Integrated Annual Report 2021

STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL GOVERNANCE The FRC includes among others, documentation of controls, testing of internal control design effectiveness, remediation of control gaps as well as a periodic testing of control operating effectiveness. The objective of conducting the assurance and evaluating the test results is to conclude whether the controls are designed and operating effectively to support the financial statement assertions. If internal control deficiencies are noted during the testing, management shall determine whether they constitute a material misstatement to the financial statements. The root cause for each deficiency shall be documented and the Corrective Action Plan for the ineffective controls shall be monitored and reported periodically. FRC Assurance testing requirement is performed semi-annually for relevant processes. • MISC Financial Policy The Group continues to monitor and ensure effective and robust execution of financial risk management through the implementation of the MISC Financial Policy (MFP) with the objective of becoming a financially resilient organisation through efficient capital management practices. The MFP is supplemented with the existing PETRONAS Corporate Financial Policy’s (CFP) guidelines in the areas of liquidity management, cash repatriation, financing, investment, banking, asset-liability management, foreign exchange management, credit, tax, inward financial guarantee and documentary credit, and integrated financial risk management. Amongst CFP activities carried out by MISC during FY2021 are: • Managing credit risk by conducting counterparties risk review and assessment on a yearly basis and conducting an assessment of the counterparties prior to accepting Inward Financial Guarantee and Documentary Credit from vendors. • Monitor trade receivables on a monthly basis. • Managing interest rate exposures by monitoring the loans and entering into interest rate swaps to hedge against volatility in cashflow due to fluctuations in the floating rate. • Debt Covenant Monitoring The Group monitors its financial and non-financial covenants set out under all its external financing facilities on a quarterly basis, to ensure that covenants are observed and complied with within the terms imposed. • Financial Risk Appetite The Group has established Financial Risk Appetite Setting (FRAS), which sets out KRIs as a means of monitoring and mitigating against adverse trends in the following financial risk areas: • Interest rate risk appetite limit, where the Weighted Average Cost of Debt (WACD) of the Group for the year is set to monitor the overall cost of debt of the Group. • Debt appetite limit, where debt threshold is set to monitor the Group’s debt levels. • Minimum liquidity requirement level, to ensure that the Group can meet its immediate operating expenses payables, committed debt obligations and committed capital expenditures. In addition to the minimum liquidity requirement, additional cash reserves and credit limits available for drawing are maintained to meet contingency payments and opportunistic investments. MISC is committed to become a financially resilient organisation. MISC shall continuously strive to achieve the following: • Capital efficiency in pursuit of business objectives with appropriate balance between risk and reward. • Maintain an investment grade credit rating (if applicable). • Sustain a strong cash repatriation discipline in the most optimal manner. • Uphold strong governance at all times. Adherence to this policy is everyone’s responsibility. Note: MISC refers to MISC Berhad and its subsidiaries, excluding the joint venture companies and associate companies • Foreign exchange risk appetite, to set out thresholds for net currency exposures to mitigate the financial risk arising from non-functional currency transactions. • Financial institution credit counterparty risk appetite, to mitigate financial exposures arising from failure of counterparty financial institutions. The KRIs thresholds of FRAS are reviewed and refreshed annually. Taxation • MISC Tax Policy MISC has during the year adopted the MISC Tax Policy. With the tax policy in place, MISC continues to enhance its tax compliance with the required legislations in the countries where it has presence, with the aim for the Group to be a responsible corporate taxpayer and to maintain cooperative relationships with the relevant tax authorities. Project Evaluation The Group continues to use a risk-based pricing framework to ensure that the returns of any capital investment or project, adequately cover the risks assumed for undertaking such investment or project. Amongst the risk elements considered in the Project Risk Assessment (PRA) framework are counter-party credit risk, project tenure, project and commercial risk, overall project economics against risk, assumed level of debt taken to fund the project and the residual value risk of the asset at the end of the contract period. The PRA framework is continuously reviewed and refined to ensure the robustness of the risk assessment process. PRA is a stringent tool adopted by the Group in identifying a project’s risks prior to embarking on a new capital-intensive project. PRA enables the business to identify and implement appropriate controls to mitigate the risk of projects. In addition, the PRA advocates and ensures a consistent approach to project prioritisation during the overall planning and budget cycle throughout the Group, whilst promoting investment discipline. Ultimately, the objective of PRA is to ensure that project returns are commensurate with the level of risk taken. The PRA framework, which covers a complete project life cycle, also includes the review of project implementation, identification of lessons learnt and evaluation on whether agreed objectives, targets and returns have been achieved. For each project that is being considered for bid submission, PRA is conducted and deliberated at the PRA Sub-Committee and subsequently BGRC. Procurement MISC’s Procurement Manual provides the overall procurement principles, scope, functions, governance, operational procurement processes, procedures and exceptions to be adopted in relation to procurement activities within MISC. Tender Committees and Quotation Committees are established to ensure procurement activities are conducted in an effective, transparent and fair manner whereas Vendor Performance Review Committee is established to review, deliberate and endorse on overall vendor performance matters including application for suspension, blacklisting, uplifting and reinstatement. As part of the continuing process to improve MISC’s procurement policies and processes, the Group has embarked on the MISC Procurement Transformation Programme. MISC Group is committed to be a responsible taxpayer by: • Complying in good faith with all applicable tax laws, regulations, guidelines and international tax treaties, and settling tax obligations when legally due, as company and employer; and • Maintaining cooperative working relationships with tax authorities. Adherence to this Policy is everyone’s responsibility, by referring all tax related matters to the appropriate parties. Note: MISC refers to MISC Berhad and its subsidiaries, excluding the joint venture companies and associate companies. MISC Berhad 278 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 279

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