annual report - sarawak · pdf file3 laporan tahunan 2010 annual report sarawak energy berhad...

AnnualReport

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SARAWAK ENERGY BERHAD (Company No. 007199-D)

CONTENTSOur Vision, Mission & Values

About Us

2010 Highlights

Corporate Information

Board of Directors

Executive Management Committee

Chairman’s Report

CEO’s Message

SEB’s Role in Sarawak’s Future

Financial Performance

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4 - 9

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12 - 17

18 - 19

20 - 23

24 - 27

28 - 31

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Group Five-Year Financial Statistics, 2006-2010

Group Financial Highlights

Our Operations

Our People

SEB in the Community

Corporate Social Responsibility

Statement of Internal Control

Statement on Corporate Governance

Board Audit Committee Report

Directors’ Report and AuditedFinancial Statements 31 December 2010

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36 - 43

44 - 49

50 - 51

52 - 53

54 - 56

57 - 66

67 - 74

75 - 154

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To realise our vision, we will:

• PursueopportunitiesforgrowthbyfullydevelopingtheSarawakGovernment’s SCORE agenda

• Ensure our own safety and the safety of others, with acommitment to ‘no harm to anyone at any time’

• Provideareliablesupplyofclean,competitivelypricedenergyto support the economic and social development of Sarawak and our partners in the region

• Operate as a business based on principles that reward ourowners and employees, and delight our customers

Sustainable growth and prosperity for Sarawak by meeting the region’s need for reliable, renewable energyOur vision

Our mission

• HonourthetrustplacedinusbythepeopleofSarawak,byacknowledgingand respecting them and contributing to their well-being

• Setandachievehighethicalandcorporatestandardsthatareasourceof pride for our employees, customers and owners

• Developourpeople, leadershipand teamwork tobuildanagile,open,corporate and customer-focused culture that responds to challenges and the need for change with innovation and cooperation

• Harnessandutilisenaturalresourcesinasustainableandresponsibleway

• Achieve operational excellence through a commitment to continualimprovement and best practice

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Integritywe do what is right in every aspect of our business, and in every contact with our people, customers, contractors and the community

Unitywe are one business, working together and sharing information and expertise to achieve our common vision for the future

Our values

Respectwe value our diversity, listen well and involve others to use our best judgment in all situations and actively care for our relationships

Accountabilitywe work hard, take responsibility for our performance and deliver on our commitments

Couragewe respect and support each other to do what is right, and in the best interests of our company and the community, even when it is not easy to do so

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Couragewe respect and support each other to do what is right, and in the best interests of our company and the community, even when it is not easy to do so

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ABOUT US

Sarawak Energy Berhad (SEB) is an investment holding company with subsidiaries that are involved in the generation, transmission, distribution and sale of electricity. The Company has six key operational areas:

• Distribution

• Retail

• ProjectExecution

• ThermalGeneration

• HydroGeneration

• Transmission

Batang Ai Hydroelectric Power Station

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The six operational areas are supported by three business support departments:

• Finance

• Planning&Strategy

• CorporateServices

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The key roles of the operational divisions are described below.

Thermal Generation

SEB conducts thermal power generation through its wholly owned subsidiaries, Syarikat SESCO Berhad (SESCO), Sarawak Power Generation Sdn Bhd (SPG), Sejingkat Power Corporation Sdn Bhd (SPC), PPLS Power Generation (PPLS) and Mukah Power Generation Sdn Bhd (MPG).

AsatDecember2010,thetotalinstalledcapacitywithintheThermalDepartmentexceeded1,200MW,withfivemajor power stations connected to the Sarawak State Grid (the network of extra-high-voltage trans mission lines and substations that connect generating power plants to the distribution networks that serve the towns and cities of Sarawak) and 19 isolated rural diesel and mini-hydro power stations.

Duringthefirstquarterof2010theBintulucombinedcycleproject,withacombinedcapacityof317MW,wassuccessfully commissioned. The Bintulu plant was registered with the United Nations under the Clean Development Management (CDM) scheme on 18 September 2010.

The CDM scheme is part of the Kyoto Protocol environmental agreement and aims to encourage sustainable developmentandreducegreenhousegasemissions.TheBintulufacilityisthefirstCDMplantinMalaysia.

Mukah Coal-Fired Power Plant

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Hydro Generation

The Hydro Generation Department owns and operates the hydro assets. The Department takes the lead in the planning, initiation and concept phases of all big hydro projects before passing them over to the Project Execution Division to execute all the phases until commissioning and finally handing over the assets. TheDepartmentalso identifies smallhydropowerpotential thatcouldbedeveloped inparticular to support theruralelectrificationinnearbyareas.

During 2010 the Department undertook feasibility studies on 13 sites. Much progress was made during the year in ensuring that feasibility studies were conducted in a consistent manner and have a broad scope. Whereas studies previously focused primarily on the technical aspects of projects, they were broadened to include factors such as power evacuation and transmission, land-use compensation, access roads, and political and social implications.

At the moment only Batang Ai which was commissioned in 1984 is in operation while Murum was still at its early stage of construction. Batang Ai recorded an average availability of 96.8 per cent and total energy generation of 524.68GWh in 2010.

Sejingkat Coal-Fired Power Plant

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Transmission

The Transmission Department owns and operates the Sarawak State Grid. The network also carries bulk electricity to large power users.

As the appointed Grid System Operator (GSO), the Transmission Department operates and controls the Sarawak power system, including power generation scheduling and dispatch. It is also the asset owner and Transmission Network Service Provider (TNSP), responsible forthemaintenanceandsafeandefficientoperationofthenetworkto ensure reliable electricity supply.

The department is also responsible for the planning and development oftheStateGridtomeettheState’sfuturepowerrequirements.

Distribution

The Distribution Department consists of two main units: Distribution Network and Distribution Asset Management. Together they are responsible for ensuring that power is distributed efficientlythroughout the State.

Distribution Network has four divisions: Western Region, Central Region, Northern Region and Distribution Planning. Each region is responsible for operating and maintaining its own distribution assets to ensure optimum output. One of the main tasks of the regions is to connect new customers, including large industrial customers, in a timely manner. Distribution Planning works closely with Transmission Planning and Non-Grid Generation Planning to ensure a holistic planning process for networks up to and including 33kV.

Distribution Asset Management maintains and ensures the efficient operation of the distributionnetwork’s database systems, and other assets and processes. This includes overseeing data collection by regional Global Information Systems (GIS), providing policy and technical specifications,undertaking maintenance and installation planning, and managing the inventory of all electrical equipmentstocks.

Miri Regional Office (Northern Region)

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Project Execution

During2010adedicatedProjectExecutionDepartmentwasestablishedtoensurethatSEBfulfilsitsexpansionprogram. In addition to creating a customer-focused project delivery division, we appointed a Head of Project Execution with extensive experience in project portfolio management.

Within the new division are the support functions of Project Controls, Contracts and Procurement, and Project Management. The creation of a new dedicated Project Execution team will ensure that SEB can successfully accomplish its investment projects in line with its business goals and strategies. The division will establish a common methodology, terminologyanddocumentationframeworkforSEB’sprojectworkacrossalldivisions.Thiswillcreateanefficientand effective process, from evaluation of business opportunities through to project development, execution, and handover to operations.

In 2011, Project Execution will focus on delivering critical projects already in execution, and preparing for new major hydro and thermal generation projects planned for commencement in 2012. We will also further grow the team and establish best practice for all projects.

Retail

The Retail Division was established to manage the sale of electricity to SEB’s customers, manage customers’ expectations and collect the bills from electricity sales. The division comprises three distinct areas: Customer Management, Meters, and Revenue Management. The projected unit electricity sale for 2010 is 6,486,301,766kWh with an estimated revenue of approximately RM1.6 billion. There are currently 511,019 customer accounts with SESCO, 84 per cent of which are domestic customers.

Meter Reading in progress

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2010 HIGHLIGHTS

SEB begins transformation into regional power supplier

332 new people recruited, bringing total number of employees to 2,959

New Vision, Mission and Values

Strong demand from new industrial and export customers

Total Revenue grows by RM178.5 million, to RM 1,553.7million

21,203 new customers connected, bringing total customers to 504,774

Gross power generation grows to 7,346 GWH (gigawatt hours)

Total Sales (gwh) grows by 21.7% to 5,728 GWH

Profit After Tax: RM 336.2 Million

Bintulu Combined Cycle projectstarts commercial operation

Power Purchase Agreement (PPA) for

Bakun Hydro Electric Plant proposed

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CORPORATE INFORMATION

ChiefExecutiveOfficer

Mr. Torstein Dale Sjøtveit

Company Secretary

Aisah Eden Vivian Voon(LS 03629) (MAISCA 7021367)(Up to 3rd March 2011) (Appointed 3rd March 2011)

RegisteredOffice/HeadOffice

4th Floor, Wisma SESCO Petra Jaya 93673 Kuching, SARAWAK Tel: 6082-441 188 Fax: 6082-313 588 E-mail: [email protected]

Auditors

Ernst & Young Principal Financial Institutions RHB Bank Berhad EON Bank Berhad AmInvestment Bank Berhad

Directors

Datuk Abdul Hamed Bin SepawiChairman/IndependentNon-ExecutiveDirector

Datuk Amar Haji Mohamad Morshidi bin

Haji Abdul GhaniNon Independent Non-Executive Director

Senator Dato’ Haji Idris Bin Haji Buang Senior Independent Non-Executive Director

Tan Sri Dato Sri Mohd Hassan bin MaricanIndependent Non-Executive Director(Appointed with effective 9th June 2010)

Datuk Fong Joo Chung Non-Independent Non-Executive Director

Audit Committee

Tan Sri Dato Sri Mohd Hassan bin MaricanChairman

Senator Dato’ Haji Idris Bin Haji Buang

Datuk Amar Haji Mohamad Morshidi bin Haji Abdul Ghani

Nomination & Remuneration Committee

Datuk Abdul Hamed Bin Sepawi Chairman

Senator Dato’ Haji Idris Bin Haji Buang

Mr. Torstein Dale Sjøtveit

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BOARD OF DIRECTORS

Datuk Abdul Hamed Bin SepawiChairman/IndependentNon-ExecutiveDirector

Senator Dato’ Haji Idris Bin Haji Buang Senior Independent Non-Executive Director

Tan Sri Dato Sri Mohd Hassan bin MaricanIndependent Non-Executive Director

Datuk Fong Joo Chung Non-Independent Non-Executive Director

Datuk Amar Haji Mohamad Morshidi bin Haji Abdul GhaniNon Independent Non-Executive Director

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Datuk Haji Abdul Hamed bin SepawiChairman/IndependentNon-ExecutiveDirector

BOARD OF DIRECTORS

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(Company No. 007199-D)

Datuk Haji Abdul Hamed joined the Board of SEB and was appointed Chairman of the Company on 27 June 2005. Datuk Haji Abdul Hamed holds a Bachelor of Science degree from University of Malaya (1971), studied Forestry at the Australian National University from 1974 to 1975, and has a Master’s degree in Forest Products Utilization from Oregon State University, USA. He was awarded the titles of Panglima Gemilang Bintang Kenyalang on 11 September 1999 and Sarawak Entrepreneur of theYear2004,andwasafinalistfortheEntrepreneuroftheYearMalaysia Award 2005. Datuk Haji Abdul Hamed is also Chairman of the Nomination and Remuneration Committee, SESCO, Naim Holdings Berhad, Executive Chairman of Ta Ann Holdings Berhad, and Director of Sarawak Plantation Berhad, and sits on the boards of several other private limited companies.


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BOARD OF DIRECTORS

Datuk Amar Haji Mohamad Morshidi bin Haji Abdul GhaniNon Independent Non-Executive Director

Datuk Amar Haji Mohamad Morshidi bin Haji Abdul Ghani was appointed to the Board on 26 May 2010. He holds a Bachelor of Economics degree from Universiti Kebangsaan Malaysia and a Master of Science in Human Resource Administration from University of Scranton, Pennsylvania, USA. He was a Management Executive with PETRONAS from 1980 to 1988, and Director of Kuching North City Hall from 1988 to 1998. He then held a number of senior positions in the Chief Minister’s Department before being appointed a Permanent Secretary in the Ministry of Social Development and Urbanisation in 2001. He was Director of the State Planning Unit in the Chief Minister’s Department before being appointed Deputy State Secretary of Sarawak in 2006 and then State Secretary of Sarawak on 2 August 2009. He sits on the boards of a large number of organisations, including the Sarawak Economic Development Corporation (SEDC), Universiti Malaysia Sarawak, Swinburne University of Technology Sarawak, Sarawak Forestry Corporation and SESCO.

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SARAWAK ENERGY BERHAD

Datuk Amar Haji Mohamad Morshidi bin Haji Abdul Ghani was appointed to the Board on 26 May 2010. He holds a Bachelor of Economics degree from Universiti Kebangsaan Malaysia and a Master of Science in Human Resource Administration from University of Scranton, Pennsylvania, USA. He was a Management Executive with PETRONAS from 1980 to 1988, and Director of Kuching North City Hall from 1988 to 1998. He then held a number of senior positions in the Chief Minister’s Department before being appointed a Permanent Secretary in the Ministry of Social Development and Urbanisation in 2001. He was Director of the State Planning Unit in the Chief Minister’s Department before being appointed Deputy State Secretary of Sarawak in 2006 and then State Secretary of Sarawak on 2 August 2009. He sits on the boards of a large number of organisations, including the Sarawak Economic Development Corporation (SEDC), Universiti Malaysia Sarawak, Swinburne University of Technology Sarawak, Sarawak Forestry Corporation and SESCO.


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Senator Dato’ Haji Idris Bin Haji BuangSenior Independent Non-Executive Director

BOARD OF DIRECTORS


Dato’ Haji Idris bin Haji Buang joined the Board of SEB on 24 June 2000. He is currently a member of the Nomination and Remuneration Committee and the Audit Committee. He holds a Bachelor of Laws degree with Honours from University of Buckingham, UK, and a degree of utter Barrister from the Lincoln’s Inn, London. He is the proprietor of Idris-Buang & Associates and was formerly the Chief Political Secretary to YAB Chief Minister of Sarawak, a position he held from August 2000 to August 2006. He was appointed Senator of the Dewan Negara on 28 November 2005, and was reappointed for another term of three years on 29 November 2008. Senator Dato’ Haji Idris also sits on the board of Hock Seng Lee Berhad, Amanah Saham Sarawak Berhad and several other private limited companies, including some state government-linked companies.


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Tan Sri Dato Sri Mohd Hassan bin Marican joined the Board of SEB on 9 June 2010. He is a Fellow of the Institute of Chartered Accountants in England and Wales, and a member of the Malaysian Institute of Accountants and Malaysian Institute of CertifiedPublicAccountants.Hebeganhisprofessionalcareerin1972atToucheRoss&Co.,LondonandsubsequentlybecameaPartneratHanafiahRaslan&Mohamad/ToucheRoss&Co.in 1981. He was appointed PETRONAS’s Senior Vice President of FinanceinFebruary1989,itsPresidentandChiefExecutiveOfficerfrom February 1995 to February 2010, and its Acting Chairman from July 2004 to February 2010. He currently sits on the boards of Regional Corridor Development Authority (RECODA), Sarawak, Lambert Energy Advisory Limited, Sembcorp Industries Limited and Singapore Power Limited.

BOARD OF DIRECTORS

Tan Sri Dato Sri Mohd Hassan bin MaricanIndependent Non-Executive Director

SARAWAK ENERGY BERHAD

Tan Sri Dato Sri Mohd Hassan bin Marican joined the Board of SEB on 9 June 2010. He is a Fellow of the Institute of Chartered Accountants in England and Wales, and a member of the Malaysian Institute of Accountants and Malaysian Institute of CertifiedPublicAccountants.Hebeganhisprofessionalcareerin1972atToucheRoss&Co.,LondonandsubsequentlybecameaPartneratHanafiahRaslan&Mohamad/ToucheRoss&Co.in 1981. He was appointed PETRONAS’s Senior Vice President of FinanceinFebruary1989,itsPresidentandChiefExecutiveOfficerfrom February 1995 to February 2010, and its Acting Chairman from July 2004 to February 2010. He currently sits on the boards of Regional Corridor Development Authority (RECODA), Sarawak, Lambert Energy Advisory Limited, Sembcorp Industries Limited and Singapore Power Limited.


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Datuk Fong Joo Chung joined the Board of SEB on 31 January 1996. He obtained his Bachelor degree in Law (LLB) (Hons) from the University of Bristol, UK and practised as an advocate until retiring in July 1992 when he was appointed as the State Attorney-General, Sarawak. He served as State Attorney-General, Sarawak until 31 December 2007, but he has been retained in an advisory capacity. Datuk Fong was awarded the Panglima Jasa Negara by the Yang di-Pertuan Agong, Malaysia in 1999 and Panglima Gemilang Bintang Kenyalang by the Yang di-Pertua Negeri, Sarawak in 1994. He sits on the boards of several other subsidiaries of the SEB Group besides holding directorships in Encorp Berhad, Bintulu Port Holdings Berhad, Sarawak Cable Berhad, Borneo Development Corporation (Sarawak) Sdn Bhd, Harwood Timber Sdn Bhd and Permodalan Assar Sdn Bhd.

BOARD OF DIRECTORS

Datuk Fong Joo ChungNon-Independent Non-Executive Director


Datuk Fong Joo Chung joined the Board of SEB on 31 January 1996. He obtained his Bachelor degree in Law (LLB) (Hons) from the University of Bristol, UK and practised as an advocate until retiring in July 1992 when he was appointed as the State Attorney-General, Sarawak. He served as State Attorney-General, Sarawak until 31 December 2007, but he has been retained in an advisory capacity. Datuk Fong was awarded the Panglima Jasa Negara by the Yang di-Pertuan Agong, Malaysia in 1999 and Panglima Gemilang Bintang Kenyalang by the Yang di-Pertua Negeri, Sarawak in 1994. He sits on the boards of several other subsidiaries of the SEB Group besides holding directorships in Encorp Berhad, Bintulu Port Holdings Berhad, Sarawak Cable Berhad, Borneo Development Corporation (Sarawak) Sdn Bhd,


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Mr. Torstein Dale SjøtveitChief Executive Offi cer, EMC Chairman

EXECUTIVE MANAGEMENT COMMITTEE (EMC)

Haji Wan Mahmud bin Wan Abdullah

Head of Internal Audit

Zuraimy bin KushailiHead of CEO Offi ce / Corporate Services

Haji Sulaiman bin Abdul HamidHead of Finance

Miles SmithHead of Planning & Strategy

Einar KildeHead of Project Execution

Head of Finance

James UngSenior Vice President, Thermal

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Stell SindauSenior Vice President, Hydro

Victor WongSenior Vice President, Transmission

Lu Yew HungSenior Vice President, Distribution

Aisah binti EdenSenior Vice President, Retail

Nick James Arnett WrightVice President, External Relations &

Strategic Communications

Dr. Chen ShiunHead of Research & Development

Julia ShimChief Information Offi cer, Secretary

Polycarp WongGeneral Manager,

Shared Services

Siti Aisah AdenanGeneral Manager,

People & Leadership Development

Alvin LimHead, Key Account (SCORE Customers)

Senior Vice President, Distribution Senior Vice President, Retail

Marconi MadaiGeneral Manager,

Corporate Risk & HSE

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CHAIRMAN’S REPORT

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I am delighted to present the Annual Report and Audited Financial StatementsoftheCompanyforthefinancialyearended2010onbehalfof the Board of Directors of SEB.

2010: A Journey from Vision to RealityFollowing many years of steady growth and careful preparation, 2010 has been a year of rapid progress in SEB’s implementation of the Sarawak Government’s SCORE (Sarawak Corridor of Renewable Energy) agenda. Likewise, the transformation of the company from a stable and effective, but local and traditional, utility into a modern, international corporation is now well under way.

The Board shares the sense of optimism and energy that now surrounds SEB, and we look forward to the next few years with real excitement.

The SCORE AgendaSEB is now well on the way to transforming the Sarawak Government’s SCORE vision into reality.

Bakun Hydro Electric Project (HEP)

Bakun is the commercial and technical foundation of the SCORE agenda andunderpinsnotonlythefuturefinancialperformanceofSEB,butalsothesocial and economic development of Sarawak. With strong support from the State Government, SEB’s negotiations with the Federal Government for either an outright purchase or a power purchase agreement (PPA) with the asset owner, Sarawak Hidro Sdn Bhd, have been our number one priority.

These negotiations were successfully concluded on 1 June 2011, when SEB signed a 30-year PPA with Sarawak Hidro.

Murum Hydroelectric Project

With a capacity of 944MW, the Murum HEP is SEB’s largest construction project to date and marks the start of an ambitious program expansion

of hydroelectric generation to support the SCORE agenda. The diversion tunnel was completed in late April, allowing the river to be diverted on 30 April 2010.

Our team has been on a steep learning curve to develop a deeper understanding of the proper role and accountabilities of the proponents of a hydropower project. By the end of 2010, we had secured significant improvements in our relationshipwith our Engineering, Procurement and Construction (EPC) contractor, China Three Gorges Corporation, in particular with regard to the safety practices on site and the various contractual arrangements.

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New Hydropower and Coal ProjectsWealsomade significant progress this year in better understanding the details of future HEP opportunities.Historically, SEB’s approach to feasibility assessment had focused on technical and commercial issues. Our hydropowerdevelopmentteamnowtakesamorecomprehensiveapproachthatrequiresinvestigationofthefullrange of related issues, such as road access, contract strategy, community engagement and communications, landacquisitionandcompensation,resettlement,andenvironmentalimpactassessmentandmitigation.

The same processes are now deployed in our assessment of new opportunities for thermal generation.

Work will proceed in 2011 to prepare business cases for the following projects: Lawas, Limbang 1, Limbang 2, Trusan 2, Baram 1, Baram 3, Baram 4, Belepeh, Linau 1, Belaga, Pelagus and Baleh.

SCORE Customer Negotiations

Having started the year with a relatively small number of potential SCORE customers, we are proud to report thatthereisnowverystrongdemandforSCOREenergy.SEBexpectstoreachfirmagreementswithagroupofadvanced customers from the aluminium, manganese and silicon industries early in 2011.

Export Customer Negotiations

The potential for Sarawak to become the driving force of a regional energy hub has been the subject of discussion and analysis at ASEAN and BIMP-EAGA meetings for many years. In 2010, we progressed to a much morematureanddetailedphaseofnegotiationswithourneighbours,andweexpecttoconcludefirmplanswith Indonesia (in West Kalimantan) and Brunei Darussalam in early 2011.

Aerial view of the Bakun Hydropower Electric Station

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Transforming the OrganisationThe details of the main organisational changes undertaken in 2010 are recorded in detail in the CEO’s message and elsewhere in this report. My main observation is that, in 2010, we are now on track to reach the level of professionalismrequiredtodelivertheresponsibilitiesentrustedtousbytheStateGovernment.

In undertaking multiple mega-projects and signing power purchase agreements worth many billions of Ringgit with international customers, SEB has now outgrown its traditional role as Sarawak’s local utility. We have entered the ‘big league’ and the stakes are high.

In this new environment, it has been essential to ensure that we have the right expertise to protect our shareholders’ interests. To support our growth strategy, we have recruited 97 new local employees, taking our total head count to just under 3,000. We expect to recruit several hundred more local personnel in early 2011.

In 2010, we also engaged 13 expatriate employees, of whom nine have been seconded from Hydro Tasmania pursuant to a broader partnership agreement. The recruitment of expatriates acknowledges the reality that there are skills that are both essential to SEB’s achievement of the SCORE agenda and not yet available in SEB or Sarawak.

I am delighted to observe both the strong commitment of our new arrivals to the achievement of Sarawak’s objectives and the warm welcome that has been extended to our new friends by our local staff. Notwithstanding the accelerating rate of change, I am conscious that our progress in 2010 represents early steps in a much longer journey of transformation. Change of this nature is not easy and will inevitably cause disruption, confusion anddisappointmentforsome.However,IamnowevenmoreconfidentthatSEBisheadingintherightdirection.

275kv transmission lines

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Board MattersFarewell to a Dear Friend

The SEB family was deeply saddened upon the passing of our respected Board member Dato’ Nordin bin Baharuddin in June 2010. Dato’ Baharuddin was appointed a Director of Sarawak Energy Berhad in September 2005.Aprominentmemberof theaccounting fraternity, hewasa familiar figure in the Sarawakcorporatescene. He served many years in Sarawak, with his last appointment prior to his retirement as Chairman of Ernst & Young.

Meticulous in his approach and with a sharp eye for numbers, Dato’ Nordin was an active member of the Board and served as Chairman of the Group Audit Committee for the tenure of his directorship in SEB. He contributed activelytodiscussionsduringboardmeetings,andhisexpertiseandnetworksinfinanceandcorporatematterswere extremely valuable. Likewise, Dato’ Nordin’s corporate experience pertaining to the listing and compliance requirementsoftheBursawereoftensoughtbytheBoard.

Retirements

Two of our long-serving Directors completed their service in 2010:

• TanSriDatukAmar(Dr)HajiAbdulAzizBinDatoHajiHusainjoinedtheBoardofSarawakEnergyBerhadon27June 2005 and resigned as a Director in March 2010.

• DatukAmarWilsonBayaDandot,59,joinedtheBoardofSarawakEnergyBerhadon31January1996,alsositting on the Audit Committee. Datuk Amar Wilson resigned with effect from 30 June 2010.

Our sincere thanks are extended to Tan Sri Aziz and Datuk Amar Wilson for their loyal and conscientious service. Their efforts have been vital to building the very solid foundations from which our recent progress has been launched.

New Arrivals

Two new members joined the Board in 2010:

• DatukAmarHajiMohamadMorshidibinHajiAbdulGhaniwasappointedasaBoardMemberofSEBinMay2010; and

• TanSriDatoSriMohdHassanbinMaricanjoinedtheBoardofSEBon9June2010.

FullprofilesforournewDirectorsareprovidedelsewhereintheReport.

The new Board is energised by the scale and urgency of the SCORE agenda, and I am profoundly grateful to the other Directors for their wisdom and support.

In closing, I wish to thank our shareholders for the trust they have placed in SEB, our staff for their unrelenting efforts to achieve our goals, and our customers, professional advisors and stakeholders for their ongoing support.

Datuk Abdul Hamed Bin SepawiChairman Sarawak Energy Berhad

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CEO’S MESSAGEAt the end of 2010, I feel privileged to have been given the opportunity to lead Sarawak Energy Berhad through such an important and exciting period of Sarawak’s development.

Mindful of how much our people have achieved, I have asked our communications team to reframe this year’s Annual Report to provide amorecomprehensive recordofour journey, reflectingmy sense thathistory will regard 2010 as a turning point for SEB.

Maintaining Our Core Utility BusinessOver the past year, there has been strong growth in demand for power from regulated tariff customers (both domestic and commercial) and major industries established through the SCORE initiative. Growth in demand from regulated customers for the year was 6.5 per cent. Inclusion of major industrial customers brings the total growth to 21.7 per cent. The combination of this rapid growth in demand and the delay in the commissioning of the Bakun HEP means that the ‘reserve margin’ between peak demand and supply is now critically low.

Until access to energy from Bakun is secured, SEB’s system cannot withstand an outage at any of our major power stations. In the meantime, we are taking every possible preparation and precaution to prevent any disruption to the security of Sarawak’s electricity supply.

Strong Financial PerformanceSEB has recorded a final profit after tax for 2010 of RM336.2 million,compared to the 2009 result of RM217.2 million. Of this amount, RM55.3 million was due to the recognition by the Ministry of Finance (MoF), in mid-December 2010, of a deferred tax asset arising from the grant of an ‘investment allowance’ for the Bintulu combined cycle plant.

Thisisaverystrongresultthatreflectswellontheteam’sperformancein2010,drivenbyrevenuegrowthandincreasingprofitabilityfromthepowersegment. Looking ahead, access to Bakun energy will help us drive down the average cost of generation. However, the scale of our investment programwillleadtoasignificantincreaseinourdebtservicingcosts.

