PROSPECTUS

This document comprises a prospectus relating to Essar Energy plc (together with its subsidiaries, the ‘‘Company’’) prepared in accordance with the Prospectus Rules of the UK Listing Authority made under section 73A of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’). The Prospectus has been filed with the Financial Services Authority and will be made available to the public in accordance with the Prospectus Rules. Application has been made to the UK Listing Authority for all of the Shares, issued and to be issued, to be admitted to the premium listing segment of the Official List of the Financial Services Authority and to the London Stock Exchange for all of the Shares to be admitted to trading on the London Stock Exchange’s main market for listed securities (‘‘Admission’’). Conditional dealings in the Shares are expected to commence on the London Stock Exchange on 4 May 2010. It is expected that Admission will become effective, and that unconditional dealings in the Shares will commence, on 7 May 2010. Dealings on the London Stock Exchange before Admission will only be settled if Admission takes place. All dealings before the commencement of unconditional dealings will be of no effect if Admission does not take place and such dealings will be at the sole risk of the parties concerned. No application is currently intended to be made for the Shares to be admitted to listing or dealt with on any other exchange. The directors of Essar Energy plc, whose names appear on page 154 of this document (the ‘‘Directors’’), and Essar Energy plc accept responsibility for the information contained in this document. To the best of the knowledge of the Directors and Essar Energy plc (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and contains no omission likely to affect the import of such information. See ‘‘Risk Factors’’ in Part 1 for a discussion of certain risks and other factors that should be considered prior to any investment in the Shares.

ESSAR ENERGY plc
(Incorporated under the Companies Act 2006 (the ‘‘Companies Act’’) and registered in England and Wales with registered number 7108619)

Offer of 302,789,825 Shares of 5 pence each at an Offer Price of 420 pence per Share and admission to the premium listing segment of the Official List and to trading on the London Stock Exchange
Sponsor and Financial Adviser

J.P. Morgan Cazenove
Joint Global Coordinators and Joint Bookrunners

J.P. Morgan Cazenove
Co-Managers BNP PARIBAS Nomura

Deutsche Bank
Standard Chartered

ORDINARY SHARE CAPITAL IMMEDIATELY FOLLOWING ADMISSION
Issued and fully paid Nominal Number Value

1,303,030,302(1)

65,151,515

(1)

Assuming no exercise of the Over-allotment Option described below.

In connection with the Offer, J.P. Morgan Cazenove, as Stabilising Manager, or any of its agents, may (but will be under no obligation to), to the extent permitted by applicable law, over-allot Shares or effect other transactions with a view to supporting the market price of the Shares at a higher level than that which might otherwise prevail in the open market. The Stabilising Manager is not required to enter into such transactions and such transactions may be effected on any securities market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the commencement of conditional dealings of the Shares on the London Stock Exchange and ending no later than 30 calendar days thereafter. However, there will be no obligation on the Stabilising Manager or any of its agents to effect stabilising transactions and there is no assurance that stabilising transactions will be undertaken. Such stabilisation, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Shares above the Offer Price. Except as required by law or regulation, neither the Stabilising Manager nor any of its agents intends to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Offer. In connection with the Offer, the Stabilising Manager may, for stabilisation purposes, over-allot Shares up to a maximum of 10% of the total number of Shares comprised in the Offer. For the purposes of allowing the Stabilising Manager to cover short positions resulting from any such over-allotments and/or from sales of Shares effected by it during the stabilising period, Essar Energy plc has granted to it the Over-allotment Option, pursuant to which the Stabilising Manager may subscribe or procure subscribers for additional Shares up to a maximum of 10% of the total number of Shares comprised in the Offer (the ‘‘Over-allotment Shares’’) at the Offer Price. The Over-allotment Option is exercisable only once in whole or in part, upon notice by the Stabilising Manager, at any time on or before the 30th calendar day after the commencement of conditional dealings of the Shares on the London Stock Exchange. Any Over-allotment Shares made available pursuant to the Over-allotment Option will rank pari passu in all respects with the Shares, including for all dividends and other distributions declared, made or paid on the Shares, will be subscribed for on the same terms and conditions as the Shares being issued in the Offer and will form a single class for all purposes with the other Shares. Each of J.P. Morgan Cazenove, Deutsche Bank, BNP Paribas and Nomura, which are authorised and regulated in the United Kingdom by the Financial Services Authority and Standard Chartered, which is regulated by the Securities and Futures Commission of Hong Kong, is acting exclusively for the Company and no one else in connection with the Offer. J.P. Morgan Cazenove, Deutsche Bank, BNP Paribas, Nomura and Standard Chartered will not regard any other person (whether or not a recipient of this document) as a client in relation to the Offer and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients or for the giving of advice in relation to the Offer or any transaction, matter or arrangement referred to in this document. Apart from the responsibilities and liabilities, if any, which may be imposed on J.P. Morgan Cazenove, Deutsche Bank, BNP Paribas, Nomura and Standard Chartered by FSMA or the regulatory regime established thereunder, each of J.P. Morgan Cazenove, Deutsche Bank, BNP Paribas, Nomura and Standard Chartered accepts no responsibility whatsoever for the contents of this document, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Shares or the Offer. J.P. Morgan Cazenove, Deutsche Bank, BNP Paribas, Nomura and Standard Chartered accordingly disclaim all and any liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this document or any such statement. None of the US Securities and Exchange Commission, any other US federal or state securities commission or any US regulatory authority has approved or disapproved of the Shares nor have such authorities reviewed or passed upon the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence. Notice to Overseas Shareholders The Shares have not been, and will not be, registered under the US Securities Act. The Shares offered by this document may not be offered or sold in the United States, except to qualified institutional buyers (‘‘QIBs’’), as defined in, and in reliance on, the exemption from the registration requirements of the US Securities Act of 1933 as amended (the ‘‘US Securities Act’’) provided in Rule 144A under the US Securities Act (‘‘Rule 144A’’) or another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. Prospective investors are hereby notified that the sellers of the Shares may be relying on the exemption from the provisions of Section 5 of the US Securities Act provided by Rule 144A or another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act.

The Shares are subject to selling and transfer restrictions in certain jurisdictions. No actions have been taken to allow a public offering of the Shares under the applicable securities laws of any jurisdiction. Prospective subscribers or purchasers should read the restrictions described under the paragraph entitled ‘‘Selling restrictions’’ in Part 13 ‘‘The Offer’’. Each subscriber for or purchaser of the Shares will be deemed to have made the relevant representation described therein. This document does not constitute an offer of, or the solicitation of an offer to subscribe for or buy, any of the Shares to any person in any jurisdiction to whom it is unlawful to make such offer or solicitation in such jurisdiction. The distribution of this document and the offer of the Shares in certain jurisdictions may be restricted by law. No action has been or will be taken by the Company, J.P. Morgan Cazenove, Deutsche Bank, BNP Paribas, Nomura or Standard Chartered to permit a public offering of the Shares or to permit the possession or distribution of this document (or any other offering or publicity material relating to the Shares) in the UK or any other jurisdiction where action for that purpose may be required. Accordingly, neither this document nor any advertisement or any other offering material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdictions. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. Dated 30 April 2010.

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CONTENTS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART 1 PART 2 PART 3 PART 4 PART 5 PART 6 RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PRESENTATION OF FINANCIAL AND OTHER INFORMATION . . . . . . . . . . . DIRECTORS, SECRETARY, REGISTERED AND HEAD OFFICE AND ADVISERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND OFFER STATISTICS . INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THE BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil and Gas—E&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil and Gas—Refining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART 7 PART 8 PART 9 PART 10 PART 11 PART 12 PART 13 PART 14 PART 15 PART 16 PART 17 PART 18 REGULATORY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE . . OPERATING AND FINANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CAPITALISATION AND INDEBTEDNESS STATEMENT . . . . . . . . . . . . . . . . . . FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UNAUDITED PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RELATIONSHIP WITH THE ESSAR GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DEFINITIONS AND GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXPERT REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RPS Ratna & R-Series Fields Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARI RM(E)-CBM-2008/IV Block Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NSAI OPL 226 Block Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NSAI RG (East)-CBM-2001/1 Block Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 37 46 48 49 75 75 85 111 121 145 154 163 206 207 271 276 285 292 302 368 381 382 498 536 585

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SUMMARY This summary must be read as an introduction to this document only. Any decision to invest in Shares should be based on consideration of this document as a whole. Following the implementation of the relevant provisions of the Prospectus Directive (Directive 2003/71/EC) in each Member State of the European Economic Area (‘‘EEA’’), no civil liability will attach to those persons responsible for this summary in any such Member State, including any translations of this summary, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this document. Where a claim relating to the information contained in this document is brought before a court in a Member State of the EEA, the plaintiff may, under the national legislation of the Member State where the claim is brought, be required to bear the costs of translating this document before legal proceedings are initiated. The Company is an India-focused energy company with existing operations and projects under construction and development in both the power industry and in the oil and gas industry. The Company is India’s second largest private power producer with a 12-year operating track record. The power business owns three operating power plants in India and one in Canada, and is planning an almost tenfold expansion of its capacity by 2014. The Company also owns a portfolio of oil, gas and coal seam gas (‘‘CSG’’) blocks and is developing as a leading player in the rapidly emerging domestic gas market in India. The Company’s low-cost Vadinar refinery is currently one of India’s largest oil refineries and post expansion is expected to become one of the largest and most complex refineries in the world. The power business of the Company, which was a first mover among the private-sector players in the Indian power industry, currently has a total installed generation capacity of 1,220 MW (of which 85 MW is in Canada). The Company’s operating power plants are co-located with Essar Affiliated Companies, with 75% of the off-take contracted to these affiliates. The Company’s expansion projects in its power business (the ‘‘Power Plant Projects’’) are divided into two phases (the ‘‘Phase I Power Projects’’ and the ‘‘Phase II Power Projects’’) and are designed to bring total installed capacity to 11,470 MW. Its six Phase I Power Projects have an expected total installed capacity of 4,880 MW and are expected to become commercially operational between 2010 and 2012. In addition, the Company will seek to further expand its power operations through its six Phase II Power Projects which are expected to increase its installed total capacity by a further 5,370 MW and are due to become commercially operational during 2013 and 2014. For all power plant projects, the Company is focused on securing long term fuel supply and minimising price volatility. To achieve this the Company adopts a strategy of backward integration by sourcing coal from captive mines that are either owned by or allocated to the Company. The Company currently owns or has rights to coal reserves of 343 mmt; these reserves include coal blocks in India and coal mines recently acquired by the Company in Indonesia and Mozambique. The existing coal block allocations in India are subject to the term periods of such allocations being further extended, however, to bridge any gaps the Company has applied to the Government of India for temporary coal supplies in the interim. Through a combination of coal block allocations, acquisitions of coal mines and long-term fuel supply arrangements with the relevant power off-taker, the Company presently has fuel security for 8,620 MW of its existing and planned power generation capacity. Further, if the Company consolidates its stake in the Neptune power plant projects, it expects to gain access to the accompanying coal block allocation of 112 mmt and achieve fuel security for an additional 1,050 MW of power generation capacity. As a result of the above, the Company expects to have fuel security for 9,670 MW of its existing and planned power generation capacity. Essar Energy is also investing in select high-voltage transmission lines for its power projects. Both the backward integration and the construction of company-owned transmission lines provide the Company with further control over the timing and successful development of each power project. The Company’s oil and gas business is engaged in the exploration and production of oil and natural gas, crude oil refining and refined petroleum products sales and marketing. Based on company estimates and certifications from independent petroleum and gas consultants, the Company’s net working interest in its oil and natural gas exploration and production assets includes 2P reserves of 2 mmboe, 2C contingent resources of 148 mmboe, best estimate prospective resources of 1,012 mmboe and an unrisked in-place resource base of 238 mmboe. The Company’s Vadinar refinery has a total current production throughput capacity of 14 mmtpa (approximately 300,000 barrels per stream day). The Vadinar refinery enjoys strong structural cost benefits as a result of its location, scale, asset quality and workforce. The Vadinar refinery currently has refining operating costs of US$1.3 per barrel. This is approximately US$1 lower per barrel than the average

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Summary operating costs within the industry (Source: KBC Process Technology Limited (‘‘KBC’’)). Vadinar’s location provides efficient access to indigenous crudes and Middle East-based crudes as well as to highgrowth refined product export markets. The scale and complexity of the Vadinar refinery provide the Company with significant crude processing flexibility, with 72% of the refinery’s current throughput comprising medium, heavy and ultra-heavy crude oils. The Company is currently expanding the refining capacity and the complexity of its Vadinar refinery. The Company has started construction on the first phase of this expansion (the ‘‘Phase I Refinery Project’’) which is expected to extend the refinery’s total throughput capacity to 18 mmtpa (approximately 375,000 barrels per stream day) and increase the complexity of the Vadinar refinery from an average Nelson Complexity Index of 6.1 to 11.8. The Phase I Refinery Project is expected to be completed by March 2011. The Company is also considering undertaking a second expansion phase (the ‘‘Phase II Refinery Project’’) which will add a new refinery stream with a projected additional capacity of 18 mmtpa (approximately 375,000 barrels per stream day). The timing for the implementation and completion of the Phase II Refinery Project will be decided following a review of market conditions and the securing of financing commitments for the project. Upon completion of the Phase II Refinery Project, the Company expects the Vadinar refinery as a whole to have an average Nelson Complexity Index of 12.8 and a total refining throughput capacity of 36 mmtpa (approximately 750,000 barrels per stream day) and to be able to produce up to Euro V grades of petrol and high-speed diesel (‘‘HSD’’). The vast majority of the Company’s refined petroleum products are sold domestically to the large Indian national oil companies, with some products sold internationally and exported through the Vadinar port terminals owned by Vadinar Oil Terminal Limited (‘‘VOTL’’) an Essar Affiliated Company. The Company also maintains a franchisee-owned and -operated network of approximately 1,300 retail fuel stations in India, which supplements the Company’s domestic distribution platform. In addition, the Company owns a 50% interest in the Kenya Petroleum Refinery Limited (‘‘KPRL’’), which is anticipated to lead to additional international refined petroleum product distribution in the future. The equity component required by the Company for the completion of its Power Plant Projects, the expansion of its oil and gas exploration and production operations and the Phase I Refinery Project will be funded from the net proceeds of the Offer and cash from operations. The Company has secured debt financing commitments for 73% (97% if non-binding sanction letters are included) of the total expected debt financing requirements for the Phase I Power Projects and 100% of debt for the Phase I Refinery Project is committed. The debt required for the Phase II Power Projects (approximately US$3.66 billion) and the Phase II Refinery Project (approximately US$2.88 billion) is not yet committed. Strengths The Company benefits from the following key strengths: • • • • • • positioned to take advantage of strong Indian macroeconomic and energy growth; strong operational performance and efficiency; new growth projects poised to significantly bolster the Company’s competitive positioning and market leadership; proven execution track record of successfully delivering and operating large-scale projects; breadth and depth of experience in the Board and management team; and strong relationship with one of India’s leading corporates.

Strategy The Company’s strategy is to create a world class, low-cost integrated energy company by capitalising on India’s rapidly growing demand for energy. This will be achieved by: • • • • optimising performance of all existing assets; delivering growth through a variety of power and oil and gas projects; leveraging skills and Indian asset base to identify growth opportunities; and being a good corporate citizen.

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Summary Summary of financial information Summary income statement
Nine months ended Year ended on 31 March 31 December 2007 2008 2009 2008(1) 2009 (US$ in million)

Revenue . . . . . . . . . Gross profit . . . . . . . Profit/(loss) after tax EBITDA(2) . . . . . . .
(1) (2) Unaudited.

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202.7 372.3 8,453.1 7,083.9 5,654.6 40.0 74.9 681.7 425.9 322.4 (25.6) (84.9) (167.0) (254.1) 119.7 37.4 (43.0) 123.7 (106.9) 433.1

EBITDA is a non-IFRS financial measure as explained in Part 2 ‘‘Presentation of Financial and Other Information’’.

Summary balance sheet
2007 As at 31 March As at 31 December 2008 2009 2009 (US$ in million)

Property, plant and equipment . . . . . . . . . . . . . . . . . . . Summary cash flow statement

3,877.7

5,067.1

4,441.3

5,453.9

Year ended 31 March 2007 2008 2009 (US$ in million)

Nine months ended 31 December 2008(1) 2009

Net cash generated from/(used in) operating activities . . . Net cash used in investing activities . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . . . . . .
(1) Unaudited.

(47.7) (1,289.3) 1,367.1

(126.5) 350.1 229.6 164.2 (589.6) (498.2) (413.4) (556.9) 772.2 97.9 89.7 392.6

Current trading and prospects The plant availability and plant load factor for both the Essar Power-Hazira (515 MW) and Bhander Power-Hazira (500 MW) power plants for the quarter ended 31 March 2010 were broadly in line with the average for the nine-month period ended 31 December 2009. However, revenue was marginally lower in the quarter ended 31 March 2010 compared to the average for the nine-month period ended 31 December 2009. Following the adoption of an availability-based tariff in Gujarat from 5 April 2010, both Essar PowerHazira and Bhander Power-Hazira are taking advantage of the opportunity of supplying power based on prevalent frequency, which has resulted in improved plant load factors and revenues in April. The gross refining margin for the Vadinar refinery has improved for the quarter ended 31 March 2010 compared with the quarter ended 31 December 2009 in line with the general improvement in refinery margins. Refining throughput was marginally higher in the current quarter ended 31 March 2010 compared to the quarter ended 31 December 2009. During the quarter ended 31 March 2010, the Vadinar refinery began producing higher quality products, including BS III/IV grades of diesel and BS III grades of gasoline. The gross refining margin and refining throughput improvement seen in the quarter ended 31 March 2010 has continued into April 2010. Reasons for the Offer and use of proceeds The Company’s net proceeds from the Offer are estimated to be £1,208 million (approximately US$1.8 billion), after deduction of underwriting commissions and estimated fees and expenses in connection with the Offer.

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Summary The Company currently intends to use the net proceeds from the Offer to execute its stated strategy, focusing on the equity funding component of its existing growth projects. The major growth projects to be funded by the net proceeds from the Offer, as well as by cash from operations, include: • completion of the Power Plant Projects and acquisition of captive mines to expand the Company’s total installed capacity to 11,470 MW, which is currently estimated to require approximately US$1.94 billion of equity financing, comprising of US$0.45 billion for the Phase I Power Projects, US$1.22 billion for the Phase II Power Projects and US$0.27 billion for the acquisition and development of captive coal mines; exploration and development of the Company’s oil and natural gas blocks, which are currently estimated to require approximately US$0.25 billion of equity financing for the period 2010-2014; and completion of the Phase I Refinery Project to expand the Vadinar refinery’s refining capacity to 18 mmtpa, which is currently estimated to require approximately US$0.26 billion of equity financing.

• •

In addition, a further US$0.50 billion from the net proceeds from the Offer will be used for general corporate purposes including working capital requirements for the oil and gas business. The above amounts are the current best estimate of capital expenditure and funding plans and, given the long-term nature of some of these projects, may be subject to change. The difference between the total uses indicated above and the net proceeds from the Offer is expected to be funded by cash from operations. Dividend policy The Board intends to adopt a dividend policy that will take into account the profitability of the businesses, underlying growth in the Company’s earnings, ongoing capital requirements, industry practice and cash flows. Dividends will be declared by the Company in US dollars. Unless a Shareholder elects to receive dividends in US dollars, they will be paid in pounds with the US dollar dividend being converted into pounds at exchange rates prevailing at the time of payment. The Company may only pay dividends if distributable reserves are available for this purpose. As a holding company, the Company’s ability to pay dividends will principally depend upon dividends or other distributions received from its subsidiaries and its ability to obtain consent from its lenders, where relevant. The Offer The Offer will comprise an issue by the Company of 302,789,825 New Shares. In addition, a further new 30,303,029 Over-allotment Shares are being made available by the Company pursuant to the Over-allotment Option to cover short positions arising from over-allotments made (if any) in connection with the Offer and sales made during the stabilisation period. Pursuant to the Offer, the Company expects to raise gross primary proceeds of £1,273 million, out of which it will pay underwriting commissions and other estimated fees and expenses in connection with the Offer of approximately £64 million. The Offer is fully underwritten by the Underwriters and is subject to satisfaction of the conditions set out in the Underwriting Agreement, including Admission occurring and becoming effective by no later than 8:00 a.m. (London time) on 7 May 2010 or such later time and/or date as the Company and the Joint Global Coordinators may agree. The New Shares being issued by the Company pursuant to the Offer will, on Admission, rank pari passu in all respects with the existing Shares in issue and will rank in full for all dividends and other distributions thereafter declared, made or paid on the share capital of the Company. The New Shares will, immediately following Admission, be freely transferable. It is expected that Admission will take place and unconditional dealings in the New Shares will commence on the London Stock Exchange at 8.00 a.m. (London time) on 7 May 2010. Prior to Admission, it is expected that dealings in the Shares will commence on a conditional basis on the London Stock Exchange at 8.00 a.m. (London time) on 4 May 2010.

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Summary Relationship with Essar Global Limited Upon Admission, it is expected that Essar Global Limited (‘‘Essar Global’’) will own 76.74% of the Company’s issued Shares assuming the Over-allotment Option is not exercised and 75.00% of the Company’s issued Shares assuming the Over-allotment Option is exercised. The Company has entered into a relationship agreement with Essar Global that will come into force on Admission to ensure that the Company will be able, at all times, to carry on its business independently of Essar Global and its Associates (as defined in the Relationship Agreement) and that transactions and relationships with Essar Global and its Associates (as defined in the Relationship Agreement) are at arm’s length and on normal commercial terms except for certain de minimis transactions. Essar Global and members of the Essar Group are party to (and following Admission will continue to be party to) a significant number of arrangements with the Company. The Company will be reliant on the Essar Group for a number of ongoing, and in some cases, long-term, arrangements including customer and supply contracts, transport and logistics services, contracts for the supply of services in relation to the Expansion Projects and the provision of general corporate and administrative services. Lock-ups Pursuant to the Underwriting Agreement, the Company, the Directors and Essar Global have each agreed to certain lock-up arrangements. Further details are set out in Part 13 ‘‘The Offer’’. Directors’ details The Directors and Senior Management are:
Directors Ravi Ruia . . . . . . . . . . . . . . . . . . . . Prashant Ruia . . . . . . . . . . . . . . . . . Naresh Nayyar . . . . . . . . . . . . . . . . . Sattar Hajee Abdoula . . . . . . . . . . . . Philip Aiken . . . . . . . . . . . . . . . . . . Subhash C. Lallah . . . . . . . . . . . . . . Simon Murray . . . . . . . . . . . . . . . . . Senior Management Gerry Bacon . . . . . . . . . . . . . . . . . . Mark Lidiard . . . . . . . . . . . . . . . . . Power K V B Reddy . . . . . . . . . . . . . . . . . S Shrivastava . . . . . . . . . . . . . . . . . . V. Suresh . . . . . . . . . . . . . . . . . . . . B.C.P. Singh . . . . . . . . . . . . . . . . . . R.K. Narayan . . . . . . . . . . . . . . . . . R.P. Gupta . . . . . . . . . . . . . . . . . . . A.K. Singh . . . . . . . . . . . . . . . . . . . T.S. Bhatt . . . . . . . . . . . . . . . . . . . . Executive Director, Essar Power—Group Head Development and Regulatory, Essar Power-Hazira CFO, Essar Power-Hazira CEO, Essar Power Gujarat-Salaya and Vadinar Power-Jamnagar Head of Transmission CEO, Essar Power MP-Mahan CEO, Essar Power Jharkhand-Tori MD, Bhander Power-Hazira CFO Head of Investor Relations and Communications Chairman Vice-Chairman CEO NED NED NED NED

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. . . Iftikhar Nasir . . . . . Strategy and Business Development Head. . . Shishir Agrawal . . . . . . . . Refining Head. . . . Oil and Gas Executive Director. . . . . Manoharan . . . . . . . . . . Exploration and Production Head. . . . P. . . . . . . . . . . . . . Refinery Expansion Head. . . . . . Thangapandian . . . . . . . . . . .Summary Oil and Gas C. Krishnamurthy Govindarajan . . Head. Marketing CFO. . . Narendra Vachharajani . . . S. . . . . . . . . . . . . . . Operations and IST 6 . . . . . . . Sampath . . . . . . . . .

dependence on more favourable pricing of its refined petroleum product sales to Indian national oil companies. selection. and liberalisation of the Indian power sector increasing competition. the following: Risks Relating to the Group • • • • • • • • • • • • • • • • • timely completion of major projects within budget and ability to manage associated risks. Risks relating to the Company’s Oil and Gas Business • • • fluctuation of crude oil and refined petroleum product prices and refining margins. dependence on timely access to raw materials. existing litigation and new provisions introduced by the 2010 Finance Bill. implementation and regulatory risks. Such risks include. bribery and corruption. changes to ‘‘captive power’’ status materially increasing costs. ability to attract and retain key management and other personnel. labour disruptions. coal mining risks and unexpected disruptions. significant health.Summary Risk Factors Prior to investing in the Shares. Essar Energy plc’s tax residence status and proposed changes to certain UK tax rules. Risks relating to the Company’s Power Business • • • • • • incurring irrevocable costs if the power plants are not operated efficiently or the Company breaches its PPA obligations and risks with expanding into merchant sales. ability to implement advanced technology timely and cost-effectively. reliance on a few major customers and exposure to the steel business. dangerous business activities and the Indian refinery operations being located where natural disasters have occurred. environmental and other regulations. power project bidding. Essar Global being a controlling shareholder and having conflicting interests with other shareholders. enforcement of obligations. ability to retain tax incentives in the future. doing business in countries with risks relating to security. fraud. fluctuations in exchange rates. prospective investors should consider the risks associated therewith. safety. uncertainties involved with expanding into new countries. inability to enter into term contracts for crude oil purchases. but are not limited to. 7 . right to operate on land granted by or acquired from the central or state governments. dependence on the Essar Group. substantial debt requirements and risks arising out of the structure and terms of the Company’s financing arrangements. supplies and equipment and reliable transport and transmission infrastructure. and Essar Energy plc is dependent on distributions from its subsidiaries.

and inability to exercise pre-emptive rights by US and other non-UK holders of Shares. effects of declines in foreign exchange reserves on the Indian economy. and impact of downgrading India’s sovereign debt rating. Risks relating to the Offer • • • • • effects of an inactive market on the price of Shares. share price and volume fluctuations. uncertainties related to India’s property title registration system. develop and commercially exploit resources and reserves. slowdown in economic growth in India. recent changes in the Indian regulatory framework which create uncertainties. loss of business confidence due to terrorist attacks and other acts of violence.Summary • • • • ability to find. Risks associated with India • • • • • • • changes in government policy having a negative impact. shares pledged to banks being sold. effect of significant sales on trading price of Shares. and Essar Oil Limited’s (‘‘Essar Oil’’) listing on the Bombay Stock Exchange and the National Stock Exchange. ability to enter into and enforce PSCs and relationship with its partners. effects of inflation. 8 .

the ‘‘Expansion Projects’’). changes in government or regulatory policies and delays in obtaining requisite approvals. While the Company has entered into turnkey contracts for the supply and installation of equipment and for civil works in relation to the Phase I Power Projects. such as changes in scope of work causing cost overruns. The execution risks the Company faces as a consequence include the non-completion of construction and/or the installation of critical equipment on time. may also have an adverse effect on the Company’s business. the Company’s business and the industry in which it operates. the ‘‘Refinery Expansion Projects’’). engineering.880 MW through the construction of six additional power plants that are expected to be completed between 2011 and 2012. according to specifications or within budget. The Company’s growth strategy in its power business contemplates the Phase I Power Projects. The Company has outsourced the project management. outsourced certain elements of these projects to other contractors. or at all. which have. if any. financial condition and/or results of operations. delays in implementation. technical and economical viability risks and intervening changes in market conditions. resulting in increasing costs for the services of these contractors. If this occurs the price of the Shares may decline and investors could lose all or part of their investment. and the Phase II Power Projects. which involve development projects for the construction of an additional power plant and the expansion of five operational and planned power plants and are currently expected to be completed in 2013 and 2014. prospective investors should carefully consider the risks associated with any investment in the Shares. the demand for contractors offering specialist design and engineering and project management skills and services has increased. If the Company is unable to engage skilled and experienced contractors at 9 . The Company’s implementation of the Power Plant Projects and the Refinery Expansion Projects (together. in particular. customs clearance delays. environmental issues. the risk factors described below. shortages of or defects in equipment and materials. shortages of the necessary technical personnel. RELATING TO THE COMPANY The Company plans to expand significantly. as well as the exploration and development of its oil. such contracts contain price variation clauses triggered by certain events (including a change in applicable laws) that under such circumstances may entitle contractors to renegotiate fixed prices. third-party performance failures. bankruptcies of suppliers or contractors.PART 1 RISK FACTORS Any investment in the Shares would be subject to a number of risks. the scheduled completion dates for the Expansion Projects are estimates and subject to delays as a result of. RISKS 1. gas and coal blocks. within budget or to the specifications set forth in the applicable agreements with such contractors. adverse weather conditions. legal disputes. in turn. there is a risk that the Company will have to fund project delays or cost overruns arising from changes in the scope of the projects. construction cost increases. which involve an expansion of the power business’s installed power generation capacity by 4. or that it currently deems immaterial. In addition. for example. The expansion projects may not be completed on time. together with all other information contained in this document including. construction and supply of equipment for a number of the Power Plant Projects and the Refinery Expansion Projects to Essar Affiliated Companies. while the Company’s growth strategy in its oil and gas business contemplates a substantial expansion of its oil and gas exploration and production operations as well as increasing the Vadinar refinery’s production capacity through the Phase I Refinery Project and the Phase II Refinery Project (together. control over the day-to-day activities of the Essar Affiliated Companies and their subcontractors in the performance of their services in accordance with the terms of their contracts. Prior to investing in the Shares. and additional risks and uncertainties relating to the Company that are not currently known to the Company. While the Company generally seeks to agree a fixed price for construction work necessary for its Expansion Projects. Investors should consider carefully whether an investment in the Shares is suitable for them in light of the information in this document and their personal circumstances. involves risks associated with major projects. As a result of a substantial increase in industrial development in India in recent years. most of the Phase II Power Projects and the Phase I Refinery Project. involving substantial capital expenditures and execution risks that it may not be able to manage. The following factors do not purport to be a complete list or explanation of all the risk factors involved in investing in the Shares. licences or certifications from the relevant authorities. inability to obtain Indian visas for non-Indian equipment installers and technicians. permits. Essar Energy has limited. These risks could have a material adverse effect on the Company’s ability to complete its Expansion Projects to the original specifications in a timely manner.

Any failure by the project companies implementing the Power Plant Projects to make timely debt service payments could also result in a loss on the Company’s investment in such project companies if lenders exercise their rights in respect of the security provided under financing arrangements due to a project company’s default. continued expansion and international diversification will increase the challenges involved in financial and technical management. results of operations and financial condition. Additionally. To the extent the Company is unable to service its debt as a result of the aforementioned factors this would result in defaults under the Company’s financing arrangements. This project is expected to become commercially operational in Q3 2010. including cost overruns. In the short-term the Company’s only expansion project which is expected to be completed and also has debt facilities that could be impacted by the risks set out in this paragraph is the Vadinar Power Expansion Phase I Project. the Vadinar PowerJamnagar and the Bhander Power-Hazira power plants. or at all. Any approvals may also be subject to the fulfilment of certain conditions. training and retaining sufficiently skilled technical and management personnel and developing and improving internal administrative infrastructure. Certain of the Company’s approvals are also granted subject to final decisions by courts.Part 1 Risk Factors reasonable rates or at all. approvals and licences that will be required for the Expansion Projects and the exploration and development of its oil. In particular. reduced revenues and the loss of certain benefits available under various government programmes. Non-compliance with these conditions may lead to these approvals not becoming operational or being revoked or suspended as well as adversely impacting the likelihood of further approvals being granted. There can be no assurance that the Company will succeed in completing additional land acquisitions in a timely manner and on terms that are commercially acceptable. the Company could be required to refinance such indebtedness. financial and internal controls on a continuous basis. the forfeiture of security deposits. the Company could be required to pay liquidated damages and penalties to its power off-take customers. which could have a material adverse effect on the Company’s business. the Company’s business. the Company has not yet applied for or received certain permits. including the requirement of operational changes to the Expansion Projects that could increase costs significantly and/or cause delays in the completion of these projects. gas and coal blocks. and adverse decisions may affect their validity. financial and other resources and will require the Company to develop its operational. leading to substantial delays and cost overruns in completing the construction of the refinery and the adjoining oil terminal owned by an Essar Affiliated Company. The Company’s growth is dependent on its ability to meet these challenges successfully. which could in turn adversely impact the Company’s ability to pre-qualify for financing for future projects. or scale back or delay its expansion projects. In addition. In addition. results of operations and financial condition could be materially and adversely affected. if there are delays in the construction of the Power Plant Projects and related transmission facilities. the construction of the Vadinar refinery was disrupted by a tropical cyclone in June 1998. The Company has experienced delays in completing projects on schedule in the past. performance guarantees being invoked. which may be at a higher capital cost. The occurrence of any of the above risks may delay or result in the non-completion of the Expansion Projects as well as the incurrence of substantially higher irrecoverable costs. If these risks were to materialise in the short-term the Company would use existing cash balances to fund debt service payments. In the power business. and subject to revocation. the Expansion Projects may be delayed or abandoned or the costs of completing these projects may increase substantially. If such indebtedness is accelerated and the Company does not have sufficient cash on hand to repay the indebtedness. including the tightening of credit available in the Indian and international financial markets and recent adverse movements in oil prices. or at all. Failures to complete a project according to its original specifications or on schedule may give rise to additional potential losses. including undertakings made by the Company in its applications for the approvals. erosion of capital. The Company’s growth strategy is expected to place significant demands on its management. and certain of the in-principle approvals that it has obtained are subject to conversion to final approvals. If any of the above risks materialise. the Company is in the process of acquiring certain land needed to complete its Phase I Power Projects. renewal or modification. The Company has also deferred its Phase II Refinery Project beyond its original completion date due to the general downturn in the global economy. lower or no returns on capital. In addition. There can be no assurance that the Company will receive such approvals on a timely basis. and any inability to 10 . the Company experienced delays in completing the Essar Power-Hazira. pursuant to which the maturity of the Company’s indebtedness could be accelerated.

Whilst the Company has already drawn down a majority of the debt required for the Phase I Refinery Project as well as the Phase I Power Projects. should the Company experience a significant increase in capital requirements or delays with respect to the implementation of its planned capital projects. a certain portion of which has already been obtained. the Company may not be able to enter into similar fixed price contracts. In the event that the Company is not able to meet any such condition precedents for the remaining debt draw downs. there can be no assurance that the Company will meet the conditions precedent required for any further draw downs on the relevant project financing arrangements. The majority of the Company’s future capital expenditure for the Phase II Power Projects. The Company currently only has minimal capital commitments in 2010 and 2011 under the PSCs for its exploration and production licences for oil and gas blocks. operations or financial condition and there has been no event of default. To finance the Power Plant Projects. it may need to obtain additional financing. it expects that it will fund any short falls using existing cash balances until it can satisfy such conditions precedent. The Company’s debt financing requirements are subject to a number of variables and the actual amount of capital required to complete these projects may differ from the Company’s current estimates. including long term agreements. The Company operates in a capital intensive industry and has significant debt financing requirements. As of 31 March 2010. results of operations and financial condition. The Company has secured debt financing commitments for 73% (97% if non-binding sanction letters are included) of the total expected debt financing for the Phase I Power Projects and entered into project financing arrangements for the total expected debt financing required for the Phase I Refinery Project. the Company had US$3. the Company has experienced higher financing costs as a result of delays in completing capital projects in the past. For any projects the Company might choose to undertake in the longer term and one of the Phase II Power Projects for which EPC contracts are expected to be finalised within the next six months. The Company has included a number of contingencies in relation to potential cost and schedule overruns in its plans for the Phase I Power Projects and the Phase I Refinery Project. it needs debt funding of US$7.Part 1 Risk Factors do so could have a material adverse effect on the Company’s business. The Company currently has not secured any debt financing commitments for the Phase II Power Projects or the Phase II Refinery Projects. no material adverse change has occurred in the Company’s business. or that such debt financing will be available at reasonable capital costs.164 million for the Power Plant Projects. see ‘‘Factors Affecting Results of Operations and Financial Condition—Funding Costs for the Expansion Projects’’ in Part 9 ‘‘Operating and Financial Review’’. 11 . The Company has substantial debt requirements. should the Company pursue the acquisition of the Shell Refineries. or scale back or delay such capital projects. all representations and warranties contained in the documentation governing the financing arrangements are true and correct. 2. US$505 million for the oil and gas exploration and production projects and US$985 million for the Phase I Refinery Project. the Phase II Refinery Project or the oil and gas exploration and production projects and there can be no assurance that additional debt financing will be forthcoming to fund these projects. As noted in risk factor 1 above. and the majority of the Phase II Power Projects. the Company may need to obtain additional debt financing. which may be at a higher capital cost. For more information about the phasing of the Company’s capital expenditures and planned funding required. the Phase II Refinery Project (if consummated) and the exploration and production projects is expected to be incurred in 2012 and beyond. facility agreements and a foreign currency facility agreement. Any development costs incurred in relation to the Phase II Power Projects and the oil and gas exploration and production projects before debt financing is secured for these projects will be funded from existing cash balances. The structure and terms of the Company’s financing arrangements could give rise to additional risks. The Company currently has not secured any debt financing commitments for the Phase II Power Projects. These conditions precedent include confirmation that as of the date of any draw down. Further EPC contracts for the Power Plant Projects are fixed price with standard escalation provisions based on the agreed scope for each project. In such an instance. Moreover. including borrowings under long term and short term debt facilities including working capital facilities. the oil and gas exploration and production projects and the Phase I Refinery Project.7 billion of borrowings outstanding. the Company expects that in addition to equity funding and cash from operations.

the lenders’ committee may accelerate the repayment schedule if it is of the view that the cash flows of Essar Oil would allow such acceleration. in the form of tax holidays. economic and industry changes. certain of the Company’s financing arrangements require it to maintain various financial ratios. It is a condition of Essar Oil’s Master Restructuring Agreement (‘‘MRA’’) (as described in Part 9 ‘‘Operating and Financial Review—Corporate Debt Restructuring’’) that Essar Oil obtains the benefits of the sales tax deferral. including the shares of significant subsidiaries of the Company including the Company’s shares in Essar Oil. incurring additional indebtedness. In addition. exemptions and subsidies. exercise share and asset pledges and/or convert all or any portion of certain outstanding loan amounts into shares of the Company’s subsidiaries. results of operations and financial conditions could be materially and adversely affected. The CDR lenders will then have an option to demand payment of all outstanding amounts or convert such outstanding amounts into shares of Essar Oil. the Company is subject to restrictive covenants in respect of its financing arrangements that require the Company in certain circumstances to obtain the prior consent of its lenders before taking certain actions. altering the Company’s capital structure. lenders may exercise their rights under the pledges and become owners of the shares to the extent pledged. While the Corporate Debt Restructuring (‘‘CDR’’) lenders have provided extensions since 2005. certain provisions of the Finance Bill. capital expenditures. In addition.8 of Part 16 ‘‘Additional Information’’ is not resolved in Essar Oil’s favour. which may not be available in the future. making investments and capital expenditures. and is involved in litigation in relation to certain tax incentives. If certain events of default occur. the structure of.Part 1 Risk Factors The Company’s substantial current and expected indebtedness and the terms of such indebtedness could place restrictions on the Company. defaults may automatically trigger cross defaults under the financing arrangements of Essar Oil. This may also trigger cross default provisions in certain other financing documents. and the Company’s business. The Company currently enjoys. in respect of which they have now received waivers or have otherwise repaid such facilities. limiting the ability of Group companies to pay dividends or loan money to each other and restricting the Company from making dividend payments to its shareholders in certain circumstances. These incentives have a material impact on the Company’s investment returns on its existing and planned power plants and the Vadinar refinery. this may be considered to be an event of default under the MRA. In addition. including entering into material contracts. who may have greater flexibility in planning for. 3. and specific provisions of. their subsidiaries and certain Essar Affiliated Companies. it could be required to scale back or delay some of its expansion projects. • • In addition. thereby reducing the availability of cash flow for working capital. declaring dividends. The MRA also contains a mechanism whereby the lenders can call for an increase in interest rates payable on certain facilities if they determine that the cash flows or profitability of Essar Oil allow such payments. certain lenders have the right to accelerate the relevant credit facility. Certain of the Company’s subsidiaries have historically not complied with certain covenants in their debt facilities. making material changes to the documents relating to the Expansion Projects and the constitutional documents of the Company companies. The Company enjoys significant tax incentives. with the current extension valid until June 2011. making disposals. including the following: • requiring the Company to dedicate a substantial portion of its cash flow from operations to service its indebtedness. 2010 announced in February 2010 may have a material adverse effect on the Company’s results of operations. The Company’s results of operations and financial condition could be materially adversely affected if these benefits were amended or 12 . or reacting to. in the event Essar Oil is unable to receive further extensions from the CDR lenders or the ongoing sales tax incentive litigation described in paragraph 14. Essar Power. and placing the Company at a competitive disadvantage compared to its less-leveraged competitors. In the event of a default. the benefit of various tax incentives provided by the Indian federal and state governments designed to encourage investment in the power and oil and gas sectors. Further. In addition. the Company’s financing arrangements give rise to certain significant additional risks. as well as changes in the management of the Company’s subsidiaries. The Company’s existing and future project financing arrangements are and will be secured by pledges and charges over substantially all of the assets to which the financing arrangements relate. If any of these risks materialise and the Company is unable to renegotiate its existing facilities. expansion projects and other general corporate activities.

Essar Global could take certain actions regarding changes in the control of the Company or in its 13 . on an interest-free basis. is expected to increase the Company’s Indian income tax liability going forward.28 billion (US$47.3 million) under this scheme and included these amounts in revenue. respectively.7 million) and Rs. this would have an adverse effect on the Company’s profitability and results of operations. For additional information on various tax incentives available to the Company. financial condition and results of operations. 2010 introduced on 26 February 2010 proposes to increase the minimum rate of income tax payable on book profits by companies (whose tax payable under the Indian Income Tax Act is less than 15% of book profits. if implemented.6 billion (US$221. if implemented. 1995-2000. any change in tax laws. the Company is currently engaged in litigation with the government of the state of Gujarat regarding whether the Company is eligible to retain. Essar Global will own 76. The Company cannot currently ascertain the impact that such changes may have on the Company. an Essar Affiliated Company. respectively. See ‘‘Litigation—Dispute in relation to sales tax incentives’’ in Part 16 ‘‘Additional Information’’.16 billion (US$330. the declaration of dividends. The retained sales taxes are repayable. 15. If this proposal receives regulatory approval. By exercising its powers of control. in six equal annual instalments. The Finance Bill. 25. is expected to increase the cost of coal for the Company’s domestic coal-fuelled Power Plant Projects. or in the interpretation of the tax laws. The Government of India has also recently proposed comprehensive indirect tax reforms including a shift to a unified goods and services tax system. this may also result in the occurrence of an event of default under the MRA. and any change in tax laws or the interpretation and application of such laws could have a material adverse effect on the Company’s business.3 million to Essar House as of 31 December 2009.Part 1 Risk Factors withdrawn or were to become unavailable or if the Company’s claim for these benefits were disputed or disallowed by the tax authorities.3 million) and Rs. 10. As described in risk factor 2 above.00% if the Over-Allotment Option is exercised in full). 1961 to a direct tax code.74% of the issued Shares of the Company following the completion of the Offer (75.95 billion).6 million) to Essar House Limited (‘‘Essar House’’). including the proposed migration from the Income Tax Act. 3. to the state government beginning in 2021/22 or on exhaustion of the full eligible amount. the Company has assigned its sales tax liability under the sales incentive scheme of Rs. As a result. this bill also proposes the introduction of a ‘‘clean energy cess’’ to be levied on coal. whether to accept the terms of a takeover offer and the determination of other matters to be decided by the Company’s shareholders. during the periods from 1 May 2008 to 31 March 2009 and from 1 April 2009 to 31 December 2009. may result in discontinuation or withdrawal of these tax benefits. the proceeds of the sales tax collected for a period of approximately 13 years on sales of refined petroleum products from the Vadinar refinery in an amount of up to approximately Rs. While. Tax regulations have historically been subject to varying interpretations and applications by tax authorities. and paid the present value agreed pursuant to the factoring arrangement of US$112. 2. Further. under the Gujarat state’s Capital Investment Incentive to Premier/Prestigious Unit Scheme.01 billion (US$65. The government of the state of Gujarat has asserted that Essar Oil is not eligible to participate in the sales tax incentive scheme because the Vadinar refinery did not commence commercial production by 15 August 2003. lignite. Essar Global will continue to exert significant influence over the Company following the Offer and its interests may conflict with those of other shareholders. Essar Global could exercise significant influence over certain of the Company’s corporate decisions. popularly referred to as ‘‘minimum alternate tax’’) from 15% to 18%. Further. including the election or removal of Directors. pursuant to a factoring arrangement. This proposal. see ‘‘Factors Affecting the Company’s Results of Operation and Financial Condition—Sales Tax Incentives’’ in Part 9 ‘‘Operating and Financial Review’’. and peat (including certain derivations thereof) produced in India. whichever is earlier. which would have a material adverse impact on the Company’s results of operations and financial condition. 4. 91 billion (US$1. In addition. If the ruling in this litigation is adverse to Essar Oil. The Company collected sales taxes in the amount of Rs. Essar Oil may have to promptly pay the tax retained under the tax incentive programme to the state of Gujarat and would not be able to benefit from the scheme going forward. net of the present value of Rs. the Company remains ultimately liable for the payment of the sales tax liability to the state of Gujarat in the event that Essar House does not make payments on the due dates.6 million). This proposal.76 billion (US$551. courts and tribunals.

5. for the Essar Power Gujarat–Salaya project. brand and reputation of Essar Affiliated Companies and the Company’s reputation is closely tied to that of the Essar Affiliated Companies. In addition. Some of the Company’s power plants are. For the Essar Power Orissa—Paradip project. In addition. There can be no assurance that the land required for this power plant will be available from Essar Steel Orissa. The Company’s ability to implement its business strategies and to manage its operations efficiently depends on the continuing profitability and support of Essar Affiliated Companies. See section 13. engineering. the Company has not yet secured a formal contractual lease arrangement. in the event that the Company has a conflict of interest with the Essar Global or its subsidiaries that are not part of the Company (‘‘Essar Group’’). and are expected to continue to be. The Company benefits from the operational experience. such as retail fuel station franchisees. all of which are beyond the Company’s control. industry contacts. In addition. The Company’s operations are dependent on the Essar Affiliated Companies. There can be no assurance that Essar Affiliated Companies will not experience conflicts of interests and prioritise their own interests over those of the Company in providing the services and products to the Company. the Company expects to lease the land for this project from Essar Steel Orissa. including environmental disasters or the behaviour of Essar Affiliated Companies and third parties. the Company’s bulk steel requirements for its Power Plant Projects and Refinery Expansion Projects are being sourced from an Essar Affiliated Company. The Company has entered into a relationship agreement with Essar Global to ensure that the Company will be able to carry on its business independently of Essar Global and its Associates (as defined in the relationship agreement) and to ensure that transactions and relationships with Essar Global and its Associates (as defined in the relationship agreement) are at arm’s length and on normal commercial terms except for certain small transactions. this may have a material adverse effect on the Company’s results of operations and financial condition. or encourage or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company. The Company has outsourced the project management. business. relationships or financial condition. a substantial portion of the land required for the Company’s currently operational power plants and the Phase I Power Projects is leased by Essar Affiliated Companies to the Company. Delays in constructing this captive jetty may delay the commissioning of the commercial operations of the Essar Power Gujarat–Salaya Phase I Power Project and 14 . Further. The reputation and value associated with the Company’s brand names could also be negatively affected by events outside of the Company’s control.Part 1 Risk Factors capital structure or regarding business combinations involving the Company. In addition. The Company has not independently verified the titles to the land leased by Essar Affiliated Companies. dependent on Essar Affiliated Companies for a significant amount of the plants’ fuel supplies and for the off-take of a significant amount of their generated power. If any of the Essar Affiliated Companies were to suffer material damage to their reputation. the viability of these plants is dependent on the continued viability of the relevant Essar Affiliated Company. However. which is imported coal. which in turn will require substantial government approvals. it may not be possible for the Company to resolve the conflict on the most favourable terms to the Company. There can also be no assurance that future agreements that the Company enters into with Essar Affiliated Companies will be on as favourable terms to the Company as the existing agreements. since the land is currently in the process of being acquired by Essar Steel Orissa. construction and procurement of equipment for a number of the Power Plant Projects and the Refinery Expansion Projects to Essar Affiliated Companies. is proposed to be imported through a captive jetty being constructed by Essar Bulk Terminal. The Company does not have direct control over the timing or quality of services. equipment or supplies provided by Essar Affiliated Companies. because Essar Affiliated Companies are the sole or major off-take customers for a number of the Company’s existing and planned power plants. the fuel. an Essar Affiliated Company. and any defects in these titles would have a significant adverse impact upon the relevant power plant and consequently on the Company.2 ‘‘Relationship Agreement’’ in Part 16 ‘‘Additional Information’’ for further details. as noted above. land and funding.

supply of water. the Company’s operations are significantly dependent upon the Company’s ability to protect its existing and planned facilities against damage from natural disasters. earthquakes and other natural disasters in the past. fuel. and community opposition activities. including third-party liability insurance up to specified limits. cyclones. the refinery is located in an area that has experienced severe earthquakes and cyclones. equipment break-downs and other mechanical failures. All of the Company’s operations are extensively regulated. The Company’s operations are subject to the significant hazards and risks inherent in the oil and gas and power generation sectors. this could result in the partial or total shut-down of the operations at the affected facility or a cessation of the construction activity at the Expansion Projects. by causing extensive damage to the seawater intake facilities and other equipment and assets. However. improper installation or operation of equipment. water and other utility services. blowouts and other operational disruptions in relation to the Company’s upstream exploration and production operations. state and local authorities in the countries in which the Company has operations regulate the industries in which the Company operates with respect to matters such as labour. results of operations and financial condition.Part 1 Risk Factors the related Salaya II Phase II Power Project and may cause the Company to incur higher transportation costs for transporting coal to fuel this power plant. labour disputes. While the Vadinar refinery has been designed to withstand certain earthquake risks. environmental pollution. ruptures and spills from crude and product carriers or storage tanks. National. earthquakes and other natural disasters. There is also no guarantee that the Company will be able to maintain adequate insurance in the future at rates the Company considers reasonable. cyclones. environmental and other regulations. The Company’s Indian refinery operations are located in an area where natural disasters have occurred. Given that India has experienced severe weather disruptions. 7. including a cyclone in June 1998 that substantially disrupted and delayed the construction of the refinery and the associated Vadinar terminal. safety. environmental compliance (including. If any of these risks were to occur. personal injury or wrongful death claims and damage to the properties of others. for example. acts of political unrest. The Company is subject to significant health. For information about the Company’s relationship agreement and other related party transactions. These hazards and risks include: • • • • • • • • • • • explosions and fires. severe weather. The occurrence of any event that is not fully covered by insurance could have a material adverse effect on the Company’s business. permitting and licensing requirements. and that its insurance programme is adequate to cover the consequences of the insurable hazards and risks to which the Company’s operations are subject. 6. and the Company’s relationship generally with the Essar Affiliated Companies. the Company may be exposed under certain circumstances to uninsurable hazards and risks. other damage to the Company’s properties. war or terrorism. disruption of deliveries of crude oil. which is owned by an Essar Affiliated Company. 15 . see ‘‘Relationship with the Essar Group’’ in Part 16 ‘‘Additional Information’’. The Company believes that it maintains insurance with respect to its operations in accordance with industry practice and applicable law. equipment and other supplies. Activities in the power generation and oil and gas sectors can be dangerous. planning and development. disruption of electricity. employee health and safety.

