51 Chapter 4 Aspirations & strategic themes TNB’s Aspirations Material Matters Climate Change and Energy Efficiency Efforts to address climate change impacts and manage greenhouse gas (GHG) emissions Energy Transition and Innovation Contributing to the national RE target and driving innovation to anticipate changing trends and build business resilience Safety & Health Promoting a working culture that upholds high standards of occupational health and safety Capacity Development Development of technical and leadership skills for a future ready workforce Employment Culture Creating a diverse and inclusive culture while closely engaging with our employees Business & Financial Performance Measures taken to achieve business and financial growth Reliable Energy & Fair Tariffs Ensuring the availability, affordability and reliability of electricity Customer Experience Providing exceptional customer experience by exceeding their expectations Strategic KPIs Smart Grid Index LTIF EBIT Strategic Objectives Future-proof Network Facilitating energy transition Operational Efficiency Continuous drive for excellence Customer Centricity Enabling customer empowerment 3-Pronged Approach Develop Smart Utility | Generate High-Performing Talents | Attain Financial Sustainability & Efficient Service Delivery ESG Pillars Environmental Social Governance Grid of the Future TNB’s RT Pillars & SP2050 Approach Making the Core Sustainable Reimagining TNB 2.0 The 1+4 year business plan has been anchored on delivering our strategy; Distribution Network Focus Areas (DNFA)
52 1. Climate Change and Energy Efficiency Efforts to address climate change impacts and manage greenhouse gas (GHG) emissions Advanced Metering Infrastructure 2. Energy Transition and Innovation Contributing to the national RE target and driving innovation to anticipate changing trends and build business resilience Smart Work and Asset Total Solutions Master Data Management Volt-VAr Optimization Distribution Automation Advanced Distribution Mgmt. System Advanced Asset Analytics Smart Energy Management Infrastructure IoT Infrastructure 3. Safety & Health Promoting a working culture that upholds high standards of occupational health and safety 4. Capacity Development Development of technical and leadership skills for a future ready workforce 5. Employment Culture Creating a diverse and inclusive culture while closely engaging with our employees Implementation of NDRS Initiative Mobile Street Furniture Monitoring Distribution Network Academy Distribution Engineering Centre DN High Performance Culture Digitalization of safety culture Material Matters 39 Key Initiatives1 6. Business & Financial Performance Measures taken to achieve business and financial growth 7. Reliable Energy & Fair Tariffs Ensuring the availability, affordability and reliability of electricity 8. Customer Experience Providing exceptional customer experience by exceeding their expectations Workforce Optimization Integrated Vegetation Management Maintenance & Operational Efficiency ICT Cost Optimization DN Commercial Framework SBU Asset Development New Products & Services SBU Maintenance Winning IBR RP4 Strategic IBR RP5 Regulatory Proposal Low Voltage Supply Connection Medium Voltage Supply Connection Energy & Customer Insights Platform – GSL/MSL DN & Retail Interface Service Level Agreement 2.0 Customer Effort Score & CSI EV Charging Infra – New Technologies Community Energy Storage System Voltage Regulated Distribution Tx KKB Transformation Geographic Information System Pulau Tenaga Hijau (PTH) DNFA is supported by 39 key initiatives1 (including enablers) SBU Metering Chapter 4 Aspirations & strategic themes LED Relamping 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 1 Based on the DNFA FY25
53 Enablers Digitalization Talent, Capabilities and Culture Capital Allocation and Value Creation Corporate structure, Governance and Partnership DN’s Strategy (DNFA) TNB RT2.0 Strategy ▪ SEMI, EV Charging Infra, CESS, VRDT ▪ Implementation of NDRS initiative, Mobile Street Furniture Monitoring, Digitalization of Safety Culture ▪ DN Academy (DNA), DN Engineering Centre (DEC) ▪ AMI, VVO, ADMS, DA, SWATS, AAA, PTH, GIS, MDM, IOT Infra, KKB Tx Develop Energy Transition Network 1. Climate Change & Energy Efficiency ▪ Workforce, Repair & Maintenance (R&M) and ICT cost optimization initiatives ▪ LVSC, MVSC, E&CI Platform – MSL/GSL, DN & Retail Interface, Customer Effort Score & CSI Pillar Material Matters Approach / Key Initiatives ▪ Develop Smart Utility ▪ Strategic Business Units (SBU Maintenance, SBU Metering & SBU Asset Development), Service Level Agreement 2.0 (SLA 2.0) 6. Business & Financial Performance ▪ Winning IBR RP4 ▪ IBR RP5 proposal ▪ DN Commercial Framework, New Products & Services 2. Energy Transition & Innovation 7. Reliable Energy & Fair Tariffs 6. Business & Financial Performance 2.Energy Transition & Innovation 8. Customer experience 3. Safety & Health 4. Capacity Development 5. Employment Culture ▪ DN High Performance Culture DN’s strategy is clearly linked to the RT2.0 pillar and enablers . . . Chapter 4 Aspirations & strategic themes 6. Business & Financial Performance 5. Employment Culture ▪ DN High Performance Culture Communication and Stakeholder Engagement Note: 1. AMI: Advanced Metering Infrastructure 2. VVO: Volt-VAr Optimization 3. ADMS: Advanced Distribution Management System 4. DA: Distribution Automation 5. SWATS: Smart Work and Asset Total Solutions 6. AAA: Advanced Asset Analytics 7. Pulau Tenaga Hijau (PTH) 8. GIS: Geographic Information System 9. MDM: Master Data Management 10. IOT: Internet-of-Things Infrastructure 11. KKB Tx: KKB Transformation 12. Smart Energy Management Infrastructure 13. CESS: Community Energy Storage System 14. VRDT: Voltage Regulated Distribution Transformer
54 . . . and aligned to TNB Sustainability Key Focus Area Chapter 4 Aspirations & strategic themes Carbon Emission Water Stress Biodiversity & Land Use Opportunities in Renewable Energy Toxic Emissions & Waste Environmental (E) Human Capital Development Health & Safety Labour Rights Privacy & Data Security Social (S) Supply Chain Management Community Relations Corporate Governance Corporate Behavior Governance (G) Risk Management DNFA TNB Sustainability Key Focus Area
55 In addition, DN has also identified 17 key strategies under 4 perspectives, i.e., Financial, Customer, Internal Process and Learning & Growth that are demonstrably aligned with TNB’s overarching strategies Chapter 4 Aspirations & strategic themes Perspectives Strategic Objectives Financial Customer Internal Process Learning & Growth Business Growth Strategy Productivity Strategy Drive TNB business growth and profitability Drive productivity & operational cost efficiency Talent, Capabilities and Culture Ensure readiness of talents through robust talent management and succession planning Drive high performance culture through enhanced employee experience and well-being How should we appear to our shareholders? How should we appear to our customers? What processes must we excel at? How should we sustain our ability to change and improve? Reliable Network System Build high capabilities talents to drive DN business growth in Energy Transition era Branding Strategy Strengthen TNB brand & reputation in Energy Transition pathway Deliver exceptional customer satisfaction, experience and trust through continuous and reliable electricity supply Defend Domestic Core and Enable Energy Transition Regulatory & Compliance Management Strengthen Network intelligence towards Smart Utility through digitalization, data analytics and energy management ecosystem Improve Distribution Losses performance Operations Uphold high Distribution Network performance and reliability aligned with IBR PI Execute strategic maintenance practices to maintain high network reliability Secure winning regulatory outcomes through prudent (OPEX & CAPEX) proposal Drive subsidiarisation of DN Strategic Business Units Strengthen DN position through continuous engagements with regulator and key stakeholders Ensure compliance towards regulatory and statutory requirement Asset Management Support TNB sustainability agenda through delivery of ESG initiatives Sustainability & ESG agenda SBU Readiness Deliver excellent IBR Distribution Network asset growth projects Project Delivery 1 17 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
56 Based on RT2.0, DN plans to deliver an EBIT of RM 3.6 Bn[1] by 2030 with annual average RP5 EBIT of RM 3.9 Bn Chapter 5 BAU outlook & initiatives 5.1: Strategic Initiatives and BAU for FY25-29 Shape compelling narrative for grid investments Fortify a resilient supply chain of materials and services Harness full potential of digital and analytics Upskilling and reskilling of workforce Key enablers 2023A 2030F 2.6 3.6 1 3 2 Ensure timely delivery of RM 31 Bn[2] capital program for Grid Hardening by 2030 ▪ RM 16 Bn to maintain security of supply through network reinforcement and asset replacement/refurbishment ▪ RM 15 Bn to connect new customers’ power needs and changing demand including EV charging stations & Data Centres (DN-connected) RM 17 Mn in incentives for delivering Quality of Service under IBR Performance Indicators (e.g., SAIDI, Supply Project Completion, AMI Customer Experience Rating, etc.) 1 3 Regulatory Incentives Asset growth for Grid Hardening (Security of Supply and Demand Growth) 2 Asset growth for Network Readiness in enabling Energy Transition Other strategic priorities 5% p.a. EBIT, RM Bn 2030 EBIT Uplift +0.73 Bn +0.007 Bn +0.23 Bn RORAB, % 7.1 [3] 7.5 [4] PAT, RM Bn 2.2 2.5 Cumulative CAPEX, FY24-30 RM Bn 45.9 [5] 4 RM 10 Bn2 investment by 2030 to ensure network readiness i.e., to allow solar energy flow without any curtailment through DN network: ▪ Shallow Connections ▪ Deep Connections ▪ Energy Management (SMART Projects & Energy Storage) Smart Grid Index Roll-out smart technologies to aspire top 20 global rank by 2030 SMART projects Explore future capabilities to extend, expand and optimize smart technologies Productivity Maintaining productivity in a challenging macroeconomic environment [1] Base case EBIT & subject to Government’s approval for IBR RP4 & RP5 [2] Assumes RP5 CAPEX same as RP4 level, adjusted with inflation between 2028-2030 [3] RORAB is lower than 7.3% due to the inclusion of unpredictable OPEX (UPOX). TNB has submitted application to Suruhanjaya Tenaga to claim this UPOX [4] Based on annual average RP5. RORAB 2028 = 8.8%, RORAB 2029 = 7.5% & RORAB 2030 = 6.2% [5] Includes the approved APC 2024 CAPEX of RM 4.9 Bn Source: DN IBR RP4 draft book, IBR Team DN, BP-Finance DN, team analysis
57 As for 2029, DN’s business plan currently achieves base EBIT of RM 3.90 bn Chapter 5 BAU outlook & initiatives 2029 EBIT, RM mn 2,593 1,639 3,901 1,722 FY23 Actual FY29 Forecast Assumes RP4 CAPEX of RM 15.85 bn to maintain security of supply through network reinforcement and asset replacement/ refurbishment X sen Tariff Resulting tariff, sen RP4 8.99 +8.65% over RP3 Asset growth for Grid Hardening (Security of Supply & Demand Growth) 534 6 Approved tariff, sen RP3 8.28 Regulatory Incentives +6.0% over RP2 extension Asset Growth for Network Readiness in enabling Energy Transition Assumes RP4 & RP5 WACC of 7.5% Includes Unexpected OPEX (UPOX) Assumes RP4 CAPEX of RM 9.71 bn to ensure network readiness in enabling energy transition Assumes RM 17 mn in incentives for delivering Quality of Service under IBR Performance Indicators (e.g., SAIDI, Supply Project Completion (MSL 3b), Metering Service (MSL 5a), etc.) Assumes RP4 CAPEX of RM 15.46 bn to connect new customers’ power needs and changing demand including EV charging stations & Data Centers (DNconnected) 954 Assumes zero CAPEX and OPEX as per RP3 approval for RP4 & RP5 Assumes RP4 WACC of 7.5% Resulting EBIT for “BAU” “BAU” FY29 “BAU” Resulting tariff, sen RP5 9.61 +6.87% over RP4 Profit After Tax (PAT) 1 RM 2.68 bn 1 Assumes Company Tax = 24% Source: DN RT2.0 Documents, SVD, DN IBR Team, BP-Finance DN, Team Analysis 5.1: Strategic Initiatives and BAU for FY25-29
