Audited Project Financial Statements - ADB

Audited Project Financial Statements

The audited project financial statements are documents owned by the borrower. The views expressed herein do not necessarily represent those of ADB’s Board of Directors, Management, or staff. These documents are made publicly available in accordance with ADB’s Access to Information Policy and as agreed between ADB and the Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara.

Project Number: 49080-001 Loan Number: 3339/8297 Period covered: 1 January 2018 to 31 December 2018

INO: Electricity Grid Strengthening—Sumatra Program

Prepared by Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara

For the Asian Development Bank Date received by ADB: 2 July 2019

PERUSAHAAN PERSEROAN (PERSERO)

PT PERUSAHAAN LISTRIK NEGARA

Electricity Grid Strengthening Sumatra Program – Results Based Lending

Special-Purpose Statements of Program Expenditures and Financing

For the Year Ended December 31, 2018

PERUSAHAAN PERSEROAN (PERSERO) PT PERUSAHAAN LISTRIK NEGARA Electricity Grid Strengthening Sumatra Program – Results Based Lending Special-Purpose Statements of Program Expenditures and Financing Table of Contents Pages Independent Auditors’ Reports Independent Accountant’s Reports Special-Purpose Statements of Program Expenditures and Financing For the year ended December 31, 2018

Statement of Actual Program Expenditures and Financing 1 Statements of Cumulative Actual Program Expenditures 3 Notes to Special-Purpose Statements of Program Expenditures and Financing 5

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PERUSAHAAN PERSEROAN (PERSERO) PT PERUSAHAAN LISTRIK NEGARA Electricity Grid Strengthening Sumatra Program – Results Based Lending Statement of Actual Program Expenditures and Financing For the Year Ended December 31, 2018 (In thousands of US$, unless otherwise stated)

ADB AIF TOTAL ADB AIF TOTAL ADB AIF

Notes US$ US$ US$ US$ US$ US$ % %

By financing disbursement :

Year 2017

DLI 1 4a 3,842 158 4,000 3,842 158 4,000 100.00% 100.00%

DLI 2 4b 17,250 750 18,000 5,074 223 5,297 29.41% 29.73%

DLI 3 4c 11,500 500 12,000 11,500 500 12,000 100.00% 100.00%

DLI 4 4d 21,086 914 22,000 16,594 727 17,321 78.70% 79.54%

DLI 5 4e 1,921 79 2,000 1,921 79 2,000 100.00% 100.00%

DLI 6 4f 3,837 163 4,000 3,837 163 4,000 100.00% 100.00%

Year 2018

DLI 1 4a 28,750 1,250 30,000 28,750 1,250 30,000 100.00% 100.00%

DLI 2 4b 5,750 250 6,000 -- -- -- 0.00% 0.00%

DLI 3 4c 11,500 500 12,000 -- -- -- 0.00% 0.00%

DLI 4 4d 28,750 1,250 30,000 -- -- -- 0.00% 0.00%

DLI 5 4e 20,125 875 21,000 13,662 599 14,261 67.89% 68.45%

DLI 6 4f 20,125 875 21,000 10,457 458 10,915 51.96% 52.40%

Year 2019

DLI 1 4a 20,169 895 21,064 20,169 895 21,064 100.00% 100.00%

Financing for prior results 4g 43,110 1,890 45,000 43,110 1,890 45,000 100.00% 100.00%

Total 237,715 10,349 248,064 158,916 6,942 165,858 66.85% 67.08%

Description

Plan Financed (Unaudited) Actual FinancedActual/ Plan Financed

(Unaudited)

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PERUSAHAAN PERSEROAN (PERSERO) PT PERUSAHAAN LISTRIK NEGARA Electricity Grid Strengthening Sumatra Program – Results Based Lending Statement of Actual Program Expenditures and Financing For the Year Ended December 31, 2018 (In thousands of US$, unless otherwise stated)

ADB AIF TOTAL ADB AIF TOTAL ADB AIFUS$ US$ US$ US$ US$ US$ % %

By expenditure :

Unit Induk Wilayah Aceh 22,410 974 23,384 34,107 1,490 35,597 152.20% 152.98%

Unit Induk Wilayah Sumatera Utara 34,610 1,505 36,115 60,992 2,664 63,656 176.23% 177.01%