GPCB has not responded to this letter or initiated any further action. liabilities and requirements associated with complying with environmental laws and regulations or to comply with changes in these laws and regulations or the manner in which they are applied are expected to be substantial and time-consuming and may delay the commencement or continuation of power generation. mining or exploration and production and refinery activities. the Company may not be in compliance with all terms and conditions of permits. In the event that GPCB initiates any such action. injunctions and other penalties. including production sharing contracts (‘‘PSCs’’). and on this basis believes that no further action by GPCB as to this matter is likely. including factors beyond the Company’s control. The Company expects to generate a considerable amount of ash from its coal-fuelled Power Plant Projects. reclamation and restoration of properties after operations are complete. Essar Oil clarified in a letter to GPCB dated 5 September 2009 that it had applied to GPCB on 14 June 2009 to operate the refinery at 14 mmtpa and that so far as the complaints of the villagers were concerned. which the Company is required to comply with. state or local authorities data pertaining to the effect or impact that any proposed power generation. results of operations and financial condition. rehabilitation requirements. In response to this notice. require agreement with government entities and any delays in entering such contracts could have an adverse effect on the Company’s operations. the demand for ash is currently low. Essar Oil had been meeting the norms prescribed by GPCB for emissions. petroleum products and other hazardous substances. In the event that Essar Oil is not able to extend this authorisation and consent (or obtain consent from the GPCB for the Phase I Refinery Project expansion to 18 mmtpa). New legislation or regulations. Numerous governmental permits. The Company has not yet obtained several of the required permits.Part 1 Risk Factors compliance with waste and wastewater treatment and disposal. The costs. which could have an adverse effect on the results of operations or financial condition of the Company. Failure to obtain the necessary authorisations or violations of the conditions of any authorisations or other legal or regulatory requirements could result in substantial fines. air emissions. gas and coal blocks. resettlement of persons affected by projects. however. approvals and licenses may result in the loss of these authorisations. There are limited options for utilising ash in India and. restrictions on the storage. it may be required to limit its operating throughput which would have a material adverse effect on its business. handling and transportation of crude oil. Essar Oil received from GPCB an authorisation and consent. The Company is required to prepare and present to national. GPCB has proposed issuing directions to curtail production in accordance with the conditions of the authorisation as well as directions to authorities to stop the supply of electricity and water to the refinery. Specifically. India is expected to tighten its CO2 emission regulations in the future. as a result. which will impose substantial compliance costs on the Company for upgrading facilities. plant and wildlife protection. to operate the refinery at 14 mmtpa. valid until 16 September 2010. Failure to comply with environmental laws and regulations or to obtain or renew the necessary permits. mining and upstream exploration and development operations and refining have on water quality and availability and surface subsidence from underground exploration and production activities. typically in a time-sensitive manner. approvals and licences are required for the Company’s operations. permit revocations. may also require the Company or its customers to change operations significantly or incur increased costs. While the 16 . discharges and forest and soil conservation requirements). On 2 March 2010. 1974 claiming that the production at the Vadinar refinery in May 2009 was higher than the approved production in the authorisation dated 22 January 2008 and that complaints had been received from people in surrounding areas regarding damage to health and crops. Environmental legislation or regulations may be adopted in the future that may materially adversely affect the Company’s operations and its cost structure. In addition. Essar Oil received a notice dated 17 August 2009 from the Gujarat Pollution Control Board (‘‘GPCB’’) under Section 33-A of the Water (Prevention and Control of Pollution Act). Certain of the Company’s approvals have specific conditions in relation to disposal and sale to third parties of ash. effluent and hazardous waste. approvals and licenses obtained by it. Authorities generally have or reserve the right to impose additional or modified conditions for existing approvals on account of a number of factors. the effects that power generation. this may have an adverse impact on the operations of the Vadinar refinery. Certain material contracts. mining or exploration and production and refinery activities may have upon the environment. and potentially require further investment by the Company in green technology. or different or more stringent interpretation or enforcement of existing laws and regulations or additional or modified conditions to existing approvals. sanctions. In particular. approvals and licences for the Expansion Projects and the exploration and development of oil.

The Company’s functional and presentational currency is the US dollar. In the oil and gas business. The Company is exposed to fluctuations in exchange rates. depreciation of the rupee against the US dollar will significantly increase the rupee cost of the Company’s US dollardenominated payment obligations which would be offset only to the extent of any US dollar-denominated or correlated receivables. Changes in the exchange rate of the Indian rupee against the US dollar have had a significant effect on the Company’s results of operations. in particular. the Company currently hedges a portion of its foreign currency exposure. The Company faces exchange rate risks in particular in relation to its revenues from sales of refined petroleum products to the Indian national oil companies.1 million. health and safety laws and regulations. A substantial number of contracts for critical plant and equipment and the transportation thereof into India for the Company’s Power Plant Projects are denominated in US dollars. the values of those assets. and the Company’s power operations in India are not expected to have any revenues in US dollars. including in the manner stipulated in the relevant approvals. from currency exchange effects in these periods. even if their value has not changed in their original currency. Consequently. 8. The prices of the natural gas and imported coal needed to run the Company’s power operations and crude oil. In preparing the Company’s financial information. 17 . liabilities. may significantly increase outflows and consequently the capital cost of the relevant power projects. in particular the rupee. this could have a material adverse effect on the Company’s results of operations or financial condition. and the Company has not currently entered into any contractual arrangements to hedge the risks associated with the Indian rupee depreciating against the US dollar in relation to such contracts. the US dollar. approvals and licences and the imposition of costly compliance procedures.0 million and a gain of US$146. even though the Company’s results are stated in US dollars. Additionally. will affect the Company’s results of operations. If health and safety authorities require the Company to shut down all or a portion of its facilities or operations to implement costly compliance measures. in the event of unfavourable currency movements. Therefore. revenues and expenses of its subsidiaries are denominated in currencies other than the US dollar. Payments in most of these contracts is in stages or on pre-determined dates in the future. a violation of health and safety laws relating to the Company’s operations or a failure to comply with the instructions of the relevant health and safety authorities could lead to.Part 1 Risk Factors Company is continuing to explore methods to utilise or dispose of ash. a temporary shutdown of all or a proportion of the Company’s facilities or operations or the loss of the Company’s permits. Similarly. dividends to shareholders will be paid in pounds sterling. feedstocks needed for the Company’s production of refined petroleum products are generally denominated in or tied to the US dollar. which are received in rupees at rates of exchange against the US dollar that are reset at fortnightly or monthly intervals depending upon the product. when there are rapid fluctuations in exchange rates. while most of the Company’s other operating expenses and revenues are denominated in rupees. there may be a mismatch between the Company’s rupee-denominated revenues and the rupee-equivalent cost of its US dollar-denominated expenditures. increases and decreases in the value of the US dollar against other currencies. Changes in the exchange rate of the rupee against other currencies in which the Company does business. Primarily as a result of these changes. respectively. which. The Indian rupee depreciated against the US dollar by approximately 28% in the year ended 31 March 2009 and appreciated by approximately 8% in the nine months ended 31 December 2009. In addition. liabilities. the Company experienced a loss of US$459. which may lead to imposition of fines or penalties as well as suspension or revocation of the license and other regulatory actions. For example. the Company’s profitability will be affected by exchange rate fluctuations to the Company’s aggregate US dollar-denominated expenses and revenues to the extent such expenses and revenues do not match its rupee-denominated expenses and revenues. it also faces translation risks to the extent that the assets. Additionally. Therefore. among other things. revenues and expenses are translated into US dollars at the applicable exchange rates. whether pursuant to existing or new environmental. The exchange rate between the rupee and other major currencies has fluctuated significantly in recent years. will affect the value of these items in the Company’s financial statements. the Company’s ash utilisation activities may be insufficient to dispose of the ash it expects to generate.

Madagascar. the Company’s operational power plants in India do not currently employ the latest industry-specific technology available as the Company believes the cost of purchasing and implementing this technology currently outweighs the financial benefit of employing such technology. power projects and oil and gas increasingly seek to implement newly developed. Such acquisitions and investments. The Company has made acquisitions of. In the current industry environment. Changes in technology may also make newer power generation or refinery facilities or equipment more competitive than the Company’s facilities and require the Company to make additional capital expenditure to upgrade its facilities. For example. If the Company is unable to adapt in a timely manner to changing technology. the Company intends to employ the latest industry specific technology in certain of the Phase II Power Projects that involve large-scale power-generation units or where superior environmental performance is required. customers and suppliers of the acquired operations. In addition. Kenya. including fuel cells. and may become increasingly attractive and efficient alternatives to the power generation technologies used by the Company. the Company intends to seek new exploration and production opportunities through the acquisition of additional hydrocarbon assets. To remain competitive and better optimise production from its power generation and refinery facilities and to comply with increasingly stringent environmental regulations. relating to the acquired businesses that may only become apparent after the acquisition is finalised. Nigeria and Vietnam. and in particular environmental liabilities. power plants. 18 . alternative technologies exist for power generation. The Company’s ability to make acquisitions will depend on a number of factors. this could have a material adverse effect on the Company’s business. financial condition and results of operations. the Company may not realise the expected benefits of these technologies and its operations and profitability may be adversely affected. both within India and in other countries. the Company’s success will depend on its ability to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. Risk Factors The Company may not be able to implement more advanced technologies into its facilities in a timely and cost-effective manner. and challenges in managing the increased scope and geographic diversity of the Company’s operations. including the Company’s ability to identify acquisition candidates. this could have a material adverse effect on the Company’s business. because acquisition of technology is costly. However. unexpected losses of key employees. such as contingent or assumed liabilities. successfully integrate acquired businesses into the Company. and investments in. processes and controls of acquired businesses with those of the Company’s existing operations. including: • the impact of unforeseen risks. including in Canada. The Company’s recent and planned expansion into new countries involves uncertainties and additional risks. subject the Company to risks. and intends to continue to increase its refining production and petroleum product sales and marketing capacity by establishing a greater presence in its existing and additional non-Indian markets. windmills and photovoltaic (solar) cells. obtain financing for these acquisitions and many other factors beyond the Company’s control. the assumption of substantial new debt and exposure to future funding obligations. including through select acquisition opportunities. Indonesia. In addition. 10. • • • • If the Company is unable to successfully meet the challenges associated with one or more of its acquisitions. micro turbines. sophisticated and complex machinery built by third parties that has not been extensively field tested and is therefore susceptible to malfunction. In addition. coal mines and oil and gas exploration and production assets and refinery assets both inside and outside of India in recent years. if the technology is not utilised in a productive and efficient manner. difficulties in integrating the financial. consummate acquisitions on favourable terms. results of operations and financial condition.Part 1 9. technological and management standards.

imposition of export or import controls. India’s physical infrastructure is less developed and less reliable than that of many developed nations. or at all. gas and coal blocks. including power transmission lines. including trade restrictions or embargoes against certain states. adverse weather conditions. how quickly they will be forthcoming. or selling products to. The Company depends on timely access to raw materials. preventing the Company from buying crude oil and other feedstock from. extensions or waivers from governments or counterparties. fires. Essar Energy may be unable to operate its power plants and refinery. and which may not be forthcoming on terms acceptable to the Company after an acquisition is consummated. railways and pipelines for the transmission of power generated and for transport of the substantial amounts of raw materials. these states. some of the transmission and transportation infrastructure needed for the completion of the Company’s Expansion Projects has not been constructed. as the case may be. In addition. sabotage. the invalidity of governmental approvals and contracts which require renewals. The Company’s power plants require supplies of significant quantities of water for cooling. or complete the Expansion Projects on a timely basis. The Company is dependent upon a reliable transportation and transmission infrastructure. political events that affect supplier relations or supply infrastructure. Regions in India have from time to time suffered from serious water shortages and insufficient rainfall. including in 19 .Part 1 Risk Factors The Company’s growing international operations also expose it to additional risks in each of the jurisdictions in which the Company operates. and other hazards and force majeure events. adverse weather conditions. The Company may not succeed in convincing the relevant government and government-owned utilities to develop and construct additional public transmission and transportation infrastructure in a manner that suits the Company’s needs. imposition or increase of withholding and other taxes on remittances by foreign subsidiaries. including. and political conflicts and unrest. disruptions of port terminal facilities. in India the government and government-owned utilities undertake the development and construction of public transmission and transportation projects. port terminals. which may delay or prevent the completion of. potentially nationalisation. The construction of public and private transmission and transportation infrastructure projects entails obtaining approvals and rights of way. fuel. including: • • • devaluations and fluctuations in currency exchange rates. railways and roads. the Expansion Projects as well as the exploration and development of the Company’s oil. In addition. The Company or the third party owners of a number of these infrastructure projects have not obtained all necessary rights of way and approvals. or the commissioning of. deliver power and refined petroleum products to customers. supplies and equipment and on a reliable transportation and transmission infrastructure. roadways. or at all. There also can be no assurance that additional private and public transmission and transportation infrastructure will be constructed in a timely manner. government restrictions. among other things. regional hostilities. There can be no assurance that these approvals and rights of way will be forthcoming or. economic sanctions against the governments of countries where suppliers are located or where supplies are to be received. canals. If supply or delivery disruptions were to occur or the Company were not to have access to the additional transmission and transportation infrastructure it needs for its operations. if they are forthcoming. operated on a cost effective basis and maintained at adequate levels. expropriation or cancellation of contract rights. or if the costs associated with the same are higher than anticipated. industrial action. water and other supplies and equipment needed to carry out the Company’s existing and future business operations and its Expansion Projects. insufficient transportation infrastructure and other problems in transporting sufficient quantities of these supplies to the Company’s facilities. including pipeline ruptures. unexpected changes in regulatory environments and government policies. failure to comply with a wide variety of foreign laws. • • • • • 11. limitations on investments and other restrictions imposed by foreign governments. The Company’s access to the transmission and transportation infrastructure needed to run its existing and future operations could be interrupted as a result of.

also capped at a certain percentage of contract price. There can be no assurance that losses and damages incurred by the Company on account of the delay or default of any contractor would be recoverable. Mozambique. could have a material adverse effect on its results of operations and financial condition. agents. 12. on a single primary supplier for all or substantially all of each plant’s coal and other fuel supplies. such liquidated damages provisions are capped at a certain percentage of the contract price. Madagascar.Part 1 Risk Factors 2009. Canada. it may not be possible for the Company to detect or prevent every instance of fraud. There is competition for experienced senior management and other key personnel with technical and industry expertise in the exploration and production. In the event of water shortages. bribery and corruption. 13. Kenya. which would reduce their power generation capacity. In addition. Nigeria and Vietnam and the Company also has significant crude supply arrangements with the National Iranian Oil Company (‘‘NIOC’’). this could lead to disruptions in operations and substantially higher recurring costs. The Company is also dependent on a limited number of suppliers for the supply of certain critical power plant and refinery equipment for the Power Plant Projects and the Refinery Expansion Projects. The Company is dependent on its management team and other key personnel for the running of its daily operations as well as for the planning and execution of the Company’s expansion strategy. and most of the Company’s power plants under construction and development are each expected to rely. subcontractors or joint venture partners are located. or if the cost of these services or parts exceeds the budgeted cost. The Company’s businesses operate in India. mining. The Company’s future success depends substantially on the continued service and performance of the members of the Company’s senior management and the senior management of the Essar Affiliated Companies. causing substantial delays and monetary loss. enforcement of obligations. Moreover. bribery and corruption. the Company requires the continued and timely support of its contractors to supply necessary services and parts for the Expansion Projects at an affordable cost. subject to certain exceptions. In certain jurisdictions. Orders for this equipment generally require long lead times. fraud. Further. bribery and corruption are more common than in others. codes of conduct and other safeguards designed to prevent the occurrence of fraud. bribery and corruption in every jurisdiction in which its employees. the overall liability is. refining and power sectors. and violations of laws and regulations in the jurisdictions in which the Company operates. the affected power plants may be required to reduce their water consumption. Each of the Company’s four operational power plants relies. The Company does business in countries with inherent risks relating to security. this may jeopardise the completion of the project to which the equipment relates. Instances of fraud. while contracts with equipment suppliers provide for the payment of liquidated damages for delays and performance at less than guaranteed levels. Alternative sources of water may not be available on terms acceptable to the Company. bribery and corruption. Australia. the Company may need to find alternative sources of supplies on a timely basis. bribery and corruption. which would adversely affect the Company. the natural oil and gas and mining industries have historically been shown to be vulnerable to corrupt or unethical practices. if the Company does not obtain and maintain the necessary governmental approvals and licences to draw water. which may be more costly. If the Company is unable to procure the required services or parts from these manufacturers. The Company’s long-term success depends on attracting and retaining key management and other personnel. Certain risks relating to unforeseen site and geological conditions may also render the equipment provided unsuitable for operations. fraud. The Company may therefore be subject to civil and criminal penalties and to reputational damage. If one of the suppliers to the power plants or the refinery were to fail to fulfil its delivery commitment on time. If the suppliers of any critical items of equipment are unable to provide the equipment for any reason. While the Company maintains anti-corruption training programmes. Doing business in international markets brings with it inherent risks associated with security of staff or property. the Company may have to locate alternative sources of water. The Company currently does business in a number of countries that feature prominently on Transparency International’s Corruption Perceptions Index. In addition. fraud. enforcement of obligations. Indonesia. If the Company 20 . In addition.

the place of its effective management will be in Mauritius and therefore it will be resident for tax purposes in Mauritius under the Mauritius-UK Double Taxation Convention. The Company may be subject to labour disruptions. the Company’s ability to realise its strategic objectives could be impaired. including employees of contractors retained to construct the Expansion Projects and the employees of operators of transportation infrastructure needed to run the Company’s operations. particularly in respect of a project under construction or development. it seems likely that Essar Energy plc is a dual resident of the United Kingdom and Mauritius and it appears that Essar Energy plc’s place of effective management under the residence tie-breaker in the Mauritius/UK Double Taxation Convention will not be in the United Kingdom.Part 1 Risk Factors loses the services of any of these or other key individuals and is unable to find suitable replacements in a timely manner. and is subject to income tax on its profits. Non-compliance with such conditions may result in a loss of the Company’s rights over the relevant property or in the imposition of monetary penalties. Whilst the Company’s workforce is not unionised and the Company generally enjoys good labour relations with its employees. the Directors have been advised that Essar Energy plc will be regarded as a resident of Mauritius for the purposes of Mauritian taxation law and the Mauritian tax authority’s application of the Mauritius/UK Double Taxation Convention. including prohibitions on using the land for any purpose other than that for which it has been allotted or transferring the land or a portion of it without first obtaining a waiver or approval as well as requirements to surrender possession of outlying portions of the land upon receipt of notice from the government. Essar Energy plc has also received a certificate from the Mauritius Revenue Authority. 16. to recruit local employees as per the industrial employment policy decided by the government and to complete construction on the land within the time period specified in the award and pursuant to the plan approved by the government. Essar Energy plc is considered as resident in Mauritius by virtue of Section 73(b)(ii) of the Income Tax Act 1995. Land granted by or acquired from the government is typically subject to certain conditions. Further the land for the Phase I Refinery Project has also been acquired from the government.75 hectares acquired for the Vadinar refinery to the government of the state of Gujarat due to the breach of a condition in respect to the laying of a single-buoy mooring within the limits set by the Gujarat Maritime Port Board. 21 . and paragraph 3 of Article 4 of the Double Taxation Treaty signed between Mauritius and the United Kingdom. Infrastructure projects in India typically depend on land grants from the central or state government. on the assumption that Essar Energy plc will have its head office located in Mauritius. The Mauritian tax authorities have indicated that. Land granted by or acquired from the central government and state governments in India is typically subject to certain conditions which the Company will need to comply with. For example. On the assumption that the affairs of Essar Energy plc are conducted as the Directors intend and in the light of the confirmations described above. and on the assumption that the structure of management as described to it is put into operation. Essar Oil had to surrender land comprising 481. The Company’s financial condition may be adversely affected by changes in Essar Energy plc’s tax residence or proposed changes to the UK’s controlled foreign companies taxation rules. The Company’s operations may be affected by strikes. Any of these events could prejudice the success of the Company’s existing and future operations on the affected property and may require the Company to write off substantial expenditures. A substantial amount of the land for the Power Projects has been acquired from the government. 15. dated 31 March 2010 confirming that. having undertaken to have its central management and control in Mauritius. 14. lock-outs or labour disruptions involving the employees of third parties. based on the proposed location and structure of management as described to it by the Directors. its board meetings will be held in Mauritius and all its key business decisions will be taken in Mauritius. to obtain prior approval from the government before entering into any mortgages or leases. Tax residence The UK HM Revenue & Customs (‘‘HMRC’’) has indicated that.

the motive test exemption applies so that Essar Energy plc will not be subject to the operation of the CFC Rules (with the exception that Essar Energy plc will still have to comply with certain administrative procedures set out under these rules). Essar Energy plc could become. it is likely to be enacted in Finance Bill 2011. Although the Directors consider that HMRC’s objectives in reforming the UK tax system should not lead to Essar Energy plc being disadvantaged. including any removal or amendment of the motive test exemption as part of the anticipated reform of the CFC Rules. including as a result of change of law or the practice of any relevant tax authority or the renegotiation of the Mauritius/UK Double Taxation Convention. including any removal or amendment of the motive test exemption as part of the anticipated reform of the CFC Rules. Essar Energy plc has obtained confirmation from HMRC in the United Kingdom that. extending the period for which it applies. If there were to be such a change of law. which Essar Energy plc has been advised includes all companies currently forming part of Essar Energy plc’s group. or be regarded as having been. There is no guarantee that such an application will be successful and any such failure could adversely affect the financial results of Essar Energy plc’s group. It is possible that. and is subject to there being no material change in the facts and circumstances of Essar Energy plc’s group as summarised in the application letter of 26 February 2010 and in previous discussions with HMRC. which Essar Energy plc has been advised includes all companies currently forming part of Essar Energy plc’s group and if new companies are added to Essar Energy plc’s group. HM Treasury and HMRC published a discussion document in January 2010 entitled ‘‘Proposals for controlled foreign companies (CFC) reform’’ (the ‘‘Discussion Document’’). This confirmation from HMRC is stated to last for a period of 24 months starting on the earlier of the date on which the Offer becomes unconditional. or 30 June 2010. HMRC has also confirmed that it will renew its confirmation that the motive test exemption applies. Essar Energy plc is technically subject to the UK controlled foreign company rules (the ‘‘CFC Rules’’). subject to the following conditions. Essar Energy plc will need to apply for the clearance to be extended to cover those companies. Controlled foreign companies taxation rules Even assuming that Essar Energy plc is solely tax resident in Mauritius. 22 .Part 1 Risk Factors Accordingly. in the event that there is a delay in the anticipated introduction of the anticipated changes to the UK CFC Rules beyond their expected enactment in Finance Bill 2011 for so long as changes to the rules are reasonably anticipated and for such period following enactment as is reasonable to enable Essar Energy plc’s group to restructure (if necessary) to take account of the new rules. this may result in a substantial increase in the tax costs or effective tax rates of Essar Energy plc’s group which in turn could have a material adverse effect on the after-tax results of operations and financial condition of Essar Energy plc’s group. or as a result of any change in the management or conduct of Essar Energy plc’s affairs. This confirmation from HMRC only applies to those companies that form part of Essar Energy plc’s group as described to HMRC in the application for confirmation that the motive test exemption applies dated 26 February 2010. resident in the United Kingdom and therefore become subject to the UK tax regime. provided that (a) all arrangements made between the relevant subsidiaries and Essar Energy plc (and any UK resident subsidiaries or UK permanent establishments of non-resident subsidiaries) correspond to those that would have been made between parties acting at arm’s length and (b) there is no material change in the facts and circumstances of Essar Energy plc’s group as summarised in the application letter of 26 February 2010 and in previous discussions with HMRC. on the basis described above. it seems likely that Essar Energy plc will be treated as being resident for tax purposes solely in Mauritius. The confirmation is also subject to any relevant change of law. the final position cannot be known until the new legislation is published and enacted. This could materially adversely affect the financial results of Essar Energy plc’s group. The confirmation only applies to those companies that form part of Essar Energy plc’s group as described to HMRC in the application for confirmation that the motive test exemption applies dated 26 February 2010. is subject to any relevant change of law. However. If the proposed changes to the UK’s CFC Rules result in the profits of certain non-UK resident companies in Essar Energy plc’s group being subject to UK corporation tax. which can operate to apportion the profits of overseas subsidiaries to the UK parent company which will be subject to UK corporation tax on those amounts (subject to certain deductions). on the basis that it is incorporated in England and Wales. The Discussion Document sets out proposals for reform of the current CFC Rules.

or may. the Company may not be able to renegotiate the terms of its PPAs to take advantage of the increased tariffs. including plant availability and generation capacity. Essar Energy plc will primarily depend upon its subsidiaries for its cash flows and income.520 MW of the Company’s planned additional installed capacity relates to Power Plant Projects involving imported coal. the Company may be limited in its ability to pass on to the buyers the cost of inflation.Part 1 17. The power business’s profitability is largely dependent on how effectively it is able to manage its costs during the terms of its PPAs and its ability to operate its plants at optimal levels. In addition. such as plant availability and generation capacity. which in turn will adversely affect the funds available to pay dividends declared by Essar Energy plc. In addition. The Company’s expansion into merchant sales is subject to certain risks. Under some of the Company’s PPAs. as none of its operational power plants are coal-fuelled. The Company’s power business’s profitability is largely a function of its ability to operate its power plants at the capacity contracted to be available under their PPAs and its ability to manage its costs during the terms of its PPAs. including India’s limited coal-handling capacity at its ports. If the Company does not operate its power plants efficiently or otherwise breaches its Power Purchase Agreement (‘‘PPA’’) contractual obligations. There is no legal obligation on either Essar Oil or Essar Power or any of its subsidiaries to declare dividends. increase prices at short notice and undertake expansion initiatives with other customers. possibly putting the Company at a disadvantage to its competitors with PPAs with shorter durations and more flexible terms. including the payment of dividends and operating expenses and other expenses. In addition. Further. A majority of the Phase I Power Projects are coal-fuelled. thereby restricting the dividends which may be declared and payable to Essar Energy plc by such subsidiaries. leaving the Company’s power business’s margins at risk of being reduced. freight cost fluctuations and political uncertainties in the countries where the coal is mined. If the Company’s facilities do not meet the required performance standards. enter into financing transactions or other transactions which impose restrictions on the cash generated by these subsidiaries. Many of the Company’s PPAs for its Power Plant Projects require or will require that the power plants be commissioned by a specific date and require the plants to guarantee certain minimum performance standards. currency variations. the Company may face increased irrecoverable costs. there can be no assurance that the Company’s future PPAs will not contain more restrictive provisions regarding the Company’s ability to recover its fixed and variable costs in operating its power plants than those contained in some of the Company’s existing PPAs. customers are not required to reimburse it for any increased costs arising as a result of the Company’s failure to operate and maintain its power plants in accordance with the required performance standards or within the agreed norms. and the Company does not have any prior experience in operating coal-fuelled power plants. The Company’s long-term PPAs often contain restrictions on the Company’s ability to. Therefore. The Company’s PPAs have terms of 10 to 30 years and set the relevant power plant’s revenue structure over the term of the PPA. 2. its customers may be entitled to reduce their capacity payments. Moreover. PPAs generally require the Company to guarantee certain minimum performance standards. the prices at which the Company supplies power under some of its PPAs could have little or no relationship with prevailing market rates for power and the Company’s costs incurred in generating power. Risk Factors Essar Energy plc is a holding company with no direct operations and relies on distributions from its subsidiaries and its available cash on hand to fund its cash requirements. The operation of a power plant involves many operational risks that could lead to a reduction in the plant’s generation capacity or a total shutdown of the plant. RISKS RELATING TO THE COMPANY’S POWER BUSINESS 18. The tariffs the Company charges are also typically calculated and agreed assuming a certain heat rate and other technical norms. Imported-coal based projects face additional risks and uncertainties. if there is an industry-wide increase in power tariffs. each of such subsidiaries has. among other things. such as capital and other expenditure required for the operation of the Company’s power plants. or other unforeseen price increases and other unforeseen increases in certain non-fuel costs. In the event the Company is unable to meet 23 .

In addition. In addition. 19. any deterioration of the Company’s relationship with these customers or termination of the PPAs with them.5% and 12%. Merchant sales will create additional variability in the power business’s revenues. respectively. the state of Gujarat public utility. In addition. GUVNL and the other State Electricity Boards (‘‘SEBs’’). The Company’s power business relies on a few major customers and currently has a heavy exposure to the steel industry. the Company’s operating expenses increase and the Company may earn lower margins on merchant sales or may not be able to sell its electric capacity not covered by long-term PPAs at all. instances of extreme peak energy demand. In the future there can also be no assurance that the Company will be successful in recovering its fixed and variable costs under its existing PPAs. and it is not possible to ensure that the Company will be able to enter into merchant sales for all of the planned additional available installed capacity that is not covered by long-term power off-take agreements. These supply terms could adversely affect the overall profitability of the relevant power plant. the Company intends to sell approximately 26% of its total combined installed capacity following the completion of the Power Plant Projects pursuant to merchant sales. nevertheless. the Company currently expects that 11% of the Company’s total installed MW capacity will be dedicated to the Essar Steel Group. As a result. price and availability of fuel supply.Part 1 Risk Factors the required commissioning dates or meet performance guarantees. Under its contracts with the government of the states of Madhya Pradesh and Jharkhand for the Essar Power MP-Mahan and the Essar Power Jharkhand-Tori Phase I Power Projects. The Company’s power business relies on a few major customers.250 MW combined additional installed capacity from the Power Plant Projects becomes available. while the Company historically has not engaged in any merchant sales of power. daily and hourly changes in demand for electricity. Once the expected 10. 7% for use by the Vadinar refinery. the Company could experience seasonality in the level of its revenues from its merchant sales. less than 4% of the Company’s existing revenue is derived under its PPAs with Essar Steel Group. 55% is dedicated to the Essar Steel Group. which has an option to purchase an additional 1%. Merchant sales are sales pursuant to short-term or spot sales at market rates sales in the open wholesale market to licensed power traders. the price per unit received for merchant sales will fluctuate due to a number of factors including seasonal. 25% to Gujarat Urja Vikas Nigam Limited (‘‘GUVNL’’). 21% to GUVNL and 34% to other state electricity boards. which has an option to purchase an additional 10%. Merchant sales will not provide the Company with the same level of protection for coverage of the fixed and variable costs involved in generating power that the Company currently receives under PPAs and other long-term off-take agreements. Of the power business’s 1. The amount of electric energy that the Company will be able to generate and sell as merchant sales will be dependent on the availability and efficiency of the Company’s power plants. the Company may be liable to provide performance guarantees. of the power generated at a variable cost that is below cost of production to the relevant state governments. especially during the monsoon season months of July to September. These short-term sales create additional variability in the power business’s revenues and expose the business to risks of market fluctuations in power demand and prices. In particular. The Company may be required to sell any power not covered by long-term PPAs on short notice. electric transmission availability and transmission reliability within and between regions and the number of generating units undergoing maintenance. In addition. the Company is required to provide 7. when electricity demand generally decreases in India. and the balance to Essar Affiliated Companies. the prices received for such power may have little or no relationship to the cost to the Company of supplying this power.220 MW total combined installed capacity of its operational power plants. This dependency is expected to decline going forward. the Company may not find buyers at short notice for the relevant quantity. Essar Oil. If the Company’s power plants are not able to generate electricity efficiently. on account of a default by the Company in complying with the terms of these PPAs or 24 . pay liquidated damages or the relevant PPA may be terminated.

the Company modified the capacities of its Essar Power MP—Mahan and Essar Power Jharkhand-Tori Power Plant Projects subsequent to its receipt of various government approvals and its entrance into a memorandum of understanding with the government of the state of Jharkhand in relation to these projects. The capacities of. in particular state-owned utility companies. the Company’s bids may not be selected or. The Company may continue to submit bids for power projects from time to time. as well as the business rationales underlying. Pre-qualification is key to the Company winning these projects. which may no longer be valid. costs as appraised by lenders for certain Power Plant Projects may differ from 25 . As such. If these claims are ultimately resolved in favour of GUVNL. SEBs have incurred substantial losses in the past and are subject to Government of India decisions concerning the grant of free or reduced-rate power to farmers and other consumers. the Company has yet to apply to or notify certain governmental entities of the revisions it has made to the capacities of and business purposes underlying its Essar Power MP-Mahan and Essar Power Jharkhand-Tori Power Plant Projects. Amendments may also be required to the Company’s existing approvals. Power projects also involve substantial regulatory risk and the Company has not yet taken certain regulatory steps in relation to some of its Power Plant Projects. off-take customers limit the tender to contractors they have pre-qualified based on criteria such as experience. including an exercise of discretion by the government or off-take customers and the ability of competitors with greater resources to make more competitive bids. the Company’s Phase II Power Projects may also be subject to further amendment by the Company. See ‘‘Litigation— Power Business—Dispute with GUVNL’’ in Part 16 ‘‘Additional Information’’. Power projects entail bidding. including the Company. The Company may also face difficulties in enforcing the payment provisions under PPAs with government entities including GUVNL. safety record and financial strength. The steel industry has experienced high volatility in its revenues and profitability in recent years. technological capacity and performance. could have a material adverse effect on the Company’s results of operations and financial condition. selection. the power business is dependent on the financial health of the Essar Steel Group. In addition. The Company implements some of its power projects pursuant to tendering processes sponsored by power off-take customers.800 MW non-captive project. In addition.Part 1 Risk Factors otherwise. and the Company has recently filed a petition with respect to certain payments it believes are due to it under this PPA. The Company is also involved in a dispute with GUVNL concerning an alleged diversion of power by the Company in violation of the PPA and a refund of fuel generation credit to GUVNL. the projected capacities and business rationales set forth herein for the Phase II Power Projects may differ substantially from the final installed capacity of. The Company also recently amended the business purpose behind the Essar Power Jharkhand-Tori project. which could adversely affect these SEBs’ financial health and their ability to make payments to electricity producers.000 MW captive project for Essar Steel but is now intended to be a 1. this could have an adverse effect on the Company’s results of operations and cash flow. There can be no assurance as to how the Essar Steel Group or the steel industry in general will perform in the future. although the price competitiveness of the bid is the most important selection criterion. As a result of the power business’s strong dependency on its relationship with the Essar Steel Group. the Company may need to enter into memoranda of understanding and joint venture agreements with partner companies to meet capital adequacy. Further. Further. the project when completed. For example. 20. and the business rationale underlying. which was originally envisioned as a 2. if selected. There could be delays in the bid selection process. In particular. but there is no assurance that the Company will be successful in doing so. To bid for larger projects. the Company has not yet applied to revise the environmental and pollution control clearances that it had already received for its Essar Power Jharkhand—Tori project or notified the relevant environmental and land acquisition authorities within the governments of Madhya Pradesh and Jharkhand of these changes. In selecting power producers for major projects. may not be finalised within the expected time frame or on expected terms or at all owing to a variety of reasons beyond the Company’s control. GUVNL has in the past refused to pay on several occasions for certain services billed to it by the Company under its PPA with GUVNL for the Essar Power—Hazira power plant. technical and other requirements that may be required to qualify for a bid. implementation and regulatory risks.

In addition. delays in applying for the amendment of licences or in notification may result in the imposition of fines or penalties as well as the institution of legal proceedings. the Company has no prior experience in coal-mining activities. including the commencement of activities with respect to the Company’s captive coal mines. though there can be no assurance that these applications will not be delayed. 48.000 MW project.221. delays in submitting such revised cost estimates may also adversely affect the Company’s recovery of costs in respect of power proposed to be sold to the respective state governments or their power utilities. which may in turn lead to delays in the granting of approvals by the relevant governmental entity of the state of Jharkhand and the Government of India as well as other approvals contingent upon a lack of objection from. the government of the state of Jharkhand may not be required to provide the assistance in the setting up of the power plant contemplated in the memorandum of understanding. The relevant authorities may raise questions on account of the Company’s delay in making the applications or notifications. under the Government of India’s allocation letters for the coal mines in Madhya Pradesh. The Company plans to mine coal using expertise hired from other coal mining operators and will subcontract certain coal-mining activities. The required date for the commencement of coal production from the Chakla and Ashok Karkata coal blocks in Jharkhand will also expire prior to the scheduled date of commencement of coal production.1 million). 21. In addition. the relevant government entity. In addition. Jharkhand and Neptune’s coal block. Further. including events and operating conditions that could disrupt the mining. though the Company has made an application for an extension. the date by which coal production must commence and the provision of geological reports. loading and transportation of coal at or from the Company’s mines resulting in delays to the delivery of coal to the Company’s power generating facilities. including in relation to the submission of a mining plan. or that the coal mined.60 billion (US$1. which in turn could delay the implementation of the respective project(s). the cost estimate the Company submitted to the government of the state of Jharkhand for the Essar Power Jharkhand-Tori project was Rs. If the terms of the allocation are not complied with. the Company and Neptune Limited would explore various options depending 26 . would be sufficient to operate the relevant Power Plant Projects for the life of such mines as estimated by the Company. which is the cost estimate contained in this document.Part 1 Risk Factors those submitted to government authorities for the purpose of obtaining the initial approvals. coal from the Mahan and Chakla coal blocks may not be available in time for the scheduled commissioning dates of the Essar Power MP—Mahan and Essar Power Jharkhand—Tori Power Plant Projects.041. In addition. or a response from. the allocation of the coal blocks for the Neptune projects may be revoked. The Company has applied for extensions of these periods. Neptune Limited has received a show cause notice from the Ministry of Coal of the Government of India in relation to its coal blocks. while the cost as appraised by a lending institution was Rs. the Ashok Karkata coal block is not expected to achieve commercial production for at least 42 months from March 2010. There can be no assurance that the Company’s coal-mining operations will be successful. In the event that this memorandum of understanding is not renewed. However. the Company entered into a memorandum of understanding with the government of the state of Jharkhand with respect to the Essar Power Jharkhand—Tori project which expired in March 2008 and has not yet been renewed. Coal mining involves numerous risks and is subject to compliance with the terms of the coal allocation letters and unexpected disruptions. If the revocation order to the allocation becomes effective. The required date for commencement of coal production for the Mahan coal block in Madhya Pradesh has already expired. For example. alleging non-compliance of certain milestones provided in the relevant allocation letter. These activities involve numerous risks.13 million) for a 2. Applications have accordingly been made to the Government of India for temporary coal linkages to meet coal demand for the Essar Power MP—Mahan project and the Essar Power Jharkhand—Tori project until such time as the blocks become operational. A reply to this notice has been filed. Non-compliance with the terms of allocation may lead to cancellation of one or more of these coal allocations. due to delays in the Company’s receipt of certain mining-related approvals. if any. certain terms and conditions are required to be adhered to. The Company has recently obtained allocations that grant licences to operate coal mines located in the states of Madhya Pradesh and Jharkhand for the supply of coal to the Company’s power plants. and may also postpone granting the requisite revised approvals or further approvals as may be required in this regard. Further. 57 billion (US$1.

In addition. or a loss of the plant’s captive power status altogether. have increased the scope for competition in the Company’s supply and distribution businesses. the overall impact on the Company would be minimal. 23. such projects first need to meet certain structural requirements to be afforded captive power status. and the National Electricity Policy and national tariff policy could have a material adverse affect on the Company’s results of operations and financial condition. the Company may consider. Two of the Company’s four operational power plants benefit from captive power status and at least one of the Power Plant Projects is expected to benefit from this status.Part 1 Risk Factors on the stage in the Neptune projects when such order were to become effective. not acquiring the remaining stake in Neptune Limited. between realised refined product prices and the prices for crude oil and other feedstocks used to produce the refined products. Assuming Neptune Limited is able to secure other sources for the supply of coal. Captive power plants can also avail themselves of certain tax and duty benefits. to enable certain of the Company’s power projects to qualify for captive power plant status. There can be no assurance that any of the Company’s operational or future captive power plants will obtain or retain their captive status. has resulted in substantial changes in the power sector in India. results of operations and prospects. this is not expected to have a material impact on the timing of the projects. Crude oil prices. For instance. the Company and Neptune would need to take remedial measures. refined petroleum product prices and refining margins have fluctuated significantly in the past and could significantly impact the Company. open access to distribution and transmission systems and the reorganisation and privatisation of certain of the SEBs. Pursuant to the current regulations. any amendments made by the regulators to the conditions required to obtain or retain captive power status could result in increased compliance costs. That is. RISKS RELATING TO THE COMPANY’S OIL AND GAS BUSINESS 24. and that even if the coal allocation was revoked. or margin. or on the required capital expenditure. This price differential. 2003 (the ‘‘Electricity Act’’). or exiting the projects altogether which would result in a loss of its initial investment. The Electricity Act. the buyer and seller are free to negotiate and agree the relevant tariff without regulatory input or approval. However. The captive status of some of the power plants owned by the Company’s competitors are currently under regulatory scrutiny. Changes to the ‘‘captive power’’ status of the Company’s operational power plants and Power Plant Projects could materially increase the Company’s costs. the Directors believe that the probability of revocation is low. If. plus the benefits of sales tax incentives and as adjusted for commodity hedging gains and losses. and may continue to do so. although it would have an impact on earnings from the projects. the order were to become effective at a later stage (after investment of significant capital. Essar Affiliated Companies that are the power plant’s off take customers are required to own a 26% equity interest in the respective plants. 22. if the order were to become effective at an early stage (before investment by the Company of significant capital in the projects). However. constitutes the Company’s gross refining margin (‘‘GRM’’). the provisions of the Electricity Act. captive power projects benefit from reduced regulation and are not subject to the crosssubsidy surcharge tariff regulations and other restrictions imposed by India’s Central Electricity Regulatory Commission (‘‘CERC’’) and State Electricity Regulatory Commissions (‘‘SERCs’’). competition in supply. which could adversely affect its revenues. while allowing the Company greater flexibility to sell power. including the de-regulation of the power generation sector. such as applying to the Government for coal linkages or making other alternate arrangements for domestic or imported coal. Under the Electricity Act. This means the Company will not generate operating profit or positive cash flow from its 27 . The performance of the Company’s oil and gas business is driven in large part by the price differential. which could result in additional tariff regulations that could have a material adverse affect on the Company’s results of operations and financial condition. The continued impact of the provisions of the Electricity Act. the majority of which is expected to be invested from 2012 onwards). on the other hand. Liberalisation of the Indian power sector has significantly increased competition. Based on the Company’s experience and publicly available information. any of which could lead to substantially higher fuel costs for Neptune Limited. among other options.

there can be no assurance that the Company’s hedging activities will be successful or will achieve their desired objective.02 and US$2. 28 . see Part 9 ‘‘Operating and Financial Review—Factors Affecting Results of Operations and Financial Condition—Hedging Activities’’. See ‘‘—Risks Related to the Company—The Company enjoys significant tax incentives.12 per barrel respectively. political developments and instability in petroleum producing regions such as the Middle East. certain provisions of the Finance Bill. feedstocks and refined petroleum products.Part 1 Risk Factors refining operations unless the Company is able to buy crude oil and sell refined petroleum products at margins sufficient to cover the fixed and variable costs of the Company’s refinery operations. In addition. changes in the cost or availability of transportation for crude oil. compared to the International Energy Agency benchmark of US$2. transporters and purchasers to perform on a timely basis. include: • • • • • • • • • • • • • • • • aggregate refining capacity in the global refining industry to convert crude oil into refined petroleum products. The Vadinar refinery generated average gross refining margins of US$7. Historically. availability. seasonal demand fluctuations. expected and actual weather conditions. which may not be available in the future. Refining margins are influenced principally by supply and demand for crude oil and refined petroleum products. The Company may not be able to sustain its gross refining margins at its historic margin levels. refining margins have fluctuated substantially both within individual refining groups and across the refining industry. the ability of suppliers. respectively. changes in global and regional demand for refined petroleum products. In addition. Other factors that may have an impact on prices and refining margins. market conditions in countries in which the Company refines or sells its refined petroleum products and the level of operations of other refineries in the world. including those the Company refines. the development. The time lag between a change in the price of crude oil and the price of the Company’s products may also affect its gross refining margins and could have a significant impact on its refining business. the extent of government regulation. availability of price arbitrage for refined petroleum products between different geographical markets. financial condition and results of operations. Although the Company attempts to minimise the impact of time lag through its hedging activities. 2010 announced in February 2010 may have a material adverse effect on the Company’s results of operations’’.46 per barrel for the period from 1 April 2009 to 31 December 2009 and average gross refining margins (excluding sales tax incentives) of US$5. which in turn determine their market prices. the inability of the Organization of Petroleum Exporting Countries (‘‘OPEC’’) and other petroleum producing nations to set and maintain oil price and production controls. energy taxes or environmental policy or restrict exports or fixes prices of petroleum products. under their agreements (including risks associated with physical delivery). price and acceptance of alternative fuels.97 per barrel for the period from 1 May 2008 to 31 March 2009 and US$4. transportation or demand for crude oil and refined petroleum products. in particular as it relates to fuel specifications. changes in global and regional economic conditions including exchange rate fluctuations.14 and US$(2. changes in prices from the time crude feedstocks are purchased and refined petroleum products are sold. and Potential influence on the oil prices due to the large volume of derivative transactions on petroleum exchanges and OTC markets. or at all. the Vadinar refinery’s gross refining margins benefit substantially from certain sales tax incentives provided by the state of Gujarat in relation to sales of refined petroleum products in that the state. the Company’s gross refining margins may not be comparable to the refining margins of other refiners that do not benefit from such incentives. terrorism or the threat of terrorism that may affect supply. in no particular order. and is involved in litigation in relation to certain tax incentives. Africa and South America. Russia.33) per barrel. Therefore. to the extent unhedged. For information about the Company’s historical gains and losses on commodity derivative instruments.

there can be no assurance that the Company will be able to negotiate renewals of these contracts in the future. including Iran.8% of the Company’s crude oil requirements in the nine months ended 31 December 2009). the Company may continue to purchase crude oil from NIOC and other companies owned by the governments of Iran and other OFAC-sanctioned countries. with the support of the United Kingdom. particularly in the fourth quarter had a negative impact on the Vadinar refinery’s gross refining margin. There can be no assurance that the Company will be able to purchase the types and quantities of crude oils that it needs to maximise its refining margins in the spot market. While the Vadinar refinery generally processes crude oil within 20 to 30 days from the date of its purchase. The Company may experience some limitation on its ability to finance its operations and transactions to the extent those operations facilitate transactions or those transactions are with countries subject to sanctions by OFAC. While higher crude oil prices generally benefit these operations. the Company’s gross refining margins could be materially adversely affected. All of the Company’s term purchases of crude oil are from the Middle East. NIOC and Saudi Arabian Oil Company. which is a government-owned entity of Iran. The Company currently purchases a significant amount of crude oil under a term purchase contract with the NIOC (which provided approximately 36. resulting in inventory gains or losses. making the Company subject to the political. Reductions in term-contract purchases of crude oil will make the Company more reliant on spot market purchases. with the margin decreasing from US$8.Part 1 Risk Factors The Company’s gross refining margins and operating results are influenced by changes in refined petroleum products prices and changes in crude oil prices. oil majors and crude oil traders. The Company may also be subject to governmental restrictions on the Company’s purchases of crude oil sourced from countries subject to economic sanctions. This decrease was largely due to the accounting of inventory losses resulting from the decline in crude oil prices during the fourth quarter of 2008. If the Company is unable to enter into term contracts for crude oil purchases. Iran is currently subject to United Nations-imposed economic sanctions which may be heightened in the future as the result of a proposal by the United States. In the future.90 per barrel in the quarter ending in September 2008 to US$2. the Company purchased approximately 53% of its crude oil by volume pursuant to term contracts and 47% pursuant to spot market purchases from national oil companies. lower crude oil prices reduce the economic recoverability of discovered reserves and the prices realised from production. In the period from 1 April 2009 to 31 December 2009. to impose a fourth round of Security Council sanctions against Iran. 29 . In addition.68 per barrel in the quarter ending in December 2008. 25. The Company’s refinery operations require crude and other feedstocks to produce refined petroleum products. Long-term trends in crude oil prices also affect the results of operations of the oil and gas business’s exploration and production operations. regional hostilities and unilateral announcements by any of the countries within this region that some or all oil exports for a specified period of time will be halted. Nearly all of the Vadinar refinery’s term-contract oil procurement is presently undertaken through 12 to 15-month term contracts with the national oil companies Abu Dhabi National Oil Company. While the Company believes that none of its business is prohibited by sanctions administered by OFAC because neither the Company nor any of its subsidiary undertakings is a US person as defined in the OFAC regulations. which may result in the unavailability of the desired crude oil. The Company believes that term purchase contracts for crude oil provide better reliability of supply of the crude oils than spot market purchases. geographic and economic risks attendant to doing business with suppliers located in this region. For example. If the Company is unable to obtain adequate crude oil volumes of the crude oils that the Company requires at favourable prices. a country subject to sanctions by the US Office of Foreign Assets Control (‘‘OFAC’’). the Company may be unable to optimise its gross refining margins. the steep decline in crude oil prices in the second half of 2008. or enter into new term contracts with these suppliers or other suppliers on commercially reasonable terms. France and Germany. there can be no assurance that the Company will not be subject to sanctions in the future under OFAC because of changes to the OFAC regulations. any changes in the price of crude oil will still affect the cost of inventory. coupled with lower refined petroleum product margins. While the Company has negotiated renewals of its term contracts with these national oil companies prior to their expiry in the past. such as labour strikes. or at all.