58 Initiatives System3 , Ancillary4 and Bulk5 Projects Advanced Metering Infrastructure (AMI), Distribution Automation (DA), Geographic Information System (GIS), Smart Work and Total Assets Solution (SWATS), Volt-Var Optimisation (VVO), Advanced Asset Analytics (AAA), Smart Energy Management Infrastructure (SEMI), Pulau Tenaga Hijau (PTH), Advanced Distribution Management System (ADMS), LED Relamping & Mini Hydro Refurbishment 2029 EBIT assuming zero CAPEX and zero OPEX growth in RP4 & RP5 Asset growth for Grid Hardening (Security of Supply and Demand Growth) Focus Area Maintain security of supply through network reinforcement and asset replacement/refurbishment Strategic Focus Link to relevant aspiration FY29 EBIT Uplift (RM mn) 1 698 – 1,047 BAU 1,639 2 (Existing Assets) Total: 3,901 Community Energy Storage System (CESS), Voltage Regulated Distribution Transformer (VRDT) New technology / Infra / System 6 Our business case will be supported by several key initiatives Financial strength and scale Nation building Customer and technological leadership Sustainability Future Workforce Scale-up from RP2/RP3 Projects 405 – 608 Chapter 5 BAU outlook & initiatives Asset Growth for Network Readiness in enabling Energy Transition Regulatory Incentives Connect new customers’ power needs and changing demand including EV charging stations & Data Centers (DN-connected) Supply Projects SAIDI, Supply Project Completion (MSL 3b), Metering Service (MSL 5a), etc. Achieve reward for IBR Performance Indicators 680 – 1,019 22 – 33 1 Range based on +/- 20% of EBIT impact for asset growth initiatives 2 Includes Other Income (CSP, RJO, TOE, OOI & ORA) 3 Includes civil works related to Flood Damage (climate change) and Rehab works for High Fault Level (HFL) gears to facilitate RE connections 4 Includes EE Building & HVAC, and PPU Roof Top Solar 5 Includes EV Fleet Conversion Source: DN P&L Dec 2023, RRM RP2 (2018-2021) & RRM RP3 approval, RRM RP4 & RP5 Simulation for RT2.0, RP4 Proposal, BP Finance DN, DN IBR&C, DN AM, team analysis 5.1: Strategic Initiatives and BAU for FY25-29
59 FY29 EBIT downside risk at RM 126 mn, while potential upside could total RM 1,153 mn Chapter 5 BAU outlook & initiatives 547 606 126 CAPEX approval Downside Upside EBIT impact FY29 EBIT (126) 3,409 1,153 5,055 Downside Upside Mitigation ▪ No downside for CAPEX as Base Case CAPEX is lower than DN RP4 Base Case CAPEX proposal (Base Case EBIT CAPEX is 87% from DN RP4 Base Case CAPEX proposal to TNB BOD) Over RP4 & RP5 ▪ 7.3% low case WACC – ST wants to maintain the RP4 WACC as per RP3 approval ▪ RP4 & RP5 CAPEX as per DN RP4 Accelerated ET CAPEX proposal of ~RM 29 bn with total CAPEX RP4 & RP5 of ~ RM 58 Bn ▪ WACC of 8.2% as per DN RP4 Base Case WACC to TNB BOD ▪ Projects proposals to be timely, customercentric and support the national agenda ▪ All projects to have measurable monetary benefits ▪ The overall proposal needs to balance the energy trilemma, i.e. energy security, sustainability & affordability ▪ International case studies of utilities defending WACC (action by RSMD & Group Finance) RP4 Tariff (sen/kWh) 8.91 9.57 % Tariff increase over RP3 7.6% 15.6% -299 WACC RP5 Tariff (sen/kWh) 9.52 10.89 % Tariff increase over RP4 6.8% 13.7% FY29 PAT1 2,586 3,558 1 Assumes Company Tax = 24% Source: DN RT2.0 Documents, SVD, DN IBR Team, BP-Finance DN, Team Analysis 5.1: Strategic Initiatives and BAU for FY25-29
60 As for 2025, DN forecasts an EBIT of RM 3.51 bn Chapter 5 BAU outlook & initiatives 2025 EBIT, RM mn 2,593 2,735 3,514 590 FY23 Actual FY25 Forecast Assumes RP4 CAPEX of RM 7.36 bn to maintain security of supply through network reinforcement and asset replacement/ refurbishment X sen Tariff Resulting tariff, sen RP4 8.99 +8.65% over RP3 Asset growth for Grid Hardening (Security of Supply & Demand Growth) 183 6 Approved tariff, sen RP3 8.28 Regulatory Incentives +6.0% over RP2 extension Asset Growth for Network Readiness in enabling Energy Transition Assumes RP4 WACC of 7.5% Assumes RP4 CAPEX of RM 4.51 bn to ensure network readiness in enabling energy transition Assumes RM 17 mn in incentives for delivering Quality of Service under IBR Performance Indicators (e.g., SAIDI, Supply Project Completion (MSL 3b), Metering Service (MSL 5a), etc.) Assumes RP4 CAPEX of RM 7.17 bn to connect new customers’ power needs and changing demand including EV charging stations & Data Centers (DNconnected) 142 Assumes zero CAPEX and OPEX as per RP3 approval for RP4 Assumes RP4 WACC of 7.5% Resulting EBIT for “BAU” “BAU” FY25 “BAU” Profit After Tax (PAT) 1 RM 2.40 bn Includes Unexpected OPEX (UPOX) 1 Assumes Company Tax = 24% Source: DN RT2.0 Documents, SVD, DN IBR Team, BP-Finance DN, Team Analysis 5.1: Strategic Initiatives and BAU for FY25-29
61 Initiatives System3 , Ancillary4 and Bulk5 Projects Advanced Metering Infrastructure (AMI), Distribution Automation (DA), Geographic Information System (GIS), Smart Work and Total Assets Solution (SWATS), Volt-Var Optimisation (VVO), Advanced Asset Analytics (AAA), Smart Energy Management Infrastructure (SEMI), Pulau Tenaga Hijau (PTH), Advanced Distribution Management System (ADMS), LED Relamping & Mini Hydro Refurbishment 2025 EBIT assuming zero CAPEX and zero OPEX growth in RP4 Asset growth for Grid Hardening (Security of Supply and Demand Growth) Focus Area Maintain security of supply through network reinforcement and asset replacement/refurbishment Strategic Focus Link to relevant aspiration FY25 EBIT Uplift (RM mn) 1 239 – 359 BAU 2,735 2 (Existing Assets) Total: 3,514 Community Energy Storage System (CESS), Voltage Regulated Distribution Transformer (VRDT) New technology / Infra / System 6 Our FY25 EBIT Uplift will be supported by several key initiatives Financial strength and scale Nation building Customer and technological leadership Sustainability Future Workforce Scale-up from RP2/RP3 Projects 139 – 208 Chapter 5 BAU outlook & initiatives Asset Growth for Network Readiness in enabling Energy Transition Regulatory Incentives Connect new customers’ power needs and changing demand including EV charging stations & Data Centers (DN-connected) Supply Projects SAIDI, Supply Project Completion (MSL 3b), Metering Service (MSL 5a), etc. Achieve reward for IBR Performance Indicators 233 – 350 8 – 11 1 Range based on +/- 20% of EBIT impact for asset growth initiatives 2 Includes Other Income (CSP, RJO, TOE, OOI & ORA) 3 Includes civil works related to Flood Damage (climate change) and Rehab works for High Fault Level (HFL) gears to facilitate RE connections 4 Includes EE Building & HVAC, and PPU Roof Top Solar 5 Includes EV Fleet Conversion Source: DN P&L Dec 2023, RRM RP2 (2018-2021) & RRM RP3 approval, RRM RP4 & RP5 Simulation for RT2.0, RP4 Proposal, BP Finance DN, DN IBR&C, DN AM, team analysis 5.1: Strategic Initiatives and BAU for FY25-29
62 FY25 EBIT downside risk at RM 105 mn, while potential upside could total RM 641 mn Chapter 5 BAU outlook & initiatives Sensitivity analysis for FY25 EBIT, RM mn CAPEX 234 approval Downside Upside EBIT impact FY25 EBIT (105) 3,409 641 4,155 Downside Upside Mitigation ▪ No downside for CAPEX as Base Case CAPEX is lower than DN RP4 Base Case CAPEX proposal to BOD (Base Case CAPEX is 87% from DN RP4 Base Case CAPEX proposal) Over RP4 ▪ 7.3% low case WACC – ST wants to maintain the RP4 WACC as per RP3 approval ▪ CAPEX as per DN RP4 Accelerated ET CAPEX proposal of ~RM 29 bn (i.e., 51% increase from Base Case EBIT CAPEX) ▪ Projects proposals to be timely, customercentric and support the national agenda ▪ All projects to have measurable monetary benefits ▪ The overall proposal needs to balance the energy trilemma, i.e. energy security, sustainability & affordability ▪ International case studies of utilities defending WACC (action by RSMD & Group Finance) Tariff (sen/kWh) 8.91 9.57 % Tariff increase over RP3 7.6% 15.6% -299 WACC FY25 PAT1 2,323 2,891 105 406 ▪ WACC of 8.2% as per DN RP4 Base Case WACC to TNB BOD 1 Assumes Company Tax = 24% Source: DN RT2.0 Documents, SVD, DN IBR Team, BP-Finance DN, Team Analysis 5.1: Strategic Initiatives and BAU for FY25-29
63 DN has been reporting Scope 1 and Scope 2 emissions since 2018 with a lot of key initiatives are being planned and implemented to decarbonize our operations . . . DN’s GHG emissions, million tCO2e 2018 2019 2020 2021 2022 2023 Scope 1 – Direct emission from fossil fuel combustion & fugitive GHG emissions 1. Distribution Losses1 5.538 5.192 6.444 6.313 5.758 4.859 2. Stationary Combustion 0.018 0.015 0.015 0.015 0.017 0.018 3. Mobile Combustion 0.013 0.015 0.014 0.014 0.014 0.013 4. SF6 Refill & Retired 0.168 0.106 0.314 0.113 0.040 0.058 5. Refrigerant 0.002 0.001 0.015 0.002 0.0005 - 6. Fire System 0.0005 0.0005 0.0005 0.0005 0.0005 - Total Scope 1 5.738 5.329 6.802 6.457 5.829 4.949 Scope 2 – Indirect emissions from the use of electricity in the asset operations 7. Import Energy (electricity consumption) 0.228 0.176 0.272 0.243 0.375 0.115 Total for Scope 2 0.228 0.176 0.272 0.243 0.375 0.115 Total DN (Scope 1 + Scope 2) 5.966 5.505 7.075 6.700 6.204 5.063 Top 5 contributor to DN’s total emission DN’s GHG emissions for 2018-2023 (TNB Boundary) Key initiatives for GHG emissions reduction Energy Efficient Building – energy savings from LED lightings & 30 units HVAC replacement for 203 DN premises 7 Technical losses initiatives – VoltVAr optimization, balance phase loading in LV system, optimal 11kV Feeder NOP2 Non-technical losses initiatives – BITCOIN operations & Ops Elektrik activities, AMI, Big Data Analytics, DTM3 Pulau Tenaga Hijau project – reduce CO2 emissions from generators 4 at Pulau Perhentian & Pulau Redang Digitalize work processes (SWATS), DA, and optimize maintenance activities (AAA) – reduce traveling and paper consumptions PPU Roof Top Solar7– reduce Unaccounted For Energy (UFE) from the electricity consumption of 85 PPU buildings EV Fleet conversion – replacement of DN Operational Vehicles to EV [RP3: 98/7116 nos (14%); RP4: 753/9006 nos. (84%) 7 ] LED Relamping – reduce CO2 emissions from high pressure sodium vapour (HPSV) streetlights Chapter 5 BAU outlook & initiatives 1 T&D loss for vertically integrated utility is considered under Scope 1 as per GHG protocol 2 Normal-off-point 3 Distribution Transformer Metering 4 Solar PV, Wind Turbine (VAWT), BESS & Liquefied Natural Gas (LNG) Generator to replace Diesel Generator 5 Zero due to decimal point 6 Total vehicles to be replaced/added including both EV & ICE 7 Subjects to IBR RP4 approval Note: It takes 25.64 mn trees to be planted to absorb 1 mn tCO2e Source: Sustainability unit. & SP2050 PMO, SVD, http://greentechmalaysia.my/carboncalculator/process.php, team analysis 5.1: Strategic Initiatives and BAU for FY25-29