Unit Induk Wilayah Riau & Kepulauan Riau 51,055 2,220 53,275 16,483 720 17,203 32.28% 32.43%

Unit Induk Wilayah Sumatera Barat 28,724 1,249 29,973 19,908 870 20,778 69.31% 69.66%

Unit Induk Wilayah Sumatera Selatan, Jambi & Bengkulu 38,982 1,695 40,677 61,411 2,683 64,094 157.54% 158.29%

Unit Induk Wilayah Bangka Belitung 15,998 696 16,694 12,026 525 12,551 75.17% 75.43%

Unit Induk Distribusi Lampung 18,533 806 19,339 18,336 801 19,137 98.94% 99.38%

Unit Induk P3B Sumatera 27,403 1,204 28,607 16,904 738 17,642 61.69% 61.30%

Total 237,715 10,349 248,064 240,167 10,491 250,658 101.03% 101.37%

(Unaudited)

Description

Plan Expenditures (Unaudited) Actual ExpendituresActual/ Plan Expenditures

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PERUSAHAAN PERSEROAN (PERSERO) PT PERUSAHAAN LISTRIK NEGARA Electricity Grid Strengthening Sumatra Program – Results Based Lending Statement of Cumulative Actual Program Financing As of December 31, 2018 and 2017 (In thousands of US$, unless otherwise stated)

ADB AIF TOTAL ADB AIF TOTAL

Notes US$ US$ US$ US$ US$ US$

By financing disbursement :

DLI 1 4a 106,419 4,645 111,064 53,658 2,342 56,000

DLI 2 4b 22,324 973 23,297 17,250 750 18,000

DLI 3 4c 23,000 1,000 24,000 11,500 500 12,000

DLI 4 4d 110,508 4,813 115,321 93,914 4,086 98,000

DLI 5 4e 99,912 4,349 104,261 84,329 3,671 88,000

DLI 6 4f 39,208 1,708 40,916 24,913 1,087 26,000

Financing for prior results 4g 43,110 1,890 45,000 -- -- --

Total 444,481 19,378 463,859 285,564 12,436 298,000

Description

December 31, 2018 December 31, 2017

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PERUSAHAAN PERSEROAN (PERSERO) PT PERUSAHAAN LISTRIK NEGARA Electricity Grid Strengthening Sumatra Program – Results Based Lending Statement of Cumulative Actual Program Expenditures As of December 31, 2018 and 2017 (In thousands of US$, unless otherwise stated)

ADB AIF TOTAL ADB AIF TOTAL

US$ US$ US$ US$ US$ US$

By expenditures :

Unit Induk Wilayah Aceh 53,078 2,315 55,393 18,971 825 19,796

Unit Induk Wilayah Sumatera Utara 90,292 3,938 94,230 29,300 1,274 30,574

Unit Induk Wilayah Riau & Kepulauan Riau 59,704 2,599 62,303 43,221 1,879 45,100

Unit Induk Wilayah Sumatera Barat 44,225 1,927 46,152 24,317 1,057 25,374

Unit Induk Wilayah Sumatera Selatan,

Jambi & Bengkulu 94,411 4,118 98,529 33,000 1,435 34,435

Unit Induk Wilayah Bangka Belitung 25,569 1,114 26,683 13,543 589 14,132

Unit Induk Distribusi Lampung 34,025 1,483 35,508 15,689 682 16,371

Unit Induk P3B Sumatera 41,696 1,816 43,512 24,792 1,078 25,870

Total 443,000 19,310 462,310 202,833 8,819 211,652

December 31, 2018

Description

December 31, 2017

PERUSAHAAN PERSEROAN (PERSERO) PT PERUSAHAAN LISTRIK NEGARA Electricity Grid Strengthening Sumatra Program – Results Based Lending Notes to Special-Purpose Statements of Program Expenditures and Financing For the Year Ended December 31, 2018 (In thousands of US$, unless otherwise stated)

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1. General

During 2015–2019, the Government of Indonesia (the “Government”) seeks to significantly accelerate economic growth in order to reduce income inequality and further reduce poverty. The government has prioritized infrastructure development especially in the power subsector as a key measure that will help increase incomes, reduce poverty, and foster improved connectively and inclusive growth in the country. The country’s ability to provide for growth in industrial and commercial power demand is severely constrained in the effect of the expansion in the power subsector over the past decade has not kept up with increased power demand over the last five years. Generation capacity additions are delayed, and underinvestment and infrastructural deficits extend to the transmission and distribution systems. Indices for power system stability and reliability are showing deteriorating trends, and there have been incidences of blackouts, in Sumatra.

