4th term shall be effective from 1 January 2029 to 31 December 2033.

3. SALIENT TERMS OF THE NEW AGREEMENTS

3.1 Gas Processing Agreement (“GPA”)

The remuneration structure under the GPA for the provision of gas processing services by PGB to PETRONAS is calculated based on the following components and new fee term:

· Fixed Reservation Charge of RM 2,330/ million standard cubic feet (“mmscf”);

· Flowrate Charge income of RM 0.20/ gigajoule (“GJ”) on incremental volume of net dry gas above an agreed threshold; and

· Performance Based Structure (“PBS”) income for ethane, propane and butane is measured according to plant efficiency performance exceeding the agreed target.

o PBS for ethane (First tranche of RM4,000,000, Second tranche of RM1,000,000 and Third tranche of RM1,000,000); and

o PBS for propane and butane (First tranche of RM200,000 each, Second tranche of RM50,000 each and Third tranche of RM50,000 each).

In addition, PETRONAS shall provide dry gas to PGB for its Internal Gas Consumption (“IGC”) at no cost to PGB provided that PGB operates within the Agreed Operating Parameter (“AOP”).

If PGB operates below the AOP, PGB will receive incentive payment from PETRONAS for the volume of IGC saved and if PGB operates above the AOP, PGB will pay to PETRONAS the excess volume of IGC.

3.2 Gas Transportation Agreements (“GTAs”)

3.2.1 GTA for Peninsular Malaysia

The transportation remuneration structure under the GTA is based on a postage tariff in line with the anticipated implementation of TPA which will provide level playing field for shippers and end users throughout the nation.

A gas transportation fee is based on Transportation Tariff and Shipper’s capacity reservation. The gas transportation tariff is RM1.248 / GJ.

In view of this new tariff, the PGB Network Code which was published on 23 December 2011 will be updated and published accordingly on PGB’s website.

3.2.2 GTA for Sarawak

The transportation remuneration structure under the GTA is as follows:

i. Miri Operations

· Flowrate Charge of RM1.857 /GJ for gas delivered to PETRONAS’ customers.

ii. Bintulu Operations

· A Reservation Charge of RM0.6548 /GJ; and

· Flowrate Charge of RM1.147 /GJ for gas delivered to PETRONAS’ customers.

3.2.3 GTA for Sabah

The transportation remuneration structure under the GTA is based on recovery of operating expenses at a reasonable margin. The gas transportation tariff for Kimanis Sabah is RM0.2863/GJ.

3.3 Agent Services Agreement (“ASA”)

The remuneration structure under the ASA is based on recovery of operating expenses at a reasonable margin.

4. PROSPECTS AND RISK FACTORS

In essence, the new GPA and GTAs does not materially differ much from the terms of the existing GPTA, and thus PGB’s income from the new GPA and GTAs is expected to continue delivering sustainable and steady returns.

The PBS will provide PGB with potential incremental income which is dependent on PGB’s plant efficiency performance.

As the IGC is provided by PETRONAS at no cost, PGB’s exposure to fuel gas price fluctuation is eliminated.

The new Agreements do not introduce new operating risks to PGB as the terms merely enhances the operational obligations of the parties under the GPA and GTAs.

5. STATEMENT BY AUDIT COMMITTEE

The Audit Committee of PGB has reviewed the terms of the new Agreements and is satisfied that the terms are fair, reasonable and on normal commercial terms, not detrimental to the interest of the minority shareholders of PGB and in the best interest of PGB Group.

6. DIRECTORS AND MAJOR SHAREHOLDERS’ INTEREST AND PERSONS CONNECTED WITH THEM

PETRONAS is a majority shareholder of PGB and is therefore interested in the RRPT.

Save for the interested Directors namely Datuk Anuar bin Ahmad, Yusa’ bin Hassan, Datuk Rosli bin Boni, Ir.Pramod Kumar Karunakaran, Lim Beng Choon, Habibah binti Abdul and the interested major shareholder which is PETRONAS, none of other Directors, and/or major shareholder(s) of PGB and/or person(s) connected with them, has any interest, direct and / or indirect, in the RRPT.

In view of the above, the Interested Directors have abstained and will continue to abstain from all Board deliberations and voting at the relevant Board meeting(s) in relation to the RRPT.

7. STATEMENT BY THE BOARD OF DIRECTORS

The Board of Directors (save for the Interested Directors), having taken into consideration the RRPT, is of the opinion that the terms of the new Agreements is in the best interest of PGB.

8. APPROVAL REQUIRED

Bursa Securities has approved PGB’s application for a waiver from complying with the requirements of Paragraph 10.09 of the MMLR including having to seek shareholders’ approval in relation to the new Agreements, subject to the following conditions:

(i) Disclosure of the RRPTs in PGB’s Annual Report in accordance with Paragraph 3.1.5 of Practice Note 12 of the MMLR;

(ii) Audit Committee’s statement in the Annual Report incorporating the information as stipulated in Appendix 10C(3) of the MMLR;

(iii) PGB is required to disclose in its first Annual Report after the date of the Bursa Securities’ letter, an independent financial adviser’s opinion that the methods or procedures in determining the transaction prices and terms of the new GPA and GTAs are sufficient to ensure that these transactions will be carried out on normal commercial terms and will not be to the detriment of its minority shareholders; and

(iv) The independent financial adviser’s opinion is required to be incorporated in subsequent Annual Reports unless the Audit Committee confirms that:

(a) the methods or procedures for determining the transaction prices and terms have not changed since the last independent financial adviser’s report; and

(b) the methods or procedures in (a) are sufficient to ensure that the transactions will be carried out on normal commercial terms and not to the detriment of its minority shareholders.

Save for the above, the RRPT does not require the approval of PGB’s shareholders or any relevant authorities.

This announcement is dated 31st March 2014.

Company Name

PETRONAS GAS BERHAD

Stock Name

PETGAS

Date Announced

31 Mar 2014

Category

General Announcement

Reference No

PG-140331-4E6EF