64 . . . and has already started taking proactive measures in the energy transition journey by modernizing the network through our Smart Utility Masterplan 2025 (SU 2025). We have secured 20% from our IBR RP2 & RP3 total approved CAPEX for this purpose Chapter 5 BAU outlook & initiatives ASSET MANAGEMENT WORK MANAGEMENT GRID OPERATIONS ENERGY MANAGEMENT CUSTOMER MANAGEMENT Real time information update (~2 mins) on work management ~ 99% average compliance to GSL & MSL Service delivery improvement 28,926 SCADA-DA installed at Substation benefiting 34.7% customer nationwide Initiation Digital Substation with IoT features for Switchgear, Transformer & Feeder Pillars 92% Customers are able to view their bill and load profile via portal and mytnb apps Installed > 3.8 Mil. Environmentally Friendly Smart Meters Provide supply connection point to various locations in Peninsular for EV fast charging hub Reduction from 15% to 2% Street Light failure rate. Increase public safety and customer Asset Performance Management System for 33kV Tx & S/Gear Assets Across Klang Valley Instant Information of Potential RE Points with Hosting Capacity Platform Automation of 24 Modules Business Process Towards Smart & Connected DN Talents Faster restoration, with 5 mins for 1st Restoration 100% MV asset location and topology digitalized nationwide to provide assets' visibility Total of 2,264 MW Renewables Energy Capacity with 11.48% Penetration at Distribution Network ADVANCED DISTRIBUTION MANAGEMENT SYSTEM SMART WORK & TOTAL SOLUTIONS Automated, online planning tool with actual renewable energy impact GEOGRAPHICAL INFORMATION SYSTEM DISTRIBUTION AUTOMATION VOLT-VAR OPTIMIZATION LED ADVANCED ASSET RELAMPING ANALYTICS MINI HYDRO REFURBISHMENT ADVANCED METERING INFRASTRUCTURE SMART ENERGY MANAGEMENT INFRASTRUCTURE Real time information update (~2 mins) on work management Facilitate energy efficiencies and reduce distribution losses Provide more efficient green sources Enhance fast supply restoration To enable automated network control Improve fieldworkers' productivity Improve stability of voltage level Geographical network visualization Enabling a flexible grid Optimize asset lifecycle Energy Efficient Street Lights PULAU TENAGA HIJAU Enabling Green Solution & Capabilities • UAV Drones for OH Lines • IEC61850 Digital Substation ENVIRONMENTALLY FRIENDLY ASSET MANAGEMENT COMMUNITY ENERGY STORAGE SYSTEM ELECTRIC VEHICLE (EV) INFRA Facilitate EV Industry growth Enabler of RE penetration VOLTAGE REGULATED DIST. TX Mitigate Voltage Violation due to DG Note: Data as of March 2024 Impact 5.1: Strategic Initiatives and BAU for FY25-29
65 As a key next step, DN will extend and optimize Smart Utility capabilities in IBR RP4 and beyond through Smart Utility 2030 Masterplan (SU 2030) while focusing on 3 key roles to achieve our TNB Sustainability Agenda Chapter 5 BAU outlook & initiatives 5.1: Strategic Initiatives and BAU for FY25-29
66 We have identified a total of 210 initiatives under SU 2030 to uplift DN capabilities across the five domains: (1) Asset Management (AM), (2) Work Management (WM), (3) Grid Operations (GO), (4) Energy Management (EM) and (5) Customer Management (CM) Chapter 5 BAU outlook & initiatives 5.1: Strategic Initiatives and BAU for FY25-29
67 To achieve a successful SU 2030 deployment, a detailed integrated roadmap has been developed with interdependencies of the enablers. This integrated roadmap also sequences the capabilities of all the initiatives until 2030, ensuring the synergy Chapter 5 BAU outlook & initiatives • Snap shots of some Detailed Integrated Roadmaps Refer to Appendix: SU 2030 Initiatives 5.1: Strategic Initiatives and BAU for FY25-29
68 Detailed Strategic Initiatives for FY25 Chapter 5 BAU outlook & initiatives Refer to Appendix: DNFA AOP FY25 5.2: Detailed Strategic Initiatives for FY25
69 Workforce Planning: 5 Year Manpower Projection Chapter 5 BAU outlook & initiatives Roles transitioning out, and new roles created, FTE, ‘000s 1. Targeted Headcount as of December 2024 is 10,749 (including Business Partners). 2. Targeted Headcount for FY2029 is 9,200, gradually decreased due to migration of (assuming all migration are within stipulated period) : i. Metering Lab to TNBES in 2025 ii. Device Operation (DO) to TNBES in 2025 iii. SBU Asset Development into subsidiary in 2027 3. If the above migration reduce by 50% or any progressive percent, replacement of other attrition will follow through that progressive percentage (domino effect) 4. Gradual replacement rate strategy is applied to natural attrition (mandatory retirement and end of contract - EOC): i. Mandatory retirement (replacement at 100% - as it excludes those in temporary positions that are not allowed to be replaced). ii. EOC (replacement at 100% - excludes those in temporary positions that are not allowed to be replaced) iii. Replacement of other attritions (100% replacement - Other attrition numbers is based on average historical trending (3 Years) 5. Operations to be 100% filled due to reorganization / restructuring. 6. New capabilities are required to support SU30 initiatives 5.3: Workforce Planning
70 Workforce Productivity Plan Chapter 5 BAU outlook & initiatives Key Initiatives 2025 Key Initiatives 2026 Key Initiatives 2027 Key Initiatives 2028 Headcount Headcount Headcount Headcount Key capabilities required Key capabilities required Key capabilities required Key capabilities required 10,749 (IBR: 10,860)* (IBR: 10,860)* (IBR: 10,860)* (IBR: TBD) 1. Digital & Data Analytic 2. Energy transition resources 3. Digital customer experience 4. Smart Grid Island 1. Digital & Data Analytic 2. Energy transition resources 3. Digital customer experience 4. Smart Grid Island 1. Digital & Data Analytic 2. Energy transition resources 3. Digital customer experience 4. Smart Grid Island 1. Increase productivity and avoid underemployment 2. New capabilities to support SU30 1. Increase productivity and avoid underemployment 2. New capabilities to support SU30 1. Increase productivity and avoid underemployment 2. New capabilities to support SU30 1. Digital & Data Analytic 2. Energy transition resources 3. Digital customer experience 4. Smart Grid Island 1. Increase productivity and avoid underemployment 2. New capabilities to support SU30 * Submission for IBR RP4 (2025-2027) HC target is 10,860 subjected to ST approval 2029 Headcount Key capabilities required 9,200 (IBR: TBD) 1. Digital & Data Analytic 2. Energy transition resources 3. Digital customer experience 4. Smart Grid Island 1. Increase productivity and avoid underemployment 2. New capabilities to support SU30 Key Initiatives 5.3: Workforce Planning
71 Manpower Demand Chapter 5 BAU outlook & initiatives 2025 2026 2027 2028 Declining Roles 1. Data Analyst 2. Solution Architect 3. Data Visualization & BI 4. Data Scientist 5. Data Engineer 6. RE Engineer 7. Smart Energy Management Infrastructure (SEMI) Executives New Roles Status Quo 1. Operator of Network 2. Facilitator of Energy Transition 3. Enabler of Customer Empowerment Operating Model 1. None Declining Roles 1. Data Analyst 2. Solution Architect 3. Data Visualization & BI 4. Data Scientist 5. Data Engineer 6. RE Engineer New Roles Status Quo 1. Operator of Network 2. Facilitator of Energy Transition 3. Enabler of Customer Empowerment Operating Model 1. Asset Development Declining Roles 1. Data Analyst 2. Solution Architect 3. Data Visualization & BI 4. Data Scientist 5. Data Engineer 6. RE Engineer New Roles Status Quo 1. Operator of Network 2. Facilitator of Energy Transition 3. Enabler of Customer Empowerment Operating Model 1. None Declining Roles 1. RE Engineer New Roles Status Quo 1. Operator of Network 2. Facilitator of Energy Transition 3. Enabler of Customer Empowerment Operating Model 2029 1. None Declining Roles 1. RE Engineer New Roles Status Quo 1. Operator of Network 2. Facilitator of Energy Transition 3. Enabler of Customer Empowerment Operating Model 1. Metering Lab 2. Device Operation (DO) 5.3: Workforce Planning
72 We will require the following enablers to deliver our business plan (1/3) Chapter 6 Enablers Description Key implementation steps ▪ Shape compelling narrative for grid investments of RM ~41 Bn capex over FY25-30 (1.6x annual average CAPEX from RP3 level) ▪ Shape regulatory outcomes • Defend proposal on CAPEX and WACC for 2025-2030 • Implement CAPEX projects efficiently to achieve 100% utilization • Track value creations and customer benefits from SMART projects through DN’s Value Tracking Model • Review of Act, Distribution Code, etc. Capital allocation and value creation ▪ Adopt shared responsibilities through KPIs and/or SLAs to deliver outcomes – for e.g., material and services availability, Smart Grid Index, etc. Corporate Structure, Governance and Partnership ▪ Clear accountability and commitment from corporate functions – Fortify a resilient supply chain of materials and services – Roll out smart technologies/initiatives under Smart Grid Index dimensions Key Interdependencies ▪ RSMD ▪ Finance ▪ HR ▪ P&SC ▪ ICT ▪ Grid ▪ Genco ▪ NED ▪ PMO EV ▪ Establish value-focused organization ▪ Partner with HR to implement an organizational restructuring to improve value delivery and to ensure the structure reflects the current and future operating environment 6.1: Key Enablers for FY25-29
73 We will require the following enablers to deliver our business plan (2/3) Description Key implementation steps Key Interdependencies ▪ Develop Smart Utility (SU) with 3 essential layers i.e., Grid Hardening, Smart Grid Solution and Customer Empowerment Solutions – for e.g., Advanced Metering Infrastructure (AMI), Distribution Automation (DA), Advanced Asset Analytics (AAA), etc. ▪ Plan and implement initiatives that can increase the productivity and deliver the cost optimization Digitalization ▪ Harness full potential of digital and analytics through – ICT infrastructure for active systems management (interoperability) – Smart tools & equipment for active work management – Efficient ICT cost ▪ ICT ▪ Collaborate with RSMD to develop and implement DN Strategic Engagement Annual Plan ▪ Build a foundation of trust by regularly communicate with customers and external stakeholders through transparent and consistent messaging ▪ Implement a Crisis Command Structure within DN Business Continuity Management (BCM), ensuring it aligns with TNB's Corporate BCM strategy Communication and Stakeholder Engagement ▪ Influence and shape external stakeholders through effective engagements ▪ RSMD ▪ RMD ▪ GCC ▪ SVD ▪ Create positive perception and address ▪ HR crisis communication through clear and concise external messaging ▪ Empower internal communication and engagement to create commitment to support and deliver RT2.0 aspirations ▪ Develop DN Internal Communication and Engagement Annual Plan: – Connect RT2.0 to individual roles to make it personal and create a sense of ownership – Foster a culture of open communication and frequent updates to build trust, spark participation and achieve RT2.0 goals together Chapter 6 Enablers 6.1: Key Enablers for FY25-29
74 We will require the following enablers to deliver our business plan (3/3) Description Key implementation steps Key Interdependencies ▪ High safety culture ▪ Upskilling and reskilling of workforce with the advanced capabilities to fulfill triple role of operator of network, facilitator of energy transition and enabler of customer empowerment Talent, Capabilities and Culture ▪ Ensure all act and regulations on health, occupational safety and environment are adhered and complied ▪ Collaborate with HR and ILSAS to develop and deploy DN Capability Development (DN CapDev) framework, focusing on advanced technical and digital capabilities ▪ Invest in DN Academy (DNA), DN Engineering Centre (DEC) and DN Gedung Ilmu ▪ ICT ▪ HR Chapter 6 Enablers 6.1: Key Enablers for FY25-29
75 As for 2025, we have identified the following key enablers to deliver our financial and operational targets (1/3) Requirement Key implementation steps ▪ CAPEX investment of RM 5.94bn ▪ Realizations of value creation into P&L as well as customer benefits ▪ GHG emissions reductions from DN operations Capital allocation and value creation Corporate Structure, Governance and Partnership ▪ Clear accountability and commitment from corporate functions to ensure project/ CAPEX deliverability and Smart Grid Index (SGI) score Key Interdependencies ▪ RSMD ▪ P&SC ▪ ICT ▪ Grid ▪ Genco ▪ NED ▪ PMO EV SGI ▪ CAPEX investment is being carried out prudently and to achieve 100% utilization ▪ Ensure the proposed tangible benefits from the project proposal will bring positive impact either to DN P&L or TNB P&L ▪ Rigorous tracking on value creations as well as customer benefits for Smart Utility 2030 projects ▪ Collaborate with RSMD to conduct stakeholder engagement sessions ▪ Further develop DN Carbon Management Framework to: – Understand GHG inventories in DN’s value chain – Identify and manage carbon reduction plans covering Scope 1, Scope 2 and Scope 3 – Track and report GHG reduction efforts ▪ Adopt shared responsibilities and KPIs to deliver productivity outcomes / SGI score under performance management – Implement the collaborative strategy with the relevant divisions / corporate functions to drive SGI 2025 score ▪ Close collaborations between P&SC and ICT to ensure material and services deliverability Chapter 6 Enablers 6.2: Key Enablers for FY25
