In conducting its business the Company is facing risks that are affecting its business profit if not well anticipated and prepared. Several risks below may affect business and profit of the Compnay arranged from the highest to lowest weight namely:

A. Risks related to Company’s Business Activities

1. Tariff Adjustment Risk
Pursuant to Law No.38, of 2004 and Government Regulation No.15 of 2005, the Government must conduct toll tariff adjustment for each toll road operated by the Company on every two years based on inflation value issued by Central Statistic Bureau. However, there is delayed tariff adjustment risk or its value is not according to its stipulation. The delay of tariff adjustment may be due to not meeting the Minimum Service Standard (SPM) and public refusal. The delay shal cause negative impact on profit level, cash flow,
business activities, financial condiction and Company’s business prospect.

2. Traffic Volume Risk not Differ from Initial Estimation
Traffic volume is directly dependant on the Company’s income. High traffic volume shall be profitable for the Company. However, the Copmany also faced volume risk of not meeting the prediction, especially on newly operated toll road. This may be due to not integration of policies and too optimistic projection. Decrease on vehicles volume can also happen on operating toll road due to fuel increase, economic slow down, spatial modifications, new road network construction and availability of alternative transportation such as train, as well as comfort and trave time of non-toll road.

3. Regulation Changes Risk
Toll road is a business regulated by Law and Government Regulation. Therefore, other risk potency faced by the Company is the occurrence of changes to the Law and Government Regulation, among others related to tariff which may affect business activities and prospect of the Company. Regulation changes related to decentralization of parties authorized for toll road development to Regional Government can generate additional costs,
which in return shal increase operating costs, prospect and financial condition of the Company.

4. Risk of Natural Disaster and Disaster Caused by Human
If the Company’s toll road is damaged, due to natural disaster of caused by human, both partial or in overall for a long period, this may affect vehicles flow volume and in the end affect business, profit, prospect and financial performance of the Company. Company’s Management stated that all risk that materially affects the Company’s performance are disclosed and arranged based on each weight on main business activities and financial of the Company.

1. Risk of Global Economic Condition
The effect of economic growth is significant and is affected by Company’s business. The development of toll road to ease logistic access and to improve connectivity between regions can directly encourage national economic growth.

2. Risk of Foreign Exchange Rate Changes
Foreign exchange rate can cause loss risk for the Company in the event of weakening of Rupiah exchange rate to foreign currency, due to Company’s revenue are al received in Rupiah currency meanwhile part of investment on port equipment was purchased in foreign currency, and currently the Company still own global bond paid in foreign currency.

Corporate Risk Anticipation
In running operation activity, investment and funding, the Company encountered various financial risk i.e credit risk, liquidity risk, and interest rate risk. In line with the Company’s objectives, the Board of Directors approved several strategies to managed financial risk.

Financial Risk Factors:
1. Credit Risk
The Company managed risk credit by stipulating total tolerated risk limit for each customer and are more selective in bank selection, by only choosing reputable banks.

2. Liquidity Risk
Liquidity risks is managed by maintaining adequate cash and bank in meeting Company’s commitment for its normal operation and from time to time evaluate cash flow projection and actual cash flow, and maturity date
as well as financial liability.

3. Interest Rate Risk
Interest rate risk, especially related to financial liability. The Company shall monitor on the interest rate movement that should a significant increase occurred, the Compnay shall negotiate such interest rate with lender of considering interest rate hedging strategy. The Company did not have interest rate hedging to anticipate such risk.

In the implementation of its daily activities, the Company gradually face on various risks related to its business. The Company study and approve policies to managed the following risks:

1. Toll Tariff Adjustment Risk
The Company mitigate risk of postponement of toll tariff adjustment by routine maintenance of toll equipment and other supporting facilities, and maintenance of road signs, safety fence, guardrail and traffic operational vehicles. In addition, the Company also periodically maintain toll road, bridges and other buiding hardening.

2. Traffic Volume is Not According to Initial Estimation
The Company mitigate this risk by performing traffic control at toll entrance, and conduct integrated information system with integrated toll road.

3. Regulatory Changes Risk
The Company mitigate risk of regulatory changes by coordinating with Toll Road Control Agency (BPJT) in the event of regulatory changes affecting toll revenue.

4. Risk of Not Meeting Toll RevenueThe Company
Mitigate the risk by executing suddent inspections periodivally, implement socialization and training for the employee, as well as preparing emergency team.

In addition, the Company aslo coordinate with related party in countermeasuring natural disaster.

Corporate Risk Management System Effectiveness
Periodically, the evaluation process on the effectiveness of risk management system of the company by internal audit mechanism of Risk Officer and Risk Assesor appointed based on Board of Directors Decision No.228/KPTS-MLJ/XI/2016 on November 30, 2016 as well as external audit by Assesor from Division of Risk and Quality Management of PT Jasa Marga (Persero) Tbk. The result of audit is then followed up by Management Representative to improve and complete the Company Risk Management System.