Raw Materials Procurement Management Policy

Raw Materials Procurement Management Policy

Local procurements accounted for 7% of the Company's total procurement amount in 2023 due to the special nature of the industry, which relies on imports for the main raw materials (crude oil, naphtha), accounting for 90% of all procurements. If the main raw materials are excluded, local procurements account for 74% of procurements. Hence, raw material procurement has a massive effect on the Company, and the Company has adopted the following methods to maintain stable raw materials supply:

Implementation of Management and Evaluation

Suppliers that intend to apply for business dealings with the Company must pass a documentary evaluation, and will be subjected to an on-site evaluation when necessary. We will only begin business dealings with suppliers that pass the evaluation and a profile is set up. If a supplier makes a late delivery, delivers products with poor quality, or is found in violation of labor safety rules, the supplier will be automatically listed in the supplier evaluation mechanism, and the Procurement Department will evaluate whether or not to blacklist the supplier. This allows us to select excellent partners for long-term cooperation.

We require suppliers to comply with government laws and regulations during each procurement, including: applicable industrial safety qualification, ISO qualification, indication of hazardous materials, and illustration. Manufacturers need to properly recycle used containers or carrying aids, and give priority to products made by organizations for persons with disabilities. Suppliers are asked to precisely follow the requirements in the Quotation and Order Notice, and the Company's stance on upholding the spirit of sustainable management and requirements to comply with fair trade principles is stated in the forms above. Our goal is for vendors we do business with to meet requirements on environmental protection, labor safety, and human right, otherwise we will reject their products.

We began requiring vendors to sign the "supplier/contractor social responsibility commitment" and administering the "supplier/contractor social responsibility questionnaire" in 2019, so that vendors will understand our philosophy and jointly fulfill their social responsibility. Vendors are required the sign the commitment and respond to the questionnaire when they log into Formosa Technology E-Market Place or after placing an order, and are required to comply with related regulations. The environmental and social impact assessment was based on 1,579 commitment letters and 1,575 questionnaires, and the assessment results found no significant or potential negative impacts.

Vendor evaluations are arranged in the following year as needed based on the response to the "supplier/contractor social responsibility commitment" and "supplier/contractor social responsibility questionnaire" in the previous year, ensuring that our vendors fulfill their CSR according to requirements. Supplier evaluation results in 2023 showed that there were no major risks, such as child labor, forced labor, freedom of association, and collective bargaining.

Supplier Opinion/Complaint Mechanism

Formosa Technology E-Market Place has a professional customer service center to provide suppliers with complete consultation services around the clock for questions regarding use of the Company's online price quotation platform or questions about the Company. Furthermore, Formosa Technology E-Market Place has a report and complaint platform with dedicated personnel to look into and respond to reports. Suppliers expressed their opinions in 72 cases in 2023, which can be broken down as follows:

Green Procurement

To reduce carbon emissions from vehicles making deliveries, we worked together with freight forwarders in implementing electronic operations for concentrated delivery by suppliers. As of the end of 2023, electronic operations for concentrated delivery by suppliers reached 97.23%.

Furthermore, we have replaced paper invoices with electronic invoices, and 91.6% of the vendors we do business with are also using electronic invoices as of the end of 2023.

The use of products with the Green Mark reduces resource consumption, reduces environmental pollution, and mitigates the impact on Earth. It can also drive suppliers to develop green products, and elevate the production of green products in Taiwan. We procure 307 green products, including plastic pallets, toner cartridges, and fluorescent lamps, and the procurement amount of green products recognized by the government was NT$107 million in 2023.

Raw Materials and Oil Products Transportation Safety

The Company transports raw materials and oil products via land and sea transport, in which land transport includes underground long-distance pipelines and tank trucks. There were no leakage incidents due to transport in 2023.

Land Transport

Underground long-distance pipeline transportation

The Company's four 12" underground pipelines for long-distance transportation stretch 226 km along the west coast highway from the Mailiao Plant to the storage and shipping station at Taipei Harbor in Bali, New Taipei City, transporting unleaded gasoline, aviation fuel, and diesel.

Underground long-distance pipeline safety management

To ensure that transportation through long-distance pipelines outside the premises is safe, we inspect the pipelines on a daily basis. In addition, we perform cathodic protection potential tests on a quarterly basis. To effectively protect the pipelines from corrosion-resultant leaks, we periodically commission professional service providers to do pipeline current mapping (PCM) or close interval potential survey(CIPS) for the testing of the integrity of the enveloping layer of underground pipelines, and use a smart pipeline inspection gauge (PIG) to inspect the thickness of pipelines. Meanwhile, we have set up surveillance systems at important facilities in addition to transportation and storage monitoring systems. In 2023, we collaborated with Chang Gung University in implementing AI image recognition technology to prevent people from stealing oil from valve boxes along the long-distance pipeline from Mailiao Plant to Taipei or damaging important facilities such as the converting station. If someone intrudes into the restricted area for over 40 seconds, the system will accurately identify the person and immediately send a warning, the control room will broadcast and sound the alarm to drive away the person, and then inspection personnel will go to the site to handle the situation, in order to ensure the safety of transportation operations.

Implementation of Driving Safety Improvement Measures

To ensure traffic safety and lower the number of traffic accidents, we required our subordinate transportation company (Sixth Naphtha Cracker Forwarding) to make improvements in personnel training, equipment upgrade, in hopes of maintaining zero accidents and reducing the hazards and risks of drivers.

Safety training: We periodically organized transportation company safety meetings, including descriptions of the implementation of the Management Regulations for External Vehicles Assisting with Transportation, vehicle safety device explanation, implementation of joint defense organization for emergency response to hazardous objects, and review of abnormalities in driving and loading/unloading operations, in hopes of jointly improving traffic safety capabilities.

Maritime Transportation

To ensure the smooth transportation of crude oil and oil products to their destinations, Formosa Plastics Marine Corporation, a subsidiary of the Formosa Plastics Group, is responsible for transportation. The company's oil tankers and oil & chemical tankers are certified by the OCIMF, CDI, ENOC (oil company of the United Arab Emirates), and Chevron (the second largest oil company in the United States), and have reached international management standards. There were no ocean pollution incidents in 2023.

Ship emergency response drills

Coastal drills are regularly held, and review and training is conducted after the drills end to correct deficiencies in the drill.