76 As for 2025, we have identified the following key enablers to deliver our financial and operational targets (2/3) Requirement Key implementation steps Key Interdependencies Digitalization ▪ ICT ▪ P&SC ▪ Partner with RSMD to develop and execute the DN's strategic engagement plan for the year ▪ Earn customer and stakeholder trust by providing regular updates and information through transparent and consistent communication channels ▪ Activate DN Business Continuity Management (BCM) plan to ensure operational continuity in the event of crisis Communication and Stakeholder Engagement ▪ Drive positive outcomes with external stakeholders through strategic engagement ▪ RSMD ▪ RMD ▪ GCC ▪ SVD ▪ Proactively shape public perception ▪ HR through clear and timely external communication ▪ Drive internal buy-in for RT2.0 by empowering employees through clear communication and active engagement ▪ Continue on RT2.0 rolldown session with DN talents through Jejak Aspirasi and HOZA Day sessions ▪ ICT infrastructure and platforms for active systems management (interoperability) ▪ Smart tools & equipment for active work management to maintain network and optimize workforce ▪ Efficient ICT cost (to address the escalating digital cost), for example in managing the software licensing cost, change request, etc. ▪ Invest in procurement, planning, and design to develop Smart Utility with 5 domains through SU 2030 Masterplan: – Asset Management – Work Management – Grid Operations – Energy Management – Customer Management ▪ Budget optimization via charging monitoring notification, RJO issuance and DN charging completion ▪ New contract establishment with new requirements and pricing Chapter 6 Enablers 6.2: Key Enablers for FY25
77 As for 2025, we have identified the following key enablers to deliver our financial and operational targets (3/3) Requirement Key implementation steps Key Interdependencies Talent, Capabilities and Culture ▪ ICT ▪ HR ▪ HSE ▪ High safety culture (Generative safety culture) ▪ Advanced capabilities needed to achieve triple role of operator, facilitator, and enabler ▪ Implement Nampak, Dengar & Rasa Selamat (NDRS) initiative ▪ Enroll batch no. 6 in DN Academy and batch no. 9 & 10 in DN Engineering Centre, and conduct DN Gedung Ilmu ▪ Deploy and roll out DN Capability Development Framework Chapter 6 Enablers 6.2: Key Enablers for FY25
78 TNB Strategic Risks (SRs): The 11 SRs cover the key risks to TNB strategy across multiple categories in which DN is one of the owners for SR No. 10: Failure to Mitigate Physical Risks Caused by Climate Change Chapter 7 Risks & Mitigation
79 TNB Risk Profile: For Gross risk rating, there are 4 high risk rating, 4 significant risk rating, and 3 medium risk rating while for Residual risk rating, there are 8 medium rating and 3 low rating Chapter 7 Risks & Mitigation
80 In addition, DN is also one of the mitigation owners for TNB’s SR No. 1 – No. 3 and TNB’s SR No. 5 – No. 11 (Total: 10 SRs) Chapter 7 Risks & Mitigation
Cause Mitigation Owner 1. Event causing unavailability of significant workforce and/or key leadership e.g., pandemic, riot 1. Prepare policies and guideline for employees to work from home CPeO 2. Ensure infra & technology in place to enable employee flexibility to work from home CIO 3. Ensure available redundancies for C-suites and critical workforce CPeO 4. Strengthen Business Continuity Management (BCM) by developing Business Continuity Plan/Contingency plan to manage operation All JEK 1 , Head (GCC) 2. Event causing sudden liquidity issue e.g., payment moratorium, economic collapse etc. 1. Ensure sufficient capital and cash flow, and carry out capital allocation review CFO, CSVO 2. Ensure adequate short-term facilities to fund working capital requirement and other financial obligations e.g., dividend payout CFO 3. Revision of collection strategy (pre, during and post collection strategy) based on current scenarios CReO 4. Ensure continuous engagement with the government to soften the blow from the event CRSMO 3. Event causing unavailability of critical IT & OT system & loss of critical data e.g., cyber intrusion, hacking of billing system, ransomware attack etc. 1. Implement Cyber Security Operating Model (CSOM) guidebook to adapt to evolving cyber threat landscape CIO 2. Activate Cyber Security Incident Management by ICT Security Operation Centre (SOC) CIO 3. Implement cybersecurity controls in IT and OT systems All JEK 1 4.Implement ICT Business Continuity Management (ICT BCM) which includes activation of Disaster Recovery Plan and Activation of Operation Rooms ( ICT DOR) – activated based on criticality CIO *Likelihood (Possibility of Risk occurring) Rare Unlikely Moderate Likely Almost Certain At least once in the next 6 years or more At least once in the next 4 to 5 years At least once in the next 2 to 3 years At least once in the next 1 year More than once in the next 1 year 3. Potential Likelihood of Risk Happening SR 1 : Catastrophic disruptions from external factors 1. Risk Description 2. Potential Impact Arising from Risk TNB supplies electricity to the entire nation, and we need to continue doing it reliably, sustainably and economically to retain the trust and confidence of the rakyat. At the same time, we need to continue growing TNB’s brand and reputation as the leading provider of sustainable energy solutions in Malaysia & international. However, we are exposed to external grey swan events such as pandemic, cybersecurity intrusion, economic collapse etc. These events have a low probability of happening but are unpredictable and could catastrophically impact our domestic business operation, profitability and reputation. Examples of catastrophic impact are severe damage to critical assets, unavailability of critical IT & OT system, loss of critical data, unavailability of significant workforce and/or key leadership and massive reputational/brand damage. *Impact to EBIT Target FY25 RM8.88 bn or image/ reputation Insignificant Minor Moderate Major Catastrophic Reduction of <5% of EBIT target or No impact on brand image and/or corporate reputation and expected to remain insignificant in the foreseeable future Reduction of 5- 10% of EBIT target or Minor impact on brand image and/or corporate reputation and the exposure of business operations from the risk is controlled with expected recovery Reduction of >10-20% of EBIT target or Moderate impact on brand image and/or corporate reputation with issues escalated to Top Management and the level of issues are manageable and commensurate with the volume of internal controls Reduction of >20-30% of EBIT target or Major damage to brand image and/or corporate reputation with negative publicity and/or involvement of regulators and the level of exposure is expected to increase in the foreseeable future if without intervention Reduction of >30% of EBIT target or Catastrophic damage to brand image and/or corporate reputation with extensive and high traction of negative publicity involving multiple stakeholders and high potential exposure to substantial financial and/or legal impact and/or operational continuity if without intervention 4. Risk Causes & Mitigations Risk Owner : CSVO Mitigation Owners: All JEK1 , Head (GCC), CEO (SESB) External Legend: Gross Residual 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC *In consideration of revision on likelihood and impact parameter issued on BRC meeting dated 7 March 2023 10 Chapter 7 Risks & Mitigation
4. Risk Causes & Mitigations SR 1 : Catastrophic disruptions from external factors External Cause Mitigation Owner 4. Event causing severe and sudden damage and/or destruction to critical assets e.g., terrorist attack, industrial sabotage, natural disasters etc. 1. Strengthen network security, grid system security and physical security for critical asset CGO, CDNO, CIO, CEO (SESB) 2. Conduct risk assessment for critical asset e.g periodical review on plants safety zone (Kawasan Sasaran Penting), grid network and routine/preventive management for substations CGBSO (SSD*), CDNO, CGO, MD (TPGSB), CEO (SESB) 3. Implement Business Continuity Management (BCM) plan e.g., activation of emergency operation room and backup control center, rotational load shedding, mobilizing of gen-sets, implement Integrated Community Based Disaster Management, etc. MD (TPGSB), CGO, CDNO, CReO, CRSMO, CPeO, Head (GCC), CIO, CGBSO, CFO, CPO, CSO 4. Implement drill to test BCM effectiveness MD (TPGSB), CGO, CDNO, CReO, CRSMO, CPeO, CIO, CGBSO, CFO, CPO, CSO, Head (GCC) 5. Event causing severe damage to TNB’s reputation and brand e.g., hacking of billing system, customer personal data leak/theft, enforcement agency raid, etc. 1. (Pre-event) Conduct periodical reviews of Crisis Communication Guidelines followed by simulation exercise Head (GCC) 2. (During/ Post-event) Execute the Crisis Communication Plan to ensure all stakeholders (incl. investors, government, rakyat) are being updated with the right information Head (GCC), CRSMO, CFO, CReO 6. Insufficient understanding of how the company is impacted by geopolitical risk 1. Monitor geopolitical risk in relevant region where ongoing investment activities is happening, potential market for investment, sources of supplies etc. CRSMO, CSO 2. Increase exposure in international relation to understand and anticipate impact of geopolitical risk via courses, engagement with expertise CNEO, MD (TPGSB), CRSMO, CSO 7. Foreign government interference on TNB’s oversea investments 1. Proper evaluation via Investment Risk Methodology (IRM) framework to exclude investments into countries with high geopolitical risks CNEO, MD (TPGSB) 2. Establish clear exit plans to exit risky markets in the event of unacceptable geopolitical risks CNEO, MD (TPGSB) 3. Establish ironclad shareholder agreements, SLAs or PPAs that protect TNB from undue political interference CNEO, MD (TPGSB) 8. Sudden closed economy policy due to voluntary isolation, prevention of transit costs, protection of cultural preferences, and government decree 1. Establish close relationship with embassy to gain insight on any event that may potentially leading towards exit action CRSMO 2. Conduct due diligence extensively before investing or procuring; to identify historical political action that is not in favor for utilities businesses e.g; sudden termination of trading activities, ESG matters etc. All JEK 1 (CPO to lead) 3. Establish local internal alignment around operations connected with geopolitically sensitive markets to sense changes in direction CNEO, MD (TPGSB), CRSMO 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC Notes: SSD – Security Services Department 11 Chapter 7 Risks & Mitigation