West Bengal are 30 . including capsizing. The national oil companies are also competitors of the Company. bad weather and additional environmental pollution hazards. find. Although the Company is partnering with experienced operators. There can be no assurance that the Company will be successful in developing and operating any of its offshore oil and gas fields. only a few of the properties that are explored are ultimately developed into commercially producing properties. natural gas or well fluids. the Company is able to generate higher margins on sales to these customers than on export sales. industrial accidents. any policy changes by the Indian government in relation to the pricing terms offered by the national oil companies could result in a significant reduction of the Company’s business from the national oil companies. The national oil companies have announced plans to expand their refining capacity. explosions. In addition. uncontrollable flow of oil. The hydrocarbon resources and reserves data in this document are estimates only. To provide the Company with security of off-take for its refined petroleum products in light of the government subsidies to. unexpected reservoir behaviour. the Company commenced crude oil production from the ESU field of the CB-ON/3 block at Mehsana in the Cambay Basin (the ‘‘Mehsana Block’’). However. including its ability to enter into new PSCs and acquire land on which to locate its wells and other equipment. the Indian national oil companies. the Company is not guaranteed any binding minimum off-take quantity from the Indian national oil companies. due to the pricing terms for sales to the Indian national oil companies. environmental hazards. industrial action and shortages of manpower. There is no assurance that economically viable and commercial quantities of hydrocarbons will be recovered from the Company’s existing or future exploration and production blocks and fields. develop and commercially exploit resources and reserves. the Company has not yet developed an offshore oil and gas field. lack of availability of exploration and production equipment. offshore exploration is subject to a wide range of hazards. Any loss of the benefits from the pricing mechanism of its refined petroleum product sales to Indian national oil companies compared to export pricing could have a material adverse effect. The success of the Company’s exploration and production operations depends on its ability to commercially exploit existing resources and reserves and to find and develop new commercially exploitable resources and reserves. for supplies of refined petroleum products. equipment failures. The loss of one or several of the national oil companies as customers. Developing hydrocarbon resources and reserves into commercial production is a highly speculative activity involving a high degree of risk. The success of the Company’s exploration and production operations depends on its ability to acquire land. a significant reduction in purchase volume by any of them or changes in the prices offered by them could have a material adverse effect on the Company’s results of operations and financial condition. In addition. extended interruptions due to. including the Company. premature decline of reservoirs. Hindustan Petroleum Corporation Limited (‘‘HPCL’’) of 48 months in duration from 1 January 2008 and Indian Oil Corporation Limited (‘‘IOCL’’) of 24 months in duration from 1 April 2009. the Company will be able to exploit the reserves as it currently plans to. and the market position of. the Company’s reserves and resources will decline. among other things. In addition. As a result of these risks. HPCL and IOCL owned or controlled approximately 92% of the total number of retail fuel stations in India as of 31 March 2009. pollution. which may make them less reliant on Indian private-sector refiners. the Company has entered into long-term refined petroleum product off-take agreements with the national oil companies Bharat Petroleum Corporation Limited (‘‘BPCL’’) of 48 months in duration from 1 April 2008. oil seepage. adverse weather conditions. Sales to the national oil companies accounted for 61. including encountering unusual or unexpected geological formations or pressures. BPCL.Part 1 Risk Factors 26. seismic shifts. Without reserve or resource additions through further exploration and development activities or acquisitions.1% of the oil and gas business’s revenue in the nine months ended 31 December 2009. The Company’s exploration and development activities in Raniganj. while the Company has started commercial production at one of its onshore oil and gas production blocks. no assurance can be given that even when commercial reserves are discovered. 27. unexpected or different fluids or fluid properties. Under the terms of these agreements. collision. In June 2007.

the Company intends to submit a revised development plan and commence development activities in the Ratna Fields upon signing of the PSC. assumptions concerning capital expenditures for exploring. Subject to the execution of the PSC (which is subject to a government approval process) and other agreements for the Ratna & R-Series fields (the ‘‘Ratna Fields’’). reserves and production estimates in this document should not be regarded as a representation that these amounts can or will be exploited or achieved economically. its total estimated reserves and resources will decline. Adverse changes in economic conditions may render it uneconomical to develop certain hydrocarbon resources. The resources estimates are based on a number of assumptions. AA-ONN-2004/3 and AA-ONN-2004/5 (the ‘‘Assam Blocks’’). If these activities are unsuccessful and the Company does not acquire properties containing proven reserves or resources. the reliability of resources and other estimates is dependent upon: • • • • • • • • • • • the quantity and quality of technical and economic data. The hydrocarbon resources estimates are based upon a number of assumptions. the assumptions applied in relation to future crude oil. the Company’s other exploration activities are yet to yield hydrocarbon reserves. The Company cannot assure investors that the resources estimates as presented in this document will be recovered in the quantities. the Company expects the Ratna Fields to begin commercial production of oil in the fourth quarter of 2013. There are numerous uncertainties inherent in estimating quantities and qualities of hydrocarbon resources. qualities or yields expressed in this document. and consistency in the policies of the governments in the countries where the resources and reserves are located. If these development activities commence as expected. actual production. and potential investors should not place undue reliance upon uncertified data. gas and coal prices actually applicable to the Company’s production. Moreover. the assumptions applied in relation to the future performance of exploration and production facilities. historical production from an area compared with production from other comparable producing areas. extensive engineering judgments. particularly for its CSG operations. revenues and expenditures with respect to resources will vary from estimates. However. MB-OSN-2005/3 (the ‘‘Mumbai Offshore Block’’) and the South East Tungkal block (the ‘‘Indonesia Block’’) that have not been independently reviewed or certified by an independent technical expert and for which estimates have been provided by the Company. There is additional uncertainty in relation to such uncertified estimates. the timing of development expenditures and the projection of future rates of production. In addition. the ability of the Company to acquire land (which may be subject to various government regulations) for exploration and development operations in its blocks and fields. gas and coal prices and the crude oil. and the variances may be material. whether the prevailing tax rules and other government regulations and contractual conditions will remain the same as on the dates estimates are made. this document contains resources estimates in relation to early stage mineral assets which are not material to the Company including 114 block (the ‘‘Vietnam Block’’). and commercial production is expected to begin by the fourth quarter of 2010. Many of the assumptions used in the resources estimates set forth in this document are beyond the Company’s control and may prove to be incorrect over time. • • The inclusion of resources. the production performance of reservoirs and mines. the quality of the results of test drilling.Part 1 Risk Factors expected to yield a flow of CSG by the second quarter of 2010. In particular. and nothing herein 31 . assumptions regarding the availability of oil and gas transportation facilities at the time commercial production commences. developing and producing reserves. interpretation of geological and geophysical data.

Under certain of its PSCs. PSC Government Counterparties could seek. the Company will be largely dependent on the operating partner. current regulations in India do not permit a licensee to extract CSG and oil and gas from the same field. While the Company has signed a PSC with the Government of India for the exploitation of oil and gas in that block. In addition to its PSCs and other similar arrangements with the Indian Government. in the course of certain investments in joint ventures where the Company is not the operator of the relevant exploration and production asset. The success of the Company’s exploration and production operations depends on its PSCs and similar arrangements as well as on its relationship with its joint venture partners and its ability to honour supply agreements. in the event that the Company is unable to fully comply with its supply obligations following the commissioning of Matix’s plant. Nigeria and Vietnam (collectively. The Company has not entered into PSC or similar arrangements for some of the Company’s exploration and production blocks.Part 1 Risk Factors should be interpreted as assurances of the economic lives of the Company’s reserves or the profitability of the Company’s future exploration and production activities. The Company may become liable under the security arrangements if it does not complete the minimum work commitments in its PSCs. In addition. In addition. Moreover. 28. The Company is also seeking permission from the Government of India to exploit the CSG potential of the Mehsana Block. there is a possibility that Matix’s plant may face commissioning delays. the Company also may disagree with actions proposed to be taken by the operating partner and may be exposed to liability for actions taken by the operating joint venture partner. Indonesia. or the PSC Government Counterparties may not approve. In addition. The Company’s PSCs are subject to the rules and regulations or the influence of governmental agencies in the jurisdictions of the PSC government counterparties that may adversely affect the Company’s ability to perform or its rights under PSCs. among other things. the Company would 32 . the Company must comply with certain procedural requirements under its PSCs in order to obtain the reimbursement of costs incurred under the PSCs. (‘‘Matix’’) for the sale of CSG from its Raniganj Block beginning in April 2012. There can be no assurance that the PSC for the Ratna Fields will be executed or if executed. To secure these obligations. without any change to the material terms. reimbursement of all costs incurred under PSCs. including for the overall success of the joint venture. the Company has provided its counterparties under the PSCs with performance bank guarantee equivalents or other security arrangements for the amounts as required under the respective PSCs or similar agreements for the relevant minimum work programme commitments. the relevant counterparty may collect on the performance bank guarantees towards the incomplete minimum work programme. the PSC for Ratna Fields has not yet been executed and is subject to a government approval process. The Company has also entered into a supply contract on a take or pay basis with Matix Fertilisers and Chemicals Ltd. In the event the Company fails to achieve its minimum work programme commitments stipulated within the requisite time period and it is unable to seek an extension. because the Company is required under the contract with Matix to supply a minimum of 90% of the contracted-for quantity annually. the ‘‘PSC Government Counterparties’’). Though the Ratna Fields in India have been awarded to a consortium comprised of Essar Oil. it will be required to enter into a separate contract to be able to exploit the CSG potential of the block. to increase the Company’s expenditures or exploration and development programmes beyond the minimum contractual requirements under the PSCs. These rules and regulations may affect the Company’s rights by potentially limiting or precluding the Company from exploring and developing the full acreage provided for and may also affect the opportunities and obligations under the Company’s PSCs. Madagascar. which in turn could lead to a delay in the off-take of gas from the Raniganj Block during such period. The Company may also be hindered or prevented from enforcing its rights under certain PSCs due to the doctrine of sovereign immunity. or that the Company will be permitted to exploit CSG from the Mehsana Block. the Company has entered into such arrangements with the governments or government-controlled entities of Australia. Since Matix is developing a greenfield fertiliser project. Oil and Natural Gas Corporation Limited (‘‘ONGC’’) and Premier Oil Pacific Limited (‘‘Premier Oil’’). The Company may not be able to recover. the Company companies as the operators under the PSCs are obligated to carry out certain minimum work programmes for the relevant exploration area or block within a certain period of time.

Essar Oil Limited’s shareholders have passed a resolution. prior to taking certain courses of action. refined petroleum products and natural gas. as amended. storage.Part 1 Risk Factors be required to compensate Matix for the difference between the contract price and the price of an alternative fuel. securing equitable distribution of crude oil and petroleum products. While Essar Oil has no intention of delisting its shares from the Indian Stock Exchanges. As a result of being listed on the Indian Stock Exchanges. since Essar Oil is required to maintain a minimum public shareholding of 10% of its equity share capital. foreign currency convertible bonds or any securities convertible into equity shares in an amount of up to US$2. funds infused as debt into Essar Oil by Essar Energy plc will. 2009. American depository receipts. the process would be subject to certain conditions being met and an exit opportunity being provided to all the public shareholders of Essar Oil in accordance with the conditions specified under the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations. the refining. valid until 26 June 2010. in the event that Essar Oil proposes to delist its shares from the Indian Stock Exchanges. imposing fees and other charges. the ‘‘Indian Stock Exchanges’’). and given the minority public shareholding. which may or may not be forthcoming. 29. processing. 2006 (the ‘‘PNGRB Act’’). the listing agreement between the Indian Stock Exchanges and Essar Oil may limit the Company’s ability to increase its equity interest in Essar Oil beyond 90%. global depository shares. Essar Oil is listed on the Bombay Stock Exchange and the National Stock Exchange and is subject to additional legal and regulatory requirements. Essar Oil may be subject to additional legal and regulatory requirements and Essar Oil may require the prior approval of a particular or specified majority of shareholders and/or regulatory bodies. and regulating the technical standards and specifications. While the Company holds an indirect economic interest of 86. storage and transportation of crude oil and natural gas fall under the jurisdiction of the PNG Board. The Company’s activities of refining. storage and transportation of these products. refined petroleum products and natural gas. the Company’s subsidiary which is the company primarily holding its oil and gas business.000 million. refined petroleum products or natural gas that conflict with the Company’s contracts governing the refining. storage and transportation of crude oil. or intending to become engaged in. Essar Energy may be unable to provide funds through debt until it has a minimum equity share holding in Essar Oil. 30. inter alia.59% of Essar Oil Limited. including safety standards in activities relating to petroleum products and natural gas. Recent changes in the regulatory framework in India create additional regulatory uncertainties for the Company’s activities. provides for the creation of a Petroleum and Natural Gas Regulatory Board (‘‘PNG Board’’) vested with a number of powers and functions. the Petroleum and Natural Gas Regulatory Board Act. ensuring adequate availability in the Indian market of crude oil. transportation.26%. a number of public shareholders may continue to be shareholders of Essar Oil and the Company may not be able to effect a squeeze out of the remaining shareholders under 33 . In addition. In addition. which became effective in October 2007. refined petroleum products and natural gas. for example. distribution marketing. is listed on the Bombay Stock Exchange and the National Stock Exchange (together. Essar Energy plc will consider various options to provide funds to Essar Oil including as debt or equity however. other public shareholders hold the remaining 10. monitoring prices and taking corrective measures to prevent restrictive trade practices in relation to crude oil. these options may be subject to provisions of Indian law. import and export of crude oil. including approval of the public shareholders by special resolution. There can be no assurance that the rules. and an Essar Affiliated Company holds a further 3. permitting Essar Oil to issue equity shares.39% of Essar Oil. Further. Even after a successful delisting. Among other recent developments. Essar Oil. regulations and policies of the PNG Board will not include the imposition of pricing terms for the refining. be subject to certain end use restrictions. including the protection of Indian consumers’ interests by the fostering of fair trade and competition among those engaged in. including the laying of pipelines for their transportation.

India’s neighbour Pakistan is currently experiencing increasingly intense terrorist activities and fighting. which have occurred in the past. Thus. Travel restrictions as a result of such attacks may have an adverse impact on the Company’s ability to operate effectively. any further deterioration in the situation in Pakistan could adversely impact the Company’s ability to import oil necessary for the refinery’s operations by sea. may adversely affect Indian and worldwide financial markets. The Government of India under Prime Minister Singh’s leadership since 2004 has announced policies and taken initiatives that have supported the continued economic liberalisation policies that have been pursued by previous governments. Title registries are maintained at the state and district level and since computerisation of such records began only recently. or other defects that the Company may not be aware of. A significant change in India’s economic liberalisation and deregulation policies could disrupt business and economic conditions in India generally. India does not have a central title registry for real property. the Company may not able to control 100% of Essar Oil in the event that it desires to increase its shareholding in Essar Oil beyond 90%. on account of various factors including but not limited to 34 . foreign investments. There are certain limitations in India’s property title registration system and other associated risks in relation to real property. and are not necessarily revealed by a title due diligence. In contrast to other countries. such as the recent shooting and bomb attacks in Mumbai in November 2008. The Company operates in heavily regulated industries. and specific laws and policies affecting oil and gas and power companies. These defects may arise after land is acquired by the Company. results of operations and financial condition. could slow down the pace of liberalisation and deregulation. unregistered encumbrances in favour of third parties. RISKS RELATING TO INDIA 31. changes in the ownership of land may not be registered with the relevant land registry in a timely manner or at all. the bomb blasts that occurred in Mumbai on 25 August 2003 and 11 July 2006. as well as with respect to coal supplies from its mines located in central India due to the on-going Naxalite unrest in that region. As such. The power and oil and gas industries in India are heavily regulated. Due to the proximity of Pakistan to the Gulf of Kutch. There can be no assurance that these liberalisation policies will continue in the future. The Company also faces internal security risks with respect to its exploration and production assets and activities in Assam in north eastern India due to the ethnic unrest in that region. Terrorist attacks and other acts of violence could adversely affect financial markets. because it is common practice in some parts of India (especially in villages) for transfers of title upon deaths of family members and in certain other circumstances to be made only by mutation in local revenue records. unregistered or insufficiently stamped conveyance instruments. legal defects and irregularities may exist in the titles to the properties on which the Company’s existing facilities and future facilities are located. the role of the Indian central and state governments in the Indian economy as producers. the Government of India has pursued policies of economic liberalisation. consumers and regulators has remained significant. 32. In addition. the World Trade Center attack in New York on 11 September 2001 and the bomb blasts in London on 7 July 2005. through which crude oil imported for the Vadinar refinery is transported. Increased volatility in the financial markets can have an adverse impact on the economies of India and other countries. Acts of violence may result in a loss of business confidence and have other consequences that could adversely affect the Company’s business. Title registries and local revenue records may not be updated or complete. ownership claims of family members of prior owners. rights of adverse possessors. may not be available online for inspection. the October 2004 bomb blasts that occurred in North-east India. 33. including significantly relaxing restrictions on private sector involvement in the power. Since 1991. oil and gas and certain other industries. The Company’s rights in respect of these properties may be compromised by improperly executed. as well as other acts of violence or war. Government corruption scandals and protests against privatisations. The rate of economic liberalisation could change. result in a loss of business confidence and adversely affect the Company.Part 1 Risk Factors Indian law. currency exchange rates and other matters affecting investment and doing business in India could change as well. where changes in government policy could have a negative impact. Nevertheless. including those involving India and the United States or other countries. Terrorist attacks.

Prior to the Admission. and the Company may not be able to recoup these increases through higher refined petroleum product prices or power tariffs. Although the Company has applied for the Shares to be admitted to trading on the London Stock Exchange and it is expected that this application will be approved. October 2009. there had been no public market for the Shares. For land that is in the process of being acquired. revocation/ expiry of the lease and any defect or irregularity in the lessor’s title may result in loss of the Company’s rights over affected property. growth in industrial production in India has been variable. there can be no assurance that an active trading market for the Shares will develop or. The Offer Price has been agreed between the Underwriters and the Company and may not be indicative of the market price for the Shares following Admission. may not adjust such prices and tariffs for the effect of inflation.Part 1 Risk Factors incomplete land records. which are typically linked to general price levels. the Government of India.3 billion as at 8 January 2010. In addition. As a result. The Company’s performance and the growth of the Indian power and oil and gas industries are dependent on the health and growth of the overall Indian economy. which could have an adverse impact on the Company. may increase.4% in 2009. A slowdown in economic growth in India could have an adverse effect on the Company’s business. the Company’s results of operations and financial condition may be adversely affected. Any defects or irregularities of title may result in litigation and/or the loss of development rights over the affected property.4% in 2007 according to the International Monetary Fund’s World Economic Outlook Database. Any slowdown in the Indian economy could have a material adverse effect on the Company’s business. India has experienced high levels of inflation since 1980. India’s foreign exchange reserves declined. that it will be maintained following the closing of the Offer. the decentralised nature of maintenance of land registries and local revenue records. RISKS RELATING TO THE OFFER 38. 37. high rates of inflation in India could increase the Company’s costs and decrease its operating margins. to the extent the Government regulates prices and tariffs in the oil and gas and power industries. 34. and the interest rates and other commercial terms at which such additional financing is available. Reduced liquidity or an increase in interest rates in the economy following a decline in foreign exchange reserves could have a material adverse effect on the Company’s results of operations and financial condition. as compared to an increase of US$92. which may cause the price of the Shares to fall. the liquidity and market price of the Shares could be adversely affected 35 . certain of the Company’s costs. If inflation worsens. transactions without registered documents.164 million during the fiscal year 2008.080 million during the fiscal year 2009. India’s foreign exchange reserves totalled US$284. title verification is pending and there can be no assurance that such land will have clear title. The Indian economy has shown sustained growth over recent years with gross domestic product (‘‘GDP’’) adjusted for inflation growing at 5. In the event that inflation remains high. A decline in India’s foreign exchange reserves may affect liquidity and interest rates in the Indian economy. October 2009. Any downgrade of India’s credit ratings for domestic and international debt by international rating agencies may have a material adverse effect on the Company’s ability to raise additional financing. or worsens. However. With respect to projects on leasehold land. such as salaries. on a balance of payment basis (excluding valuation effects). An active market for the Shares may not develop. travel costs and related allowances. 36. if developed. by US$20. property-related litigation in India and family disputes in the sellers’ family. Any downgrade of India’s sovereign debt rating by an international rating agency could have a negative impact on the Company’s results of operations and financial condition. A sharp decline in these reserves could result in reduced liquidity and higher interest rates in the Indian economy. The average annual inflation rate in India from 2005 to 2009 was 7% according to the International Monetary Fund’s World Economic Outlook Database.3% in 2008 and 9. According to the weekly statistical supplement of the RBI Bulletin. 7. If an active trading market is not developed or maintained. such as the land for the Essar Power Jharkhand-Tori Power Plant Project. 35.

Essar Energy plc also intends to evaluate the benefits to it of enabling the exercise by US and other non-UK holders of the Shares of the pre-emptive rights for their Shares and any other factors Essar Energy plc considers appropriate at the time. In the event of a default by Essar Global. unless such rights are waived by a special resolution of the Shareholders at a general meeting or in certain circumstances stated in the Articles. Shares pledged to banks could be sold if Essar Global defaults under its financing arrangements. In the case of an increase of the share capital of Essar Energy plc for cash. Essar Global has pledged all of the Shares it holds in the Company as security for Essar Global’s indebtedness under certain financing arrangements. 36 . could materially and adversely affect the market price of the Shares. 40. Furthermore. its lenders may exercise their rights under the relevant financing arrangements and take ownership of the pledged shares. or the perception that such sales might occur. unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirement thereunder is available. the Company’s operating results and prospects from time to time may be below the expectations of market analysts and investors. At such time. Although Essar Global has agreed not to dispose of any of its holding of Shares for a period of 12 months from the date of this document. US and other non-UK holders of Shares may be unable to exercise their pre-emptive rights. including any regulatory changes affecting the Company’s operations. Essar Global may subsequently sell all or part of its holding of Shares. To the extent that pre-emptive rights are granted. The Shares may experience price and volume fluctuations. variations in the Company’s operating results and business developments of the Company or its competitors. 42. the market price of the Shares could be subject to significant fluctuations due to a change in sentiment in the market regarding the Shares (or securities similar to them) or in response to various facts and events.Part 1 Risk Factors 39. in the case of US holders. Any sales of substantial amounts of Shares in the public market. Essar Energy plc will then make a decision as to how to proceed and whether to file such a registration statement or otherwise or any other steps necessary to extend the rights offering into the other jurisdictions (including complying with local law requirements in other jurisdictions). Stock markets worldwide have experienced significant price and volume fluctuations in the past two years that have affected the market prices for securities. No assurance can be given that any steps will be taken in any jurisdiction or that any registration statement will be filed to enable the exercise of such holders’ pre-emptive rights. existing Shareholders are generally entitled to pre-emption rights pursuant to the Companies Act. Any of these events could result in a decline in the market price of the Shares. Essar Energy plc intends to evaluate at the time of any rights offering the costs and potential liabilities associated with any such compliance or registration statement. On the basis of this evaluation. US and other non-UK holders of the Shares may not be able to exercise pre-emptive rights for their Shares unless Essar Energy plc decides to comply with applicable local laws and regulations and. Following Admission. which could result in a change of control of the Company. Significant sales of Shares may affect the trading price of the Shares. 41.

Deutsche Bank.PART 2 PRESENTATION OF FINANCIAL AND OTHER INFORMATION General Investors should only rely on the information in this document. Nomura or Standard Chartered. each investor must rely on their own examination. BNP Paribas. the Underwriters and any of their respective affiliates. the Directors or any of J. if given or made. The contents of this document are not to be construed as legal. Nomura or Standard Chartered or any selling agent as to the past. Nomura or Standard Chartered or any of their representatives is making any representation to any offeree. Deutsche Bank. Such withdrawal must be done within the time limits set out in the supplement (if any) (which shall not be shorter than two days after publication of the supplement). BNP Paribas. In connection with the Offer.P. financial adviser or tax adviser for legal. and no person has been authorised to give any information or to make any representation concerning the Company or the Shares (other than as contained in this document) and. subscriber or purchaser of the Shares regarding the legality of an investment by such offeree. under any circumstances. Accordingly. is made by any of J. Morgan Cazenove. analysis and enquiry of the Company and the terms of the Offer. Deutsche Bank. Morgan Cazenove. Morgan Cazenove. Morgan Cazenove. Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to FSMA and paragraph 3. This document is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by any of the Company. sell.P. create any implication that there has been no change in the business or affairs of the Company since the date of this document or that the information contained herein is correct as of any time subsequent to its date.P. Deutsche Bank. The Company will update the information provided in this document by means of a supplement hereto if a significant new factor that may affect the evaluation by prospective investors of the Offer occurs prior to Admission or if this document contains any material mistake or inaccuracy. Deutsche Bank. including the risks involved. if given or made. purchase. prospective investors must rely upon their own examination of the Company and the terms of this document. such information or representations must not be relied upon as having been authorised by or on behalf of the Company. No representation or warranty. financial or tax advice in relation to any subscription. Investors should ensure that they read the whole of this document and not just rely on key information or information summarised within it. offer to sell or otherwise deal for their own accounts in such Shares and other securities of the Company or related investments in connection with the Offer or otherwise. Morgan Cazenove. In making an investment decision. Each prospective investor should consult his or her own lawyer. and (ii) they have relied on the information contained in this document. express or implied. Deutsche Bank. BNP Paribas. the Directors or J. Nomura or Standard Chartered or any selling agent as to the accuracy or completeness of such information. acting as investors for their own accounts. Nomura or Standard Chartered. a promise or representation by any of J. Nomura or Standard Chartered or any of their representatives that any recipient of this document should subscribe for or purchase the Shares. prospective investors should read this document. may subscribe for and/or acquire Shares and in that capacity may retain.P. the Directors or any of J. and nothing contained in this document is. None of the Company. business or tax advice. If a supplement to the Prospectus is published prior to Admission. Morgan Cazenove. The prospectus and any supplement thereto will be subject to approval by the FSA and will be made public in accordance with the Prospectus Rules. Deutsche Bank. references in this document to 37 .P.1 of the Prospectus Rules.P. Investors who subscribe for or purchase Shares in the Offer will be deemed to have acknowledged that: (i) they have not relied on J. No person has been authorised to give any information or to make any representations other than those contained in this document in connection with the Offer and. any such other information or representation should not be relied upon as having been authorised by or on behalf of the Company. BNP Paribas. present or future.P. investors shall have the right to withdraw their subscriptions made prior to the publication of the supplement. Nomura or Standard Chartered or any person affiliated with any of them in connection with any investigation of the accuracy of any information contained in this document or their investment decision. BNP Paribas. BNP Paribas.4. BNP Paribas. purchase or proposed subscription or purchase of Shares. In making an investment decision. subscriber or purchaser. the Directors. Morgan Cazenove. or shall be relied upon as. neither the delivery of this document nor any subscription or sale of Shares pursuant to the Offer shall. including the merits and risks involved. J. Prior to making any decision as to whether to subscribe for or purchase the Shares.

Internal transactions within the Company have eliminated on combination. 2008 and 2009 and the nine months ended 31 December 2009 and unaudited financial information for the nine months ended 31 December 2008. interest income and expenses recorded in the combined income statement have been determined in accordance with the historic financing arrangements within the Essar Group.Part 2 Presentation of Financial and Other Information the Shares being issued. The combined historical financial information contained in Part 11 ‘‘Financial Information’’ has been prepared on a basis that combines the results and assets and liabilities of the companies comprising the Company. Prior to this time. pursuant to the Pre-IPO Reorganisation. subscribed. stand-alone entity during the periods presented. and no information is presented for proposed directors of the Company who were not employed by the Essar Group. the historical financial information may not be indicative of the Company’s future performance and does not necessarily reflect what the Company’s financial position and results of operations would have been had the Company operated as a separate. dealing or placing by. The Company has been part of the larger Essar Group throughout the periods presented in the historical financial information and has benefited from the Essar Group structure and central operations. Presentation of financial information Presentation of financial information and non-financial operating data Historical financial information The historical financial information in Part 11 ‘‘Financial Information’’ has been prepared in accordance with the requirements of the Prospectus Directive regulation and the UK Listing Rules and in accordance with International Financial Reporting Standards as adopted by the European Commission for use in the European Union (‘‘IFRS’’) except for the purposes of presenting the historical financial information on a combined basis and certain deviations from IFRS resulting from the application of certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standards applicable to public reporting engagements on historical financial information) issued by the UK Auditing Practices Board have been applied. Factors that may not be reflected include. but are not limited to. the Company entities did not constitute a legal group and hence. the following: • • • • administrative costs have been affected by the arrangements that existed in the Essar Group. acquired. Neither this information nor the other financial information used in this document was prepared 38 . current tax charges recorded in the combined income statement have been determined in accordance with the taxation arrangements within the Essar Group. consolidated historical financial information is not available and combined financial information has been prepared. or subscription. Neither of the Underwriters intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so. Therefore. The historical financial information included in Part 11 ‘‘Financial Information’’ was audited in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The historical financial information presented in this document consists of audited combined financial information for the years ended 31 March 2007. placed or otherwise dealt in should be read as including any issue or offer to. The basis of preparation is further explained in Part 11 ‘‘Financial Information’’. Throughout the periods presented in the historical financial information. offered. These entities have been reorganised into a separate corporate group with the Company as the holding company. or for individuals who served as directors of companies within the Essar Group but who are not to be directors of the Company following the Offer. The financial information included in Part 11 ‘‘Financial Information’’ is covered by the respective Accountant’s Reports included in Sections A and B which were prepared in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. acquisition. the Company consisted of commonly controlled entities within the Essar Group that historically comprised the power and oil and gas businesses of the Essar Group. the Underwriters and any of their affiliates acting as investors for their own accounts.

and should not be considered as an alternative to: • • • operating income or net income (as determined in accordance with IFRS). and an investor should not consider these measures in isolation from. In addition. certain financial measures are presented that are not recognised by IFRS. and the financial information included in Part 11 ‘‘Financial Information’’ and other financial information is not intended to comply with SEC reporting requirements. does not represent the the Company’s actual financial position. cash flows from operating. or as a measure of our ability to meet cash needs. the unaudited pro forma financial information included herein should not be relied upon as if it had been prepared in accordance with such requirements. The Prospectus Rules regarding the preparation and presentation of pro forma financial information vary in certain respects from Article 11 of Regulation S-X promulgated under the US Securities Act and.Part 2 Presentation of Financial and Other Information in accordance with accounting principles generally accepted in the United States (‘‘US GAAP’’). accordingly. audited in accordance with auditing standards generally accepted in the United States of America (‘‘US GAAS’’). EBITDA is not defined by or presented in accordance with IFRS. or auditing standards of the US Public Company Accounting Oversight Board (‘‘PCAOB’’). no reconciliation to US GAAP is provided. US GAAS or PCAOB Standards. reformulation or exclusion of certain financial measures and would not allow for the deviations from IFRS described above. EBITDA The Company defines EBITDA as (loss)/profit after tax adjusted for depreciation. non operational income/expenses. Some of the limitations of EBITDA are that: • • it does not reflect the Company’s cash expenditures or future requirements for capital expenditure or contractual commitments. net finance costs and taxes. changes would be required in the presentation of certain other information. Compliance with such requirements would require the modification. investing or financing activities (as determined in accordance with IFRS). or as a measure of operating performance. Potential investors should consult their own professional advisers to gain an understanding of the financial information in Part 11 ‘‘Financial Information’’ and the implications of differences between the auditing standards noted herein. including EBITDA and gross refining margin or GRM. it does not reflect changes in. Non-financial operating data The non-financial operating data included in this document has been extracted without material adjustment from the management records of the Company and are unaudited. EBITDA has limitations as an analytical tool. or any other measures of performance under IFRS. or cash requirements for. Shareholders and potential investors should refer to the basis of preparation of the unaudited pro forma financial information set forth at Section B2 of Part 11 ‘‘Financial Information’’ of this document. therefore. the Company’s working capital needs. or as a substitute for. All unaudited financial information in this document has been extracted without material adjustment from the Group’s accounting records. 39 . analysis of the Company’s results of operations. In particular. the pro forma financial information addresses a hypothetical situation and. it is not a measure of performance. Because of its nature. Pro forma financial information This document includes an unaudited pro forma net assets statement as at 31 December 2009 for the Company illustrating the effect of Admission had it occurred on 31 December 2009. No opinion or any other assurance with regard to any financial information was expressed under US GAAP. Non-IFRS Financial Measures In this document.

. GRM is not a measure defined by IFRS and has not been audited. .8 (144. . . .9) — 37. Power business .5) 312. .0)% (0. . plus benefits of sales tax incentives. although depreciation and amortisation are non-cash charges.8)% (84. .8 (9. . . . . .1) 84. . net of discounts. . and as adjusted for commodity hedging gains and losses. .4) 43. . . . . . nor is it meant to be a projection or forecast of future results. • • EBITDA may not be indicative of the the Company’s historical operating results. . .4 46. .7 (77. . . . . which can vary significantly depending upon accounting methods. . .6 (129. . . .0)% 5. or the cash requirements necessary to service interest or principal payments in respect of any borrowings.7 (0. . . . . . . Other non operational income . . . . .9) 433.0) 123. . . . . . . . . .6 (19. . . .2% 50. . . .9 215. (25. . . . . . . . of refined petroleum products sold. .8) EBITDA(1) . . . . .1 101. . . . . . . . expressed as a percentage. . . . part of which impact earnings. Gross Refining Margin has been disclosed in this document as it is used by management in determining results from refining operations and the directors believe it is a measure commonly used in the industry. . . . . . . . . . . .1)% (3. Other companies in the Company’s industry may calculate these measures differently from how the Company does. less the cost of crude oil consumed. . . . . . . . . . . .3 43. .6) 13. . . Power business EBITDA margin(2) . . . . . (1) (2) Unaudited (43. . .7 259. . . .5 44. . . . . . . . . The Directors believe that EBITDA is a measure commonly reported and widely used by investors in comparing performance without regard to depreciation. . . . . limiting their usefulness as a comparative measure. . . the assets being depreciated and amortised will often have to be replaced in the future. . . . interest expense or taxation. limiting its usefulness as a comparative measure. .0) (9. .7% 61.2 50. . .3 97. . .0 133.9) 30. .9 (33. . . . . . Depreciation and amortisation Net finance costs . . .0) — 119. .3% (103.4% 51. . . . Oil & gas business . . . . . . . . . .7 27. . . . . . . .6 191. . . . The Vadinar refinery’s total gross refining margin is defined as: • • • • the sales value. . Oil & gas business EBITDA margin(2) . or non-operating factors. . . . other companies in the Company’s industry may calculate these measures differently from how the Company does. . . . . . . . . . . .7 89.0) 108. . .7% EBITDA margin is calculated by dividing EBITDA by sales of goods. The following table reconciles (loss)/profit after tax to EBITDA for the periods indicated: Nine months ended Year ended 31 March 31 December 2007 2008 2009 2008(1) 2009 (US$ in million) (Loss)/profit after tax . . . . . . .7) — (254. .6) (204. .8% (9. . . . Tax . . . . . . . . . and they do not reflect gains and losses in commodities and foreign exchange. . . . . . . . Gross refining margin or GRM The total sales value of the refined petroleum products produced by a refinery less the cost of crude oil is referred to as the gross refining margin or GRM. . . EBITDA has been disclosed in this document because it is used by management in determining the Group’s core performance and the Directors believe that it permits a more complete and comprehensive analysis of the Company’s operating performance. . . 40 . . . . . . .6 120. . . .Part 2 • • Presentation of Financial and Other Information it does not reflect the significant interest expense.7 (106.5) — (167. and EBITDA does not reflect any cash requirements for such replacements. .

. . . . . . . . . .46 2. . . . . . . . . . . . any reference to ‘‘pro forma’’ financial information is to information which has been extracted without material adjustment from the unaudited pro forma financial information contained in Part 12 ‘‘Unaudited Pro Forma Financial Information’’. . . . 7. . . . .00. . .68 : US$1. . . 46. . . .03 3.3 78. . . . . The unaudited pro forma balance sheet includes certain adjustments in respect of the proposed Offer. . and ‘‘US dollars’’ or ‘‘US$’’ are to the lawful currency of the United States. The unaudited pro forma financial information is for illustrative purposes only. . Pro forma financial information In this document. . . all references in this document to: • • • • • ‘‘Canadian dollars’’ or ‘‘C$’’ are to the official currency of Canada. .400.2 63 7. . . . . . . Commodity hedging gains/losses . GRM per barrel (excluding sales tax incentives) . GRM (including sales tax incentives) . .771. .8 153. . . . . . . . . The unaudited pro forma balance sheet contained in Part 12 ‘‘Unaudited Pro Forma Financial Information’’ is based on the combined balance sheet of the Company as at 31 December 2009 extracted without material adjustment from Part 11 ‘‘Financial Information’’. . . . . . . . . the unaudited pro forma balance sheet is not necessarily indicative of what the financial position of the Company would have been had the Offer occurred on 31 December 2009. . . . . .4 72 4. 41 . . . . . . . . . . .Part 2 Presentation of Financial and Other Information The following table reconciles revenue from the refining segment to GRM for the periods indicated. . . .331. .5 228. . . . . . . . . . .4 (6. Certain Essar Energy plc group companies. .0) 321. GRM per barrel (including sales tax incentives) . . . . the exchange rate prevailing as of 31 December 2009.8 437. the official currency of the Republic of India. . . .3 46. . . the Company has presented certain amounts denominated in Indian rupees in this document using a constant currency translation at the rate of Rs. . . including Essar Oil. . Solely for convenience.582. . . . . . . ‘‘pounds sterling’’ or ‘‘£’’ are to the official currency of the United Kingdom. . . .12 Number of barrels (in millions) . . . Currency presentation Unless otherwise indicated. . . . . .9 693. . . . . . . Because of its nature. . . .7) 214. .689. . .4 (40. . . . .02 6. . therefore. . . Represents the gross sales tax incentives received less the costs of social contributions required to be made by the Company as a condition of receiving the benefit. . . . . . . . . . Future results of operations may differ materially from those presented in the pro forma information due to various factors. . .2) 256. including rupees. . . . . . .8 (7. . . the pro forma financial information addresses a hypothetical situation and. . . . . . .3 (4.965. . . . . ‘‘rupees’’ and ‘‘Rs’’ are to Indian rupees. . . . The Company prepares its financial statements in US dollars. . ‘‘euro’’ or ‘‘A’’ are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community. . . . . . . . . (1) (2) $ $ $ Includes results of the Vadinar refinery following commencement of commercial production on 1 May 2008. . . . . .5 87 7. . . . The basis of translation of foreign currency for the purpose of inclusion of the financial information set out in Part 11 ‘‘Financial Information’’ is described in that Part.62 4. . GRM (excluding sales tax incentives) . does not represent the Company’s actual financial position. Sales tax incentives(2) . . . . Information derived from this financial information set out elsewhere in this document has been translated on the same basis. prepare their financial statements in other currencies. . .97 5. . . . . . . . . . . . . Year end 31 March 2009(1) Nine months ended 31 December 2008(1) 2009 US$ (in millions) Revenue—Refined petroleum products Cost of crude oil . . . . However. . .9) 168. . . . . . .5 442. as amended. . . . . . . . .

an independent consultancy specialising in petroleum and gas reservoir evaluation (the ‘‘RPS Ratna & R-Series Fields Report’’). in their filings with the SEC.Part 2 Presentation of Financial and Other Information Year conventions For Indian tax purposes. References in this document to. for example. and operating information has been rounded. Gujarat. The SEC permits oil and gas companies. • • • (collectively. dated 30 April 2010. which the SEC’s guidelines would prohibit the Company from including in filings with the SEC. This report is set out in Part 18 ‘‘Expert Reports’’. the report dated 30 April 2010 prepared by RPS Energy (‘‘RPS’’). (‘‘NSAI’’). an independent consultancy specialising in petroleum and gas reservoir evaluation (the ‘‘ARI RM(E)-CBM-2008/IV Block Report’’). India. prepared by RPS (the ‘‘Mehsana Report’’). This report is set out in Part 18 ‘‘Expert Reports’’. As a result of the rounding. India. India (the ‘‘Rajmahal Block’’). the report dated 30 April 2010 prepared by NSAI (the ‘‘NSAI RG (East)-CBM-2001/1 Block Report’’). India (the ‘‘Raniganj Block’’). This document contains data. Presentation of reserves and resources information This document contains information concerning the Group’s hydrocarbon reserves and resources extracted from: • in relation to the oil and gas reserves and resources in the Ratna Fields near Mumbai. (‘‘ARI’’). the report dated 30 April 2010 prepared by Netherland. the year-end is 31 March. Prospective investors should not place undue reliance on the forward-looking statements in the Oil and Gas Expert 42 . in relation to the CSG reserves and resources of the RG (East)-CBM-2001/1 block in West Bengal. to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. which is approved by the Society of Petroleum Engineers as the standard for classification and reporting. and • in addition. Cambay Basin. in the Oil and Gas Expert Reports and in the Mehsana Report is based on economic and other assumptions that may prove to be incorrect. The information on reserves and resources in this document. 2008/09 are to the tax year ended 31 March 2009. the ‘‘Oil and Gas Expert Reports’’). Contingent resources relate to undeveloped accumulations and may include non-viable resources. Inc. in relation to the CSG reserves and resources of the RM(E)-CBM-2008/IV block in Jharkhand. It should be noted that prospective resources relate to undiscovered and/or undeveloped accumulations and accordingly by their nature are highly speculative. The PRMS standards differ in certain material respects from standards of the US Securities and Exchange Commission (the ‘‘SEC’’). an independent consultancy specialising in petroleum and gas reservoir evaluation (the ‘‘NSAI OPL 226 Block Report’’). the totals of data presented in this document may vary slightly from the actual arithmetic totals of such data. Inc. Percentages in tables have been rounded and accordingly may not add up to 100%. Sewell & Associates. such as reserves and prospective and contingent resources presented in accordance with PRMS standards. A possibility exists that the prospects will not result in the successful discovery of economic resources in which case there would be no commercial development. including financial. The Oil and Gas Expert Reports and the Mehsana Report present information concerning reserves and resources in accordance with the definitions and guidelines set forth by the 2007 Petroleum Resources Management System (the ‘‘PRMS’’). This report is set out in Part 18 ‘‘Expert Reports’’. statistical. Rounding Certain data in this document. This report is set out in Part 18 ‘‘Expert Reports’’. the report dated 30 April 2010 prepared by Advance Resources International. in relation to the oil and gas reserves and resources in the OPL 226 block off the coast of Nigeria (the ‘‘Nigeria Block’’). in relation to the report for the assessment of coal seam gas resources in the CB-ON/3 Block.

‘‘assumes’’. the statements under the headings ‘‘Summary’’. liquidity. Forward-looking statements are sometimes indentified by the use of forward-looking terminology such as ‘‘believe’’. No assurance can be given that such future results will be achieved: actual events or results may differ materially as a result of risks and uncertainties facing the Company. many of which are beyond the Company’s control and all of which are based on the Directors’ current beliefs and expectations about future events. ‘‘risk’’. ‘‘intends’’. ‘‘expects’’. beliefs and current expectations of the Directors or the Company concerning. certain statements in this document relating to the Indian and international petroleum refining industry and the Vadinar refinery have been extracted without material adjustment from a report prepared by KBC. Nelson Complexity Index The Company has calculated the average Nelson Complexity Index rating of the current Vadinar refinery to be 6. ‘‘The Business’’ and ‘‘Operating and Financial Review’’ regarding the Company’s strategy and other future events or prospects are forward-looking statements. the Nelson Complexity figures contained in this document have been calculated in accordance with the Company’s methodology. The Company confirms that this information and any other information extracted from third-party sources has been accurately reproduced and. so far as the Company is aware and is able to ascertain from information published by these third parties. which is expected to increase to 11. Definitions and glossary Certain terms used in this document. Such risks and uncertainties could cause actual results to vary materially from the future results 43 . ‘‘may’’.8 following completion of the Phase II Refinery Project based on the pre-1997 Nelson methodology and including some additional process units (sour water strippers and sulphur recovery units). are defined and explained in Part 17 ‘‘Definitions and Glossary’’. ‘‘shall’’.4 following completion of the Phase I Refinery Project and to 10. Similarly. and dividend policy of the Company and the industry in which it operates. which it expects to increase to 8. ‘‘predicts’’. In particular. no facts have been omitted which would render reproduced information inaccurate or misleading. In contrast. They appear in a number of places throughout this document and include statements regarding the intentions. other variations thereon or comparable terminology. ‘‘Risk Factors’’. ‘‘positioned’’ or ‘‘anticipates’’ or the negative thereof. ‘‘estimates’’. the results of operations. economic and industry data Certain statements in this document relating to the Indian power market and the Company’s existing and planned power plants have been extracted without material adjustment from a report prepared by KPMG India Private Limited (‘‘KPMG’’). Except where otherwise indicated. financial condition. prospects. strategies.8 following completion of the Phase I Refinery Project and to 12. ‘‘aims’’. ‘‘should’’.8. including all capitalised terms and certain technical and other items. ‘‘plans’’. Such information has not been audited or independently verified. ‘‘will’’. among other things. Information regarding forward-looking statements This document includes forward-looking statements.0 following completion of the Phase II Refinery Project using the post-1998 methodology and having not taking into account the aforementioned additional process units.1. The basis of preparation for the Oil and Gas Reports and the Mehsana Report is set out in more detail in each of these reports. These forward-looking statements include all matters that are not historical facts. a report prepared by KBC calculates the average Nelson Complexity Index rating of the current Vadinar refinery to be 4. Market. Where reserves and resources are shown in barrels of oil equivalents or mmboe (million barrels of oil equivalents) natural gas reserves have been converted at the rate of 6 bcf equivalent to 1 mmboe. ‘‘could’’. The Company also applies a ‘‘Hydrocracker’’ factor to the high pressure VGO Hydrotreater and includes it in its calculations.Part 2 Presentation of Financial and Other Information Reports or the Mehsana Report or on the ability of the Oil and Gas Expert Reports or the Mehsana Report to predict actual reserves or resources. ‘‘continues’’. These forward-looking statements and other statements contained in this document regarding matters that are not historical facts involve predictions. These forward-looking statements involve known and unknown risks and uncertainties. growth.

including actions under the civil liability provisions of US securities laws. conditions. if commenced. or enforce in the US courts or outside the United States judgments obtained against any of the Directors and executive officers of the Company in the US courts in any action. over-allot Shares or effect other transactions with a view to supporting the market price of the Shares at a higher level than that which might otherwise prevail in the open market. or any of its agents. 44 . The Stabilising Manager is not required to enter into such transactions and such transactions may be effected on any securities market.Part 2 Presentation of Financial and Other Information indicated. it may not be possible for investors in the United States to: • • effect service of process within the United States upon any of the Directors and executive officers of the Company. The Company is a public limited company incorporated under the laws of England and Wales. may be discontinued at any time without prior notice. during any period in which it is not subject to Section 13 or 15(d) under the US Securities Exchange Act of 1934 as amended. may (but will be under no obligation to). The Directors have been advised by Freshfields Bruckhaus Deringer. The Company. However. The forward-looking statements contained in this document speak only as of the date of this document. (the ‘‘US Exchange Act’’). or circumstances on which such statements are based unless required to do so by applicable law. all or a substantial portion of the Directors’ assets and all of the assets of the Company are located outside the United States. As a result. nor exempt from reporting under the US Exchange Act pursuant to Rule 12g3-2(b) thereunder. there will be no obligation on the Stabilising Manager or any of its agents to effect stabilising transactions and there is no assurance that stabilising transactions will be undertaken. Furthermore. the Directors. stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the commencement of conditional dealings of the Shares on the London Stock Exchange and ending no later than 30 calendar days thereafter. Nomura and Standard Chartered expressly disclaim any obligation or undertaking to update these forward-looking statements contained in the document to reflect any change in their expectations or any change in events. or enforce in the US courts judgments obtained against any of the Directors and executive officers of the Company in courts in jurisdictions outside the United States in any action. the Prospectus Rules. the Company’s legal advisers as to English law. judgments predicated upon the civil liability provisions of US securities laws.P. that there is doubt as to the ability of a plaintiff to obtain a judgment predicated upon the US securities laws against these persons in the United Kingdom in original actions or in actions for the enforcement of judgments of US courts predicated upon the federal securities laws of the United States. Morgan Cazenove. neither the Stabilising Manager nor any of its agents intends to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Offer. Investors should note that the contents of these paragraphs relating to forward looking statements are not intended to qualify the statements made as to sufficiency of working capital in this document. • Investors may also have difficulties obtaining. expressed. J. Over-allotment and stabilisation In connection with the Offer. the Listing Rules. or the Disclosure and Transparency Rules of the FSA. J. Enforceability of Judgments in the United States All of the Directors and executive officers of the Company are residents of countries other than the United States. Morgan Cazenove. Please refer to Part 1 ‘‘Risk Factors’’ for further confirmation in this regard. Such stabilisation. Available information For so long as any of the Shares are in issue and are ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) under the US Securities Act. in original actions brought in courts in jurisdictions outside the United States. as Stabilising Manager. to the extent permitted by applicable law. BNP Paribas. including actions under the civil liability provisions of US securities laws.P. Deutsche Bank. over-the-counter market. In no event will measures be taken to stabilise the market price of the Shares above the Offer Price. Except as required by law or regulation. or implied in such forward-looking statements. the Company will.