The Government recognizes that business as usual will not lead to increased access to reliable and cost-effective supplies of electricity. The country’s power subsector is dominated by the State Electricity Corporation, Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara (the “Borrower” or “Company” or “PLN”), a vertically integrated utility, which owns and manages almost 75% of the total power generation whilst Independent Power Producers (IPPs) and captive generation make up the balance. PLN under the guidance of the government has outlined a very ambitious expansion program in the power subsector.

The Results Based Lending Program (“RBL”) will focus on supporting the strengthening of the Sumatra power grid. The RBL is defined to cover transmission and distribution for 2015-2019, which in the RUPTL is estimated at US$7,362.4 million. PLN’s estimates cover engineering, procurement, and construction (“EPC”) costs and do not include other expenditure items required to make the program operational (e.g. land acquisition, permits, consultants, project management, and overhead). ADB has therefore estimated the total program costs estimated at US$10,834.5 million (consisting of US$7,362.4 million EPC costs and US$3,472.1 million additional expenditure items). Transmission costs accounts for 79.6% and distribution costs for 20.4%, while the total cost allocations per year vary between 17%–24%. The combination of EPC costs and additional expenditure items makes the full set of expenditures comprehensive and the RBL program fully operational. The RBL modality is appropriate given (i) PLN’s and the government’s strong ownership of the generation expansion program; (ii) the government’s desire to shift to direct lending for ease of efficiency and simplification of project approval process; (iii) the opportunity to improve institutional capacity and country fiduciary systems; and (iv) the presence of World Bank, Japan, KfW, and other development partners in the power subsector.

PLN will finance at least US$5,136.3 million (47.4%) of the broader US$10,834.5 million PLN program for Sumatra and Asian Development Bank (“ADB”) will lend US$600 million (5.5%). PLN and the government may request ADB to provide additional financing during satisfactory implementation of the subsequent phases of Electricity Grid Strengthening – Sumatra Program to bridge any financing gap through to 2019. For the Electricity Grid Strengthening – Sumatra Program, PLN has requested a loan to be guaranteed by the Republic of Indonesia in the amount of US$575 million from ADB’s ordinary capital resources and US$25 million from the ASEAN Infrastructure Fund (“AIF”).

The total financing of US$600 million loan for the Electricity Grid Strengthening – Sumatra Program (the “Program”) aims to achieve the adequacy and reliability of power supply in Sumatra.

The expected outcome of the Program will be the adequacy and reliability of power supply in Sumatra that is to funding electricity grid strengthening Sumatra Program at Wilayah Aceh; Wilayah Sumatera Utara; Wilayah Riau and Kepulauan Riau; Wilayah Sumatera Barat, Wilayah Sumatera Selatan, Jambi and Bengkulu; Wilayah Bangka Belitung; Distribusi Lampung; and P3B Sumatera of which based on the schedule shall be completed by December 31, 2019.

PERUSAHAAN PERSEROAN (PERSERO) PT PERUSAHAAN LISTRIK NEGARA Electricity Grid Strengthening Sumatra Program – Results Based Lending Notes to Special-Purpose Statements of Program Expenditures and Financing (Continued) For the Year Ended December 31, 2018 (In thousands of US$, unless otherwise stated)

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The Program shall comprise the following outputs: 1. Output 1: Existing transmission system strengthened and expanded

The Program shall strengthen and expand the existing transmission system by: a. reconductoring of existing 150 kilovolt (“kV”) transmission lines; b. extension of 150 kV and 275 kV substations; c. installation of 150 kV and 275 kV reactors and capacitors; and d. expansion of outgoing 20 kV switchgears at existing 150 kV substation.