Getting to Know SEBI spent much of my time in early 2010 getting to know SEB’s people

and facilities around the four corners of Sarawak. Wherever I went, I was consistently touched by the warmth and sincerity

of our employees, and by their enthusiasm for the challenges ahead. These visits taught me that SEB and SESCO have a

proud heritage, and that we are generally well regarded by the communities whom we are here to serve.

Notwithstanding the scale and pace of change and progress to be expected in the years ahead, we should

never forget that any future achievements have been made possible by the efforts of those that have

come before. I am therefore particularly grateful to the retiring members of the Board of Directors,

including my predecessor Tan Sri Aziz, for leaving SEBinsuchfineshape.

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Understanding the SCORE ChallengeThe Corporate Planning and Finance teams, in particular, have provided me with strong support in gaining a firmgraspofwhat is requiredtodeliver theSCOREagenda.Throughout2010,wedevelopedaccurateandcomprehensive models that allow us to assess the impact of changes in our external environment, our investment plans, or the commercial agreements that we conclude with our customers.

Pending the outcome of feasibility studies which address technical, commercial, social and environmental issues, SEBnowexpectsthattherewillbeatleastfivemorehydropowerplantsandoneortwocoalprojectsdevelopedby 2020. In total, up to 6,200MW of new capacity could be available by the end of this decade (including Bakun and Murum). It is anticipated that around 70 per cent of this new generation will be hydropower, with the remainder coming from coal resources.

To meet these growth targets, it now seems likely that SEB will need to invest more than RM20 billion in new-generation and transmission infrastructure. The timing and sequence of new-generation projects will bedetermined by customer demand.

Executing SEB’s Big ProjectsInearly2010,emergingchallenges intheMurumhydroandBintulucombinedcycleprojectsconfirmedthatSEB requiredamuchgreatercapacity inprojectexecution.Tothisend,wehaveestablishedanewProjectExecution (PE) Department, which incorporates the (previously separate) Sarawak Engineering Services business. The establishment of PE has been among the highlights of 2010, and I have been impressed by the enthusiasm with which the existing team has embraced the new systems and discipline introduced.

Sejingkat Coal Fired Power Plant

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New Vision, Mission and ValuesThe Executive Management Committee has provided me with strong support throughout the year. One of the group’s main achievements has been to support the development of new organisational mission, vision and valuesforSEB.Theprocesswasundertakenoverseveralmonthsandrequiredseriouspersonalreflectiononwhatwe consider to be most important in terms of our capacity to work together to serve the people of Sarawak.

The new framework of vision, mission and values is both accurate and heartfelt. Our challenge for 2011 is to engage the broader SEB team in what we mean by these new ‘words’ and make them meaningful to our work from day to day.

RaisingtheFinanceRequiredforSCOREThroughout 2010, the Finance team has explored options with various investment banks to secure the debt financerequiredtosupporttheSCOREagenda.Atthetimeofwriting,theFinanceteamisconfidentthatwewillsoonconfirmtheofferofafacilitytoSEB:

(i) ofatleastRM10billion,whichcanbeprovidedinadditiontothefinalpurchasecostsofBakun;(ii) with a targeted rating of at least AA1; and(iii) without resort to a parent (State Government) guarantee.

Murum HEP under construction

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Looking AheadThe kind of transformation that is under way at SEB is not affected by the end of one year or the beginning of another.Manyoftheongoingprocesseswillcrystalliseinearly2011.Specifically,wearewelladvancedinourpreparation for:

• thefinalisationoftheBakunandSCOREcustomernegotiations;• theadoptionofamorecontemporaryandfocusedorganisationalstructure;• therolloutofaformaltransformationprogramtoengageallSEB’speopleinthenewvision,missionand

values;• thecompletionoftheSukukbondprogram;• buildingsufficientinternalcapacitytoaddressthecomplexsocialandenvironmentalissuesarisingfrom

the development of the various SCORE projects; and• theupdateandrenewalofarangeofadministrativeandmanagerialprocessesandprocedures.

ConclusionFew people in the business world are offered the chance to contribute to the transformation of an entire economy or society. I therefore remain profoundly grateful to the Sarawak Government and the Board for the opportunity given to me to lead SEB through this exciting transformation. I likewise thank all the staff at SEB and our customers for their support, and I look forward to providing reports of further exciting progress through 2011 and beyond.

TORSTEIN DALE SJØTVEITChief Executive Officer

Aerial view of Bintulu Gas Fired Combined Cycle Power Plant

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SEB’S ROLE IN SARAWAK’S FUTURE

CORRIDOR OF RENEWABLE ENERGY

A R AWA K

CORESSEB and the SCORE StrategyThe year 2010 was one of great change for SEB, as we began our transformation from a local utility company into a major regional supplier of competitively priced renewable energy. To achieve this transformation, we must rapidly grow both our energy capacity and our workforce, and in2010wemadesignificantprogressinboththeseareas.

Our expansion plans support the Sarawak State Government’s development strategy, the Sarawak Corridor of Renewable Energy. The foundation of SCORE is Sarawak’s abundant hydropower and coal resources. Development of these resources will allow Sarawak to offer competitively priced energy to our region and to attract energy-intensive industries such as aluminium smelting and solar panel manufacturing.

Sarawak’s geographic location and its stable political and economic environment place it in an ideal position to attract energy-intensive industries. The new industries attracted by the SCORE strategy will deliver Sarawakians new jobs, infrastructure and essential public services on a huge scale.

PhaseoneofproductionforthefirstgroupofsixSCOREcustomersaloneisexpectedtocreate25,000to30,000direct and indirect jobs. Higher employment and income will lead to improvements in education, health and community capacity.

In addition to direct employment, investment by SCORE customers will lead to the generation of new tax income and water royalties that improve the capacity of both the Federal and State governments to provide essential public services such as schools, healthcare and roads.

SEBhasanimportantroletoplayinSCORE.Weareinauniquepositiontobecomeamajorenergysupplierinthe region at a time when carbon pricing and the rising cost of fossil fuels will increase the global demand for clean, renewable energy.

There is no doubt that a demand exists for competitively priced energy. Over the past year, there has been strong growth in the demand for power from both domestic and commercial customers, including major industries established through the SCORE initiative. Total 2010 growth in regulated customer demand was 21.7 per cent.

SEB has a long and proud history of providing energy to the people of Sarawak, and this next phase of our growth will underpin Sarawak’s future prosperity.

Our plans for growth are ambitious, with a targeted nine-fold increase in energy output between 2010 and 2020, from 5,921GWh to 54,947GWh. In terms of capacity, we will grow from 1,300MW in 2010 to between 7,000MW and 8,500MW in 2020.

In 2010 we made great progress in moving towards our goals, employing almost 300 new people, moving forwardwithourhydropowerandthermaldevelopmentprojects,andfinalisingnegotiationswithnewSCOREand export customers.

The new SEB HQ Building

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SCORE and Export NegotiationsDuring 2010, SEB conducted discussions under the SCORE strategy with new industrial customers from a range of industries as well as export customers. These discussions indicate very strong demand for competitively priced energy in our region.

As at 31 December 2010, SEB was in negotiation with 21 potential customers from various industries ranging from aluminium to antibacterials. Of these, SEB was in an advanced stage of negotiation with six customers.

Four of these advanced customers are proposed projects in Samalaju, Bintulu, consisting of the aluminium, manganese,ferrosiliconandpolysiliconindustries.Thetotalpowerrequirementforthesefourcustomersisnearly1,300MW.

The other two advanced customers are proposed projects in Tanjung Manis, Sarikei (metallic silicon) and Samajaya,Kuching(solarwafer),withpowerrequirementsof12MWand70MW,respectively.

Weanticipatewewillreachfirmagreementswiththeseadvancedcustomersinearly2011.

Collectively,newindustrialcustomersareexpectedtorequire70–80percentofthecapacityfromtheBakunhydropower project, the largest dam in Southeast Asia. They will invest billions of Ringgit, thus creating thousands of job opportunities in Sarawak.

In addition to supplying power to industrial customers under SCORE, SEB needs to meet the growing demand fromdomesticand regional customers. In 2010wemade significantprogresswithexport negotiations,andwe are currently discussing power purchase and sale agreements (PPSAs) with West Kalimantan and Brunei Darussalam. Opportunities also exist to export power to Sabah.

While there are no immediate plans for an interconnection between Sarawak and Peninsular Malaysia, the supply of power to West Malaysia remains an option for the future.

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SEB’s International Engagement on Sustainable PracticeIn line with our rapid expansion plans and our commitment to sustainable hydropower development and operation, SEB significantly increased engagement and collaboration with fellow utility companies andinternational research and advocacy institutions during 2010.

SEB took up membership of the International Hydropower Association (IHA) in early 2010 to engage with the latest progress within the hydropower sector internationally. The IHA pursues a range of initiatives on hydropower sustainability, and is also addressing the possible role and contribution of hydropower to climate change mitigation and adaptation.

ThepartnershipbeganwithSEBparticipatingintheUNESCO/IHAGHG(GreenhouseGas)EmissionMonitoringproject,andthiswaslaterextendedtojoiningtheIHASustainabilityPartnerprogram.TheaimoftheUNESCO/IHAproject is to undertake research that leads to a better understanding of the emission of methane from tropical reservoirs. A key objective is to evaluate the carbon footprint resulting from the construction of a freshwater reservoir within a river basin and to develop potential mitigation measures.

As part of the project, the IHA assisted SEB in setting up GHG emission monitoring campaigns for hydropower reservoirs in Sarawak. Measurements were conducted at Bakun before impoundment began in October and at Batang Ai, a mature reservoir.

In November 2010 the IHA adopted the Hydropower Sustainability Assessment Protocol, which was developed by the Hydropower Sustainability Assessment Forum, a multi-stakeholder body with representatives from social and environmental non-government organisations (NGOs), governments, commercial and development banks, and the hydropower sector, represented by IHA.

The Protocol is an enhanced sustainability assessment tool which is being used to measure and guide performance in the hydropower sector. It assesses the four main stages of hydropower development: Early Stage, Preparation, ImplementationandOperation.Assessmentsrelyonobjectiveevidencetocreateasustainabilityprofileagainstsome 20 topics, depending on the relevant stage and covering all aspects of sustainability.

Aerial view of the Bakun Hydropower Electric Station

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AsasustainabilitypartnerofIHA,wewillbenefitfromadditionaltrainingintheapplicationoftheSustainabilityAssessment Protocol, which will ensure we apply the highest international sustainability standards to all of our hydropower projects. Training is expected to be held in 2011, closely followed by an assessment of the Murum hydropower project.

SEB also collaborated with the Scandinavian research organisation SINTEF during the year. A visit to SINTEF at TrondheiminNorwayinJune2010ledtotwocollaborativeefforts.Inthefirstinitiative,SINTEFexpertstrainedSEBstaff in the measurement of GHG emissions for hydropower schemes, carried out at Batang Ai in September. ThiswasfollowedbyseveralmoremeasurementsatthesamereservoirusingSINTEFequipment.InNovember,asecond project was carried out to employ SINTEF modelling and analysis tools for the optimisation of hydropower resources in Sarawak. This involved creating new models for Sarawak power systems, incorporating hydrological information to establish the optimal operating strategy for available water resources.

In August 2010, a Memorandum of Understanding (MOU) was signed between SEB and Transpower New Zealand Limited. The MOU paved the way for both organisations to share knowledge, experience and opportunities to be exposed to new developments in power transmission. Staff attachments and exchanges occurred during the year,inadditiontothesharingofequipmentandinformation.

Closer to home, SEB signed a letter of cooperation with the School of Engineering and Science of the Curtin University of Technology, Sarawak Campus, in early 2010. The collaboration started with several student projects on the utilisation of palm oil biomass for power generation. Another project, on the modelling of fuel cell energy conversion processes, is ongoing and regular discussions are held to review progress and to explore new projects.

Towards the end of the year the three main operating departments of Thermal Power Generation, Power Transmission and Power Distribution jointly agreed to join the EPRI (Electric Power Research Institute) membership program. EPRI is a not-for-profit and utility-funded research institute based in the United States and has amulti-faceted research spectrum spanning environment sustainability, nuclear engineering, thermal power generation, and power delivery and utilisation.

SEB shall continue to seek out opportunities to form strategic partnerships that enable us to achieve our goals and that ensure the social and environmental performance of all our projects will be measured against international standards. We shall continue to create opportunities for employees to improve themselves through further education, greater exposure to international best practices and more in-depth participation with international organisations.

Batu Tugun

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FINANCIAL PERFORMANCESEBbeganitstransformationintoaregionalpowersupplierwithalongrecordoffinancialstrengthandprudentcapitalmanagement.Ourfinancialperformanceduring2010furtherstrengthenedthisposition.

RevenueDuring 2010, SEB reported a total revenue of RM1,553.7 million, an increase of RM178.5 million compared to 2009, primarily due to a RM161.5 million rise in electricity sales. The increase in electricity sales resulted from a growth of 6.3 per cent and 5.6 per cent, respectively, in regulated tariff customers and a single bulk purchaser, Press Metal Berhad, which commenced operations in November 2009. The higher growth registered by regulated tariff customers was mainly contributed by commercial and domestic sectors.

Gross ProfitSEB’sgrossprofitincreasedbyRM106millioncomparedtothepreviousyear,mainlyduetohigherrevenueandanimprovedgrossprofitmarginfromthepowersegment.Grossmarginimprovedto26.1percent,comparedto 21.8 per cent in 2009. Thiswasmainly the result of amore efficient power generationmix following thecommencement of the Bintulu combined cycle plant in June 2010 and full commercial run of the Mukah coal power plant in May 2009.

In addition, the favourable gas price adjustment of RM16 million in 2010 and the lower feasibility studies expenses ofRM15millionin2010,comparedtoRM32.9millionin2009,furtherimprovedSEB’sgrossprofitduringtheyear.

Profit before TaxationThehigherprofitbeforetaxin2010ofRM386.9million,comparedtoRM277.3millionin2009,wasduemainlytothe net impact of the following:

• higherelectricitysales;• highergrossmargin,asdiscussedabove;• increasedotherincomecontributedbythehigherdeferredincomeamortisationandrecognitionofincome

from carbon credits from the Bintulu combined cycle project;• impairmentofinvestmentinSeatracSdnBhd,amountingtoRM19.1million,duetodefermentoftheundersea

cable project with Tenaga National Bhd; and• higherfinancingcostsincurredduring2009forthedevelopmentoftheMukahcoalpowerplant,theBintulu

combined cycle project, and the expansion for transmission lines.

Profit after TaxationSEB recorded a lower effective tax rate of 13.1 per cent during the year compared to 21.6 per cent in 2009. This was due mainly to the recognition of a deferred tax asset of RM55.3 million because of the investment allowance for the Bintulu combined cycle gas turbine, which was granted during the year.

Asaresult,ahigherprofitaftertaxationofRM336.2millionwasachieved,anincreaseofRM119millioncomparedto 2009.

Raising Funds for Future ExpansionOurstrongpositionplacesusinaverygoodpositiontoraisefinancetofundourexpansion.WehaveestablishedaSukukMusharakahProgrammeofuptoRM15billioninMay2011tofinanceSEBGroup’scapitalexpenditure.

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GROUP FIVE-YEAR FINANCIAL STATISTICS, 2006-2010

2010 2009 2008 2007 2006PERFORMANCE RM’000 RM’000 RM’000 RM’000 RM’000 Revenue 1,553,734 1,375,195 1,339,266 1,319,208 1,177,813 Profitbeforetaxation 386,939 277,274 293,731 400,727 264,466Taxation (50,721 ) (60,032 ) (16,974 ) (63,316 ) (6,679 )Profitfortheyear 336,218 217,242 276,757 337,411 257,787Minority interest 5,091 (1,097 ) (1,110 ) (1,949 ) (2,022 )Profitattributabletoequity holders of the Company 341,309 216,145 275,647 335,462 255,785 Net dividends 63,009 63,009 63,006 56,201 45,462

ASSETS EMPLOYED Property,plantandequipment 7,593,227 6,443,215 5,001,301 4,471,783 3,896,564Investments and goodwill - - - - 2,686 Non-current receivable - - - - - Deferred tax assets 78,730 29,569 34,337 - - Bank and cash balances 465,298 642,577 766,392 909,515 668,700 Othernetcurrentassets/(Liabilities) (711,276) (527,570) (134,483) 41,627 119,416Associated companies 42,241 43,047 45,314 35,279 55,098 Total 7,468,220 6,630,838 5,712,861 5,458,204 4,742,464

FINANCED BY Equityattributabletoequity holders of the Company 3,491,025 3,214,631 2,865,428 2,595,994 2,305,090 Minority interests 13,263 18,354 17,257 16,147 14,406 Non-current liabilities 3,567,710 3,022,276 2,459,774 2,470,359 2,045,225 Deferred taxation 396,222 375,577 370,402 375,704 377,743 Total 7,468,220 6,630,838 5,712,861 5,458,204 4,742,464 SELECTED RATIOS Net tangible assets per share (RM) 2.17 2.00 1.88 1.71 1.52 Net earnings per share (Sen) 21.20 14.10 18.10 22.09 16.84 Gross dividend per share (Sen) 5.5 5.5 5.5 5.0 4.1

To Be Replaced

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GROUP FINANCIAL HIGHLIGHTSMAKLUMAT PENTING KEWANGAN KUMPULAN

0 300 600 900 1200 1500 1800

2007

2008

2009

2010

2006 1,177.8

1,319.2

1,339.3

1,553.7

1,375.2

RM (Million)

0 0.5 1.0 1.5 2.0 2.5 3.0

2007

2008

2009

2010

2006 1.52

1.71

1.88

2.00

2.17

RM

0 100 200 300 400 500

2007

2008

2009

2010

2006 257.8

337.4

276.8

217.2

336.2

RM (Million)

0 5 10 15 20 25

2007

2008

2009

2010

2006 16.84

22.09

18.10

14.10

21.20

Sen

Revenue Profit for the year

Net tangible assets per share Net earnings per share

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SARAWAK ENERGY BERHAD (Company No. 007199-D) 35

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OUR OPERATIONSChanging Our Generation MixSEB is one of the major power companies in East Malaysia, producing power through its wholly owned subsidiaries, Syankat SESCO Berhad (SESCO), Sarawak Power Generation Sdn Bhd (SPG), Sejingkat Power Corporation Sdn Bhd (SPC), PPLS Power Generation (PPLS) and Mukah Power Generation Sdn Bhd (MPG). Transmission, distribution and sale of electricity are undertaken via SESCO.

Currently, we draw less than 10 per cent of our power generation from hydropower projects. As we increase ourhydropowercapacityundertheSCOREagenda,thisproportionwillchangesignificantly,withhydropowerexpected to account for around 70 per cent of our generation by 2020. Our hydropower development plans reflectthisshift,andduring2010werestructuredourdevelopmentdivisionandfeasibilityassessmentprocesstostreamline project execution.

AsatDecember2010,thetotalinstalledcapacitywithintheThermalDepartmentexceeded1,200MW,withfivemajor power stations connected to the Sarawak State Grid and 19 isolated rural diesel and mini-hydro power stations.

The details of all SEB’s power plants as at 31 December 2010 are as follows:

Operating Location Type of Plant Total Subsidiaries Capacity (MW) Generating

SPG Tanjung Kidurong, Bintulu Gas-turbine 317 Combined turbine SPC KampungGoebilt,Kuching Coal-fired 100 PPLS KampungGoebilt,Kuching Coal-fired 110 MPG Matadeng,Mukah Coal-fired 270 SESCO Batang Ai Hydro 94 SESCO Bintulu Gas-turbine 192 SESCO Miri Gas-turbine 79 SESCO Sg. Biawak Diesoline 114 SESCO Lundu, Penindin, Sebako Hydro 2 Sg. Pasir Subtotal grid system 1,278 SESCO Non-grid Diesoline/Hydro 50 TOTAL 1,328

A technician on duty at the Sejingkat Power Station Sejingkat Power Station

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N

Energy Intensive In

dustrie

s

Education / Smart C

ity

To Sabah

To Brunei

S A R A W A K

Balingiancoal-field

KUCHINGTo Kalimantan

LIMBANG

Upper Rejangriver basin

MIRI

Limbangriver basin

Baramriver basin

LAWAS

Resource Bas

ed

Industries

Belepeh

Bakun

Tudan

Samalaju

Tg.Kidurong

KemenaMatadeng

MukahOya

Daro

Tg.Manis

Sarikei

G.Maling

Kemantan

Biawak

MambongEntinggan

Bunut

Sejingkat

Tunku

MatangTondong

Btg.AiEngkilili

Murum

Oya Road

Mukah East

Kapit

Dalat

Song

SCOREsouthern gateway

Selangau

Balingian

Murum Junction

Similajau

K.Belait Sg.Tujuh

Tutong

Lumut

SCOREnorthern

gateway

LIMBANG 1LIMBANG 2

Baram 3(Power Station)

Baram 1

POWER GENERATIONPLAN

Baleh

Pelagus

To meet our increased energy generation plans, SEB intends to develop large hydropower projects to deliver bulk energy reliably at a relatively low cost. In addition to securing power from the Bakun Dam and completing construction of the Murum Dam, SEB is currently undertaking feasibility studies of other potential projects.

Pending the outcome of feasibility studies that address technical, commercial, social and environmental issues, weexpecttodevelopatleastfivemorehydropowerplantsandoneortwocoalprojectsby2020.Intotal,upto 6,200MW of new capacity could be available by the end of this decade, including the Bakun and Murum hydropower facilities.

Future hydropower projects may include Baram 1 (1,200MW), Baram 3 (300MW), Linau (297MW), Belepeh (114MW), Pelagus (411MW) and Baleh (1,300MW). The Limbang 1 and 2 (245MW) and Lawas (87MW0) hydropower projects may also be developed as a regional system in the north, in conjunction with the supply of power to Brunei and Sabah.

During 2010 we undertook feasibility studies on several of these projects, as outlined in the following section on our hydropower development process.

A main 500kV transmission system will be developed in stages, in coordination with the hydropower projects development. The current 275kV network will be expanded to tap the 500kV backbone and to connect the hydroelectric dams into the state grid system.

In addition to supporting the rapid growth in local domestic and commercial demand, this new output can be sold to new major customers from energy-intensive industries, which will bring investment, employment and other opportunities to Sarawak. Negotiations are also well advanced to sell power to West Kalimantan, and SEB is exploring the potential to sell power to Brunei and Sabah.

We anticipate that the new-generation developments in the SEB Group will result in a balanced generation mix of 69 per cent hydro, 19 per cent coal, 10 per cent gas and 2 per cent diesel by 2020.

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Hydropower Development Process StreamlinedThe Hydropower Development Division has undergone significantgrowth during 2010 and adopted a new project development model tostreamlineourdevelopmentprocessandensureefficientexecutionof projects.

In early 2010 the division was divided into two sections and renamed the Hydropower Development (Feasibility Studies) Division, with its main focus being to undertake feasibility studies for existing and new hydropower projects.

With the appointment of Graeme Maher as Senior Manager heading the division in July 2010, the division reverted to its previous title and continued its role of undertaking feasibility studies.

Duringthefinalquarterof2010theSEBProjectModelwasintroduced,signalling a change of approach to the implementation of hydropower projects in particular and other major projects in general.

Under the SEB Project Model, the Hydropower Development Division will handle the early phases of hydropower project implementation: Phase 1 (Initiation Phase) and Phase 2 (Concept Phase), while the ProjectExecutionDivisionwillberesponsibleforthefinalphases:Phase3 (Pre-Engineering) and Phase 4 (Execution), as well as the handing-over to the eventual owners under Phase 5 (Operation).

An impressive view of the Bakun Hydro Electric Dam

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The new model will address important development issues:

• allstudiestobealignedsothattheyarecomparableacrossprojects;• morecomprehensivecoverageofissuessothatgapsareeliminatedfromplanning–thatis,roads,property

acquisition,budget;• betterunderstandingandreductionofhydrologyrisk(ourgreatestdevelopmentrisk);and• clearerprojectbenefits,ratherthanjustafocusonprojectcosts.

Feasibility studies for the Baram, Baleh and Lawas HEP projects were substantially completed by the end of 2010. Other feasibility studies on Limbang 1 and Limbang 2 HEPs, Belaga HEP, and Pelagus HEP were previously completed in 2009.

Staff numbers in the Hydro Development Division were also substantially boosted during 2010 to enable SEB to realise our ambitious expansion plans. In addition to secondees from Hydro Tasmania, SEB engaged experienced international consultants and increased the number of local employees to ensure we meet our short-term project needs as well as build capacity and capability for the long term.

A technician maintaining the power lines

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BAKUN Hydroelelectric DamBAKUN Hydroelelectric Dam

Bakun HEP NegotiationsThe Bakun Dam is the largest hydropower project in Malaysia, with an installed capacity of 2,400MW. The facility willbethebackboneoftheenergyresourcesofSarawakforthenext50–100years.Thedamiscurrentlyownedby Sarawak Hidro SDN Bhd (‘Sarawak Hidro’), a company 100 per cent owned by the Malaysian MoF, and SEB is activelyengagedinnegotiationstoleaseoracquiretheBakunpowerfacilities.

Bakun was originally intended to supply power to Peninsular Malaysia, but during 2010 the Government of Malaysia and the State of Sarawak agreed that Bakun’s output would be used to support the industrial development of Sarawak.

SEB is takinga two-phaseapproach to securingpower fromthe2,400MWBakunDam.Thefirstphase is thenegotiation of a power purchase agreement between Sarawak Hidro and SESCO. The second phase is the ongoing negotiations between the State Government of Sarawak and the Government of Malaysia for the StatetowhollyorpartiallyacquiretheBakunDamviaapurchaseofSarawakHidro.

In late August 2010, SEB made an offer to the Government of Malaysia to purchase Bakun, and in September 2010 we undertook a due diligence of the project. Following this assessment, we submitted a revised offer. Negotiations are still under way.*

The Bakun PPA is the cornerstone of SEB’s pricing strategy for SCORE customers. By blending the relatively low-cost Bakun power with the output of other higher-cost developments, SEB can construct the full program of SCORE developments at a globally competitive average cost of supply and maximise the number of energy-intensive industries we can attract to Sarawak.

In this way, Bakun unlocks the full social and economic value of Sarawak’s energy resources, contributing to thedevelopmentofSarawakintoahigh-incomeeconomyby2020.ThiswillbringsignificantbenefitstobothSarawak and Malaysia for many decades to come through higher tax and royalty revenues, improving the State and Federal governments’ capacity to fund vital public infrastructure.We expect the Similajau substation and the transmission line connecting Bakun to Similajau to be energised in thefirsthalfof2011.

*APPAforthefulloutputofBakunwassubsequentlysignedwithSarawakHidroinJune2011.

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MURUM Hydroelelectric ProjectMURUM Hydroelelectric Project

Murum Hydroelectric ProjectThe Murum Hydroelectric Project is SEB’s largest construction project and marks the start of our ambitious expansion of hydroelectric generation to support the SCORE agenda. The Murum project has a capacity of 944MW and consists of a 141-metre-high concrete dam, 2.7km twin tunnels and a powerhouse. There is also a transmission line, township and major access road under construction to service the project.

Reservoirfillingwilldisplacesome1,400Penanpeople,andtheGovernmentisaddressingtheresettlementofthese affected people. The project is being constructed by Three Gorges Development Company under a design and construct contract, and there are some 1,800 workers on site. A separate contract was previously let with Longsheng to construct the river diversion works to enable an early start.

Progress on the project has been hampered by a two-year delay of the permanent access road being constructed by JKR. The existing 70km logging road is to be used for most of the construction period, presenting considerable challenges.

During 2010 the diversion tunnel was completed and the construction of the main dam began. The SEB Board approved a revised budget, up from RM3.71 billion to RM4.28 billion, to take account of the known and forecast projectriskssuchasroadaccessdifficultiesandadversegeologicalconditions.ExpenditureontheprojectwasRM1.1 billion at year-end.

A major contractual claim with Longsheng relating to the collapse of the diversion tunnel in 2009 was resolved during the year. SEB has a staff of 40 persons managing the project, headed up by Project Director Mr Andrew Pattle who started workinMayfollowingtheretirementofMrLeeSingSiew.Therehasbeensignificantstrengtheningofprojectmanagement rigour during 2010.

