CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31ST DECEMBER 2016

Corporation’s philosophy on code of corporate governance

The Corporation believes that Code of Corporate Governance is an effective tool to improve

operational and financial performance of listed companies. Code of Corporate Governance ensures

accountability, which leads to transparency and ensuring impartial treatment to all investors. This

ultimately increases the confidence of shareholders and prospective investors in the results.

To meet the corporate governance standards, which emphasizes the compliance to the rules and

procedures of decision-making and meeting the corporation’s objectives, the Corporation applies the

code of corporate governance issued by the Capital market authority (“CMA”). Accordingly, the

Corporation has in place efficient and effective policies, procedures and systems to ensure fair and

timely release of material information about the Corporation.

In connection with the implementation of the new code of corporate governance, which has been

issued by the CMA in July 2015, the Board of Directors has formed an independent committee named

‘Nomination and Remuneration Committee’. The Board Audit Committee has also been reconstituted

by appointing Mr. Mohsin bin Ahmed bin Al Alawi Al Hadad as its Chairman. The other requirements

of the code are under consideration for implementation by the Board of Directors.

Further to the CMA rules and guidelines, the Corporation’s Statutory Auditors have issued a separate

report on the Corporation’s Corporate Governance for the year ended 31 December 2016.

Board of Directors (“BOD”)

The Board of Directors of the Corporation is composed of seven members; three of whom are

nominated by the Government and the remaining four members are elected directors, representing

the private sector. All Directors are independent, non-executive, and are competent and professionally

experienced conforming to the requirements of the Board membership. The Board seeks to maximize

transparent, integral, positive and ethical framework environment and emphasizes the compliance to

all applicable laws and regulations.

The Management assumes accountability to the Board where the latter assumes accountability to the

Shareholders in line with good governance philosophy. The Board, being an active participant and

decision-maker, ensures that adequate and effective internal controls are in place, amongst others,

by:

Setting and reviewing the Corporation’s strategies, financial policies and plans,

Overseeing selection, assessing and evaluating performance of the CEO and top management

team,

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Monitoring and assessing the corporation’s performance against strategic plans, objectives,

budget and reviewing and reasoning any material differences that may be identified,

Selection and nomination of the board sub-committee members and specifying their respective

roles and responsibilities,

Approving the financial statements, and guiding and supporting the management in matters of

strategies and establishing policies. The Corporation’s management places before the Board, at

least, the minimum information as required by of the Code of Corporate Governance.

The elected Board members have declared that they are not a member of more than four public joint

stock companies whose principal place of business are within the borders of the Sultanate of Oman

nor they are the chairperson of more than two public joint stock companies.

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a) The composition of the Board members and their attendance in Board meetings during 2016 are as follows:

Sr. Name of Director/ Member of Board

Committees

AGM EGM-1 EGM-2 BOD BEC BAC BIC NRC

1 H.E. Mohd. Jawad Bin Hassan Bin Suleiman - Representing Government share

By himself 8

By proxy

Total

8

2 Sheikh Hamoud Bin Mustahail Bin Ahmed Al Maashani- Representing Private share holders

By himself 4

2

By proxy

2

Total

6

2

3 Ageed Khalifa Ali Al Siyabi - Representing Government share

By himself X X 7

4

By proxy

Total

7 4

4

Engineer Thuriya Bint Humood Al Habsi - Representing Government share (Resigned from the Ministry of Transport and Communication with effect from August 2016 and accordingly her membership in the BOD ended from that date)

By himself X X 4 3 2

By proxy

Total

4 3 2

5 Sayyed Zaki Bin Hilal Bin Saud AL Busaidi - Representing Private share holders

By himself X X 6 4 2

By proxy

2

Total

8 4 2

6 Mr. Mohsin Bin Ahmed Bin Alawi Al Hadad - Representing Private share holders

By himself 8 4

By proxy

Total

8 4

7 Mr. Salim Bin Taman Bin Musallam Al Maashani - Representing Private share holders

By himself X X X 4

1

By proxy

3

1

Total

7

2

Company Secretary: Mr. Mohammed Osman Elhag Yousif

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b) Details of the meetings:

Description AGM EGM BOD BEC BAC BIC NRC

Date of Meetings

23/03/2016 07/11/2016 10/02/2016

23/02/2016 07/03/2016

07/12/2016 23/03/2016

20/04/2016 01/08/2016

20/04/2016

26/07/2016

26/07/2016

24/10/2016

20/09/2016

24/10/2016

07/11/2016

22/12/2016 *

Number of meetings held

1 2 8 0 4 2 0

Note: Abbreviations: AGM- Annual General Meeting, EGM- Extraordinary General Meeting, BOD- Board of directors, BEC- Board Executive Committee, BAC- Board Audit Committee, BIC- Board Investment Committee, NRC- Nominations and Remuneration Committee * Board of directors meeting on 22/12/2016 was an emergency meeting.