No incorporation of website information The contents of the Company’s website do not form part of this document. if given or made. create any implication that there has been no change in the affairs of the Company since the date of this document or that the information in this document is correct as of any time subsequent to the date hereof.Part 2 Presentation of Financial and Other Information make available to any holder or beneficial owner of a Share. Rule 144A(d)(4) under the US Securities Act. such information or representation must not be relied upon as having been so authorised. Neither the delivery of this document nor any subscription or sale made hereunder shall. under any circumstances. Information not contained in this document No person has been authorised to give any information or make any representation other than those contained in this document and. or to any prospective purchaser of a Share designated by such holder or beneficial owner. 45 . and meeting the requirements of. the information specified in.

125 London Wall London EC2Y 5AJ United Kingdom Deutsche Bank AG. Lallah. NED Simon Murray.P. NED Subhash C. Morgan Securities Ltd.PART 3 DIRECTORS. SECRETARY. Central Hong Kong Financial Advisor to the Company J.P. NED Philip Aiken. REGISTERED AND HEAD OFFICE AND ADVISERS Directors Ravi Ruia. Chairman Prashant Ruia. CEO Sattar Hajee Abdoula. Joint Global Coordinator and Joint Bookrunner Joint Global Coordinator and Joint Bookrunner Co-Managers 46 . Martins-le-Grand London EC1A 4NP Standard Chartered Securities (Hong Kong) Limited 15/F Two International Finance Centre 8 Finance Street. London Branch Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom BNP PARIBAS 16. Vice-Chairman Naresh Nayyar. Boulevard des Italiens 75009 Paris France Nomura International plc Nomura House 1 St. 125 London Wall London EC2Y 5AJ United Kingdom Company Secretary Registered office of the Company Head office of the Company Sponsor. NED Executive Services Limited 3rd Floor Lansdowne House 57 Berkeley Square London W1J 6ER United Kingdom DCDM Building 10 Frere Felix de Valois Street Port Louis Mauritius J. Morgan Securities Ltd.

Registered and Head Office and Advisers Freshfields Bruckhaus Deringer LLP 65 Fleet Street London EC4Y 1HS United Kingdom Amarchand & Mangaldas & Suresh A. Suite 910 Arlington. Texas 75201-4754 United States RPS Energy 309 Reading Road Henley-on-Thames Oxfordshire RG9 1EL United Kingdom Indian legal adviser to the Company English and US legal advisers to the Sponsor. Peninsula Chambers Peninsula Corporate Park Ganpatrao Kadam Marg Lower Parel Mumbai 400 013 India Linklaters LLP One Silk Street London EC2Y 8HQ United Kingdom Deloitte LLP 2 New Street Square London EC4A 3BZ United Kingdom Computershare Investor Services PLC The Pavillions Bridgwater Road Bristol BS13 8AE United Kingdom Advanced Resources International. VA 22203 United States Netherland.Part 3 English and US legal advisers to the Company Directors. Shroff & Co. 4501 Fairfax Drive. Inc. Inc. Sewell & Associates. 4500 Thanksgiving Tower 1601 Elm Street Dallas. Secretary. Joint Global Coordinators and Joint Bookrunners Reporting Accountants and Auditors Registrars Technical Consultants 47 .

. . . . . .030. . . . . CREST accounts credited . . all conditional dealings will be of no effect and any such dealings will be at the sole risk of the parties concerned. . . . . . . . . . . . 5. . . . . . . . . . Offer statistics Offer Price (per Share) . . . . . . . . Commencement of conditional dealings on the London Stock Exchange . . . . . . . . . Number of Shares subject to the Over-allotment Option . . .00pm on 30 April 2010 30 April 2010 8. . . Market capitalisation of the Company at the Offer Price . . . . . . . Percentage of the enlarged issued Share capital in the Offer . .24% 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Each of the times and dates in the above timetable is subject to change without further notice. . . . . Announcement of Offer Price and allocation . 420 pence 302.303. . . . . . . . . . . . if Admission does not occur.208 million £5. . . . . . . .789. All times are London times. . Number of Shares in issue following the Offer . . . . . . . . . .029 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .825 23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . After expenses of £64 million. . . . . . .473 million 48 . . . . . . . . . . . . . . . . . . . . . . . Number of Shares in the Offer . . . . . .302 £1. . . . . . . . . . . .PART 4 EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND OFFER STATISTICS Expected timetable of principal events Event Time and Date Latest time and date for receipt of indications of interest under the Offer . . . . . . . . .303. .00am on 7 May 2010 7 May 2010 It should be noted that. . . . . . . (1) (2) Assuming no exercise of the Over-allotment Option. . . . . . . . . . Admission and commencement of unconditional dealings on the London Stock Exchange . .00am on 4 May 2010 8. . . . . . Estimated net proceeds of the Offer receivable by the Company(1)(2) . . . . .

Kearney analysis. surpassing 10% by 2014. India’s GDP will continue to maintain a 6% to 8% growth rate.T. had a GDP on a purchasing power parity (‘‘PPP’’) basis of approximately US$3.16 billion people. Indian Power Demand The following chart shows India’s historical and projected power deficit: Project electricity supply deficit (% of demand) Base Case Optimistic Demand Scenario 11% 11% 8-9% 10-11% 4-5% 1-2% 2009 Source: EPS. India. A. India’s GDP grew at a CAGR of 8. This makes India one of the fastest growing large economies in the world. The Planning Commission of India’s 11th Plan (tax year 2007/08 to 2011/12) aims at a sustainable GDP growth rate of 9. this decrease is mainly due to the global economic contraction and deterioration in the global financial markets. the second most populous country in the world with a population of over 1.PART 5 INDUSTRY OVERVIEW OVERVIEW Expected Growth in the Indian Economy According to the Central Intelligence Agency World Factbook. 2012 2014 8APR201020525882 49 .561 billion in 2009.2% during the five-years ended 31 March 2008.0% from 2007/08 to 2011/12. According to IMF estimates. According to the International Monetary Fund. While the growth rate has decreased in the past year.

. . . . . . .0% 49. .8% 34. . . . .0% 1. .4% 8. . .000 World per capita GDP and car ownership levels (2005-2030) +2% 15. . . coupled with an increase in domestic demand in recent years.637 kilograms of oil equivalent.380 +12% 2. and the contributions of the major primary energy sources to total domestic energy consumption. . . .4% 35.4% of the world’s consumption of natural gas according to the BP Statistical Review of World Energy.0% 5. . .0% 0. . . . . . .35 +54% 2. . . . 2005 . . . . . .1% 1. . .000 0 8APR201021305214 Source: KBC 30MAR201015142860 (1) (2) Source: EIA 2009 Source: World Energy Outlook 2009 During the five-year period ended 31 March 2009. . . .9% 51. . . .6% 5.000 10 +2% 4.7% 6. .1% 8. . 2001 .1% 36. . . . .8% 31. . .0% 1. In 2008. . the Government of India expects demand for oil in India to reach 226 mmt in 2014-15 and 368 mmt in 2024-25 as these more energy-intensive industries expand. crude imports account for around 79% of total oil consumption (Source: KPMG-Oil and Gas Sector Overview in 50 . . . . . . for years indicated: Total Domestic Energy Consumption (MTOE) Energy sources as a percentage of total domestic energy consumption Coal Crude oil Natural gas Hydro-electric Nuclear Year ended December 31 1999 . . . . .5% 48. . . . . . . . . Per capita energy consumption Oil (bbl/y)1 20 +x% +3% 7. . Government of India. .) On a per capita basis. . . . . as compared to the GDP CAGR of 8. .8% Source: BP Statistical Review of World Energy.2% 1. . . Planning Commission.1% 35. . . . . 2000 . . . .0% 8. . . . . . . .4% 31. . . . . . . . . as compared to a world average of approximately 1. India accounted for 3. .0% 8. . .8 316. .8% 8. . . . The lower growth in demand compared to GDP growth is largely attributed to disproportionately high growth in the less-power-intensive service sector relative to more-power-intensive sectors such as heavy industry and agriculture. . . . . . The following table sets out Indian domestic energy consumption. . .3 48. .2 433.6% 50. . . . . .9% 5.1% 1.9% 8. . June 2009.2 343.6% 6. . . . .000 6.4% 1.84 5 +69% 2. . .1% 8.010 +7% 0.0% 36.1 295.0% 53. . energy consumption in India is relatively low in comparison to much of the world. .3% 1.Part 5 Industry Overview Indian Domestic Energy Demand Rapid economic growth in India is driving the growth in energy consumption and the demand for energy.9% 49. In 2008 India’s per capita energy consumption was 347 kilograms of oil equivalent. .0% 31. .87 0 OECD World Average China India +17% 446 2. . . . . . 2006 . .5 307. . . . . (Source: Integrated Energy Policy.8% 6. . . . Nonetheless.3% 49. . . . . . . . . . .1% 6.679 %Growth (2010E -2015E) (for oil) %Growth (2007A -2015E) (for power) Power (kwhpa)2 10.) Presently India is heavily dependent on imports to meet its crude oil requirements. 280. 2007 .4% 1. . . . . . . 2003 . . . .1% 1. . .6% 52. . . . . . .8% 36. the CAGR of refined petroleum product demand in India was 4. 2008 . . . .2% for the same period. . . . as reported by the International Monetary Fund. As a result of marginal declines in domestic oil production. 2002 . .2 378. . . . . .3% 8. (Source: Petroleum Planning Analysis Cell (‘‘PPAC’’) Ready Reckoner. .4% according to MoPNG Statistics 2008-09. . . .5% 6. . .5% 5. . . . . .2% 8. . . . .000 4. . . .1 296. . . . 2004 . .0% 5. .67 15 8. . . .1% 50. . August 2006. . . .9% 33. . . .8 409. . . . . . .4% of the world’s consumption of crude oil and 1. . . . .9% 8. .9 362. June 2009. . .

Orissa. operation and maintenance of electrical plants and electrical lines and for providing technoeconomic clearances for hydroelectric projects. The CEA is the Government of India’s statutory body with responsibility for formulating the National Electricity Plan. provided for the creation of the CERC and the SERC. Organisation and Regulation of the Indian Power Sector Overview In India. The Electricity Act. 1948. Government of India. Salient features of the Electricity Act for generation are: • • • • No license required for generation Competitive bidding for all procurement of power by long-term distribution licensees Captive generation and sale of power to third parties was set out Facilitating direct access to large retail consumers through open access in transmission and distribution POWER SECTOR After 2003. operate and maintain a generating station without obtaining a license under this Electricity Act if it complies with the technical standards relating to connectivity with the grid’’. 26 states have constituted SERCs and 21 states have issued tariff orders to rationalise the tariffs. grant licenses for inter-state transmission and trading and advise the Government of India in formulation of national electricity policy and tariff policy. Karnataka. The domestic production of crude oil in India during 2008/09 were approximately 34 mmt while crude oil imports were approximately 128 mmt. The Electricity Act seeks to facilitate competition and contains provisions for changes in the regulation of generation. The CEA is responsible for setting technical standards and safety requirements for construction. Competitive bidding was adopted as the only mechanism for long term power procurement by distribution licensees in a phased manner. is an independent statutory body with quasi-judicial powers. the Electricity Regulatory Commission Act. For thermal generation. The Electricity (Supply) Act. With the passage of the Electricity Act generation became fully delicensed. The CEA is the main technical advisor of the Government of India and the regulatory commissions. including Andhra Pradesh. More recently. The CERC. thereby streamlining the power sector. After independence. the Government of India felt the need to broaden the power supply base in order to stimulate growth throughout the country. as per Section 7 of the Electricity Act —‘‘Any generating company may establish. power generation and supply was mainly in the hands of the private sector and largely restricted to urban areas. (Source: PPAC. The main functions of the CERC are to regulate the tariffs of power-generating companies. Rajasthan and Uttar Pradesh. the National Tariff Policy in 2006 (‘‘NTP’’) replaced cost plus tariff for private projects with tariff based on competitive bidding. 2003 (the ‘‘Electricity Act’’) was the watershed act in the power sector reforms process.) THE INDIAN Overview Prior to India’s independence. The Ministry of Power is the highest authority governing the power industry in India. These commissions were given the power to determine energy tariffs. transmission and distribution. 1948 was the first step towards the modern power infrastructure in India. In addition a number of states. 1998. It consolidated all previous policies. 51 . which was constituted under the Electricity Regulatory Commission Act. The Electricity Act sets forth the central statutory framework for the regulation of electricity in India. the Electricity Act. This act mandated the creation of State SEBs. However. 2003 resulted in the repeal of the previous regulatory framework. supplement the federal framework with their own state-level legislation. 1998. every five years in accordance with the National Electricity Policy. including the Electricity (Supply) Act.Part 5 Industry Overview India 2009). Haryana. control over the development of the power sector is shared between the central and the state governments.

. quality of power including voltage profile and environmental considerations. . . . . including rehabilitation and resettlement. . . . No 5 Year Plan was presented on account of the political situation. . . . . . . . energy security and environmental considerations. . . . . . . . . . . . . . . . . security of supply. . . . . . . . supply of reliable power of specified standards in an efficient manner and at reasonable rates. . . . . . . integration of generating facilities with the transmission system and development of a national grid. . . . . per capita availability of electricity to be increased to over 1000 kWh by 2012. . 52 . . . grid stability. . . . . . . . . . . . . there were annual plans. . . . . . . . . . . transmission and distribution. . supply. . . . . . . . CEA released a National Electricity Plan in April 2007. . and to promote co-generation and generation of electricity from renewable sources of energy. . . . . . promotion of the commercial viability of electricity sector. . . . . . . distribution and trading. . . . whole sale. . . . . . . . . suggested areas/locations for capacity additions in generation and transmission keeping in view the economics of generation and transmission. . . . . (Source: Ministry of Power. . . . . . . . . The National Electricity Plan would be for a short-term framework of five years while giving a 15-year perspective and would include: • • short-term and long-term demand forecast for different regions. . . . . . . . .) National Electricity Policy In compliance with the Electricity Act the Government of India promulgated the National Electricity Policy in February 2005. . . . . . . . . . . . Xth Plan . . . The Electricity Act requires the CEA to frame a National Electricity Plan every five years and revise this plan from time to time in accordance with the National Electricity Policy. . The National Electricity Policy aims at achieving the following objectives: • • • • • • • access to electricity available for all households by 2010. . . . . . . demand to be fully met by 2012. . . . . . . with energy and peaking shortages to be overcome and adequate spinning reserves to be available. . . . . . . . . . VIIIth Plan IXth Plan . . . . . transmission and wheeling of electricity. . . . promotion of different technologies available for efficient generation. . . . . . . . . XIth Plan . . . . . . .Part 5 Industry Overview The main responsibilities of each SERC are to determine the tariff for generation. . losses in the system. . . . . to issue licenses for intra-State transmission. National Electricity Plan Assessment of demand is an important pre-requisite for planning the expansion of generation capacity. . . . . . . . load centre requirements. . . . . . . and protection of consumer interests. . . . . . . . . . . . . . and fuel choices based on economy. . . . . . . . . . . . . . . . . . 1980-81 1985-86 1992-93 1997-98 2002-03 2007-08 to to to to to to 1984-85 1989-90 1996-97 2001-02 2006-07 2011-12 Source: Planning Commission Note: In the period between the VIth and VIIIth Plans. . . . . bulk or retail sale within the State. VIIth Plan . minimum lifeline consumption of one unit per household per day by year 2012. • • • Duration of India’s Plan Periods Plan Period Years VIth Plan .

Transmission Pricing 27APR201020411410 Source: KPMG To facilitate integration of electricity markets. The preference is aimed at helping the country launch a supercritical power programme along the lines of similar efforts in the US. out of a potential maximum of 100 points. Projects using supercritical technology will get 20 points. Implications for IPPs Plants with unit sizes smaller than 660 MW (which are not viable for super-critical technology) and plants with limited progress on land acquisition may find it relatively more difficult to get coal linkage allocation. 8APR201008055105 Competitive Bidding post 2011 The Union Budget for the year 2010-11 proposes to introduce a competitive bidding process for allocating coal blocks for captive mining to ensure greater transparency and increased participation from both public and private sectors in production from these blocks. 8APR201008055235 The National Tariff Policy mandates that all future requirements of power of distribution companies will be met through competitive bidding.Part 5 Industry Overview Planning Commission estimate of investment in the XIth Plan Period (INR billion) Power SEZ Roads Railways Urban Infra Irrigation Ports Pipeline Airports 0 2000 4000 6000 8000 6APR201023045473 Emerging regulatory framework and implications for IIPs Issue Overview The New Coal Distribution Policy for the XII plan will introduce a point based system for coal linkage allocation. Plants with unit sizes smaller than 660 MW (which are not viable for super-critical technology) may find it relatively more difficult to get coal linkage allocation. Of the remaining 80 points. a demand node would be required to pay a single charge to get access to any generator in the Grid. The Government proposes to take steps to set up a ‘Coal Regulatory Authority’ to facilitate resolution of issues like pricing of coal and benchmarking of standards of performance. plants owned by Centre and State Government entities are exempt from competitive bidding. If this implemented it may potentially ease fuel availability issues and enhance fuel security for coal-fired power plants. • This method of pricing may have implications on the location choices for a power plant. as much as 50 will be based on the status of land acquisition. Priority for coal linkage allocation will be assigned according to a points system. Japan. Similarly. this may expand the market for private sector developers. • Under this system. CERC has propose replacing the ‘Regional Postage Stamp’ method with the ‘Point of Connection (PoC)’ system. Germany. generators are likely to prefer to set up power plants in those regions where the charge for the generator node is lower. enhance open access and encourage competition. If this regulation is implemented. South Korea and Russia. • If this pricing method is adopted it is expected to result in more efficient pricing of transmission charges and have an impact on decisions on location of power plants. CERC has introduced a draft regulation (which is yet to be implemented) on transmission pricing which proposes a new mechanism on sharing of inter-state transmission charges and losses. In the same node. the charges for the consumer and the generator would be different. Currently. a generator node would be required to pay a single charge based on its location in the Grid to gain access to a demand customer located anywhere in the country. 53 . Fuel – Coal Linkage 8APR201008054833 Technology 8APR201008054971 Fuel – Captive coal blocks The New Coal Distribution Policy for the XIIth Plan will give supercritical projects — plants with unit sizes of 660 MW and above — a 20 point advantage in the allocation process for coal linkage. However all plants by Central Government and State Government with commercial operation date post 2011 will also be subject to the competitive bidding guidelines. 20 for projects located at pit heads and the balance for generation plants using sea water instead of fresh water. If implemented.

Part 5 Industry Overview OF THE INDIAN POWER INDUSTRY STRUCTURE Overview The following diagram provides an overview of the structure of the Indian power industry: Generation Transmission Distribution Consumption SEBs SEBs / STUs SEBs & EDs Discoms licencees agriculture domestic commercial industrial and other end-users (32Wh) CPSUs Powergrids Energy available and sold IPPs & Private Licensees Private utilities Transformation. 54 . Installed Generation Capacity by Sector and Fuel India’s grid-based power generation capacity more than doubled in the past two decades. under Indian law. any generating company can establish. to consumers.) Additional planned grid expansion projects already add up to a total of 290 GW. Currently. operate and maintain a generating station if it complies with the technical standards relating to connectivity with a grid. commercial. residential and rural use. (Source: Ministry of Power. Approvals from the Central Government and state governments and the techno-economic clearance from the CEA are no longer required except for hydroelectric projects. where permitted by the respective state regulatory commissions. Generating companies are now permitted to sell electricity to any licensees and. including uncounted energy Captive consumer Captive open Power Trading Companies 30MAR201014095025 Key to the diagram: CPSUs: Central public-sector undertakings Discoms: Distribution companies EDs: Electricity departments IPPs: Independent power producers SEBs: State electricity boards STUs: State transmission units Generation Overview Generation generally refers to the bulk production of electric power for industrial. transmission and distribution losses. increasing from around 63 GW in 1990 to 149 GW in 2009.

In 2008/09.1%CAGR 221 7. particularly since the enactment of the Electricity Act. a situation that has been worsening over the past three decades. The following table sets forth the historical power supply and demand trend in India from 1980 through 2009: Historical Supply and Demand Trend in TWh Demand CAGR Supply CAGR BUs Pre-liberalization Early liberalization Power reform Demand 775 8.T. or 12.48% (Source: A.1%CAGR 6.0%CAGR (1) 800 700 600 5APR201019314295 2008/09 Source: CEA (1) Only grid-based capacity in terms of GW (1 GW=1. 55 .000 MW).9%CAGR 204 6.Part 5 Industry Overview The following graph sets forth a summary of India’s energy generation capacity in March 2009 in terms of fuel source and ownership: Capacity break-up by sector: Total 148 GW as of March 2009 Private 15% Centre 33% Hydro 25% State 52% Gas 10% Public Sector Capacity break-up by fuel: Total 148 GW as of March 2009 Others 13% Coal 52% 30MAR201016082426 Source: CEA Installed Capacity as of December 2009 has increased to 156 GW Source: CEA Installed Capacity as of December 2009 has increased to 156 GW Demand-Supply Overview The Indian power sector has historically been characterised by supply shortages. Kearney).8% CAGR 462 8. Source: Minnistry of Power.0% CAGR Supply 689 489 500 400 300 200 101 100 95 0 1979/80 1989/90 2002/03 Electricity Act 7. India’s power demand exceeded supply by 86 TWh.

Installed capacity as on 31. but historically actual capacity additions has lagged announced. Hence progress on key milestones (securing financing.2009 has increased to 156 GW Supply Addition. Total capacity additions announced up to the 2016 fiscal year is approximately 293 GW. The capacity required to serve a certain demand is greater than the actual demand to account for plant availability and reserve requirements.Part 5 Industry Overview Installed Capacity Requirement India’s installed capacity requirement is estimated to increase from 180 GW in 2008-09 to 290 GW in 2015-16: India’s installed capacity requirement (GW) GW 79 110 32 290 Peak Requirement 211 180 148 Base Requirement Installed Capacity 2008-09 Shortfall .12. Infraline Note: * Includes installed. Planned Capacity Additions The following table shows India’s historical and planned power generation capacity in GW: Capacity addition by 2015-16 (GW) 500 450 400 350 300 250 449 200 150 100 50 0 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Total* Break-up (2015-16) 188 Announced Capacity 105 Capacity with visible signs of progress Capacity added between 2008-09 and Q3 2009-10 8 148 148 Installed capacity as of 2008-09 Installed Base Expected Announced 30MAR201016082569 Source: Installed capacity: CEA. Therefore the installed capacity required to meet the demand of 203 GW is 290 GW (Source: KPMG). Company Information. with more new capacity being added. Press Notes.12. Historically.2008-09 Installed Capacity Requirement 2008-09 Additional capacity required by 2016-17 Total Capacity Requirement by 2015-16 Total Capacity Requirement by 2015-16 30MAR201016082866 Source: Demand Installed Installed Installed Projections by 17th EPS. KPMG Analysis. KPMG Analysis Capacity 2008-09—CEA capacity as of 31. this ratio has been assumed to gradually improve to 70%.2009—CEA Installed Capacity requirement is the capacity required to serve demand. 56 . expected and announced capacity Announced capacity refers to planned capacity announced by central. capacity requirement projection based on Infraline. peak demand met as a percentage of installed capacity is 66% (average over the last years)—which implies that only 66% of installed capacity was available to meet the peak demand. (This is mainly due to plant availability and reserve requirements). CEA—Power Sector at a Glance December 2008. state and private sector entities. Going forward.

The geographical distribution 57 . press reports Note: 113 GW includes 8 GW added in Q1. with approximately 87% of these consisting of non-coking grade primarily used for power generation. 2010. Q2 and Q3 of 2009-10 Source: KPMG Fuel Resources India is expected to rely on a variety of energy sources in meeting the growing demand for power. water availability. natural gas or liquid fuel. the private sector will account for over 50% of the installed MW capacity additions over the next five years. Private-Sector Participation The private sector is expected to play a much larger role in the provision of power in coming years than in the past.5 GW was added by the private sector. coal-fuelled thermal plants accounted for 52. Based on these figures. 8 GW of the 113 GW has been commissioned by 31 December 2009 of which 3. by sector (GW) 120 100 58 80 Private Sector 60 113 40 55 20 Public Sector 0 Total Expected Capacity by 2015-16 Sector 30MAR201016273448 Source: Infraline. Approximately 105 GW of capacity is showing signs of progress on some or all of the following milestones as per publicly available information: a) secured committed financing b) land acquired / acquisition under progress c) fuel supply agreement signed d) water availability ensured. 20 GW of the announced private sector capacity addition has shown progress on all key milestones outlined in the previous paragraph. land acquisition. other clearances and NOCs obtained and e) order for equipment placed. lignite. Company websites. Break-up of capacity with visible progress. Based on the total installed power generation capacity in India as of 28 February. The additional 188GW of announced capacity—for which there is no publicly available information on progress—has been equally distributed in the chart above across the seven years from 2009-10 to 2015-16 (around 27GW per year) as there is limited publicly available information on their expected / scheduled commercial operation date (Source: KPMG). Of the 113 GW with visible signs of progress from April 2009. 58 GW is expected to be added by the private sector. with coal-fuelled thermal generation continuing to dominate. Thermal Power Thermal plants can be fuelled with coal.4% of the total available thermal capacity (Source: CEA) India’s geological resources of coal stood at 267 billion tonnes as of 1 April 2009. If this 105 GW of capacity comes on-line it will take the total installed base to 261 GW by 2015-16. clearances and equipment orders) is an important indicator of likelihood of capacity addition.Part 5 Industry Overview fuel supply agreement.

Dependence on captive power has been increasing due to the continuing shortage of power and India’s economic growth. Karnataka and Andhra Pradesh. Ministry of Coal. Typically. in turn.242 MW. Maharashtra. Base-load facilities are those that typically have low variable costs and provide power at all times. Natural gas is increasingly used in combined-cycle gas turbine power stations due to the high efficiencies resulting from the use of these advanced gas turbines. This has resulted in an increase in captive power capacity. Base-load facilities are used to satisfy the base level of demand for power. According to the Ministry of New and Renewable Energy’s press release dated 13 July 2009. As per CEA. only 25% of this potential (36 GW in total) has been developed and only about 10–15 GW of this is under construction. captive power capacity at 19. Overall. June 2009 (CEA). The unit capacity of wind power generators presently range from 225 kW to 2 MW.000 MW. According to the Ministry of NonConventional Energy Sources. the United States and Spain in wind power generation. India’s geological reserves of lignite. MPPs may not have long-term PPAs and are generally built and owned by private developers at their own cost. or stations located near these reserves. West Bengal. base-load units are selected for areas characterised by relatively high load factors or stable energy use. with the majority of this capacity being achieved through private investment.3 billion tonnes. the supply of wind power that can be exploited technically and economically in India is about 13. The hydroelectric potential of a river basin forms an integral part of the electric power supply industry. A facility’s variable cost to produce electricity. Peaking facilities have the highest variable cost to generate electricity and typically are 58 . it is typically used for power generation at pithead generating stations. Rajasthan and Gujarat. Reliability of power supply and economies of scale are other factors driving industrial users to develop captive generation plants. Gujarat. are approximately 38. India’s current wind power installed capacity is 10.000 MW. However. according to the Working Group Report of the 11th Planning Commission.’’ that is not dependent upon time of day or weather. Chhattisgarh. depending on how competitively imported coal prices compare to domestic coal prices. The rise of MPPs has been one of the results of the restructuring of the electricity industry.509. determines the order in which it is used to meet fluctuations in electricity demand. India now ranks fourth in the world after Germany.5 MW accounted for 11. while India’s total wind power generation potential is around 45. Madhya Pradesh. Power Generation by Customer Segment Captive Power Generation Captive power refers to power generated by a project set up for industrial users. Since lignite’s low energy density makes it inefficient to transport over long distances.Part 5 Industry Overview of these coal reserves was across the states of Jharkhand. or ‘‘load. Orissa and Andhra Pradesh. or brown coal. Hydroelectric Power Hydroelectric power generation is based on the sustainable development of river basins. India has hydroelectric power potential of about 148 GW. (Source: Government of India. Wind Power India’s wind power development programme was initiated in 1983/84. about 70% of the exploitable power potential is yet to be developed. These reserves are found primarily in the states of Tamil Nadu.5% of the total installed capacity in India. According to the Monthly Review of the Power Sector. The Electricity Act provided additional incentives to captive power generation companies to grow by exempting them from licensing requirements. MPPs can generally be categorised into different classes based on the amount of time that the facility is operating and the variable costs to produce electricity. Merchant Power Generation Merchant power plants (‘‘MPPs’’) generate electricity for sale in the open wholesale market.) The use of imported coal with high calorific value and low ash content may be the preferred fuel choice for coastal thermal power plants in the Indian states of Tamil Nadu.

are large-sized projects. One of the following conditions must be fulfilled by a proposed power project to be granted mega power project status: • • a thermal power plant with a capacity of 1000 MW or more. Arunachal Pradesh. Arunachal Pradesh. Mizoram. to privatise distribution in all cities in that state that have a population of more than one million within a period to be fixed by the Indian Ministry of Power. In order to facilitate the development of the electricity market. Mizoram. the size of the expansion unit should not be less than that provided in the earlier phase of the project which has been granted a mega power project certificate. Intermediate facilities have cost and usage characteristics in-between those of base-load and peaking facilities. Under these guidelines. Manipur. which were introduced in 2006. Deemed export benefits: Deemed export benefits are available to domestic bidders for projects in either the public or private sector upon meeting certain requirements.427. Nagaland and Tripura. The Working Group Report of the 11th Planning Commission estimates that approximately 10. Manipur. and the power purchasing state undertakes. The availability goals of all units are driven by ‘‘in-market’’ availability. These projects are intended to meet the demand for power of a number of states.000 million (US$3. qualify for the above fiscal benefits after the project is certified provided that: • • the power purchasing states have granted to the Indian regulatory commissions full powers to fix tariffs. typically involving a capacity of 4000 MW each and requiring an estimated investment of about Rs. Typically. Assam. or a brownfield (expansion)—in the brownfield phase of an existing mega project. These may also be provided to MPPs with capacities in the range of 500 MW to 1000 MW.000 MW to 12. the Indian Ministry of Power has issued guidelines for the development of MPPs as well as regarding which coal linkage/captive coal block allotments would be available for MPPs. Nagaland and Tripura. in principle.6 million). Meghalaya. Ultra-Mega Power Projects UMPPs. located in the states of Jammu and Kashmir. or a hydro power plant with a capacity of 500 MW or more. would promote increased competition in the electricity market. MPPs up to a capacity of about 1000 MW would be provided coal linkage and captive coal blocks. 160. Assam. • • • Fiscal concessions and benefits available to mega power project’s include: • • • No customs duty: The import of capital equipment is free of any customs duties for these projects. or a hydro power plant with a capacity of 350 MW or more. • Income tax benefits: An income-tax holiday is also available under Section 80-IA of the Income Tax Act 1961. defined as availability during periods when power prices are significantly above the variable cost of producing power at the facility. as well as the distribution 59 . Sikkim.000 MW of capacity will be developed through this MPP initiative.Part 5 Industry Overview used only during periods of high demand for power. Meghalaya. Mega Power Projects Mega power projects are large-scale capacity expansion projects incentivised by the state through a variety of means. The National Electricity Plan anticipates that capacity additions from this initiative will further contribute to India’s economic development and to more reliable sources of power and greater spinning reserves and most importantly. Sikkim. or a thermal power plant with a capacity of 700 MW or more located in the states of Jammu and Kashmir. Pre-conditions for availing the benefits: Imported Goods required for setting up of any mega power project. peaking units are selected for areas of relatively low-load factors or high volatility in load demand.

the identification of project developers for these projects is conducted on the basis of tariff-based competitive bidding. Guidelines for the determination of the tariff for procurement of power by distribution licensees were promulgated in January 2005 under the Electricity Act.000 20. the volume of power traded. Own. IEX is a demutualised exchange that facilitates efficient price discovery and price risk management in the power trading market.corcind. a PSU under the Indian Ministry of Power.in. The Indian Energy Exchange (‘‘IEX’’) is India’s first national automated and online electricity trading platform. It offers a broader choice to generators and distribution licensees for the sale and purchase of power by facilitating trade in smaller quantities. the Electricity Act recognised power trading as an activity distinct from generation. purchasing power from power producers and selling to the distribution licensees) or retail supply (i. the National Stock Exchange and the National Commodities & Derivatives Exchange Ltd.e.023 15.965 20. (Source: www.000 11. PXIL aims to provide transparent and fair price discovery mechanisms which can signal massive potential investments into the Indian Power Sector. Trading has been defined as the purchase of electricity for resale. as well as its traded price. nation-wide exchange for trading of electricity.com/index. (Source: http://www. purchasing power from power producers or distribution licensees for sale to end consumers). IEX received CERC approval to commence operations.gov. It has been promoted by two of India’s leading Exchanges.000 0 2003-04 2004-05 2005-06 2006-07 2007-08 30MAR201016083308 Source: http:www.com. (Source: KPMG) These projects are being developed on a ‘‘Build.e. The Electricity Act classifies trading in electricity as a licensed activity.Part 5 Industry Overview companies located in those states. and Operate’’ basis.powerexindia.029 10. transmission and distribution and has facilitated the development of a trading market for electricity in India by providing for open access to transmission networks for normative charges. The following graphic shows the increasing volume of power traded for the periods indicated: Volume of Electricity Traded by the Trading Licensees in GWh 25. The Power Finance Corporation Limited (‘‘Power Finance Corporation’’). Power Exchange India Limited (‘‘PXIL’’) is a fully electronic.846 15. PXIL received regulatory approval from CERC on 30 September 2008 to begin operations and successfully began its operations on 22 October 2008. to encourage the entry of mega power plants and private sector investment in the power sector.html. has grown rapidly over the last few years. IEX also enables participants to precisely adjust their portfolios as a function of consumption or generation. Resale may involve the wholesale supply of electricity (i. which typically contracted power on a long-term basis by way of PPAs with regulated tariffs.) On 9 June 2008. Trading Historically. However. IEX seeks to accelerate the modernisation of electricity trading in India by enabling trading through an online platform. 60 .188 11.000 5. has been identified as the nodal agency for this initiative.iexindia. As the promotion of competition is one of the key objectives of the Electricity Act and as a result of the legal provisions regarding procurement of electricity by distribution companies. the main suppliers and consumers of bulk power in India have been the various governmentcontrolled power generation and distribution companies.000 14.) With the aid of the reforms.

the rate of return for generation and transmission projects. 186 billion (US$3. Western. subsidies to consumers and cross-subsidy calculations. Eastern and North-Eastern The key objective of the national grid development is to enable transfer of power from power surplus regions to those regions with a power deficit. The NTP. another Rs. Deficit (%) vs Short-term price (INR / unit) 20% 18% 16% 14% Deficit (%) 12% 10% 4 8% 6% 4% 2% 0% Dec-07 Dec-08 Aug-07 Aug-08 Aug-09 Dec-09 Apr-07 Jun-07 Oct-07 Apr-08 Jun-08 Oct-08 Apr-09 Jun-09 Feb-08 Feb-09 Oct-09 3 2 1 0 9 8 7 6 5 Average trader price (Rs / Unit) Deficit (%) Average trader price (Rs / Unit) 22APR201007372813 Source: KPMG Tariffs Tariffs for independent power products are governed by PPAs between power generation companies and utilities. with various scenarios for supply addition Estimation of installed capacity requirement to meet demand from 2010-11 to 2013-14 Estimation of short-term power price ranges for the period 2010-11 to 2013-14. tariff modalities for utilities. In order to arrive at price ranges for short term power. At the inter-state level. PGCIL and DVC have made a combined investment of an estimated Rs. The Electricity Act empowers the CERC to set tariffs for generating companies owned or controlled by the Government of India as well as for other entities with interstate generation and transmission operations. Southern. The approach included: • • • Supply addition estimates for the period 2010-11 to 2013-14.984. PGCIL is working towards a national Indian grid. Phase I of the national grid was completed in 2002 (IXth Plan) which created an inter-regional capacity of 5.050 MW. Phase II of the national grid was completed in 2007 (Xth Plan). the demand for transfer of power has increased. PGCIL is responsible for the construction and operations and maintenance of the interstate transmission system and the operation of regional power grids.Part 5 Industry Overview Historically. enacted by the Government of India in January 2006 and amended in March 2008.6) during the Xth Plan period.355. With the Electricity Act 2003 mandating open access to allow for trading of power.6) was invested by State 61 . Transmission Transmission infrastructure The transmission network in the country is divided into five regional grids—Northern. Tariffs for state-sector generators are regulated by the SERCs. However. 250 billion (US$5. these guidelines are not applicable if the tariff is fixed through a transparent bidding process. it is necessary to understand the supply-demand conditions which shall prevail in India over the forecast period (2011-14). prices in the short term merchant market appear to be linked to the demand-supply situation and the corresponding deficit or surplus. has facilitated reforms of the power sector by providing guidelines for multi-year tariffs. and its activities and short-term objectives are revised every 5 years as part of the National Electricity Plan. At the intrastate level.

2 billion) of this Rs.08 100000 50000 0 VI Plan VII Plan VIII Plan HVDC IX Plan 400 kV X Plan 220 kV XI Plan target 52. The transmission network in India has grown from 52.03 117.3 198.034 ckt km at the end of the VIth Plan period to 198. Of the total expenditure requirement.2 ~4X 293. an estimated Rs.000 MW is estimated as being added by 2014-15.400 billion (US$30 billion). 750 billion (US$16.600 MW and further 21.1 billion) is required for creation of inter-state transmission capacity. Rs. During the XIth Plan period.3 152. 750 billion requirement is expected to be contributed by the private sector. 195 billion (US$4. 60000 50000 40000 30000 20000 10000 0 X Plan ER-SR ER-NR ER-WR XI Plan ER-NER WR-SR 2014-15 NER / ER-NR / WR 30MAR201016083451 62 .Part 5 Industry Overview Transmission Utilities during the same period.410 ckt km at the end of the Xth Plan period. the total fund requirement for development of transmission infrastructure is estimated to be in the region of Rs. 1. 350000 300000 250000 200000 150000 81.4 765 kV 30MAR201016083159 The XIth plan The XIth Plan envisages an addition of 23.

. . . . . . . . . . . . . . 63 . . . . . . . . . . . . . . The working group report on infrastructure also estimates shortages in manpower requirement in power generation to the tune of 10. .6 734. . . . . . . . .5 63% 69% 70% 71% 73% 73% 75% 77% 78% 79% Source: MoPNG. . .4 254. . . . . . especially given that a large number of new entrants in power generation are players with unrelated existing businesses (e. . . . . . India will require — 140 MT of imported coal by 2012 to meet its coal requirements. . .6 844. .2 913. . . . . . . . . . . . 8APR201008112027 Source: KPMG. . 644. . . . . . . . . . being the largest consumer of coal will be affected significantly by fuel non-availability. . . . . . .3 37% 31% 30% 29% 27% 27% 25% 23% 22% 21% 405. . .8 1205. . . . .2 700. . . .3 844. .2 240. apart from clearances. .9 241. . . .g. . .5 1170. . . . . . . . .3 596. .9 255. . . . . These get further hampered due to R&R issues. . . . . . converted using a conversion factor of 1 mmt = 7. . . . . . . . .6 243. . .8 239. . . . . . . .2 247. . or throughput. . . . . . . . . . . . . . . . . . . .6 914. . . . . . . . . . India is increasingly becoming a significant net importer of crude oil. . . . . . there are issues around damage to forest cover. . . . .5 975. . . . . .9 954. . 8APR201008111753 Clearances A number of clearances are required before the developer can start construction work on the project and/or the mine. . . . . . . . . . . . . . . . . . The power sector. . .8 250. . . . . . . .1 532. . . . . . . 8APR201008111475 Equipment There are two issue with equipment: • Shortage of domestic equipment with domestic players unable to meet targets • Technical and regulatory uncertainty around imported equipment 8APR201008111618 Land Land Acquisition poses an increasingly significant challenge in the Indian Power sector. In 2009.5 955. . . . . . . . . . . . .5 mmbbls. . . . . and the resulting deficit required to be met through imports of crude oil during the ten-year period ended 31 March 2009: Total refinery crude oil throughput (million barrels) Total domestic production of crude oil (with condensate) (million barrels) (%) Year ended 31 March Crude oil deficit (million barrels) (%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 . . . . Power plants and utilities may face constraints and delays regarding the availability of land and obtaining the requisite environmental and other clearances for projects. . security issues etc.8 804. . . . . . . With the widening gap between demand for and production of crude oil in recent years.8 1099. EXPLORATION AND PRODUCTION Domestic Oil and Natural Gas Production While domestic production of crude oil and natural gas has grown in India over the past decade.Part 5 Key issues in the Indian Power Sector Issue Overview Industry Overview Fual Availability Due to the inability of CIL to meet the coal requirements for the planned power projects. .9 251. . . . . . . . . . .000 personnel across levels. . . . 8APR201008111896 Man Power Shortage Shortage in manpower will impact timely execution on projects. . . .4 663. . In case a captive coal block is involved. . . . . . . . . . . . . . more than 79% of India’s crude oil requirements were met though imports. The following table sets forth the total volume of crude oil processed by domestic refineries. .7 775.3 254. .6 564. . . . . the total domestic production of crude oil. . this growth has not kept pace with growth in domestic consumption. Athena is financial services firm planning to enter the generation sector).

. . . . . . . . . and the area covered by it is normally 250 square kilometres. . . . . . . . . . . . .7 32. . . . . .4 27. . . . . . . . . . . . . . . . . . . . . . through the introduction of the New Exploration Licensing Policy (‘‘NELP’’). . . . . . . . . Further. . . . the Government of India revised its procedures for awarding exploration licenses. . . . . . . . . . . This program has led to significantly higher private-sector involvement in domestic hydrocarbon exploration in recent years and has increased the exploration opportunities in India. . . . . . . . . the Government of India has the right of pre-emption in relation to the natural gas extracted from the leased area at the fair market price prevailing at the time of the pre-emption. . . . . . . . . . .8 32.4 28. . . . . . .0 31. . . . . . . . . . . .3 26. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LNG imports into India commenced in early 2004. . . with 70 exploration blocks offered covering an area of 163. . . . . . . . . . . . . . . . . in the 64 . . PELs and PMLs may also contain the terms and conditions agreed to between the licensee or the lessee and the Government of India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . in the event of a national emergency in relation to petroleum. . . . . . . . . . . . . . . . . . . . . . . . . . . . Recently the Government of India announced the Eighth Round of NELP in April 2009. . . . . . provided that the licensee or lessee shall have the right to make use of such data. . . . . . . . free of cost. . . . . . . . . . . . . . . . . .7 31. . . . . . The P&NG Rules prohibit the prospecting or exploitation of any oil or gas unless a licence or lease has been granted thereunder. . . . . . . . . . . . . . . . . . A PML entitles the lessee to an exclusive right to extract oil and gas from the relevant contract area. . . . . . . . . . . . . . . . . .2 31. . . Total domestic production of natural gas (billion cubic meters) Year ended 31 March 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 . . . . . . . . . . . . . . . . . . . . . . . . . for onshore areas. . . . . . . . . . . 22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . all of which was consumed domestically. . PELs and PMLs are granted by the MoPNG for offshore areas and by the relevant state governments. . . . (Source: Petronet LNG) Exploration and Development Activities Beginning in 1997. . . . . . . . . . . . with the prior approval of the Government of India. . . . However. . . . . . . . . .4 32. . . . . . . . . . . Further. . . . . . . . 1959 (‘‘P&NG Rules’’) provide the framework for the granting of petroleum exploration licenses (‘‘PELs’’) and petroleum mining licenses (‘‘PMLs’’) in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the lessee has to be paid the higher of either the prescribed rental or the royalty with respect to the relevant lease. . . the licensee or lessee is under an obligation to provide to the Government of India or its designated agency all data obtained or that will be obtained as a result of petroleum operations under the licence or lease. . . . . . . Under the Oilfields (Regulation and Development) Act. . . . . . . . Further.535 km2. . upon grant of the PML. . . . . for the purposes of petroleum operations under the licence or lease. . .3 Source: MoPNG-Basic Statistics of Indian Petroleum and Natural Gas With the commissioning of the Dahej Petronet LNG regasification terminal. . .5 29. . . . . . . . . . . . . . . . . . . . . . . . . . . 1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 23. . . . . . . . . . . . the royalty is the amount that is generally payable as a percentage of the value at the well-head of the natural gas obtained by the lessee. . . . . . . . . . . . . . . the Government of India may. . . Additionally. . . . . . . . . . The Government of India has the right to order a royalty to be paid in terms of natural gas obtained instead of money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . under the P&NG Rules. . . . . . . . . . . . While the rental is stipulated to be payable based on the area of land leased. . . PELs or PMLs are required to contain the terms and conditions specified in the P&NG Rules. . the levy of a royalty of up to 20% of the sale price of the mineral oil (which includes natural gas) is permitted. . . . . . . . . . .Part 5 Industry Overview The following table sets forth the total domestic production of natural gas during the 13-year period ended 31 March 2008. . . . . . . The term of a PML is generally 20 years. . . . . . . . . . . . . . . . . . . . . . .5 29. . . . Such data shall be the property of the Government of India. . . The term of a PEL is for a period of four years which is renewable twice for a period of one year at each instance. . . . . . . . . . . . The Petroleum and Natural Gas Rules.

restrict the amount of petroleum or natural gas that is produced by a lessee in a particular field. petrochemical plants. a number of recent discoveries have been made in various exploration blocks in India. petroleum products and natural gas. Government of India. to provide a regulatory mechanism in the petroleum sector. refineries and power plants. including the protection of consumers’ interests. marketing and sale of petroleum. The PNGRB is mandated to carry out a number of policy objectives. CSG is natural gas derived from coal that is extracted by depressurisation. city gas distribution. participated in this round. India Sector Overview. Government of India. processing. The price of Administered Price Mechanism (‘‘APM’’) gas of ONGC and OIL was last revised in 2005. The price has been fixed by the Government of India since 1987. priority among allocation is provided to (1) existing fertilizer and urea plants (2) LPG-based plants as LPG is a clean fuel (3) existing gas-based power plants (4) other gas-based plants (5) replacement of liquid fuel by natural gas. gas prices were fixed by ONGC and OIL. The Government of India created the Petroleum and Natural Gas Regulatory Board (‘‘PNGRB’’) effective 1 October 2007. (Source: KPMG Oil and Gas Sector Overview in India 2009. (Source: The MoPNG. distribution. (Source: Methane to Markets Partnership. Under the Gas Allocation Policy. the market and competitive data in this section has been extracted without material adjustment from a report prepared by KBC. seven blocks received multiple bids.) The Gas Authority of India Limited controls the distribution for more than 79% of the gas transmission in India through its ownership of approximately 7.) India’s existing domestic natural gas transmission infrastructure can support daily production and transportation of approximately 100 million m3 of natural gas.) While total domestic production in India has been relatively flat in the past few years. LPG gas should be utilised in the following order of priority for greenfield expansion: fertiliser plants. the monitoring of prices and IN INDIA 65 . The Government of India had awarded 26 CSG blocks as of March 2009 and is expected to continue to encourage domestic and foreign companies to pursue CSG opportunities in India in the future. Under the CBM IV Licensing Round. transportation. respectively.001 kilometres of pipelines. to ensure that natural gas is utilised in the most optimal manner. The PNGRB regulates the refining. The Gas Allocation Policy was enacted in 2008 by the Ministry of Petroleum and Natural Gas. (Source: MoPNG. ONGC and Oil India Limited (‘‘OIL’’) account for 86% and 75% of total domestic oil and gas production. The potential for future discoveries could be high in light of the Indian Directorate General of Hydrocarbons’ assessment that significant portions of the Indian sedimentary basins are either ‘‘unexplored’’ or ‘‘poorly explored’’. the authorisation of common carriers and the establishment of rates for pipelines. IOCL owns approximately 79% of the approximately 5. storage. ensuring the adequate availability of petroleum products. After a decade of private-sector participation. with a small percentage transported by tanker. 26 bids were received for eight of the ten blocks on offer.559 kilometres of crude oil pipeline in India.) REFINING Overview Unless indicated otherwise. Out of these eight blocks. Crude oil produced onshore in India is transported to refineries primarily through trunk pipelines. A total of 19 companies.) Crude Oil and Natural Gas Transportation Prior to 1987. Natural gas is transported to end users through producer-owned pipelines or through a transporter. the Government of India has increasingly focused its attention on alternate hydrocarbon extraction technologies such as underground coal gasification and gas hydrates. Given the substantial gap between supply and demand in the energy sector in India and the limited amount of crude oil and natural gas reserves globally. (Source: Ministry of Petroleum and Natural Gas. Government of India. The policy further elaborates that once the gas demand from existing units has been satisfied. comprising three foreign companies and 16 domestic companies.Part 5 Industry Overview interest of conserving mineral oils. with the balance owned by OIL. Government of India.

