Risk management is an important cornerstone of CAO's rebuilding process, and even more so as the Company grows its business.

The Company aims to inculcate a strong corporate risk management culture where everyone – Directors and employees alike – not only understands the risk management concepts and principles, but also follows the risk management polices and procedures strictly. To facilitate this awareness and knowledge, the Company has developed and implemented training programmes for its Directors, management team and employees.

The Company has established a new and effective governance and management structure to ensure that all risks embedded in the Company's businesses are identified and controlled (see chart). With the assistance of the Company's strategic investor BP, the Company's entire risk management practices have been revamped.

A three-member Risk Management Committee has been established at the Board level, comprising an Independent Director, a Director from CNAF and a Director from BP. They each bring with them an independent view and assessment of the risks. The functions of the Committee are set out in the Corporate Governance section of this Annual Report.

A monthly Company Risk Meeting, chaired by the Head of Risk, focuses on risk management related issues and its participants include key personnel from each department. To further enhance the ability to monitor and deal with these risks, the Company is currently in the process of implementing a new risk management computer system.

How we manage business risks

For the Company's core business of jet fuel procurement, identified risks include: operational risk, credit or liquidity risk, and the risk of decreased suppliers' participation and tender competitiveness. To manage such risks, the Company has established rigorous risk assessment, monitoring, reporting and control processes.

To prepare for the resumption of oil products trading, the Company had identified various key risks: market risk, credit and liquidity risk and operational risk. These areas will be monitored closely to ensure strict compliance to policies and processes. The Company will implement processes to evaluate and approve new trading counterparties and also to set and monitor credit limits to counter any potential credit risk. A system will be in place to carry out daily risk calculations and reporting, Mark-to-Market and Profit & Loss calculations and monitor trading limits. 

A new set of Risk Management Manual and Trading Guidelines has been approved by the Board and implemented. They set out our risk management policies and procedures, and were developed based on the enterprise risk management requirements and guidelines of the State-owned Assets Supervision and Administration Commission of the State Council ("SASAC"), BP's risk management policies and standards, as well as findings from the PwC investigation report on the Company's speculative options trading losses.

The Risk Management Department will provide independent recommendations to the management and the Board not only on managing the risks embedded in the day-to-day business operations as outlined above, but also on risk evaluation for new investments. The Department also helps to monitor the implementation and management of investment projects.

Effective risk management is one of the key aspects of the Company's revised corporate practice. Going forward, the Company shall continuously upgrade its risk management capabilities to be on par with top-tier international energy trading companies.