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Nomination of the Board of Directors

At the Annual General Meeting, four Directors, representing the private sector, are elected for a period of three years and the remaining three Directors, representing the Government’s share, are nominated by the Government. The minimum qualification shares required to be nominated to the Board of the Corporation, representing the private sector shareholders, is 20,000 shares if he is a shareholder. Individuals or representatives of juristic persons nominating themselves for election to directorship are required to fill the CMA’s prescribed Nomination Form and submit the same to the Corporation within the statutory period, confirming that their nomination is in line with the policies and provisions prescribed by the Commercial Companies Law of Oman, Capital Market Authority laws and regulations and the Corporation’s Articles of Association.

Nominations and Remuneration Committee

Nomination and Remuneration Committee was formed on 24th October 2016 based on the requirement of the new code of corporate governance, issued by CMA. The committee is comprised of three members and chaired by the vice chairman of the board of directors.

Board Executive committee “BEC”

The Board Executive Committee, is comprised of three members of the board of directors and chaired by the chairman of the Board of Directors where the primary objective of this subcommittee is to discharge its responsibilities on behalf of the Board in deciding on specific policy matters, tenders and any other urgent matters as per the requirements of the Corporation’s approved manual of authority and procurement policy. The Executive Committee also takes part in reviewing and recommending to the Board of Directors the annual budget of the Corporation.

Board Audit Committee “BAC”

The Board Audit Committee comprises of four Non-Executive Independent Directors. The Audit Committee is chaired by an independent member who, along with the rest of the members is competent in the financial and accounting matters. Detailed duties and responsibilities of the Audit Committee are described in the Audit Committee Charter approved by the Board of Directors.The Audit Committee’s primary duties and responsibilities are to:

Overseeing the Corporation’s financial reporting process and disclosure of financial information, including reviewing the annual financial statements and the Auditors Report on the statements prior to submission to the Board for approval to ensure accuracy, sufficiency and credibility of the financial statements;

Reviewing and recommending to the Board for approval the quarterly un-audited financial statements and the annual audited financial statements;

Reviewing and recommending to the Board of Directors the appointment of Statutory Auditors with reference to their independence, fees, scope and terms of engagement for approval by the shareholders;

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Meeting with the Statutory Auditors to review their audit plan and to ensure that they have full access to all relevant documents and also ensure that there is a channel of communication between the Statutory and Internal Auditors and the Board;

Overseeing the Internal Audit Function in General and with particular reference to reviewing the scope of the annual internal audit plan, reports submitted by Internal audit pertaining to critical areas efficacy and adequacy of internal audit and control systems and ensuring full access to all relevant documentation;

Reviewing the risk management policies;

Reviewing compliance with disclosure requirements prescribed by the CMA, legal matters and related party transactions;

Ensuring that systems are in place for adoption of appropriate accounting policies and principles.

The Audit Committee has the authority to consider meeting with internal and external auditors without management’s presence.

Board Investment committee “BIC”

The Board Investment Committee comprises of four members and is chaired by the Vice Chairman of

Board of Directors who is competent in the field of investments. The Board Investment Committee

holds the responsibility of proposing, monitoring, reviewing, developing and managing the

Corporation’s investments as per the guidelines and limits prescribed by the Board of Directors.

Profile of the Board of Directors

H.E. Mohd. Jawad Bin Hassan Bin Suleiman – Advisor at the Ministry of Finance - Chairman of the

Board of Directors and the Chairman of the Board Executive Committee:

H.E. Mohd Jawad Bin Hassan Bin Suleiman is a Graduate in Management and a qualified Chartered

Accountant. He has been nominated by the Government as the Chairman of the Board of Directors of

the Corporation. He is also a member of the Board of various government organisations.

Sheikh Hamoud Bin Mustahail Bin Ahmed Al Maashani - Vice Chairman to the Board, Chairman

of the Board Investment Committee, and Nominations and Remuneration committee and Board

Executive committee member:

Sheikh Hamoud Bin Mustahail Bin Ahmed Al Maashani is an elected member to the Board. He holds

a diploma in finance management with considerable experience in banking and investment. He

belongs to a very prominent business house in the Country and holds various positions in the Boards

of different organisations.