. . Complex refineries generally produce a lower percentage of these heavy products and produce a higher percentage of light products such as LPG. . . . . 10 Cities † Nationwide NCR*. . 10 Cities † Nationwide NCR*. . long residue and bitumen. 66 . Chennai NCR*. continue to dominate the refined petroleum product retail sector in India. . Surat. . Auto Fuel Policy and the Quality of Fuel Policy MoPNG framed the Auto Fuel Policy in 2003 with the twin objectives of addressing growing environmental concerns and providing assurance that the oil and automobile industries would enact detailed plans and undertake government mandates to produce higher quality fuels. . naphtha and gasoline and middle distillates such as kerosene and diesel. Kolkata. . . . . the use of CNG and LPG in cities affected by high levels of vehicular pollution to enable vehicle owners to meet higher emission standards in those cities. . . . . . of approximately 178 mmtpa (following the commissioning of Reliance Petroleum Limited’s new refinery with an annual installed capacity of 29. . . and the improvement of technology used to produce ethanol and bio-fuels. with a combined annual installed throughput capacity. . . Hyderabad. . . . . . . the Indian crude oil refining sector consists of ten companies operating a total of 20 refineries. The three Indian government-owned national oil companies. In a simple refinery. . . Pune. . Kolkata.0 mmt on 15 March 2009). . Euro 1 Euro 2 2000 2001 April 2003 April 2005 April 2005 April 2010 April 2010 Nationwide NCR*. . These objectives were to be achieved through the improvement in quality of liquid auto fuels throughout the country in line with vehicular emission standards. accounting for approximately 92% of total retail petrol stations as of 1 April 2009. 10 Cities † Bharat Stage III . . . all of India’s domestic refiners are public-sector enterprises. . The ministry has not defined specific vehicle technologies to be used or types of fuel and has also made allowances for the use of alternative fuels with the appropriate conversion kits. Chennai. Bangalore. . . . IOCL. . . With the exception of the Reliance refineries and the Company’s Vadinar refinery. . . . . * † National Capital Region (Delhi) Euro 3 Euro 4 Mumbai. .) Domestic private-sector companies account for the majority of the remainder of the sector. Ahmedabad. . a greater percentage of the end products are less valuable heavy products such as fuel oil. . Bharat Stage II . . the increased use of alternative fuels for vehicles. . as of 31 March 2009. .Part 5 Industry Overview distribution of petroleum products and the establishment of technical standards for the production and distribution of petroleum products. Bharat Stage IV . (Source: PPAC and MoPNG. . . . . . The following table sets forth the mandated Indian fuel standards (as well as their European equivalents) and their targeted implementation dates: Standard Reference Date Region India 2000 . . . . . . According to PPAC. . . . . . . . . . . Kanpur and Agra Source: Emission Controls Manufacturers Association Refined products Oil refining is primarily a margin-based business in which a refiner’s goal is to optimize the refining processes and yields of all products in relation to feedstocks used. . . Mumbai. BPCL and HPCL. . MoPNG has developed a roadmap for the implementation of the Auto Fuel Policy by mandating vehicular emission standards and corresponding fuel specifications. .

. Petcoke and Lubes. propylene. . . Petroleum coke is a solid residual by-product of the delayed coking process. wherever applicable. . . . . . light products. Over 75% of petroleum coke produced is fuel grade and has about 15-25% higher heating value than coal. . . . base oils. . . account for a significant portion of refined petroleum products sold domestically. Iso Octane and other refined petroleum products. . . . . . including diesel (in particular HSD) and motor spirits. . . diesel fuel and heating oil. . . . . . Naphtha is also commonly used as fuel for fertilizer units and power plants. . Bitumen: Residual product of crude oil vacuum distillation. . approximately 47% of the total sales of refined petroleum in India for the year ended 31 March 2009. . . . . . . or combinations of fuel oils and distillate fuels. Additives are often used to enhance performance and provide protection against oxidation and corrosion. As the table shows.Part 5 The major refined petroleum products produced by refineries are: • Industry Overview LPG: Liquefied petroleum gases. 7% 12% 7% 11% 38% 13% 13% 8% 12% 7% 10% 36% 13% 14% 8% 11% 7% 10% 35% 12% 16% 9% 11% 7% 9% 34% 12% 17% 9% 13% 7% 8% 36% 12% 15% 9% 11% 8% 8% 35% 11% 17% 9% 11% 8% 8% 36% 10% 18% 9% 9% 10% 10% 8% 8% 7% 7% 37% 39% 10% 9% 18% 17% Others include ATF (Aviation Turbine Fuel). • • • • • • The total value of the refined products less the cost of crude oil and other feedstock is commonly referred to as the gross refining margin. . . aviation fuel. . . . synthetic fibres. power plants. . . which in turn are used for the production of plastics. . . . . . Motor spirits (Gasoline/Petrol): Various gasoline blendstocks are blended to achieve specifications for regular and premium grades in both summer and winter gasoline formulations. . for the years indicated. Methyl Tertiary Butyl Ether. . 67 . LPG is also now permitted as auto fuel. The GRMs of complex refineries are generally higher than those of simple refineries because complex refineries are able to generate a higher yield of light and middle distillates from lower cost. Alkylate. are produced for use as a premium fuel and as an intermediate material in the manufacturing of petrochemicals. . . Kerosene . Middle distillates: Middle distillates are kerosene. Naphtha: Principally used as a feedstock by the petrochemicals industry for producing basic building blocks such as ethylene. as a percentage of total Indian domestic consumption of refined petroleum products. . . . . toluene and xylenes. . heavier and sourer crude oils. The following table sets forth domestic consumption data for the major categories of refined petroleum products. . complex refineries have secondary processing facilities available to convert lower valued. . . . . . . . . . . . Ethyl Tertiary Butyl Ether. . . . butadiene. . . . . Refined petroleum product category 2001 2002 2003 Year ended 31 March 2004 2005 2006 2007 2008 2009 Liquefied petroleum gas . . Naphtha/natural gas liquids . automotive fuels. Tertiary Amyl Methyl Ether. . . . . . . benzene. . . . Source: PPAC. which is used primarily for asphalt coating of roads and roofing materials. LDO (Light Diesel Oil). These products are commonly used as blending components for transportation fuels or for lubricants. . . . . . Niche petroleum products: Various refined petroleum products produced in relatively small quantities such as petroleum coke. . . . . Gasoline/petrol is most commonly used as fuel for automobiles. . . . . heavy products into the higher value. Motor spirits (gasoline/petrol) . . . . . . consisting primarily of propane and butane. . . . . . . . . High-speed diesel (HSD) . Fuel oil/low-sulphur heavy stock Others . Bitumen. . . In addition. . synthetic rubbers and other products. Fuel oils: Many marine vessels. . Fuel oils are also used as fuel for fertilizer plants and industrial units. . . . . commercial buildings and industrial facilities use fuel oils.

Motor spirit and HSD products sold to the government-controlled oil marketing companies are priced at 80% of the prevailing IPP plus 20% of the prevailing EPP. Although domestic crude oil prices were largely deregulated as of April 2002. As a result. The trade parity price for MS and HSD is determined by taking 80% of the import parity price (‘‘IPP’’) and 20% of the export parity price (‘‘EPP’’). The pricing of products for sale on the Indian domestic market is linked to international prices through a formula. private-sector oil companies. have to either similarly sell their petroleum products below cost for a loss. Domestic sales in India can include commercial sales and retail sales. has been significantly affected by price controls. The pricing cycle varies for different products. For SKO and LPG pricing occurs on a monthly basis beginning the first of every month. mandated distribution arrangements. ATF and SKO products sold are priced at 100% of the prevailing IPP. Domestic commercial sales consist of the bulk sale of refined petroleum products to domestic industrial customers as well as to the governmentcontrolled oil marketing companies whose marketing requirements are greater than their own refinery supplies. HSD. which comprise approximately 92% of the retail fuel stations in India. The graph below shows the notional Indian based margin compared to a Singapore based margin for Dubai crude with a standard cracking refinery yield (FCC/Visbreaker based configuration). The pricing basis for the regulated market provides a margin advantage to Essar Energy and other Indian refiners compared to competitors in countries with non-regulated markets. Prices for products other than MS and HSD are equal to 100% of the IPP. aviation turbine fuel (‘‘ATF’’) and bitumen. For MS. but this can vary depending on market conditions. subsidies. Sulphur is generally priced twice in a month upon receipt of sulphur reports. Forecast Cracking Margins (Dubai Crude) 30MAR201015202649 Source: KBC 68 . Prices for crude oil. FO. prices are determined on a fortnightly basis beginning on the 1st and 16th of every month. natural gas and various refined and processed products have historically been subject to complex price and subsidy arrangements. or charge higher. The Indian margin is about $2/bbl above Singapore in the early years. currently price their petroleum products below cost. retail fuel stations owned or controlled by the Government of India (‘‘PSU Retail Outlets’’). although they are free to set their own prices. and other government regulation. non-competitive prices.Part 5 Industry Overview Indian Domestic Pricing Methodology and Regulation The Indian retail sales and marketing sector. Domestic retail sales consist of the sale of refined petroleum products to retail consumers through domestic retail fuel stations.

with China and India leading the way as their economies continue to grow strongly over the coming decade. global oil demand is expected to rise by 12 million bbl/d over the next decade from 85. The trend intensifies over the decade from 2020 to 2030. it is necessary to account for other factors that will serve to depress long term demand growth: • rising international oil prices. Moreover. such as naphtha (fertilizer feed stock). driven by slow economic recovery. Demand in the major markets in Europe and the United States is expected to begin a slow decline. Increasing mandates for biofuel blending over the next decade will limit the recovery of conventional oil demand. after which it enters into a period of slow decline. It is clear that India is set to be amongst the top growth regions of the world. although it is anticipated that the development of India’s gas resources may eventually have a partial substitution impact on certain refined products. as much of the marginal growth in refined product demand will be met by bioethanol and biodiesel. 69 .4 million bbl/d. By contrast. expectations for growth in global oil demand have been tempered by an exceptional period of demand destruction (2008-9) that has seen world oil demand drop back from its 2007 peak—a level of global oil demand that is not expected again until 2011 at the earliest. Recent strength in Indian product demand has given strong signals for robust growth in the near-term. Global demand recovery in the aftermath of the recession is expected to be led by the Asia-Pacific region and the Middle East. led by China and India. Asian markets are expected to lead the global recovery. While in the west.8 million bbl/d in 2010 to 97. rising fleet fuel economy and a general push to lower GHG emissions. Developments in Global Oil Demand.8 million bbl/d by 2020. with 60% of oil demand growth over the next decade coming from Asia and much of the rest of it coming from the Middle East and the developing south. both North American and European demand is expected to remain static for the next 15 years. transport fuel demand is expected to be flat and fuel oil demand is expected to fall. see the locus of refined products markets shifting further east. Global demand growth will slow to only 6.Part 5 Demand for refined products Industry Overview Following the recent turmoil on global commodities markets. The rising demand prospects in Asia. but more than 72% of this growth will be realised in the Asia-Pacific region. 2000-2030 30MAR201015203637 Source: KBC In absolute terms. furnace oil and low sulphur heavy stock as fuels burnt for heat generation in the manufacturing industry.

and the corresponding slump in net refined product demand (on the black line) took a downward turn after a record year in 2007. . . . Gasoline . The chart below shows how the slump in demand (on the green line). . . -’000 bbl/d 2009 2010 2011 2012 2015 2020 2025 2030 LPG . . in turn. . . . . . . . . . Global refining utilisation (in blue) went from a peak of just under 90% in 2007 to present-day levels in the low-80% range. keep pace with demand recovery. Supply of refined products After three years which some called the ‘‘golden age’’ of refining. . . The outlook assumes that both the US and India will back away from their aggressive 20% biofuels mandates in 2022 and 2017 respectively. . It is noteworthy that the additions of substantial volumes of biofuels and gas liquids in the recent past and near future cause the gap between total oil demand and net refinery output to widen from around 7 million bbl/d in 2005 to around 11 million bbl/d in 2015. . As these projects are not yet proceeding. which brought 580. major cities will move from BS-III to BS-IV standard (similar to the Euro IV) while the rest of the country will move from BS-II standards to BS-III by October 2010. . and longer term pressures to curb energy/oil use in response to environmental concerns. . . . Some of these projects will likely proceed. . . . . . led to low utilisation rates and the collapse of refining margins over the course of the past 12 months. there is potential for them to slip further back. 70 . . . global refiners have been hit hard by the current global recession. . Gas/Diesel Fuel Oil . . . . . .Part 5 • • Industry Overview the potential for eventual local prices to rise in future as subsidies are reduced or eliminated. . More speculative (but still plausible) refining capacity additions are shown on the dotted red line. Brazil and China. while Europe will probably achieve its less aggressive target of 10% by 2020. indicating that net refining utilisation is forecast to remain in the low-80% range until about 2015 on the basis of firm refining projects. . . . . . Naphtha . . 2000 2005 2008 Indian refined product demand. . . . . . . In effect. . . . 231 282 155 288 860 296 214 2326 337 296 202 270 823 340 316 2585 406 336 260 303 1050 390 362 3107 416 352 299 301 1112 404 379 3264 432 352 332 316 1184 402 395 3414 450 366 363 329 1246 401 412 3568 468 380 394 344 1314 400 429 3729 526 426 478 395 1553 398 487 4262 625 498 677 477 1846 328 576 5025 690 547 937 488 2101 225 650 5639 725 573 1333 507 2376 183 712 6410 Total . . . . The combination of declining demand and the arrival of nearly 2 million bbl/d of complex new refinery capacity led to a substantial oversupply of refining capacity which has. though there are some concerns whether domestic PSU refiners will be capable of meeting their share of the full volumetric requirement which could force India to import some clean product in the near term. . . . . . . . . Firm capacity additions. . . The collapse in global products demand has met a wave of new capacity additions led by the massive new Reliance Petroleum SEZ refinery at Jamnagar. shown on the red line. including some new capacity addition for Kuwait. . Under the country’s Auto Fuel Policy. . . . . the vast majority of which are unlikely ever to be built. . . . Saudi Arabia. . . . These projects are taken from a much longer list of potential refinery projects. Others . . . . .000 bbl/d of new capacity to the global market. . Kerosene . . . . the addition of biofuels to the global fuel mix is bearish for refiners. Source: KBC The year ahead will see India progressing its next level of fuel quality improvements.

The forecast only includes announced closures in Europe. Net refinery capacity additions shown above are largely scheduled to come to market in the Middle East and Asia-Pacific regions. the situation will likely be improved by the continued trend of refinery closures in markets where demand has collapsed. However. When considered in conjunction with the utilisation chart above.Part 5 Industry Overview Refinery Output. Net Changes in World Crude Distillation Capacity End Year Basis. as can be seen in the chart below. 1995-2015 30MAR201015205727 Source: KBC The above picture seems bearish for refiners over the medium term. World Oil Demand and Refinery Capacity. as their capacity is much closer to the future market demand. it can be seen that for the early part of the past decade refinery capacity investments did not keep pace with demand growth. 71 . Likely and Forecast Possible 30MAR201015204877 Source: KBC What is also evident from this chart is the low capital investment climate that preceded the current market conditions. This is actually a positive for Asia-Pacific refiners. the US and Japan.

3 12.2 0.9 12.4 5.5 1. . . .0 3.2 8.1 13.8 3. Thus around 500. India will add approximately 950.8 2. part of this is by design. Product 2002 2003 Year ended 31 March 2004 2005 2006 2007 (mmt) 2008 2009 Liquefied petroleum gas .4 39. .0 14.1 12.0 11. while apparently selling the LPG into India.2 5. thereby reducing the potential available supply for the domestic market. with the net deficit being met through imports.1 9.1 0.5 2.2 36. . at least in the near term.4 — 2. Combined. .1 10.3 2. .6 Naphtha/natural gas liquids .1 0.8 mmt in 2007/08.7 — 7.5 53.3 8. to meet domestic demand.3 2.4 42.7 14. However.1 10. . these refineries may have an obligation to export some or all of their production.7 — 9.9 14. domestic refining capacity now exceeds domestic demand for refined petroleum products.1 9.4 40.8 12.7 0.9 16.0 9. .6 8. following large increases in refining capacity resulting from the construction of new refineries and upgrades at existing refineries in India.9 12.4 0.4 11.0 2.0 11.6 12.6 1.5 2. .5 11.2 2.7 4. However.0 10.8 7. 72 .5 0. As noted above.5 5. Even when set against relatively robust growth in demand for refined products.9 36.8 18. . .6 5.3 8.1 12. .2 2. .2 9.3 14.1 3.4 7.6 9.5 40.2 2.8 — 10. . .7 2.9 10. other than LPG.Part 5 Industry Overview Product balance in India Prior to 2000. Motor spirits (Gasoline/Petrol) .5 13.2 14.9 7.1 0.000 bbl/d of India’s surplus is anticipated to be structural.7 — 10.3 2.000 bbl/d of new firm refining capacity through 2012.7 7.3 11.1 17.7 9. .9 mmt in 2008/09 compared to 40.6 1.3 7.0 6.8 2.2 1.1 12.0 0.0 1.3 0.0 7.1 10.0 7.4 0. this firm capacity addition still leaves India as a net exporter of more than 1 million bbl/d of products. . as some of the planned new refineries have been set up as export-oriented units and/or are within special economic zones.7 1. . .9 15. . This planned increase in capacity as compared to the expected growth in domestic demand suggests that India’s refined product exports will increase.5 0.0 2.2 11.2 43.3 13.3 63.5 47.0 1.9 2.8 8.3 9.1 — 8. .8 2. there were still imports of over 18.2 2. .8 13. Fuel oil/low-sulphur heavy stock . .0 7.4 46.5 12.3 0.4 — 10. which suggests that the market without Reliance is much tighter than would otherwise be expected. Source: PPAC. are set to continue in the next few years. .0 3.3 12.7 13. The new Reliance Petroleum refinery in the Special Economic Zone (SEZ) at Jamnagar is designed to be export-oriented. .1 12. and is currently said to be exporting more than 80% of its total output.0 9. .2 0.7 — 2.7 1.0 0.8 1.3 16.5 3.0 0.2 9.9 — 2.3 0.4 2.2 15.7 12.8 0. and capacity upgrades at existing refineries in India. . .8 57. . Despite a decline in refined petroleum product exports to 36.2 10.6 9.9 8.3 5.7 16. . . Construction of additional refineries.8 9.4 8.3 47.0 2. but indications are that the refinery will export nearly all of the transport fuels it produces.3 8. .1 6. .2 0.1 12.5 0.3 10.9 0.2 0.4 13.4 3. indicating that a shortage in supply in the domestic market still exists. . domestic demand in India for most refined petroleum products exceeded domestic supply.9 11.2 — 3.8 0. Production Imports Exports Consumption Production Imports Exports Consumption Production Imports Exports Consumption Production Imports Exports Consumption Production Imports Exports Consumption Production Imports Exports Consumption 7.5 3.6 10.5 16.7 1. It is early to determine the full final impact of this refinery on India’s product balance.5 7.1 9.0 0.4 58. .3 mmt in 2008/09.8 12.1 0. High-speed diesel .8 8.3 13.8 2.1 2. Kerosene .3 4.3 1.2 37.7 1.7 10. .2 18.3 0. .3 39.6 2. .

. . India enjoys significant cost advantages from cheaper power and labour costs. . . . . . . . Base Indian Refined Products Balance. but their history of execution is poor and timelines tend to be extended. . . . . . . . . . Gas/Diesel Oil . . . . Location Project Type Capacity kbpd Month Year BPCL. . . . . . . . (Source: KBC) Strategic location: Jamnagar and Vadinar are located near the Middle East and are positioned on the major maritime route from the Middle East to the Far East. . . . HPCL. . Naphtha . . . . . . . . giving Indian refineries lower capital and cash operating costs.. .. Plans exist for capacity additions in these markets. . . . . . . . . Others . . . . • 73 . . . .5>18 mmtpa Expansion Expansion Expansion Expansion New Refinery Expansion 12->15 mmtpa Expansion New Refinery 120 20 80 48 17 30 60 180 60 40 300 955 April Feb April July 1Q Oct 1Q Dec 2010 2010 2011 2010 2010 2010 2010 2011 2011 2012 2012 . . . . . . . . . . . . . . IOC. . . . . . . . . . . . . . . . . . . . . . . Mangalore Refining & Petrochemicals. . . . 2000-2030. . Motor Gasoline Jet/Kerosene . . . . . . . . . HPCL. . . . . . . . Jamnagar and Vadinar are expected to emerge as a major global refining hub due to the following competitive advantages: • Cost competitiveness: Compared to more developed countries. . . . . . . . . . . . . . Surplus/(Deficit). . . Mumbai . . . . . Madhya Pradesh . . . . . Total . . . . Haldia . . . . Manali (Chennai) . . . . . . . . . . Emergence of India as a Global Refining Hub—Jamnagar and Vadinar In the first half of calendar year 2009. . . . .Part 5 Additions to Indian Nameplate Refining Capacity. . . . Mangalore . . . . . . . . . . . . . . . . . . . . . Hindustan Petroleum/Mittal. . . . . . .. . . . . . . . Source: KBC It is helpful to look for potential export markets for the potential Indian surplus. . . . . . . . raising India’s total annual domestic refining capacity to 178 mmt. . . the total annual refinery capacity in the Indian provinces of Jamnagar and Vadinar increased by 29 mmt. . . . . . . IOC. . . New Refinery Expansion Expansion 10. . . . . . Bina. . . .. . . .. . . . . . . . . . . . (28) (93) (82) (43) (42) (7) 32 45 127 187 28 37 114 129 250 (41) (20) 42 65 78 33 125 206 265 367 (22) 21 64 70 49 11 34 (93) 1 64 (26) 136 296 613 953 (30) 222 253 88 429 16 77 1056 (20) 244 305 96 472 (18) 89 1168 (52) (151) (216) (251) 244 172 123 96 270 98 (95) (374) 70 (12) (23) (42) 313 20 (235) (511) 71 141 243 286 49 (39) (114) (176) 966 230 (317) (971) Total . . . . . . . . . . . . . . . . . . . the bulk of the oil exported from the Middle East to East Asia is routed through the Arabian Sea and Indian Ocean. . . . . . ’000 b/d 2000 2005 2008 2009 2010 2011 2012 2015 2020 2025 2030 LPG . . . Chennai Refineries. . . . 2010-12 Industry Overview Refiner. Significantly for India. . . . . . . . . . Manali (Chennai) . . . . . . . . . . . . . . . . . Source: KBC/Company. . Vizag (Andhra Pradesh) . . . . Capital costs in India are approximately 20% lower than the world average. . . . Vadinar . . . . . . India’s neighbours have a poor history of investing in refining capacity to meet their domestic needs. . Essar. . . . . Bhatinda (Guru Gobind S . . .. .. . and substantially lower than countries such as Saudi Arabia. . . . . . . . . . . . Paradip (Orissa) . Chennai Refineries. . . . . . . . . Overall import requirements from Bangladesh and Sri Lanka can meaningfully soak up a significant volume of India’s potential surplus. .. . . . . . . . . . . . . . . . Fuel Oil . IOC. . . Panipat (Haryana) . . . . . . . . . . . . . . . . . .

Part 5 Industry Overview As a result. landfall for Middle East crude oil. the all-weather ports at Jamnagar and Vadinar in the Gulf of Kutch provide an important transit. In addition. Policies and regulations: India’s government policies have been strengthened in a number of ways to create a conducive environment for refining operations. income from the refining of petroleum products is exempted from Indian federal income taxation during the first seven years after a refinery is fully commissioned. High-quality. tankers. • • 74 . pipeline and other supply and distribution infrastructure facilities at Jamnagar and Vadinar have been constructed and developed exclusively for the refineries there. the price regulation of refined petroleum products is being progressively removed. flexible product mix: The refineries at Jamnagar and Vadinar are able to produce large quantities of high specification fuels meeting Euro IV and Euro V product quality standards as well as a product slate with enough flexibility to produce both light and middle distillates for global markets. These infrastructure facilities are located to enable the delivery of products from the refineries to domestic demand centres in India as well as for export to Western markets. Further. • Infrastructure: The ports.

000 barrels per stream day) by March 2011. Essar Power–Hazira and Bhander Power–Hazira sell their power to Essar Steel companies.453.880 MW. The Company owns three operational power plants in India and one operational power plant in Canada with a total installed capacity of 1. is fuelled by residue from the iron and coke making operations of Algoma Steel.470 MW by 2014. with the Ontario Power Authority underwriting the minimum purchase price pursuant to a long-term PPA.1 million and a loss after tax of US$167. India. 2C contingent resources of 148 mmboe. and additional power plants in the development stage. The Company’s oil and gas business is engaged in the exploration and production of oil and natural gas. Vadinar Power–Jamnagar produces power and steam for the Vadinar refinery. which will increase its total installed capacity to 6. crude oil refining and refined petroleum products sales and marketing.7 million in the nine months ended 31 December 2009. of which four will be wholly coal fuelled plants and two will be multi fuel plants. best estimate prospective resources of 1012 mmboe and an unrisked in-place resource base of 238 mmboe based on company estimates and independent certifications from NSAI. The Company’s Vadinar refinery has a total current throughput capacity of 14 mmtpa (300.6 million and a profit after tax of US$119. The Company has a vertically integrated power generation portfolio with a substantial portion of the fuel and off-take secured for the Phase I Power Projects. The Company’s EBITDA for the year ended 31 March 2009 was US$123.220 MW. with a total installed capacity of 1. which will increase the Company’s total installed megawatt capacity to 11. The six Phase I Power Projects have an expected total installed capacity of 4. The Company generated revenues of US$8. In addition.PART 6 THE BUSINESS OVERVIEW The Company is an India-focused energy group with existing operations and projects under construction and development in both the electricity generation and transmission industry and in the oil and gas industry. Bhander Power–Hazira with an installed capacity of 500 MW and Vadinar Power–Jamnagar with an installed capacity of 120 MW. under long term PPAs (with a mix of assured and optional off-take).7 million and was US$433. including Essar Affiliated Companies. and GUVNL. The Company’s power business currently has three operational power plants in India and one in Ontario. These projects. are expected to become commercially operational between 2010 and 2012. The Company also has a number of power plant projects under construction and development in India to increase the Company’s total installed capacity to 11. The Company has a further six power plant projects under construction in India as part of its Phase I expansion. The Ontario power plant. The Company is India’s second largest private power producer with a 12-year operating track record.370 MW. and Indian state-owned utilities and pursuant to merchant sales on a short-term or spot basis in the wholesale market.220 MW. other Essar Affiliated Companies.100 MW by 2012. 75 . with a 12-year operating track record. Power The Company was an early mover in India’s private power industry.135 MW: Essar Power–Hazira with an installed capacity of 515 MW. The Company also owns a portfolio of oil and gas blocks and is developing as a leading player in the rapidly emerging domestic CSG market in India.000 barrels per stream day) and the Phase I Refinery Project is slated to extend the refinery’s total throughput capacity to 18 mmtpa (375. with a total installed capacity of 1. an Essar Affiliated Company. The Company intends to sell the power generated from its Power Plant Projects that is not used by Essar Oil through a combination of long-term PPAs to industrial customers. The Indian plants are primarily gas fuelled and are located in the state of Gujarat. which has an installed capacity of 85 MW.1 million for the nine months ended 31 December 2009. The Company’s low-cost Vadinar refinery is currently one of India’s largest oil refineries and post expansion will become one of the largest and most complex refineries in the world.470 MW by 2014. The Company’s net working interest in its oil and natural gas exploration and production assets includes 2P reserves of 2 mmboe. Canada. the Company’s six Phase II Power Projects are expected to increase the Company’s installed total capacity by a further 5. and sells its power and steam to Algoma Steel. of which 89% will be coal fuelled and 11% captive fuelled. ARI and RPS.0 million in the year ended 31 March 2009 and revenues of US$5. The Company expects the Phase II Power Projects to become commercially operational during 2013 and 2014. the state of Gujarat’s public power utility.654.

See ‘‘The success of the Company’s exploration and production operations depends on its PSCs and similar arrangements as well as on its relationship with its joint venture partners and its ability to honour supply agreements. The Company’s development and production assets include: • the Raniganj Block. 8% gas) contingent resources of 162 mmboe (of which 81 mmboe represents the Company’s net working interest) according to RPS. Through a combination of coal block allocations. has estimated 2P oil reserves of 2 mmboe according to the Company’s internal estimate of net working interest. in which the Company has a 100% interest. and the Mehsana Block.050 MW of power generation capacity. the Company has secured fuel supply for the Essar Power Gujarat—Salaya 2 project of 1. Further. have estimated 2C (92% oil.Part 6 The Business For all power plant projects. acquisitions of coal mines and long-term fuel supply arrangements with the relevant power off-taker. in which the Company has a 100% interest (with the exception of the ESU field. the Company expects to have fuel security for 9. Australia. Essar Trading is able to purchase and sell power both on its own and on behalf of its clients. The existing coal block allocations in India are subject to the term periods of such allocations being further extended. for which the Company has been declared provisional winner) for the exploration and production of oil and gas in India. Once the PSC and other agreements have been executed. ARI has prepared and submitted a comprehensive report dated 30 April 2010 on the • • 76 . to bridge any gaps the Company has applied to the Government of India for temporary coal supplies in the interim. Indonesia. If the PSC and other agreements. if the Company consolidates its stake in the Neptune power plant projects.670 MW of its existing and planned power generation capacity. Nigeria and Vietnam. it expects to gain access to the accompanying coal block allocation of 112 mmt and achieve fuel security for an additional 1. The Company also intends to manufacture and market wind turbines of 1. Production is expected to commence in the third quarter of 2010. the Company intends to submit a revised development plan and commence development activities in the Ratna Fields. The Company may become liable under the security arrangements if it does not complete the minimum work commitments in its PSCs’’ in Part 1 ‘‘Risk Factors’’.300 MW of its existing and planned power generation capacity. To achieve this the Company adopts a strategy of backward integration by sourcing coal from captive mines that are either owned by or allocated to the Company. the Company expects the Ratna Fields to begin commercial production of oil in the fourth quarter of 2013.7 million. has estimated 2C contingent resources of 201 bcf (34 mmboe) and best estimate prospective resources of 792 bcf (132 mmboe) according to NSAI and is expected to commence commercial production by the end of 2010. Further.5 million and a pre-tax profit of US$52. The Company’s power business generated revenues of US$260. in which the Company holds a 70% interest). respectively. the Ratna Fields near Mumbai. Essar Trading proposes to trade the surplus power capacity following the commissioning of the Company’s Power Plant Projects and to source power from external power suppliers. Oil and Gas The Company currently has a diverse portfolio of 14 blocks and fields (including the Rajmahal Block.9 million and US$54. in the nine months ended 31 December 2009. in which the Company has a 50% interest. which are subject to the government approval process. are executed. As a result of the above. The Company currently owns or has rights to coal reserves of 343 mmt. the Company estimates that the Mehsana Block contains thick deposits of coal/lignite with the potential for CSG exploitation. The Company expects to sign the PSC for the Ratna Fields by June 2010. however.7 million in the year ended 31 March 2009 and US$196. and development activities commence as expected. Essar Power Transmission Company Limited (‘‘Essar Power Transco’’) focuses on the Company’s transmission business and is currently constructing transmission lines to evacuate power from the Essar Power MP-Mahan Power Plant Projects. the Company is focused on securing long term fuel supply and minimising price volatility. these reserves include coal blocks in India and coal mines recently acquired by the Company in Indonesia and Mozambique. In addition to the oil reserves.320 MW through a fuel supply agreement with Essar Shipping & Logistics Limited.5 MW capacity. the Company presently has fuel security for 7. Madagascar.

which is above the refinery’s design capacity of 10. Australia. including blocks in the Mumbai offshore area. The Vadinar refinery is expected to be the fifth-largest single-location refinery in the world upon completion of the Phase II Refinery Project (Source: KBC).3 per barrel. for which the Company has emerged as provisional winner in the recentlyconcluded CBM IV round of bidding by the Government of India.1. Indonesia. In the nine months ended 31 December 2009. See ‘‘—Oil and Gas—Vadinar Refinery—Overview’’. The Phase I Refinery Project is expected to increase the refinery’s average Nelson Complexity Index to 11. has estimated best estimate prospective resources of 4.300 retail fuel stations. The refinery is currently producing at a throughput capacity of 14 mmtpa (300.96 per barrel. The Company’s exploration assets include: • the Nigeria Block. In this report.7 tcf (787 mmboe) according to ARI. and in the international export market. including direct bulk sales and retail sales through the Company’s franchisee-owned and -operated network of almost 1.000 barrels per stream day). supply and demand) conditions and the securing of financing commitments for the project. Southeast Asia and East Africa as well as to the established markets of Europe and North America. the Company sold 76.000 barrels per stream day). In addition to these refining operating costs. but is currently producing up to Euro III grades of petrol and HSD. The Company intends to finalise the timing for implementation and completion of the Phase II Refinery Project following a review of market (i.Part 6 The Business CSG resources in this block. the Government of India is currently considering amending these regulations and the Company has accordingly submitted a proposal for a separate contract for the exploration and production of CSG in and around the Mehsana Block. the Vadinar refinery currently has refining operating costs of US$1. This is approximately US$1 per barrel lower than the average operating costs within the industry (Source: KBC). Upon the completion of this project. According to data provided by the Company.. and other exploration blocks. The Company is currently expanding and upgrading the Vadinar refinery. as a result of debottlenecking projects undertaken by the Company.e. Vadinar is India’s closest port to the Middle East and its coastal regions—the world’s largest single source of crude oil and the main source of imported crude oil for India—and is also well located to indigenous sources of crude oil. ARI estimates the 2C Contingent Resources of 747. Essar Energy has incurred product handling charges and other corporate and marketing expenses of US$0.4% of its refined petroleum products in the Indian domestic market and the remainder in the export market. the Company expects the Vadinar refinery to have an average Nelson Complexity Index of 12. for which the Company has signed a PSC with a 100% participating interest and is currently in discussions with a local Nigerian partner to transfer a 37% ‘‘carried interest’’ in this block. as is being discussed). • • The Vadinar refinery is India’s second-largest private-sector refinery and is located approximately 20 km from the port of Vadinar in the western part of India.000 barrels per stream day) by the project’s expected completion in March 2011. subject to requisite approvals from the Nigerian government. Madagascar and Vietnam.5 mmtpa (230. The Company markets refined petroleum products both in the domestic Indian market. The block has estimated 2C contingent resources of 53 mmboe and best estimate prospective resources of 147 mmboe according to NSAI (of which the Company’s net working interest would be 126 mmboe in the event that a local Nigerian partner acquires a 37% interest.8 and its annual throughput capacity to 18 mmtpa (375. This port also provides access to the growing markets of China.8 and a total annual refining throughput capacity of 36 mmtpa (750. Domestic bulk prices in India are generally equivalent to or higher than 77 .4 BCF of CSG at the Mehsana Block. Although current Indian regulations prohibit the simultaneous exploration of CSG and oil and gas in the same field. Assam. The Phase II Refinery Project involves the addition of a new refinery stream with a projected additional annual capacity of 18 mmtpa (375. The refinery is configured to process a crude slate geared towards heavy crudes and to produce up to Euro IV grades of diesel.000 barrels per stream day) and to be able to produce Euro V grades of petrol and HSD.000 barrels per stream day). the Rajmahal Block. The Vadinar refinery commenced commercial operations on 1 May 2008 and is a catalytic cracking refinery with an average Nelson Complexity Index rating of 6.

320 600 1. . which has a name plate capacity of 4 mmtpa and is currently operating at 1.200 (mmtpa) 2010 2011 2011 2011 2011 2012 2012 2012 2013 2013 2013 2013 2013 2014 2011 2013(3) Phase II Power Projects(1) . . .Part 6 The Business those in the international spot market.6 million. The refinery is at an advantageous location to process potential future crude oil production from the Lake Albert basin in Uganda and the Democratic Republic of Congo. .457. . Subject to securing fuel supply. . The Phase II Refinery Project is subject to review of market conditions and securing committed financing. . Expected commissioning dates Project Gross capacity (MW) Phase I Power Projects . . Vadinar Power-Expansion Phase I Essar Power MP-Mahan Essar Power Gujarat–Salaya Vadinar Power-Expansion Phase II Transmission Essar Power Hazira-Hazira Essar Power Orissa-Paradip Essar Power Jharkhand-Tori Essar Power Jharkhand-Tori Expansion Essar Power MP-Mahan Expansion Salaya II Salaya III Neptune I Neptune II(2) Vadinar Refinery Vadinar Refinery 380 1. Power and Refinery Expansion Projects The following table summarises the expected capacity and commissioning date for each of the Company’s Phases I and II Power Projects and Phases I and II Refinery Projects discussed above.200 600 600 1. in the nine months ended 31 December 2009. . This refinery is the only oil refinery in East Africa and primarily serves Kenya and the neighbouring countries of Uganda. .4 million in the year ended 31 March 2009 and US$5. . Burundi and Rwanda.7 million and pre-tax profit of US$92. . . (1) (2) (3) 18 18 The Phase II Power Projects are subject to securing committed financing. the owner and operator of the Mombasa refinery in Kenya.200 1. The Company also holds a 50% interest in KPRL. . Phase I Refinery Project . . .6 million and a pre-tax loss of US$297. 78 . which is listed on the Indian Stock Exchanges and currently has a public float of 10. .59%. .050 1.6 mmtpa. The Company operates its oil and gas business through Essar Oil. enabling the Company to generate higher profit margins with lower transportation costs on domestic sales in India. See ‘‘Factors Affecting Results of Operations and Financial Condition—Funding Costs for the Expansion Projects’’ in Part 9 ‘‘Operating and Financial Review’’.192. in the event the crude can be successfully delivered to Mombasa. The Company’s oil and gas business generated revenues of US$8. . respectively. . Phase II Refinery Project . . . .200 510 — 270 120 1.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mine Location The Business Reserves (mmt) Mahan(1) . . . . . . . . . Subject to the Company increasing its stake in Neptune to 100% from its present 39% economic interest and Neptune complying with the terms of the allocation. . . . . . . . . . . . . (Source: Company) 79 . . . . . . Reserve number shown represents 100% of the coal allocated to Neptune. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Neptune(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cambulatsitsi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . India India India Indonesia Mozambique India 73 71 100 64 35 112(3) 455 Total . . . . . . . . . . . . . . . . . . . . . . . . . . Ashok Karkata Aries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (2) (3) Coal allocation subject to renewal. . . . . . . . . . . . . . . . . . . . . . . . Chakla . . . .Part 6 Coal mine assets The following table summarises the coal mines owned by or allocated to the Company. . . . . . .

A cyclone damages the then under-construction Vadinar Power-Jamnagar power plant. 2009 The Essar Power (Canada) (formerly Algoma Energy) cogeneration power plant is commissioned. a joint venture between Hindalco and Essar Power. operate and maintain certain elements of the transmission system for Essar Power MP-Mahan. The refinery industry in India is opened to private-sector participation. The Chakla coal block is awarded to Essar Power to supply coal to Essar Power’s Jharkhand-Tori power plant. is established. Essar Trading is awarded a trading licence to trade up to 500 million units of electricity per year in India. Essar Oil’s shares are listed on the Bombay Stock Exchange and the National Stock Exchange. Oil and Gas 1989 1992–93 1995 1995 1996 1998 The oil and gas business is established with the incorporation of Essar Oil.000 MW of power from the Essar Power Gujarat-Salaya power plant. 2007 Essar Power Gujarat executes a PPA with GUVNL for supply of 1. Essar Oil is awarded the Ratna Fields.Part 6 The Business AND HISTORY BACKGROUND The Essar Group The Company has been part of the Essar Group. which is under development. Construction of the Vadinar refinery begins. Phase II (200 MW) of the Bhander Power-Hazira power plant is commissioned. which is under development. and becomes one of the first private entities to enter the oil and gas exploration and production sector in India. The Mahan coal block is allocated jointly to Hindalco Industries Limited (‘‘Hindalco’’) and Essar Power. The 155 MW Phase I generation unit of the Bhander Power-Hazira power plant is commissioned. 80 . The Essar Power-Hazira power plant is commissioned to supply Essar Steel and the Gujarat state power grid. which was established over 40 years ago. The Ashok Karkata coal block is awarded to Essar Power to supply coal to Essar Power’s Jharkhand-Tori power plant. Power 1991 1991 1997 1998 2005 2006 The Indian power generation sector is opened to private-sector participation. Essar Power Transco is granted a transmission licence to construct. which is under development. The Vadinar Power-Jamnagar cogeneration power plant is commissioned. Phase III (145 MW) of the Bhander Power-Hazira power plant is commissioned. halting its construction. Mahan Coal. as it developed its power. 2008 The 155 MW Phase I generation unit of the Bhander Power-Hazira power plant is registered with United Nations Framework Convention on Climate Change (‘‘UNFCCC’’) as a clean development mechanism project. oil and gas businesses. Essar Power is incorporated. A cyclone damages the then under-construction Vadinar refinery.

Shell International and the Company have not entered into any binding commitments in relation to the purchase of these refineries at this time. Essar Oil is declared provisional winner of exploration and production rights in the Rajmahal Block. Kearney. The contemplated acquisition of the Shell Refineries is consistent with the Company’s strategy. resulting in increased resilience to global macroeconomic shocks relative to other major emerging markets. 81 . Essar Oil implements plans to debottleneck Vadinar refinery to expand its annual capacity. Essar Oil and its lenders complete the renegotiation of the financing facility for the Vadinar refinery. Essar Oil commences building its network of franchised retail fuel stations.4% according to the International Monetary Fund’s World Economic Outlook Database. Essar Exploration and Production Limited (Nigeria) (‘‘EEPLN’’) is awarded the Nigeria Block. Construction of the Vadinar refinery recommences. Supply in India has failed to keep pace with demand. EEPLN signs the PSC for the Nigeria Block. 2007 2008 2009 2010 Construction of all units at the Vadinar refinery completed.346 kWh.T. with per capita GDP increasing at a CAGR of 7. Concurrent with this growth is a rapidly increasing demand for energy that has outstripped India’s current domestic energy production capacity. This growth and these reforms are leading to increasing investment in India’s infrastructure. urbanisation and wealth creation in India. Major economic reforms enacted in the early 1990s combined with the deregulation of key industrial sectors have resulted in rapid industrialisation. coupled with power sector deregulation. (Source: A.338 kWh).4% in 2009.) This imbalance. Despite this growth. the ‘‘Shell Refineries’’). The Planning Commission of India’s 11th Plan (2007-08 to 2011-12) aims for a GDP growth rate of 7% to 9% each year. means that the Company is strongly positioned to benefit from the growth in demand for power in India. While the final terms of any potential acquisition have not yet been finalised and the Shell Refineries would represent a significant portion of the Company’s revenue. Germany (collectively. resulting in serious power deficits. Annual per capita power consumption has grown from 410 kWh in 2002 to 610 kWh in 2007. The primary driver of India’s economic growth is rising domestic demand (in 2008/09. depending on its classification under the Listing Rules. United Kingdom. as compared to a global economic contraction of 1.Part 6 2002 2003 2004 2005 2006 The Business Essar Oil is awarded its first CSG block. The potential acquisition would require approval of the Board and. Russia: 6. Sales of trial-run petroleum products also commence. Strengths Positioned to take advantage of strong Indian macroeconomic and energy growth India experienced GDP growth of 5. per capita power consumption remains much lower than in the other BRIC countries (China: 2.154 kWh. which have increased from 5% in 2003 to 11% in 2009. Brazil: 2.3% for the past ten years according to the IMF. the Raniganj Block in the Raniganj region of India. and Shell International’s refineries in Hamburg and Heide. The Essar Group is currently in discussions with Shell International Petroleum Company Limited (‘‘Shell International’’) regarding the potential acquisition by the Company of Shell International’s oil refinery in Stanlow. The Vadinar refinery commences operations on a trial-run basis following the commissioning of its crude distillation and vacuum distillation units. exports accounted for only 24% of Indian GDP). October 2009. The Vadinar refinery commences commercial operations. any investment would represent only a relatively small proportion of the Company’s current asset base and capital investment programme. the Company’s shareholders following Admission.

lower station heat rate and lower auxiliary consumption as compared to the norms set by CERC for combined cycle gas plants. The scale and complexity of the Vadinar refinery provides the Company with significant crude processing flexibility. with 72% of the refinery’s current throughput comprising medium. The Company maintains a refined product marketing and retail network in India. This network also makes the Company well-placed to take advantage of any relaxation of current regulatory restrictions in the marketing and retail industry in India. The Company has already signed loan agreements for four out of the six Phase I Power Projects and for a further Phase I Power Project (Essar Power Jharkhand-Tori). accounting for 92% of total energy consumption. Power The Company is India’s second-largest private-sector power producer (based on publicly available information in respect of operating plants) with an operating track record in the power business of 12 years. The Company’s power business is being geared to sell its non-captive power nationally via a network of third-party and the Company’s own high voltage transmission links. as well as representing areas on which the Company’s business is heavily focused. a facility in Vadinar in the state of Gujarat that enjoys a strong structural cost advantage as a result of its location. scale. Growing demand for refined petroleum products is driven in part by an increase in demand from the transport sector as a result of increased vehicle ownership. The Company has demonstrated good operational performance with higher plant availability. has emerged as a significant consumer of energy resources. which allows it to capture potential upside from volatility in the difference between the price of crude oil and the selling price of refined products. including the ability to process a higher proportion of less-expensive crudes such as heavier. According to data provided by the Company. This location also allows access to high-growth domestic markets as well as to export markets in South East Asia and Africa. Vadinar benefits from a strategic location on the west coast of India. heavy and ultra heavy crude oils. asset quality and workforce. oil and natural gas are India’s primary sources of energy. the Vadinar refinery currently has refining operating costs of approximately US$1 per barrel lower than the average costs within the industry (source: KBC). providing efficient access to indigenous crude and Middle East-based crude.250 MW to 11. both on a merchant basis and under long-term power off-take contracts.470 MW by 2014.Part 6 The Business India. which is expected to result in annual growth in demand of 8% to 9% through 2016/17. which account for a growing proportion of global petroleum demand. The Vadinar refinery is able to achieve a low capital and operating cost base while maintaining safe and efficient operations.000 of the driving population in 2009.220 MW by 10. Oil and Gas The Company owns the second-largest private-sector refinery in India. it has signed a binding loan agreement for part of the necessary debt and obtained an in-principle approval for the remainder. The Company has also substantially secured fuel supplies to achieve the first stage of growth of 6.100 MW by 2012. which is currently still among the lowest in the world at approximately 35 vehicles per 1. with more than 15% of the world’s population and a strong economic growth profile. government policy currently favours the increased use of natural gas. In addition. sourer and higher-acidity crude oils. (Source: KPMG) The Company’s power plants enjoy a substantially secure fuel supply which provides volume and price security. Coal. New growth projects poised to significantly bolster the Company’s competitive positioning and market leadership Power The Company’s power generation capacity is expected to be substantially increased from the current 1. Strong operational performance and efficiency The Company’s operations across power and oil and gas are characterised by strong operational performance and efficiency. 82 .

coupled with the large scale of its projects. engineering. the Company has demonstrated that it can successfully implement complex. Approximately 73% of the total debt financing requirements for Phase I Power Projects is fully committed (97% if non-binding sanction letters are included).8 bcf of 2C contingent resources and 792. The remaining equity needed for completing the Phase I Power Projects and the Phase I Refinery Project will be funded from the Offering. The equity for the Phase II Power Projects will be funded from the Offer and cashflow from operations. Through projects such as the operational facilities for the generation of 1. As part of this growth profile the Company plans to use a range of off-take agreements. labour and construction to successfully carry out the construction of existing projects at a low capital cost. large-scale projects.1 to 12. including growing merchant sales (estimated to account for 26% of power MW sales by 2014) as well as sales to government and industrial customers pursuant to long-term PPAs. crude processing flexibility and capability to manufacture a wider range of refined products. This will further strengthen the Vadinar refinery’s cost leadership position. to be delivered broadly in line with the planned schedule and budgets with clear paths to completion for each planned expansion or new facility: • • Environmental and the other government approvals. at an operating capacity of 18 mmtpa.220 MW of power and the Vadinar refinery. • • The Company also benefits from leveraging the well-established engineering. plans and input items have been implemented to reduce risks and costs of construction and ongoing operations. barring unforeseen circumstances.0 bcf of best estimate prospective resources. On completion of the Phase I Refinery Project. Proven execution track record of successfully delivering and operating large-scale projects The Company’s strong project management experience. The Company’s exploration and production operations benefit directly from the growing energy demand within India and provide integration benefits when combined with the Vadinar refinery. 42% relates to those Power Plant Projects which are focused on the lower cost brownfield expansion projects to be constructed on land already secured or proposed to be secured by the Company for its operational power plants and Power Plant Projects. Standardised construction processes. the expected capital cost will be US$962 per complexity barrel.8. have been substantially obtained for the Phase I Power Projects and the Refinery Expansion Projects. Oil and Gas The Company has a regional oil and natural gas exploration and production portfolio with significant potential arising from several large-scale projects such as the Raniganj Block. The Company believes that it is making good progress on its expansion projects and currently expects substantially all the projects. The capital cost of the existing Vadinar refinery at its current operating capacity of 14 mmtpa is US$1. Over 74% of the total installed MW capacity by 2014 is expected to be sold pursuant to PPAs. procurement and construction (‘‘EPC’’) capabilities of the Essar Group’s Projects division in the areas of project design. these are expected to be converted into committed financing by mid 2010). representing a significant overall reduction of approximately 35%. have been key factors in achieving its historical track record of successfully executing projects at a competitive cost. subject to the fulfilment of required conditions.250 MW. India with 200. 83 . at an operating capacity of 36 mmtpa. procurement.011 per complexity barrel. with the remaining land for the Phase I Power Projects expected to be secured by July 2010. On completion of the Phase II Refinery Project. the expected capital cost will be US$1.Part 6 The Business Of the total expansion of 10. Land has been secured (subject to the fulfilment of requisite title documentation) for five of the six Phase I Power Projects and the Refinery Expansion Projects. The Refinery Expansion Projects are expected to result in enhanced scale from the Vadinar refinery’s current operating capacity of 14 mmtpa to 36 mmtpa and increased complexity from the current Nelson Complexity Index of 6.532 per complexity barrel.