Likelihood (Probability of Risk occurring) Rare Unlikely Moderate Likely Almost Certain Below 5% chance of occurring 5% - 25% chance of occurring 25% - 50% chance of occurring 50% - 95% chance of occurring More than 95% chance of occurring 3. Potential Likelihood of Risk Happening SR 2 : Inability to keep pace with Environment, Social and Governance (ESG) developments and transitions globally There is a growing push globally for sustainable development, and countries everywhere are looking at how to adopt global ESG frameworks (e.g., UN SDGs, TCFD & PPCA etc.) into their national policies and legislations and establish sustainability targets for their nation to achieve. TNB is a major player in Malaysia’s electricity supply industry (ESI), which is a major contributor to the nation’s socioeconomic growth. Currently, the top ESG focus is on environment, climate change mitigation and action, hence pressuring energy-intensive industries including ESI to decarbonize and embrace the energy transition. Social and Governance pillars are also important, as such sustainability management should be developed holistically covering the subjects that are material to a company. As a company whose purpose is to brighten lives through innovative and sustainable solutions towards a better world, it is vital that we align to global ESG commitments and frameworks as much as possible. Failure to do so will erode market confidence in TNB to be a sustainable company, adversely affect employee morale and damage our company reputation. *PPCA – Power Past Coal Alliance, TCFD – Taskforce on Climate-related Financial Disclosure, UN SDGs – United Nations Sustainable Development Goals Risk Owner : CSO Mitigation Owners: All JEK1 , Head (GCC) Sustainability Impact (MSCI ESG rating in FY2025) Insignificant Minor Moderate Major Catastrophic AAA and AA rank A rank BBB rank BB rank B and CCC rank NOTE: 2022 MSCI ESG rating for TNB = BBB rank, however it is estimated that the methodology may become stricter by 2025, hence without controls, the gross impact may be a downgrade to BB 1. Risk Description 2. Potential Impact Arising from Risk 4. Risk Causes & Mitigations Legend: Gross Residual Cause Mitigation Owner 1. Weak ownership of sustainability matters 1. Establish board sponsorship of sustainability in TNB CSO, CoSec 2. Define and demonstrate clear & public sustainability commitments and targets All JEK 1 (CSO to lead) 3. Set ESG-related KPIs for all TNB biz entity chiefs/heads All JEK 1 (CSO to lead) 2. Lack of clarity on TNB’s aspiration and strategy vis-àvis ESG within TNB 1. Formulate TNB’s strategy to accomplish the Sustainability Pathway 2050 (SP2050) targets and plan CSO, CSVO 2. Assign clear policies, strategic priorities & roles to individual business units to deliver ESG targets All JEK 1 (CSO to lead) 3. Establish clear implementation plan for ESG initiatives and programs All JEK 1 (CSO to lead) 4. Communicate clearly TNB’s SP2050 aspiration and strategy to accomplish it throughout the organization CSO, Head (GCC), CPeO 3. Lack of awareness of sustainability in the organization 1. Define sustainability values / elements to be included in TNB Reimagining culture CPeO 2.Conduct campaign to infuse sustainability values and raise awareness at all levels of TNB workforce CPeO 3.Provide communications support (e.g., contents, information and etc.) for internal sustainability campaigns Head (GCC) 4.Provide event planning support (e.g., advice on event platform, event flow, logistic etc) for internal sustainability campaigns CGBSO 5.Establish corporate sustainability guidelines and policies to be followed CSO 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 12 Chapter 7 Risks & Mitigation
4. Risk Causes & Mitigations Sustainability 6. Establish corporate support functions’ sustainability guidelines and policies to be followed* CGBSO, CPO, CIO, CSO 7. Internalize sustainability into existing business operations and practices All JEK1 4. Unknown misalignment to global ESG frameworks 1.Conduct regular assessment of TNB’s ESG performance CSO 2.Adopt ESG rating agency’s methodology CSO 3.Establish KRI for ESG’s risk exposure CSO 5. Inadequate assessment of ESG risk exposure 1.Establish practice of assessing ESG risk CSO 2.Include ESG risk assessment in investment due diligence CSVO, CSO 6. Misalignment with related authorities/ regulators/ practitioners at international level on global ESG matters 1.Identify & strategically engage key authorities/regulators/practitioners at international level CSO, CRSMO 7. Failure to adequately communicate TNB’s effort and commitment as a leading provider of sustainable energy solutions in Malaysia and internationally. 1.GCC to work closely with SVD, RSMD, TGBS and Sustainability Division to develop a comprehensive communication strategy that: i. communicates the right message of RE and sustainability ii. identifies and utilises the right influencers iii. selects the right platforms and channels –social media, mass media to change perceptions and establish reach and engagement iv. leverages partnership & sponsorship as a mechanism to deliver and amplify TNB’s ESG narrative & contribution Head (GCC), CSVO, CRSMO, CGBSO and CSO 8. Lack of capabilities in newly introduced long term journey SP2050 e.g., technologies, methodologies, investment, financial taxonomy etc. 1.Establish evolving capabilities roadmap inline with TNB SP 2050 aspiration and strategy All JEK 1 (CPeO to lead) Cause Mitigation Owner SR 2 : Inability to keep pace with Environment, Social and Governance (ESG) developments and transitions globally 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC Notes: * Provide guidelines and policies for green ways of working e.g; WFH, paperless approaches etc. 13 Chapter 7 Risks & Mitigation
3. Potential Likelihood of Risk Happening SR 3 : Unfavorable policies and regulatory implementation related to electricity supply industry and energy transition As the world transitions into a low-carbon economy and the energy transition takes places, TNB will also be making and facing changes both internally and externally. Internally, TNB will making major changes in its business model, investments and plans as it seeks to gradually decarbonize its business in alignment to our Sustainability Pathway 2050. Externally, TNB will be facing regulatory, social and financial changes that will great impact our businesses. As TNB adapts to these changes, it is important that we maximize the opportunity while taking the greatest care to mitigate any potential adverse outcome. In addition, TNB also holds great interest in the reformation of MESI as failure to obtain favorable outcome of MESI will hinder TNB to future-proof our business to stay relevant and meet the everchanging and growing needs of our customers, hence impacting TNB’s profitability. Cause Mitigation Owner Impact to EBIT FY25 RM8.88 bn Insignificant Minor Moderate Major Catastrophic Reduction of <5% of EBIT target Reduction of 5-10% of EBIT target Reduction of >10-20% of EBIT target Reduction of >20-30% of EBIT target Reduction of >30% of EBIT target Risk Owner : CRSMO Mitigation Owner: CSVO, CSO, CRSMO, MD (TPGSB), CNEO, CFO, CPeO, CReO, CDNO, Head (GCC) Regulatory 1. Risk Description 2. Potential Impact Arising from Risk 4. Risk Causes & Mitigations Legend: Gross Residual Likelihood (Probability of Risk occurring) Rare Unlikely Moderate Likely Almost Certain Below 5% chance of occurring 5% - 25% chance of occurring 25% - 50% chance of occurring 50% - 95% chance of occurring More than 95% chance of occurring 1. Failure to positively shape key policy changes on climate change, e.g., Climate Change Act, carbon pricing etc. 1. Establish TNB’s view on major climate change topics e.g., carbon pricing, carbon emission trading scheme CSO, CRSMO 2. Compel power plants that are non-compliant with CAR to have a long-term mitigation plan MD (TPGSB) 3. Diversification of generation business towards Green Kingdom ET scenario MD (TPGSB), CNEO 2. Unclear game plan to shape key policy changes on energy transition, e.g., higher RE target, EV, Energy Efficiency 1. Establish TNB’s view on energy transition themes e.g., electric vehicles, energy efficiency, RE CSVO, CSO, CRSMO 2. Promote TNB’s view on energy transition themes e.g., electric vehicles, energy efficiency, RE CRSMO, Head (GCC), CSVO, CSO 3. Inadequate engagement with key stakeholders and publics on climate change and energy transition matters 1. Regular engagement sessions with domestic and international key stakeholders including investors and publics, sharing TNB’s view on climate change and energy transition CRSMO, CSVO, CSO, CFO, CNEO 2. Proactively shape any discussions with key stakeholders on related policies or regulations to be favorable to TNB CRSMO, CSVO, CSO, CFO, CNEO 3. Promote TNB’s view on climate change and energy transition topics CRSMO, Head (GCC), CSVO, CSO 4. Lack of expert knowledge on other countries’ climate change and energy transition policies and direction 1. Hire talent with the right/required capabilities and relationships CNEO, CPeO 2. Build capabilities with international regulatory, market experience and business relationships CNEO, CPeO 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC NOTES: Considering regulated entities downside scenarios (reg. biz only): Impact of not obtaining forecasted RP terms (WACC reduction for Grid (7.0%) & DN (6.7%) from BP FY24-28 = RM440mn, Impact of 5% CAPEX projects slash – RM358mn per year. Impact of 10% Regulated OPEX slash - ~RM491mn per year. Impact from SESB: ~RM283mn Impact of ICPT cost sharing 2H2022 – RM3.5bn. Total impact = ~RM5bn (57.6%) 14 Chapter 7 Risks & Mitigation
Cause Mitigation Owner 5. Failure to meet investors’ expectation of TNB’s capability to sustain its business in the energy transition 1. Conduct effective non-deal roadshows at selected markets to promote TNB’s business sustainability CFO 2. Frequently engage key investors on TNB’s business sustainability plans, achievements and strategy CFO, CSVO, CSO 3. Leverage media channels to spotlight on TNB’s capability to sustain its business in the energy transition Head (GCC) 6. Poor investments into low-carbon technologies 1. Establish clear strategy and game plan for TNB to invest into low-carbon technologies to maximise its value CSVO, CSO 2. Leverage the Technology Readiness Level framework to categorize and govern technological ventures CSVO 7. Inability to cope with shifts in customer behaviour 1. Periodical review on customers demand and needs with regards to clean energy CSVO, CSO, CReO, CDNO 8. Unfavourable MESI initiatives by MyPOWER 1. Continuous engagement and collaboration with MyPOWER to align MESI initiatives ensuring positive impact to TNB CRSMO 9. No buy in from key stakeholders on the need for reformation of MESI 1. Assist MyPOWER to establish strong justifications and build a need-based narrative for all initiatives under MESI CRSMO 2. Continue to engage key stakeholders to educate on the importance of MESI reformation towards achieving Malaysia’s growth aspirations and SP2050 pathway CRSMO, CReO, Head (GCC) 3. Conduct study visits to relevant jurisdiction to expose key stakeholders to new and developing technology to understand the need as well as the potential value that would be added to Malaysia’s ESI CRSMO 10.Poor national economic situation 1. Submit prudent and reasonable IBR RP proposal with strong justifications that provide values to stakeholders, including rakyat and employees CRSMO, All RBE C-suites 2. Introduce products and services to help affected customers deal with the current economic situation CReO, CGBSO, CPeO 3. Work with the Government and Regulators to find the best practice to assist affected business entities in terms of cash flow and business costs of electricity consumption, thus retaining customers during recovery CRSMO, CReO 11.Unfavorable political landscape for MESI roll out 1. Increase engagement with key stakeholders especially during key negotiations CRSMO, All RBE C-suites 2. Propose rakyat-friendly projects/solutions that would have political mileage CRSMO, All RBE C-suites 12.Failure to diversify national energy mix to ensure security of supply 1. Continue to engage and educate key stakeholders on the need to increase energy independence through diversification of generation mix CRSMO 2. Explore the development of interconnection with ASEAN countries to enable new business opportunities and support greater adoption of RE CRSMO, CGO 3. To diversify generation business to include Green Technology CRSMO, MD (TPGSB), CNEO 4. Risk Causes & Mitigations 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC SR 3 : Unfavorable policies and regulatory implementation related to electricity supply industry and energy Regulatory transition 15 Chapter 7 Risks & Mitigation