2. Output 2: Existing distribution system strengthened and expanded The Program shall expand and reinforce the medium voltage (20 kV) and low voltage distribution networks, the installation of distribution transformers, the installation of service connections and feeders, and the installation of customer meter boxes and circuit breakers.

3. Output 3: Performance management and implementation improved The Program shall accelerate the Borrower’s staff training and certification programs, as well as on strengthening contract implementation processes.

On December 4, 2015, PLN and ADB entered into Loan Agreement No. 3339-INO under which ADB agreed to lend to the Borrower from ADB’s ordinary capital resources an amount of US$575,000 to finance for enhancing the quality of life in Indonesian society by the sustainable use of electricity as a key driver of increased economic activity. On the same date, the Borrower has also received a loan from AIF amounted to US$25,000, which administered by ADB, under the Loan Agreement No. 8297-INO.

The loan is to be guaranteed by the Republic of Indonesia (“Guarantor”) under the terms of the Guarantee Agreement of even date herewith between the Guarantor and ADB. The Loan Agreement effective as of February 1, 2016.

The Company is required to comply with financial covenants, as stated in the Loan Agreements dated December 4, including (1) self-financing ratio shall be at least 15% from the period beginning January 1, 2016, (2) debt service coverage shall be at least 1.35 times from the period beginning January 1, 2016 to December 31, 2017 and shall be at least 1.5 times for the period beginning January 1, 2018, of its estimated maximum debt service requirements of the Company for any succeeding fiscal year on all its debts including the debt incurred, (3) the ratio of debt to equity shall not be greater than 75 to 25, and the covenant that all proceeds of the loan withdrawn from ADB should be utilized developing the Program as agreed in the ADB Loan 3339-INO and 8297-INO.

The maturity date of the ADB Loan 3339-INO and 8297-INO are September 15, 2035. The last date for disbursement of the ADB Loan 3339-INO and 8297-INO are June 30, 2020

Disbursement Linked Indicator (“DLI”) is an indicator set forth in Loan Agreement which the Borrower is required to achieved in order to withdraw the amount of Loan proceeds allocated in the withdrawal table.

ADB fielded a loan and review mission on October 8, 2018 to discuss the progress of implementation of ADB Loan 3339-INO and 8297-INO. The result of this mission amended the DLI matrix. The mission also amended the loan allocation which effective on November 26, 2018.


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The annual DLI indicator which known as DLI matrix based on Loan Agreement is as follows:

Indicator Prior Result (2015) 2016 2017 2018 2019

DLI 1: Number of PLN

customers in Sumatra

increase by at least 3%

each year

-- At least 11.86

million by end

of 2016

At least 12.21

million by end

of 2017

At least 12.58

million by end

of 2018

At least 12.96

million by end

of 2019

DLI 2: Residential

energy sales grow by at

least 3% each year from

the preceding year

-- At least

16,848 GWh

At least

17,421 GWh

At least

18,048 GWh

At least

18,734 GWh

DLI 3: Number of

medium voltage ("MV")

feeder permanent

interruptions per 100 km

maintained at 2014

baseline level or

improved

-- Reduced to

less than

21.12 by end

of 2016

Reduced to

less than

21.08 by end

of 2017

Reduced to

less than

21.04 by end

of 2018

Reduced to

less than

21.02 by end

of 2019

Outcome: Adequacy and reliability of power supply achieved for Sumatra

DLI 4: Cumulative length

of 150 kV transmission

lines reconductored

25% of the contracts for

strengthening and

expansion of the

transmission system are

made effective in 2015

1,242 ckm by

end of 2016

1,367 ckm by

end of 2017

1,543 ckm by

end of 2018

1,743 ckm by

end of 2019

DLI 5: Additional number

of distribution

transformer units

installed annually

(i) the Borrower's

procurement performance

indicators agreed with ADB;

(ii) procurement baseline

data for the first half of 2015

collected and made

available to ADB; and (iii)


measurement targets for

2016-2019 agreed with ADB.