AkeypriorityforSEBistoimprovesafetyonthesite,astherehavebeensignificantissueswiththecontractor’ssafety performance on the project. Measures introduced by SEB to improve safety on site have led to a marked improvement at year-end.

The diversion tunnel was completed in late April 2010, allowing the river to be diverted on 30 April, which wasasignificantmilestonefortheproject.Thediversiongavethecontractoraccesstotheriverbedfordamconstruction. Excavation of the dam foundation progressed steadily throughout 2010. Concrete pouring for the dam commenced, with some 4 per cent of concrete being placed. The powerhouse, intake and tunnels also progressed well, and the powerhouse is 35 per cent complete.

Theconstructionperiodfortheprojectspansfiveyears,withfirstpowerforecastinearly2014.

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Mukah Coal-Fired Power PlantTheMukahcoal-firedpowerplant, ownedby the SEB subsidiaryMukahPowerGeneration Sdn Bhd (MPG),receiveditsfinalacceptancecertificateforcommercialoperationin2010.

Theplantsitsonan865-acresiteabout30kmeastofMukahtownalongtheMukah–Balingiancoastal road.It comprises two units of 135MW boiler-turbine-generator units, which are primarily fuelled by local coal, with distillate fuel oil as a standby energy source.

The plant uses conventional pulverised-fuel technology in the boilers to generate steam that drives the turbo generators. The power generators then step up to 132kV by generator transformers, and export to the SESCO grid via a 132kV switchyard built by SESCO.

The project also includes ancillary infrastructure. This includes a coal yard with a related coal-handling system, an ash pond with a corresponding ash-handling system, a chimney, electrostatic precipitators with a related flue-gassystem,acoolingpondwithanassociatedcoolingwatersystem,aswellasadistillatefuel-oilsystemand storage tanks. The operation and maintenance of the plant is carried out by MPG personnel.

Construction of the plant began in May 2006. Unit 1 commenced commercial operation on 16 January 2009 and unit 2 on 3 May 2009. Upon completion of the 14 months’ contractual warranty period, the Final Acceptance Certificate(FAC)wasissuedon20July2010forunit1andon9September2010forunit2.

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The Bintulu Combined Cycle ProjectThe Bintulu combined cycle project is a gas-turbine combined cycle plant with a total capacity of 317MW. The plant uses the waste heat from the exhaust of the existing open cycle generators to generate more electricity through a heat recovery steam generator.

With this combined cycle technology, the new facility is able to generate around 30 per cent more electricity from its fuel (natural gas) than it would with a conventional open-cycle power system. As it generates electricity through the recovery of waste heat without burning additional fossil fuels, the plant produces fewer air pollutants.

The facilityunderwent successful start-upandcommissioningduring the firstquarterof 2010.Aftera30-dayperiodoftestingitwasdeclaredfitandenteredcommercialoperationon30June2010.

The plant was registered with the United Nations under the Clean Development Management (CDM) scheme on 18 September 2010. The CDM is part of the Kyoto Protocol environmental agreement and aims to encourage sustainabledevelopmentand reducegreenhousegasemissions. TheBintulu facility is the firstCDMplant inMalaysia.

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OUR PEOPLE

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SEB’s ambitious plans for growth mean we must rapidly employ new people with the skills to help us fulfil these plans. During 2010 our employeenumbersgrew significantly,withmore than300newappointments. This expanded our workforce to a total of 2,959 employees, 2,938 of whom are locals or from the region and 21 expatriates.

Our employee numbers will continue to grow as we expand our operations to fulfil the SCORE agenda.We look forward to offering new employment opportunities to the people of Sarawak during this exciting expansion phase of our business, and to building our skills and expertise through our global network of experts.

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New vision, mission and valuesOne of SEB’s main achievements during 2010 was to develop new organisational vision, mission and values. This process was undertaken over several monthsandrequireddeepreflectionconcerningthetype of organisation SEB needs to be, both to achieve our goals and in the way we work together.

The new framework will allow SEB to achieve its ambitious goals for the future. Our challenge for the year ahead is to engage the broader SEB team in what these new vision, mission and values mean, and to put them into action.

Developing a Strong Leadership CultureThe SCORE initiative entrusts SEB with a significantresponsibility. The new electricity infrastructure that we are working to achieve will bring vast business opportunities and prosperity to Sarawak for decades to come. However, to achieve our goals we need a different style of leadership at SEB and a culture that inspires optimism, enthusiasm, hard work and open communication.

During 2010, we conducted a number of leadership conferences to support our leadership staff and to cultivate the culture we need in order to move forward. We also began the planning of a cultural change program that will be initiated from January 2011.

ThisnewSEBcultureisonethatwillsupportthefutureplansofSEB.ThefutureofSEBwillbebuiltonfivepillarsofoperational strategy:

• signingnewcustomers;• maintainingstrongfinancialperformance;• deliveringexcellentprojectexecution;• maintainingcredibilitythroughexcellenceinoperationalperformance;and• deliveringonourculturalchangeprogram.

Ourfirstleadershipconferencewasheldon1–3July2010.Morethan100SEBseniormanagementstafffromalloverSarawakconvenedatDamaiPuriResort&SpatoattendtheCEOLeadershipConference,Series1/2010.The conference covered all the major issues that have an impact on SEB’s challenging mandate for renewable energy development established by the State.

The three-day conference was delivered by SEB’s CEO, Mr Torstein Dale Sjøtveit. Its main objective was to enhance communication between the middle and top management to achieve the vision and mission of the Company. The program aimed to promote and align SEB’s leadership and management principles across the Group and to provide an avenue for the management team to discuss their experiences and ideas.

TheconferencealsoprovidedanopportunityforthedelegatestodiscusswiththeCEOtheirviewsandquestionsregarding the challenges posed by SEB’s expansion plans.

SEB Leadership Conference in progress

EMC members at the SEB Leadership Conference

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During the three days, Mr Sjøtveit emphasised that it was the responsibility of all SEB employees to contribute towards SEB’s success. Key attributes of SEB leaders are a positive attitude, determination to get the job done, and a willingness to communicate with honesty and transparency, and to be receptive to direct feedback even when the message is uncomfortable.

Leaders at SEB are also expected to have the courage to say ‘no’, challenge the facts, develop new leaders, and learn from failures, but also to acknowledge achievements.

Decisive action to address key priorities for change will be initiated during 2010 and 2011, including:

• takingsafetymoreseriously;• tighteningupmanagementofmajorprojects;• addressingpowertheft;and• recognisingandaddressingoursocialresponsibilities.

Improving Skills through TrainingSEB is committed to continual improvement of the skills and expertise of all our employees. With this in mind, throughout the year we conducted numerous training courses for staff. The courses were coordinated by the Competency Development Division (CDD) and were conducted either by staff of SEB or external trainers.

During 2010, CDD conducted 98 runs of Safety and Competency courses for the purpose of the CAC competency certificationwith1,553participants.Wealsoregistered384employeestoattend133externalcoursescoveringtechnical,management,supervisory,qualityandmotivationfields.

In-house programs covering technical, management, supervisory, quality and motivation fields were alsoorganisedduringtheyear,aswellaseightrefreshercoursesessionsforPaperProficiency.

Partnership with Hydro Tasmania SEB’splansforgrowthmeanwemustrapidlyfindtherightpeoplewiththenecessaryskills.Aspartofthisprocess,weconductedasearchtofill12criticalmanagementpositions,initiallylocallyandwithintheregion,andthenglobally. To support our immediate needs we are negotiating a partnership with Hydro Tasmania, Australia’s largest producer of renewable energy. We expect to formalise this partnership agreement in 2011.

Technicians installing the power lines

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When finalised, the partnership will be a formalagreement for knowledge transfer, which includes secondment of staff from Hydro Tasmania, consulting services and a number of co-development agreements forspecifichydropowerprojects.

A key objective of the secondment program is succession planning and knowledge transfer, so that local employees will be trained to take over the roles of secondeeswithinaspecifictimeframe.

During 2010, seven managers out of a total of 120 have been appointed under the secondment program. Therewillbe20–30additional support staffappointedunder the program over time.

The partnership program with Hydro Tasmania will enableustofillourcompetencygapssothatwecanexpand at the speed necessary to meet our growth targets. It will also raise the skill level of all SEB employees through higher levels of training and knowledge transfer.

Customer Service Counter

NewHeadquartersAs part of our expansion program we are building new SEB headquarters to accommodate our growingworkforce.Situatedon4.4acresatthesoutheastcorneroftheisthmus,thebuildingwillbethefirstinSarawaktoachieve Green Building Index status.

Afterreviewingsubmissionsfromarchitecturalfirms,theBoardapprovedtheproposalfromJurubinaUnireka.DesignedtoachieveLowEnergyIndexstatus,thenine-storeybuildinghasanEnergyIndexof120kWpersquaremetre.

Thedesignisexpectedtohalveenergyexpenditurethroughenergy-efficientfeatures,including:

• east–westorientationtominimisedirectsunlightexposure;• internalatriumformaximuminternallight;• double-glazingofwindowstoensurelowheattransferbuthighlightpenetration;• sunshadesandscreenstoreducedirectsunlightbutallowdiffusedlight;• energy-efficientchillersandmotorsontheairconditioningandliftsystems;• daylightphotocellsensorstocontrolartificiallighting;• photovoltaicpanelstoharnesssolarenergy;• efficientwaterfittings;and• recyclingfacilities.

Thebuildingisanoblongshapewithanetfloorareaofapproximately28,100squaremetres.Thesub-basementcar park can accommodate up to 380 cars, with a further 215 parking lots at ground level.

To reduce the carbon footprint of the building, solar panels will be used to generate renewable energy for certain appliances. These will be installed on the rooftop and in some parking areas. Rain harvesting tanks installed on the rooftop to cater for the watering of plants will minimise the use of expensive treated water.

InJuly2010,SEBdecidedtoupgradethebuildingtobecertifiedasagreenbuildingundertheGreenBuildingIndex (GBI)certification. Theupgrade froma low-energybuilding to ‘greenbuildingcertified’ level requiredminimaladjustment,astheenergyefficiencyaspectcontributesthemostpointstotheGBIrating.

As at 31 December 2010, the building is 57 per cent complete. All the foundation and superstructure work has been completed, but architectural work is 36 per cent complete while mechanical and engineering work is 55 per cent complete.

WeareexpectingthenewheadquarterstobecompletedbyDecember2011.

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SafetySEB has made the improvement of safety standards a top priority during 2010. During the year, three external contractors died in two separate safety incidents at the Murum and Mukah projects.

While SEB is not legally responsible for these incidents, such occurrences at SEB-owned sites are unacceptable on every level.

We have endeavoured during the year to lift the awareness of safety among our employees and to implement rigorous systems and procedures to protect the safety of everyone working on our projects.

SEB’s Safety Division has been instructed to instigate strict safety procedures at all project sites, including those controlled by external contractors. State Dispatch Centre, Wisma SESCO

In addition, we have initiated a public electrical safety awareness program. As part of the program, SEB staff visited 69 schools to deliver presentations on electrical safety and conducted 37 public talks.

Addressing Power TheftTheft of SEB’s electricity has come under intense scrutiny during the year, and during 2010 we engaged outside support to deal decisively with this issue.

More than 7 per cent of the electricity we produce is currently being stolen. In 2010, power theft cost SEB RM105 million, rising fromaroundRM50million in2005.Themostsignificant loss is in thecommercial sector (16.2percent),followedbydomestic(12.84percent)andCTmeters/industrialcustomers(4.75percent).

In November 2010, the total distribution losses peaked at 18.58 per cent, with technical losses estimated to account for 11 per cent of the total distribution losses and theft accounting for 7.58 per cent, worth RM105 million.

The theft of power is a crime, and there are strong indications that a small group of SEB employees is involved. SEB employees found to have been involved in electricity theft have been dismissed and we are continuing our investigations.

The following graph shows electricity losses by month. Following the implementation of our investigations, losses fell slightly between November and December 2010.

In addition to our investigations of power theft, we have implemented an awareness campaign to emphasise to the public and to SEB employees that stealing electricity is illegal as well as unethical. This effort involved a seriesofpresscampaignstocreatepublicawarenessofenergyefficiency,sustainabilityandthetheftofpower,as well as discussions with our staff as to the reasons they may not be properly checking meters.

We have also put in place an education program to educate the public on the safety aspect of power theft, as tampering with electrical installations can make the installation unsafe and may endanger lives.

On a technical level, we have set up a process to improve our tracking of meter irregularities and to analyse abnormality reports. This includes the introduction of a GSM remote metering system, SAP and GIS systems to trigger abnormality reports. Meter installation construction practices and sealing methods have also been improved, and we have adopted new and advanced metering technology.

During the year we have established close links with police and other relevant authorities to deal with security and to closely monitor high-risk customers. Eliminating power theft will continue to be a top priority during the coming year.

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Community ProgramSEB is proud to be able to support the prosperity of the people of Sarawak and we take seriously our responsibility towards the community in which we operate. As part of this commitment to our community, we recently became a sustainability partner of the International Hydropower Association. This partnership means that the social and environmental performance of all our projects will be measured against international standards.

During 2010 we initiated a more structured approach to our Community Program. This included implementing sustainable social investment programs in partnership with local communities and other stakeholders to benefit thecommunities in which we operate.

As a top priority, we focus on community development in the communities directly affected by our projects. We do this by investing in skills development, and educational and medical facilities, and by aiding in the preservation of the cultural heritage of indigenous communities. In addition, we support lifestyle improvement and capacity-building initiatives in other under-served rural communities.

SEB IN THE COMMUNITY

Christmas in Long Wat, Murum 21.12.2010

During 2010 we undertook the following projects in communities where we started new SEB power generation projects:

• constructedakindergartenforthechildrenofLongWatinMurum;• providedschoolbagsandstationerysetstokindergartenstudents;• donatedricetothecommunityinMurumaffectedbypoorharvest;• supported the cultural heritage of indigenous communities by hosting and supporting numerous festival

celebrations and ritual ceremonies, such as the Pelah Daleh at the Penan’s sacred rock in Murum; and• helddialogueswithlocalcommunitiesandorganisedritualceremonies.

Wider community engagement initiatives during 2010 included:

• capitalcontributionforelectricitysupplytoneworrenovatedwelfarehomes,housesofprayerandakidneydialysis centre;

• donationforrebuildingofaschoolrazedbyfire;• donationofcomputerstoschools;• donationofcashandin-kindcontributionstosocialwelfareorganisations;• hosting festivalsand religiouscelebrations – suchasHari Raya,GawaiandChristmas festivals – for local

communities; and• organisingablooddonationdriveandparticipationinsportsandgamestopromotesocial integrationin

support of the 1Malaysia concept.

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RuralElectrificationProgramDuring 2010, SEB set up a Rural Electrification Division to oversee the delivery of power to Sarawak’s ruralpopulation. Ensuring that rural communities have access to electricity is a key priority for SEB, and we are working closely with the Sarawak State Government to achieve this.

Ruralelectrification(RE)isaboutproviding24-hourelectricitytocommunitiesinremoteareasthathavebeenrelying on expensive and noisy diesel power generators. Our focus is to extend our grid to reachable areas, while hybrid systems employing renewable solar energy will be established for regions deemed too remote for grid connection.

Under the National Key Result Area (NKRA) initiatives launched by the Government, expanding rural infrastructure, including electricity provision, is a key target. Close to RM2 billion has been earmarked for Sarawak to raise electricity coverage from the existing 66 per cent to 95 per cent by 2013. Over 2,000 villages are expected to be connected to the grid, while hundreds more will be provided with off-grid systems.

SEB has committed to take over the ownership, operation and maintenance of the RE systems implemented throughtheseprograms.During2010weputtogetheramasterplantoguidetheruralelectrificationprocessand instigated a new training program for our staff.

The project is challenging. Sarawak covers an area the size of Peninsular Malaysia with a widely scattered population,andtheinterioraccessibleonlyvialoggingroads,riverorbyair.Transportationcanalsobedifficultor impossible for extended periods due to adverse weather conditions, low river levels, landslides and damage to bridges.

Despite these challenges, SEB is fully committed to ensuring these programs are successfully implemented. We haveintroducedanumberofnewinitiativestosupportruralelectrification.Theyinclude:

• Inmid-2010we formedadedicatedRural Electrification Team toensure thatprojects are implementedeffectively and in a timely manner.

• InDecember2010welaunchedourRuralElectrificationManagementSystem(REMS)tohelpustrackourinternal processes.

• WeinitiatedaRuralElectrificationMasterPlantostreamlinetheplanningprocess.

• WecreatedaRuralElectrificationGISsystemandareworkingcloselywithseveralministriesandagenciesatthe federal and state level to gather the relevant information.

• We initiatedaprocess toenableus toworkcloselywithcontractors toensure that theyunderstandourprocesses, procedures and engineering standards.

We made good progress on the RE program in 2010. During the year 12,313 homes were connected throughout Sarawak, with a target of 21,792 homes to be connected during 2011.

In June 2010 the Second Minister of Planning and Resource Management, Datuk Amar Haji Awang Tengah Ali Hasan,launchedtheRuralElectrificationschemefortheBakong–TinjarstretchintheruralMarudiconstituency,costingoverRM50million.Theschemewillbenefitthousandsoflonghousedwellers.

We are also making good progress with stand-alone alternative hybrid systems planned for very remote locations. In some of these rural areas the design will be developed for expansion into a micro-grid system. As these hybrid projects are to be handed over to SEB, we have a responsibility to provide continuous supply into the future through the development of new operation and maintenance procedures.

The government is allocating funds for the off-grid program. Nine off-grid solar hybrids have been planned for completion in 2011, and RM20 million has been made available for micro hydro pilot projects. SEB is actively identifying potential micro hydro sites to utilise this funding.

SEB’s commitment to Rural Electrification is clear, and we look forward to bringing electricity to all ruralcommunities as part of our commitment to the people of Sarawak.

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CORPORATE SOCIAL RESPONSIBILITY

WHAT DO WE STAND FOR?Corporate Social Responsibility refers to an organization’s response on environmental, ethical, social and economic issues in relation to key stakeholders. In this regard, Sarawak Energy Berhad has a long standing traditionofcontributingtosocietyanditsemployeesaswebelieveinstrikingabalancebetweenprofitabilityand giving back to both the external communities as well as our own employees.

We are driven by the belief in good corporate governance and responsibility because CSR and Corporate Governancemergeprincipallyintheareasofbusinessprinciples/valuesandriskmanagement.

Sarawak Energy Berhad and its group of companies will continue to make its presence felt in the state of Sarawak not only through vigorous development projects but also with the heart and mind to get involved in corporate social responsibility programs.

SEB CORE CSR THRUSTSOn the platform of education, sports development and community & nation-building, the Group carries out activities that create a value proposition for all parties concerned.

For Employees

For its employees, Annual Dinner and Family Day are organized on a yearly basis to bring close rapport among theemployeesandinstillintothemthespiritofcamaraderieandesprit-de-corp.Alsoheldonaquarterlybasiswas the voluntary blood donation campaign to ease the burden of the hospital’s Blood Bank especially during critical times. Employees donate blood through an organized Blood Donation Program that has been practiced over the last 15 years or so. Lucky employees who bled for a noble cause were rewarded with winning hampers and tokens. All in all, we used to get generous response from our staff.

Sports and Recreations

Since 2008, Sarawak Energy Berhad has organized the Sarawak Energy Berhad Golf Tournament at Sarawak Club Golf Resort which was participated by all Heads of Departments, business-associates and clients of SEB in order to foster and enhance greater working relationship with our associates. We have also organized the SEB Badminton Tournament to cater for different group of youths and veterans to unearth emerging talents within the badminton-playing fraternity that can represent the state and country in national and international games.

Notwithstanding the above, SEB do participate in state-organized games and recreational activities such as in MAKSAK and our own Inter-Regional Meets to bring employees from all regions and districts together in the true spirit of sporting brotherhood. The Inter-Regional Games were specially tailored to include our subsidiaries as well in order for staff to familiarize with each other. These subsidiaries include the SPC, MPG, SESCo Engineering Services Sdn Bhd and SARWAJA.

SEB also participated in TNB Technical Games at ILSAS Kuala Lumpur. This participation gave the employees to build a close rapport and exchanging ideas with TNB and SESB staff. We are now looking at organizing Inter-Utilities Meet that will include Tenaga Nasional, Sabah Electricity Sdn Bhd, the Department of Electricity (Negara Brunei Darussalam) and PT PLN (Persero) of Indonesia.

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Community Development, Education & Nation-Building

The Rural Electrification Scheme (RES) Projects

For Sarawak Energy Berhad, giving back to the society is a normal practice that it will always continue to sustain. Throughout the years, Sarawak Energy Berhad and its group of companies have embarked on a number of social projects that were meant to bring more benefits to the people.

Through assisting the government directly in the implementation of the RES projects, SEB need to generate more power to enable the rural areas to be lighted up and connected to the grid. Whilst this ensures a more stable supply of power to households in the interior of Sarawak, it may not translate into direct earnings for SEB in the short-term.

Donations and philanthropic deeds to other organizations

Different institutions have different needs. We have given refurbished computers to various school and communal societies to assist rural students to have access to computers. Among the beneficiaries were JKK Kampung Sungai Nada and SMK Matang Jaya. We have and will continue to give books to fill up the libraries of secondary schools around Kuching so that students can have access to updated reports of happenings around the world, especially pertaining to our projects.

We contributed to other various racial and cultural rites by contributing in no little ways to festivals such as the Pesta Berumuh for the Bidayuhs and Pelah Daleh in Murum for the Penans. We also organized the Fast-Breaking ceremony for the Muslims during their fasting month and also the Hari Raya gatherings in all regions. During the Muslim fasting month of Ramadan, SEB organized several Majlis Berbuka Puasa functions where Senior Management officers would visit various Homes for the Aged and the needy to hand over donations both in cash and in kind. However, it is important to note that during these occasions, all employees irrespective of race, culture and ethnic backgrounds were invited, making the function a truly unifying experience for all.

To assimilate with the society at large, our employees has, and will continue to, participate in the Hari Kemerdekaan Celebration, Maulidur Rasul and Ma’al Hijrah congregations and the celebration of the Yang Di-Pertua Negeri’s Birthday functions. SEB will provide the attire to participating employees and in more than one occasion, they have won prizes for being the best contingent in their respective categories. That inadvertently brought fame and name to SEB as a caring organization.

Conclusion

SEB is the highly visible corporate entity in the State and is always committed towards sustaining a meaningful symbiotic co-existence with the surrounding community, in order to achieve this, SEB will continue its effort in its CSR initiatives that will strengthen the relationship and to place SEB in the hearts and minds of the society. SEB will continue to strive to go beyond whenever possible to give back to its community.

There are other community plans in the pipeline that SEB hoped to realise one day such as helping the various ethnic communities in the remote parts of the state to bring them into the mainstream of development. These plans are being drawn up and will be carried out once the nod has been given.

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STATEMENT OF INTERNAL CONTROL

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BOARD RESPONSIBILITY

The Board recognizes the importance of maintaining a sound system of internal control and the proper management of risks affecting the Group’s operations in order to safeguard the interests of stakeholders. The Board affirms its overall responsibility for the Group’s systems of internal control and risk management, and for reviewing the adequacy and integrity of those systems. The system of internal control covers financial, operational, management information systems, risk management, and compliance with relevant laws, regulations, rules, directives and guidelines. It should be noted, however, that such systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives. Therefore, these systems can only provide reasonable, but not absolute, assurance against material misstatement or loss.

The group’s system of internal control does not apply to associated companies, as the Board does not have control over their financial and operating policies.

ENTERPRISE RISK MANAGEMENT The Board confirms that it has identified, evaluated, monitored and managed the significant risks affecting the Group’s business activities and established a Group Risk Profile, which includes, inter alia:

(a) the principal risks faced by the Group under appropriate risk categories, levels and sub-levels;(b) the likelihood of risks crystallizing and the resulting impact; and(c) the internal controls put in place to address those risks.

For the financial year under review, the Board through the Board Audit Committee (BAC) has reviewed and endorsed the following major activities carried out by the Risk Management Division (RMD) through the quarterly consolidated reports presented at the committee’s meetings: -

• Review of the risk rating and action plan implementation status for the Top 12 Strategic Risks and the next 10 High Risks of the Group;

• Project Risk Assessment and Action Planning for the following projects in line with SEB’s focus on project implementation and management to meet the State’s power needs;

• Murum Hydro Electric Plant • Bakun Similajau 275kV Transmission Line • Kemantan Kapit 132kV Transmission Line• Similajau (500kV)/275kV/33kV Substation• Samalaju 275kV/132kV/33kV Substation• Murum Junction 275kV/33kV Substation• Engkilili/Entinggan/Muara Tabuan 275kV/132kV Substation• Bintulu Combined Cycle

• Review of the risk profile of Kidurong Power Station, Bintulu, with the completion of the combined cycle project and its incorporation as STG Unit No. 9 in the power station;

• Enhancement of Enterprise Management System (EMS) functionalities and reporting capabilities;

• Conducting EMS end-user training for project management staff; and

• Facilitating divisional/departmental risk discussions and conducting risk awareness sessions, continuous education and knowledge sharing among staff.

CONTROL STRUCTURE

Apart from risk management activities, the Board has also set up the key elements of the Group control structure to maintain an effective control environment. One of the key elements of the control environment is the shared values of integrity, unity, respect, accountability and courage, which have been established by the Board and cascaded to all staff in the Group through leadership conferences and SEB Way workshops organized throughout the Group.

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The other elements of the Group’s control structure include the following:

Board and Management Committees

The Company has established Board and Management Committees to promote corporate governance and transparency. Specific terms of reference and authority are assigned to the Committees within their scope.

Board Committees

• Board Audit Committee (BAC)• Board Tender Committee (BTC)• Group Establishment and Disciplinary Committee (GEDC)• Nomination & Remuneration Committee (NRC)

Management Committees

• Executive Management Committee (EMC)• Operation Management Team (OMT)• Management Tender Committee (MTC)• Regional Tender Committee (RTC)

Board Meetings

The Board maintains full and effective supervision over key issues affecting the Group. This is done through regular scheduled meetings, where the agenda is set and agreed by the Chairman and Senior Management. Board papers are circulated to members ahead of the meetings. All important matters are dealt with and decided on after the required information is presented and deliberated.

Management Meetings

The Group’s Management, through the Executive Management Committee (EMC), conducts weekly senior management meetings comprised of the Chief Executive Officer, and Heads of Departments and Business Units. The purpose of these meetings is to deliberate and decide on policy and operational matters affecting the Group. Organization Structure

The Board has implemented a new and clearly defined structure that is aligned to the Group’s strategic and operational requirements. The Group structure is departmentalized to enable better focus on both operational and support functions to ensure that SEB has the capacity to meet its goals. The new structure emphasizes that the operational departments are where most of the value is created – specifically, Hydro Generation, Thermal Generation, Distribution, Transmission, Retail and Project Execution.

The new organization chart also makes it clear that the role of the business support functions – such as Human Resources, Legal, Communication, and so on – is to support the operational functions that achieve SEB’s goals.

Management Information Systems

The Board recognizes the importance of leveraging on management information systems to enable faster information for decision making and assisting operations to be run effectively and efficiently. Group Policies and Procedures The Group has put in place approved policies and procedures to govern its financial and operational functions. The objectives of these are to ensure that internal controls are embedded in operations, and that there are clearly defined lines of authority and responsibility.

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56

Non-Technical Losses of Electricity

The Board has created a new Retail Department to provide appropriate focus and leadership in the area of revenue collections. The department will also lead the fight against power theft in an effort to reduce the overall system losses.

MONITORING AND REVIEW Business Planning and Budgeting Review The Board’s long-term plan is to ensure that the Group realizes its mission and objectives. For this purpose, the Chief Executive Officer has drawn up a Strategic Plan for Long-Term Power System Development in Sarawak to guide the organization in achieving its vision of sustainable growth and prosperity for Sarawak by meeting the region’s need for reliable renewable energy.