The Company is currently pursuing a number of major projects. and the Company believes this experience and expertise will be of significant benefit to it. including the Phase I and Phase II Power Projects. with the objective of improving market leadership. The Company is able to leverage the Essar Group companies’ expertise in EPC and major projects. IOC. marketing. power generation. The members of the oil and gas senior management team also each have industry experience of at least 30 years on average and have held senior positions in leading oil and gas companies such as BP p. The Company’s aim is to be recognised as a leader in health. Petronet LNG and Reliance Industries. low-cost integrated India-focused energy company by capitalising on India’s rapidly growing demand for energy. The Essar Group seeks to be a long term shareholder in its listed assets and is well-positioned to support the Company’s continued growth and development. the Phase I Refinery Project and the development of captive coal mines. demonstrates the strength of the Company’s oil and gas management team. further improving efficiency.l. This will be achieved through a combination of debottlenecking operating plants. Strategy The Company’s strategy is to create a world-class. IBP. is the holding company of the Essar Group. raw material acquisition. Essar Energy plc’s Board is committed to the highest standards of independence and corporate governance and advancing the interests of all shareholders equally. Leveraging skills and Indian asset base to identify growth opportunities The Company intends to leverage its established skills and Indian asset base in oil and gas and power to seek organic and inorganic growth opportunities in India and overseas. safety and environmental management. the development of existing exploration blocks. economies of scale. expanding output and increasing economies of scale. The maintenance of high environmental performance standards are significant responsibilities within the conduct of the Company’s operations. Delivering growth through a variety of power and oil and gas projects The Company plans to pursue further growth through both greenfield and brownfield energy projects in the areas of exploration and production. ONGC. The members of the power senior management team each have industry experience of at least 30 years on average and have held senior positions in leading power companies such as NTPC. Strong relationship with one of India’s leading corporates Essar Energy plc’s controlling shareholder.c.Part 6 The Business Breadth and depth of experience in the Board and management teams The Company is led by a highly experienced and entrepreneurial executive and operational management team. Being a good corporate citizen The Company will continue to act as a good corporate citizen with respect to the health and safety of its employees and the communities in which it operates. As from the date of Admission relationships with the Essar Group will be at arm’s length and on normal commercial terms except certain de minimis transactions. The Essar Group has a 40-year track record in building successful businesses across multiple industries.8 billion in the Company. 84 . synergies and maximising shareholder value. Essar Global. PGCIL and Tata Power. This will be achieved by: Optimising performance of all existing assets The Company intends to capitalise on its existing assets by drawing on the Essar Group’s significant experience and expertise to carry out a number of organic development projects that will consolidate the Company’s position as one of India’s largest energy groups. The strong operating performance of the Vadinar refinery. shipping and port access on terms at least as favourable as those that could be obtained from third parties. refining. To date. a leading corporate in India. transmission and distribution. Essar Global has invested equity of over US$2. as evidenced by its high capacity utilisation and more than 700 days without lost time incidents.

Part 6 POWER Overview The Business The following table provides an overview of the Company’s operational power plants and Power Plant Projects: Gross capacity Expected commissioning dates(1) Project Fuel Operational power plants Essar Power-Hazira Vadinar Power-Jamnagar Bhander Power-Hazira Essar Power (Canada) 515 120 500 85 1.200 380 510 270 120 1. with the domestic coal-fuelled power plants located in central India and the imported 85 . to use domestic coal linkages for these power plants until coal from these mines becomes available.050 1. Can also use naphtha. commissioning dates are expected dates. May also use domestic coal subject to allocation by government. commissioning dates are actual dates.200 Gas(4) Refinery residue* Gas Blast furnace and coke oven gas* Domestic Coal—pit head(6) Imported Coal Gas (4) 1997 2008 2006 to 2008 2009 2011 2011 2010 2011 2012 2012 2012 2013 2013 2013 2013 2013 2014 Phase I Power Projects Essar Power MP-Mahan Essar Power Gujarat-Salaya Vadinar Power-Expansion Phase I Vadinar Power-Expansion Phase II Essar Power Hazira-Hazira Essar Power Orissa-Paradip Essar Power Jharkhand-Tori Imported coal(5) Corex gas/fines* Domestic coal—linkage Domestic coal—pit head (6) Phase II Power Projects(2) Essar Power Jharkhand-Tori Expansion Essar Power MP-Mahan(3) Expansion Salaya II Salaya III Neptune I Neptune II(3) Domestic coal—pit head Domestic coal—linkage Imported coal Pet coke* Domestic Coal—pit head Imported coal * (1) (2) (3) (4) (5) (6) Captive fuel supplied by off-taker. subject to government approval. For the operational power plants. For the Power Plant Projects. Subject to securing fuel supply. The Phase II Power Projects are subject to securing committed financing. Operation and maintenance functions at each of the power business’s operational plants are performed in-house by an operations and maintenance team of experienced and qualified expert engineers and technicians. In the event of any delay in the development of the relevant captive coal mines.200 600 600 1. The Company currently expects that the operation and maintenance of each of the Power Plant Projects will also be undertaken in-house. The Company’s power business aims to become a vertically integrated power business focused primarily on India. the Company expects. eastern and western India. Most of the Company’s operational power plants and Power Plant Projects are located in central.320 600 1. with operations across the power value chain from fuel ownership to generation and transmission.200 1. Can also use refinery liquid fuels.

. the Company is employing standardised equipment for BTG modules. . . . . . . . the Company has applied to the Government of India for temporary coal linkages to meet the plants’ respective coal 86 . . . . . Other (captive fuel) . . . . . . in the event that mining approvals for the Mahan and Chakla coal blocks are not received in time for the commissioning of the Essar Power MP-Mahan and Essar Power Jharkhand-Tori plants. . . . . . Although the Company’s allocation of a captive coal mine for the Essar Power MP-Mahan project for 1. . . . . . . . . . The Company’s power business is also expected to benefit from being able to achieve efficiency in relation to operating personnel and spares supply through the use of a standardised module across most of its operational power plants and Power Plant Projects. . . . . In addition. . . . . Domestic Coal—linkage . . . . . . The power business benefits from its relationship to Essar Affiliated Companies in accessing transport services and fuel. . . . . . . and its allocation of a captive coal mine for the Essar Power Jharkhand-Tori project. . . . . . . . . Essar Projects. . . . providing off-take partners and accessing project implementation expertise. . . . . . . . Essar Project Management is providing project management services for certain of the Power Plant Projects.Part 6 The Business coal-fuelled power plants being located on the west coast. . . . . . see also Part 15 ‘‘Relationship with Essar Group’’ and paragraph 13 of Part 16 ‘‘Additional Information—Material Contracts’’. . . . . . . . . . . . . . . . . . . . . . . . Global Supplies is providing procurement services for the imported equipment required for the Power Plant Projects. . . Arrangements with Essar Affiliated Companies include the following: • • • • • Essar Projects is providing construction services and procurement services for the domestic equipment required for all of the Power Plant Projects. .200 MW of proposed installed capacity has already expired. . . . . . — — 83% — 17% 100% 39% 28% 23% 2% 8% 100% 35% 37% 12% 6% 9% 100% Total . . . . which is proposed to have an installed capacity of 1. . . . . . This enables the Company to leverage the combined scale of these projects to obtain competitive prices and firm commitments on delivery schedules from key suppliers. .to long-term fuel arrangements for five of the six Phase I Power Projects (through the allocation of captive coal mines in India. . . . . . This is expected to enable the Company to better optimise its delivered cost of power. . . . The following table provides an overview of the power business’s current and expected sources of fuel supplies for its operational power plants and its Power Plant Projects: Following completion of the Operational Power Phase I Power Phase II Power Plants Projects Projects (Percentage of fuel supply) Source Domestic Coal—pit head Coal—imported . . . . . including EPC expertise. . . . . will expire prior to the scheduled date of commencement of mining operations. . Essar Power Gujarat-Salaya and Essar Power Jharkhand-Tori Phase I Power Projects. . the Company has already applied to the Government of India for an extension of the coal block allocations for the Essar Power MP-Mahan project and the Essar Power Jharkhand-Tori project. . . Gas . . . ash-handling units. . respectively. . Essar Logistics and Essar Shipping are providing services for the construction of transport and delivery infrastructure to ensure the delivery of fuel to the Power Plant Projects. . . the acquisition of coal mines outside India and contractual arrangements with Essar Affiliated Companies) and continues to work towards long-term fuel security. . . . . . For a description of the arrangements with Essar Affiliated Companies in relation to the Power Plant Projects. . . . The Company has in place medium. . . . . . . . . . . Essar Engineering is assisting the power business with setting the technical specifications for its Power Plant Projects. .200 MW. . . . . . . . . For each of the Essar Power MP-Mahan. . . . . . . . . cooling towers and electrical and mechanical equipment. . .

The following table provides an overview of the current fuel supply arrangements for the existing power plants. Phase I Power Projects and Phase II Power Projects: Project MW Fuel type Fuel source Coal mine reserves(1) mmt Essar Power Hazira— Hazira Bhander Power—Hazira Vadinar Power— Expansion Phase I Vadinar Power—Jamnagar Essar Power (Canada) 515 Gas Gas contracts with Reliance Industries Limited and Gujarat State Petroleum Corporation Limited Fuel supplied by off-taker (Essar Steel) Fuel supplied by off-taker (Essar Oil) Fuel supplied by the off-taker (Essar Oil) Fuel supplied by the off-taker (Essar Steel Algoma) Aries mine Indonesia and Mozambique mine—captive mine acquired by Essar Power As above.050 1.320 120 9.Part 6 The Business requirements during any such period. Accordingly any difference between the amount available from such mines and the plant’s required amounts will be supplied under these conditions. For 390 MW(3).200 1. Reserve number shown represents 100% of the coal allocated to Neptune. Can also use naphtha. 87 .200 510 35 Essar Power MP—Mahan Essar Power Jharkhand— Tori Essar Power Jharkhand— Tori II Essar Power Hazira— Hazira Essar Power Gujarat— Salaya III Expansion Neptune I(4) Essar Power Gujarat— Salaya II Essar Power Orissa— Paradip Total (1) (2) (3) (4) (5) (6) 1. See ‘‘Neptune I and II—Orissa (2. The Company is currently intending to increase its stake from 39% to 100%.200 600 270 600 1. Can also use refinery liquid fuels. resulting in lower costs for procuring fuel and additional protection against fuel price volatility. fuel to be supplied by off-taker (Essar Oil 301 MW and Essar Steel 90 MW) Mahan captive coal mine—allocation to Mahan Project Chakla and Ashok Karkata captive coal mines As above Fuel supplied by off-taker (Essar Steel) Fuel to be supplied by Essar Oil Captive coal mine allocated to the Neptune project Contracts with Essar Shipping & Logistics Ltd(6) Fuel supplied by off-taker (Essar Steel) 455 112 64 500 380 120 85 Gas Gas(2) Captive fuel—refinery residue Captive fuel—blast furnace and coke oven gas Imported coal— captive coal mine Imported coal— captive coal mine Essar Power Gujarat— Salaya Vadinar Power— Expansion Phase II 1. This amount is for both Essar Power Jharkhand Tori and Essar Power Jharkhand Tori II.670 Domestic coal— captive coal mine Domestic coal— captive coal mine Domestic coal— captive coal mine Captive fuel—corex fines/gas Captive fuel—pet coke Domestic coal— captive coal mine Imported coal Captive fuel— domestic coal linkage 73 71/100(5) Certain coal mines are subject to extensions of the respective allocation periods. The Company’s power business expects that the proposed use of coal from its existing and future coal mines will allow a majority of the Company’s coal-fuelled Power Plant Projects to have a dedicated fuel supply.250 MW)’’ below for further details. Essar Power Gujarat is obliged to utilize the coal extracted from the mines owned or allocated to the Company’s power business (net of the commitment for Essar Power Gujarat—Salaya).

Total . . . SEBs .5 MW). . . . secured by charges over substantially all the assets of the relevant project subsidiary (including receivables under power off-take agreements). . . . . . . . The existing project financing arrangements are. . The Company expects to sell the remaining power on a short-term basis as merchant sales in order to capture market rates. . The following table provides an overview of the power business’s current and expected sources of power off-take by customer category: Following completion of the Operational Power Phase I Power Phase II Power Plants Projects Projects (Percentage of total off-take) Off-take Captive . . . . . . . . . . . . see ‘‘Indebtedness’’ in Part 9 ‘‘Operating and Financial Review’’. . . . . . . . . . The capacity charge mainly depends on the capital and operating cost of the relevant power project. . . . . The Company has entered and expects to enter into additional long-term PPAs with Essar Affiliated Companies and other industrial companies and state utilities. In PPAs with captive customers. . . . . 120 MW to Essar Oil and 4. . For details of the pledge agreements see paragraph 13. . . . . . . . 671 MW to Essar Steel Group (with an option to purchase 123 MW). . . . . see ‘‘Factors Affecting Results of Operations and Financial Condition—Funding Costs for the Expansion Projects’’ in Part 9 ‘‘Operating and Financial Review’’. . . . .Part 6 The Business Of the 1. Long-Term PPAs The discussion below describes the Company’s long-term PPAs with its captive off-take customers. . . . . including for the servicing of the Company’s obligations under the related project financing arrangements. . . . . . . . . . downstream guarantees by Essar Power. For additional information about the Company’s project financing arrangements. . . For more information about the phasing of the Company’s capital expenditures for the Power Plant Projects and planned funding required therefor. . . . . . . . . . . . including GUVNL. . . . while PPAs with customers that supply the relevant power plant’s fuel requirements generally contain only a capacity charge. . The Company’s long-term PPAs with off-take customers that do not supply the relevant power plant’s fuel requirements provide for two-part tariffs for the power. . with the Company required to provide equity financing for the remaining 25%. . . . 300 MW is dedicated to GUVNL. . . . and is designed to enable the generation facility to recover its fixed costs and earn a 88 . Merchant . pledges over shares of the relevant Power Plant Project and charges over all accounts of the relevant project subsidiary. . . . . comprising a capacity charge and an energy charge. . . . . . . . . . The Company’s PPAs with GUVNL are discussed under the operational power plant or Phase I Power Project to which they relate. . . . . .4 of Part 16 ‘‘Additional Information’’. . . . . .220 MW combined installed capacity of the power business’s operational power plants. . . . . . . . . . . for approximately 60% to 70% of the currently planned additional power generation capacity from the Power Plant Projects to provide security of revenues. . . . . . . . . . . . . . and the future project financing arrangements are expected to be. . .5 MW to Essar Affiliated Companies (with an option to purchase an additional 1. The project financing arrangements generally cover and are expected to cover 75% of the costs of each Power Plant Project. Financing Arrangements 75% 25% 0% 100% 36% 47% 17% 100% 19% 55% 26% 100% Essar Power Hazira and the relevant Power Plant Project subsidiaries have entered into long-term project financing arrangements to finance the operational power plants and certain of the Phase I Power Projects and expect to enter into further financing arrangements for the financing of the remainder of the Power Plant Projects. the provision of fuel is the responsibility of the off-take customer.

If the average plant available capacity in any year exceeds contracted availability. equipment. The long-term PPAs also generally contain provisions regarding: • • • the scheduled commissioning date for the relevant power plant. The recovery of this capacity charge is generally based on the level of normative plant availability. payment security provisions. so long as it is available when needed to maintain desired power generation levels. interest on long-term debt. the Company is entitled to an incentive fee on the power made available above the normative availability threshold for certain of the power plants. This charge may have an escalation feature tied to certain third-party inflation statistics. and a return on the equity capital of the power plant. the buyer and the operator of the power plant are required to consult with each other for a specified period of time.Part 6 The Business return on investment at an assured level of plant availability for the contracted demand. • • 89 . The capacity charge provides the Company with a relatively predictable and recurring source of revenues designed to provide the necessary incentive for construction of the relevant Power Plant Project and for continued operation of existing plants. irrevocable and revolving letter of credit with a term of 12 months. the average plant available capacity in any year falls below a specified percentage due to the fault of the Company. repairs. the capacity charge includes: • • • • • • operating and maintenance expenses. interest on specified working capital. spares and related overhead. The energy charge generally covers most variable operating costs. A power plant is eligible to receive the capacity charge regardless of how often the plant is called upon to generate power. depreciation. If an event of default occurs. the buyer is entitled to liquidated damages for each day of the delay or may terminate the PPA. Generally. the term of the contract from the commissioning date of the power plant. the requirement that the buyer provide the power plant with dispatch instructions for the delivery of the contracted capacity to the buyer by specific deadlines. including the power plant’s failure to achieve a certain average plant availability in a specified period or the cessation of the power plant’s operations. the proceeds from sales to other buyers post variable charges generally accrue for the benefit of the buyer and the seller under the PPA. the power plant is free to sell this portion to other buyers without losing the right to receive the full capacity charge from the buyer. usually in the form of an unconditional. income taxes. on the other hand. If the buyer fails to provide dispatch instructions for any portion of the contracted capacity by the deadline. the largest of which is fuel. However. after which the operator is free to sell the buyer’s contracted capacity to other buyers. which is generally in proportion to the fixed-capacity charge. Buyer events of default include certain payment failures. If this commissioning date is not met. a penalty fee may be imposed. and events of default. If.

. Essar Power-Hazira (515 MW) Overview Commissioned in October 1997. . Siemens May 2008 Natural Essar Steel and Gas/naphtha GUVNL Refinery residue Natural gas Vadinar refinery Vadinar PowerJamnagar(2) Bhander PowerHazira(3) 120 MW 97. 155-MW unit of this plant was commissioned in January 2006. . auxiliary consumption and units of electricity generated for the Essar Power-Hazira power plant for the periods indicated. .Part 6 The Business Operational Power Plants Overview The Company currently has four operational power plants: Installed gross capacity 515 MW Major equipment suppliers Average availability Commissioning per year since date commissioning 96%(1) Project Essar Power-Hazira Location Gujarat.40% 94. . Under a fuel management agreement dated 18 October 1996. 26% of the equity investment owned by Essar Steel Group companies and other Essar Affiliated Companies.89% 1.64% 65. BHEL. . .964 96. . . 145-MW unit in October 2008. . The Company owns approximately 26.. . . 200-MW unit in December 2007. .6 hectares. . . Since date of commissioning. . . . . The table below presents the plant availability. . . and the third. . IHI.49% 61. . Plant load factor . . Honeywell Mitsubishi Deutsche Babcock Areva. . . India Gujarat.69% 1.3 hectares of land in the area. . high-speed diesel. the Essar Power-Hazira power plant is a multi-fuel (naphtha. India Fuel Off-take General Electric. . plant load factor. . . . . 26% owned by Essar Oil. . Hitachi.387 3.79% 3. . Auxiliary consumption . .98% Essar Steel Group companies and other Essar Affiliated Companies Essar Steel Algoma Essar Power (Canada) 85 MW Ontario.083 Water for plant operations is drawn from the Singanpur weir and is supplied by Essar Steel.14% 500 MW October 2008(4) 98. . . The first. . . Mitsubishi June 2009 Canada Canada Ltd. . . . . . . . . . . 90 . . . . . . Units of electricity generated (MKwH) Water and Fuel Supply . . . . .20% 78. . Essar Steel is responsible for procuring and supplying the fuel needed to generate the power that Essar Steel has committed to take pursuant to its PPA. . . . Hangzhou. . India Gujarat. . . . . . 97. . .220 MW Based on average availability for last three years. October 1997 Siemens. . For details of this fuel management agreement. . . .10% 95. . the second. . . . . Gujarat. .573 2. . . . . . . . Deltak. . . .28% 1.61% 75. . . 12 months ended 31 March 2007 2008 2009 1 April 2009 to 31 December 2009 Plant availability .96% 2. . . see also Part 15 ‘‘Relationship with the Essar Group’’. . of which the plant currently occupies 16. . . . . .61% 1. . . . natural gasoline liquid and/or natural gas) combined-cycle power plant located near the Essar Steel facility in Hazira. . . . INDECKeystone Energy LLC 79%(5) Blast furnace gas and coke oven gas Total (1) (2) (3) (4) (5) 1.

there is also a back-to-back arrangement with GUVNL to assume the Company’s obligations under these agreements. tax. However. Evacuation Facilities The Company evacuates power from the Essar Power-Hazira plant at 220 KV through four generator transformers to a 220-KV switchyard and then evacuates power from the switchyard to Essar Steel on a 220-KV line and to GUVNL through four 220-KV transmission lines. The expiration date for the agreement with GSPC is 31 December 2013.4% for any amounts generated in excess of 7. Reliance Industries Limited and Niko (NECO) Limited (‘‘Niko’’) for the purchase of natural gas that the power plant needs to generate the power required pursuant to the PPA with GUVNL. Vadinar Power-Jamnagar (120 MW) Overview The Vadinar Power-Jamnagar power plant.008 MKwH in a year and 0. The tariff payable under the PPA is the sum of: • • • a capacity charge comprising depreciation. and an incentive payment of 0.132 MKwH and 7. operation and maintenance expenses and a return on equity. health and safety regulations. located on 4. Power Off-Take Arrangements The power generated by the plant is sold under two long-term PPAs. while the agreements with Reliance Industries Limited and Niko expire on 31 March 2014. is the Vadinar refinery’s captive power and steam cogeneration plant. which requires GUVNL to pay capacity charges based on declared capacity (to the extent of GUVNL’s power allocation) is not available. irrespective of the actual power off-take. Essar Steel PPA: Under the PPA with Essar Steel expiring in 2026. The agreements are on a ‘‘take or pay’’ basis which obligates the Company to pay for an amount equal to the ‘‘take or pay’’ quantity. Since July 2006 the benefit of ‘‘deemed generation’’ under the PPA. Two of the transmission lines are connected to the Icchapore sub-station and two to the Sachin sub-station. operation and maintenance expenses and a return on equity equal to 13% per year. an energy charge comprising the actual cost of fuel. GUVNL pays capacity charges only on actual off-take and not on the declared capacity. Regulatory Compliance and Emissions Essar Power-Hazira is in compliance with all material environmental. including: • • 300 MW to GUVNL. 91 . The plant is a refinery residue-based multi-fuel captive co-generation plant with capacity to generate 77 MW of power and 230 tph of steam. the tariff payable is an annual fixed charge comprising depreciation. respectively.1 hectares of land at the Vadinar refinery complex.008 MKwH per year.Part 6 The Business In addition. GUVNL PPA: Under the PPA with GUVNL expiring in 2016 GUVNL has agreed to purchase 300 MW of power from the power plant. the Company has entered into agreements with Gujarat State Petroleum Corporation Limited (‘‘GSPC’’). located at distances from the plant of. and 215 MW to Essar Steel. interest expenses.575% if the power plant generates between 6. tax. 18 km and 30 km. calculated on the basis of an assumed heat rate for the power plant. interest expenses.

. Water and Fuel Supply Water for the plant is drawn from the sea and is then treated and supplied to the plant by Essar Oil. . . . . . . . . . . . . . . . .47% 91. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units of electricity generated (MKwH) (1) . . Water and Fuel Supply Essar Steel provides water for the plant’s operations. . . . . . . . . . . Plant load factor . . . . . . . . . . . . . . . . . . . . Auxiliary consumption . . Auxiliary consumption . . . . . . 7 October 2008 to 31 March 2009(1) 1 April 2009 to 31 December 2009 Plant availability . . . Bhander Power-Hazira (500 MW) Overview The Bhander Power-Hazira plant is a natural gas-fired combined-cycle captive power plant located in Hazira. . . . . . 92 . . . . Evacuation Facilities Power from the Vadinar-Power Jamnagar plant is evacuated through a 33-KV line to the Vadinar refinery’s main receiving sub-station. . . .Part 6 The Business The table below presents the plant availability. . . . . commencing full commercial operations in October 2008.30% 786 98. . Power Off-Take The Vadinar Power-Jamnagar plant was set up to meet the power and steam requirements of the Vadinar refinery and hence the entire output of power and steam generated by this plant is supplied to the Vadinar refinery. . auxiliary consumption and units of electricity and steam generated at the Vadinar Power-Jamnagar plant for the periods indicated. . The Processing Agreement. . . . . . . . . . . . . is for a term of 15 years. . . . . . The table below presents the plant availability. . . . . . . . . . . . . . . .17% 1. . . . 99. . Essar Oil provides the fuel required at the power plant to generate the power and steam for the power plant’s operations. . . . . . . . . . . . . . . . . . . health and safety regulations. . . . . . . . . . . . . . . . . . . . . . . .00% 88. . . . .762 Plant achieved full capacity of 500 MW on 7 October 2008. . . . . . . . . . . 1 May 2008 to 31 March 2009(1) 1 April 2009 to 31 December 2009 Plant availability . . . . . . . . . . . . . . . . . . . . Gujarat on 20 hectares of land. . . . (1) . . . . . . from which the power is then evacuated to the refinery. . . . . . . . . . . . . .55% 441 3. .47% 2. . . . . . . . . plant load factor. . .68% 2.77 94. . . . . . . . .21% 4. auxiliary consumption and units of electricity generated for Bhander Power-Hazira for the periods indicated. .40% 4. . Units of electricity generated (MKwH) Steam generated (tonnes) . . Regulatory Compliance and Emissions The Vadinar Power-Jamnagar plant is in compliance with all material environmental. . .62% 37. . . . . . . . . . . . . . . . . . .68% 318 2. . . plant load factor. . . . The plant was commissioned in phases from 15 January 2006 onwards. . . . . effective from 1 April 2007. . . . 99. . Plant load factor . .71 Plant commenced commercial operations on 1 May 2008. . . . . . . . . . . . . . . . . . . . .12% 53. . . . . . . .

To the extent that the off-take is optional. lower than originally estimated due to the lower than expected plant load factor of the Bhander Power-Hazira plant. The estimated carbon credit generation at an 85% plant load factor is expected to be 300. a registration that will remain valid until 25 February 2018. 118. Assuming a plant load factor of 85%. the relevant off-take customer is only responsible for the fuel if they elect to take such additional capacity. and 340 MW for the second phase of the project. The carbon credits for this period are expected to be 67. its price and its delivery to the project site are borne by the respective off-take customers. All risks associated with the procurement of the fuel. health and safety regulations. operation and maintenance expenses and a return on equity. The Company expects the project to be registered by the second quarter of 2010. Regulatory Compliance and Emissions Bhander Power is in compliance with all material environmental. The tariff payable under each PPA is a fixed capacity charge comprising depreciation. 4. Clean Development Mechanism Projects This plant is being operated as a clean development mechanism project under the UNFCCC in two stages: • • 155 MW for the first phase of the project. 1. 93 .000 CERs per year for a period of ten years. the installed capacity was certified as 500 MW.5 MW to Essar Heavy Engineering Services.826 CERs. Each of the PPAs terminates on 31 March 2030.5 MW to Hazira Pipe Mill.5 MW to Essar Steel Hazira. Power Off-Take Arrangements The Company has entered into PPAs dated 8 March 2010 for the sale of power from the plant with the following companies in the Essar Affiliated Companies: • • • • • • • 240 MW to Essar Steel. interest expenses. the plant is expected (as per time baseline at the time of registration) to generate 190. with effect from November 2009. During the performance guarantee tests. tax.5 MW to Essar Bulk Terminal. the off-takers listed above have an option to purchase at a fixed capacity charge of Rs. validation has been completed by the Bureau Veritas Certification and its validation report has been submitted to the UNFCCC for registration. 1 per unit.5 MW to Hazira Plate. The initial verification for the period from 26 February 2008 to 30 April 2009 is currently underway.Part 6 The Business Essar Steel and other Essar Affiliated Companies are responsible for providing the natural gas required by the Bhander Power-Hazira plant to generate the power that they have committed to take pursuant to their PPAs with Bhander Power. For the balance capacity of 125 MW. Evacuation Facilities Bhander Power evacuates power from the plant to Essar Steel through two 220-KV lines of approximately 500 m in length and to Essar Steel Hazira through two 220-KV lines of five km in length and to other Essar Group companies through 33-KV cables. The first phase’s 155-MW generation unit was registered as a clean development mechanism project under the UNFCCC on 26 February 2008. 7. and 1. With respect to the second phase’s 340-MW generation unit.876 certified emission reductions (‘‘CERs’’) per year for a period of ten years.5 MW to Essar Projects. 1.

. . 13 June to 31 December 2009(1) Plant availability . . . . . . . . . . Essar Power (Canada) is guaranteed the PPA rate per MWh from the Ontario Power Authority. Essar Power (Canada) sells all of the power generated by the plant to Essar Steel Algoma at market rates and the Ontario Power Authority funds the difference between the market rate and the PPA rate per MWh up to the contract capacity. . a blast furnace gas holder. . . . . . Evacuation Facilities Power from Essar Power (Canada) is transmitted to Essar Steel Algoma via Essar Steel Algoma’s 34. the surplus power is sent to the provincial grid. . . . . Regulatory Compliance and Emissions The Essar Power (Canada) plant is in compliance with all material environmental and health and safety regulations. a water treatment plant. . . . . . . . Auxiliary consumption (MKwH) . the Essar Power (Canada) power plant has reduced Essar Steel Algoma’s nitrous oxide emissions by 15%. . . Plant load factor . . . . . . . . . . The Company acquired a 49. . Pursuant to the PPA. . By employing low-NOx burner technology and eliminating the need to flare by-product fuel. . . . . . plant load factor. . . . . . . . . This 85-MW cogeneration plant was commissioned on 13 June 2009. . . .5-KV power distribution system. . . . . . . . . . . an Essar Affiliated Company and the third largest steel producer in Canada.76 million. The Essar Power (Canada) power plant was constructed to reduce Essar Steel Algoma’s reliance on the Ontario province’s local power grid by 50% on average. . . . . . . . . . . . . . . . . . . . The power plant converts waste gases from the iron-making and coke-making operations of Essar Steel Algoma. . . Marie. . . . . Units of electricity generated (MKwH) (1) . . Canada. . . . . Fuel Supply Essar Steel Algoma supplies surplus blast furnace gas and coke oven gas to Essar Power (Canada) and receives power and steam in return.1% equity interest in November 2009 from Essar Steel Algoma for a purchase price of US$134. . . into electricity and steam for Essar Steel Algoma’s steelworks. . . The plant’s facilities include two 375.52 million and acquired the remaining 50. . . . In the event that the power plant’s power generation exceeds Essar Steel Algoma’s load.000 pound/hour boilers. . 94 . .69 Plant commenced commercial operations on 13 June 2009. . . . . . . . . . . . . . The table below presents the plant availability. condensate and feed-water systems. Power Off-Take Arrangements The Essar Power (Canada) plant has entered into a 20-year PPA expiring in May 2029 with the Ontario Power Authority for the purchase of 63 MW of power. . . . . .Part 6 The Business Essar Power (Canada) Overview The Company’s wholly owned subsidiary Essar Power (Canada) (formerly Algoma Energy LLP) owns and operates the Essar Power (Canada) power generation plant in Sault Ste.28 234. . or approximately 400 metric tonnes per year. . freeing up this capacity for the rest of the province. the Ontario Power Authority underwrites the minimum price payable under the PPA. . a cooling tower. 79% 65% 23. . a 105-MW turbine and other related components. . . . . . . . . . including generators. Ontario. auxiliary consumption and units of electricity generated for the Essar Power (Canada) power plant for the period indicated.9% equity interest in Essar Power (Canada) from Essar Steel Algoma in December 2007 for a consideration and capital contribution of US$126. a transformer and a distributed control system. . . In effect. . .

10.56 million) required for these equity interests.880 MW 48. in billion) (US$ in million) The Business Project Location Fuel supply Expected off-take Essar Power MP-Mahan(1) 1.00 1.1% GUVNL. Essar Steel Hazira.60 1.48 155. India 890 MW Vadinar. and. although it is intended to also put in place arrangements for the economic interest to remain over 98% with the Company. expects to sell approximately 40. 12% power at variable cost Corex gas/ fines(6) Domestic coal-linkage 100% Essar Steel Hazira 14.041. In the event of any delay in the development of the relevant captive coal mine. If Essar Steel and Essar Steel Hazira do not purchase the equity interest. 10% Essar Steel Hazira 7.032. Gujarat.2% Essar Oil. India 380MW 510MW 4.5% of the power from the Essar Power Jharkhand-Tori plant under a long term PPA to this entity. although it is intended to put in place arrangements for the economic interest to remain at 97.Part 6 Phase I Power Projects Overview Phase I Power Projects The following table provides information about the Company’s Phase I Power Projects: Expected installed gross capacity Expected Estimated Estimated commissioning cost cost date (Rs.200 MW Latehar.31 658.92% with the Company.20 1. 25% mine(5) ROFR. Gujarat. India 270 MW Hazira. The Company is currently participating in a bidding round with the Bihar State Electricity Board. The Company expects to sign long-term PPAs aggregating to 48% of the power produced by this power plant.99 Q3 2010 Q3 2011 Gas(7) Imported coal(8) Essar Steel and Essar Steel Hazira.31 502. 26 million (US$ 0. are expected to acquire a 26% equity interest in the Essar Power MP-Mahan Phase I Power Project in order to enable it to qualify for captive power plant status.00 6.15% merchant.00 Q3 2011 Captive coal 30% ROFR. the project would not qualify for captive power plant status and the Company would need to fund the Rs.25 23. Gujarat.9% merchant 48.73 146. (2) (3) (4) (5) (6) (7) (8) For more information about the phasing of the Company’s capital expenditures for the Phase I Power Plant Projects and planned funding required therefor. Jharkhand. Can also use naphtha.31 100% Essar Steel Orissa 78. 50. see ‘‘Factors Affecting Results of Operations and Financial Condition—Funding Costs for the Expansion Projects’’ in Part 9 ‘‘Operating and Financial 95 .56 Q2 2011 Q4 2012 Q4 2012 Q2 2012 57. although it is intended to put in place arrangements for the Company to retain an economic interest of 99.83 30.33 308.200 MW Singrauli. both of which are Essar Affiliated Companies.08 Captive coal 48% PPA(2). 11.200 MW Jamnagar. India 120 MW Paradip. is expected to acquire a 5% equity interest in the Vadinar Power-Jamnagar plant in order to enable it to qualify for captive power plant status. Orissa. Madhya Pradesh.75% Essar mine(5) Steel. India Essar Power Gujarat-Salaya Essar Power Jharkhand-Tori Essar Power Hazira-Hazira(3) Essar Power Orissa-Paradip(3) Vadinar Power(4)-Expansion Phase I Phase II Total (1) 1. an Essar Affiliated Company. to use domestic coal linkages until coal from these mines becomes available.75% merchant. Captive fuel supplied by off-taker. India 1.221.56 million) required for the equity interest. If members of the Essar Steel Group do not purchase the equity interest. 11. Members of the Essar Steel Group have a 26% equity interest in Essar Power Orissa-Paradip and will have a 26% equity interest in Essar Power Hazira-Hazira for the purposes of complying with the Indian captive power policies. subject to government approval. the project would not qualify for captive power plant status and the Company would need to fund the Rs. 7. if successful. 26 million (US$0.8% merchant. these plants expect.79%.5% power at variable cost Imported coal 89. Can also use refinery liquid fuels.

Debt .Part 6 The Business Review’’. . Water and Fuel Supply Water for the Essar Power MP-Mahan project will be sourced from the Govind Vallabh Pant Sagar.15 36. . . . . . .28 million) of which it intends to drawdown Rs. . . . . .15 780.00 On 21 January 2009. . Essar Power MP has obtained pollution control approval. water availability approval. Rural Electrification Corporation Ltd and the Punjab National Bank in the amount of Rs. Total . The mine is operated by Mahan Coal. Passing of title and/or taking occupation for the remainder of the site is still pending as at the date of this document. . .91 260. Essar Power MP is in the process of obtaining all statutory and non-statutory approvals and clearances required for the construction of the project. .200 MW) Overview The Essar Power MP-Mahan project is a 1. . 36.041. . pursuant to which Essar Steel and Essar Steel Hazira are expected to acquire 13% each of the equity shares of Essar Power MP.85 million) to fund the project. . . and occupies 533 hectares at this site. in billion) Available/ arranged Estimated Required/ total shortfall funding (US$ in million) Equity . . .91 — 93. . . . see paragraph 3 of Part 16 ‘‘Additional Information—Pre-IPO Reorganisation and Group Structure’’. . . 7. .76 36. environmental approval and civil aviation approval. . .200 MW (2x600 MW) captive coal-fired pit-head power plant located in Singrauli district. .00 million). . . . Essar Engineering is providing onshore engineering services and assisting Essar Power MP in the preparation of technical specifications for this power project. Essar Power MP will handle the operation and maintenance of the power plant internally. . . a water reservoir located approximately 37 km from the project site. . The proposed site for the project is 700 hectares. . Essar Project Management is providing project management services to Essar Power MP. The Company has entered into a shareholders’ agreement with Essar Steel and Essar Steel Hazira in conjunction with Essar Power MP. . . . . . The Government of India has allocated the Mahan coal block. The Company expects the Essar Power MP-Mahan project to cost approximately Rs. Madhya Pradesh. . 96 . . Essar Power MP-Mahan (1. . . located at a distance of four km from the power plant.60 166. .24 780. .85 1.75 billion (US$787. . jointly to Hindalco and Essar Power for the captive consumption supply of coal to the respective proposed power plants of Essar Power MP and Hindalco.45 48. . . 48. Procurement/Implementation Essar Power MP has entered into an offshore supply contract with Global Supplies. . . . . . For further information on the proposed capital structure of the Group at and after Admission.39 — 4.85 947.60 billion (US$1. The Company expects the plant’s first 600-MW capacity unit to be commercially operational by the second quarter of 2011 and the second 600-MW capacity unit to be commercially operational by the third quarter of 2011. The procurement work for the project is almost complete. . . . The Company currently owns or has a leasehold interest in respect of 540 hectares. . . . 36.21 4. Power Finance Corporation.041. . .09 93. . Essar Power MP has entered into various contracts with Essar Projects for onshore supply and onshore construction and with Essar Logistics for offshore transport and onshore transport. . . . Subject to the fulfilment of required conditions. the owner of the planned Essar Power MP-Mahan power plant. The status of the funding for this project as at 31 December 2009 is set forth in the table below: Funding Available/ arranged Estimated Required/ total shortfall funding (Rs. .45 billion (US$780.45 44. . Essar Power MP entered into a rupee-denominated facility agreement with ICICI Bank Limited. .39 12. . .

corresponding to a total of 62.5%. and a variable price which is the sum of the variable charges paid to the mining contractors. The tariff payable under the implementation agreement comprises variable charges and fixed capacity charges as determined by the Madhya Pradesh Electricity Regulatory Commission. The PPA of Essar Power MP-Mahan with Essar Steel Group provides an option to Essar Power MP-Mahan to sell power to any third party for any undispatched capacity to be off-taken under the PPA.5% of the plant’s planned installed capacity. Under the implementation agreement.55 mtpa for 1. and the Company has applied for further domestic coal linkage in this regard.5% of the net power produced by the plant at variable cost. a post-tax return on equity of 12.200 MW plant for 12. Essar Power MP has informed the Government of India of its intention to operate the plant at the increased capacity of 1. a period which has since expired. • For the Essar Power MP—Mahan project. but the project being implemented by Essar Power MP. 0. 97 . Moreover. although the coal block was granted to Essar Power MP for purposes of a 1. Pursuant to the terms of the coal allocation made in April 2006. Under these arrangements.25 per kWh if plant availability exceeds 85% or a penalty payment if plant availability decreases below 75%. Further. Pursuant to these arrangements the base price will comprise: • a fixed price which is the sum of fixed charges paid to the mining contractors. Essar Power MP’s share of the Mahan coal mine is estimated to be sufficient to operate the 1. on account of the captive coal mine allocation being made in the name of Essar Power. amortisation costs. and an incentive payment of Rs.200 MW capacity. In addition.200 MW. the state of Madhya Pradesh will purchase a maximum of 7. depreciation on fixed assets. statutory charges and levies. taxes.000 MW power plant. see ‘‘—Coal Mines—Mahan Coal Block’’. but the state is not obligated to purchase this power. lease rent and dead rent. royalties. Essar Power MP has applied to the Government of India for a temporary coal linkage of 5. because it is possible that mining at the Mahan coal mine will not commence during the last quarter of 2010 as initially anticipated due to delays in the receipt of certain mining approvals. interest on working capital and any other variable expenses. For additional information about the Mahan coal block. Essar Power MP has entered into a coal off-take agreement with Mahan Coal as well as a memorandum of understanding with Hindalco in connection with this coal off-take agreement. Essar Power has submitted an undertaking to the Ministry of Coal of the Government of India that Essar Power shall hold 51% voting rights in Essar Power MP for the life of the Mahan coal block. The annual coal requirement for this project is estimated at 5. Mahan Coal will supply 60% of the coal mined at the Mahan coal block to Essar Power MP at a price equal to the sum of the base price.5 years. Power Off-Take Arrangements The Company entered into two 25-year PPAs in August 2007 (to commence on the same date on which the power plant’s commercial operations commence) with Essar Steel Hazira and Essar Steel for the supply of 292 MW and 390 MW of power. Mahan Coal has applied for an extension of this allocation. interest on loans.55 mtpa until such time as the Mahan coal mine commences commercial production. respectively. Essar Power MP must also offer to sell an additional 30% of the aggregate capacity of the generating unit to the state of Madhya Pradesh. The tariff payable under these PPAs is the sum of: • • • a capacity charge per kWh fixed for each year. overheads of Mahan Coal (except those which are variable linked to the quantity of coal provided). Essar Power MP-Mahan proposes to sell this undispatched capacity on a merchant sales basis although there is a mechanism in the PPA allowing the Company to recover a portion of the capacity charges that would otherwise be payable by the Essar Steel Group if the price per unit for such merchant sales is less than the price agreed in the PPA (subject to obtaining lender consent).Part 6 The Business a 50:50 joint venture between Hindalco and Essar Power. mining was required to commence within 36 to 42 months. an energy charge per kWh fixed for each year.