2,582

distribution

2,642

distribution

3,501

distribution

3,652

distribution

DLI 6: Additional length

of MV distribution lines

installed annually

-- 1,860 ckm 2,010 ckm 2,044 ckm 2,121 ckm

Outputs: (i) Existing transmission system strengthened and expanded; (ii) existing distribution system strengthened

and expanded; and (iii) performance management and implementation improved

On June 21, 2018, ADB approved the change in the Program concerning revision of Disbursement Linked lndicators (DLls), results indicators and target values, among others.


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The amended DLI matrix is as follows:

Indicator Prior Result (2015) 2016 2017 2018 2019

DLI 1: Number of PLN

customers in Sumatra

increase by at least

3,5% each year

-- At least 11.86

million by end

of 2016

At least 12.96

million by end

of 2017

At least 13.41

million by end

of 2018

At least 13.88

million by end

of 2019

DLI 2: Residential

energy sales grow by at

least 7% each year from

the preceding year

-- At least

16,848 GWh

At least

19,156 GWh

At least

20,496 GWh

At least

21,931 GWh

DLI 3: Number of

medium voltage ("MV")

feeder permanent

interruptions per 100 km

maintained at 2014

baseline level or

improved

-- Reduced to

less than

21.12 by end

of 2016

Reduced to

less than

21.08 by end

of 2017

Reduced to

less than

21.04 by end

of 2018

Reduced to

less than

21.02 by end

of 2019

DLI 4: Cumulative length

of 150 kV transmission

lines reconductored

25% of the contracts for

strengthening and

expansion of the

transmission system are

made effective in 2015

1,257 ckm by

end of 2016

2,225 ckm by

end of 2017

2,275 ckm by

end of 2018

2,361 ckm by

end of 2019

DLI 5: Additional number

of distribution

transformer units

installed annually

(i) the Borrower's


indicators agreed with ADB;

(ii) procurement baseline

data for the first half of 2015

collected and made

available to ADB; and (iii)


measurement targets for

2016-2019 agreed with ADB.

2,582

distribution

3,846

distribution

4,000

distribution

4,160

distribution

DLI 6: Additional length

of MV distribution lines

installed annually

-- 1,860 ckm 3,628 ckm 3,755 ckm 3,887 ckm

Outcome: Adequacy and reliability of power supply achieved for Sumatra

Outputs: (i) Existing transmission system strengthened and expanded; (ii) existing distribution system strengthened

and expanded; and (iii) performance management and implementation improved


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Financing disbursement before re-allocation : i. ADB

Financing for

Prior Results 2016 2017 2018 2019 Total

Indicator US$ US$ US$ US$ US$ US$

DLI 1 -- 28,750 28,750 28,750 28,750 115,000DLI 2 -- 17,250 17,250 5,750 5,750 46,000DLI 3 -- 11,500 11,500 11,500 11,500 46,000DLI 4 57,500 28,750 28,750 28,750 28,750 172,500DLI 5 57,500 14,375 14,375 20,125 20,125 126,500DLI 6 -- 14,375 14,375 20,125 20,125 69,000

Total 115,000 115,000 115,000 115,000 115,000 575,000

ii. AIF

Financing for



DLI 1 -- 1,250 1,250 1,250 1,250 5,000DLI 2 -- 750 750 250 250 2,000DLI 3 -- 500 500 500 500 2,000DLI 4 2,500 1,250 1,250 1,250 1,250 7,500DLI 5 2,500 625 625 875 875 5,500DLI 6 -- 625 625 875 875 3,000

Total 5,000 5,000 5,000 5,000 5,000 25,000

2. Basis of Accounting of the Special-Purpose Statements of Program Expenditures and Financing

a. Presentation of Statements of Program Expenditures and Financing

The special-purpose statements of program expenditures and financing have been prepared in the format and basis agreed between ADB and the Company. The special-purpose statements of program expenditures and financing were prepared for the purpose of complying with Section 4.04 of Project Agreement of ADB Loan 3339-INO and 8297-INO between ADB and the Company. The special-purpose statements of program expenditures and financing were compiled from account held by the Company which were prepared in accordance with Indonesian Financial Accounting Standards, therefore the special-purpose statements of program expenditures and financing only presents account that directly related to the Electricity Grid Strengthening Sumatra Program. The special-purpose statements of program expenditures and financing are presented in US Dollar (“US$”). The actual program expenditures denominated in Indonesian Rupiah are translated to US$ using the historical rate of transactions in which the actual program expenditures occur or exchange rate during reimbursement.

b. Basis for Withdrawal from the Loan Account The withdrawal table sets out the Loan amount available for withdrawal upon the Borrower’s achievement of the corresponding DLI targets as set out in the DLI Matrix. Except as otherwise condition that agreed by ADB, the withdrawal table shall form the basis for withdrawal from the Loan Account.