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Ageed Khalifa bin Ali bin Nasser Al Siyabi -Director General of Customs in the Royal Oman Police - Member of the Board Executive Committee, Board Audit Committee and Nominations and Remuneration committee: Ageed Khalifa bin Ali bin Nasser Al Siyabi has been nominated as a member of the Board

representing the Government, He holds a Bachelor Degree in Law , Higher Diploma in Arabic Studies

and a Masters Degree in Law, besides other specialized academic and training courses. He is also a

member in various committees in some Regional and International Organizations.

Engineer Thuraiya Bint Humood Al Habsi – Section head in the project section in Ministry of

Transport and communications- Representing Ministry of Transport and communication- member of

the Board Audit Committee and member of the Board Investment committee:

Engineer Thuraiya Bint Humood Al Habsi is a nominee of the Government in the board: she is an

Engineering graduate since 2008 from University of Sultan Qaboos.

Sayyed Zaki Bin Hilal Bin Saud Al Busaidi - Vice Chairman of the Board Investment Committee and Member of the Board Audit Committee and Nominations and Remuneration committee (Chairman of the Board Audit Committee up to 26th July 2016): Sayyed Zaki Bin Hilal Bin Saud Al Busaidi is an elected member of the Board. He holds a bachelors

degree in General Management and Masters Degree in privatization from UK with 16 years of

experience in human resources, consultancy studies for organizational structure and Total Quality

Management

Mr. Mohsin Bin Ahmed Bin Alawi Al Hadad - Chairman of the Board Audit Committee from 26th July

2016 (Member of the Board Audit Committee up to 26th July 2016):

Mr. Mohsin bin Ahmed bin Alawi Al Hadad is an elected member of the board. He holds a Bachelor

Degree in Law, and a Higher Diploma in Islamic Studies. He is a lawyer/ legal consultant, a member

of the GCC Commercial Arbitration Centre and an ex- member of various other legal committees. He

was a member of the State Council and is a board member in various S.A.O.G. companies.

Mr. Salim Bin Taman Bin Musallam Al Maashani - Member of the Board Investment Committee:

Mr. Salim Bin Taman Bin Musallam Al Maashani is an elected member of the board. He holds a

degree in business management from U.K with 22 years of experience in various business

organizations and is a Board Member in various S.A.O.G. companies.

Profile of Executive Management

The day-to-day management of the Corporation rests with the Chief Executive Officer, along with his

executive management team. This team spearheads the operation and execution of the strategies

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and policies laid down by the Board of Directors. A brief profile of the CEO and the current executive

management team is as follows:

Mr. Saud Bin Ahmed Al Nahari - Chief Executive Officer:

Mr. Saud Al Nahari holds a Diploma in Port Management and Shipping and has been working with the

Corporation since 1980 and he has a vast experience and knowledge of port management and

maritime shipping operations. He serves as a board member in various companies in Oman and is a

member in the Board of International Association of Ports and Harbour and Arab Sea Ports

Federation.

Mr. Juzer Tyebbhoy - General Manager Corporate Affairs:

Mr. Juzer Tyebbhoy is a Chartered Accountant, joined the Corporation in 2001 and is well

experienced in field of Finance, Accounts and Audit. He oversees all matters relating to finance, IT,

administration and human resource.

MS. Sunita Ramakrishnan - Investment Advisor

MS. Sunita Ramakrishnan is a Chartered Accountant, joined the Corporation in 2005 and is well

experienced in field of Investments, treasury and Finance. She manages the investment portfolio of

the Corporation.

Mr. Serasinghe Jayasinghe Mudiyanselage - Manager Operations:

Mr. Serasinghe Jayasinghe Mudiyanselage is a graduate in Management and he also possesses a

Masters degree in Maritime Affairs specializing in Ports Management and has been with the

Corporation since 2005 in the operations division as Manager Operations and has a sound

operational, managerial and technical knowledge in ports management and operations.

Remunerations Matters

The total remuneration paid to the Board for the year ended 31 December 2016 is RO 86,100 which

includes meeting attendance fees in the amount of RO 29,300 where each director is paid RO 500 for

attending Board meeting and RO 400 for attending Board sub-committee meeting or any other

meeting that may require the presence of the Board members.

The total remuneration paid to the top five senior executives includes basic salaries, allowances and

perquisites, performance bonus, gratuity and social insurance during the year ended 31 December

2016 amounted to RO 374,613 and the travel allowance paid for them for the same period amounted

to RO 768.