. Debt . . . Essar Engineering is providing onshore engineering services and is assisting Essar Power Gujarat in the preparation of technical specifications for this power project. . . . Essar Power Gujarat has obtained all statutory and non-statutory approvals and clearances required for the construction of the project relating to pollution clearance. . . Gujarat. . The status of the funding for this project as at 31 December 2009 is set forth in the table below: Funding Available/ arranged Required/ Estimated shortfall total funding (Rs.42 1. . Procurement/Implementation Essar Power Gujarat has entered into an offshore supply contract with Global Supplies. in billion) Available/ arranged Required/ Estimated shortfall total funding (US$ in million) Equity . . in September 2008 Essar Power Gujarat entered into a rupeedenominated loan facility agreement with the State Bank of India and certain other lenders for Rs. . The Company plans to construct this power evacuation infrastructure through its wholly-owned subsidiary Essar Power Transco. . .32 12. . . Essar Power Gujarat will handle the operation and maintenance of the power plant internally. . . . .73 36. Total .95 — 113.525 billion (US$546. . . .200 MW) Overview The Essar Power Gujarat-Salaya project will be an imported coal-fuelled thermal power plant with two 600-MW generation units.56 To provide funding for this project. . . 98 .42 918. The proximity of the proposed Salaya port being developed by Essar Bulk Terminal. . . Subject to the fulfilment of required conditions. . . Essar Power Gujarat has entered into various contracts with Essar Projects for onshore supply and construction. 25. . . . This project will be located near Essar Oil’s refinery complex at Vadinar and approximately 18 km from the Salaya port. . The procurement work for the project is almost complete. .56 million).15 42.19 774. . . . . . . Essar Power Gujarat has obtained possession of about 330 hectares of land from the Government of Gujarat.80 million).250 billion (US$219. In addition. . Essar Logistics for offshore and onshore transport. . 48. The Company expects the first 600-MW capacity unit to be commercially operational by the first quarter of 2011 and the second 600-MW capacity unit to be commercially operational by the second quarter of 2011.Part 6 The Business The Company estimates that at least 141 MW is required to be sold each year for a period of ten years to the Essar Steel Group to comply with custom and excise duty exemption conditions. The Company expects this project to cost approximately Rs. . 10. . . . an Essar Affiliated Company.032. . . . . and Essar Project Management for project management services.20 billion (US$1.61 113. .14 774. 6. . Essar Power MP has entered into a transmission agreement under which Essar Power Transco will provide transmission services to Essar Power MP for the transmission of power produced at the Essar Power MP-Mahan plant to power purchasers under the PPA and any third party purchaser.05 36. . . . located in Jamnagar district. environmental clearance and civil aviation clearance.32 — 5. Essar Power Gujarat-Salaya (1. . 375 million (US$8 million).58 million) and with Essar Power for Rs. .88 5. The Company is implementing this project through its wholly-owned subsidiary Essar Power Gujarat.20 144. . See Part 15 ‘‘Relationship with the Essar Group’’ for further details of this requirement. It is expected that from the first quarter of 2011 the evacuation will be through a 400-KV double circuit line from Mahan to Sipat pooling station and a 400-KV double circuit line from Gandhar to a new 400-KV switchyard at Hazira located approximately 97 km away. . .15 48. . is an advantage in respect of coal transport from overseas sources. in May 2009 Essar Power Gujarat entered into a rupeedenominated loan facility agreement with ICICI Bank Limited for Rs.95 258. .032. .

to access certain terminal and transportation facilities at the Salaya port which will be constructed and operated by Essar Bulk Terminal. Essar Power Gujarat also expects to enter into a contract for the use of sea water for this project. Under the agreement. Essar Power Gujarat has also entered into a 20-year coal handling agreement with Essar Bulk Terminal. or Tanjung Bara in Indonesia. Pursuant to the acquisition of captive coal mines in Indonesia and Mozambique. a variable energy charge. The project will require an area of 300 hectares. of which 158 hectares have already been acquired and the remainder are in the process of being acquired. for the transport of 3. While Essar Bulk Terminal has obtained approval in principle from the Gujarat Maritime Board with respect to sea water usage (which has expired and is subject to renewal).Part 6 Water and Fuel Supply The Business Essar Power Gujarat expects to source the water required for the project from the sea. and other approvals. and certain incentives. with power supply from the first and second units commencing in February 2011 and August 2011. Essar Shipping and Logistics does not currently have a back-to-back coal supply arrangement in place. Mauritius and its subsidiaries and associates) in the first instance for this power plant. Essar Bulk Terminal will provide receipt. Essar Power Gujarat has entered into a 25-year contract of affreightment (from 15 September 2010) with Essar Shipping and Logistics. The Company will implement this project through its wholly-owned subsidiary Essar Power Jharkhand.200 MW) Overview The Essar Power Jharkhand-Tori project will be a captive pit-head coal-fired power plant comprised of two generation units of 600-MW capacity each located in Latehar district.6 to 4. penalties and unscheduled interchange charges. Essar Power Gujarat is required to make power available to GUVNL at Essar Power Gujarat’s 400-KV busbar. However. Essar Power Gujarat has entered into a 25-year fuel supply agreement with Essar Shipping and Logistics for the supply of coal from the date that commercial operations at the Essar Power Gujarat-Salaya project commences. and shall require Essar Shipping and Logistics to supply coal only in the event of a shortfall. This amendment requires Essar Power Gujarat to use coal extracted from the mines of the ‘‘Power Group’’ (defined in the amendment agreement to mean Essar Power Holdings.000 MW per year of power. Gujarat Water Infrastructure Ltd has also granted approval in principle to use 80 MLD of untreated fresh water until the completion of the planned desalination plant for the project. to the Salaya port in India.4 mmt of coal per year in bulk from Richards Bay in South Africa. This PPA was assigned to Essar Power Gujarat on 25 November 2008. statutory or otherwise. The aforesaid amendment is subject to approval of lenders of Essar Power Gujarat. respectively. 99 . dated 24 December 2008. The Company expects the first 600-MW capacity unit to be commercially operational by the third quarter of 2012 and the second 600-MW capacity unit to be commercially operational by the fourth quarter of 2012. handling and transport facilities for the coal through a conveyor system from the port to the plant. Jharkhand. dated 24 December 2008. Power Off-Take Arrangements On 26 February 2007. The tariff payable under the PPA is the sum of: • • • a fixed capacity charge. as may be required for the same. the terms of the fuel supply agreement have been amended by an agreement dated 6 April 2010. Essar Power entered into a 25-year PPA with GUVNL for the sale of 1. The amount of coal to be supplied each year shall be agreed between the parties. Essar Power Jharkhand-Tori (1.

the Company believes that the Ministry of Coal of the Government of India will require Essar Power to undertake to hold 51% of the voting rights in Essar Power Jharkhand for the life of the Ashok Karkata coal block. Because there have been delays in the receipt of certain mining approvals which may delay the development of the mines. . to Essar Power to source fuel for the Essar Power Jharkhand-Tori project. Essar Power Jharkhand has applied to the Government of India for a temporary coal linkage of 5. Water availability approval for the first unit of 600-MW has also been obtained subject to the fulfilment of certain conditions. .32 13.83 321. 57 billion (US$1. .34 328.74 million). . .40 892. .Part 6 The Business The Company expects the total project cost of this plant to be Rs. .08 Essar Power Jharkhand-Tori has a non-binding sanction letter for an aggregate amount of Rs. the Company has applied for an extension of these periods.17 299. . . . . but the project being implemented by Essar Power Jharkhand. The Chakla coal block is an open-cast coal mine located in Latehar district. . which includes a letter of credit facility for an aggregate amount of Rs. which is pending. 15 billion (US$321.461 m3/hr from Amanat river and 5. . . . .593 m3/hr from Damodar Valley Corporation (‘‘DVC’’) as per a consent dated 22 February 2008. . . . . . . . . . Subject to the fulfilment of required conditions. . Total . . . The water allotment for the DVC portion is for the remaining capacity and is subject to approval from DVC. . Essar Power Jharkhand has also applied to the Government of India for an extension of the pre-set coal mine development milestones set forth in the coal allocation letter for the Chakla coal mine. because this approval was granted for purposes of a 2. . mining was to commence within 36 to 54 months (depending on the type of mine and the nature of the land).74 1.91 306.51 593. .32 15. . .00 15. . The status of the funding for this project as at 31 December 2009 is set forth in the table below: Funding Available/ arranged Estimated Required total funding (Rs.70 billion (US$914. and has also entered into various contracts with Essar Projects for onshore supply and onshore construction and with Essar Engineering for onshore engineering services. because the development of the Ashok Karkata coal mine is not expected 100 . . The Amanat river approval is sufficient to meet the water needs of the first unit of 600 MW. . respectively. . . In February 2007 and November 2007. Debt . . 0. . . The Company expects production from this mine to commence by the first quarter of 2012. Moreover. Pursuant to the terms of the coal allocations made in February 2007 and November 2007. Procurement/Implementation Essar Power Jharkhand has entered into an offshore supply contract with Global Supplies. .4 mtpa until such time as the Chakla coal mine commences commercial production. but the project is being implemented by Essar Power Jharkhand. Essar Power has submitted an undertaking to the Ministry of Coal of the Government of India that Essar Power will hold 51% of the voting rights in Essar Power Jharkhand for the life of the Chakla coal block. Essar Power Jharkhand also entered into an offshore transport contract and an onshore transport contract with Essar Logistics. . . .70 41. Essar Power Jharkhand intends to apply in due course to amend the environmental approval to reflect the modified capacity of the plant. However. . The Ashok Karkata coal block will also be an open-cast coal mine and is located in Chakla district.98 27. . The mines will be operated by Essar Power Jharkhand. On account of the captive coal mine allocation for the Chakla block being made in the name of Essar Power.34 914. . . In the event that mining at the Chakla coal mine does not commence in time for the scheduled commissioning of the Essar Power Jharkhand-Tori plant. . because the allocation for the Ashok Karkata block was also made in the name of Essar Power. an Essar Affiliated Company. . . Jharkhand approximately 20 km from the project site. Water and Fuel Supply The Company received approval for the use of 2.34 million).221. In addition. . . .70 57.221. . . .000-MW power plant.30 42. an environmental approval for the first phase of the project has been obtained. Jharkhand approximately four km from the Essar Power Jharkhand-Tori project site. . . . . 42. .00 6. . . the Government of India allocated the Chakla and Ashok Karkata coal blocks.08 million).68 14. in billion) Available/ arranged Estimated Required total funding (US$ in million) Equity .

is owned by the Essar Steel Group and is expected to be leased to Essar Power Hazira. Total .59 3. . . The project is well-connected by road. for the allocation of another coal linkage to meet the expected shortfall of 0. Arrangements for this transmission to the pooling station are to be made by Essar Power Jharkhand. . . .59 0 3. . . comprising 15 hectares. 0 10. the Company has informed the Government of India of the revised capacity and applied for a modification of the original allocations. . .Part 6 The Business to be complete until 42 months from March 2010. . . . . and. because both the Chakla and Ashok Karkata coal allocations were granted to Essar Power assuming the construction of a power plant with a capacity of 1. .00 308. . in the alternative. if successful. The Company intends to apply for Mega Power status for this project. Essar Power Jharkhand has applied to the Government of India either to allow mining of up to 5. . The detailed terms of these sales will be set out in a PPA.00 231. . . The remaining 15% of the power generated by this plant is expected to be sold pursuant to merchant sales. . Gujarat will be fuelled predominantly by imported coal and corex gas fines from the adjacent Essar Steel plant and comprise two generation units of 135-MW capacity each. The power generated at the Essar Power Jharkhand-Tori plant will be stepped up to transmission voltage of 400 KV and evacuated by two 400-KV double circuit lines from the power plant to the pooling station near Ranchi.000 MW. . located at Hazira. . . . The Company expects the mineable reserves from the above two coal blocks to be sufficient for the life of the plant. . . . . The project is being implemented by the Company’s wholly-owned subsidiary Essar Power Hazira.39 billion (US$308 million). . the central transmission utility of the Government of India. 14. .4 mtpa from the Chakla coal block (thus amending the original allocation setting a limit of 4. rail and port.00 0 77.5 mtpa) until such time as the Ashok Karkata coal block commences commercial production.44 mmt per year. The land for the project.5% of the power from the Essar Power Jharkhand-Tori plant under a long-term PPA to this entity. . The current status of the funding for this project is set forth in the table below: Currently available/ arranged Estimated Required total funding (Rs. . Pursuant to a memorandum of understanding between Essar Power and the Government of Jharkhand. .59 10.00 101 .80 3. . . . Power Off-Take Arrangements The Company expects to sign long-term PPAs aggregating to 48% of the power produced by this power plant.00 77. . . The Company estimates that the total cost of the Essar Power Hazira-Hazira project will be Rs. . The Company expects the first 135-MW capacity generation unit to be commercially operational by the third quarter of 2012 and the second 135-MW capacity generation unit to be commercially operational by the fourth quarter of 2012. in billion) Currently available/ arranged Estimated Required total funding (US$ in million) Funding Equity . and has a right of first refusal to purchase up to 25% of the power at a rate to be determined by the appropriate regulatory commission. . . .39 0 231. . . . A transmission agreement with PCGIL has been signed. . expects to sell approximately 40.00 231. .9 mtpa. . The Company is currently participating in a bidding round with the Bihar State Electricity Board. In addition.00 77. . .80 10. . . . . Debt . .80 14. . The requirement of coal for this power plant is estimated to be 5. . . . . The Company expects the pooling station near Ranchi to be constructed by Power Grid Corporation of India Limited (‘‘PGCIL’’). or. . Essar Power Hazira-Hazira (270 MW) Overview The Essar Power Hazira-Hazira project. . . the state of Jharkhand is entitled to purchase 12% of the power delivered by this plant at a variable rate. . . .

82 7. . .50 146. The indemnity liability of each party is stated to be limited to 0. . . Essar Steel Orissa is in the process of acquiring land for this project which is expected to be leased to Essar Power Orissa-Paradip upon completion of acquisition formalities. 10. . .40 — 7. . operation and maintenance cost. Total . Debt . as well as a contract with Essar Engineering for onshore engineering services. . . income tax and a certain return on equity. The Company estimates the total cost of the project to be Rs. Subject to the fulfilment of required conditions. . Essar Steel Hazira has obtained the necessary statutory and non-statutory environmental approvals required for this project.5% of the average annual fixed charges. . . 0. . . .00 million).00 The Company is in discussions with lenders to secure debt financing commitments for this power project.48 1. water and fuel for the project will be supplied by Essar Steel Hazira without charge to Essar Power Hazira in respect of the contracted capacity under the PPA. . . .36 5. . which should be an advantage in the supply of imported coal. Orissa. The Company will implement this project through its wholly-owned subsidiary Essar Power Orissa. .35 1. . . The Company expects the first two 30-MW capacity generation units to be commercially operational by the fourth quarter of 2011 and the second two 30-MW capacity generation units to be commercially operational by the second quarter of 2012. . The status of the funding for this project as at 31 December 2009 is set forth in the table below: Funding Available/ arranged Estimated Required total funding (Rs. . . . 3620 million (US$77. . Power Off-Take Arrangements The Company has entered into a PPA dated 10 March 2010 for the sale of power from the plant with Essar Steel Hazira for a contracted capacity of 243 MW.10 109. . . . Essar Power Orissa-Paradip (120 MW) Overview The Essar Power Orissa-Paradip power plant will be a coal-fired power plant comprised of four generation units of 30 MW each located in Paradip. . . Water and Fuel Supply Under the terms of the PPA. including environmental and pollution clearances. . The term of the PPA is 25 years from the date of commencement of the commercial operations in relation to the contracted capacity.Part 6 The Business Essar Power Hazira-Hazira has entered into a loan agreement dated 31 March 2010 with the Infrastructure Development Finance Company for a term loan of Rs. .55 million). . . Paradip is a well-equipped and serviced port. in billion) Available/ arranged Estimated Required total funding (US$ in million) Equity . . .35 — 0. . . . . . . . .40 29.12 6. . . . . . . The power generated from this plant is expected to be supplied to a 200-KV switchyard which is connected to Essar Steel Hazira’s main receiving substation. . .80 billion (US$231 million) for this project. . .82 billion (US$146. The tariff payable under the PPA is a fixed charge comprising interest on debt.50 109. . . . 102 . . . .70 5. 6. .12 6.60 36. The annual fixed charge calculated on the basis of the aforementioned components is Rs. . depreciation. Procurement/Implementation Essar Power Hazira has entered into contracts with Essar Projects for construction and onshore supply of all plant equipment and spares. which will be transferred to Essar Power Hazira when approved by the relevant authorities.50 138. .

. and. 17.68 23. will increase the plant’s total installed equivalent megawatt capacity by 890 MW. light cycle oil. . . . .31 For the financing of the first phase of this project. .77 61.73 billion (US$658.73 103. . VPCL entered into a rupee denominated common loan agreement dated 17 March 2010 with Axis Bank Limited and Power Finance Corporation for the amount of Rs. 4. . Vadinar Power Plant Expansion (890 MW) Overview The Vadinar power plant expansion project. . the annual capacity charges are the sum of interest expenses. . . .81 23. .54 0 61.54 164. Power Finance Corporation. . VPCL entered into a rupee denominated common loan agreement dated 17 March 2010 with Axis Bank Limited. operation and maintenance expenses and income tax. .13 million). will be implemented in two phases. . .73 658.58 493. . . .25 million). .04 493. . . . This second phase is expected to be commercially operational by the third quarter of 2011. return on equity according to the financing plan of the project. 1500 million (US$32. 5. State Bank of Patiala. . .73 596. naphtha. . Essar Power Orissa entered into two PPAs with Essar Steel Orissa Limited for the sale of power from each of the 2x30 MW phases of the Essar Power Orissa-Paradip power plant on an exclusive basis.48 million).87 0 2.87 7. . Essar Steel Orissa Limited has an obligation to provide fuel and water (including the transport thereof to the plant) and is making arrangements with the Grid Corporation of Orissa for the receipt of power for the commissioning of the power plant. Debt . . Essar Power Orissa has entered into similar contracts with Essar Projects for the two 30-MW units for the second phase of the Essar Power Orissa-Paradip power plant. . . The Company estimates the total cost of the both phases of the project to be Rs. . . United Bank of India and Corporation Bank in the amount of Rs. Power Off-Take Arrangements On 11 November 2009. . .05 30. .Part 6 Procurement/Implementation The Business Essar Power Orissa has entered into contracts for the two 30-MW units for the first phase of the Essar Power Orissa-Paradip power plant with Essar Projects for onshore construction services and for onshore supply of all plant. . . The second phase will consist of a multi-fuel (coal. . . The term of these PPAs is 25 years from the date commercial operations of each unit of the first phase commence unless terminated earlier or extended before 180 days of the expiration of the respective PPAs. depreciation. 103 . . . Syndicate Bank. . . . The first phase consists of 220 MW of gas-fuelled generation capacity and 630 tph of steam capacity. The current status of the funding for this project is set forth in the table below: Funding Available/ arranged Required Estimated shortfall total funding (Rs. The power generated from this plant is expected to be supplied to a 200-KV switchyard which is connected to Essar Steel Orissa’s main receiving substation. . . . located on 61 hectares of land. . . Essar Steel Orissa Limited is also responsible for all tariff payments and assisting Essar Power Orissa in the acquisition of land for the power plant. For the financing of the second phase of this project. . in billion) Available/ arranged Required Estimated shortfall total funding (US$ in million) Equity . Under these PPAs. clarified slurry oil and furnace oil) co-generation power plant with 325 MW of power capacity and 900 tph of steam capacity. equipments and spares. Total .61 billion (US$377. .05 27. . . . . Water and Fuel Supply Water and fuel for the project will be supplied by Essar Steel Orissa. as well as a contract with Essar Engineering to provide onshore engineering services. . . . . . This phase is expected to be commercially operational by the third quarter of 2010. . . .31 million).86 2. 30. including the steam capacity.44 billion (US$116. The annual fixed charges calculated on the basis of the aforementioned components is Rs. .

and detailed engineering is in progress. Basic engineering for the first phase of the project has been completed. 104 . Essar Project Management is providing project management services for both phases of the project. procurement. an onshore construction contract and an onshore supply contract with Essar Projects and an onshore engineering contract with Essar Engineering for the provision of engineering services. engineering. In addition. In conjunction with the second phase of the project. engineering. inspection and testing services. Power Off-Take Arrangements VPCL has entered into a 25-year PPA (from the date commercial operations commence) with Essar Oil. Basic engineering for the second phase of the project is almost complete. under which: • • • the fuel required by the power plant for the power and steam will be procured by Essar Oil. with respect to certain equipment. the Company is continuously evaluating opportunities to. Water and Fuel Supply Water for the Vadinar power plant expansion project will be supplied by Essar Oil and the cost will be borne by Essar Oil. VPCL has entered into an engineering contract with Essar Engineering for the provision of detailed plant engineering services. respectively. Procurement is at an advanced stage and delivery of equipment to the site has begun. including design. respectively. and the fuel required by the power plant for the power sold to third parties on a merchant basis will be procured by Essar Oil and paid for by VPCL. The Company expects to use gas for fuel for the first phase and imported coal for the fuel required for the second phase of the Vadinar power plant expansion project. manufacturing and training services in relation to certain equipment. Construction and commissioning activities for this phase of the project are currently underway. VPCL has entered into a fuel supply agreement with Essar Oil and Essar Steel Hazira. Essar Steel Hazira and VPCL in the proportions of power respectively consumed by them. In relation to the second phase.530 tph of steam. VPCL has obtained all necessary regulatory clearances for this plant. for the supply of 300 MW of power and 1. The Company also proposes to use refinery outputs produced by the Vadinar refinery. clarified slurry oil and heavy furnace oil. acquire coal mines for the purposes of meeting the fuel requirements of the Vadinar power plant expansion project. manufacturing. Subject to the fulfilment of required conditions. in case sufficient coal is not available. packing and transportation services and the construction of the plant. and almost all of the necessary equipment has arrived at the plant site. procurement. VPCL has also entered into a 25-year PPA (from the date commercial operations commence) with Essar Steel Hazira. supply. The agreement is for a period of 15 years from the date of commencement of the fuel supply. the fuel required by the power plant for the power to be supplied to Essar Steel Hazira will be procured by Essar Oil and paid for by Essar Steel Hazira. and detailed engineering is nearly complete. and is already in advanced discussions to. for the supply of 90 MW of power. dated 18 May 2009. manufacturing. The Company expects to sell the remaining 119 MW of power on a merchant basis. In addition. In relation to the first phase. In addition. naphtha. VPCL has entered into onshore supply and construction contracts with Essar Projects for the provision of. engineering. high speed diesel. dated 18 May 2009. design.Part 6 The Business Procurement/Implementation VPCL has entered into separate contracts for each of the two phases of this co-generation project. VPCL has entered into. offshore and onshore transportation contracts with Essar Logistics with respect to transportation services in relation to certain equipment. an offshore supply contract with Global Supplies for the provision of design. such as light cycle oil. procurement of all equipment has been completed.

050 MW Orissa. India 1. Phase II Power Projects Overview The Company is currently developing the following Phase II Power Projects as part of the expansion of its power generation capacity.14 Fuel supply Domestic coallinkage Imported coal Captive coal mine Petroleum coke Captive coal mine Imported coal 52.370 MW 227. Water is available as well. Essar Power MP has entered into: (i) an offshore supply contract with Global Supplies.060.30 499. and (iv) an onshore engineering contract with Essar Engineering. Jharkhand. with commercial operations targeted to commence predominantly in 2013: Gross Capacity Expected commissioning date Q3 2013 Project Essar Power MP-Mahan expansion Essar Power GujaratSalaya II expansion Essar Power JharkhandTori expansion Essar Power GujaratSalaya III expansion Neptune I—Orissa Neptune II—Orissa expansion Total Location 600 MW Singrauli. 23.30 billion (US$499. (iii) an onshore supply contract and an onshore construction contract with Essar Projects.14 706.00 1. India 600 MW Jamnagar. India Estimated cost Estimated cost (Rs.30 33. India 1. the Company has obtained certain significant regulatory clearances for this project.53 Essar Power MP-Mahan Expansion (600 MW) Overview Essar Power MP is proposing to add a 600-MW unit to the Essar Power MP-Mahan project that is under construction. Gujarat. Procurement/Implementation For the engineering. the Company has not secured any debt financing commitments for this project.14 million). The power project will occupy land already allotted to the Essar Power MP-Mahan expansion project.90 499. Currently. The power will then be distributed from the switchyard to Essar Steel Hazira as well as to merchant customers. Water and Fuel Supply The Company has made an application for a supply of domestic coal to fuel the additional capacity at the plant arising from the expansion project.200 MW Orissa.Part 6 The Business The power generated from this plant will be supplied to the 220-KV switchyard at Essar Oil. but expects to fund the project with 75% debt and 25% equity.09 23. Madhya Pradesh.73 4. 105 .00 46. Subject to the fulfilment of required conditions.94 997.54 49.320 MW Jamnagar. in billion) (US$ in million) 23. The Company estimates the total cost of the project to be Rs. Power Off-Take Arrangements The Company expects to sell the power generated by this expansion project to power distribution companies and industrial consumers. including water and environmental. as well as on a merchant basis. procurement and construction of this project. India 1.878.115.50 1. Gujarat. India 600 MW Latehar.41 Q3 2013 Q3 2013 Q3 2013 Q3 2013 Q3 2014 5. (ii) an offshore transport contract and an onshore transport contract with Essar Logistics.

including environmental clearances. The land required for the proposed expansion project is already owned by Essar Power Gujarat. The Company estimates the total cost of the project to be Rs. 106 . 52. Essar Bulk Terminal will provide receipt.115.Part 6 The Business Essar Power Gujarat-Salaya II Expansion (1. but expects to fund it with 75% debt and 25% equity. This amendment requires Essar Power Gujarat to use coal extracted from the mines of the ‘‘Power Group’’ (defined in the amendment agreement to mean Essar Power Holdings. handling and transport facilities for the coal through a conveyor system from the port to the plant. and shall require Essar Shipping and Logistics to supply coal only in the event of a shortfall. Essar Power Gujarat has entered into: (i) an offshore supply contract with Global Supplies. The Company has received a letter of intent for the supply of 800 MW of power to GUVNL on a long term basis. Essar Bulk Terminal has obtained approval in-principle from the Gujarat Maritime Board with respect to sea water usage. Essar Power Gujarat is awaiting the necessary regulatory clearances. the Company has not secured any debt financing commitments for this project. procurement and construction of this project. Essar Power Gujarat has also entered into a 20-year coal handling agreement with Essar Bulk Terminal to access certain terminal and transportation facilities at the Salaya port which will be constructed and operated by Essar Bulk Terminal. Essar Power Gujarat is expected to enter into a contract for sea water usage for this power plant. Mauritius and its subsidiaries and associates) in the first instance for this power plant. the terms of the coal supply agreement have been amended by an agreement dated 6 April 2010. (ii) an offshore transport contract and an onshore transport contract with Essar Logistics. and (iv) an onshore engineering contract with Essar Engineering. (iii) an onshore supply contract and an onshore construction contract with Essar Projects. Essar Power Gujarat has entered into a 25-year coal supply agreement (from the date commercial operations of the Essar Power Gujarat-Salaya II project commence) with Essar Shipping and Logistics and has entered into a 25-year coal affreightment agreement (from 15 January 2013) with Essar Shipping and Logistics to transport coal from South Africa and Indonesia to the Salaya port for the Essar Power Gujarat-Salaya II project.200-MW Essar Power Gujarat-Salaya plant currently under construction. Under the agreement. Currently. Essar Power Gujarat expects to enter into a PPA with GUVNL for the above supply of power during the second quarter of 2010.09 billion (US$1.9 million).320 MW) Overview Essar Power Gujarat is proposing to add a 1. Procurement/Implementation For the engineering. Water and Fuel Supply The Company expects to fuel the proposed expansion with imported coal. Power Off-Take Arrangements The Company expects to sell the power generated by this expansion project to power distribution companies. Pursuant to the acquisition of captive coal mines in Indonesia and Mozambique. industrial consumers and on a merchant basis. The aforesaid obligation to use coal extracted from mines of the Power Group shall be after the coal requirements for the Essar Power Gujarat—Salaya (1200 MW) Phase I power project are met.320-MW supercritical expansion comprised of two 660-MW generating units to the 1.

Currently. Essar Power Salaya is expected to enter into a fuel supply agreement with Essar Oil for the pet coke. as well as on a merchant basis. procurement and construction of this project. Procurement/Implementation For the engineering. Water and Fuel Supply The Company expects to fuel the expansion project via dedicated coal mines already allocated to it at Chakla and Ashok Karkata. Essar Power Salaya has entered into: (i) an offshore supply contract with Global Supplies. Water and Fuel Supply The pet coke which will be used as fuel for this project is anticipated to be supplied by the Vadinar refinery after the completion of the Phase I Refinery Project. (ii) an offshore transport contract and an onshore transport contract with Essar Logistics. Essar Power Salaya is expected to enter into a contract for the use of sea water for this power plant. (iii) an onshore supply contract and an onshore construction contract with Essar Projects. The water and environmental clearances for the project are currently being obtained. and (iv) an onshore engineering contract with Essar Engineering. procurement and construction of this project. the Company has not secured any debt funding for the project. 23. Procurement/Implementation For the engineering. Essar Bulk Terminal has obtained approval in-principle from the Gujarat Maritime Board with respect to sea water usage. 107 . 33 billion (US$706.14 million). Essar Power Jharkhand expects to acquire the land for the project by the second quarter of 2010. The plant will be based on circulating fluidised bed combustion technology and will utilise multiple units for a total combined installed capacity of 600 MW.30 billion (US$499. (iii) an onshore supply contract and an onshore construction contract with Essar Projects.Part 6 Essar Power Jharkhand-Tori Expansion (600 MW) Overview The Business Essar Power Jharkhand also proposes to expand the Essar Power Jharkhand-Tori power plant through the installation of an additional generation unit of 600 MW. Power Off-Take Arrangements The Company expects to sell the power generated by this expansion project to power distribution companies and industrial consumers. (ii) an offshore transport contract and an onshore transport contract with Essar Logistics. The water source for the project will be sea water. Essar Power Salaya-Salaya III Expansion (600 MW) Overview The Company proposes to build a pet coke-based power plant at Salaya in Jamnagar. Essar Power Jharkhand has entered into: (i) an offshore supply contract with Global Supplies. but expects to fund it with 75% debt and 25% equity. Currently. The Company has applied for certain regulatory clearances necessary for this project.9 million). The Company estimates the total cost of the project to be Rs. but expects to fund it with 75% debt and 25% equity. and (iv) an onshore engineering contract with Essar Engineering. the Company has not secured any debt financing commitments for this power project. The Company expects the total cost of the project to be Rs.

the overall impact on the Company would be minimal. the Company has undertaken a due diligence exercise. A reply to this notice has been filed. the Company may consider. the Company and Neptune would need to take remedial measures. If. 96. Neptune I and II—Orissa (2. the underlying operating company. the Directors believe that the probability of revocation is low. which is implementing a 2. or exiting the projects altogether which would result in a loss of its initial investment. This exercise revealed that while certain approvals have been obtained for the Neptune Phase I Power Project and coal blocks from government authorities and a PPA has been executed.Part 6 The Business Power Off-Take Arrangements The power generated from this project will be sold in the merchant market. Coal Mines Overview The Company has been granted allocations by the Government of India for three domestic coal blocks: the Mahan coal block in Madhya Pradesh. Essar Power proposes to acquire 21% of the equity in Neptune Holding Company as well as 50% of the equity in Neptune Limited. alleging non-compliance of certain milestones provided in the relevant allocation letter.200 MW phase. That is. this is not expected to have a material impact on the timing of the projects. The Company expects the capital expenditure required for the project to be Rs. the allocation of the coal blocks may be revoked. among other options. Assuming Neptune Limited is able to secure other sources for the supply of coal. Mahan Coal Block The Government of India has allocated the Mahan coal block located at a distance of four kilometres from the Essar Power MP-Mahan power plant jointly to Hindalco and Essar Power for the captive supply of coal 108 . holds an equity stake of just under 50% in Neptune Limited. in two phases—a 1. the Company and Neptune Limited would explore various options depending on the stage in the Neptune projects when such order were to become effective.250 MW) Essar Power has subscribed to convertible preference shares with the right to convert into shares representing approximately 79% of the equity in Neptune Holding Company. the Company will need to take such steps as are necessary for the approvals and the PPA to be effective and there can be no assurance that the Company will be able to complete the same in a timely manner or at all. If the revocation order to the allocation becomes effective. or on the required capital expenditure. in turn.050 MW of power generation at Neptune I. thereby taking 100% control of Neptune Limited.050 MW phase and 1. Based on the Company’s experience and publicly available information. the majority of which is expected to be invested from 2012 onwards).41 million). which is pending discussions and commercial negotiations. and that even if the coal allocation was revoked. Neptune Limited will also need to obtain additional approvals for its phase I power project and its coal blocks. although it would have an impact on earnings from the projects. a substantial number of these approvals received from central and state government authorities (including those pertaining to fuel supply and water) and the PPA need to be renewed and certain conditions precedent need to be complied with in order for them to be effective. the Company expects to have fuel security for 1. and the Chakla and Ashok Karkata coal blocks in Jharkhand. which. Pursuant to its proposal to acquire a 100% stake in Neptune Limited. on the other hand. such as applying to the Government for coal linkages or making other alternate arrangements for domestic or imported coal. In the event the terms of allocation are not complied with. Assuming the Company acquires a 100% interest in Neptune Limited and as a result may have access to 112 mmt of the accompanying coal mine and linkage. India. The coal from these mines will be used to fuel the pit-head coal-fuelled Essar Power MP-Mahan and Essar Power Jharkhand-Tori Phase I Power Projects. After completion of the acquisition. Neptune Limited has received a show cause notice from the Ministry of Coal of the Government of India in relation to its coal blocks.250 MW coal-fuelled power plant in Orissa. the order were to become effective at a later stage (after investment of significant capital.34 billion (US$2.057. not acquiring the remaining stake in Neptune Limited. if the order were to become effective at an early stage (before investment by the Company of significant capital in the projects). any of which could lead to substantially higher fuel costs for Neptune Limited.

under which they share management rights over the joint venture’s coal mines. The coal is of E/F grade. A.300 and 3. Ltd and Essar Power Overseas Ltd. a 50:50 joint venture between Hindalco and Essar Power. Based on the Geological Report by the Government of India. mining was required to commence within 36 to 42 months.200 MW Essar Power Jharkhand-Tori power project.5 years. Although it is expected to have the same calorific value as the Chakla block. which produces approximate gross calorific value of 3.e. The Company is in the process of acquiring land for afforestation (which is required for the forest clearance permit). The mine is operated by Mahan Coal. It is expected that production will begin in the second or third quarter of 2011. In April 2010 the Company also acquired a 100% interest in approximately 5. Essar Power 109 . BVI for approximately US$30 million. According to CMPDIL. Essar Energy plc believes that the calorific value of the coal in the Chakla block is between 3. the mines were independently estimated to contain resources of approximately 35 mmt of mineable reserves. The coal block boundaries for the Ashok Karkata block were recently re-assigned.5 mmtpa. The Company has also executed an agreement to provide a loan facility of US$175 million to Essar Minerals FZE to fund acquisition and development costs of the Indonesian mines. Based on an initial exploration of the area. Chakla and Ashok Karkata Coal Blocks The Government of India has allocated to the Company the Chakla and Ashok Karkata coal blocks in the state of Jharkhand to meet the coal requirements of the 1. The Company expects that this mine will supply coal to the Essar Power MP-Mahan (1.5 mmt of which the Company is entitled to 60% of the reserves. Indonesia for approximately US$118 million. a Government of India organisation.. a joint venture between Hindalco and the Company.500 Kcal/kg. an Essar Affiliated Company holds a coal licence in the Cambulatsitsi area near Tete. Mahan Coal has applied for an extension of this allocation. The Government of India has estimated that this block contains 110 mmt of reserves of which the Company expects approximately 100 mmt will be mineable reserves. Mozambique.000 hectares of mining area. The Ashok Karkata block is a larger block located on the same coal seam. The Company has executed a definitive share purchase agreement to acquire the entire equity stake (including the existing shareholders’ loan) in Essar Recursos de Minerais de Mozambique Ltd by Essar Power & Minerals S. Essar Power Transco The Company has established Essar Power Transco as a wholly-owned subsidiary to build. According to the Central Mine Planning and Design Institute Limited (‘‘CMPDIL’’). Overseas Coal Blocks The Company is currently in the process of acquiring coal mines in selected overseas regions. A Joint Ore Reserves Committee compliant resource assessment estimates that the block contains approximately 64 mmt of mineable reserves with an annual potential production of 4 mmt of coal with an average gross calorific value of 5. Pursuant to the terms of the coal allocation made in April 2006. Environmental clearances were obtained in December 2008. In addition. although part of the block overlaps with the CSG block that has been awarded to ONGC and subject to its exploration rights. Essar Group has entered into a memorandum of understanding with CCFB (consortium of CFM-RITESIRCON) for transporting the coal to Beira port. own and operate electricity transmission systems and networks and carry out transmission-related activities. Both blocks are expected to supply coal to the Essar Power Jharkhand-Tori plant for 20 years following the commencement of production. A mining licence is expected to be granted within two to three months of forest clearance.800 Kcal/kg. a period which has since expired. clearing the way for further block development.200 MW) Phase I Power Project for approximately 12. the Mahan coal block is estimated to have 122 mmt of mineable coal reserves and an approved annual production of 8. i. The Mahan coal block is operated by Mahan Coal.800 Kcal/kg.Part 6 The Business to Essar Power MP-Mahan’s and Hindalco’s respective planned power plants. the Chakla coal block has approximately 71 mmt of mineable coal reserves and an approved annual production of 4.400 to 5. Essar Recursos de Minerais de Mozambique Ltd. no geological survey has been done to verify this. located in the West Kutai region of East Kalimantan. with mining expected to commence within six months thereafter. 73 mmt. The joint venture provides for the development of the coal mines for the respective projects of the joint venture partners.

own and operate independent transmission projects and to develop transmission systems for third parties. This project will consist of three transmission lines and a sub-station. The total cost of setting up the factory is estimated to be Rs. The current overall cost of this project is estimated to be Rs. 110 . which is proposed to be met wholly through equity.35 billion (US$285. For this purpose. Wind power The Company proposes to manufacture and market 1. Under this licence. Essar Steel and MP Power Trading Company. the applications for licences and approvals and contracts related to the construction of the factory are expected to be in place in due course. Construction work will commence in the second quarter of 2010 and is expected to be completed by the third quarter of 2010.Part 6 The Business Transco received a transmission licence from the CERC in April 2008 for the Mahan power project. Essar Trading is also a professional member of the Indian Energy Exchange. A 400-KV 20-km line-in/line-out line will be established on the Vindhyachal-Korba line to meet the initial requirement of start-up power and power evacuation. This agreement is subject to the availability of such infrastructure. Essar Power Transco entered into an agreement with NTPC Limited in February 2010 for the use of 2x400-KV bays at the switchyard of NTPC’s Jhanor Gandher gas power station in Gujarat. 13.99 million). 3 500 MVA sub-station located at Hazira. The lease deed for this land. Essar Trading is entitled to trade up to 500 million units of electricity per year. Although the Company expects Essar Power Transco initially to undertake the transmission business only for the Company’s power projects. Essar Power Transco is also expected to develop.5 MW wind turbines under a licence that permits an annual production capacity of up to 300 units the Company’s wind turbine assembly workshop is proposed to be set up at Bhuj which is well located for transport by both road and sea.85 million). 693 million (US$14. Essar Power Transco’s first project is the construction of a transmission system to evacuate the power from Essar Power MP-Mahan to Essar Steel Hazira. The factory is proposed to be constructed on leased land. and a 97-km 400-KV D/C (twin conductor) line from the Gandhar NTPC switchyard to Hazira in Gujarat. NTPC’s requirements for the gas power station and other conditions. primarily to trade Essar Energy’s own surplus power. Essar Trading The Company proposes through its wholly-owned subsidiary Essar Trading to trade the surplus power capacity following the commissioning of the Company’s Power Plant Projects and to source power from external power suppliers. The Company has received approval in principle from Power Finance Corporation and Rural Electrification Corporation Limited to provide debt financing for this project. The project will be financed with 70% debt and 30% equity. The sub-station will be a 400/220-KV. which enables it to purchase and sell power both on its own behalf and on behalf of its clients. Operations are scheduled to commence by the third quarter of 2010. Essar Trading has a category ‘‘C’’ trading licence from the CERC. The transmission lines will include a 315-km 400-KV D/C (quad conductor) line from Essar Power MP-Mahan to Sipat Pooling sub-station.

yearly administrative fees. with an option to extend this period if certain discoveries are made. the Company has been declared provisional winner of one CSG block in India in the Government of India’s recently concluded CBM IV round of bidding. The Company has obtained exploration rights for its blocks and fields in other countries outside of India pursuant to the international bidding rounds held by the relevant government owners of these assets. including the laying of pipelines. Indonesia.Part 6 OIL AND The Business GAS—E&P Exploration and Production Overview The Company currently has participating interests in 13 blocks and fields for the exploration and production of oil and gas in India. In addition. Through subsequent bidding rounds. The map below shows the locations of the Company’s oil and gas exploration and production blocks and fields. it holds 100% of the remaining block 13APR201021230524 The Company became one of the first private sector participants in various bidding rounds conducted by the Government of India in domestic oil and gas exploration and production blocks when Essar Oil was awarded the Ratna Fields in 1996. The Company’s PSCs (as well as other forms of exploration and production contracts) generally contain: • provisions for the payment by the Company to the government owner of the oil and gas asset of certain signing bonuses.5% interest Australia Blocks (a) Madagascar Blocks (a) 100% interest Ratna Fields 50% interest Raniganj Block 100% interest in CSG block 100% interest (a) (b) (c) (d) Subject to necessary approvals for transfer to Essar Oil 90% share under transfer to Essar Oil In discussions with local Nigerian partner to transfer 37% For the ESU field. Essar Oil has an early mover advantage in entering the CSG segment in India and has built up relevant knowledge and experience. The Company has a combined surface area of approximately 23. Australia. the obligations of the Company (and any other operators of the asset) to bear the risk and costs of exploration and development activities and/or production operations. the Company’s interest is 70%. Nigeria and Vietnam. royalty payments. Essar Oil expects there will be significant progress in building infrastructure. in the West Bengal region for transporting CSG to the local market.000 km2 of offshore oil and gas blocks and fields. the Company has been awarded five additional blocks in India within its current portfolio. Mehsana Block 100% interest (d) Rajmahal Block 100% interest CSG block Assam Blocks (b) 100% interest in two exploration blocks Vietnam Block (a) 100% interest Nigeria Block (a) 100 % (c) interest Indonesia Block (a) Mumbai Offshore Block (a) 50% interest 49. the term of the initial exploration and development period.000 km2 of onshore oil and gas blocks and fields and approximately 21. In addition. • • 111 . production-level payments and the payment of certain bonuses upon the achievement of certain production milestones. Madagascar.

112 . logistics. reservoir engineers. both in India and elsewhere. IN WHICH CASE THERE WOULD BE NO COMMERCIAL DEVELOPMENT.Part 6 • • The Business the scope and timescale for the Company (and any other operators of the asset) to undertake exploration and production activities. • • • • The Company is required. well loggers. The table below sets forth certain information regarding the Company’s oil and gas exploration and production assets. procurement. the percentage allocation of oil and gas production between the government owner and the Company (and any other operators) following the Company’s recovery of its costs or the payment of royalty fees to the government owner in lieu of such allocation. drilled and hydraulically fractured CSG wells. as well as minimising reservoir damage. the Company intends to pursue new exploration opportunities through farm-in and participation in future bidding rounds that may be launched by various countries. EEPLN. The Company believes it was the first company in India to identify CSG potential in the early 1990s and to demonstrate the technical and commercial feasibility of CSG gas production through its pilot project in the Mehsana Sobhasan lignito-bituminous coals. contract execution and project consultancy. project managers and drillers. including production of CSG from this project in 1994. The Company’s oil and gas exploration and production technical team consists of geologists. supported by a management team consisting of professionals in finance. This team operates the Company’s oil and gas exploration and production blocks using what the Company believes are the best practices of the international oil and gas industry in relation to health. geophysicists. business development. which was supported by the United States Agency for International Development. and dewatered and depressurised the deep Sobhasan coal seams to establish critical CSG parameters. using a combination of water-well drilling for non-coal sections. until such time as India attains self sufficiency in the supply of crude oil and natural gas. and requirements for the Company to provide financial and performance guarantees to the government owner to secure the Company’s exploration and production work commitments. except where title to crude oil or natural gas has passed in accordance with the provisions of the PSC. petroleum engineers. leading to early CSG production. and EEPL’s wholly-owned Nigerian subsidiary. The Company continuously evaluates new exploration and production blocks. provision for the creation of a management committee to be comprised of members appointed by the Company (and any other operators) and the government owner for governing the operations of the oil and gas asset. act as the operators under the PSCs (as well as other forms of exploration and production contracts) for all blocks and fields in which the Company has an interest except as indicated in the table below. if commercial production is successful. petrophysicists. commerce. The Company has since developed practices for CSG-well drilling. A POSSIBILITY EXISTS THAT THE PROSPECTS WILL NOT RESULT IN THE SUCCESSFUL DISCOVERY OF ECONOMIC RESOURCES. ARE HIGHLY SPECULATIVE. ACCORDINGLY. provision that the title to petroleum at all times lies with the government owner. development costs and production costs by being allocated a share of the oil and gas produced. and air drilling for deeper coal sections. In addition to continuing to undertake exploration activities on its existing oil and gas exploration assets. Essar Exploration & Production Limited (‘‘EEPL’’). to sell in the Indian domestic market all of the contractor’s entitlement to the crude oil or natural gas extracted from Indian blocks under the relevant PSCs. including powers to approve annual work programmes and budgets. human resources. provision for the Company (and any other operators of the asset). proposals for the declaration of a discovery as commercial and the boundaries for or additions to a development area. The Company’s exploration and production companies Essar Oil. resulting in faster drilling of wells and cost savings. safety and environmental concerns. The Company carried out numerous geological and geophysical studies. PROSPECTIVE RESOURCES RELATE TO UNDISCOVERED ACCUMULATIONS AND. to recover its exploration.

. . Rajmahal Block . . PSCs as well as other forms of exploration and production contracts/permits. . . it holds 100% of the remainder of the block. . . . . . . . . . . . . . . . . .5% 100% (5) Date PSC Executed(4) — 16 July 1998 26 July 2002 JV partner ONGC (40%) and Premier Oil (10%) ONGC (30%) NA Operator Premier Oil(7) Essar Oil Essar Oil Exploration assets(2) Nigeria Block . . . . . . Mehsana Block . . . . . Raniganj Block . . ONGC and Premier Oil are in discussions relating to the implementation of a joint operating model for the Ratna Fields. . . . . . . . . . . .310 9. . The Company has signed the PSC with 100% participating interest and is currently in discussions with a local Nigerian partner which is expected to acquire a 37% interest in the Nigeria Block. .905 1. . . .050 2. . . . . . Assam Blocks . . . . . Vietnam Block . The exploration activities in Australia are concluded on the basis of permits issued by the competent authorities. . Country Nigeria India Vietnam India India Madagascar Indonesia Australia Onshore/ Offshore Offshore Onshore Offshore Onshore Offshore Onshore Onshore Offshore Total contract area (km2) 1. . . . the Company expects to implement this model. . . . . . . . . . . . .730 Year awarded 2007 2009(3) 2008 2006 2008 2006 2008 2008 Date PSC Executed(4) 10 March 2010 — 24 November 2009 2 March 2007 22 December 2008 31 October 2006 13 November 2008 25 September 2008 JV partner NA NA NA NA Noble Energy NA GSPC NA (5) Operator EEPLN Essar Oil EEPL Essar Oil EEPL EEPL GSPC EEPL 113 Key: ‘‘NA’’ not applicable (1) (2) (3) (4) (5) (6) (7) ‘‘Development and production assets’’ refers to those assets where production and/or development activities have either commenced or are at such stage as to be expected to commence shortly. . . subject to requisite approvals from the Nigerian government. . For the ESU field. . . . . . . . .Development and production assets(1) Ratna Fields . . . . . . . . . . . . . . . . . .810 18. . . . . . Mumbai Offshore Block Madagascar Blocks . . Part 6 The Business . .128 5. there is no production sharing regime. .530 1. . . . . . . . . . . . . the Company’s interest is 70%. .298 2. . . . . . . . Indonesia Block . Provisional winner (formal award awaited). . ‘‘Exploration assets’’ refers to those assets that are in various stages of exploration but where no production and development activities have commenced. . . . . . . . . . Country India India India Onshore/ Offshore Offshore Onshore Onshore Total contract area (km2) 1. . . . . . Essar Oil. Subject to obtaining the required approvals and entering into a PSC for the Ratna Fields. . .5 500 Year awarded 1996 1996 2002 The Company’s percentage interest 50% 70%(6) 100% The Company’s percentage interest 100% 100% 100% 100% 50% 100% 49. . . . . . . .000 143. . . . . Australia Blocks . . . .

. . . . .7 mmboe) in the Nigeria Block are classified as development not viable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The 2C gas and associated condensate resources (approximately 23.7 787. . .0 — 30. . . . . . . . . .2 — — — — — Best estimate Prospective Resources Net(1) Oil Gas Total mmbbls Bcf mmboe — — — 48. . .7 10. . . . . . . RPS has also calculated that the 2C net entitlement resources attributable to the Ratna Fields are 50. . . . . .1 — — — — Unrisked In-place Resources(9) Net(1) Oil Gas Total mmbbls Bcf mmboe — — — — — — 10.8 136. . . does not have any PSC terms accounted for. . . . . . . . . . . . . . .0 — — — — — 81. .0 — — — — — 1. . . . .8 — 200. .0 — — — — — — 166. . India India India Nigeria India Vietnam India India Indonesia 114 Net working interest to the Company which. . (1) (2) (3) (4) (5) (6) (7) (8) (9) Country 2P Reserves Net(1) Oil Gas Total mmbbls Bcf mmboe — 2. . . . The Company’s net working interest assuming a 37% interest is transferred to a local Nigerian partner. . Source: ARI. . . . . Source: RPS. . . . . . . where applicable. . . Undiscovered . . . .5 33. Vietnam Block(7) . . . . .4 — — 10. . . . . . . . . .5 — — — — — 39. .88 bcf of gas. . Raniganj Block(6) . . . . .722. . ‘‘Exploration assets’’ refers to those assets that are in various stages of exploration but where no production and development activities have commenced. . . . . . Mehsana Block(7) .0 — 185. .8 30. . . Rajmahal Block(5) . . .8 — — — — — — 132. . Assam Blocks(7) . . . . . .0 — 33. . . .0 264. . .4 4.0 . .Part 6 The Business Assets Development and production assets(2) Ratna Fields(4) . . . . . .0 — — — — — — — 2C Contingent Resources Net(1) Oil Gas Total mmbbls Bcf mmboe 74. . . . . . . . .6 — — — — — — — 792.0 — — — — — — — — — — — — — — — — — 2. The Company’s internal estimates. . . ‘‘Development and production assets’’ refers to those assets where production and/or development activities have either commenced or are at such stage as to be expected to commence shortly. . . . . . . . . . . . . . . Exploration assets(3) Nigeria Block(6)(8) . . .0 30. . . Source: NSAI. . . . . .15 mmbbl of oil and 26. . . . . . . . . . . Indonesia Block(7) .000. . . . . .0 92. Mumbai Offshore Block(7) . . . .