Cause Mitigation Owner 13.Volatile fuel prices (leading to high generation costs) puts heavy burden to TNB’s operations 1. Continue to push for the independence of Single Buyer and GSO CRSMO 2. Ensure full recoverability of Imbalance Cost from customer or Government CRSMO 3. Ensure Government upholds the sanctity of ICPT implementation CRSMO 4. Strategize and shape Government decision through proposed options with manageable impact to customers CRSMO 5. Push for alternative ways in managing fuel costs e.g. decoupling fuel cost from ICPT, domestic gas pricing strategy (PETRONAS Energy & Gas Trading (PEGT) to provide more gas instead of LNG procurement) CRSMO 6. Stricter management of TNB’s cashflow CFO 7. Review current fuel strategy to optimise fuel and shield against short-term fuel commodity shocks MD (TNBF) 14.National tariff structure is not revised to support MESI reformation initiatives 1. Grow unregulated business to mitigate the risk arises from regulated business All C-Suites of Non-RBEs 2. Reform tariff and subsidy design to be more cost reflective, transparent and supporting those in need. CRSMO & CReO 3. Carry out benchmarking on tariff redesign on other countries CRSMO & CReO 4. Continuous engagement/collaboration with Regulators to align and prepare the sector for energy transition CRSMO 5. Propose gradual implementation towards cost reflective tariffs to mitigate cost-shifting and balance revenue and cost structure CRSMO 6. Propose for introduction of a need-based targeted subsidy mechanism CRSMO 7. Propose to separate fuel cost within the base tariff determination to improve transparency in tariff setting CRSMO 8. Early engagement with customer association CRSMO, CReO 9. Increase energy literacy program CRSMO, CReO, Head (GCC) 15.Lack of investment into the Grid to enable RE penetration causing high dependency on conventional power generation 1. Continue to collaborate with key agencies in exploration of choices and opportunities to empower consumers to actively participate in MESI e.g., implementation of corporate PPAs for C&I customers CRSMO & CReO 2. Establish strong justifications and build narrative for all proposed CAPEX projects for system reliability and security as well as Grid of the Future in IBR RP proposal. CRSMO, CGO & CDNO 4. Risk Causes & Mitigations 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC SR 3 : Unfavorable policies and regulatory implementation related to electricity supply industry and energy Regulatory transition 16 Chapter 7 Risks & Mitigation
Cause Mitigation Owner 16.Lack of support from Government and Regulators on projects proposed under IBR to support energy transition 1. Engagement with Regulator and Government to convince and get buy-in on the sustainability pathway to enable energy transition. CRSMO, All RBE C-Suites 2. Identify and justify the need to evolve and undertake proposed projects in order to future-proof the grid as well as keep up with the latest energy megatrends and customers’ needs. CRSMO, All RBE C-Suites 3. Build and shape narrative for proposed projects to benefit stakeholders beyond electricity supply industry, such as for flood mitigation etc. CRSMO, All RBE C-Suites 4. Carry out benchmarking study against other jurisdiction on their strategy and implementation of such projects. CRSMO, All RBE C-Suites 5. Conduct study visits to relevant jurisdiction to expose key stakeholders to new and developing technology to understand the need as well as the potential value that would be added to Malaysia’s ESI. CRSMO, All RBE C-Suites 4. Risk Causes & Mitigations 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC SR 3 : Unfavorable policies and regulatory implementation related to electricity supply industry and energy Regulatory transition 17 Chapter 7 Risks & Mitigation
3. Potential Likelihood of Risk Happening Likelihood (Probability of Risk occurring) Rare Unlikely Moderate Likely Almost Certain Below 5% chance of occurring 5% - 25% chance of occurring 25% - 50% chance of occurring 50% - 95% chance of occurring More than 95% chance of occurring SR 4: Unable to be competitive in non-regulated business (international & domestic) Impact to EBIT Target FY25 RM8.88 bn Insignificant Minor Moderate Major Catastrophic Reduction of <5% of EBIT target Reduction of 5-10% of EBIT target Reduction of >10- 20% of EBIT target Reduction of >20- 30% of EBIT target Reduction of >30% of EBIT target TNB is currently diversifying its business into non-regulated segments, both domestically and internationally. These include competitive bidding (e.g., LSS, NEDA, energy interconnection), exploring beyond kWh markets and diversifying internationally However these markets are highly competitive and it is challenging for TNB to participate and compete. For TNB to be successful in the non-regulated business, there is a need for TNB to relook at its strategy and ability to compete. Failure to do so would stunt our growth in term of market, revenue which eventually will result in us not able to achieve the targeted EBIT and becoming a leader in providing sustainable energy solution. Market NOTE: Based on NED & Retail beyond kWh business plan having no impact in non-regulated business: NED EBIT = RM 0.8 bn - incorporating contribution up to 2025 only Retail beyond kWh (TNBX & GSparx) = RM49.6 mn SMD = RM205.4 mn (6 subsidiaries under SMD, exclude SESB) TOTAL = RM1.055 bn @ 11.88% total RM8.88 bn EBIT FY2025 Risk Owner : CNEO Mitigation Owner: CNEO, CSVO, CReO, MD (TPGSB), CPO, CRSMO, CPeO, CFO 1. Risk Description 2. Potential Impact Arising from Risk 4. Risk Causes & Mitigations Legend: Gross Residual Cause Mitigation Owner 1. Failure to understand international & domestic market environment due to weak market intelligence 1. Evaluate potential investments based on the approved Investment Risk Methodology in TNB CNEO, CSVO, CReO, MD (TPGSB) 2. Conduct a financial feasibility study to determine if the move makes financial and strategic sense CNEO, CSVO, CReO, MD (TPGSB) 3. Establish stronger network and resources with local talents and partners with incumbent projects in the target countries CNEO, MD (TPGSB) 2.Failure to make a competitive bid 1. Benchmark new bids against previous winning bid, identify ways to bring down cost structure & carry out soft-sounding with market advisers and conduct robust research on expected returns pre-market entry CNEO, CSVO, CReO, MD (TPGSB) 2. Source for the most competitive financing options CNEO, CSVO, CReO , MD (TPGSB) 3. Enhance procurement category intelligence for competitive pricing and best value to TNB CPO, CSVO, CReO, MD (TPGSB), CNEO 4. Perform due diligence and valuation exercise pre-bid as per industry best practices CNEO, CSVO, CReO, MD (TPGSB) 5. Engage key stakeholders such as ST to enable strategic proposals from TNB (e.g., possible award through direct negotiation) CNEO, CRSMO 6. Perform regular reviews and improvements on the decision-making and approval process to streamline the entire bidding process and increase success probability CSVO 7. Submit bids with customized returns expectation that are determined on case-by-case basis CNEO, MD (TPGSB), CReO Notes: Cover international business, subs, beyond kWh and GenCo 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 18 Chapter 7 Risks & Mitigation
Market 4. Risk Causes & Mitigations SR 4: Unable to be competitive in non-regulated business (international & domestic) Cause Mitigation Owner 3. Business offerings which do not meet customers’ expectation & demand 1. Conduct sufficient market research before launching new products/services CReO , CSVO 2. Conduct pilot testing of products and services before commercial launch CReO , CSVO 3. Continuously iterate the solutions offerings prior Go-To-Market (GTM) and during solution lifecycle to remain relevant to customers values and needs CReO, CPeO, CSVO 4. Lack of development/sourcing of critical skillsets 1. Develop skills required to transform organization to be able to capture non-regulated sales in terms of technology, business development, operational, marketing and sales, fund/deal sourcing and etc. CReO, CSVO 2. Establish personalized talent development plans for secondees who are assigned to business entities engaging in competitive markets CNEO, MD (TPGSB), CPeO 3. Recruit experienced salespeople/marketers to expedite capability acquisition CReO, CSVO 5. Unable to secure competitive external financing/funding (from financial investors) for business growth 1. Understand the relationship between different types of finance available and the investors’ appetite & preferred structure / market exposure CNEO, CSVO, CReO, MD (TPGSB), CFO 2. Explore creative financing structures to optimize capital deployment CNEO, CSVO, CFO, MD (TPGSB) 6. Failure to build the right partnership 1. Conduct sufficient market scanning to better understand and secure suitable partners CNEO, CSVO, CReO, MD (TPGSB) 2. Conduct a rigorous scope and risk assessment to protect TNB's interest CNEO, CSVO, CReO, MD (TPGSB) 3. Build capabilities in negotiation and deal making CNEO, CSVO, CReO, MD (TPGSB), CPeO 4. Regularly review existing business partnerships to decide on way forward CNEO, CSVO, CReO, MD (TPGSB) 5. Structure partnerships that provide room for TNB to exit in order to limit dilution / losses CNEO, CSVO, CFO, MD (TPGSB), CReO 7. Failure to keep cost structure low 1. Frequent review and revamp of operational costs CNEO, CSVO, CReO, MD (TPGSB) 2. Improve & optimize supply chain CNEO, CSVO, CReO, MD (TPGSB) 3. Right-size the organization with revised terms and conditions of employment CNEO, CSVO, CReO, MD (TPGSB), CPeO 8. Failure to keep up with latest international regulation 1. Setup international team looking at macro-economic condition of country of interest CRSMO 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 19 Chapter 7 Risks & Mitigation