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i. ADB Financing for




Total 115,000 115,000 115,000 115,000 115,000 575,000

ii. AIF

Financing for




Total 5,000 5,000 5,000 5,000 5,000 25,000

On October 22, 2018, PLN sent a request letter to ADB to initiate the re-allocation to decrease excessive allocation in low-performing DLI 2 and increase allocation in high-performing DLI 5 and 6 approval from ADB regarding the loan re-allocation issued on December 4, 2018. This re-allocation is effective on November 26, 2018.

The amended allocation of DLI targets were as follow :

i. ADB

Financing for




Total 115,000 115,000 115,000 115,000 115,000 575,000

ii. AIF

Financing for




Total 5,000 5,000 5,000 5,000 5,000 25,000


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c. Financing Disbursement The disbursement is based on the result of verification of DLI matrix by Independent Verification Agency (“IVA”). The verification is performed on every semester. For withdrawal process, the Borrower prepares withdrawal application and submits it to ADB. Disbursements are recognized based on the Withdrawal Authorization (“WA”) issued by ADB.

d. Plan Program Expenditures The plan program expenditures for respective provinces in Sumatera are presented based on ADB, and PLN estimation

e. Actual Program Expenditures Eligible Expenditures means the total expenditures incurred by the Borrower under the Program during its fiscal year minus the expenditures for (i) procurement of goods and service from countries which are not members of ADB, and (ii) any prohibited investment activites provided in Appendix 5 of ADB’s Safeguard Policy Statement, incurred by the Borrower under the Program during the same fiscal year. The unit within the Region of Sumatra paid to contractor for any transaction related to the Program with PLN budget (“APLN”). Regional Development of Sumatra (“PR-SUM”) who acts as Project Management Unit must screen the eligible expenses for reimbursement with ADB-RBL fund. Based on the approval from PR-SUM, the eligible expenses will be forwarded to Treasury Division and will transfer a certain amount of money from the defined deposit account related to ADB-RBL to PLN.

f. Deposit Account Prior to submitting the first application to ADB for withdrawal from the Loan Account, the Borrower shall nominate a Deposit Account at a commercial bank acceptable to ADB into which all withdrawals from the Loan Account shall be deposited. The Deposit Account shall be managed and liquidated in accordance with terms and conditions satisfactory to ADB. The Borrower has made a Deposit Account to deposit all withdrawal from ADB Loan 3339-INO and 8297-INO. The Account Number of the Borrower’s Deposit Account is 0193.02.000214.30.7 at Bank Rakyat Indonesia. The amount balance as of December 31, 2018 is US$1,698.

3. Allocation and Withdrawal of Loan Proceeds

Since the loan from ADB is already effective February 1, 2016, the company has withdrawn an amount financing according to DLI matrix amounting to US$463,859 million as of December 31, 2018, in regards to the condition, the Company has claimed a reimbursement for the actual expenses year 2018 amounting to US$165,858 in November 2018.

4. Actual Program Financing

Details of disbursement according to DLI are as follows: a. DLI 1

ADB AIF TotalUS$ US$ US$

Balance at beginning of year 53,658 2,342 56,000Additions 52,761 2,303 55,064

Total 106,419 4,645 111,064

Under the DLI matrix, actual disbursement for DLI-1 covers current year expenses to achieve the number targeted of PLN customers in Sumatra region.


