Risk Management

The demand of changes and capability enhancement of the company raises the risks and opportunities for the company. Risks potentially lead to the unreached goals and missions of the company. The company failure of achieving its goals and missions causes public distrust upon the Company. Within the worst condition and like what happened in the past, distrust causes the discontinuation of business activities.

Risk management becomes a strategic need and determines the improvement of the company work performance. It is needed to optimize the use of limited resources of the company. The resources allocation is based on risk priority starting from the highest scale risk. Similarly, risk management should be evaluated periodically through control activities (internal control)

Risk can be reduced by decreasing the opportunities of risk occurrence. The role of management risk is expected to be able to anticipate the fast environmental changes, develop corporate governance, and secure the resources and assets owned by the company.

Risk management implementation of PT Petrokimia Gresik began 2003 through the establishment of Risk management team in accordance with the director memo No.1943/08/NK.01.04/04/ND/2003, on 20th of August 2003, which is in charge for preparing blue print of risk management implementation. Further, in 2004, Management risk department unit was formed as the continuance job of managing the company risk.

In general, the purpose of PT Petrokimia Gresik in establishing the risk management, are:

  1. Becoming one of the implementation manifestations of GCG principles according to the State-Owned Enterprise (SOE) ministerial decree No.117/M-MBU/2002 on 1st of August 2002, which was then updated by the SOE ministerial regulation No: PER-01/MBU/2011 on 1st August 2011
  2. Being able to define and manage the risk faced by the company, as well as reducing / minimizing the impact.
  3. Building the socialization capacity of risk understanding and the importance of risk management.
  4. Establishing risk management process starts from identification, measurement, risk control to the process of risk monitoring, and reporting to ensure that the strategy has been established in an effort to reduce / control the risk as much as possible.
  5. Building supporting equipment for monitoring risk that arises in each company function.
  6. Ensuring the commissioners and directors receive accurate information to optimally manage the risk.

Risk management mechanism of PT Petrokimia Gresik is supported by some internal decisions, those are:

  1. Establishment of Risk management department by the directors decision PT PG No. 171/06/LI.00.01/30/SK/2004 on June 2014, about the structure of organization and principal provisions of working procedures of PT Petrokimia Gresik, which is in charge to manage the risk management implementation over the entire work units of the company.
  2. The decree of directors of PT Petrokimia Gresik No. 224/07/TU.04.02/30/SK/2004, on 13th of July 2004 about the enforcement of Risk management implementation guideline of PT Petrokimia Gresik.
  3. Memo of directors of PT Petrokimia Gresik No. 0880/TU/04.02/14/ND/2005, on April 205 about risk identification procedure and Risk classification guideline of PT Petrokimia Gresik.
  4. Memo of directors of PT Petrokimia Gresik No. 1166/NK.01.04/14/ND/2014, on 29 th April 2014 about the appointment of Key Person within the implementation of Risk management.
  5. Memo of directors of PT Petrokimia Gresik No.2031/TU/04.02/14/ND/2005, on August 2005 about the guideline of Risk Identification Number Codification (ID number).
  6. The procedure of Risk management implementation (PR-02-1051), on 1st April 2015 Issue 7

In the development of risk management implementation of PT

Petrokimia Gresik, the scope discussed is more specific and adapted to both

external and internal changes. These changes lead to the uncertainty for the

company and may create disadvantageous impact or unachieved target of the company. The

scope of risk management is divided into two; Corporate Risk scope and

Operational Risk scope.

The concept of corporate risk and operational risk start from duties and responsibilities of risk management department as a risk management unit which one of them is creating company risk profile every year as the guidance for work unit in managing the risk.

Risk profile is also used as the basis of forming of annual audit plan by the internal audit within the Risk Based Audit (RBA) enforcement for the purpose of ensuring the risk-controlling plan that has been executed well and effectively. The result of RBA is expected to be a benchmark of the risk management effectiveness and will be reported to the management and also the audit committee with the aim of good corporate governance implementation.

Within the risk profile, the relationships of duties and responsibilities of each work units are displayed as well as the target and work program of the current year. By this methodology, it is expected that the potential disruptive risk of the goal and target attainment of work can be recognized to then be controlled and monitored closely and effectively. If a unit of work makes changes on KPI, targets and programs of work within the current year, the unit needs to repeat the identification and measurement processes of the ratio.

The risk profile of the company also presents an overview of corporate and operational risks in which the corporate risk are presented globally, while operational risk are presented in detail since it is the raw material of risk identification in all work units.

The Scope of Corporate Risk Management

It refers to the risk which comes from outside (external) such as currency, raw material, regulations/legislations, market condition, communities and other, and some of internal risk which cause the catastrophic impact affecting the accomplishment of target or performance such as machinery breakdown toward production target. Since the dominant risk come from outside (external), then it may change the management process at any time in accordance with the occurred developments.

Risk controlling is done by management, and/or through Controlling and Operational activities, or cooperation among related work units.

The Scope of Operational Risk Management

This term represents the inherent risk in the work unit operations activities. It is usually sourced from the relevant internal unit or other work units in an integrated activity. Therefore, within the activity-based risk profile, there is possible linkage among the activities of units or can be the corporate risk part or derivative.

Operational risk control is executed by units of work and/or cooperation between units.

In the aim of stewardship of Risk management implementation, the board of commissioners established a committee of management risk through the letter no.12/02/15/DK/2011, on 21th of February 2012, about the appointment of management risk members of PT Petrokimia Gresik. Risk management Committee is authorized and responsible for reviewing the risk management policy, monitoring the main risk of the company, providing suggestions to the board of directors in order to improve the risk management policies.

One of the risk management activities is periodically reviewing

the risk management to evaluate the development exposure of

risk management implementation during

a certain period and

the possible potency for the following

period at directorate

level.