3. Potential Likelihood of Risk Happening Likelihood (Probabilit y of Risk occurring) Rare Unlikely Moderate Likely Almost Certain Below 5% chance of occurring 5% - 25% chance of occurring 25% - 50% chance of occurring 50% - 95% chance of occurring More than 95% chance of occurring SR 5 : Inability to remain as the electricity provider of choice by customers TNB is the main utility that supplies electricity to the entire nation, and we need to continue to ensure continuity of supply and reliability, efficient services and deliver wow customer experience, while striving to build our brand and reputation to our customers as a trustworthy utility company. Customers are demanding for more affordable electricity, high quality services experience and higher participation in energy value chain. This is influenced by customers’ lifestyle, technology disruption and financial appetite. Understanding and delivering differentiated solutions-based customer needs and values to deliver wow customer experience is key to ensure TNB remains as the Electricity Provider of Choice by customers Failure to deliver any of these roles will lead to dissatisfaction and disengaged customers, inability to capture new business growth, leading inability to shape regulatory outcomes towards positioning TNB to deliver outcome to customers and rakyat, and higher possibility precipitate the opening up of electricity supply chain. Customer Risk Owner : CReO Mitigation Owner: CReO, CDNO, CGO, CGBSO, CNEO, CSVO, MD (TPGSB), CRSMO, CIO, CFO, CSO 1. Risk Description 2. Potential Impact Arising from Risk 4. Risk Causes & Mitigations TNB CSI Insignificant Minor Moderate Major Catastrophic > 8.3 8.1 – 8.2 7.8 – 8.0 7.7 - 7.6 < 7.5 Legend: Gross Residual Cause Mitigation Owner 1. Poor quality service experience and delivery to customers across customer journey 1. Proactively renew Customer Experience ”WOW factor” by redesigning key critical customer journeys CReO 2. Establish, implement or enhance Service Level Agreement (SLA) / Commercial Performance Agreement (CPA) for Service Providers; DN, Gen, Grid, subsidiaries and TGBS based on TNB customer needs (beyond MSL/GSL) CReO, CDNO, CGO, CGBSO, CSVO, MD (TPGSB) 3. Continue to engage key stakeholders to educate on the importance of improving/advance customer service CRSMO, CReO 2. Unable to provide affordable, quality and reliable supply in line with customer expectation 1. Strengthen network reliability & power quality CDNO, CGO 2. Minimize supply restoration time CDNO, CGO 3. Ensure operating cost is in line with industry benchmark CDNO, CGO, CReO 4. Explore additional tariff options, e.g., Time-of-Use, prepayment CReO, CRSMO 3. Failure to respond/adapt to ever changing market outlook that impacts customers lifestyle/value & needs e.g. digital, spending behavior, economy, 1. Analyse, monitor and adapt to market trends CReO, CSVO 2. Embrace digital transformation CReO, CIO, CSVO 3. Address customer’s interest, value and needs through differentiated strategy and solutions CReO 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC Note: Customer Satisfaction Index is a globally recognised index for satisfaction for service delivery and has been a reliable indicator of service delivery for TNB in the current regulatory period. TNB CSI’s parameter used as impact in this risk is according to submission to IBR RP3 (2020-2022). TNB CSI: 8.6 (2020), 8.7 (2021), 8.7 (2022) 20 Chapter 7 Risks & Mitigation
Customer 4. Risk Causes & Mitigations SR 5 : Inability to remain as the electricity provider of choice by customers Cause Mitigation Owner 4. Ineffective customer communication and engagement 1. Regularly review & revise customer communication and engagement plan, execution and channels to ensure relevancy and effectiveness CReO 2. Ensure all employees are well train and embrace customer centricity value to provide personalized solutions to customers based on their values and needs CReO, CDNO 5. Ineffective regulator & investor communication & engagement 1. Regularly review & revise regulator & investor communication and engagement plan, execution and channels to ensure relevancy and effectiveness CRSMO, CFO 6. Loss of customer trust due to loss or theft of customer personal data 1. Enforce adherence to key ethics-related policies such as TNB Code of Ethics, PDPA, anti money laundering and no gift policy CReO, CDNO, CSO 2. Regularly assess and strengthen cybersecurity posture CIO 7. Disruption to customer service and operation due to cybersecurity and physical security attacks on critical information infrastructure 1. Regularly assess and strengthen cybersecurity posture CIO 2. Establish & maintain comprehensive Business Continuity Plan for any cybersecurity incidents CIO 3. Regularly assess and strengthen physical security of key ICT assets CGBSO 8. Customers going off grid 1. Capture the new market related to self-generation (rooftop solar, energy storage, etc.) through value added product and services, alternative technologies, diversification CReO, CSVO, CDNO 2. Capture micro grid market via our subsidiaries e.g., Smart Island opportunities CSVO, CDNO, CNEO 3. Maintain and secure stakeholders/regulators buy-in on TNB role as a reliable and affordable back up supply in any micro grid set up CRSMO, CDNO, CGO 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 21 Chapter 7 Risks & Mitigation
Impact on ROIC % 2025 Insignificant Minor Moderate Major Catastrophic ROIC > =7.5% ROIC 6.0 – <7.5 ROIC 4.5 – <6% ROIC 3.0 – <4.5% ROIC <3.0% Likelihood (Probability of Risk occurring) Rare Unlikely Moderate Likely Almost Certain Below 5% chance of occurring 5% - 25% chance of occurring 25% - 50% chance of occurring 50% - 95% chance of occurring More than 95% chance of occurring SR 6 : Ineffective capital allocation to maximise value creation Capital allocation is the process of distributing a company’s financial resources to: (1) Ensure continuous operational efficiency (2) Grow the company’s businesses (3) Enhance the firm’s long-term financial stability (4) Invest into technology and R&D (5) Provide fair returns to shareholders Management must make decisions on how to allocate funds for shareholder dividends, new growth investments, debt, cost reduction, R&D, etc. Failure to do so would have dire implications to TNB, including missed opportunities, reduced financial profits and decreased market confidence. As TNB expands domestically and internationally into new markets and segments inline with the RT strategy, capital allocation decisions must be made judiciously, systematically and datadriven to reduce biases and risks. Finance NOTE: Original RT Refresh estimate: 2019 ROIC = 5.5%, Review of RT Refresh FY2025 (reviewed March FY23), ROIC=5.6% Update from Group Finance (2022): 2019 ROIC = 5.97%, 2020 ROIC=5.71%, 2021 ROIC=6.3%, 2022=6.1% Risk Owner : CSVO Mitigation Owner: All JEK1 1. Risk Description 2. Potential Impact Arising from Risk 4. Risk Causes & Mitigations 3. Potential Likelihood of Risk Happening Legend: Gross Residual Cause Mitigation Owner 1. Misalignment between strategy and budgeting 1. Proper implementation of the Strategic Planning & Performance Management Cycle to rigorously translate strategic priorities into balanced budgets CSVO, CFO 5. Unclear strategies to direct investments & spending 1. Establish TNB capital allocation framework and principles CSVO 2. Assign clear strategic priorities & roles to individual business units to determine their capital allocation guidelines & budgets CSVO 3. Establish tactical capital allocation strategy and plan CSVO, CFO 4. Perform regular reviews of strategic priorities to maintain balance (e.g., risk versus return, growth versus efficiency, investments with different horizons etc.) CSVO 3. Biased decision making 1. Ensure corporate investment review team continue to act as an independent advisor CSVO 2. Practice a culture of constructive disagreement when making decisions All JEK 1 4. Failure to properly assess capital risks 1. Ensure TNB Investment Risk Methodology framework is practiced and applied in investment decisions CSVO 5. Inadequate post-investment portfolio reviews 1. Adjust capital allocation plan based on learning from post investment reviews MD (TPGSB), CNEO, CSVO 2. Build in feedback loop for Capital Allocation framework MD (TPGSB), CNEO, CSVO 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 22 Chapter 7 Risks & Mitigation
SR 6 : Ineffective capital allocation to maximise value creation Cause Mitigation Owner 6. Insufficient capital headroom 1. Structure investments to maximize retained earnings impact at the project level (increase TNB value of equity) Project Owners (MD TPGSB, CNEO, CReO, CSVO (SMD)) 2. Adjust capital allocation plan based on available capital headroom and risk appetite CSVO & CFO 7. Challenging expectation on risk capital returns 1. Increase knowledge sharing with top management and BOD CSVO 2. Manage expectations on risk capital returns for different buckets of investment objectives through the Capital Allocation Framework CSVO 3. Frequent & regular review of Board & Management risk appetite for different investment classes CSO, CSVO, CNEO, MD (TPGSB) 8. Difficulty of measurement of capital allocation effectiveness 1. Identify and establish party-in-charge (PIC) for group capital allocation control and measurement CSVO, CFO 2. Implement post-investment review tracking and assessment CSVO 3. Formulate appropriate metrics and criteria to assess effectiveness of different forms of capital allocation buckets, including Research and Development (R&D) and technology investments CSVO, CFO 9. Sub-optimal access to information and data 1. Acquire tools to monitor and manage capital allocation portfolio across the group CSVO Finance 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 4. Risk Causes & Mitigations 23 Chapter 7 Risks & Mitigation
Likelihood (Probability of Risk occurring) Rare Unlikely Moderate Likely Almost Certain Below 5% chance of occurring 5% - 25% chance of occurring 25% - 50% chance of occurring 50% - 95% chance of occurring More than 95% chance of occurring SR 7 : Gaps in workforce capabilities to deliver RT strategy and sustainability aspiration TNB has continuously developed employees with skills and competencies required for both strategic and business operations. These capabilities are needed for employees to perform various tasks at the required proficiency level competently. In realizing Reimagining TNB aspiration, it is therefore critical for TNB to focus on developing & deploying new institutional and evolving capabilities to the right areas within organization e.g. data and analytics, ESG, energy transition, climate change, market intelligence, capital allocation, M&A and merger integration, products, solutions, and business development). We also need to increase the workforce diversity (e.g. Skill-set, exposure, gender equality, race profile etc) in line with our aspiration to diversify internationally, while improving our sustainability from a social perspective. Capabilities Impact HCROI (RM) Insignificant Minor Moderate Major Catastrophic >=4.0 3.5 – <4.0 3.0 – <3.5 2.5 - <3.0 <2.5 Risk Owner : CPeO Mitigation Owner: All JEK1 1. Risk Description 2. Potential Impact Arising from Risk 3. Potential Likelihood of Risk Happening 4. Risk Causes & Mitigations NOTE: Human Capital Return on Investment (HCROI) = [Revenue – (OPEX – Total Cost of Workforce TCOW)]/TCOW HCROI 2019 = 2.68, HCROI 2020 = 2.95, HCROI 2021 = 3.33, HCROI 2022 = 3.73 Legend: Gross Residual Cause Mitigation Owner 1. Lack of experienced workforce/leaders to drive business growth and Reimagining TNB Strategies 1. Strengthen quality leadership pipeline through Leadership Development Programmes (e.g., Identity-quantifiable outcome driven Leadership, Talent Development Program, Leadership Drive, etc) CPeO 2. Regularly monitor and reassess effectiveness of Leadership Development Programmes outcome CPeO 3. Diversify Sourcing Strategy to ensure continuity and sustainability in experienced workforce CPeO 4. On-The-Job Enrichment to provide exposure and experience (secondment to other companies (both utility & non-utility), Tour-of-Duty, etc.) CPeO 2. Lack of experienced workforce diversity 1. Formalise quality workforce diversity policy for TNB encompassing various recruitment criteria (e.g., women leadership, race profile, educational background etc.) that is aligned to ESG agenda CPeO 3. Workforce immobility and mismatch 1. Establish agile management model to foster cross collaboration across functions while maximizing resource utilization All JEK 1 (CPeO to lead) 2. Improve and enforce the workforce mobility policy to match the right people for the right job CPeO 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 24 Chapter 7 Risks & Mitigation