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By the end of 2018, customers in the Sumatra region have reached 14.18 million or have reached the target planned by ADB of 13.41 million.

b. DLI 2


Balance at beginning of year 17,250 750 18,000Additions 5,074 223 5,297

Total 22,324 973 23,297

Disbursement for DLI-2 represents disbursement for expenses which under the definition covers residential energy sales growth. Residential energy sales in 2018 amounted to 18,923 GWh or below the target set by ADB of 20,496 GWh.

c. DLI 3


Balance at beginning of year 11,500 500 12,000Additions 11,500 500 12,000

Total 23,000 1,000 24,000

Under the DLI matrix, actual disbursement for DLI-3 covers number of feeder permanent interruptions per 100 Km maintained at 2014 baseline level or improved. By the end of 2018, number of feeder permanent interruptions per 100 Km amounted to 15.42 times per 100 Km, or reached the target set by ADB of 21.04 times per Km, this DLI has a declining polarity as a good assessment.

d. DLI 4 ADB AIF TotalUS$ US$ US$

Balance at beginning of year 93,914 4,086 98,000Additions 16,594 727 17,321

Total 110,508 4,813 115,321

Disbursement for DLI-4 represents disbursement for expenses which under the definition covers cumulative length of 150 kV transmission lines reconductored.

Cumulative length of 150 kV transmission lines reconductored at the end of 2018 amounted 2,337 ckm or has exceeded the target planned by ADB amounted 2,275 ckm.

e. DLI 5 ADB AIF TotalUS$ US$ US$


Total 99,912 4,349 104,261

Actual disbursement for DLI-5 covers current year expenses related to additional number of distribution transformer units installed annually.

The additional number of installed distribution transformer units at the end of 2018 amounted 10,053 or has exceeded the target set by ADB of 4,000.


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f. DLI 6 ADB AIF TotalUS$ US$ US$


Total 39,208 1,708 40,916

Actual disbursement for DLI-6 covers current year expenses related to additional length of MV distribution lines installed annually. The MV distribution line length installed at the end of 2018 has reached 5,931 ckm or has exceeded the target planned by ADB of 3,755 ckm.

g. Financing for prior results ADB AIF TotalUS$ US$ US$

Balance at beginning of year -- -- --

Additions 43,110 1,890 45,000

Total 43,110 1,890 45,000

Withdrawals from the Loan account may be made, as set out in the withdrawal Table, for DLI targets achieved prior to the effective date but not earlier than 12. months before the date of this Loan Agreement, provided that the aggregate of such withdrawals shall not, at any time, exceed 20% of the Loan amount.

5. Financial Covenant Calculations

As per the loan agreement dated December 4, 2015, the Company is required to satisfy with the self-financing ratio, debt service coverage ratio and debt to equity ratio requirements as part of its compliance with financial covenants stipulated by ADB. Prior to December 31, 2018, ADB granted waiver No. SR-294/MK.08/2018 dated December 18, 2018 addressed to the Ministry of Finance of the Republic of Indonesia. The waiver relieves the Company from the requirement to comply with the aforementioned financial covenants effective until December 31, 2018.


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Financial covenant calculations as of and for the year ended December 31, 2018, are as follows: i. Self-financing ratio (should be greater than 15%)

Rp million US$3

CASH FLOW FROM OPERATING ACTIVITIES1

Operating revenues

Cash receipts from customers2275.178.934 19.002.758

Government subsidy received256.507.588 3.902.188

Proceeds from sale of assets not used in operations2 88.550 6.115

Net non-operating income

Financial income2804.321 55.543

Subtotal 332.579.393 22.966.604

ALL EXPENSES RELATED TO OPERATIONS1

1. Total operating expenses2 308.188.889 21.282.293

Less non-cash expenses:

Depreciation2(30.744.712) (2.123.107)

Amortization2(221.851) (15.320)

Employee benefit2

(1.273.098) (87.915)

Bad debt expenses2(213.327) (14.732)

Allowance for inventories obsolence2(20.780) (1.435)

Income tax paid21.233.827 85.203

Net Total operating expenses 276.948.948 19.124.987

2. Debt service requirements

Interest expense paid219.730.285 1.362.495

Payment of bonds payable2914.000 63.117

Payment of two-step loans22.950.612 203.757

Payment of Government and non-bank

Government financial institution loans21.043.793 72.080

Payment of bank loans213.704.479 946.377

Payment of electricity purchase payable2368.142 25.422

Payment of KIK-EBA2630.600 43.547

Payment of lease liabilities25.186.938 358.189

Total Debt Service Requirement 44.528.849 3.074.9843. Decrease in working capital other than cash

ending working capital of the year

Total current assets2113.415.251 7.832.004

Total current liabilities2(152.022.396) (10.498.059)

