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COMPANY APPETITE RISK IN GENERAL
In general, the Company’s risk appetite refers to the applicable PLN Nusantara Power General Risk Management Guidelines. However, it can also be a risk above the predetermined risk appetite which can be accepted within a certain time frame by implementing strict risk treatment so that it decreases to at least the maximum level of the applicable risk appetite.
To realize its vision and mission, PLN NP sets a moderate and stable aggregate risk profile target, with an outline of appetite guidelines based on the following risk taxonomy:
1. STRATEGIC RISK
The company in facing risks related to the company’s reputation in every business process or organization as a corporation because it displays the company’s image that can affect the decline in reputation in the eyes of partners, government, and society as well as changes in the company’s organization and culture (from asset-based to investment-based), the company manages it with LOW APPETITE.
The process of ensuring that the management of the company’s business portfolio is managed with MEDIUM APPETITE, by opening up opportunities for further development of the business portfolio in accordance with competencies and the ability to develop competencies such as a progressive Subsidiary and Affiliate (APPA) portfolio and open partnerships.
In order to support efforts to achieve the New Curve target, especially for the Beyond Power business and acquisition/expansion of new markets, the company will consider taking risks related to the business portfolio, including corporate actions for new PLN NP Group businesses, with HIGH APPETITE risk management.
The company has no intention of violating laws, regulations, or government regulations in any form. However, PLN NP is aware of the possibility of external regulatory interpretations that affect the company’s portfolio or differences in interpretation in its implementation. Activities/actions that may cause such differences in interpretation are managed with MEDIUM APPETITE with the obligation to conduct adequate legal studies/opinions.
2. FINANCIAL RISK
The company in carrying out its business processes has the goal of maintaining long-term financial sustainability and overall financial strength. Therefore, related to how the company competes in product diversification, services, and market penetration and the availability of liquidity for operations and investments will be managed by the company with MEDIUM APPETITE.
In addition, in accordance with the company’s policy to be able to develop a business in order to obtain a wider market, the company ensures the feasibility of a business development or other investment projects, especially in terms of financial feasibility such as Return on Investment on an investment activity, which will be managed by the company with MEDIUM APPETITE.
The implementation of the loan Covenant from the PLN Group will be managed by the company with NO APPETITE.
3. OPERATIONAL RISK
Related to the achievement and increase in Cost of Production (BPP) in the corporate and regional context of PLN, both for power plant management and power plant development activities, are managed with LOW APPETITE.
By understanding the position of the company that must follow the annual parent company policies and targets, the performance contract and management contract are managed with LOW APPETITE.
The provision of primary energy is something that cannot be separated from power plant operations. In addition to ensuring the continuity and quality of primary & alternative energy and readiness for the system, the company must also balance it with field conditions for distribution in the provision of primary energy. Therefore, the company manages this with MEDIUM APPETITE.
As for the management of human resources regarding readiness in terms of quantity and competence, and by understanding the very rapid development of technology that affects the market in the future, with quite wide management options in it, the company manages this with HIGH APPETITE.
4. PROJECT RISK
Projects are something that can never be separated from company operations, whether in the form of business development projects or other investment projects to support company operations. Where the Commercial Operation Date is full of uncertainty but must always be maintained, the company will manage it with MEDIUM APPETITE.
As for funding and project quality, the company will manage it with LOW APPETITE because the company has a target for the project to be on time and on budget with good quality. So it starts with planning and readiness from the funding side of the project, certainty of funding is very necessary in running a project.
5. COMPLIANCE RISK
The company upholds trust and integrity, always committed to preventing fraud, both unlawful acts committed by people from within and outside the organization to gain personal and/or group benefits, which directly harm other parties. Therefore, the company will manage with NO APPETITE towards decisions/actions that sacrifice these core values, even though they result in efficiency, profit, growth, and/or great benefits for PLN NP. As for ethics, both individual and social in the company’s work environment, will be managed with LOW APPETITE.
The Risk Appetite Scale used in the company is as follows:
1. LOW APPETITE
Where the risk is minimized as much as possible while maintaining the fulfillment of the set service level. The percentage of the possibility of risk at the level <3% and the level of tolerance for impact <10%.
2. MEDIUM APPETITE
The risk taken on activities that have limited commercial consequences and/or other benefits. The percentage of the possibility of risk 3% <X <10% and the level of tolerance for impact <30%.
3. HIGH APPETITE
The risk taken on activities that have more open commercial consequences and/or other benefits. The percentage of the possibility of risk 10% <X <30% and the level of tolerance for impact <50%.
4. NO APPETITE
Management’s commitment to Zero Tolerance in accepting the occurrence of such risks. Where the implementation risk is prohibited from being taken. Activities/actions that have prohibited risks must be avoided both in personal and corporate capacities.