No stock options or fixed incentives are provided to any of the Corporation’s Directors or employees.

The severance notice period for these executives is three months, unless terminated in pursuance of

the laws of the country.

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Related Party Transactions

In order for the Corporation to ensure the highest standard of compliance to the CMA rules and

regulations, a policy and procedure is in place to identify, approve and report transaction with related

parties including small value transactions. All related party transactions have been effected on arms

length basis without any preferential advantage accruing to any related party as they all have been

reviewed by BAC prior to approval and thereafter to the Board for ratification.Details of all related

party transactions are reported to the shareholders at the Annual General Meeting and included in

note 18 to the financial statements for the year ended 31 December 2016.

Dividend Policy

The Corporation continues implementation of its dividend policy, which was designed as per CMA’s

requirement and approved by the Board of Directors. According to the policy, the Corporation

endeavors to reward their shareholders by distributing an optimal amount of profits and aims to

provide a consistent and sustainable dividend that meets the long-term expectations of all the

shareholders after considering the Corporations business plans, need for retention due to its future

planned projects and working capital requirements.

Non-Compliance, if any by the Corporation

The Corportaion has complied with the CMA rules and regulations and no penalties were imposed on

the Corporation by MSM/CMA or any other statutory authority on any matter related to capital markets

during the last three years except for a penalty paid during 2016 for delay in disclosure of unaudited

quarterly financial statements.

Means of Communication with shareholders, Investors and any concerned parties

The Board of Directors ensures that all the concerned parties including their shareholders,

stakeholders and other concerned individuals or entities are kept informed of all the material

developments and all relevant information is released to the MSM promptly.

In addition to communicating to the shareholders and investors through the annual reports, annual

general meeting and quarterly un-audited results of the Corporation which are published through the

local newspapers, in the MSM website and in the Corporation’s website www.pscoman.com which

includes all relevant and required information, suited to serve all stakeholders and related entities in a

more effective and efficient way. Further, the Corporation also entertains specific meetings with

analysts and shareholders, if requested by MSM or any other agency.

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Market price Data

The Shareholding pattern of the Corporation as at 31 December 2016 is as follows:

4.76%

0.86%

94.01%

0.36%

Share holding pattern of the Corporation

GCC Nationals Foreign ShareholdersOmani Arab Nationals

35.497%

5.000 %

59.503%

Major Shareholders

Oman Investment Fund Royal Oman Police pension Others

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The movement in the share price of the Corporation during the year 2016 and its performance

compared to the MSM index of the service sector is shown below:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

High 0.133 0.167 0.201 0.279 0.270 0.246 0.247 0.239 0.276 0.243 0.250 0.264

Low 0.115 0.120 0.162 0.180 0.240 0.232 0.238 0.220 0.218 0.231 0.228 0.234

MSM Serv Index 2,902.21 3,056.41 3,101.77 3,224.82 3,254.75 3,235.72 3,196.06 3,135.75 3,108.57 3,027.53 2,991.38 3,058.76

2,700.00

2,800.00

2,900.00

3,000.00

3,100.00

3,200.00

3,300.00

-

0.050

0.100

0.150

0.200

0.250

0.300

PORT SERVICES CORPORATION SAOGMSM HIGH LOW VALUES FOR 2016

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Statutory Auditors

The shareholders of the Corporation appointed KPMG as the Corporation’s auditors for the year 2016. KPMG is a leading Audit, Tax and Advisory firm in Oman and is a part of KPMG Lower Gulf that was established in 1974. KPMG in Oman employs more than 180 people, amongst whom are 4 Partners, 7 Directors and 21 Managers, including Omani nationals. KPMG is a global network of professional firms providing Audit, Tax and Advisory services. KPMG operates in over 150 countries and has around 174,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG in Oman is accredited by the Capital Market Authority (CMA) to audit joint stock companies (SAOGs). During the year 2016, KPMG charged an amount of RO 7,500 towards professional services rendered to the Company (RO 6,500 for audit and RO 1,000 for tax and other services).

Acknowledgement by the Board of Directors

The Board of Directors is responsible for the preparation and fair presentation of the financial

statements in accordance with the International Financial Reporting Standards and has reviewed the

efficiency and adequacy of the internal control systems of the Corporation to ensure that it complies

with internal policies and procedures.

Mohd. Jawad Bin Hassan Bin Suleiman Mohsin Bin Ahmed Bin Alawi Al Hadad

Chairman Board of Directors Board Member

Chairman Board Executive Committee Chairman Board Audit Committee