Less: Cash and cash equivalents2(33.294.560) (2.299.189)

(71.901.705) (4.965.244)

Beginning Working Capital of the year

Total current assets293.797.251 6.477.263

Total current liabilities2(130.511.731) (9.012.619)

Less: Cash and cash equivalents2(42.291.959) (2.920.514)

(79.006.439) (5.455.870)

Decrease in working capital of the year 7.104.734 490.626

Cash dividends paid and other cash distributions of surplus2309.817 21.395

Subtotal 328.892.348 22.711.992

NET INTERNAL OF CASH 3.687.045 254.612

Annual average of PLN's capital expenditures incurred, or expected

to be incurred:1

Current Year

Additions in property, plant and equipment and construction in progress2100.273.650 6.924.498

Previous Year

Additions in property, plant and equipment and construction in progress285.210.519 5.884.298

Annual average of company's capital expenditures 92.742.085 6.404.398

Consolidated Self-Financing Ratio3 (Minimum 15%) 3,98% 3,98%

2018


15

ii. Debt Service Coverage Ratio (at least 1.5)

Rp million US$3

OPERATING REVENUES1,2

Sales of electricity 263.477.551 18.194.707

Government's electricity subsidy 48.101.754 3.321.715

Compensation income 23.173.464 1.600.267

Customer connection fees 7.309.172 504.742

Others revenues 2.111.019 145.779

Less: Bad debt expenses (213.327) (14.732)

TOTAL OPERATING REVENUE 343.959.633 23.752.478

OPERATING EXPENSES1,2

Total operating expenses (308.188.889) (21.282.293)

Less: Non-cash expenses

Depreciation 30.744.712 2.123.107

Employee benefit 1.273.098 87.915

Bad debt expenses 213.327 14.732

Amortization 221.851 15.320

Allowance for inventory obsolence 20.780 1.435

TOTAL OPERATING EXPENSES (275.715.121) (19.039.784)

NET OPERATING INCOME 68.244.512 4.712.694

NON OPERATING INCOME1,2

Financial income 804.321 55.543

Other non-operating income 15.663.363 1.081.649

Income taxes (8.325.082) (574.897)

NET NON OPERATING INCOME 8.142.602 562.295

NET REVENUE 76.387.114 5.274.989

DEBT SERVICE REQUIREMENT

Interest paid 19.730.285 1.362.495

Principal repayments 24.798.564 1.712.490

TOTAL DEBT SERVICE REQUIREMENT 44.528.849 3.074.985

CONSOLIDATED DEBT SERVICE COVERAGE RATIO1 (MINIMUM 1.5) 1,72 1,72

2018

iii. Debt to Equity Ratio (Should not be greater than a ratio 75 to 25)

Rp million US$3

DEBT1

Two-step loans238.635.552 2.851.753

Government and non-bank Government financial institution loans27.204.278 531.760

Lease liabilities217.092.965 1.261.660

Bank loans2

181.111.734 13.368.153

Bonds payable and sukuk ijara2133.802.433 9.876.176

KIK - EBA loans22.907.986 214.643

Electricity purchase payable2

7.510.319 554.349

TOTAL DEBT 388.265.267 28.658.494

EQUITY1,2 927.413.857 68.453.931

CONSOLIDATED DEBT TO EQUITY RATIO3 (MAXIMUM 3 TIMES) 0,42 0,42

2018

Notes: 1). As defined in the ADB Loan 3339-INO and 8297-INO: Electricity Grid Strengthening Sumatera Program - Result Based

Lending Loan Facility Agreement dated December 4, 2015. 2). As derived from audited consolidated financial statements of the Company and its subsidiaries as of and for the year

ended December 31, 2018. 3). Translated using Bank Indonesia middle rate as of December 31, 2018.

Documents

Audited Project Financial Statements - ADB