Based on the strategies identified in the Strategic Plan, an Annual Business Plan and Budget and Key Performance Indicators (KPIs) are drawn up and approved by the Board to ensure accountability and achievement of the Group’s objectives and strategies. The Business Plan includes the budget, new project proposals and capital budget. KPIs are monitored through the CEO’s Monthly Report, which incorporates key project progress, financial and operational KPIs, and departmental initiatives. These reports are tabled to the Board by the CEO at every board meeting.

Financial and Operational Review Interim financial results are reviewed by the BAC and approved by the Board upon recommendation of the BAC. The full-year financial results and analyses of the SEB Group’s state of affairs are disclosed to shareholders after being reviewed and audited by the external auditors.

The Group Management Report, containing key financial results, operational performance indicators and improvement initiatives implemented by the various business units, is also issued to the Board and senior management to update them on the Group’s performance.

Internal Audit

The internal audit function of the Group is carried out by the Group Internal Audit Department. The internal audit function provides the Board with the assurance it requires regarding the adequacy and integrity of the system of internal control.

The internal audit function reviews the internal controls in the key activities of the Group’s business based on an annual internal audit plan, which is presented to the BAC for approval. Regular reviews are carried out on the business processes to monitor their compliance with the Group’s procedures, assess the effectiveness of internal controls and highlight significant risks impacting the Group.

The internal audit reports are reviewed by the BAC. Management is responsible for ensuring that corrective actions on reported weaknesses are implemented within the required timeframe.

The BAC has access to both internal and external auditors and receives reports on all audits performed.

CONCLUSION

There were no major internal control weaknesses noted which have resulted in material losses, contingencies or uncertainties that would require disclosure in the Group’s Annual Report. The Management continues to take measures to strengthen the control environment.

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STATEMENT ON CORPORATE GOVERNANCE

57

The Board of Directors of Sarawak Energy Berhad (“SEB”) is committed to ensure that the highest standard of Corporate Governance is practiced throughout the Group with the objective of strengthening the Group’s growth, corporate accountability and safeguarding the interests of the shareholders.

The Board of Directors is pleased to report a satement to the shareholders on how the Group has applied the principles of good governance and compliance of the best practices set out in the Malaysian Code of Corporate Governance.

The Board of Directors The Board’s principal responsibilities for corporate governance are by setting out the strategic direction of the Group, establishing the objectives and achievement of the objectives and goals.

The current Board comprises of five (5) members, where all Directors are non-executive directors. Three (3) of the non-executive directors are independent directors, and two (2) are non-independent non-executive directors. The Directors collectively have wide range of experience and expertise drawn from the area of business, accounting, legal and economics as well as public administration. Their expertise, experience and background are vital for the strategic direction of the Group. The profiles of the Directors are set out on pages 12 to 17.

The Chairman’s responsibility is to ensure the effectiveness of the Board and conduct. The independent non-executive directors play an important role to ensure the views provided are professional and independent and that the advice and judgment made on issues and decisions are to the best interest of the stakeholders and the Group.

Dato’ Haji Idris Bin Haji Buang is the Senior Independent Non-Executive Director to whom concerns regarding the Company maybe conveyed.

The Board meets at least four (4) times a year, with additional meetings are held as and when required. There were five (5) Board meetings held during the financial year ended 31 December 2010. A summary of the attendance of each Director of the Company at the Board meetings held during the financial year ended 31 December 2010 are as follows:

Directors Meetings Attended

% of Attendance

Datuk Abdul Hamed bin Sepawi

Tan Sri Datuk Amar (Dr) Haji Abdul Aziz bin Dato Haji Husain (resigned as a Director of the company on 11.03.2010)

Datuk Amar Wilson Baya Dandot(resigned as a Director of the companyon 30.06.2010)

Datuk Amar Mohamad Morshidi binAbdul Ghani (appointed as a Director ofthe company on 26.05.2010)

Dato’ Haji Idris bin Haji Buang

Tan Sri Dato Sri Mohd Hassan binMarican (appointed as a Director of thecompany on 09.06.2010)

Datuk Fong Joo Chung

Dato’ Nordin bin Baharuddin(deceased on 05.06.2010)

5/5 100

1/1 100

2/2 100

3/3 100

5/5 100

2/3 67

4/5 80

0/2 100

Independent Non-Executive Chairman

Group Managing Director

Non-Independent Non-Executive Director

Non-IndependentNon-Executive Director

IndependentNon-Executive Director


Non-IndependentNon-Executive Director


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Supply of Information

The Board and its Committees have full and unrestricted access to all information within SEB pertaining to the Group’s business and affairs.

All the Directors are notified of the Board meetings within stipulated time prior to the meetings date. Directors are provided with an agenda and a set of Board papers prior to each Board Meeting. These are issued in sufficient time to enable them to obtain further information and explanation, where and when necessary, in order to be properly briefed before the meeting.

In most instances, the Senior Management of the Group as well as external advisors may be invited to attend Board Meetings, to provide insights and to furnish clarification on issues that may be raised by the Board.

Board members have access to the Company Secretary for any further information required. Directors may also seek independent professional advice on any matter connected with the discharge of their responsibilities deems necessary and appropriate, whether as a full board or in their individual capacities, at the Company’s expense.

Board Committees

The following Committees have been established to assist the Board in the execution of its responsibilities. These Committees have written terms of reference which have been approved by the Board and set out their authority and duties.

1. Audit Committee

The Audit Committee continued to play an important role in reviewing the Group’s financial management and reporting, and to assess the integrity of the Group’s accounting procedures and financial control. The Committee is responsible for the review of accounting policy and presentation of external financial reporting including the Group’s interim results and its disclosures, monitoring the work of the internal audit function and ensuring an objective and professional relationship is maintained with the external auditors, and that conflicts of interest, if any, are avoided. The Committee has full access to both internal and external auditors, who in turn, have access at all times, to the Chairman of the Audit Committee.

The Audit Committee strives to ensure that it keeps abreast of all material developments in regulations and best practices in its area of responsibility.

The report of the Audit Committee, including their attendance at the Committee Meetings is set out on pages 67 to 74 of this Annual Report.

2. Nomination & Remuneration Committee

The Committee consists of two (2) non-executive directors and the Chief Executive Officer. The members of the Committee as at the date of this Annual Report are as follows:

i. Datuk Abdul Hamed bin Sepawi (Non-Executive Director) – Chairman

ii. Dato’ Haji Idris bin Haji Buang (Non-Executive Director)

iii. Mr. Torstein Dale Sjøtveit Chief Executive Officer

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The duties and responsibilities of the Committee are to:-

a) identify and recommend to the Board candidates for directorships to the Board;b) make recommendations to the Board on all new or re-appointments of members of the Board;c) evaluate the effectiveness of the Board as a whole and the Committees of the Board;d) make recommendations to the Board on the Company’s framework of remuneration and its cost and

to determine on behalf of the Board specific remuneration packages and terms and conditions of employment for the Group’s employees;

e) provide remuneration input on any contract of employment with executive directors and determine the terms of any compensation in the event of early termination of the employment contracts thereon; and

f) make recommendations to the Board on the remuneration of non-executive directors which shall be a decision of the Board as a whole.

The Committee held two (2) meetings during the financial year ended 31 December 2010 to:

a) Review and approve the Corporate Organisation Structure for the Company in 2010;b) approve recruitment of Key Management Personnel for the Company;c) approve the engagement of a proposed Project Director for the Bakun Transmission and SEATRAC

Project team;d) establishing a Reputation Management Unit to manage issues, reputation and matters relating to

corporate social responsibilities following to the implementations of hydroelectric power projects in Sarawak;

e) introducing a 6-month fast-track Training Programme for technicians as a capacity building for the Company;

f) approve extension of service/contract for Staff of the Murum Hydro power Project;g) approve the proposed bonus distribution and annual salary increment for the Group in Year 2010; andh) extend the service of Contract Employee for either the Company and/or Group as a whole.

Management/Establishment Committees

The following Committees have been established to assist the Board in the execution of its responsibilities. These Committees have written terms of reference which have been approved by the Board and set out their authority and duties.

1. Executive Management Committee The Executive Management Committee (EMC) previously known as The Group Managing Director

Committee was established on September 2007. The role of the EMC is to ensure that adoption of corporate-level policies is well developed before adoption, and to award tenders within the approving limits as prescribed by the prevailing terms of reference provided in the General Instructions on Purchasing and Contrasts (GIPC) of the company.

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The updated Terms of Reference (ToR) and guidelines of the Committee following the change of name from GMDC to EMC are as follows:-

a) to interpret define and/or implement Corporate/Group policies and decisions.b) to formulate and/or approve the general management operating policies procedures and guidelines.c) to decide and/or approve operational or matters requiring management decisions or approval by

EMC. In the event of uncertainties the CEO shall have the mandate to decide on the subject matters or issued to be referred to EMC.

d) to review and/or decide on proposals, plans, projects, budgets and policies prior to submission to the Board.

e) to implement management leadership change and continuous improvements programs and initiatives for the Group.

f) to endorse and/or review decisions of the disciplinary committees appointed to conduct disciplinary inquiry into disciplinary cases involving support group.

g) to discuss and/or review progress reports on projects and decide on any issues requiring management input or decisions.

h) to appoint consultants subject to the limits of EMC defined in the GIPC.i) such other matters not mentioned above provided approval of the CEO has been obtained to

refer the matter to EMC and such matters is within the scope or general authority of EMC to decide/approve.

As of reporting date, the EMC members comprise of all the General Managers of each department and business unit within the Group and the direct reports to the Chief Executive Officer (CEO), and/or any inclusions and exclusions as directed by the CEO from time to time. The CEO shall act as the Chairman of the Committee.

The EMC members, as of reporting date are as follows:-

i. Mr. Torstein Dale Sjøtveit (Chief Executive Officer) - Chairman

ii. Haji Wan Mahmud bin Wan Abdullah (Head of Internal Audit)

iii. Zuraimy bin Kushaili (Head of CEO Office)

iv. Haji Sulaiman bin Abdul Hamid (Head of Finance)

v. Miles Smith (Head of Planning & Strategy)

vi. Einar Kilde (Head of Project Execution)

vii. James Ung (Senior Vice President, Thermal)

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viii. Stell Sindau (Senior Vice President, Hydro)

ix. Victor Wong (Senior Vice President, Transmission)

x. Lu Yew Hung (Senior Vice President, Distribution)

xi. Aisah binti Eden (Senior Vice President, Retail)

xii. Nick James Arnett Wright (Vice President, External Relations & Strategic Communications)

xiii. Dr. Chen Shiun (Head of Research & Development)

xiv. Alvin Lim (Head of Key Account (SCORE Customers)

xv. Polycarp Wong (General Manager, Shared Services)

xvi. Siti Aisah Adenan (General Manager, People & Leadership Development)

xvii. Marconi Madai (General Manager, Corporate Risk & HSE)

xviii. Julia Shim (Chief Information Office) - Secretary

There were two (2) GMDC meetings and 23 EMC meetings held during the financial year ended 31December 2010, which totals up to 25 meetings altogether in the Year 2010.

2. Group Establishment and Disciplinary Committee

The Group Establishment and Disciplinary Committee (“GEDC”) was established on 19 June 2008 in view of the SEB Group re-structuring and the movement of the common functions such as Human Resource Department, Corporate Affairs Department and Finance Department to the Group Level. The GEDC members, as at 31 December 2010, comprise of the following:-

i. Mr. Torstein Dale Sjøtveit (Chief Executive Officer) – Chairman

ii. Dato’ Haji Idris bin Haji Buang (Non-Executive Director)

iii. Nelson Balang ak Rining (Director, Syarikat SESCO Berhad)

iv. Gerald Rentap Jabu (Director, Syarikat SESCO Berhad)

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The Terms of Reference (ToR) and guidelines of the Committee are as follows:-

a) to formulate policy, procedure and guidelines on the following matters:-i. Personnel – creation of posts, recruitment, confirmation, promotion, salary structure, increment

and bonus, staff transfer and staff movement, staff review and revision of employees’ benefits, performance appraisal, career development, termination, study leave, scholarship, overseas training, examination, induction and any other item which the committee may deem necessary.

ii. Disciplinary – offences and disputes, punishments, hearings, appeals, sub-committees.b) to decide on the following matters:-

i. using the budget allocation, the Corporation’s strategic plan and operational and management needs as guidance on the total staff strength for the coming year, the distribution of staff in the various categories and the organisation structure.

ii. approval of the manpower planning.iii. recruitment of higher management group.iv. promotion of employees in the top three (3) levels below the Chief Executive Officer subject to

endorsement by the Board.v. the direction which the Corporation should take on its Human Resource Management based on

the strategic planning process.vi. termination of staff.vii. study leave.viii. overseas training.ix. endorsement on permanent transfer of Regional Managers.x. the dismissal of any employee except for the top three (3) levels which would be subjected to

Board’s approval.xi. settlement of disputes between employee(s) and Management.xii. appeals from a decision of any Disciplinary Committee at Management level.xiii. appeals of any kind over decisions made by Management on any of the matters stated in a) and

b) hereof.xiv. negotiation on collective Agreement between Management and Senior Officers Association to

be conducted by the Committee and endorsed by the Board.c) to assist the Board of Directors in making the correct decision on all matters regarding the subject

stated in a) and b) above.d) procedure - the GEDC shall meet to discuss and decide on any of the matters stated in a) and b)

above. All meetings shall be arranged by the Secretary upon receipt from the Chairman/Managing Director of a request to hold one. The relevant Division in the Human Resource Department shall collate all data and relevant information necessary, submit papers to the GEDC and arrange for all Resource personnel to attend any GEDC meetings. Once a decision is made by the GEDC, immediate action shall be taken upon receipt of the minutes, unless such matter has been decided by the GEDC to be referred to the Board of Directors for endorsement or for some other specific reason. All matters discussed must as far as possible be presented in the following format:-i. purpose/issue in question.ii. background to the issue.iii. relevant data/alternative actions with examination of foreseeable consequences.iv. recommendation.

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The GEDC held two (2) meetings during the financial year ended 31 December 2010 to:a) approve the confirmation/termination in promotion and/or in service of staff of the Group.b) oversee the career development programme for the staff within the Group.c) oversee the disciplinary case(s) being convicted within the Group.

3. Group Board Tenders Committee

The Group Board Tenders Committee (“GBTC”) was previously established by the Syarikat SESCO Berhad’s Board to assist the Board of Directors on the award of tenders with the value of RM5 million to RM20 million. It has been brought up to the SEB Group Level on 19 June 2009 in view of the rationalization of the Group.

As at 31 December 2010, the GBTC members comprise of the following:-

i. YBhg. Dato Sri Ahmad Tarmizi bin Haji Sulaiman (Director of Syarikat SESCO Berhad) - Chairman

ii. YBhg. Tuan Haji Ubaidillah bin Haji Abdul Latip (Director of Syarikat SESCO Berhad) – Alternate Chairman / Member

iii. YBhg. Tan Sri Datuk Amar (Dr) Haji Abdul Aziz bin Dato Haji Husain (Director of SEB/SESCO – resigned on 11.03.2010) - Member

iv. YB Encik Joseph Mauh ak. Ikeh (Director of Syarikat SESCO Berhad) - Member

v. YBhg. Dato’ Ir. Wahab bin Suhaili (Director of Syarikat SESCO Berhad) - Member

vi. YB Senator Dato’ Haji Idris bin Haji Buang (Director of SEB - Member)

The GBTC has not held any meeting during the financial year ended 31 December 2010.

Re-Election of Directors

In accordance with the Company’s Articles of Association, all Directors appointed by the Board are subject to election by shareholders at the first Annual General Meeting after their appointment. One-third of the remaining Directors are required to submit them selves for re-election by rotation at each annual general meeting. All Directors must submit themselves for re-election at least once in every three years. Directors over seventy years of age are required to submit themselves for reappointment annually in accordance with Section 129(6) of the Companies Act 1965.

Directors’ Training

Various accredited programs have been attended by the directors of the Company. Among them are programs related to the Continuing Education Program (“CEP”) conducted by various course leaders. The Company will continuously arrange for further training of the directors as part of the directors obligation to update and enhance their skills and knowledge which are important for their carrying out an effective role as directors.

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Number of Directorships in Other Companies

None of the directors of the Company hold more than ten (10) directorships in public listed companies or more than fifteen (15) in non-public listed companies.

Directors’ Remuneration

Investor Relations and Shareholders Communications

The Company seeks to develop and maintain regular informative communications with its shareholders, institutional and potential investors through various public announcements made during the year. In addition, the timely release of the financial results on quarterly basis provides its shareholders with an overview of the Group’s financial and operational performance.

The Annual General Meeting of the Company remains the principal forum for dialogue with shareholders. Shareholders who are unable to attend are allowed to appoint proxies to attend and vote on their behalf. Members of the Board, as well as the external auditors of the Company are present to answer questions raised at the Meeting.

The Board has also adopted best practice to enhance the efficiency and value of general meetings such as ensuring that the Chairman provides reasonable time at the meeting for discussion and for a question and answer session.

2. The number of Directors whose total remuneration falls within the following bands during the financial year ended 31 December 2010 are as follows:

Directors’ Remuneration (RM)

ExecutiveDirector

Non-ExecutiveDirector

TotalAmount

Fees - 495,882 495,882

Attendance/Meeting Allowance

- 16,500 16,500

Salary & Bonus - 88,212 88,212

TOTAL - 600,594 600,594

Directors’ Remuneration (RM)

ExecutiveDirector

Non-ExecutiveDirector

Total

RM20,001 to RM50,000 - 3 3

RM50,001 to RM100,000 - 3 3

RM100,001 to RM150,000 - 2 2

TOTAL - 8 8

1. The details on the aggregate remuneration of directors for the financial year ended 31 December 2010 are as follows:

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Confidentiality of Information

In conducting briefings or presentations, the Company takes due care to ensure that any information regarded as undisclosed material information about the Company and its operations will not be given to any single shareholder or group of shareholders.

Accountability and Audit

Financial Reporting The Directors are responsible in ensuring that the annual financial statements of the Company and the Group are drawn up in accordance with the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965.

The Board aims to provide and present a balanced and meaningful assessment of the Group’s financial performance and prospects, primarily through the annual financial statements and quarterly financial results as well as the Chairman’s statement and review of operations in the Annual report. The Board is assisted by the Audit Committee to oversee the Group’s financial reporting processes and the quality of its financial reporting.

Relationship with Auditors

The Board has, through the Audit Committee, established a formal, transparent and appropriate relationship with the Group’s Auditors, both external and internal. The Audit Committee meets regularly with external and internal auditors to discuss and review the audit plan, quarterly financial results, annual financial statements, internal audit reports etc and at every Board meeting, the Chairman of the Committee briefed the Board on significant matters discussed and deliberated at each Committee’s meeting and makes recommendations for the Board’s approval and endorsement as the case may be.

Internal Controls Information on the Group’s internal controls system is presented in the Statement on Internal Control as set out on pages 54 to 56 of this Annual Report.

Directors’ Responsibility Statement

The Board is fully accountable to ensure that the financial statements are prepared in accordance with the Companies Act, 1965 and the applicable approved accounting standards set by the Malaysian Accounting Standards Board so as to present a true and fair, balanced and understandable assessment of the Group’s financial position and results. In this Annual Report, an assessment is provided in the Directors’ Report of the Audited Accounts.

The Audit Committee reviews the statutory compliance and scrutinizes the financial aspects of the Audited Accounts prior to deliberation at the Board level.

Additional Compliance information

• MaterialContracts

Neither the Company nor its Subsidiaries had entered into any material contracts not in the ordinary course of business during the Financial Year ended 31 December 2010.

• Sanctions/Penalties

There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or Management by any relevant regulatory authorities during the Financial Year ended 31 December 2010.

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• Non-AuditFees

Non-audit fees of RM661,000 were paid to the External Auditors for the financial year ended 31 December 2010.

• RevaluationPolicyonLandedProperties

The Group does not adopt any revaluation policy on landed properties during the financial year ended 31 December 2010.

• RecurrentRelatedPartyTransactions

Following the de-listing of the Company on 5th January 2010, no further mandate is required from the shareholder on the recurrent related party transaction.

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BOARD AUDIT COMMITTEE REPORT

The Board Audit Committee (BAC) of Sarawak Energy Berhad (SEB) is pleased to present the Board Audit Committee Report for the year ended 31 December 2010.

The BAC was established on 30 July 1994 by the Board of Directors and is guided by their Terms of Reference.

MEMBERSHIP

The BAC comprises the following directors:

1. Dato’ Nordin Bin Baharuddin – Chairman (Independent Non-Executive Director)

2. Senator Dato’ Haji Idris Bin Haji Buang (Senior Independent Non-Executive Director)

3. Datuk Amar Wilson Baya Dandot (Non-Independent Non-Executive Director)

4. Tan Sri Dato Sri Mohd Hassan bin Marican (Independent Non-Executive Director)

5. Datuk Amar Haji Mohamad Morshidi bin Haji Abdul Ghani (Non-Independent Non-Executive Director)

Dato’ Nordin Bin Baharuddin, passed away on 5 June 2010, and Datuk Amar Wilson Baya Dandot, resigned from the Board of SEB on 30 June 2010. Tan Sri Dato Sri Mohd Hassan bin Marican and Datuk Amar Haji Mohamad Morshidi bin Haji Abdul Ghani were appointed on 9 June 2010 and 26 May 2010 respectively. Tan Sri Dato Sri Mohd Hassan bin Marican was appointed Chairman of the BAC.

MEETINGS

During the year, the BAC met four times. The attendance of each member is as follows:

Name Attendance Dato’ Nordin Bin Baharuddin 2/2 Senator Dato’ Haji Idris Bin Haji Buang 4/4 Datuk Amar Wilson Baya Dandot 1/2 Tan Sri Dato Sri Mohd Hassan bin Marican 2/2 Datuk Amar Haji Mohamad Morshidi bin Haji Abdul Ghani 1/2

The Head of Internal Audit and the Group Company Secretary were in attendance during the meetings. The Chief Executive Officer, Senior Management, External Auditors and whenever required, external parties were invited to attend the meetings on matters requiring their attention, feedback, input and clarification.

Following each meeting, the BAC Chairman briefed the Board of Directors on any significant matters discussed and deliberated on by the BAC members.

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SUMMARY OF ACTIVITIES OF THE BAC

During the financial year, the BAC carried out the following activities:

• Reviewed the quarterly unaudited and year-end audited financial statements of the Company and Group with management and the external auditors, and ensured that the financial statements were drawn up in accordance with the provisions of the Companies Act 1965 and applicable approved accounting standards and other statutory and regulatory requirements prior to recommending them to the Board for approval.

• Reviewed the adequacy of disclosure of related party transactions entered into by the Company and the Group, and the adequacy of policies, procedures and guidelines for identifying, monitoring and disclosing related party transactions for SEB and its subsidiaries.

• Reviewed and endorsed the quarterly report from the Risk Management Division (RMD) on the status and progress of implementation of EWRM activities and key initiatives carried out during the year.

• Reviewed the External Audit Planning Memorandum and scope for their annual plan.

• Reviewed and recommended to the Board the reappointment of external auditors and their remuneration.

• Discussed with external auditors, without the presence of management, any problems and issues encountered in the course of their audit and any other matters they wished to address.

• Reviewed and approved the Internal Audit Annual Plan to ensure the adequacy of resources and coverage for auditable areas with significant and high risks.

• Reviewed and discussed internal audit reports, special review reports, and follow-up reviews issued and

presented by internal audit, as well as management’s responses thereto, and ensured the adequacy and effectiveness of corrective actions taken by management on all significant matters raised.

• Reviewed, and recommended to the Board for approval, the Statement of Internal Control, the Audit Committee Report and the Corporate Governance Statement for inclusion in the SEB Annual Report.

GROUP INTERNAL AUDIT

The internal audit function of the Group is carried out by the Group Internal Audit Department (GIA), which is independent and reports directly to the BAC.

GIA was established by the Board to provide independent assurance on the adequacy of SEB’s risk management, internal control and governance systems. Regular reviews are carried out to monitor compliance of the business processes with the Group’s procedures, to assess the effectiveness of internal controls, and to highlight any significant risks impacting the Group. The BAC holds regular meetings to deliberate on internal audit reports prior to presenting them to the Board.

Certain audits in the Internal Audit Plans are performed internally, while others are outsourced or co-sourced. Audits are outsourced to ensure they provide adequate coverage, and that the assignments involve specific areas of expertise and skill. Co-sourced audits enable transfer of knowledge from external consultants. During the year, the GIA also successfully coordinated and participated in a Contract Audit by Hydro Tasmania Consulting and an internal controls review by Ernst & Young on Bintulu Combined Cycle Project and Murum Hydro Power Project.

All reports arising from the assignments were issued to management for their response, for suggestions for corrective actions, and for provision of deadlines to complete the relevant preventive and corrective actions. The reports were subsequently tabled to the BAC for their deliberation. Follow-up reviews were carried out by internal auditors, and the status of such action plans was reported to the BAC.

The BAC has full access to both internal and external auditors and receives reports on all audits performed.

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TERMS OF REFERENCE

1.0 CONSTITUTION

• The Board of Directors of Sarawak Energy Berhad (SEB) has established a Committee of the Board, known as the Board Audit Committee (BAC), vides a resolution of the Board on 30 July 1994.

• The function and authority of the BAC extends to SEB and all its subsidiaries (collectively referred to as the “Group”).

2.0 COMPOSITION OF THE COMMITTEE

• The members of the BAC shall be appointed by the Board of Directors of SEB and shall consist of not less than three (3) members, the majority of whom shall be independent directors of SEB.

• Where the members for any reason are reduced to less than three (3), the Board shall, within one (1) month of the event, appoint such number of new members as may be required to make up the minimum number of three (3) members.

• The Board shall elect a Chairman from among the members of the BAC who shall be an independent director.

• All members shall hold office only for as long as they serve as directors of SEB.

• No alternate directors shall be appointed to the BAC.

3.0 CHAIRMAN OF THE COMMITTEE

The following are the main duties and responsibilities of the Chairman of the BAC:

• to steer the BAC to achieve its objectives;

• to provide leadership and ensure the proper flow of information to the BAC, while reviewing the adequacy and timing of documentation;

• to provide a reasonable amount of time for discussion at the BAC meetings, organize and present the agenda for BAC meetings based on input from members, ensure that all relevant issues are on the agenda, and encourage a healthy level of skepticism and independence;

• to manage the process and workings of the BAC, and ensure that the BAC discharges its responsibilities; and

• to ensure that all members participate in the discussion to enable effective decisions to be made.

4.0 COMMITTEE MEMBERS

Each BAC member is expected to:

• provide independent opinions to the fact-finding, analysis and decision-making process of the BAC, based on their experience and knowledge;

• consider the viewpoints of the other members, and make decisions and recommendations that are in the best interests of the Group;

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• keep abreast of the latest corporate governance guidelines in relation to the BAC and the Board as a whole; and

• continuously seek out best practices in terms of the processes utilised by the BAC, following which these should be discussed with the rest of the members for possible adoption.

5.0 OBJECTIVES OF THE COMMITTEE

The objectives of the BAC are as follows:

• to ensure transparency, integrity and accountability in the Group’s activities so as to safeguard the rights and interests of the shareholders;

• to provide assistance to the Board in fulfilling its fiduciary responsibilities relating to corporate accounting and reporting practices;

• to improve the Group’s business efficiency, and the quality of the accounting and audit function, and to strengthen public confidence in the Group’s reported financial results;

• to maintain, through regular scheduled meetings, a direct line of communication between the Board and the external and internal auditors;

• to ensure the independence of the external and internal audit functions; and

• to create a climate of discipline and control within the Group so as to reduce the opportunities for fraud.

6.0 AUTHORITY OF THE COMMITTEE

The BAC is authorized by the Board to:

• investigate any activity within its terms of reference or as directed by the Board of Directors;

• have full and unrestricted access to all employees, the Group’s properties and works, and all books, accounts, records and other information of the Group in whatever form;

• have direct communication channels with external auditors and person(s) carrying out the internal audit function or activity for the Group;

• direct the internal audit function in the Group;

• engage independent advisors, and secure the attendance of outsiders with relevant experience and expertise if deemed necessary; and

• review the adequacy of the structure and terms of reference of other Board committees, including the BAC.

