Managing And Mitigating Risk
In PT Pertamina (Persero)
to balance Aggressive Growth Strategies with
Prudent Risk Management Frameworks
Jakarta, 26th February 2013
AGENDA
Vision and Mission
Where are the Risks?
Enterprise Risk Management
Financial Risk Management
THE WORLD IS OUR VISION
VISION
To be world class national energy company
MISSION
To carry out integrated business core in oil, gas, renewable
and new energy based on strong commercial principles
Leading
company in
Indonesia
Leading
company in
South East
Asia
Global: 2018 - 2022
Top 15 World
Companies
National: 2008 - 2012
Regional: 2013 - 2017
Page 3
WHERE ARE THE RISKS?
Business Activities in Pertamina:
Ongoing Business: Daily Operation (exploration, production, processing, distribution, shipping)
Business Development: Projects, Acquisitions, develop new building, farm in/farm out, etc.
Refinery
Downstream
Upstream
Industry
Industry
Depot
Production
Transportation
Truck
Distribution
Exploration
Tanker
Fuel Station
Potential Risks
The risks are embedded in our Upstream, Midstream and Downstream Operation.
Page 4
KEY RISK FACTORS
Volatility in prices of crude oil, natural gas and refined products
Uncertainty of market dynamics for oil and gas
Subject to be controlled by Government of Indonesia as State-owned Enterprise
Corporate
Upstream Operations
Compete with other oil and gas companies in connection with downstream
operations and PSO mandate
Repairs, maintenance and turnarounds at refineries
Depend on chartered vessels to distribute our cargo
Downstream
Operations
Oil, Gas and
Geothermal Industry
Indonesia
Reserves estimation
Exploration risk and production risk activities in domestic and foreign countries
Failure to receive SKK Migas and other government approval on a timely basis
Environmental regulations in Indonesia and in other countries
Increased regulation by governments and governmental agencies
Regional or global economic changes and political and social situation in Indonesia
Earthquake zone, labor activism
Downgrades of credit ratings of Indonesia and Indonesia companies
Indonesian accounting standards differs from other countries e.g. US
Internal and external factors influence the occurrence of risk in Pertamina
Page 5
IMPLEMENTING RISK MANAGEMENT IN PERTAMINA
Pertaminas commitment to the risk management program as part of the
decision making process.
Corporate Manual / Guidelines on Enterprise Risk Management
Board Enterprise Risk Management Commitment
ERM Integrated System
Risk Management Framework and risk evaluation criteria for organization
environment
Risk Management Organization in each directorate and subsidiaries
External Communication and Reporting mechanism for GCG
ERM publishes Pertaminas Corporate Top Risk Profile every year
Pertamina commits to implement integrated risk management to support the decision making and GCG
Compliance
Page 6
RISK MANAGEMENT ORGANIZATION
Board of Directors
IPRM
Director
Risk Management
Committee
Line
Management
Corporate Risk
Management
Risk Owner /
Business Unit
Directorate / Subsidiary
Risk Management
Management Line
Coordinating Line
Set up policy & strategy of risk management
Monitoring policy & strategy of risk management
implementation
Evaluate activities & transaction of management
decision
Develop risk management report
Monitor risk profile of corporate
Provide recommendation to Risk Management
Committee
Evaluate risk of business activities
Monitor implementation of risk management
Implement risk management policy
Coordinate with function to acquired risk appetite
& risk tolerance proposal
Provide risk report to risk management unit
Monitor risk position & profile
Using valid risk measurement model
Develop risk consciousness at directorate level
An integrated organization is part of Pertaminas commitment to implement a strategic risk management
system
Page 7
ERM STRATEGIC ROLES
In general, these are some root cause of
risks in companies:
1.
2.
3.
4.
5.
6.
7.
Lack of Leadership Capability;
Unsupportive Corporate Culture;
Silo views in managing risks
within the corporation;
Dispersed data and information;
Lack of knowledge and
competency in conducting risk
assessment;
Management limitations of risk
awareness and lack of
understanding the consequences
of NOT implementing risk
management within the
corporation.
Views of Corporate Governance
only as a corporate attribute
normative.
ERM Roles as:
Company Vision, Values and
Strategies
World Class National
Energy Company
Company Operational Activities
Risk Impacts
Acceptable Risk
Early Warning System;
Optimizing Opportunities;
Performance Assessment.
As an integrated risk management system, ERM provides strategic roles to support Pertamina vision by
managing the root cause of risks
Page 8
Why We Need to Implement ERM
1. Minimize potential losses, optimizing
profit and create corporate values
7. Be aware of and respond
to environment volatility
2. Reduce
unacceptable
performance
3. Increase and
enhance Stakeholders
confidence level
6. Embed risk
culture as part of
corporate culture
5. Integrate risk
management under one
vision
4. Implement best practice
of Good Corporate
Governance
Implementation of integrated risk management system benefits Pertamina in several aspects that
enhancing internal and external performance.
Page 9
IMPLEMENTING ERM ROADMAP
2013
2011
2023
Habit & Culture
People Behavior
Risk culture
Corporate Governance
2008
Risk Policy
Risk Awareness
Compliance
Exposure Risk
Risk Maturity
People
Risk Organization
Risk Measurement & Tool
Setting Limit
Risk Operational
Risk Based Audit
Cross functional coordination
risk management
Link risk management
to compensation (KPI)
During the 5 years ERM implementation, Pertamina has succeed to develop Risk Awareness system and
several milestones for corporate governance achievement.
Page 10
BOD COMMITMENT
Principles of Corporate Risk Management
1. Upholding the principles of good corporate governance by implementing enterprise risk
management, aimed to achieve high shareholder values and good corporate governance;
2. Implementing ERM system and put forth: (i) Humanity (ii) Company Reputation and (iii)
Shareholders Added Value, as fundamental framework;
3. Putting Corporate Critical Risk as high priority for concern and follow-up;
4. Carrying out maximum efforts strategically/operational-wise in mitigating critical risks to reduce
exposure within the risk tolerance limits.
The BOD Commitment provides an assurance for the company to implement the risk management system
in business operation
Page 11
ERM SCOPE
Risk Management Business Unit
Non Financial Risk
Strategic
Business Risk
Strategic risk
Marketing risk
Project risk
Project Risk
Project mgt risk
Cost over run risk
Financing risk
Supplier risk
Technology risk
Marketing Risk
Competition risk
Elasticity risk
Predictive risk
Financial Risk
Operational
Risk
Financial Risk
Legal risk
External risk
System risk
People risk
Internal process risk
Strategic Risk
Regulatory risk
Tax risk
Catastrophe risk
Currency risk
Strategic decision
risk
Credit Risk
Default risk
Downgrading
Credit risk
Market risk
Liquidity risk
Market Risk
Price risk (interest, xrate, stock,
commodity)
Basis risk
Correlation risk
Option specific risk
Liquidity Risk
Funding risk
Market Liquidity
Financial Risk as part of the scope of ERM system is managed in three areas : Credit, Market and Liquidity
Risk
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FINANCIAL RISK MANAGEMENT
Credit Risk
Market Risk
Liquidity Risk
How to mitigate
Risk Management Process
Establish The
Context
Identify Risk
Analyze Risk
Evaluate Risk
Communicate
and Consult
Monitor and
Review
Credit Management
Credit Scoring
Counterparty
Collectibility
Capital Management
Financial & Asset
Investment
Mitigation
Tools
Hedging
Mitigation
Tools
Liquidity
Financing
Insurance
Financial Risk is managed within the framework of risk management process and as result of the process,
an accountable and reliable tool is decided to mitigate each potential risk events.
Page 13
Thank You