4. Risk Causes & Mitigations Cause Mitigation Owner 4. Failure to attract & retain talented/experienced staff 1. Unique remuneration package for niche talent CPeO 2. Enhance Employee Value Proposition (EVP) CPeO 3. Establish recruitment channels to acquire key talents on temporary basis during the process of hiring permanent staff CPeO 4. Explore the re-introduction of technical expert schemes for both engineering and non-engineering talents CPeO 5. Inadequate capabilities building to fulfill current and future roles 1. Establish a comprehensive short term and long-term plan in steering the capability building to address 8 priorities new capabilities CPeO 2. Develop learning journey by identifying competencies for desired position (e.g., via People Matters, etc) All JEK 1 3. Strengthen digital learning to provide options for employees to self-learn certain capabilities CPeO 4. Establish evolving capabilities roadmap in line with TNB aspiration and strategy; climate change, energy transition, ESG, market intelligence expertise etc. All JEK 1 (CPeO to lead) 6. Inability to identify the right technology and tools to perform tasks 1. Identify & adopt the right technology and tools that would enhance productivity for e.g., cloud applications, collaborative tools, market intelligence subscription, data visualization tools etc. All JEK 1 2. Facilitate adoption of business solutions i.e., technology and tools that would benefit BEs productivity improvement and provide quality services CIO 7. Ineffective workforce planning and talent management strategy 1. Establish a comprehensive workforce planning and talent management strategy taking into account future capabilities and requirements CPeO 2. Engage with BEs to understand and incorporate their workforce and talent requirements CPeO 3. Include workforce planning in BEs business plan cycle to ensure alignment with strategy All JEK 1 4. Effectively manage employees who are contributing minimally to the organization CPeO Capabilities SR 7 : Gaps in workforce capabilities to deliver RT strategy and sustainability aspiration 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 25 Chapter 7 Risks & Mitigation
Likelihood (Probability of Risk occurring) Rare Unlikely Moderate Likely Almost Certain Below 5% chance of occurring 5% - 25% chance of occurring 25% - 50% chance of occurring 50% - 95% chance of occurring More than 95% chance of occurring Impact HCROI (RM) Insignificant Minor Moderate Major Catastrophic >=4.0 3.5 – <4.0 3.0 – <3.5 2.5 - <3.0 <2.5 SR 8 : Failure to ingrain TNB culture in employees’ behavior in supporting RT strategy and sustainability aspiration 29th July 2020 marked a significant milestone in TNB’s corporate history, with the launch of the new TNB’s Corporate Identity. The Company’s way forward has been unveiled and strengthened with our refreshed Identity – comprising of its refreshed Purpose, Aspiration, Core Values and behaviours. TNB purpose - “Together We Brighten Lives Through Innovative and Sustainable Solution Towards a Better World”. This purpose is supported by its aspiration - “To Be A Leading Provider of Sustainable Energy Solution in Malaysia and Internationally”. To realise our purpose and to drive ourselves towards the aspiration, we must uphold our TNB values: Integrity, Professionalism, Collaborative, Customer Centricity, Forward Thinking, and Mindfulness. Failure to enliven our core values may affect our ability in realising our TNB Identity and Strategy. Capabilities 1. Risk Description 2. Potential Impact Arising from Risk 3. Potential Likelihood of Risk Happening Cause Mitigation Owner 1. Lack role-modelling and exemplary behaviors by leaders 1. Establish an engagement plan among management to inculcate role-modelling and exemplary behaviors CPeO 2. Continuously demonstrate role model with the right approach All JEK1 3. Ensure role modelling and exemplary behaviours are consistent by leaders for an effective engagement roll down e.g. leaders activation session, identification of culture values champion All JEK1 , Head (GCC) 2. Ineffective communication of the corporate identity and strategy across the organization 1. Develop and execute strategic communication and engagement plan, on people and corporate identity CPeO, Head (GCC) 2. Develop and execute strategic communication and engagement plan, on business and corporate strategy CPeO, Head (GCC), CSVO 3. Enhance communication medium to create excitement and ownership of the corporate identity and strategy CPeO, CSVO, CRSMO 3. Structures, processes, systems and enablers are not supportive to realise the Identity and Strategy 1. Continuous review and improvement of the current processes to enrich employee and customer experience All JEK1 4. Risk Causes & Mitigations Legend: Gross Residual NOTE: Human Capital Return on Investment (HCROI) = [Revenue – (OPEX – Total Cost of Workforce TCOW)]/TCOW HCROI 2019 = 2.68, HCROI 2020 = 2.95, HCROI 2021 = 3.33, HCROI 2022 = 3.73 Risk Owner: CPeO Mitigation Owner: All JEK1 , Head (GCC) 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 26 Chapter 7 Risks & Mitigation
4. Risk Causes & Mitigations 4. Underlying dissatisfaction with current job conditions (e.g., bread-and-butter issues 1. Improve engagement with employees through multiple feedback channels (e.g., Frequent Huddles session, townhall sessions, management by walking around (MBWA), whistle blowing, union etc.) All JEK 1 (CPeO to lead) 2. Continuous conversation and empathy beyond performance and job-related matters e.g., coaching & mentoring, performance review platform leveraging on PMBB etc. All JEK 1 3. Strengthen counselling approach and feedback mechanism CPeO, CGBSO 5. Ineffective monitoring and assessment to sustain the momentum of instilling the Identity and Strategy 1. Regular monitoring and assessment and continuous improvement of engagement plan All JEK 1 (CPeO to lead) 2. Design intervention plan to close the gap All JEK1 (CPeO to lead) 6. Inadequate right abilities and capabilities to contribute to the realisation of the Identity and Strategy 1. Introduce the right courses/development plan to equip our employees with the right skills and abilities to realise the Identity and Strategy e.g., leveraging on Learning Journey, strategic partnership with ILSAS on courses syllabus/content All JEK 1 (CPeO to lead) 7. Lack of integrity awareness and practices 1. Ensure compliance to TRUST elements under Section 17A MACC Act 2009* CSO 2. Monitor the implementation of the Organizational Anti Corruption Plan (OACP) initiatives CSO 3. Implement integrity communication plan, monitoring and reporting CSO 4. Provide targeted guidelines, communication, coaching and management of employees who are highly exposed to integrity risk (e.g. background check etc.) All JEK 1 (CSO to lead) 5. Prepare and provide targeted module/learning to roles/position that are highly exposed to integrity risk CPeO, CSO 6. Regularly assess the effectiveness of integrity initiatives All JEK 1 (CSO to lead) 7. Establish and implement the Training and Communication (TCP) plan to address gaps in Integrity Health Index (IHI) CSO Cause Mitigation Owner *For more info: https://www.ganlaw.my/section-17a-macc-act-have-you-adopted-adequate-procedures/ Capabilities SR 8 : Failure to ingrain TNB culture in employees’ behavior in supporting RT strategy and sustainability aspiration 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC 27 Chapter 7 Risks & Mitigation
3. Potential Likelihood of Risk Happening *Likelihood (Possibility of Risk occurring) Rare Unlikely Moderate Likely Almost Certain At least once in the next 6 years or more At least once in the next 4 to 5 years At least once in the next 2 to 3 years At least once in the next 1 year More than once in the next 1 year Due to the nature of our business, we are susceptible to the decisions by regulatory stakeholders within Peninsular Malaysia, Sabah as well as International market. At the stroke of a pen, we may be subjected to measures and decisions that can have ruinous impact on our regulated & non-regulated businesses namely forced investment and divestment, use of natural resources, right-of-way and others. The impact from these measures & decisions can be quite dire and affect not just our financial profitability, but also our reputation and business sustainability Cause Mitigation Owner 1. Financial difficulties of state government 1. Establish good working relationships with key state decision-makers and influencers CRSMO, CEO (SESB) 2. Identify measures to help alleviate the financial burden of troubled states in a win-win manner CRSMO, CEO (SESB) 3. Identify and monitor state bodies & agencies with high electricity debts e.g., state water utilities CReO, CRSMO, CEO (SESB) 4. Develop dispute resolution framework that would address prolonged pending issue that could be a potential precedent case to other states (e.g., Project Delivery Index (PDI) Grid project – Bentong, Pahang) CRSMO, CSVO, CGO, CDNO, CReO, Head (GCC), MD (TPGSB), CEO (SESB) 2. Government wanting to implement populist measures to please the rakyat while managing pressures from external industry players 1. Constantly monitor customer/industry/rakyat's sentiments towards TNB and regularly identify and proactively mitigate potential triggering events - through all possible channels (e.g., social media, mainstream media, public talks etc) and provide call to action immediately Head (GCC), CReO 2. Establish a communication and branding strategy to win the hearts and minds of the people e.g., story on CSR/ nationbuilding initiatives CPeO, CGBSO, Head (GCC), CReO 3. To leverage social media platform and influencers as voice of TNB in pushing our agenda Head (GCC) Regulatory NOTE: Estimated potential financial impact arising from 1) Additional state charges from 8 states and One-off charges equaling to ~RM454 mn which is ~5% FY2025 EBIT. 1. The total amount is estimated up to end of 2023, consisting of recurring payment + one off for the year. 2. This amount is excluding the charges which is not been quantified yet (e.g., Kelantan, Johor – quantum is unknown as discussion is still on going) Impact to EBIT Target FY25 RM8.88 bn Insignificant Minor Moderate Major Catastrophic Reduction of <5% of EBIT target Reduction of 5- 10% of EBIT target Reduction of >10- 20% of EBIT target Reduction of >20- 30% of EBIT target Reduction of >30% of EBIT target SR 9 : Regulatory Uncertainty 1. Risk Description 2. Potential Impact Arising from Risk 4. Risk Causes & Mitigations Legend: Gross Residual Risk Owner: CRSMO Mitigation Owner: CRSMO, CReO, CSVO, CGBSO, CNEO, CGO, CDNO, MD (TPGSB), CPeO, CFO, CPO, CEO (SESB), Head (GCC) 1. All JEK: CEO, CFO, CRSMO, CSVO, MD TPGSB, CGO, CDNO, CReO, CPeO, CGBSO, CPO, CIO, CNEO, CSO and CoSEC *In consideration of revision on likelihood parameter issued on BRC meeting dated 7 March 2023 28 Chapter 7 Risks & Mitigation
4. Risk Causes & Mitigations Cause Mitigation Owner 3. Lack of understanding of regulatory framework and company’s contribution, leading to negative perceptions by regulator and government 1. Constant monitoring and shaping government’s sentiments towards TNB at both state and federal level CRSMO, CEO (SESB) 2. Regularly identify and assess potential political risks that may trigger government dissatisfaction, e.g., prolonged blackout risks at key locations CRSMO, CSVO, MD (TPGSB), CGO, CEO (SESB), CDNO, CReO 3. Collaborate with Ministry and NGO in developing and implementing Malaysian Energy Literacy Program (MELP) with purpose to educate & engaging Malaysia population on EE, IBR framework, ESG etc. CRSMO 4. Educate industry players and developers on impact of extra charges to overall development cost hence pressuring state gov from implementing it CEO (SESB) 4. Vested interest of key political figures and parties 1. Establishing appropriate stakeholder engagement strategies CRSMO, CEO (SESB) 2. Continue to develop and maintain effective approval governance for structured decision making CFO, CPO, CEO (SESB) 3. Influence stakeholders and regulators at federal level for a single streamlined policy framework across all states CRSMO SR 9 : Regulatory Uncertainty Regulatory 29 Chapter 7 Risks & Mitigation