7.0 FUNCTIONS OF THE COMMITTEE

The functions and responsibilities are as follows:

Corporate Financial Reporting

• To review and recommend acceptance or otherwise of accounting policies, principles and practices.

• To review the quarterly results and annual financial statements of the Company and Group before their submission to the Board.

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The review should focus primarily on:

i. any changes in existing accounting policies or implementation of new ones;ii. major judgment areas, significant and unusual events;iii. significant adjustments resulting from audit;iv. the going concern assumptions;v. compliance with accounting standards; andvi. compliance with other legal and statutory requirements.

• To review with management and the external auditors the results of the audit, including any difficulties encountered.

Enterprise Risk Management

• To review the adequacy of risk management functions in the SEB Group, and to provide independent assurances to the Board as to their effectiveness.

• To ensure that the principles and requirements of managing risk are adopted consistently throughout the SEB Group.

• To deliberate on the key risk issues highlighted by the Group Risk Management Committee in their reports to BAC.

Internal Control

• To assess the quality and effectiveness of the internal control systems and the efficiency of the Group’s operations.

• To review the findings on internal control in the Group by internal and external auditors.

• To review, and recommend for Board approval, the Statement on Internal Control and Board Audit Committee Report for inclusion in the Company’s Annual Report.

Internal Audit

• To approve the Audit Charters of internal audit functions in the Group.

• To ensure that the internal audit functions have appropriate standing in the Group and have the necessary authority and resources to carry out their work. This includes a review of the organizational structure, resources, budgets and qualifications of the internal audit personnel.

• To review internal audit reports and management’s response and actions taken in respect of these. Where actions are not taken within an adequate timeframe by management, the BAC will report the matter to the Board.

• To review the adequacy of internal audit plans and the scope of audits, and to ensure that the internal audit functions are carried out without any hindrance.

• To appraise the performance of the Head of Internal Audit.

• To review any appraisal or assessment of the performance of members of the internal audit function.

• To be informed of resignations of internal audit members, and to provide the resigning staff member an opportunity to submit his/her reasons for resigning.

• To direct any special investigation to be carried out by the internal audit function.

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External Audit

• To nominate the external auditors, together with such other functions as may be agreed to by the Board, recommend for approval of the Board the external audit fee, and consider any questions of resignation or termination.

• To review external audit reports and management’s response and actions taken in respect of these. Where actions are not taken within an adequate timeframe by management, the BAC will report the matter to the Board.

• To review external audit plans and the scope of work.

• The BAC shall meet the external auditors at least twice a year to discuss problems and reservations arising out of external audits and any other matters the auditors may wish to discuss, in the absence of management, Executive Directors and Non-Independent Directors where necessary.

Corporate Governance

• To review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management’s investigation and follow-up (including disciplinary action) of any instances of non-compliance.

• To review the findings of any examinations by regulatory authorities.

• To review any related party transaction and conflict-of-interest situation that may arise within the Group, including any transaction, procedure or course of conduct that raises questions of integrity.

• To review and recommend the Corporate Governance Statement for Board approval for inclusion in the Company’s Annual Report.

• To review the investor relations program and shareholder communications policy for the company.

• To examine instances and matters that may have compromised the principles of corporate governance and report back to the Board.

8.0 COMMITTEE MEETINGS

• The BAC shall convene meetings as and when required, and at least four (4) times during the financial year of SEB.

• The number of BAC meetings held a year, and the details of attendance of each individual member in respect of meetings held, should be disclosed in the Annual Report.

• The Chairman of the BAC, or the Secretary on the requisition of any member, the Head of Internal Audit or the external auditors, shall at any time summon a meeting of the BAC by giving reasonable notice.

• No business shall be transacted at any meeting of the BAC unless a quorum is present. The quorum for each meeting shall be two (2) members comprising all independent directors.

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• The Chairman of the BAC shall chair the committee meetings; in his absence, the members present shall elect one from among themselves to be the Chairman of the meeting.

• In appropriate circumstances, the BAC may deal with matters by way of circular reports and resolutions in lieu of convening a formal meeting.

• Officers of the Group, or others as required, may be invited to attend meetings where the BAC considers their presence necessary.

• A committee member shall excuse himself/herself from the meeting during discussions or deliberations of any matter that gives rise to an actual or perceived conflict-of-interest situation for the member. Where this causes insufficient directors to make up a quorum, the BAC has the right to appoint another director(s) to meet the membership criteria.

• The BAC, through its Chairman, shall report to the Board after each meeting.

• Subject to the provisions of this Terms of Reference and Memorandum and Articles of Association of SEB, the BAC shall establish its own procedures for meetings.

9.0 SECRETARY OF THE COMMITTEE

• The Secretary of the BAC shall be the Company Secretary.

• The Secretary shall draw up an agenda for each meeting, in consultation with the Chairman of the BAC. The agenda shall be sent to all members of the BAC and the Head of Internal Audit at least three (3) working days before each meeting, together with any relevant papers.

• The Secretary shall promptly prepare the written minutes of the meeting and distribute it to each member. The minutes of the BAC meeting shall be confirmed and signed by the Chairman of the meeting at the next succeeding meeting.

• The minutes of each meeting shall be entered into the minutes book kept at the registered office of the Company under the custody of the Company Secretary. The minutes shall be available for inspection by the members of the Board, external auditors, internal auditors, and other persons deemed appropriate by the Company Secretary.

10.0 DISCLOSURE

• The BAC shall assist the Board in making disclosures concerning the activities of the BAC, in the Report of the Audit Committee, to be issued in the Annual Report.

• The Board requires all directors to submit a Disclosure of Interest statement to avoid any conflict between their personal interests and those of the Company. In the event of a conflict, either perceived or actual, this Disclosure of Interest statement shall be submitted to the Chairman of the BAC with a copy to the Company Secretary.

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11.0 REVISION OF THE TERMS OF REFERENCE

• Any revision or amendment to the Terms of Reference, as proposed by the BAC or any third party, shall be presented to the Board for its approval.

• Upon the Board’s approval, the said revision or amendment shall form part of this Terms of Reference and this Terms of Reference shall be considered duly revised or amended.

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Directors’ Report

Statement by Directors and Statutory Declaration

Independent Auditors’ Report

Statements of Comprehensive Income

Statements of Financial Position

Statements of Changes in Equity

Statements of Cash Flows

Notes to the Financial Statements

CONTENTS

76 - 79

80

81 - 82

83

84 - 85

86 - 89

90 - 91

92 - 154

DIRECTOR’S REPORT AND AUDITED FINANCIAL STATEMENTS 31 DECEMBER 2010

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DIRECTORS’ REPORT

The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2010.

Principal activities

The principal activity of the Company is investment holding.

The principal activities of the subsidiaries and associates are disclosed in Note 15 and Note 16 to the financial statements.

There have been no significant changes in the nature of these activities during the financial year.

Results Group Company RM’000 RM’000

Profit net of tax 336,218 67,120 ====== ===== Profit attributable to:Owners of the parent 341,309 67,120Minority interests (5,091 ) - 336,218 67,120 ====== =====

There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements.

In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature other than the effects arising from changes in accounting policies as disclosed in Note 2.2 to the financial statements.

Dividends

The amount of dividends paid by the Company since 31 December 2009 was as follows:

In respect of the financial year ended 31 December 2009 as reported in the directors’ report of that year:

RM’000

Final dividend of 5.5 sen less 25% taxation on 1,610,568,979 ordinary shares of RM1.00 each declared on 2 July 2010 and paid on 30 July 2010 66,436 ======

At the forthcoming Annual General Meeting, a final dividend in respect of the financial year ended 31 December 2010, of 5.5 sen less 25% taxation on 1,610,568,979 ordinary shares, amounting to a dividend payable of RM66,435,970 will be proposed for shareholders’ approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of retained earnings in the financial year ending 31 December 2011.

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Employee Share Options Scheme

The Company’s Employee Share Options Scheme (“ESOS”) was governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 19 December 2007. The ESOS was implemented on 21 December 2007 and was initially in force for a period of 10 years from the date of implementation.

The ESOS was dissolved on 22 March 2010 following the de-listing of the entire issue and paid-up share capital of the Company in January 2010.

The salient features, terms and other details of the ESOS are disclosed in Note 27(b) to the financial statements. Directors

The names of the directors of the Company in office since the date of the last report and at the date of this report are:

Datuk Abdul Hamed Bin Sepawi - Chairman Datuk Fong Joo ChungDato’ Haji Idris Bin Haji BuangDatuk Amar Haji Mohamad Morshidi Bin Haji Abdul Ghani (appointed on 26 May 2010)Tan Sri Dato Sri Mohd Hassan Bin Marican (appointed on 9 June 2010)Datuk Amar Wilson Baya Dandot (resigned on 30 June 2010)Dato’ Nordin Baharuddin (deceased on 05 June 2010)

In accordance with Article 82 of the Company’s Articles of Association, Datuk Abdul Hamed Bin Sepawi and Dato’ Haji Idris Bin Haji Buang retire by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.

Directors’ benefits

Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors as shown in the financial statements or the fixed salary of a full-time employee of the Company as shown in Note 10 to the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 32 to the financial statements.

Directors’ interests

According to the register of directors’ shareholdings, the interests of directors in office at the end of the financial year in shares and options in the Company and its related corporations during the financial year were as follows:

Number of Ordinary Shares of RM1 Each 1.1.2010 Sold 31.12.2010The Company

Direct interest:Datuk Amar Wilson Baya Dandot 70,000 (70,000 ) -

None of the other directors in office at the end of financial year had any interest in shares in the Company or its related corporations during the financial year.

DIRECTORS’ REPORT

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Issue of shares

During the financial year, the Company increased its issued and paid-up ordinary share capital from RM1,610,267,079 to RM1,610,568,979 by way of the issuance of 301,900 ordinary shares of RM1 each for cash, pursuant to the Company’s Employees’ Share Options Scheme at an exercise price of RM2.15 per ordinary share.

The new ordinary shares issued during the financial year ranked pari passu in all respects with the existing ordinary shares of the Company. Other statutory information

(a) Before the statements of comprehensive income and statements of financial position of the Group and of the Company were made out, the directors took reasonable steps:

(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and

(ii) to ensure that current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.

(b) At the date of this report, the directors are not aware of any circumstances which would render:

(i) the amount written off for bad debts or the amount of the provision for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; and

(ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading.

(c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.

(d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading.

(e) As at the date of this report, there does not exist:

(i) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or

(ii) any contingent liability of the Group and of the Company which has arisen since the end of the financial year.

(f) In the opinion of the directors:

(i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group and of the Company to meet their obligations when they fall due; and

DIRECTORS’ REPORT

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Other statutory information (cont’d.)

(ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group and of the Company for the financial year in which this report is made.

Significant events

Details of significant events are disclosed in Note 39 to the financial statements.

Subsequent events

Details of subsequent events are disclosed in Note 40 to the financial statements.

Controlling shareholder

The Directors regard State Financial Secretary, Sarawak, a statutory corporation established under the State Financial Secretary (Incorporation) Ordinance of Sarawak, as the controlling shareholder of the Company.

Auditors

The auditors, Ernst & Young, have expressed their willingness to continue in office.

Signed on behalf of the Board in accordance with a resolution of the directors dated 19 May 2011

Datuk Abdul Hamed Bin Sepawi Dato’ Haji Idris Bin Haji Buang

DIRECTORS’ REPORT

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We, Datuk Abdul Hamed Bin Sepawi and Dato’ Haji Idris Bin Haji Buang, being two of the directors of Sarawak Energy Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 83 to 154 are drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2010 and of their financial performance and cash flows for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the directors dated 19 May 2011

Datuk Abdul Hamed Bin Sepawi Dato’ Haji Idris Bin Haji Buang

STATUTORY DECLARATION pursuant to Section 169(16) of the Companies Act, 1965

I, Haji Sulaiman Bin Haji Abdul Hamid, being the person primarily responsible for the financial management of Sarawak Energy Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 83 to 154 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed Haji Sulaiman Bin Haji Abdul Hamidat Kuching in the State of Sarawak on 19 May 2011 Haji Sulaiman Bin Haji Abdul Hamid

Before me,

STATEMENT BY DIRECTORSpursuant to Section 169(15) of the Companies Act, 1965

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Report on the financial statements

We have audited the financial statements of Sarawak Energy Berhad, which comprise the statements of financial position as at 31 December 2010 of the Group and of the Company, and the statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 83 to 154.

Directors’ responsibility for the financial statements

The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2010 and of their financial performance and cash flows of the Group and of the Company for the year then ended.

Report on other legal and regulatory requirements

In accordance with the requirements of the Companies Act 1965 in Malaysia, we also report the following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Act.

(b) We are satisfied that the accounts of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.

INDEPENDENT AUDITORS’ REPORT to the members of Sarawak Energy Berhad (Incorporated in Malaysia)

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Report on other legal and regulatory requirements (cont’d.)

(c) The auditors’ reports on the accounts of the subsidiaries were not subject to any qualification and did not include any comment required to be made under Section 174(3) of the Act.

Other matters

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

ERNST & YOUNG YONG VOON KARAF: 0039 1769/04/12 (J/PH)Chartered Accountants Chartered Accountant

Kuching, MalaysiaDate: 19 May 2011

INDEPENDENT AUDITORS’ REPORT to the members of Sarawak Energy Berhad (Incorporated in Malaysia)

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Group Company Note 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Revenue 4 1,553,734 1,375,195 125,009 107,476 Cost of sales (1,147,738 ) (1,075,185 ) - - Gross profit 405,996 300,010 125,009 107,476 Other items of incomeInterest income 5 8,552 11,056 2 349Other income 6 150,919 118,300 5,031 3,416

Other items of expenseAdministrative and other expenses (96,046 ) (79,743 ) (34,611 ) (19,404 )Selling and distribution expenses (293 ) (712 ) - - Finance costs 7 (82,662 ) (70,465 ) (1,899 ) - Share of results of associates 473 (1,172 ) - - Profit before tax 8 386,939 277,274 93,532 91,837

Income tax expense 11 (50,721 ) (60,032 ) (26,412 ) (23,279 ) Profit for the year, net of tax, representing total comprehensive income for the year 336,218 217,242 67,120 68,558 ======== ======== ======= ======

Profit and total comprehensive income attributable to:

Owners of the parent 341,309 216,145 67,120 68,558Minority interests (5,091 ) 1,097 - - 336,218 217,242 67,120 68,558 ======== ======== ======= ====== Earnings per share attributable to owners of the parent (sen)

Basic 12 21.2 14.1 ======== ======== Diluted 12 21.2 14.1 ======== ========

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

STATEMENTS OF COMPREHENSIVE INCOMEfor the year ended 31 December 2010

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Group Company Note 2010 2009 1.1.2009 2010 2009 1.1.2009 (restated ) (restated ) (restated ) (restated ) RM’000 RM’000 RM’000 RM’000 RM’000 RM’000ASSETS

Non-current assets

Property, plant and equipment 13 7,593,227 6,443,215 5,001,301 17,799 85,937 17,218 Land use rights 14 - - - - - - Investment in subsidiaries 15 - - - 1,617,610 1,643,910 1,626,998Investment in associates 16 42,241 43,047 45,314 35,693 34,858 32,405Deferred tax assets 17 78,730 29,569 34,337 206 170 137 7,714,198 6,515,831 5,080,952 1,671,308 1,764,875 1,676,758 Current assets

Property development costs 18 100,679 100,679 100,679 - - -Inventories 19 298,626 327,101 272,678 - - -Trade and other receivables 20 185,531 183,563 208,549 1,915,863 1,085,622 226,157Other current assets 21 11,724 15,515 6,959 2,039 1,733 4,142Amount due from customers on contract works 22 7,802 36,082 94,799 - - -Cash and bank balances 23 465,298 642,577 766,392 41,234 156,325 47,288

1,069,660 1,305,517 1,450,056 1,959,136 1,243,680 277,587

TOTAL ASSETS 8,783,858 7,821,348 6,531,008 3,630,444 3,008,555 1,954,345 ======== ======== ======== ======== ======== ========

EQUITY AND LIABILITIES

Current liabilities

Amount due to customers on contract works 22 36,589 4,896 2,604 - - - Trade and other payables 24 614,769 776,056 654,637 16,719 9,137 13,002Loans and borrowings 25 650,000 401,153 155,749 530,000 309,153 50,000Income tax payable 14,280 8,405 5,157 - - - 1,315,638 1,190,510 818,147 546,719 318,290 63,002

Net current (liabilities)/assets (245,978 ) 115,007 631,909 1,412,417 925,390 214,585

STATEMENTS OF FINANCIAL POSITIONAS AT 31 DECEMBER 2010

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Group Company Note 2010 2009 1.1.2009 2010 2009 1.1.2009 (restated ) (restated ) (restated ) (restated ) RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Non-current liabilities

Deferred tax liabilities 17 396,222 375,577 370,402 - - -Loans and borrowings 25 1,859,159 1,537,174 1,030,000 989,159 597,174 -Deferred income 26 1,589,197 1,383,433 1,347,355 - - -Retirement benefit obligations 27 119,354 101,669 82,419 820 678 546 3,963,932 3,397,853 2,830,176 989,979 597,852 546

Total liabilities 5,279,570 4,588,363 3,648,323 1,536,698 916,142 63,548

Net assets 3,504,288 3,232,985 2,882,685 2,093,746 2,092,413 1,890,797

Equity attributable to owners of the parent

Share capital 28 1,610,569 1,610,267 1,527,426 1,610,569 1,610,267 1,527,426Share premium 28 149,644 149,146 14,159 149,644 149,146 14,159Reserves 29 1,730,812 1,455,218 1,323,843 333,533 333,000 349,212

3,491,025 3,214,631 2,865,428 2,093,746 2,092,413 1,890,797Minority interests 13,263 18,354 17,257 - - -

Total equity 3,504,288 3,232,985 2,882,685 2,093,746 2,092,413 1,890,797

TOTAL EQUITY AND LIABILITIES 8,783,858 7,821,348 6,531,008 3,630,444 3,008,555 1,954,345 ======== ======== ======== ======== ======== ========


STATEMENTS OF FINANCIAL POSITIONAS AT 31 DECEMBER 2010

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Group Company Note 2010 2009 2010 2009 (restated ) (restated ) RM’000 RM’000 RM’000 RM’000 Operating activities

Profit before tax 386,939 277,274 93,533 91,837

Adjustments for: Bad debts written off 8 453 359 - - Depreciation of property, plant and equipment 8 290,338 259,128 887 1,007 Dividend income from related companies 4 - - (116,144 ) (105,604 ) Gain on disposal of investment in a subsidiary 6 (28) - (3,618) - Impairment in value of investment in an associate 8 7,591 - 7,878 - Interest expenses on loans and borrowings 7 7,716 172 1,899 - Interest income from loans and receivables 4 & 5 (11,006 ) (12,928 ) (8,867 ) (2,221 ) Inventories written off 8 188 246 - - Loss/(gain) on partial disposal of shares in an associate 6 426 2,796 (1,330 ) (108 ) Net impairment loss on receivables 8 12,168 260 11,458 - Net (gain)/loss on disposal of property, plant and equipment 6 & 8 2,816 4,676 (38 ) - Profit payments on islamic debt securities 7 74,895 70,215 - - Property, plant and equipment written off 8 9 81 - - Release of deferred income 6 (109,463 ) (91,543) - - Retirement benefit obligations 9 21,244 21,947 144 133 Reversal of write-down of inventories 8 - (1 ) - - Share of results of associates (473 ) 1,172 - - Share options granted under ESOS 9 - 17,960 - 1,048 Unrealised loss on foreign exchange 8 - 1,534 - -

Operating cash flows before changes in working capital 683,813 553,348 (14,198 ) (13,908 )

Changes in working capital:Inventories 12,298 (54,668 ) - -Receivables (72,068 ) 124,038 (676,953 ) (867,404 )Other current assets 59,006 (50,161 ) (306 ) 2,409Payables (104,158 ) 122,090 6,033 6,621

Total changes in working capital (104,922) 141,299 (671,226 ) (858,374 ) Cash flows from/ (used in) operations 578,891 694,647 (685,424 ) (872,282 )

Interest paid (7,716 ) (172 ) (1,899 ) -Taxes paid, net of refund (70,894 ) (46,016 ) (1,753 ) 4,101Retirement benefit paid (3,560 ) (2,697 ) (2 ) (1 )

Net cash flows from/(used in) operating activities 496,721 645,762 (689,078) (868,182 )

STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2010

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Group Company Note 2010 2009 2010 2009 (restated ) (restated ) RM’000 RM’000 RM’000 RM’000 Investing activities

Acquisition of an associate - (7,878) - (7,878)Grants and capital contribution received 315,227 127,621 - -Purchase of property, plant and equipment (1,465,271 ) (1,697,715 ) (100,737 ) (69,726 )Proceeds from disposal of property, plant and equipment 1,205 2,642 173 -Proceeds from partial disposal of investment in an associate 4,655 5,533 4,655 5,533Proceeds from disposal of subsidiaries (net) 15 24,960 - 17,880 -Interest received 11,006 12,928 8,867 2,221Dividends received 644 644 96,104 75,644

Net cash flows (used in)/ from investing activities (1,107,574 ) (1,556,225 ) 26,942 5,794

Financing activities

Proceeds from issuance of ordinary shares 649 178,107 649 178,107Profit payments on islamic debt securities (74,934 ) (81,028 ) - -Repayment of islamic debt securities (90,000) (100,000 ) - -Net drawdown and repayment of loans and borrowings 664,295 852,578 612,832 856,327Dividend paid (66,436 ) (63,009 ) (66,436 ) (63,009 )

Net cash flows from financing activities 433,574 786,648 547,045 971,425

Net (decrease)/increase in cash and cash equivalents (177,279 ) (123,815 ) (115,091 ) 109,037

Cash and cash equivalents at 1 January 642,577 766,392 156,325 47,288

Cash and cash equivalents at 31 December 23 465,298 642,577 41,234 156,325 ======== ======== ======= ========


STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2010

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NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2010

1. Corporate information

The Company is a public limited liability company, incorporated and domiciled in Malaysia. The controlling shareholder of the Company is the State Financial Secretary, Sarawak, a statutory corporation established under the State Financial Secretary (Incorporation) Ordinance of Sarawak. The registered office of the Company is located at 4th Floor, Wisma SESCO, Petra Jaya, 93673 Kuching, Sarawak.

The principal activity of the Company is investment holding. The principal activities of the subsidiaries of the Company are described in Note 15 to the financial statements. There have been no significant changes in the nature of these principal activities during the financial year.

2. Summary of significant accounting policies

2.1 Basis of preparation

The financial statements of the Group and of the Company have been prepared in accordance with the Companies Act, 1965 and Financial Reporting Standards in Malaysia. At the beginning of the current financial year, the Group and the Company adopted new and revised FRS which are mandatory for financial periods beginning on or after 1 January 2010 as described fully in Note 2.2.

The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below.

The financial statements are presented in Ringgit Malaysia (RM) and all values are rounded to the nearest thousand (RM’000) except when otherwise indicated.

2.2 Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year except as follows:

On 1 January 2010, the Group and the Company adopted the following new and amended FRS and IC Interpretations mandatory for annual financial periods beginning on or after 1 January 2010.

• FRS 7 Financial Instruments: Disclosures • FRS 8 Operating Segments • FRS 101 Presentation of Financial Statements (Revised) • FRS 123 Borrowing Costs • FRS 139 Financial Instruments: Recognition and Measurement • Amendments to FRS 1 First-time Adoption of Financial Reporting Standards and FRS 127 Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate • Amendments to FRS 2 Share-based Payment – Vesting Conditions and Cancellations • Amendments to FRS 132 Financial Instruments: Presentation • Amendments to FRS 139 Financial Instruments: Recognition and Measurement, FRS 7 Financial Instruments: Disclosures and IC Interpretation 9 Reassessment of Embedded Derivatives • Improvements to FRS issued in 2009 • IC Interpretation 9 Reassessment of Embedded Derivatives • IC Interpretation 10 Interim Financial Reporting and Impairment • IC Interpretation 11 FRS 2 - Group and Treasury Share Transactions • IC Interpretation 13 Customer Loyalty Programmes • IC Interpretation 14 FRS119 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

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2. Summary of significant accounting policies (cont’d.)

2.2 Changes in accounting policies (cont’d.)

FRS 4 Insurance Contracts and TR i-3 Presentation of Financial Statements of Islamic Financial Institutions will also be effective for annual periods beginning on or after 1 January 2010. These FRS are, however, not applicable to the Group or the Company.

Adoption of the above standards and interpretations did not have any effect on the financial performance or position of the Group and the Company except for those discussed below:

FRS 7 Financial Instruments: Disclosures

Prior to 1 January 2010, information about financial instruments was disclosed in accordance with the requirements of FRS 132 Financial Instruments: Disclosure and Presentation. FRS 7 introduces new disclosures to improve the information about financial instruments. It requires new disclosures to improve information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk and liquidity risk.

The Group and the Company have applied FRS 7 prospectively in accordance with the transitional

provisions. Hence, the new disclosures have not been applied to the comparatives. The new disclosures are included throughout the Group’s and the Company’s financial statements for the year ended 31 December 2010.

FRS 101 Presentation of Financial Statements (Revised)

The revised FRS 101 introduces changes in the presentation and disclosures of financial statements. The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with all non-owner changes in equity presented as a single line. The Standard also introduces the statement of comprehensive income, with all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense recognised directly in equity, either in one single statement, or in two linked statements. The Group and the Company have elected to present this statement as one single statement.

In addition, a statement of financial position is required at the beginning of the earliest comparative period following a change in accounting policy, the correction of an error or the classification of items in the financial statements.

The revised FRS 101 also requires the Group to make new disclosures to enable users of the financial statements to evaluate the Group’s objectives, policies and processes for managing capital (see Note 38).

The revised FRS 101 was adopted retrospectively by the Group and the Company.

FRS 139 Financial Instruments: Recognition and Measurement

FRS 139 establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. The Group and the Company have adopted FRS 139 prospectively on 1 January 2010 in accordance with the transitional provisions. The effects arising from the adoption of this Standard has been accounted for by adjusting the opening balance of retained earnings as at 1 January 2010. Comparatives are not restated. The details of the changes in accounting policies and the effects arising from the adoption of FRS 139 are discussed below:

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2.2 Changes in accounting policies (cont’d)

FRS 139 Financial Instruments: Recognition and Measurement (cont’d)

• Impairment of trade receivablesPrior to 1 January 2010, provision for doubtful debts was recognised when it was considered uncollectible. Upon the adoption of FRS 139, an impairment loss is recognised when there is objective evidence that an impairment loss has been incurred. The amount of the loss is measured as the difference between the receivable’s carrying amount and the present value of the estimated future cash flows discounted at the receivable’s original effective interest rate. As at 1 January 2010, the Group has remeasured the allowance for impairment losses as at that date in accordance with FRS 139 and the difference is recognised as adjustments to the opening balance of retained earnings as at that date.

• Financial guarantee contractsDuring the current year, the Company provided a financial guarantee to a bank in connection with banking facilities granted to one of its subsidiaries. Prior to 1 January 2010, such guarantees need not be provided for unless it was more likely than not that the guarantees would be called upon. The guarantees were disclosed as contingent liabilities. Upon the adoption of FRS 139, financial guarantees issued by the Company are recognised as financial liabilities and are measured at their initial fair value less accumulated amortisation as at 1 January 2010 when the likelihood of default is more than probable.

The following are effects arising from the above changes in accounting policies:

Increase/(decrease) Group As at As at 31 December 1 January 2010 2010 RM’000 RM’000 Statements of financial position

Trade receivables (873 ) 873 Retained earnings (873 ) 873 ====== ======

Increase/(decrease) Group 2010 RM’000

Statements of comprehensive income

Other expenses 873 Profit before tax (873) Income tax expense - Profit net of tax (873) ====== Sen per share Earnings per share: Basic (0.05) ======


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Amendments to FRS 117 Leases

Prior to 1 January 2010, for all leases of land and buildings, if title is not expected to pass to the lessee by the end of the lease term, the lessee normally does not receive substantially all of the risks and rewards incidental to ownership. Hence, all leasehold land held for own use was classified by the Group as operating lease and where necessary, the minimum lease payments or the up-front payments made were allocated between the land and the building elements in proportion to the relative fair values for leasehold interests in the land element and building element of the lease at the inception of the lease. The up-front payment represented prepaid land lease payments and were amortised on a straight-line basis over the lease term.

The amendments to FRS 117 Leases clarify that leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets. They also clarify that the present value of the residual value of the property in a lease with a term of several decades would be negligible and accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee. Hence, the adoption of the amendments to FRS 117 has resulted in the Group’s and the Company’s unexpired land leases to be reclassified as finance leases. The Group and the Company have applied this change in accounting policy retrospectively and certain comparatives have been restated. The following are effects to the statements of financial position as at 31 December 2010 arising from the above change in accounting policy:

Group Company 2010 2010 RM’000 RM’000

Increase/(decrease) in: Property, plant and equipment 117,013 13,354 Land use rights (117,013) (13,354) ======= =======

The following comparatives have been restated:

As previously As stated Adjustments restated RM’000 RM’000 RM’000

Statements of Financial Position

Group

At 31 December 2009 Property, plant and equipment 6,319,598 123,617 6,443,215 Land use rights 123,617 (123,617) - ======== ======= ======== At 1 January 2009 Property, plant and equipment 4,875,994 125,307 5,001,301 Land use rights 125,307 (125,307) - ======== ======= ========

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Amendments of FRS 117 Leases (cont’d.) The following comparatives have been restated: (cont’d.)

As previously As stated Adjustments restated RM’000 RM’000 RM’000

Statements of Financial Position (cont’d.)

Company

At 31 December 2009 Property, plant and equipment 72,322 13,615 85,937 Land use rights 13,615 (13,615) - ======= ======= ======= At 1 January 2009 Property, plant and equipment 3,343 13,875 17,218 Land use rights 13,875 (13,875) - ======= ======= =======

Statements of Cash Flows

Group

For the year ended 31 December 2009 Depreciation of property, plant and equipment 257,233 1,895 259,128 Amortisation of land use rights 1,895 (1,895) - ======= ====== ======= Company

For the year ended 31 December 2009

Depreciation of property, plant and equipment 747 260 1,007 Amortisation of land use rights 260 (260) - ======= ====== =======

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2.3 Standards and interpretations issued but not yet effective

The Group has not adopted the following standards and interpretations that have been issued but not yet effective:

Effective for financial periods beginning on or after 1 March 2010 • Amendments to FRS 132: Classification of Rights Issues

Effective for financial periods beginning on or after 1 July 2010

• FRS 1: First-time Adoption of Financial Reporting Standards • FRS 3: Business Combinations (revised) • Amendments to FRS 127: Consolidated and Separate Financial Statements • Amendments to FRS 2: Share-based Payment • Amendments to FRS 5: Non-current Assets Held for Sale and Discontinued Operations • Amendments to FRS 138: Intangible Assets • Amendments to IC Interpretation 9: Reassessment of Embedded Derivatives • IC Interpretation 12: Service Concession Arrangements • IC Interpretation 16: Hedges of a Net Investment in a Foreign Operation • IC Interpretation 17: Distributions of Non-cash Assets to Owners

Effective for financial periods beginning on or after 30 August 2010 • Amendment to IC Interpretation 15: Agreements for the Construction of Real Estate

Effective for financial periods beginning on or after 1 January 2011

• Amendments to FRS 1: Limited Exemption from Comparative FRS 7 Disclosures for First-time Adopters • Amendments to FRS 1: Additional Exemptions for First-time Adopters • Amendments to FRS 2: Group Cash-settled Share-based Payment Transactions • Amendments to FRS 7: Improving Disclosures about Financial Instruments • Amendments to FRSs ‘Improvements to FRSs (2010)’ • IC Interpretation 4: Determining Whether an Arrangement contains a Lease • IC Interpretation 18: Transfers of Assets from Customers • Technical Release i-4: Shariah Compliant Sale Contracts

Effective for financial periods beginning on or after 1 July 2011

• Amendments to IC interpretation 14: Prepayments of a Minimum Funding Requirement • IC Interpretation 19: Extinguishing Financial Liabilities with Equity Instruments Effective for financial periods beginning on or after 1 January 2012

• FRS 124: Related Party Disclosures • IC Interpretation 15: Agreements for the Construction of Real Estate

Except for the changes in accounting policies arising from the adoption of the revised FRS 3, the amendments to FRS 127, as well as the new disclosures required under the Amendments to FRS 7, the directors expect that the adoption of the other standards and interpretations above will have no material impact on the financial statements in the period of initial application. The nature of the impending changes in accounting policy on adoption of the revised FRS 3 and the amendments to FRS 127 are described below.

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2. Summary of significant accounting policies (cont’d.)2.3 Standards and interpretations issued but not yet effective (cont’d.) Revised FRS 3 Business Combinations and Amendments to FRS 127 Consolidated and Separate

Financial Statements

The revised standards are effective for annual periods beginning on or after 1 July 2010. The revised FRS 3 introduces a number of changes in the accounting for business combinations occurring after 1 July 2010. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. The Amendments to FRS 127 require that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as an equity transaction. Therefore, such transactions will no longer give rise to goodwill, nor will they give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. Other consequential amendments have been made to FRS 107 Statement of Cash Flows, FRS 112 Income Taxes, FRS 121 The Effects of Changes in Foreign Exchange Rates, FRS 128 Investments in Associates and FRS 131 Interests in Joint Ventures. The changes from revised FRS 3 and Amendments to FRS 127 will affect future acquisitions or loss of control and transactions with minority interests. The standards may be early adopted. However, the Group does not intend to early adopt.

2.4 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the reporting date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances.

All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.

Acquisitions of subsidiaries are accounted for by applying the purchase method. Identifiable assets

acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in other comprehensive income. The cost of a business combination is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the business combination. Any excess of the cost of business combination over the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities is recorded as goodwill on the statement of financial position. The accounting policy for goodwill is set out in Note 2.8. Any excess of the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised as income in profit or loss on the date of acquisition. When the Group acquires a business, embedded derivatives separated from the host contract by the acquiree are reassessed on acquisition unless the business combination results in a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract.

Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

2.5 Transactions with minority interests

Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and are presented separately in profit or loss of the Group and within equity in the consolidated statements of financial position, separately from parent shareholders’ equity. Transactions with minority interests are accounted for using the entity concept method, whereby, transactions with minority interests are accounted for as transactions with owners. On acquisition of minority interests, the difference between the consideration and book value of the share of the net assets acquired is recognised directly in equity. Gain or loss on disposal to minority interests is recognised directly in equity.

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2.6 Foreign currency

(a) Functional and presentation currency

The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Ringgit Malaysia (RM), which is also the Company’s functional currency.

(b) Foreign currency transactions

Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the reporting date. Non-monetary items denominated in foreign currencies that are measured at historical cost are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items denominated in foreign currencies measured at fair value are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at the reporting date are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operation.

Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period except for the differences arising on the translation of non-monetary items in respect of which gains and losses are recognised directly in equity. Exchange differences arising from such non-monetary items are also recognised directly in equity.

2.7 Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Subsequent to recognition, property, plant and equipment except for freehold land are stated at

cost less accumulated depreciation and any accumulated impairment losses. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.

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2.7 Property, plant and equipment (cont’d.)

Certain items of property, plant and equipment of the Group have not been revalued since 1993. The Directors have not adopted a policy of regular revaluations of such assets and no later valuation has been recorded. As permitted under the transitional provisions of IAS 16 (Revised): Property, Plant and Equipment, these assets continue to be stated at their valuation less accumulated depreciation. The above transitional provisions are available only on the first application of the MASB Approved Accounting Standard IAS 16 (Revised): Property, Plant and Equipment which is effective for periods ending on or after 1 September 1998. By virtue of this transitional provision, an entity that had recorded its property, plant and equipment at revalued amounts but had not adopted a policy of revaluation has been allowed to continue carrying those assets on the basis of their previous revaluations subject to continuity in its depreciation policy and the requirement to write down the assets to their recoverable amounts for impairment adjustments. The transitional provisions will remain in force until and unless the entity chooses to adopt a revaluation policy in place of a cost policy. When that happens, FRS 116 (which supersedes IAS 16) would require revaluations to be carried out at regular intervals.

Any revaluation surplus is recognised in other comprehensive income and accumulated in equity

under the asset revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except to the extent that it offsets an existing surplus on the same asset carried in the asset revaluation reserve.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying

amount of the asset and the net amount is restated to the revalued amount of the asset. The revaluation surplus included in the asset revaluation reserve in respect of an asset is transferred directly to retained earnings on retirement or disposal of the asset.

Freehold land has unlimited useful life and therefore is not depreciated. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:

Leasehold land - over period of the lease Buildings - 2% to 5% Structures and improvements - 1% to 10% Plant and machinery - 2.86% to 20% Lines and distribution mains - 3.33% to 4% Distribution services - 4% Meters - 6.67% Public Lighting - 4% Furniture, fittings, equipment and others - 6.67% to 50% Motor vehicles - 10% to 20%

Capital work-in-progress are not depreciated as these assets are not available for use.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted prospectively, if appropriate.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in the profit or loss in the year the asset is derecognised.


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2.8 Intangible assets

(a) Goodwill

Goodwill is initially measured at cost. Following initial recognition, goodwill is measured at cost less accumulated impairment losses.

For the purpose of impairment testing, goodwill acquired is allocated, from the acquisition date, to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination.

The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired, by comparing the carrying amount of the cash-generating unit, including the allocated goodwill, with the recoverable amount of the cash-generating unit. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in the profit or loss. Impairment losses recognised for goodwill are not reversed in subsequent periods. Where goodwill forms part of a cash-generating unit and part of the operation within that cash-generating unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operations disposed of and the portion of the cash-generating unit retained.

(b) Research and development costs

All research costs are recognised in the profit or loss as incurred. Preliminary engineering, investigation and survey costs incurred on projects before authorisation for their construction are charged to operating expenditure. The cost of research and development related to alternative energy sources or those not related to a specific project, is also charged to operations.

2.9 Land use rights

Land use rights were initially measured at cost. Following initial recognition, land use rights were measured at cost less accumulated amortisation and accumulated impairment losses. The land use rights were amortised over their lease terms.

2.10 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when an annual impairment assessment for an asset is required, the Group makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units (“CGU”)).

In assessing value in use, the estimated future cash flows expected to be generated by the asset

are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis.

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2.10 Impairment of non-financial assets (cont’d.)

Impairment losses are recognised in profit or loss except for assets that are previously revalued where the revaluation was taken to other comprehensive income. In this case the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss unless the asset is measured at revalued amount, in which case the reversal is treated as a revaluation increase. Impairment loss on goodwill is not reversed in a subsequent period.

2.11 Subsidiaries

A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities.

In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses.

2.12 Associates

An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. An associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate.

The Group’s investments in associates are accounted for using the equity method. Under the equity method, the investment in associates is measured in the statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to associates is included in the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group’s share of the associate’s profit or loss for the period in which the investment is acquired.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the

Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

After application of the equity method, the Group determines whether it is necessary to recognise

an additional impairment loss on the Group’s investment in its associates. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in profit or loss.

The financial statements of the associates are prepared as of the same reporting date as the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

In the Company’s separate financial statements, investments in associates are stated at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss.


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2.13 Financial assets

Financial assets are recognised in the statements of financial position when, and only when, the Group and the Company become a party to the contractual provisions of the financial instrument.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.

The Group and the Company determine the classification of their financial assets at initial recognition, and the categories include financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets.

(a) Financial assets at fair value through profit or loss

Financial assets are classified as financial assets at fair value through profit or loss if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading are derivatives (including separated embedded derivatives) or financial assets acquired principally for the purpose of selling in the near term.

Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value are recognised in profit or loss. Net gains or net losses on financial assets at fair value through profit or loss do not include exchange differences, interest and dividend income. Exchange differences, interest and dividend income on financial assets at fair value through profit or loss are recognised separately in profit or loss as part of other losses or other income.

Financial assets at fair value through profit or loss could be presented as current or non-current. Financial assets that is held primarily for trading purposes are presented as current whereas financial assets that is not held primarily for trading purposes are presented as current or non-current based on the settlement date.

(b) Loans and receivables

Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables.

Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.

Loans and receivables are classified as current assets, except for those having maturity dates later than 12 months after the reporting date which are classified as non-current.

(c) Held-to-maturity investments

Financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Economic Entity has the positive intention and ability to hold the investment to maturity.

Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the held-to-maturity investments are derecognised or impaired, and through the amortisation process.

Held-to-maturity investments are classified as non-current assets, except for those having maturity within 12 months after the reporting date which are classified as current.


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2.13 Financial assets (cont’d.)

(d) Available-for-sale financial assets

Available-for-sale financial assets are financial assets that are designated as available for sale or are not classified in any of the three preceding categories.

After initial recognition, available-for-sale financial assets are measured at fair value. Any gains or losses from changes in fair value of the financial assets are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised. Interest income calculated using the effective interest method is recognised in profit or loss. Dividends on an available-for-sale equity instrument are recognised in profit or loss when the Economic Entity’s right to receive payment is established.

Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss.

Available-for-sale financial assets are classified as non-current assets unless they are expected to be realised within 12 months after the reporting date.

A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e., the date that the Group and the Company commit to purchase or sell the asset.

2.14 Impairment of financial assets

The Group and the Company assess at each reporting date whether there is any objective evidence that a financial asset is impaired.

Trade and other receivables and other financial assets carried at amortised cost

To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Group and the Company consider factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis based on similar risk characteristics. Objective evidence of impairment for a portfolio of receivables could include the Group’s and the Company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period and observable changes in national or local economic conditions that correlate with default on receivables.

If any such evidence exists, the amount of impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

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2.14 Impairment of financial assets (cont’d)

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable becomes uncollectible, it is written off against the allowance account.

If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss.

2.15 Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amount of cash and which are subject to an insignificant risk of changes in value.

2.16 Construction contracts

Where the outcome of a construction contract can be reliably estimated, contract revenue and contract costs are recognised as revenue and expenses respectively by using the stage of completion method. The stage of completion is measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. Contract costs are recognised as expense in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Contract revenue comprises the initial amount of revenue agreed in the contract and variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and they are capable of being reliably measured.

When the total of costs incurred on construction contracts plus recognised profits (less recognised losses) exceeds progress billings, the balance is classified as amount due from customers for contract work. When progress billings exceed costs incurred plus, recognised profits (less recognised losses), the balance is classified as amount due to customers for contract work.

2.17 Property development costs

Property development costs comprise all costs that are directly attributable to development activities or that can be allocated on a reasonable basis to such activities.

When the financial outcome of a development activity can be reliably estimated, property development revenue and expenses are recognised in the income statement by using the stage of completion method. The stage of completion is determined by the proportion that property development costs incurred for work performed to date bear to the estimated total property development costs.

Where the financial outcome of a development activity cannot be reliably estimated, property development revenue is recognised only to the extent of property development costs incurred that is probable will be recoverable, and property development costs on properties sold are recognised as expense in the period in which they are incurred.

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2.17 Property development costs (cont’d.)

Any expected loss on a development project, including costs to be incurred over the defects liability period, is recognised as an expense immediately.

Property development costs not recognised as an expense are recognised as an asset, which is measured at the lower of cost and net realisable value.

The excess of revenue recognised in the income statement over billings to purchasers is classified as accrued billings within trade receivables and the excess of billings to purchasers over revenue recognised in the income statement is classified as progress billings within trade payables.

2.18 Inventories

Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing the inventories to their present location and condition are accounted for as follows:

- Raw materials: purchase costs on a weighted average cost basis. - Finished goods and work-in-progress: costs of direct materials and labour and a proportion of

manufacturing overheads based on normal operating capacity. These costs are assigned on a weighted average cost basis.

Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale.

2.19 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably.

Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

2.20 Deferred income

Certain consumers are required to contribute towards the cost of revenue earning capital projects. These contributions together with government grants in respect of capital expenditure are credited to the deferred income account and released to the income statement on a straight line basis over the estimated useful lives of the related property, plant and equipment except for those relating to projects not yet completed.

2.21 Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability.

Financial liabilities, within the scope of FRS 139, are recognised in the statement of financial position

when, and only when, the Group and the Company become a party to the contractual provisions of the financial instrument. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.


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2.21 Financial liabilities (cont’d.) (a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities held for trading include derivatives entered into by the Group and the Company that do not meet the hedge accounting criteria. Derivative liabilities are initially measured at fair value and subsequently stated at fair value, with any resultant gains or losses recognised in profit or loss. Net gains or losses on derivatives include exchange differences.

The Group and the Company have not designated any financial liabilities as at fair value through profit or loss.

(b) Other financial liabilities

The Group’s and the Company’s other financial liabilities include trade payables, other payables, amount due to related companies and loans and borrowings.

Trade and other payables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method.

Loans and borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group and the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

For other financial liabilities, gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process.

A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

2.22 Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due.

Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs when the likelihood of default by the debtors is more than probable. Subsequent to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Group, as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount initially recognised less cumulative amortisation.

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2.23 Borrowing costs

Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale.

All other borrowing costs are recognised in profit or loss in the period they are incurred. Borrowing costs consist of interest and other costs that the Group and the Company incurred in connection with the borrowing of funds.

2.24 Employee benefits (a) Short-term benefits

Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group and the Company. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur.

(b) Defined contribution plans

The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. The Malaysian companies in the Group make contributions to the Employee Provident Fund in Malaysia, a defined contribution pension scheme. Contributions to defined contribution pension schemes are recognised as an expense in the period in which the related service is performed.

(c) Defined benefit plans

The Group operates an unfunded, post-retirement medical benefit plan (“the Plan”) for its eligible employees and their eligible family members. The Group’s obligation under the Plan, calculated using the Projected Unit Credit Method, is determined based on actuarial computations by independent actuaries, through which the amount of benefit that employees have earned in return for their service in the current and prior years is estimated. That benefit is discounted in order to determine its present value. Actuarial gains and losses are recognised as income or expense over the expected average remaining working lives of the participating employees when the cumulative unrecognised actuarial gains or losses for the Scheme exceed 10% of the higher of the present value of the defined benefit obligation and the fair value of plan assets. Past service costs are recognised immediately to the extent that the benefits are already vested, and otherwise are amortised on a straight-line basis over the average period until the amended benefits become vested.

The amount recognised in the balance sheet represents the present value of the defined benefit obligations adjusted for unrecognised actuarial gains and losses and unrecognised past service costs.

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2.24 Employee benefits (cont’d.)

(d) Employee share option plans

The Company’s Employee Share Options Scheme (“ESOS”), an equity-settled, share-based compensation plan, allows the Company and its subsidiaries to acquire ordinary shares of the Company. The total fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in the share option reserve within equity over the vesting period and taking into account the probability that the options will vest. The fair value of share options is measured at grant date, taking into account, if any, the market vesting conditions upon which the options were granted but excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable on vesting date.

At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable on vesting date. It recognises the impact of the revision of original estimates, if any, in the profit or loss, and a corresponding adjustment to equity over the remaining vesting period. The equity amount is recognised in the share option reserve until the option is exercised, upon which it will be transferred to share premium, or until the option expires, upon which it will be transferred directly to retained earnings.

The proceeds received net of any directly attributable transaction costs are credited to equity when the options are exercised.

2.25 Leases

(a) As lessee

Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.

Leased assets are depreciated over the estimated useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life and the lease term.

Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.

(b) As lessor

Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income.

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2.26 Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.

(a) Sale of electricity

Sale of electricity is recognised upon invoiced value of services rendered.

(b) Sale of goods

Revenue is recognised net of sales taxes and upon transfer of significant risks and rewards of ownership to the buyer. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

(c) Interest income

Interest income is recognised on an accrual basis using the effective interest method.

(d) Dividend income

Dividend income is recognised when the Group’s right to receive payment is established.

(e) Construction contracts

Revenue from construction contracts is accounted for by the stage of completion method as described in Note 2.16.

(f) Revenue from parking and maintenance fees and rental income

Revenue from maintenance charges and rental income is recognised on an accrual basis.

(g) Development properties

Revenue from sale of development properties is accounted for by the stage of completion method as described in Note 2.17.

2.27 Income taxes

(a) Current tax

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity.

(b) Deferred tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.


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2.27 Income taxes (cont’d.)

(b) Deferred tax (cont’d.)

Deferred tax liabilities are recognised for all temporary differences, except:

- where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

- where the deferred tax asset relating to the deductible temporary difference arises from the

initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

2.28 Share capital and share issuance expenses

An equity instrument is any contract that evidences a residual interest in the assets of the Group and the Company after deducting all of its liabilities. Ordinary shares are equity instruments.

Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs. Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.

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2.29 Contingencies

A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the Group.

Contingent liabilities and assets are not recognised in the statements of financial position of the Group.

3. Significant accounting estimates and judgements

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Depreciation of property, plant and equipment and release of deferred income

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives and deferred income (ie. capital contributions and grants received from consumers and government) was transferred to the income statement based on the estimated useful lives of the related property, plant and equipment. Management estimates the useful lives of the property, plant and equipment to be within 2 to 100 years. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges and release of deferred income could be revised.

(b) Construction contracts

The Group recognises contract revenue based on percentage of completion method. The stage of completion is measured by reference to either the costs incurred to-date to the estimated total cost or the completion of a physical proportion of work to-date. Significant judgement is required in determining the stage of completion, the extent of the costs incurred and the estimated total revenue (for contracts other than fixed contracts) and costs. Total contract revenue also includes an estimation of the variation works that are recoverable from the customers. In making the judgement, the Group relies on past experience and work of specialists.

(c) Deferred tax assets

Deferred tax assets are recognised for all unutilised tax losses, unabsorbed capital allowances, unutilised investment allowances and provisions to the extent that is probable that taxable profit will be available against which the tax losses, capital allowances, investment allowances and provisions can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The total carrying value of recognised tax losses, capital allowances, investment allowances and provisions of the Group was RM608,516,000 (2009: RM418,332,000) and the unrecognised investment allowances of the Group was RM430,001,000 (2009: RM 430,001,000).


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3. Significant accounting estimates and judgements (cont’d.)

(d) Impairment of loans and receivables

The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.

Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics.

(e) Defined benefit plan

The cost of post-retirement medical benefit plan (“the Plan”) as well as the present value of the obligation under the Plan is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, medical cost inflation rate and mortality rates. All assumptions are reviewed at each reporting date. The net employee liability as at 31 December 2010 is RM119,354,000 (2009: RM101,669,000). Further details are given in Note 27(a).

In determining the appropriate discount rate management has derived the applicable interest rates from long term corporate bonds in the country. The bonds have been selected based on the expected duration of the defined benefit obligation and taking into consideration the yield curve respectively.

Medical cost inflation rate is based on the country market practice of 11% in year 2008 and reduced by 2% annually from year 2008 until year 2011 while the mortality rate is based on publicly available mortality tables for the country.

Further details about the assumptions used are given in Note 27(a).

4. Revenue Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Dividend income from related companies - - 116,144 105,604 Interest income from loans and receivables - short term deposits 2,454 1,872 2,454 1,872 - subsidiary - - 6,411 - Sales of electricity 1,514,450 1,352,978 - - Sales of good and services - 4,741 - - Manufacturing, fabrication, galvanising and sale of steel structures 9,230 2,859 - - Construction contracts 21,001 6,577 - -Others 6,599 6,168 - -

1,553,734 1,375,195 125,009 107,476 ======== ======== ======= =======

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5. Interest income Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Interest income from loans and receivables: - Short-term deposits 8,251 10,388 - - - Others 301 668 2 349

8,552 11,056 2 349 ====== ====== ======= ======

6. Other income Amortisation of grant and capital contribution 109,463 91,543 - - Gain on disposal of investment in an associate - - 1,330 108 Gain on disposal of property, plant and equipment 56 - 38 - Gain on partial disposal of investment in a subsidiary 28 - 3,618 - Miscellaneous 34,564 22,750 17 3,305 Net realised foreign exchange gain 2,435 15 - 3 Rental income from land and building 4,373 3,992 - - Reversal of allowance for impairment loss on loans and receivables – related company - - 28 -

150,919 118,300 5,031 3,416 ====== ====== ======= ======

7. Finance costs

Interest expenses/profit payments on: - Bankers acceptance and trust receipts 9 3 - - - Islamic debt securities 74,895 80,941 - - - Syndicated borrowings 36,535 8,522 36,535 8,522- Revolving credits 13,502 7,025 13,489 6,856- Term loan 411 - - - Bank charges and commission 51 78 - -

125,403 96,569 50,024 15,378

Amount recharged to subsidiaries (Note 25) - - (48,125) (15,378)Amount capitalised in capital work-in-progress (Note 13) - Profit payments on islamic debt securities - (10,726) - - - Interest expenses on revolving credit (5,795) (6,856) - - - Interest expenses/profit payments on syndicated borrowings (36,535) (8,522) - - - Term loan (411) - - -

82,662 70,465 1,899 - ====== ====== ======= ======


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8. Profit before tax

Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

The following amounts have been included in arriving at profit before tax: Auditors’ remuneration- statutory audits current year 301 261 70 60 underprovision in prior years 42 8 10 10 - other services 661 87 661 45Bad debts written off 453 359 - - Depreciation of property, plant and equipment(Note 13) 290,338 259,128 887 1,007 Directors’ remuneration (Note 10) 1,306 4,506 383 2,539 Employee benefits expense (Note 9) 204,783 214,160 5,727 10,002Finance costs (Note 7) 82,662 70,465 1,899 - Impairment in value of investment in an associate 7,591 - 7,878 -Inventories written off 188 246 - - Net impairment loss on loans and receivables - trade receivables 692 260 - - - related companies 11,476 - 11,486 - Loss on partial disposal of investment in an associate 426 2,795 - - Loss on disposal of property, plant and equipment 2,872 4,676 - - Loss on foreign exchange - realised 17 - - - - unrealized - 1,535 - -Operating lease 5,419 4,361 - - Property, plant and equipment written off 9 81 - - ====== ====== ===== =====


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9. Employee benefits expense Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Salaries, wages, overtime and bonus 146,754 142,923 11,917 7,385Social security contributions 1,348 1,301 36 28 Contributions to defined contribution plan 18,785 18,627 799 885 Other benefits 16,699 12,024 910 524Retirement benefit obligations (Note 27(a)) 21,244 21,947 144 133 Share options granted under ESOS (Note 27(b)) - 17,960 - 1,047

204,830 214,782 13,806 10,002Less: Amount capitalised in capital work-in-progress (Note 13) (47 ) (622 ) - -Less: Amount charged to subsidiaries - - (8,079 ) -

204,783 214,160 5,727 10,002 ====== ====== ====== =====

Included in employee benefits expense of the Group and of the Company are executive directors’ remuneration amounting to RMNil (2009: RM2,815,644) and RMNil (2009: RM1,907,604) respectively.

10. Directors’ remuneration Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 Directors of the CompanyEmoluments 105 1,760 102 1,754Fees 496 579 281 272 Share options granted under ESOS - 513 - 513

601 2,852 383 2,539

Other directorsEmoluments 432 837 - -Fees 273 303 - - Retirement benefit obligations - 28 - - Share options granted under ESOS - 486 - -

705 1,654 - -

Total Directors’ remuneration (Note 32) 1,306 4,506 383 2,539 ====== ====== ====== =====


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10. Directors’ remuneration (cont’d.)

The number of directors of the Company whose total remuneration (excluding share options granted under ESOS) falls within the following bands is analysed below:

Number of Directors 2010 2009Executive Directors RM1,900,000 - RM1,950,000 - 1

Non-executive Directors RM20,001 - RM50,000 3 -RM50,001 - RM100,000 3 5 RM100,001 - RM150,000 2 -

11. Income tax expense

Major components of income tax expense

The major components of income tax expense for the years ended 31 December 2010 and 2009 are:

Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 Statements of comprehensive income:

Current income tax: - Malaysian income tax 65,826 49,858 26,753 23,300 - Under/(over)provision in respect of previous years 11,378 231 (305) 12

77,204 50,089 26,448 23,312

Deferred tax (Note 17):- Origination and reversal of temporary differences 29,480 10,882 (36 ) (33 )- Overprovision in respect of previous years (341 ) (939 ) - -- Deferred tax assets recognised on investment allowance (55,622 ) - - -

(26,483 ) 9,943 (36 ) (33 )

Income tax expense recognised in profit or loss 50,721 60,032 26,412 23,279 ====== ====== ====== =====


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11. Income tax expense (cont’d.)

Reconciliation between tax expense and accounting profit The reconciliation between tax expense and the product of accounting profit multiplied by the applicable corporate tax rate for the years ended 31 December 2010 and 2009 are as follows:

Group 2010 2009 RM’000 RM’000

Accounting profit before tax 386,939 277,274 ====== ======

Tax at Malaysian statutory tax rate of 25% (2009: 25%) 96,735 69,318 Adjustments: Non-deductible expenses 35,513 23,503 Income not subject to tax (30,012) (23,832 ) Benefits from previously unrecognised deferred tax assets (6,812) (8,542 ) Deferred tax assets recognised (55,621) - Share of results of associates (119) 293 Underprovision of income tax expense in respect of previous years 11,378 231 Overprovision of deferred tax in respect of previous years (341) (939 )

Income tax expense recognised in profit or loss 50,721 60,032 ====== ====== Company 2010 2009 RM’000 RM’000

Accounting profit before tax 93,532 91,837 ====== ======

Tax at Malaysian statutory tax rate of 25% (2009: 25%) 23,383 22,959Adjustments: Non-deductible expenses 8,614 2,561 Income not subject to tax (5,280 ) (2,253 ) (Over)/under provision of tax expense in respect of previous years (305 ) 12

Income tax expense recognised in profit or loss 26,412 23,279 ====== ======

Current income tax is calculated at the Malaysian statutory tax rate of 25% (2009: 25%) of the estimated assessable profit for the year.


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12. Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the year, net of tax, attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the financial year.

Diluted earnings per share amounts are calculated by dividing profit for the year, net of tax, attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the financial year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following table reflects the profit and share data used in the computation of basic and diluted earnings per share for the years ended 31 December:

Group 2010 2009 RM’000 RM’000

Profit net of tax attributable to owners of the parent used in the computation of basic/diluted earnings per shares 341,309 216,145 ======== ======== Group 2010 2009 ’000 ’000

Weighted average number of ordinary shares for basic earnings per share computation 1,610,552 1,535,687Effects of dilution - share options - 19 Weighted average number of ordinary shares for diluted earnings per share computation 1,610,552 1,535,706 ======== ========Basic earnings per share (sen) 21.2 14.1 ======== ========Diluted earnings per share (sen) 21.2 14.1 ======== ========

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13. Property, plant and equipment (cont’d.) Motor vehicle, furniture, fittings, Capital Leasehold equipment Work-in- Land and others progress Total RM’000 RM’000 RM’000 RM’000Company

Cost At 1 January 2009 - As previously stated - 5,592 - 5,592- Effects of adopting the amendments to FRS 117 (Note 14) 14,657 - - 14,657

- As restated 14,657 5,592 - 20,249Additions - 130 69,596 69,726

At 31 December 2009 (as restated) 14,657 5,722 69,596 89,975 ====== ===== ====== ======

At 1 January 2010 - As previously stated - 5,722 69,596 75,318- Effects of adopting the amendments to FRS 117 (Note 14) 14,657 - - 14,657

- As restated 14,657 5,722 69,596 89,975Additions - 481 100,256 100,737Disposals - (300) - (300)Transfer to subsidiary - - (167,853) (167,853)

At 31 December 2010 14,657 5,903 1,999 22,559 ====== ===== ====== ======

Accumulated depreciation

At 1 January 2009 - As previously stated - 2,249 - 2,249- Effects of adopting the amendments to FRS 117 (Note 14) 782 - - 782

- As restated 782 2,249 - 3,031Depreciation charge for the year (Note 8) 260 747 - 1,007

At 31 December 2009 (as restated) 1,042 2,996 - 4,038 ====== ===== ====== ======


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13. Property, plant and equipment (cont’d.)

Motor vehicle, furniture, fittings, Capital Leasehold equipment work-in- Land and others progress Total RM’000 RM’000 RM’000 RM’000Company (cont’d.)

Accumulated depreciation (cont’d.)

At 1 January 2010 - As previously stated - 2,996 - 2,996- Effects of adopting the amendments to FRS 117 (Note 14) 1,042 - - 1,042

- As restated 1,042 2,996 - 4,038Depreciation charge for the year (Note 8) 261 626 - 887Disposals - (165) - (165)

At 31 December 2010 1,303 3,457 - 4,760 ====== ====== ====== ======Net carrying amount

At 1 January 2009 13,875 3,343 - 17,218 ====== ====== ====== ======

At 31 December 2009 13,615 2,726 69,596 85,937 ====== ====== ====== ======

At 31 December 2010 13,354 2,446 1,999 17,799 ====== ====== ====== ======

Assets under construction

Included in the capital work-in-progress of the Group are projects completed as at 31 December 2010 but not capitalised amounted to RM16,410,453 (2009: RM12,593,905). The Group is taking concerted action to identify the total cost of these completed projects and take them to the respective assets accounts.

The following expenses incurred during the year have been included in capital work-in-progress: Group 2010 2009 RM’000 RM’000Interest expenses/profit payments on syndicated borrowings 36,535 8,522Interest expenses on revolving credit 5,795 6,856 Profit payments on islamic debt securities - 10,726Term loan 411 -Employee benefits expense 47 622Operating lease 48 89 ====== ======

Included in capital work-in-progress of the Company was the design, construction, completion and commissioning of the Proposed Headquarters Building for the Company amounting to RM68,625,352 as at last year end. During the current year, the capital work-in-progress was transferred to a subsidiary.

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13. Property, plant and equipment (cont’d.)

Revaluation of land and buildings

Land and buildings of the Group have not been revalued since 1993. The Directors have not adopted a policy of regular revaluations of such assets and no later valuation has been recorded. As permitted under the transitional provisions of IAS 16 (Revised): Property, Plant and Equipment, these assets continue to be stated at their valuation less accumulated depreciation.

The above transitional provisions are available only on the first application of the MASB Approved Accounting Standard IAS 16 (Revised): Property, Plant and Equipment which is effective for periods ending on or after 1 September 1998. By virtue of this transitional provision, an entity that had recorded its property, plant and equipment at revalued amounts but had not adopted a policy of revaluation has been allowed to continue carrying those assets on the basis of their previous revaluations subject to continuity in its depreciation policy and the requirement to write down the assets to their recoverable amounts for impairment adjustments. The transitional provisions will remain in force until and unless the entity chooses to adopt a revaluation policy in place of a cost policy. When that happens, FRS 116 (which supersedes IAS 16) would require revaluations to be carried out at regular intervals.

The title deeds of certain lands of certain subsidiaries are in the process of being registered in the name of the subsidiaries.

14. Land use rights Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 At cost/surrogated cost

At 1 January - As previously stated 164,607 164,402 14,657 14,657- Effects of adopting the amendments to FRS 117 (Note 13) (164,607) (164,402) (14,657) (14,657)

- As restated - - - -Addition - - - -

At 31 December - - - - ======= ======= ======= ======= Accumulated amortisation

At 1 January - As previously stated 40,990 39,095 1,042 782- Effects of adopting the amendments to FRS 117 (Note 13) (40,990) (39,095) (1,042) (782)

- As restated - - - -Amortisation for the year (Note 8) - - - -

At 31 December - - - - ======= ======= ======= =======

Net carrying amount - - - - ======= ======= ======= =======


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15. Investment in subsidiaries Company 2010 2009 RM’000 RM’000 Unquoted shares, at costs 1,666,383 1,690,841 Less: Accumulated impairment losses (94,773) (94,773) ESOS granted to employees of subsidiaries 46,000 47,842

1,617,610 1,643,910 ======== ========

Details of the subsidiaries, all of which are incorporated in Malaysia and audited by Ernst & Young, Malaysia, are shown below: Proportion (%) ofName Principal activities ownership interest 2010 2009 Held by the Company:

Syarikat SESCO Berhad Generation, transmission, distribution and sale of electricity 100.00 100.00

Sarawak Power Power generation 100.00 100.00 Sdn. Bhd.

Sejingkat Power Corporation Power generation 100.00 100.00 Sdn. Bhd. *

Mukah Power Generation Sdn. Bhd. Power generation 100.00 100.00

Sarawak Hydro Power Generation Power generation 100.00 100.00 Sdn. Bhd. #

Sarwaja Timur Sdn. Bhd. * Manufacture, fabrication, galvanising and sale of steel structures - 100.00

Dasar Untung Sdn. Bhd. Investment holding 100.00 100.00

Dunlop Agro-Management Investment holding 100.00 100.00 Sdn. Bhd.

Dunlop Estates Holdings Sdn. Bhd. Investment holding 100.00 100.00


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15. Investment in subsidiaries (cont’d.) Proportion (%) ofName Principal activities ownership interest 2010 2009 Held by the Company: (cont’d.)

Dunlop Properties Sdn. Bhd. Investment holding 100.00 100.00

Naungan Pertiwi Sdn. Bhd. Dormant 100.00 100.00 Held through Syarikat SESCO Berhad:

SESCO-EFACEC Sdn. Bhd. Manufacturing of transformers and switch gears and contracting electrical works 51.00 51.00

Sarawak Energy Services Sdn. Bhd. Provision of management services, operation and maintenance of power stations and contracting 100.00 100.00

Sarawak Energy Engineering Mechanical, electrical and Sdn. Bhd. electronic engineering and contracting 70.00 70.00

PPLS Power Generation Sdn. Bhd. Power generation 100.00 100.00

Held through Sejingkat Power Corporation Sdn. Bhd.: SE Lite Crete Sdn. Bhd. Dormant 60.00 60.00

Held through Sarwaja Timur Sdn. Bhd.:

Sarwaja Engineering & Undertake engineering Construction Sdn. Bhd. and construction projects - 100.00

Held through Sarawak Hydro Power Generation Sdn. Bhd.:

Murum Hydro Consortium Sdn. Bhd.# Power generation 100.00 100.00

* Through the equity interest held by the Company and its subsidiary, Syarikat SESCO Berhad.# These subsidiaries have yet to commence operations during the financial year.


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15. Investment in subsidiaries (cont’d.) Disposal of subsidiaries

The Group disposed of its 100% equity interest in Sarawaja Timur Sdn. Bhd. and its wholly owned subsidiary, Sarwaja Engineering & Construction Sdn. Bhd. to Sarawak Cable Berhad and a third party on 30 December 2010 for a total consideration of RM38,500,000 in exchange for cash and shares in Sarawak Cable Berhad.

The disposal had the following effects on the financial position of the Group as at the end of the financial year:

2010 RM’000 Property, plant and equipment 20,891 Inventories 15,989Trade and other receivables 25,886Amount due from a fellow subsidiary 17,719Amount due from customers on contract 5,577Cash and bank balances 1,502Trade and other payables (42,808 )Amount due to related companies (563 )Borrowings (3,463 )Current tax payable (225 )Deferred tax liabilities (2,033 )

Net assets disposed 38,472

Disposal proceeds received by the Company (29,918 )Disposal proceeds received by the subsidiary (8,582 )

(38,500 )

Gain on disposal to the Group (28 ) =======

Disposal proceeds settled by:Cash 26,462Allotment of 10,000,000 ordinary shares by Sarawak Cable Berhad (Note 16) 12,038

38,500 =======

Cash inflow arising on disposal:Cash consideration 26,462Cash and cash equivalents of subsidiaries disposed (1,502 )

Net cash inflow on disposal 24,960 =======


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16. Investment in associates Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Quoted shares in Malaysia, at cost 12,952 - 21,593 - Share of post-acquisition reserves 14,325 - - -

27,277 - 21,593 -

Unquoted shares in Malaysia, at cost 37,470 38,701 30,413 43,293 Share of post-acquisition reserves (8,138) 11,123 - -

29,332 49,824 30,413 43,293 Less: Accumulated impairment losses (14,368) (6,777) (16,313) (8,435)

14,964 43,047 14,100 34,858

42,241 43,047 35,693 34,858 ======= ====== ======= ====== Market value of quoted shares 35,223 - 35,223 - ======= ====== ======= ====== Details of the associates, all of which are incorporated in Malaysia, are shown below: Proportion (%) ofName Principal activities ownership interest 2010 2009 Held by the Company:

Dectra Sdn. Bhd.# Provision, integration and maintenance of control instrumentation and SCADA systems 26.24 26.24

Sarawak Coal Resources Extraction and sales of coal 30.00 30.00 Sdn. Bhd. # Sarawak Cable Berhad * Investment holding 21.56 24.07 Seatrac Sdn. Bhd. # Development of the undersea 50.00 50.00 High Votage Direct Current (“HVDC”) transmission cable.

Held through Sejingkat Power Corporation Sdn. Bhd.:

Gobel Industry Sdn. Bhd. # Coal mining, sales of coal, and provision of transportation, manpower supply and machinery services 20.00 20.00


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16. Investment in associates (cont’d.)

Proportion (%) ofName Principal activities ownership interest 2010 2009

Held through Dunlop Properties Sdn. Bhd.:

Integrated Circuit Design Provision of integrated circuit Services Sdn. Bhd. # design services, intellectual property licensing and operation support 30.00 30.00Held through Syarikat SESCO Berhad:

Sejingkat Power Corporation Power generation 49.18 49.18Sdn. Bhd.

Sarawak Gas Distribution Distribution of gas 30.00 30.00Sdn. Bhd.

Sarwaja Timur Sdn. Bhd. Manufacture, fabrication, galvanising and sale of steel structure - 22.29

* On 2 June 2010, the Company has partially disposed its equity interest in Sarawak Cable Berhad (“SCB”) for a total cash consideration of RM4,655,000 as part of the listing exercise of SCB on the Main Board of Bursa Securities Malaysia Berhad. Consequently, the Company’s equity interest in SCB was decreased from 24.07% to 15.92%. The Company’s equity interest in SCB subsequently increased from 15.92% to 21.56% on 30 December 2010 as a result of the event mentioned in Note 15.

All the companies are audited by Ernst & Young, Malaysia except for those marked # which are audited by other firm.

The summarised financial information of the associates, not adjusted for the proportion of ownership interest held by the Group is as follows:

Group 2010 2009 RM’000 RM’000Assets and liabilities

Current assets 243,332 115,758Non-current assets 191,682 164,298

Total assets 435,014 280,056 ======== =======

Current liabilities (219,282 ) (105,408 )Non-current liabilities (20,765 ) (16,138 )

Total liabilities (240,047 ) (121,546 ) ======== =======

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16. Investment in associates (cont’d.)

The summarised financial information of the associates, not adjusted for the proportion of ownership interest held by the Group is as follows: (cont’d.)

Group 2010 2009 RM’000 RM’000

Results

Revenue 299,235 219,134Profit/(Loss) for the year 4,965 (2,984) ======= =======

The details of goodwill included within the Group’s carrying amount of investment in associates are as follows:

Group 2010 2009 RM’000 RM’000Cost/net carrying amount

At 1 January 1,627 2,236 Partial disposal of equity interest (551) (609)Additional equity interest acquired 6,023 -

At 31 December 7,099 1,627 ======= =======

17. Deferred tax

Deferred income tax as at 31 December relates to the following:

Group As at 1 Recognised As at 31 Recognised Disposal of As at 31 January in profit or December in profit or subsidiaries December 2009 loss 2009 loss 2010 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deferred tax liabilities:Revaluation of land and building (15,341) 593 (14,748) 564 - (14,184)Accelerated capital allowances (398,732) (2,921) (401,653) (23,795) 2,033 (423,415)Retirement benefit obligations 20,157 4,594 24,751 4,193 - 28,944Unutilised investment allowance and tax losses 23,514 (7,441) 16,073 (3,640) - 12,433

(370,402) (5,175) (375,577) (22,678) 2,033 (396,222) ======= ======= ======= ======= ======= =======


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17. Deferred tax (cont’d.)

Group As at 1 Recognised As at 31 Recognised Disposal of As at 31 January in profit or December in profit or subsidiaries December 2009 loss 2009 loss 2010 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Deferred tax assets: Accelerated capital allowances (35,520 ) 1,330 (34,190 ) 2,168 - (32,022 ) Retirement benefit obligations 432 208 640 219 - 859Unutilised investment allowance 69,425 (6,306 ) 63,119 46,774 - 109,893

34,337 (4,768 ) 29,569 49,161 - 78,730

(336,065 ) (9,943 ) (346,008 ) 26,483 2,033 (317,492 ) ======= ====== ======= ====== ======= ======== Company As at 1 Recognised As at 31 Recognised As at 31 January in profit or December in profit or December 2009 loss 2009 loss 2010 RM’000 RM’000 RM’000 RM’000 RM’000

Deferred tax assets: Retirement benefit obligations 137 33 170 36 206 ====== ====== ====== ====== ====== Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 Presented after appropriate offsetting as follows:

Deferred tax assets (78,730 ) (29,569 ) (206 ) (170 )Deferred tax liabilities 396,222 375,577 - -

317,492 346,008 (206 ) (170 ) ======= ====== ====== ====== Group 2010 2009 RM’000 RM’000 Deferred tax assets have not been recognised inrespect of the following items:

Unutilised investment allowance 430,001 430,001 ====== ======

At the reporting date, the deferred tax assets of a subsidiary are not recognised due to uncertainty of its recoverability. The availability of the unutilised investment allowance for offsetting against future taxable profits of the subsidiary is subject to no substantial changes in shareholdings of the subsidiary under the Income Tax Act, 1967 and guidelines issued by the tax authority.


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18. Property development costs Group 2010 2009 RM’000 RM’000

Freehold land 5,600 5,372 Development cost 95,079 95,307

100,679 100,679 ======= =======

19. Inventories Group 2010 2009 RM’000 RM’000

Cost

Raw materials and consumables 292,653 319,658Work-in-progress 4,439 3,323Finished goods 1,534 4,120

298,626 327,101 ======= =======

20. Trade and other receivables Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000Current

Trade receivables Third parties 133,189 139,143 - -Less: Allowance for impairment (2,711) (2,940) - -

Trade receivables, net 130,478 136,203 - -

Other receivables Amounts due from related companies - subsidiaries - - 2,003,364 1,172,397 - associates 29,420 5,772 29,363 5,720Deposits 394 314 192 83 Dividend receivable - - - 4,960Sundry receivables 69,734 74,285 1,351 9,411

99,548 80,371 2,034,270 1,192,571Less: Allowance for impairment - third parties (33,011) (33,011) - - - related companies (11,484) - (118,407) (106,949)

55,053 47,360 1,915,863 1,085,622

Total trade and other receivables 185,531 183,563 1,915,863 1,085,622 ======= ====== ======== ========


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20. Trade and other receivables (cont’d.)

(a) Trade receivables

Trade receivables are non interest bearing.

The Group’s normal trade credit term ranges from 14 to 60 days (2009: 14 to 60 days). Other credit terms are assessed and approved on a case-by-case basis. They are recognised at their original invoice amounts which represent their fair values on initial recognition.

The Group has no significant concentration of credit risk that may arise from exposures to a single debtor or to groups of debtors.

Ageing analysis of trade receivables The ageing analysis of the Group’s trade receivables is as follows:

Group 2010 2009 RM’000 RM’000

Current 70,415 80,4571 to 30 days past due 11,937 12,77331 to 60 days past due 7,100 6,28361 to 90 days past due 6,779 5,842More than 90 days past due 36,958 33,788

133,189 139,143 ======= =======

Receivables that are past due but not impaired

The Group has trade receivables amounting to RM39.8 million (2009: RM31.2 million) that are past due at the reporting date but not impaired.

Receivables that are subject to impairment

The Group’s trade receivables that are subject to impairment at the reporting date and the movement of the allowance accounts used to record the impairment are as follows:

Subject to impairment Collectively Individually Total 2010 2009 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Trade receivables - nominal amounts 21,934 22,265 996 5,225 22,930 27,490 Less: Allowance for impairment (1,729) (1,729) (982) (1,211) (2,711) (2,940)

20,205 20,536 14 4,014 20,219 24,550


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20. Trade and other receivables (cont’d.)

(a) Trade receivables (cont’d.) Group 2010 2009 Receivables that are subject to impairment (cont’d.) RM’000 RM’000

Movement in allowance accounts:At 1 January 2,940 2,680Effect of adopting FRS 139 (873) -Disposal of a subsidiary (48) -Charge for the year (Note 8) 692 260

At 31 December 2,711 2,940

The Group’s trade receivables amounting to RM60.1 million (2009: RM55.7 million) represent trade receivables that are past due and no allowance for impairment is necessary as the amount of collateral deposits from the trade receivables held by the Group stands at RM256.3 million (2009: RM238.0 million).

(b) Sundry receivables

Included in sundry receivables of the Group are advances to the contractors for the construction of Proposed Headquarters Building and power plants undertaken by the Group amounting to RM4.6 million (2009: RM11.1 million).

(c) Amounts due from related companies

Amounts due from related companies are non-interest bearing except for amounts of RM1,548.4 million (2009: RM1,028.9 million) which bear interest at rates from 3.50% to 4.95% (2009: 2.25% to 4.50%) per annum. These amounts are unsecured and are repayable on demand.

21. Other current assets


Prepaid operating expenses 7,469 11,049 34 33 Tax recoverable 4,255 4,466 2,005 1,700

11,724 15,515 2,039 1,733 ====== ====== ====== ======

22. Due from/(to) customers on contract works Group 2010 2009 RM’000 RM’000

Construction contract costs incurred to date 554,810 531,958 Attributable profits 11,282 31,764 566,092 563,722 Less: Progress billings (594,879 ) (532,536 )

(28,787 ) 31,186 ======= =======


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22. Due from/(to) customers on contract works (cont’d.) Group

2010 2009 RM’000 RM’000Presented as:Amount due from customers on contract works 7,802 36,082Amount due to customers on contract works (36,589) (4,896)

(28,787) 31,186 ======= =======

Retention sums on contract construction, included in trade receivables 3,366 12,920 ======= =======

23. Cash and bank balances

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise the following at the reporting date:


Short-term deposits with licensed banks 391,764 535,235 17,280 139,435 Cash at banks and on hand 73,534 107,342 23,954 16,890

Cash and cash equivalents 465,298 642,577 41,234 156,325 ======= ======= ======= =======

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and 365 days depending on the immediate cash requirements of the Group and the Company, and earn interest at the respective short-term deposits rates. The interest rates of deposits at statement of financial position date range from 1.00% to 3.1% (2009: 1.7% to 3.8%) per annum.

Short-term deposits with licensed banks of the Group and of the Companies amounting to RM121,002,041 and RM17,280,000 (2009: RM71,979,645 and RMNIL) respectively, are pledged as securities for the Group’s and the Company’s borrowings.

24. Trade and other payables Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000Current

Trade payables

Third parties 191,219 218,465 - -Amount due to related company - associates 10,763 14,273 - -

201,982 232,738 - -


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24. Trade and other payables (cont’d.) Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000Current (cont’d.)

Other payables

Other payables 124,788 170,196 4 227 Accruals 31,679 135,158 13,748 7,492Amounts due to related companies - - 2,967 1,418Collateral deposits 256,320 237,964 - -

412,787 543,318 16,719 9,137

Total trade and other payables 614,769 776,056 16,719 9,137

Add: Loans and borrowings (Note 25) 2,509,159 1,938,327 1,519,159 906,327

Total financial liabilities carried at amortised cost 3,123,928 2,714,383 1,535,878 915,464 ========= ======== ======== ========

(a) Trade payables

Trade payables are non-interest bearing. The normal trade credit term granted to the Group ranges from 14 to 90 days (2009: 14 to 90 days).

(b) Other payables

These amounts are non-interest bearing. Other payables are normally settled on credit term ranges from 14 to 90 days (2009: 14 to 90 days).

(c) Amounts due to related companies

The amounts due to related companies are unsecured, non-interest bearing and are repayable on demand.


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25. Loans and borrowings Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000Current Unsecured:Islamic debt securities 55,000 55,000 - -Revolving credits 530,000 309,153 530,000 309,153

585,000 364,153 530,000 309,153

Secured:Revolving credits - 2,000 - -Islamic debt securities 65,000 35,000 - -

65,000 37,000 - -

650,000 401,153 530,000 309,153

Non-current Unsecured:Islamic debt securities 55,000 110,000 - - Syndicated borrowings 989,159 597,174 989,159 597,174

1,044,159 707,174 989,159 597,174

Secured:Islamic debt securities 765,000 830,000 - -Term loan 50,000 - - -

815,000 830,000 - -

1,859,159 1,537,174 989,159 597,174

Total loans and borrowings 2,509,159 1,938,327 1,519,159 906,327 ======== ======== ======== ========

Revolving credits

During the year, the Company had obtained a new revolving credit facility of RM1,200 million to bridge the Group capital expenditure and working capital requirements pending the completion of the fund raising exercise via Proposed Issuance of Sukuk Musyarakah Programme of up to RM15 billion as disclosed in Note 40(a). As at 31 December 2010, a total of RM140 million has been drawdown by the Company.

The unsecured revolving credits of the Group and the Company bear interest rates of 3.50% to 4.82% (2009: 2.8% to 4.4%) per annum.

The Group’s secured revolving credits were secured by way of a first fixed charge over the land and buildings and by way of a debenture covering a first fixed and floating charge over the entire assets of a subsidiary. The secured revolving credits bore interest at rates of 4.55% to 5.75% per annum.

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25. Loans and borrowings (cont’d.)

Islamic debt securities

The details of the islamic debt securities of the Group are as follows:

(i) 11-year RM605 million Al-Bai Bithaman Ajil Islamic Debt Securities (“BaIDS”)

The unsecured islamic debt securities were issued by a subsidiary at interest rates of 3.70% to 6.55% per annum and redeemable by eleven tranches over a period of eleven years commencing 2002 till 2012.

The BaIDS are redeemable as follows: Group 2010 2009 RM’000 RM’000

Redeemable within 1 year 55,000 55,000

Between 1 and 2 years 55,000 55,000 Between 2 and 5 years - 55,000

Redeemable after 1 year 55,000 110,000

110,000 165,000 ======= =======

(ii) 15-year RM215 million Sukuk Musharakah

This represents the Serial Sukuk Musharakah of up to an aggregate nominal amount of RM215.0 million (“the Sukuk Musharakah”) issued under the Islamic principle of Musharakah by a subsidiary to partly finance the development and construction of a coal-fired power plant in Mukah which is undertaken by another subsidiary of the Group. This borrowing shall be issued in three tranches over a period of eighteen (18) months to a licensed bank, the primary subscriber. The total nominal amount of Sukuk Musharakah amounting to RM215.0 million had been issued in prior years.

The Sukuk Musharakah is secured by a security trust deed, the assignment of certain lease of the subsidiary, a first legal charge over designated accounts of the subsidiary and assignment of rights, titles and interests of the monies standing to the credit of these accounts, assignment of rights over specified licence, agreements and insurances, and a deed of debenture creating a fixed and floating charge over present and future assets of the subsidiary.

The subsidiary undertakes and has complied in maintaining a Service Cover Ratio of not less than 1.25:1 since the tenure of the facilities commenced.


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(ii) 15-year RM215 million Sukuk Musharakah (cont’d.)

The summary of the profit payment rates and redemption dates of the Sukuk Musharakah as at 31 December 2010 is tabulated below:

Nominal Issuance Profit Redemption Tranche amount dates payment rates dates RM’ million Year % Year

1 105.0 2006 7.05 - 8.10 2016 - 20212 55.0 2007 6.55 - 7.05 2012 - 20163 55.0 2007 5.80 - 6.85 2009 - 2012

215.0 =====

The Sukuk Musharakah is redeemable as follows: Group 2010 2009 RM’000 RM’000

Redeemable within 1 year 15,000 15,000 Redeemable after 1 year 170,000 185,000

185,000 200,000 ======= =======

(iii) 15-year RM665 million Sukuk Mudharabah

This represents the Serial Sukuk Mudharabah of up to an aggregate nominal amount of RM665.0 million (“the Sukuk Mudharabah”) issued under the Islamic principle of Mudharabah by a subsidiary to partly finance its development and construction of a coal-fired power plant in Mukah.

This borrowing shall be issued in five tranches over a period of two years to a licensed bank, the primary subscriber. The total nominal amount of Sukuk Mudharabah amounting to RM665.0 million had been issued in prior years.

The Sukuk Mudharabah is secured by the following:

(i) Assignment of all rights, benefits and titles of the subsidiary under its project documents;

(ii) Memorandum of charge to be signed in escrow over the subsidiary’s land upon the issuance of the land title to the subsidiary;

(iii) Letter of undertaking to procure the issuance of the individual land title for Mukah Power Plant and assignment of its rights to the alienation of the `issuance of lease(s) or provisional lease(s) or separate document of title of the subsidiary’s land;

(iv) Memorandum of first legal charge over designated accounts of the subsidiary and assignment of rights, benefits and titles to the credit balances in these accounts; and

(v) First ranking debenture creating fixed and floating charge over present and future assets of the subsidiary.

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Islamic debt securities (cont’d.)

(iii) 15-year RM665 million Sukuk Mudharabah (cont’d)

The subsidiary undertakes and has complied in maintaining a Service Cover Ratio of not less than 1.25:1 since the tenure of the facilities commenced.

The summary of the profit payment rates and redemption dates of the Sukuk Mudharabah as at 31 December 2010 is tabulated below:

Profit Nominal Issuance payment Redemption

Tranche amount dates rates dates RM’ million Year % Year

1 195.0 2006 8.10 - 8.60 2019 - 2021 2 325.0 2007 7.15 - 8.25 2013 - 2019 3 30.0 2007 7.40 - 7.50 2013 4 45.0 2008 6.70 - 6.90 2012 - 2013 5 70.0 2008 6.45 - 6.75 2010 - 2011

665.0 =====

The Sukuk Mudharabah is redeemable as follows: Group 2010 2009 RM’000 RM’000

Redeemable within 1 year 50,000 20,000 Redeemable after 1 year 595,000 645,000

645,000 665,000 ======= =======Syndicated borrowings

On 16 July 2009, the Company had executed an agreement to raise a total of RM1,900 million syndicated borrowings via Syndicated Murabahah Tawarruq Facility of RM1,600 million and Syndicated Term Loan Facility of RM300 million to partly finance the development and construction of a hydroelectric power plant in Murum which is undertaken by a subsidiary. The syndicated borrowings are jointly financed by a group of licensed Islamic Financiers and a licensed bank.

As at 31 December 2010, a total amount of RM989.2 million has been drawndown by the Company. The details are as follows:

Group/Company 2010 2009 RM’000 RM’000

Syndicated Murabahah Tawarruq 832,976 501,247 Syndicated term loan 156,183 95,927

Redeemable after 1 year 989,159 597,174 ======= =======

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Syndicated borrowings (cont’d.)

The facilities have been structured for a tenure of the earlier of:

(i) Twenty four months from the date of the first disbursement under the Syndicated Facilities; or

(ii) Upon first disbursement of the long term funding exercise undertaken in respect of the Project addressing the funding requirements of the Project over its entire construction development period, which, for the avoidance of doubt, shall include the commissioning of the Project.

The syndicated borrowings are expected to be refinanced by the Proposed Issuance of Sukuk Musyarakah Programme of up to RM15 billion as disclosed in Note 40(a).

The facilities are secured by charge over the Finance Service Reserve Accounts (“FSRA”) each held under

the Syndicated Facilities and both operated solely by the respective Security Agent. The Company shall ensure that funds are deposited into the FSRAs until balance held in the FSRA is at least equivalent to the Minimum Required Balance which represents one profit/interest payment under the Syndicated Facilities.

The syndicated borrowings bear profit payments/interest rates of 3.85% to 4.95% (2009: 3.85% to 4.50%) per annum.

Term Loan- secured Group 2010 2009 RM’000 RM’000

Musharakah Mutanaqisah Term Financing - I 50,000 -

======= =======

This represents the Musharakah Mutanaqisah Term Financing – I of up to an aggregate nominal amount of RM232.0 million (“the MMTF-i”) issued under the Shariah principle of Musharakah by a subsidiary to partly finance the construction of the Proposed Headquarters Building. A nominal amount of RM50.0 million has been released during the year.

This borrowing is secured by Musharakah Mutanaqisah Co-ownership Agreement, specific negative

pledge over all assets related to Proposed Headquarters Building and a corporate guarantee of RM232.0 million from the Company.

This borrowing bears profit payment rate at 5.19% per annum and is for a period of 8 years plus 18 months grace period from 29 July 2010. The borrowing is repayable in 96 monthly equal instalments, with first instalment due on February 2012.

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26. Deferred income

Deferred income represents government grants and capital contributions by consumers towards the cost of capital projects and is analysed as follows: Group 2010 2009 RM’000 RM’000

At 1 January 1,383,433 1,347,355Received during the year 315,227 127,621Released to the income statement (109,463) (91,543)

At 31 December 1,589,197 1,383,433 ======== ========

Capital contributions and grants received from consumers and government was transferred to the income statement based on the estimated useful lives of the related property, plant and equipment.

27. Employee benefits (a) Retirement benefit obligations

The Group operates an unfunded post-retirement medical benefit plan (“the Plan”) for its eligible employees and their eligible family members upon attainment of the retirement age of 56 by the eligible employees.

Movements in the net liability in the current year were as follows:


At 1 January 101,669 82,419 678 546 Recognised in income statement 21,244 21,947 144 133 Benefits paid (3,559) (2,697) (2) (1)

At 31 December 119,354 101,669 820 678 ====== ====== ===== =====

The amounts recognised in the balance sheet are determined as follows:


Present value of unfunded defined benefit obligations 144,767 131,475 853 714 Unrecognised past service costs (25,413) (29,806) (33) (36)

Net liability 119,354 101,669 820 678 ====== ====== ===== =====


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27. Employee benefits

(a) Retirement benefit obligations (cont’d)

The amounts recognised in the income statement are as follows:


Current service cost 8,912 10,073 97 93Interest cost 7,939 7,481 44 37 Past service costs 4,393 4,393 3 3

Total, included in employee benefits expense (Note 9) 21,244 21,947 144 133

====== ====== ===== =====

Principal actuarial assumptions used: Group Company 2010 2009 2010 2009 % % % %

Discount rate 6.5 6.5 6.5 6.5 Medical cost inflation rate 7.0 9.0 7.0 9.0

The average life expectancy of an individual retiring at age 56 is 20 years.

(b) Employee Share Options Scheme

The SEB Employee Share Options Scheme (“ESOS”) was governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 19 December 2007. The ESOS was implemented on 21 December 2007 and was initially in force for a period of 10 years from the date of implementation.

The salient features of the ESOS were as follows: (i) The Employee Share Options Scheme Committee (“Options Committee”) appointed by the

Board of Directors to administer the ESOS, might from time to time grant options to eligible employees of the Group to subscribe for new ordinary shares of RM1 each in SEB.

(ii) Subject to the discretion of the Options Committee, any employee whose employment had been confirmed and in employment of the Group for a period of at least one (1) year of continuous service prior to and up to the Offer Date and any executive directors holding office in a full-time executive capacity of the Group, should be eligible to participate in the ESOS.

(iii) The total number of shares to be issued under the ESOS should not exceed in aggregate 10% of the total issued and paid-up share capital of SEB at any point of time during the tenure of the ESOS and out of which not more than 50% of the shares should be allocated, in aggregate, to directors and senior management of the Group. In addition, not more than 10% of the shares available under the ESOS should be allocated to any individual director or employee who, either singly or collectively through his/her associates, held 20% or more in the issued and paid-up capital of SEB.


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27. Employee benefits (cont’d)

(b) Employee Share Options Scheme (cont’d)

(iv) The option price for each share should be the weighted average of the market price as quoted in the Daily Official List issued by Bursa Malaysia Securities Berhad for the 5 market days immediately preceding the date on which the option was granted, the Options Committee should so determine at their discretion from time to time, a discount of not more than 10% or the par value of the shares of SEB of RM1.

(v) The employees’ entitlements to the options were vested as soon as they became exercisable.

The options upon acceptance would entitle the employee to subscribe for the total options granted to him over a period commencing from the date of the offer letter to 21 December 2017 subject to the maximum percentage of option exercisable in a particular year. In the first year, it would be 20% of the total options granted and subsequently, 10% from the second year to the ninth year. Where the total options exercisable for a particular period was not fully exercised, the unexercised options shall be carried forward to the next period subject to the retention percentage imposed by the Options Committee. Any unexercisable options that was allowed to roll over to the next period shall not subject to any restriction imposed for the next period.

(vi) All new ordinary shares issued upon exercise of the options granted under the ESOS would rank pari passu in all respects with the existing ordinary shares of SEB other than as might be specified in a resolution approving the distribution of dividends prior to their exercise dates.

(vii) The persons to whom the options have been granted have no right to participate by virtue of the options, in any share issue of any other company.

During the last financial year, SEB had announced the receipt of notice of voluntary offer from Delegateam Sdn. Bhd. (“Delegateam”), a wholly owned subsidiary of the State Financial Secretary (“SFS”) to acquire all the remaining ordinary shares in SEB not already owned by Delegateam or SFS and all the new SEB Shares that might be issued and allotted prior to the closing of the voluntary offer arising from the exercise of outstanding options granted pursuant to the ESOS at an offer consideration of RM2.65 per SEB Share to be satisfied in cash. The share options granted under the ESOS was almost fully exercised by the eligible employees of the Group and a total employee benefits expense of RM17,960,052 and RM1,047,283 for the Group and the Company respectively, had been recognised in the last financial year.

The ESOS was dissolved on 22 March 2010 following the de-listing of the entire issue and paid-up share capital of the Company in January 2010.


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27. Employee benefits (cont’d)

(b) Employee Share Options Scheme (cont’d)

Movement of share options during the financial yearThe following table illustrates the number and weighted average exercise price (“WAEP”) of, and movements in, share during the financial year:

2010 2009 ’000 ’000

2007 option (“WAEP” @ RM2.15)

Outstanding as at 1 January 620 84,498

- Exercised (302) (82,841)- Forfeited (318) (1,037)

Outstanding as at 31 December - 620 ====== ======

Exercisable as at 31 December - 620 ====== ======

As disclosed in Note 28, options exercised during the financial year resulted in the issuance of 301,900 (2009: 82,840,480) ordinary shares at an exercise price of RM2.15. The related weighted average share price at the date of exercise was RM2.65 (2009: RM2.63).

Fair value of share options granted

The fair value of share options granted in 2007 was determined using the Binomial model, taking into account the terms and conditions upon which the options were granted. The fair value of share options measured at grant date and the assumptions are as follows:

Fair value of share options at the grant date (RM) 0.83Share price at grant date (RM) 2.39Exercise price (RM) 2.15Expected volatility (%) 23.13Option life (years) 10.00Risk free interest rate (%) 3.88Expected dividend yield (%) 1.71

Consequential to the corporate exercise undertaken by SEB as mentioned above, the fair value and the assumptions as stated above had been revised accordingly based on an intrinsic value of RM0.50 per option.

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28. Share capital and share premium

Amount Total share capital and Number of Par Share Share share ordinary shares value capital premium premium ’000 RM RM’000 RM’000 RM’000 Group and Company

Issued and fully paid

At 1 January 2009 1,527,426 1.00 1,527,426 14,159 1,541,585

Exercise of employee shareoptions (Note 27(b)) 82,841 1.00 82,841 95,266 178,107Transferred from shareoption reserve - - - 39,721 39,721

At 31 December 2009 1,610,267 1.00 1,610,267 149,146 1,759,413 Exercise of employee shareoptions (Note 27(b)) 302 1.00 302 347 649Transferred from shareoption reserve - - - 151 151

At 31 December 2010 1,610,569 1.00 1,610,569 149,644 1,760,213 ======== ======= ======== ======= ========

Number of ordinary Amount shares of RM1 each 2010 2009 2010 2009 ’000 ’000 RM’000 RM’000

Authorised share capital

At 1 January/31 December:Ordinary shares of RM1 each 2,900,000 2,900,000 2,900,000 2,900,0005-year 5% RCPS of RM0.10 each 1,000,000 1,000,000 100,000 100,000

3,900,000 3,900,000 3,000,000 3,000,000 ========= ======== ======== ========

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions and rank equally with regard to the Company’s residual assets.

During the financial year, the Company increased its issued and paid-up ordinary share capital from RM1,610,267,079 to RM1,610,568,979 by way of the issuance of 301,900 ordinary shares of RM1 each for cash, pursuant to the Company’s Employees’ Share Options Scheme at an exercise price of RM2.15 per ordinary share.

The new ordinary shares issued during the financial year ranked pari passu in all respects with the existing ordinary shares of the Company.


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29. Reserves

Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000Non-distributable:

Capital reserves (a) 85,355 85,355 - - Capital redemption reserve (b) 73,128 73,128 73,128 73,128 Share option reserve (c) - 311 - 311

158,483 158,794 73,128 73,439

Distributable:

General reserves (a) 94,147 94,147 5,000 5,000 Retained earnings (d) 1,478,182 1,202,277 255,405 254,561

1,572,329 1,296,424 260,405 259,561

1,730,812 1,455,218 333,533 333,000 ======== ======== ======= =======

Movements in reserves are shown in the Statements of Changes in Equity.

The nature and purpose of each category of the reserves are as follows:

(a) Capital reserves and general reserves

These reserves include reserves created in accordance with Section 21(2)(a) of the SESCo Ordinance, 1962 which had since been repealed in year 2005. The nature and purpose of each category of the reserves are as follows: (cont’d.)

(b) Capital redemption reserve

This reserve represents cancellation of nominal value of ordinary shares arising from purchase of own shares and cancellation of nominal value of Redeemable Convertible Preference Shares (“RCPS”) redeemed in prior years.

(c) Share option reserve

The share option reserve represents the equity-settled share options granted to eligible employees of the Group. This reserve is made up of the cumulative value of services received from employees recorded on grant of share options. The details of the share options are disclosed in Note 27(b).

(d) Retained earnings

Prior to the year of assessment 2008, Malaysian companies adopted the full imputation system. In accordance with the Finance Act 2007 which was gazetted on 28 December 2007, companies shall not be entitled to deduct tax on dividend paid, credited or distributed to its shareholders, and such dividends will be exempted from tax in the hands of the shareholders (“single tier system”). However, there is a transitional period of six years, expiring on 31 December 2013, to allow companies to pay franked dividends to their shareholders under limited circumstances. Companies also have an irrevocable option to disregard the 108 balance and opt to pay dividends under the single tier system. The change in the tax legislation also provides for the 108 balance to be locked-in as at 31 December 2007 in accordance with Section 39 of the Finance Act 2007.

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29. Reserves (cont’d)

(d) Retained earnings (cont’d)

The Company did not elect for the irrevocable option to disregard the 108 balance. Accordingly, during the transitional period, the Company may utilise the credit in the 108 balance as at 31 December 2010 and 2009 to distribute cash dividend payments to ordinary shareholdings as defined under the Finance Act 2007.

As at 31 December 2010, the Company has sufficient credit in the 108 balance to pay franked dividends amounting to RM140 million out of its retained earnings (2009: RM207 million out of its retained earnings). If the balance of the retained earnings of RM115 million (2009: RM48 million) were to be distributed as dividends, the Company may distribute such dividends under the single tier system. In addition, the Company has tax exempt profits available for distribution of approximately at RM102 million (2009: RM102 million) which is available for distribution as tax exempt dividends, subject to agreement by the Inland Revenue Board.

30. Capital commitments Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Capital expenditure:Approved and contracted for 3,967,621 4,350,595 - 184,196Approved and not contracted for 1,896,681 1,367,095 - 9,179

5,864,302 5,717,690 - 193,375 ======== ========= ======== ========

31. Contingencies The Company has given a corporate guarantee of RM232.0 million to Maybank Islamic Berhad in favour of its wholly-owned subsidiary, Naungan Pertiwi Sdn Bhd (“NPSB”) for the Musharakah Mutanaqisah Term Financing– I facility of up to RM232.0 million granted by the bank to NPSB during the year as mentioned in Note 25. The directors of the Company are of the view that the likelihood of default in payments by NPSB is not probable and accordingly, no provision for liability has been made in these financial statements.

32. Related party disclosures

(a) During the financial year, the Group and the Company entered into the following significant related party transactions:

Company 2010 2009 RM’000 RM’000 (i) Transactions with subsidiaries:

Income Interest charged to Syarikat SESCO Berhad 6,411 -


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32. Related party disclosures (cont’d)

(a) During the financial year, the Group and the Company entered into the following significant related party transactions: (cont’d)

Group 2010 2009 RM’000 RM’000 (ii) Transactions with associates:

Income Sales Universal Cable (Sarawak) Sdn. Bhd. 17 - Expenditure Purchases Sarawak Coal Resources Sdn. Bhd. 161,208 124,614 Gobel Industry Sdn. Bhd. 1,579 2,307 Universal Cable (Sarawak) Sdn. Bhd. 21,623 6,631 Rental paid to Gobel Industry Sdn. Bhd. 26 40

(iii) Transactions with a company in which a subsidiary has significant influence:

Income Interest charged to Genesis Force Sdn. Bhd. 90 90

Expenditure Purchases of coal from Genesis Force Sdn. Bhd. 3,982 20,822

(iv) Transaction with a company in which a director has influence:

Expenditure Rental of premises charged by Custodev Dua Sdn. Bhd. 231 219

The directors are of the opinion that the above transactions were entered into in the normal course of business and were transacted on normal commercial terms.

(b) Compensation of key management personnel

The remuneration of directors and other members of key management during the year was as follows:


Short-term employee benefits 8,889 7,232 5,741 3,133 Post-employment benefits - defined contribution plan 513 760 102 243 - defined benefit plan 77 98 27 24 Other benefits 858 19 666 - Share options granted under ESOS - 1,538 - 619

10,337 9,647 6,536 4,019 ======= ====== ====== ====== Included in the total key management personnel are: Directors’ remuneration (Note 10) 1,306 4,506 383 2,539 ======= ====== ====== ======

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32. Related party disclosures (cont’d)

(b) Compensation of key management personnel (cont’d)

The directors of the Group and other members of key management have been granted the following number of options under the Employee Share Options Scheme (“ESOS”):

Group Company 2010 2009 2010 2009 ’000 ’000 ’000 ’000

At 1 January 280 7,384 - 2,888Exercised (280) (7,104) - (2,888)

At 31 December - 280 - - ====== ======= ======= =======

The share options were granted on the same terms and conditions as those offered to other employees of the Group.

33. Dividends Dividends in respect Dividends recognised of year in year 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Final dividend for 2008: 5.5 sen less 25% taxation on 1,527,488,199 ordinary shares - - - 63,009

Final dividend for 2009: 5.5 sen less 25% taxation on 1,610,568,979 ordinary shares - 66,436 66,436 - Proposed for approval at forthcoming AGM

Final dividend for 2010: 5.5 sen less 25% taxation on 1,610,568,979 ordinary shares 66,436 - - -

66,436 66,436 66,436 63,009 ====== ====== ====== ======

At the forthcoming Annual General Meeting, a final dividend in respect of the financial year ended 31 December 2010, of 5.5 sen less 25% taxation on 1,610,568,979 ordinary shares, amounting to a dividend payable of RM66,435,970 will be proposed for shareholders’ approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of retained earnings in the financial year ending 31 December 2011.

34. Controlling shareholder

The Directors regard State Financial Secretary, Sarawak, a statutory corporation established under the State Financial Secretary (Incorporation) Ordinance of Sarawak, as the controlling shareholder of the Company.

35. Segmental information

The Group principally involves in the generation, transmission, distribution and sale of electricity within the same geographical region. Accordingly, no segmental information is presented.


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36. Fair value of financial instruments

Determination of fair value

The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

(a) Cash and bank balances, other receivables and other payables

The carrying amounts of these balances approximate fair value due to their short term nature.

(b) Trade receivables and trade payables

The carrying amounts of trade receivables and trade payables approximate fair value because they are subject to normal trade credit terms.

(c) Amounts due from/to related companies

The carrying values of amounts due from/to related companies in current assets and current liabilities approximate fair value due to their short term nature. No disclosure of fair value is made for non-current amounts due from/to related companies as it is not practicable to determine their fair value with sufficient reliability since these balances have no fixed terms of repayment.

(d) Loans and borrowings

The carrying values of loans and borrowings approximate their fair values as they bear interest rates which approximate the current incremental borrowing rates for similar types of lending and borrowing arrangements.

37. Financial risk management objectives and policies

The Group and the Company are exposed to financial risks arising from their operations and the use of financial instruments. The Group’s and the Company’s principal financial instruments comprise loans and borrowings, cash and short-term deposits. The main purpose of these financial instruments is to manage the Group’s funding and liquidity requirements. The Group and the Company have other financial assets and liabilities such as trade receivables and trade payables, which arise directly from their operations.

Financial risk management policies are periodically reviewed and approved by the Board of Directors and executed by risk management committees. The Group Risk Management Committee provides independent oversight to the effectiveness of the risk management process.

It is, and has been throughout the current financial year, the Group and the Company do not apply hedge accounting and do not hold or issue derivative financial instruments for trading purposes.

The key financial risks include credit risk, liquidity risk, interest rate risk and foreign currency risk.

The following sections provide details regarding the Group’s and Company’s exposure to the above-mentioned financial risks and the objective, policies and processes for the management of these risks.

(a) Credit risk

Credit risks, or the risk of counterparties defaulting, is controlled by the application of credit approvals, limit and monitoring procedures. Credit risks are minimised and monitored via strictly limiting the Group’s associations to business partners with high creditworthiness. Trade receivables are monitored on an ongoing basis via the Group’s management reporting procedures.


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37. Financial risk management objectives and policies (cont’d)

(a) Credit risk (cont’d)

The Group does not have any significant exposure to any individual customer or counterparty nor does it have any major concentration of credit risk related to any financial instruments.

(b) Liquidity risk

The Group manages its debt maturity profile, operating cash flows and the availability of funding so as to ensure that refinancing, repayment and funding needs are met. As part of its overall prudent liquidity management, the Group maintains sufficient levels of cash or cash convertible investments to meet its working capital requirements. In addition, the Group strives to maintain available banking facilities at a reasonable level to its overall debt position. As far as possible, the Group raises committed funding from both capital markets and financial institutions and balances its portfolio with some short-term funding so as to achieve overall cost effectiveness.

(c) Interest rate risk

The Group’s primary interest rate risk arises primarily from interest-bearing assets and debts. The investment in financial assets are not held for speculative purposes but have been mostly placed in fixed deposits or occasionally, in loan stocks which yield better returns than cash at bank.

The Group manages its interest rate exposure by maintaining a prudent mix of fixed and floating rate borrowings. The Group actively reviews its debt portfolio, taking into account the investment holding period and nature of its assets. This strategy allows it to capitalise on cheaper funding in a low interest rate environment and achieve a certain level of protection against rate hikes.

The information on maturity dates and effective interest rates of financial assets and liabilities are disclosed in their respective notes.

(d) Foreign currency risk

The Group is exposed to transactional currency risk primarily through purchases that are denominated in currency other than Malaysian Ringgit. Foreign exchange exposures in transactional currencies other than the entity’s functional currency are kept to an acceptable level.

The Group does not use hedging activities to protect themselves against the volatility associated with foreign currency transactions.

38. Capital management

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2010 and 31 December 2009.

The Group monitors capital using a gearing ratio, which is net debt divided by total equity. The Group includes within net debt, loans and borrowings less cash and bank balances. Total equity comprises equity attributable to the owners of the parent and minority interests.


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38. Capital management (cont’d)

Group Company Note 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Loans and borrowings 25 2,509,159 1,938,327 1,519,159 906,327Less: Cash and bank balances 23 (465,298) (642,577) (41,234) (156,325)

Net debt 2,043,861 1,295,750 1,477,925 750,002 ========= ======== ======== ========Total equity 3,504,288 3,232,985 2,093,746 2,092,413 ========= ======== ======== ========Gearing ratio (times) 0.58 0.40 0.71 0.36 ========= ======== ======== ========

39. Significant events (a) De-listing of the entire issued and paid-up share capital of the Company and Dissolution of the

Company’s ESOS.

On 5 January 2010, the entire issued and paid-up share capital of the Company was de-listed from the Official List of Bursa Securities.

On 22 March 2010, the Company’s ESOS was dissolved following the above mentioned de-listing exercise.

(b) Changes in Group Structure

On 30 December 2010, the Group has disposed off its entire equity interest in Sarwaja Timur Sdn Bhd and its wholly owned subsidiary, Sarwaja Engineering & Construction Sdn Bhd to Sarawak Cable Bhd (“SCB”) and a third party for a total consideration of RM38,500,000 in exchange for cash and shares in SCB.

On 2 June 2010, the Company has partially disposed its equity interest in SCB for a total cash consideration of RM4,655,000 as part of the listing exercise of SCB on the Main Board of Bursa Malaysia Securities Berhad. Consequently, the Company’s equity interest in SCB decreased from 24.07% to 15.92%. On 30 December 2010, the Company’s equity interest in SCB subsequently increased from 15.92% to 21.56% as a result of the events mentioned above.

(c) Sarawak Hidro Sdn Bhd/Bakun Dam

During the year, the Company commenced negotiations with the Government of Malaysia and Sarawak Hidro Sdn Bhd (“SHSB”) for the potential acquisition and/or purchase of power arrangements relating to the 2,400 MW Bakun Dam, which is owned and being developed by SHSB. As at the date of this report, negotiations are still on-going.

(d) Proposed Issuance of Sukuk Musyarakah Programme of up to RM15 billion

On 19 October 2010, the Company has commenced the due diligence exercise on the proposed issuance of the above mentioned programme with its Principal Adviser/Lead Arranger. The proceeds from the proposed issuance will be mainly used to part finance the proposed acquisition of SHSB/Bakun Dam mentioned in Note 39(c), to finance the Group’s capital expenditure requirements and to refinance part of the Group’s existing borrowings.


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40. Subsequent events

(a) Proposed Issuance of Sukuk Musyarakah Programme of up to RM15 billion

On 11 April 2011, the Company has finalised the above mentioned programme and has submitted the necessary submissions to Securities Commission via its Principal Adviser/Lead Arranger and the proposed programme is currently pending approval from the Securities Commission. RAM Rating Services Berhad has assigned a long term rating of AA1 to the above mentioned programme.

(b) Signing of Power Purchase Agreement Term Sheet with Press Metal Berhad and three other foreign companies

On 12 April 2011, the Company has signed separate Power Purchase Agreement Term Sheet with Press Metal Berhad and three other foreign companies, namely OM Materials, Asia Mineral Ltd and Tokuyama Corp. These four mentioned customers, being the first batch of investors of Sarawak Corridor of Renewable Energy (“SCORE”), plan to invest approximately RM9.5 billion in energy intensive industries at Samalaju Industrial Park of Bintulu, Sarawak and will require a long-term supply of 1,300MW to power their plants. It is announced that the signing of the above power purchase agreement term sheet signified the positive development towards the success of SCORE, one of the five regional economic corridors in Malaysia.

41. Comparative figures Certain comparative figures have been reclassified to conform with the current year’s presentation, as follows:

As previously As stated Adjustments restated RM’000 RM’000 RM’000Statements of Financial Position Group Property, plant and equipment 6,319,598 123,617 6,443,215Land use rights 123,617 (123,617) -Amount due from customers on contract works - 36,082 36,082Trade and other receivables 235,160 (51,597) 183,563Other current assets - 15,515 15,515 ======== ======== ========Company

Amount due from subsidiaries 1,065,448 (1,065,448) -Trade and other receivables 21,907 1,063,715 1,085,622Other current assets - 1,733 1,733 ======== ======== ========

42. Authorisation of financial statements for issue

The financial statements for the year ended 31 December 2010 were authorised for issued in accordance with a resolution of the directors on 19 May 2011.


4th Floor, Wisma SESCO, Petra Jaya, 93673 Kuching, Sarawak.Tel: 6082-441 188 Fax: 6082-313 588 Website: www.sarawakenergy.com.my

SARAWAK ENERGY BERHAD(Company No. 007199-D)

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