Part 6 Development and Production Assets Ratna Fields (Mumbai. . If the PSC and other agreements. .88 bcf of gas.8 48. . . .7 97. . . .8 61. . . Essar Oil has a 100% participating interest in the exploration of Mehsana Block and has executed a 25-year PSC with the Government of India and ONGC in July 1998. . . . the Company expects the Ratna Fields to begin commercial production of oil and gas in the fourth quarter of 2013 and the offtake is expected to be sold to government nominated PSUs. . .8 174. .3 79. . . . 3C contingent resources . . . . . the joint operating agreement and the off-take agreement for the Ratna Fields have been negotiated between the parties and the management of the Company expects to sign the PSC for the Ratna Fields by June 2010. . The Company holds a 50% interest in the Ratna Fields in a consortium together with ONGC (which holds a 40% interest) and Premier Oil (which holds a 10% interest). . . which will connect to existing pipelines. Mehsana Block (Cambay. . . which is extendable by five years generally and by 10 years if the production of non-associated natural gas is expected to continue beyond 115 .8 74. . The Ratna Fields offer the following potentially significant benefits: • • • light sweet crude oil.15 mmbbl of oil and 26. . . that may be used after refurbishment alongside additional development infrastructure and facilities to be put in place for the fields’ development. . .4 87. . . India)—Development Asset—Oil and Gas The Business The Ratna Fields consist of a number of offshore oil and gas accumulations at water depths of 45 metres located approximately 130 km southwest of Mumbai. The off-take from this field is expected to be evacuated by a 40km pipeline to be laid.2 39. . are executed and development activities commence as expected. . . Oil(1) Category Gross (mmbbl) Net (mmbbl) Gas(1) Gross Net (bcf) (bcf) 1C contingent resources . the Company intends to submit a revised development plan and commence development activities in the Ratna Fields. . . and connecting to and using the existing Heera-Uran trunkline for transporting crude oil to the onshore processing facility. . . there are certain existing facilities. . RPS has estimated the gross and net oil and gas contingent resources in the Ratna Fields as of 31 December 2009. . .6 31. India)—Production Asset—Oil and Gas The Mehsana Block is located on the eastern flank of the onshore Cambay basin in Mehsana. . India. . . . . . . . . . RPS has also calculated that the 2C net entitlement resources attributable to the Ratna Fields are 50. . . . . .6 148. . . . . . . . . . . . and net oil and gas contingent resources are those attributable to the Company’s 50% working interest. . . . as set forth in the table below. significant exploration upside with 3D seismic survey planned to cover the entire block area. These accumulations are south of the Heera and Neelam fields. .4 62. . . . . 2C contingent resources . . . . See ‘‘The success of the Company’s exploration and production operations depends on its PSCs and similar arrangements as well as on its relationship with its joint venture partners. Gujarat. with a ready off-take by a government refiner at international prices applicable to similar grade of crude. ONGC has previously drilled 35 exploration and nine development wells in the Ratna Fields. . . . . . . including an R-12 platform and a single-buoy mooring terminal. which are subject to the government approval process. The terms of the PSC. . which are large producing oil fields belonging to ONGC. . Once the PSC and other agreements have been executed. .8 Gross oil and gas contingent resources are 100% of the resources attributable to the fields. (1) 123. . . . . . Source: RPS Ratna & R-Series Fields Report. The Company may become liable under the security arrangements if it does not complete the minimum work commitments in its PSCs’’ in Part 1 ‘‘Risk Factors’’. . . At the Ratna Fields. .

liabilities and obligations with regard to the exploration. Essar Oil entered into a 35-year contract with the Government of India for the exploration and production of CSG in the Raniganj Block in July 2002.4 bcf of CSG at the Mehsana Block. with ONGC holding the balance of 30%. IOCL is the Government of India’s nominee under the PSC for the off-take of crude oil from the Mehsana Block. with commercial production expected to begin by the fourth quarter of 2010. the Company has drilled 5 core-holes (EML 1 to 5) and entered old oil and gas wells to collect valuable CSG specific data for assessment of the CSG prospect in this block. The Government of India has published a draft strategy paper in 2007 for assessing the possibility of allowing CSG and oil and gas to be exploited in the same field by a single operator. Consequently. The field development plan for the EEU field has been submitted for approval to the Mehsana Block’s management committee. The Company’s internal estimate of 2P reserves is 2 mmbbls for its 70% share. In July 1998. Essar Oil and ONGC entered into a joint operating agreement setting out their respective rights.300 line kms of 2D data sets. In the Mehsana Report. Since then. Under the PSC. which provide for a 10% royalty payable to the Government of India on well-head value and follow the production level payment structure on CSG production. The Company has proposed that the contract be based on standard existing CSG contracts as prescribed by the Government of India. Raniganj Block (Raniganj. In addition.Part 6 The Business the term of the PSC. Essar Oil has completed all three phases of the exploration of the Mehsana Block and is currently seeking an extension from the Government of India in order to carry out additional exploration work in the block. As part of the above. The Company is currently seeking permission from the Government of India to exploit CSG from the Mehsana Block and has submitted a proposal for a separate contract for the exploration and production of CSG in and around the Mehsana Block. development and production operations to be carried out in the Mehsana Block. In March 2005. Following commercial discovery and its subsequent approval by the management committee in August 2006. Although the Mehsana Block PSC does not permit CSG exploitation at present. the Government of India has the right to acquire a participating interest of 30% in any development area containing a commercial discovery. Production-level payments based on a percentage of the sale value of the CSG are also payable by Essar Oil to the Government of India. Essar Oil was granted a petroleum exploration licence for this block by the government of West Bengal. royalty payments at the rate of 10% of the sale value at the well-head are payable by Essar Oil to the government of West Bengal. Essar Oil’s exploration and development activities in Raniganj. Essar Oil completed exploration phase I in the Raniganj Block on 1 May 2009. ONGC exercised its back-in rights to 30% of the ESU field. ARI estimates 2C contingent resources of 747. Under the terms of the contract. To date. the Company has a 70% participating interest in the ESU field. drilling 17 coreholes and 15 CSG production test wells and conducting 78 line km of 2D high-resolution seismic surveys under its contractual work commitments for this block. the Company estimates that the Mehsana Block contains thick deposits of coal/ lignite with the potential for CSG exploitation. The Government of India may exercise this right through its designated nominee. India) The Raniganj Block is located in the Damodar Valley coal field in the Raniganj region of West Bengal. the Company has spent around US$7 million on its CSG research and development activities in the CB-ON/3 block pursuant to permission granted by the MoPNG. West Bengal. 116 . The government of the state of Gujarat issued a petroleum exploration licence to ONGC (the licensee) in February 2003. West Bengal are expected to yield a flow of CSG by the second quarter of 2010. the Company was granted permission by the MoPNG to conduct CSG research and development activities in the block at its own cost. Essar Oil has carried out 3D seismic analysis of over 180 km2 of the Mehsana Block and has reprocessed 1. In addition to oil reserves. Essar Oil began commercial production of oil at the ESU field of the Mehsana Block in June 2007.

and carrying out a market assessment for CSG. . . . . .8 792. . . 117 . . . . . . . . . . . . 83. . . . . . . . This field development plan has been submitted to the Directorate General of Hydrocarbons for approval. . . to service local customers in the Durgapur region. . . . . . . . . . . .8 377. In addition. . the Company submitted an application seeking approval from the Government of India’s Ministry of Petroleum and Natural Gas regarding the pricing of initial gas produced from the Raniganj Block. . . . . . . . High Estimate prospective resources . . . . . . Best Estimate prospective resources . . . . . . . Category CSG (bcf) 1C contingent resources . . . . . . . . . . . . . . In November 2009. . . . The Company has also entered into a gas sale and purchase agreement with Matix Fertilisers and Chemicals Ltd. . The Company expects the Ministry’s approval shortly. In addition. .700 standard cubic metres of CSG per day from the Raniganj Block. . . . . . . . . . . . . which are required to be completed by 1 May 2011. . . . . the Company is constructing an approximately 48-km-long gas transmission pipeline from this block to the Durgapur industrial area. . . . . . . . . . . . . . . . . . . . which includes pursuing discussions with PSU and state government undertakings. . .000 meters and rock properties are of very good quality. . Exploration Assets Nigeria Block (Nigeria) The offshore Nigeria Block is situated in the central offshore Niger Delta and in water depths of between 40 to 180 metres. . . . . . . . . . . In September 2009. . . . . . . . . . . . . The Company has prepared a field development plan for accelerated development of the entire block area comprising around 500 wells that will be drilled in the block. . .2 412. . the Company is also exploring the option of transporting gas via a pipeline to Kolkata. . The Nigeria Block comprises more than 1. . . . . . . . . . . . . The Company is in the process of identifying further prospective off-take customers for the Raniganj Block’s CSG production and finalising further gas off-take agreements with customers. . . . . . . . . . . . . . subject to requisite approvals from the Nigerian government. . . . . . . . . . . The phase II work commitment includes the drilling of 75 pilot wells. . A few wells drilled by earlier operators within the Nigeria Block area have shown the presence of good quantities of oil and gas as interpreted from log and well data. . . Low Estimate prospective resources . . . West Bengal. . . . . . . . . . . . the Company entered into a gas sale and purchase agreement with its first customer in the neighbouring Durgapur industrial area for the sale of 58. approximately 160 km from the Raniganj Block. . . . . . . . . . India.3 200. .9 Source: NSAI RG (East)-CBM-2001/1 Block Report.8 mmscmd of CSG commencing from April 2012 for this company’s proposed ammonia-urea plant to be set up in Panagarh. . . . . . . . . . . . . . . . The Nigeria Block is situated in the prolific oil and gas province in shallow waters off the coast of Nigeria. Additionally. . infrastructure in terms of surface facilities will be put in place to transport this gas to customers. . 3C contingent resources . . . . . . .Part 6 The Business Essar Oil exercised its option under the contract to move to phase II the pilot assessment and market survey. . EEPLN was awarded the interest in the Nigeria Block in May 2007 by the Nigerian government and the PSC for this block was signed on 10 March 2010. . . . . . The Company has signed the PSC with a 100% participating interest and is currently in discussions with a local Nigerian partner that is expected to acquire a 37% ‘‘carried interest’’ in this block. . . . . . . . . . . . . . . . . . . . . The Company is also exploring marketing CSG off-take through city gas distribution in the Kolkata region. . .631. . . . Prospective horizons are also at reasonable depths of less than 3. . . . 2C contingent resources . . . . . . . .0 1. . . . . . . . .500 km2 in area and is situated only 40 km away from the coast. for the supply of approximately 2. NSAI has estimated the gross CSG gas resources in the Raniganj Block as of 31 December 2009 as set forth in the table below. . . .

. . .7 41. . Contingent resources include various sub-classes. Best estimate prospective resources .5 Gross oil and gas resources are 100% of the resources attributable to this block. . . . . Source: NSAI OPL 226 Block Report. please refer to the NSAI OPL 226 Block Report. . . . . . . . . . . . The close proximity of this block to the Raniganj Block could yield synergies. EEPL bears the risk and cost of all exploration and production activities on the Vietnam Block. .1 223. . The Company will be required to complete 30 core holes and two test wells during this exploration phase. . .5 10. . . . . . . . . . . . . . EEPL and Vietnam Oil and Gas. . . . . . EEPL’s work commitments include geological and geophysical studies. .7 846. . . . . . . ARI has estimated the prospective CSG resources in the Rajmahal Block as of 31 December 2009 as set forth in the table below: CSG(1) Category (bcf) Low estimate prospective resources . High estimate prospective resources .0 Vietnam Block (Vietnam) The Vietnam Block is an oil and gas block located in shallow waters off the coast of Vietnam and is in the vicinity of a gas discovery in block 112.9 16. . . entered into a PSC for the Vietnam Block on 24 November 2009. . . . . . . . . . . 11.722.4 533. . . . . . . . . . . . . . . . EEPLN is required to carry out the first phase of the exploratory work commitments for the Nigeria Block. . . . 2C contingent resources . . .7 26.8 5. . (1) (2) . . . High estimate prospective resources . . . . . . . . . . . .7 264. . . which may be extended for two years depending on the results of exploration activities and the likelihood of making a commercial discovery of oil and gas. . . . . . .0 228. . .5 13. . . . . . . . . . . . . . .Part 6 The Business Pursuant to the terms of the PSC. . . .0 48. . . . . NSAI has estimated oil and gas resources in the Nigeria Block as of 31 December 2009 as set forth in the table below: Oil Category(3) Gross(1) (mmbbl) Net(2) (mmbbl) Gas Gross(1) Net(2) (bcf) (bcf) 1C contingent resources . . . . . . The PSC also provides for the payment of a US$3 million signature bonus to Vietnam Oil and Gas Group. . . . . Source: ARI RM(E)—CBM—2008/IV Block Report. Under the PSC.6 215.8 362. . . . . . . including ‘‘development pending’’ and ‘‘development not viable’’ resources. . . . .4 419. . . . . . . 118 . For further details. . . . . This block is approximately 100 km from the Company’s existing Raniganj CSG block and covers an area of 1. . . . . . . . . India) The Company has been declared provisional winner of the Rajmahal block in the CBM IV round of bidding conducted by the Government of India. . . . . . . the Company will be the operator of the Rajmahal Block. . . . . . . Under the award. . . . .1 7. . . . . . 3C contingent resources . . . . The PSC provides for an initial exploration period of seven years. . .8 87.564. . . . . . . . . . . Net oil and gas resources are those attributable to the Company’s 63% working interest assuming that a 37% interest is transferred to a local Nigerian partner and do not take into account the terms of the PSC entered into in relation to the Nigeria Block. . . . . . . . (3) Rajmahal Block (Rajmahal. . . . . . . . . . . . . . . .830.6 88. . . . . .128 km2. . .3 77. . . . .1 140. . . . . . . . . . Best estimate prospective resources . . .2 141. including a 3D seismic analysis of 500 km2 and the drilling of one exploratory well in the first phase of exploration. .9 136. . . . . . Vietnam’s state-owned national oil company. . . 3D seismic analysis and the drilling of wells. . .7 21. . . . . . . EEPLN is the operator of the Nigeria Block. . The initial exploration period for this block is for a period of two years from the effective date. . . . . . . .9 139. Low estimate prospective resources . . . . . . . . . . . . . . . (1) Recoverable volume 3. .0 4.

west of the Bombay High Field. development and production operations to be carried out at this block. EEPL holds a 100% participating interest in these blocks and is the operator of the blocks. EEPL and Noble Energy received a petroleum exploration licence in February 2009 for the Mumbai Offshore Block from the Government of India’s Ministry of Petroleum and Natural Gas. Essar Oil and EEH entered into the PSCs for the Assam Blocks. India) The Mumbai Offshore Block is located in the Mumbai basin. EEPL has the option to proceed to the 119 . Noble Energy and the Government of India in December 2008. Pursuant to the terms of the PSC for the AA—ONN—2004/3 block. Essar Oil and EEH’s work commitments include 2D seismic analysis of 400 line kms. EEPL has recently commenced exploration activities in the Mumbai Offshore Block and is currently reprocessing the existing seismic data. The exploration activities in these two blocks are currently under way. The PSCs grant Essar Oil and EEH production rights for 20 years for each of the two blocks upon development.000 line kms of 2D seismic survey data. liabilities and obligations with regard to the exploration. divided into three phases. India) The Business The Assam Blocks. The PSC grants the parties exploration rights for an initial period of seven years. Essar Oil and EEH have already completed the committed reprocessing of seismic data and acquisition of 2D seismic data for the AA—ONN—2004/3 block is in progress. EEPL and Noble Energy International Limited (‘‘Noble Energy’’) each hold a 50% participating interest in the Mumbai Offshore Block. reprocessing existing seismic data. including 2. together with a seven-year exploration period in respect of the AA—ONN—2004/5 block and a six-year exploration period in respect of the AA—ONN—2004/3 block. processing and interpretation of 600 km2 of 3D seismic data and the acquisition of 100 km2 of high-resolution 3D seismic data in the first phase of the exploration period. 3D seismic analysis of 50 km2 and the drilling of one exploratory well for the first phase of exploration. Madagascar Blocks (Madagascar) The 3103 (Melaky) and 3110 (Morombe) onshore blocks (the ‘‘Madagascar Blocks’’) are located in the Morondava basin in the western part of Madagascar. with the Government of India in March 2007. with the first phase being four years and the second and third phases being two years each. The initial 20-year term is extendable by a further five-year term if oil is discovered.Part 6 Assam Blocks (Assam. the AA-ONN-2004/3 block and the AA—ONN—2004/5 block are located in the polycyclic Assam—Arakan frontier basin in the north-eastern part of India. 3D seismic analysis of 50 km2 and the drilling of one exploratory well for the first phase of exploration. Mumbai Offshore Block (Mumbai. The PSC for this block was executed between EEPL. The PSCs for Madagascar Blocks 3103 and 3110 were entered into with the Madagascar Office of National Mines and Strategic Industries in October 2006. and a further 10-year term if natural gas is discovered. EEPL’s work commitments together with its joint venture partner’s under the PSC include geological and geophysical studies. the acquisition. Pursuant to the terms of the PSC for the AA— ONN—2004/5 block. In December 2009 EEPL and Noble Energy entered into a joint operating agreement setting out their respective rights. with production rights for a subsequent period of 20 years upon development. At the end of each phase of the exploration period. The initial exploration periods under the PSCs are eight years. namely. the Essar Oil and EEH’s work commitments include 2D seismic analysis of 180 line kms.

. . . with the option to extend this period by a maximum of four years. the production phase under the relevant PSC will be for a period of 25 years (35 years in the case of a predominantly natural gas discovery). . GSPC is operator of the Indonesia Block. EEPL’s work commitments for the first phase of the exploration period are as follows: Block Work commitment 3103 block . an airborne gravity and magnetic survey of 1. . . Australia Blocks (Australia) The Australia Blocks are located in the Bonaparte basin of north-western Australia. an airborne gravity and magnetic survey of 1. 3110 block .481 line km of the airborne gravity and magnetic survey for these blocks. If EEPL makes a commercial discovery within the exploration period. . EEPL and GSPC bear the risk and cost of all exploration and production activities in the Indonesia Block. . . . . EEPL has completed the reprocessing of existing seismic data sets for the 3103 and 3110 blocks and has completed acquisition.5% participating interest in the Indonesia Block in the south Sumatra basin of Indonesia. . and drilling of one exploratory well. a 2D seismic analysis of 200 line kilometres. Indonesia Block (Indonesia) EEPL has a 49. with the remaining 50. . 3D seismic analysis and the drilling of wells. processing and interpretation of 6.000 line kilometres. . a 3D seismic analysis of 100 km2. . EEPL’s work commitments in connection with these permits include geological and geophysical studies. The PSC provides for an initial exploration phase of six years. and drilling of two exploratory wells. 120 . The exploration activities in this block are currently at a preliminary stage. . EEPL and GSPC entered into a 30-year PSC for the Indonesia Block in November 2008 with the Indonesian government’s Badan Pelaksana Kegiatan Usaha Hulu Minyak Dan Gas Bumi. 2D seismic analysis. . .000 line kilometres. .5% interest being held by the GSPC. To date. . .Part 6 The Business next phase of the exploration period or to terminate the relevant PSC. . in average water depths of 15 to 50 metres.

Southeast Asia and East Africa and to the established markets of Europe and North America. namely its crude distillation unit and vacuum distillation unit. The refinery is also located on the Jamnagar-Okha state highway number 25.Part 6 OIL AND The Business GAS—REFINING Vadinar Refinery (Vadinar. are located on a site with a total area of approximately 2. In addition. the world’s largest single source of crude oil and the main source of imported crude oil for India. located near the Vadinar port in the state of Gujarat. The refinery is configured to produce up to Euro IV diesel grades. In each of these periods.5 mmtpa. The refinery processed 11. than its annual design capacity rate of 10. This terminal includes a single-buoy mooring for the exclusive use of the refinery. in addition to other refined products. naphtha. owns and operates the Vadinar port terminal (including the single buoy mooring) and all of the Vadinar refinery’s pipelines. were commissioned in November 2006. The refinery has on-site rail-car and truck loading facilities. Essar Logistics. The Vadinar refinery and associated facilities. the refinery had a higher capacity utilisation rate. after having undertaken trial runs from November 2006. providing for easy transport of refined products via road to India’s western and northern markets.90 mmt of crude oil between 1 April 2009 and 31 December 2009. The following map shows the connection of the Vadinar refinery to the Arabian Sea: Turkey Turkmenistan Syria Afghanistan Iraq Iran China Egypt Pakistan Nepal Saudi Arabia Crude intake Vadinar India Oman Vadinar Yemen Euro II/III/IV/V Markets globally Mumbai Crude intake 30MAR201014194271 In addition. The refinery’s primary processing units. largely due to measures implemented by the Company to better optimise the refinery’s asset utilisation. the Vadinar refinery is well connected to India’s rail network and national highways. ATF.252 hectares located approximately 20 km from the port of Vadinar in the Jamnagar District of the state of Gujarat.1. This port also provides access to the growing markets of China.95 mmt of crude oil between 1 May 2008 and 31 March 2009 and 9. The Vadinar refinery is connected by an approximately 20-km-long pipeline to the shipping port terminal at Vadinar. VOTL. capable of handling crude oil vessels up to 325. crude oil and refined product storage facilities. such as LPG.000 dwt and servicing marine product dispatch capacity of parcel sizes up to 100. fuel oil. on an annualised basis. kerosene. utilising fluid catalytic conversion as the refinery’s primary conversion technology. including those to be constructed in connection with the Refinery Expansion Projects. The Vadinar refinery is a cracking refinery with an average Nelson Complexity Index rating of 6. bitumen and sulphur. The secondary units were commissioned in a phased manner thereafter until the refinery commenced commercial operations. an Essar Affiliated Company. rail-car and tank truck-loading facilities and road-loading gantries. began commercial operations on 1 May 2008. another 121 .000 dwt. The port is India’s closest port to the Middle East and its coastal regions. The Vadinar refinery’s location in the western part of India affords easy access to both western and northern India. The refinery is located approximately 12 km from the broad-gauge railway line between Rajkot and Okha and has access to this railway line via a branch line terminating at the refinery. which are India’s main petroleum product markets. but is currently producing up to Euro III grades of petrol and diesel. India) Overview The Vadinar refinery.

. . . . . . . . . .06 0. . . . . . . . .. . . . . . .. . . . . . . . . . . . 0. . . . . . . . . . . . . .. Other overhead costs . . The Vadinar refinery’s current refining operating costs are approximately US$1 lower per barrel than the average costs within the industry (Source: KBC). . . . . . . . . . .31 0. . . . . . . . . . . .4 6. .. . .. . . . . . . .. . . . . . . . .02 1. .66 4. .39 0. . . . .30 0. . . . . . . . . . . . .. . . . . .. . . Sulphur . . . . .95 3. . . . . . . . .72 0. . . .4% 100% 0. . . . . . maintenance and repair and other routine maintenance. . Ultra-heavy . . . . . . . . . . . . . . . . turnarounds. . . . . .. . . . .7 9.67 0. . . .9% 0. . . . . . . . . . . . .13 0. . .8% 0. . . . . . . .07 0. . . . . . . . . . . . . . .. . . .. . .46 0. . . . . . . . . . . . . . . . . . . . . . .8% 42.. . . . .. . . . .. . . . . . . . . . . . . . . . ..7 5. . . . . . . . . . . . . . .. . . . . . . Source: KBC. . . . . .. . . provides all of the Vadinar refinery’s logistical services for transporting by road refined petroleum products from the refinery to depots and other places. . 13. . . Fuel loss . . .04 3. . Cost item US$/barrel (1) Asset management costs Manpower costs . . . . . . .40 0. . . . . . . . . . . .. . . . . . . . . . . Bitumen . . . . . . . . . . . . Purchased energy . . . . . .90 4. . . .6% 4. . . . .. . . . . . . .. . .. . . . . . . . .9 28% 55% 17% 100% Total crude unit throughput . . . . . . . . . .7% 22. . .. . .6% 19. . . . . . . . . .. . .19 1. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 . . . . . . . .. . . . . . .40 0. . .. . .3% 17. .1% 6. . . . . . . . . . .5 1. . . . . .6% 4. . . . . Throughput and Production Overview The following table provides a summary of crude throughput and production data for the Vadinar refinery for the period indicated: 1 May 2008 to 31 March 2009 Percentage of total mmt throughput 1 April 2009 to 31 December 2009 Percentage of total mmt throughput Throughput operating capacity per annum Crude unit throughput: Light . . . .. . . . . . . . . . . . . . .. . . .. . . . . . . . . . . . . . . . Medium and Heavy . . . . . the Company has incurred product handling charges and other corporate and marketing expenses of US$0. .1% 1. . . . . . . . . . . . . .8% 6.77 11. . . .. .. .7% 40. ..10 0. .. . . .. . . . . . . . . .03 2. . . . . .97 0. . . . . . . . . . . . . . . . ..1% 100% Total . . . . (1) Includes costs of shutdowns. Source: Company 1 May 2008 to 31 March 2009 Percentage of total mmt production 1 April 2009 to 31 December 2009 Percentage of total mmt production Production: Liquefied petroleum gas . . Kerosene/Aviation turbine fuel High speed diesel . . . . . . . . . . . . . Operations variable costs . . . . . . . . .. . . . . .. . . . . . . . . . .. . . . . .61 9. . . . . . . . . .15 0. . . . . . . . . . . . . .. . .0 29% 57% 14% 100% 14. . . . . . . . .1% 16. . . Motor spirit .57 5. . . . .6% 1. . . . . .. . . . . . .8 12. .. The following table gives an overview of the Vadinar refinery’s refining operating costs per barrel based on data from the Company for the nine months ended 31 December 2009. . . . . . . . Naphtha . . . . . . . . . . . . . . .. . . . 0. . . . . . .. .11 1. . . .. . . . . . . . .8 1. . . In addition to the above refining operating costs. . . .7% 0. . . . Fuel oil . . . . . . . . . . .33 Total costs . .1% 6. . . . . . . . . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . . . .. . . .96 per barrel. . . . .. . . . .Part 6 The Business Essar Affiliated Company. . ..0 2... . . . .10 2.. . . . .

1 1. except as indicated) 10.1 1.9 1. processed by the refinery was 32.93 3.6 Shaw.900 tpd 1. These crudes are currently available at lower prices than light crudes. the related process licensors and the units’ special design features: Unit Design capacity (mmtpa.Part 6 Main Process Units The Business The following table sets forth the main process units for the Vadinar refinery. the Company has designed and modified refinery operations to shift production within specified ranges to meet product demand. a product with potentially higher gross refining margins than fuel oil. heavier and acidic crude oils into higher-value products.000 NM3/hr 440 tpd 3.9 2. Crude Oil and Other Feedstock Procurement The Company aims to further improve the Vadinar refinery’s refining margins by enhancing the ability of the refinery to process heavy and tough crudes to produce higher margin petroleum products.500 tpd 2.2 Axens Fluid Catalytic Cracker (FCCU) Diesel Hydro Desulphurisation (DHDS) Naphtha Hydrotreater (NHT) 2.0 Process licensors Design features Crude Distillation (CDU) Open Art – Crude column of 90 metres in height with 76 valve trays – Superior swing capabilities Low-pressure steam ejectors with vacuum pumps. the refinery’s production of lower-margin naphtha has been substantially reduced by absorption of naphtha in diesel/gasoline by modifying the process. providing energy savings Soaker with vacuum column. the Vadinar refinery is now producing bitumen. except as indicated) 14.700 tpd 2.5 2x1.2 Open Art Visbreaker (VBU) 1.800 tpd 1x10.0 Axens Sulphur Recovery (SRU) Amine Regeneration (ARU) Sour Water Stripper (SWS) Kero Merox Gasoline Merox Unsat LPG Merox Hydrogen Manufacturing 440 tpd 3. the Company has implemented measures to further improve the refinery’s processing capabilities.5 1.3 4.7 1. During the period from 1 April 2009 to 31 December 2009. their current capacity.800 tpd Stork Comprimo Open Art Open Art Merichem Merichem Merichem (1) On an annualised basis.5 2x1. For example. As a result of laboratory studies and operational trials. approximately 72% of the crudes processed by the Vadinar refinery were medium.5 7. Stone & Webster Axens Axens Continuous Catalytic Reformer (CCR) 0.5 3. 123 .900 tpd 1. generating improved conversion rates and efficiencies Light and heavy VGO processing capabilities Euro IV-grade diesel production capabilities High sulphur naphtha desulphurisation capabilities.5 Current operating capacity(1) (mmtpa. heavy or ultra-heavy crudes. The average API density of all the crude. such as middle distillates. Since the Vadinar refinery was commissioned.3. Product Slate The Vadinar refinery’s configuration is designed to optimise the refinery’s gross refining margins by processing low-cost. In addition. VBU and FCC naphtha processing High hydrogen-recovery capabilities – Hydrogen by-product completely utilised in diesel hydro desulphurisation unit Vacuum Distillation (VDU) 5.

Part 6 The Business The Company currently procures crude oil through a combination of term contracts and spot market purchases.000 barrels of crude oil per quarter. The Vadinar refinery procures crude oil supplies on a spot basis from national oil companies. The EPS team aims to optimise purchases of crude oils between this API range. The Company believes that term contracts with national oil companies provide better reliability of supplies and generally better pricing terms than spot market purchases. including Abu Dhabi National Oil Company. The current contract with Abu Dhabi National Oil Company has a term from 1 January 2010 to 31 December 2010 and provides for a total committed supply of 14. the Company sourced 74% of its crude oil by volume from the Middle East. The Company’s strategy is to diversify the regions from which it sources its crude oil supplies to help minimise its exposure to any one region. Shell and Total as well as oil traders. generally under term contracts. The EPS team begins establishing refining input 124 . The Refinery Expansion Projects are expected to increase the Vadinar refinery’s ability to process tougher and more acidic crudes. Umm Shaif and Upper Zakum crude types. the aggregate amount of crude oil of Iranian origin purchased by the Company was 40 million barrels. which allows the Company to use lower-cost crude oils to maximise refining margins. Soroosh and Nowrooz crude types. Lower Zakum. The Company has two teams working together who are responsible for managing the Vadinar refinery’s supply chain and related activities: the Economic Planning and Scheduling (‘‘EPS’’) team and the International Supply and Trading (‘‘IST’’) team.600. During the period from 1 April 2009 to 31 December 2009. The Company continuously evaluates the mix of term purchase contracts and spot market purchases needed to achieve the procurement of crude oil at the most favourable prices and optimise refining margins. The current contract with NIOC has a term from 1 October 2009 to 31 December 2010 and provides for a total committed supply of 9. 6% from Africa and 5% from Russia. In the period from 1 April 2009 to 31 December 2009. The Vadinar refinery uses catalysts and other chemicals for various production processes. such as Saudi Arabian Oil Company and Petroleos de Venezuela SA. The EPS team seeks to leverage the Vadinar refinery’s ability to process crudes with a broad range of API. including Glencore and Vitol.4% of its total crude supplies by volume pursuant to term purchase contracts from national oil companies.99 million barrels of crude oil of Iranian origin in the year to 31 March 2010 and 0. 15% from South America.20 million barrels of crude oil of Sudanese origin in the year to 31 March 2009. while the IST team is tasked with the purchase of crude oil and export of petroleum products and interaction with the international oil and petroleum product markets.4% of its total crude supplies by volume pursuant to a term purchase contract with an oil major. the Vadinar refinery obtained approximately 46. the Company purchased 1. Other chemicals are also generally purchased under longer-term contractual arrangements from a variety of international and domestic suppliers. The choice of the optimal feedstock is an iterative process that the EPS team performs using market analyses of crude oil availability. The Vadinar refinery is able to process crude oils with density gravities ranging from 16 API to 61 API with appropriate blending. sulphur and acidity characteristics to minimise crude costs while maximising refining margins.000 bpd of Arabian Extra Light crude oil. Foroozan. enabling the Company to source a higher percentage of its crude oil from regions outside the Middle East. including BP. Approximately 53% of the Company’s crude oil procurement by volume was through term contracts in the period from 1 April 2009 to 31 December 2009. In the year to 31 March 2010. The Company believes that spot market purchases are useful in helping the Vadinar refinery to adjust its crude mix to changes in market conditions and any unexpected events that may impact the refinery’s operations by enabling a portion of crude supplies to be purchased on a quick ‘‘as needed’’ basis. In addition to the term contract with NIOC. Saudi Arabian Oil Company and NIOC and 6.000 bpd of crude oil. The Company procures catalysts from a variety of international suppliers. Supply Chain Planning The Company’s goal is to optimise the Vadinar refinery’s supply of crude oil and other feedstocks and the off-take of the refinery’s refined products. The EPS team is tasked with general short-term and long-term refinery operational planning. in each case through international oil companies. quality and prices and refined petroleum product prices provided by IST team and domestic product demand provided by the Company’s marketing team. including Iranian heavy. including Murban. oil majors. The current contract with Saudi Arabian Oil Company has a term from 1 January 2010 to 31 December 2010 with a total committed supply of 20.

. . .97 per barrel US$5. 1 May 2008 to 31 March 2009 1 April 2009 to 31 December 2009 Vadinar refinery’s gross refining margin (including sales tax incentive) . The EPS team is responsible for ensuring that the right qualities and quantities of products are available from the Vadinar refinery. while the IST team decides the mix of spot and term crude purchases for the refinery and negotiates the terms of such purchases. . The EPS team also aims to maximise the Vadinar refinery’s capacity by analysing and implementing techno-economic studies for debottlenecking of refinery constraints and setting refinery maintenance and shutdown schedules. . the plant supplies approximately 230 tonnes per hour of steam and between 275 to 330 tonnes per hour of de-aerated water to the Vadinar refinery.33) per barrel For more information about the Vadinar refinery’s gross refining margins. . for the periods indicated. . . . . To enable the Company to determine how best to optimise the Vadinar refinery’s crude and product slate. .12 per barrel US($2. All derivatives transactions are cash settled. natural gas and refinery gas simultaneously. . . Under normal conditions. . . . . . . .46 per barrel US$2. Vadinar refinery’s gross refining margin (excluding sales tax incentive) . . . . . . 125 . to a certain extent. . . . such as Aspens Process Industry Modelling System as well as crude assay databases licensed from Royal Dutch Shell PLC through Spiral Software Limited. . . this furnace oil will be replaced by higher-calorie natural gas. The power plant is designed to burn fuel oil. . .5 MW each and three boilers with a capacity of 175 tonnes per hour. liability or transaction being hedged. they typically do not expose the Company to market risk because the change in their market value is largely offset by a corresponding opposite change in the market value of the asset. The Vadinar refinery’s current electric power and high pressure steam requirements are provided by the power business’s Vadinar Power-Jamnagar captive power plant located within the Vadinar refinery complex. . The EPS team aims to optimise the Vadinar refinery’s operations and thereby maximise refining margins by managing the sale of refined products and by evaluating and recommending time periods and quality criteria. . . . . To this end. . . . Beginning in April 2010. International Energy Agency Singapore Margin (Dubai Hydrocracking Margin) crack spread . . . . . . . . . . . . . the EPS team uses software. . The IST team also decides the mix of spot and term export sales of refined petroleum products. to reduce the impact of price volatility in crude oil and refined petroleum products on the Company’s profitability. The IST team utilises hedging instruments. . . . . Power and Steam The Vadinar refinery currently has an average electrical demand of between 62 MW and 67 MW. The following table shows. . . . . To the extent derivative instruments are used for hedging purposes. The power plant consists of two turbines of 38.14 per barrel US$4. . . . The IST team is responsible for ensuring that exports from the Vadinar refinery are carried out in appropriate quantities and in a timely manner in coordination with EPS. . . The Vadinar refinery also purchases power from the local electricity grid to meet its additional power needs during maintenance shutdowns at the Vadinar Power-Jamnagar power plant. . see ‘‘Gross refining margin or GRM’’ in Part 2 ‘‘Presentation of Financial and Other Information’’ and ‘‘Factors Affecting Results of Operations and Financial Condition—Gross Refining Margins’’ in Part 9 ‘‘Operating and Financial Review’’. . Source: Company/IEA US$7. though currently is burning primarily furnace oil provided by the Vadinar refinery. which the Company expects to lead to substantial savings due to reduced fuel consumption. . the Vadinar refinery’s gross refining margins compared to the International Energy Agency Singapore Margin (Dubai Hydrocracking Margin) crack spreads for the periods indicated. .02 per barrel US$2. . . .Part 6 The Business and output plans for the Vadinar refinery generally three to four months in advance of when the crude is actually processed. . the IST team uses a wide range of conventional oil price-related commodity derivatives traded on the OTC market and overseas commodity exchanges.

a report prepared by KBC calculates the average Nelson Complexity Index rating of the current Vadinar refinery to be 4. as well as on an expected basis following completion of the Phase I Refinery Project and the Phase II Refinery Project: As at 31 December 2009 Following completion of the Phase I Phase II Refinery Project Refinery Project Nelson Complexity Index . The Company has calculated the average Nelson Complexity Index rating of the current Vadinar refinery to be 6.Part 6 The Business The power plant also provides power to VOTL (via its power purchase agreement with Essar Oil) for powering the Vadinar terminal.0% Euro V/US specifications/California Air Resources Board specifications (1) Inclusive of 2 mmtpa crude oil processing in the visbreaking unit taking the crude oil throughput to 18 mmtpa. . . . . . .8 36 24. . . . the figures used in the complexity of the Vadinar refinery are those as calculated by the Company. 6. . (3) The timing for Phase II will be finalised based on a review of market conditions and securing committed financing. .8 18(1) 24. . . .3 1. . .1. In contrast.0 3. . . For more information about the Vadinar Power-Jamnagar power plant. Average crude sulphur content . . . . The Refinery Expansion Projects Overview The following table sets forth certain data for the Vadinar refinery on an actual basis as of 31 December 2009. . . . Highest refined product grade .1 14 32. . . .0% Euro IV/V 12. . 126 . .60% Euro III/IV 11. . . For the purposes of the Prospectus. . . . .8 3. . .8 following completion of the Phase II Refinery Project based on the pre-1997 Nelson methodology and including some additional process units (sour water strippers and sulphur recovery units). The Company also applies a ‘‘Hydrocracker’’ factor to the high pressure VGO Hydrotreater and includes it in its calculations.8 following completion of the Phase I Refinery Project and to 12. . .400 KBC (a) Company 8APR201020273509 (1) (2) The complexity figures for the refineries (other than Essar refinery as indicated) are based on the post-1998 methodology used in a report prepared by KBC. Top 30 refiners worldwide(1) 13 Phase 1 (March 2011) Phase 2 (March 2013) 9 Phase 1 (March 2011) 7 Essar refinery today 5 Essar refinery today 3 PDVSA Cardon (3) Phase 2 (March 2013) (2) 11 Nelson complexity Reliance GS Caltex – Yosu SK Ulsan 1 0 200 400 600 Capacity (kbbl/d) 800 1. which it expects to increase to 8. Annualised operating capacity (in mmtpa) Average API density .000 1. . Source: Company information/KBC. .8. .200 1. .4 following completion of the Phase I Refinery Project and to 10. . . . . .0 following completion of the Phase II Refinery Project using the post-1998 methodology and having not taking into account the aforementioned additional process units. . which is expected to increase to 11. see ‘‘—Power—Operational Power Plants—Vadinar Power-Jamnagar (120 MW)’’.

product tanks to store a wider variety of products.1 to an expected 11. the Company expects approximately 24% of the refinery’s product slate to consist of gasoline. The Phase I Refinery Project also involves the construction of ancillary facilities for the Vadinar refinery such as additional tanks to receive the crude oil. heavy and acidic crude oils. an additional berth at the Vadinar terminal facility and additional dispatch facilities by road.8. The Vadinar refinery’s higher complexity following completion of the Phase II Refinery Project is expected to enable the refinery to process a greater variety of crudes and to process low-cost. Following completion of the Refinery Expansion Projects. 127 . The Phase I Refinery Project is expected to be completed by March 2011. of which 70% can be produced to meet Euro V grade product quality standards without sacrificing economic operations.Part 6 The Business The Refinery Expansion Projects are designed to further maximise the Vadinar refinery’s production of higher-margin products. Approximately 37% of the refinery’s product slate is expected to consist of diesel. the Company expects the Vadinar refinery to have growth opportunities within the petrochemical business with feedstock availability for the complete petrochemical product range.8 on completion of the Phase II Refinery Project. In addition. of which up to 60% can be produced to meet Euro V product quality standards without sacrificing economic operations. In connection with the Phase I Refinery Project. The Company expects the refinery’s overall weighted average Nelson Complexity Index to increase to 12. while minimising the refinery’s production of lower-margin products. such as fuel oil. through a programme of debottlenecking and by adding new process units. the Company is currently in the process of upgrading and increasing the average Nelson Complexity Index of the Vadinar refinery from 6. such as ATF and transport fuels. The Company intends to finalise the timing for implementation and completion of the Phase II Refinery Project following a review of market conditions and the securing of financing commitments for the project.

. . .7 1. .6 6. . . . . .5 UOP UOP Haldor Topsoe Axens 19. . . .0) (1.1 5. .000 NM3/hr 1. . except as indicated Unit Crude Distillation/Vacuum Distillation . .0 1.4 12. . . ATF Hydrotreater . . . . . . except as except as indicated indicated Total Capacity mmtpa. Isomerization . .0 12. . . .700 tpd 2. . . . . . . .7 1. . . . . Diesel Hydro De-Sulphurisation Diesel Hydrotreater . .1 — 1350 tpd — 1.7 2.3 400. .500 tpd 8. . Sulphur Recovery . . .1 0. . . . Following completion of the Phase I Refinery Project Phase II Refinery Project Process Process Capacity licensors Capacity licensors mmtpa. . . VisBreaker . . . . . .300 tpd Unsat LPG Merox . .1 +8.5 3.2 0. . . . . .0 0. . . . . . . . . .0 1. . . . Vacuum Gasoil Hydrotreater . . . Sour Water Stripper . . . . . . . . . . . Alkylation . . . . . . Fluid Catalytic Cracker . . . . . Propylene Recovery Gasoline Merox .0 1.5 Prime-G . . .9 2x130. . . . . . . . . .5 7. . . .8 6. . . . . . . . . . . . Hydrogen Manufacturing . . . . . .6 5. . Naphtha Hydrotreater . Delayed Coker . .000 NM3/hr 1. . . . . . . . . . . .700 tpd — Open Art — UOP UOP — UOP UOP Lummus UOP — Jacobs Nederland — Dupont UOP UOP UOP UOP — 34 2. . . . . .2 0. . . .970 tpd 10. . . . . . . . Kero Merox . 16. . . .270 tpd 7. . . . . . mmtpa. . . . . . . .9) 1x10. . .0 2. . . .2 10. .500 tpd (3. . . .0 — — — 1. . . . . . . . . . . . . . . . . . . .8 1. . . . . . . . . UOP UOP Haldor Topsoe 8. . . . . . . . . .4 4. . . . . . . . .800 tpd 2x1. .0 3. .4 12.2 3. . .8 3. . .0 4. . . Continuous Catalytic Reformer . . . . .000 NM3/hr Open Art Axens Stone & Webster UOP Axens UOP Axens Lummus Axens UOP Jacobs Nederland UOP — — — Merichem Merichem Merichem 18. . . . .3 6. .900 tpd + 4.7 440 + 675 tpd 1. .0 11. . . . .2 4. . . .0 — 7. . .Part 6 The Business The following table sets forth the Vadinar refinery’s main process units and their expected capacity following completion of the Phase I Refinery Project and the Phase II Refinery Project as well as the names of the process licensors for various process unit technologies. . .465 tpd 1. . . . . The data set forth in the table below is indicative data only. . . . . Source: KBC 128 .1 6. . Amine Regeneration . . . . . . . . . . . . . .5 + 1. . . . .2 — 3. . . . . . . . . . . . .000 + 1x130. . Butamer .

and diesel products from the CDU/VDU. the vacuum residue from the VDU will be processed in the DCU which will generate valuable light products including naphtha. Naphtha/Gasoline streams from the CDU and Delayed Coker Unit (‘‘DCU’’) will be processed in the Naphtha Hydrotreater Unit (‘‘NHT’’). The key processes are as follows: • Crude oil will be transported to the refinery through a pipeline and processed in the Crude Distillation Unit (‘‘CDU’’). the expected process flow of the refinery is as set out in the diagram above. which is expected to extend the Vadinar refinery’s total throughput capacity to 18 mmtpa. High octane gasoline meeting Euro IV/V specifications will also be produced through the blending of streams. Kerosene/ATF will be processed through an ATF treating unit before despatch to storage. gasoline. where the naphtha will be separated into light and heavy naphtha. The Naphtha/Gasoline streams will then be blended with cracked gasoline from the Fluid Catalytic Cracking Unit (‘‘FCCU’’) to produce marketable Motor Spirit.Part 6 The Business Set out below is a schematic overview of the main process units of the Vadinar refinery following the completion of the Phase I Refinery Project. the heavy gasoils from the VDU as well as the DCU will be processed through the VGO Hydrotreater and thereafter through the FCCU to generate LPG. DCU and FCCU will be processed through the Diesel Hydro desulphurisation (‘‘DHDS’’) and then the Diesel Hydrotreater (‘‘DHDT’’) units and the two streams blended to produce marketable HSD meeting Euro IV/V quality norms. heavy coker gasoil and petcoke. the Vacuum Distillation Unit (‘‘VDU’’) and concurrently in the modified Visbreaking Unit (‘‘VBU’’) to produce light and medium and heavy products and residue. Process flow and main units at Vadinar refinery ISOM Gas streams LPG SGU NHT/CCR Kero ATF TRTG / HT REF PRU butamer alkylation RFG LPG FCCU DHDS CRN LCO DHDT CKDSL Residue VGO EXP DCU CLO FO blending Cutlers Base Refinery Phase -1 units Phase -2 units Coke Bitumen blending Bitumen Fuel oil Diesel LTN Gasoline Treating LPG TRTG Refinery fuel gas LPG Naphtha Gasoline Jet/Kero Propylene Crude CDU and DSL VBU VGO VGO HT CKN 15APR201012474538 Source: Company information Upon completion of Phase I Refinery Project. light cycle oil and clarified slurry oil. coker gasoil. The light naphtha will then be processed in the Isomerisation Unit (‘‘ISOM’’) and the heavy naphtha in the Continuous Catalytic Reforming Unit (‘‘CCR’’). the light products comprising of LPG and naphtha will be processed through the SGU to separate the LPG (which would then be processed through the LPG Treating Unit and sent onwards to storage) from the naphtha. • • • • • 129 .

. . . . . . . . (1) . . . . . . . . . . . . the Company expects that the Vadinar refinery’s crude oil requirements will be more than double its current requirements. . . . Depending on market conditions and the price differentials between crudes. . a less expensive fuel. Currently. . Upon the completion of the configuration of process units resulting from the Phase I Refinery Project. . . the Vadinar refinery should be capable of processing a higher percentage of tough and opportunity crudes. . . Crude Oil Following completion of the Phase I Refinery Project(1) Phase II Refinery Project(1) Light . . this VBU will be able to process the new crude in a capacity of up to 2 mmtpa. . This new crude will be processed in the refinery blended with the other crudes which are currently being processed. . . . including national oil companies. To meet stringent environmental regulations. . . . . the Vadinar refinery’s process units will be further optimised for additional throughput beyond design capacity. . Medium and Heavy Ultra-heavy . . . . The table below provides an overview of the Vadinar refinery’s expected throughput mix following completion of the Phase I Refinery Project and Phase II Refinery Project. . . Internal fuel oil will be replaced by natural gas from May 2010. . . . . Source: KBC 130 . . . . . . . . . . . resulting in substantial savings in the refinery’s fuel consumption. Expected Throughput Upon completion of the Phase II Refinery Project. . thereby enhancing gross refining margins and profitability. . . The Vadinar refinery is expected to receive a regular supply of crude oil from an indigenous Indian source beginning in May 2010. . . thereby increasing the throughput capacity of the crude distillation unit to 18 mmtpa. For information about the expansion plans for the Vadinar power plant. . Total throughput . . . . . . . . . . . . The Company plans to source the majority of the Vadinar refinery’s crude supplies from Latin America and the Middle East through long-term contracts with suppliers. . . . . . . . which will be transported through a direct pipeline from the well to the refinery. . Once completed. the existing visbreaker unit will be used as a crude distillation unit. . . . . the Vadinar refinery is consuming internal fuel oil for its captive power plant to meet power and steam requirements. Following completion of the Phase I Refinery Project. . . the off-gases from the hydrotreaters will be treated in the Sour Water Stripping unit (‘‘SWS’’).Part 6 The Business Fuel oil and bitumen are also produced through appropriate blending of residue components with cutter stocks. and once the delayed coker unit is commissioned. The Vadinar captive power plant’s capacity is currently being expanded to substantially meet the refinery’s capacity requirements upon completion of the Refinery Expansion Projects. . Following the completion of the Phase I Refinery Project. . market prices for crude oil and refined products and market demand for different types of refined products. . . . . . . . . see ‘‘—Power—Phase I Power Projects—Vadinar Power Plant Expansion’’. . which will be supplemented by spot market purchases. . . . . including crude oils from the Middle East and Latin America. The Company expects that the Vadinar refinery will be able to process a majority of the different grades of crude oil available in the international market. . 11% 25% 64% 18 mmtpa 375 kbpd 5% 32% 63% 36 mmtpa 750 kbpd Expected throughput. . . . The refinery’s actual crude oil throughput may differ from those set forth in the table below due to changes in the availability of various types of crude oil. . . the Company expects the proportion of heavy and tough crudes processed at the Vadinar refinery to increase compared to the proportion of light crudes and sweet crudes processed. Amine Regeneration unit (‘‘ARU’’) and finally converted to elemental sulphur in the Sulphur Recovery unit (‘‘SRU’’). The data set forth in the table below is indicative only. . . The refinery intends to eventually replace the natural gas it will be utilising beginning in April 2010 to fuel its power and steam requirements with coal. . . .

. . . . . . .41 1. . . . Following completion of the Phase II Refinery Project it will be possible to produce more than 70% of gasoline to Euro V sulphur quality without sacrificing economic operation and a further 15% could be produced at a higher cost. . .. . . . . . . . Preliminary & pre-operational expenses and interest during construction . . . . .52% 7. . .83 0. . .86% 42. . . . . . . .33% 10. . . . . . . . . . .00 0. . Up to 50% of the gasoline could be produced to 95 RON. Fuel and loss . . . . . . . . .756 million) for the Phase II Refinery Project. . . . . . . . . . . . . . . .72 17. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75% 10. . . . . . . . . . . . .75% 1. . . . . . . .40% 1.99 0. ..18% 3.. . . . Following completion of the Phase I Refinery Phase II Refinery Project Project Percentage of Percentage of total product total product mmtpa slate mmtpa slate Products Gasoline .76 13. .9 1. . . . . . . . . . . .9 136. Coke . . . Source: KBC Following completion of the Phase I Refinery Project it will be possible to produce all gasoline to Euro IV sulphur quality. . . . . . 2. . . .50 4. Plant and machinery . . . . . . . . . . . . . . . . . . . . . . . . .24% 0. . . . . . . . . . . . . . . Feedstock (VGO) . . . . . . . .95 24. . . . .673. . . . . . .673. . . . . .00% 2. . . . . . 930 59. . . . . . . . . . . . . . .54 — — 1. . . . . . . . . . . . . . . . . . This data set forth in the table below is indicative data only. . . The estimates in the table above are subject to change.17 1. . . . 222 billion (US$4. . . . . . . . . . . . . . . . It will also be possible to produce all diesel to Euro IV sulphur quality. . . . . . . . .15% — — 3. 131 . The refinery’s actual product slates may differ from those set forth in the table below due to changes in the availability of and market prices for various types of crude oil. . 78.. . . . . . . . . .60 0. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 0. . .. . . . . . ATF/SKO . .. . . . Diesel . . Feedstock (propylene) Sulphur . . . . . Project Costs and Financing The Company estimates total costs of Rs. .67% 0. . . . . . . . Fuel oil . . All the gasoline could be produced to 95 RON. . there will also be the capability to produce up to 25% to Euro V sulphur quality if required. . . . . Bitumen . . . .84 0. . . . . .18% 11.98% 100% 8. . . . . . . . .00 1. .36% 37. .100 19. . . . . . . . . . . . . . . . . . . . . . . .98 13. . . (in millions) US$ (in millions) Percentage of total cost Land and buildings . . . . . . . . . . . . . . . . . . . . .1 billion (US$1. . . . The breakdown of the estimated project cost for the Phase I Refinery Project is as follows: Phase I Refinery Project costs Rs. . . .. . . . . . . . . .. . . .Part 6 Expected Product Slate The Business The table below provides an overview of the Company’s expected product slate following completion of the Phase I Refinery Project and the Phase II Refinery Project. . . . . . .. .00 0. . .560 6. . .96% 4. . . . . . . . . Furnace oil . . . .42% 100% Total . .49 7. . . . . .83% 10. . . . . . . . . . . . . LPG/Naphtha . . . .57 3. . . . . . . . . . . . . . . . . . . . . . .72 1. . . . . . . .1 241. . . . . . . . .1 1% 76% 9% 14% 100% Total project costs . . . . It will be possible to produce up to 60% of diesel to Euro V sulphur quality without sacrificing economic operation and a further 10-15% could be produced at higher costs. . There will also be the capability to produce up to 40% to Euro V sulphur quality if required. . . . . . . .. .91% 6. . . . . . . . . . . . . . . . . . .260 78. .94 1. . . . . . . . . . . . . . . . .275. . . . . .51% — — 5.95 35. . . market prices for refined products and market demand for different types of refined products. . .1 million) for the Phase I Refinery Project and of Rs. . . . . . . . . .60 1. . Project management and engineering fees . . . .2 1. . . . . . . .350 11. . . . . . . . . . . . . . . . .21 — — 0. .

project management services. • • • • • The terms of each of the contracts referred to above are summarised in paragraph 14 of Part 16 ‘‘Additional Information—Material Contracts.Part 6 The Business The Company plans to finance the Phase I Refinery Project through a mixture of cash flow from operations. for the project management and consulting services for the Phase I Refinery Project. . The status of each of these service providers as of 28 February 2010 is as follows: • Essar Engineering is undertaking the detailed engineering works for the Phase I Refinery Project. Lummus Technologies Inc. Essar Engineering. . Essar Projects is undertaking construction work for the Phase I Refinery Project and has completed approximately 29% of the construction.’’ Project Status—Phase I Refinery Project The Company has contracted with various Essar Affiliated Companies for detailed engineering services. Of the remaining US$688 million of equity financing. . . isomerisation. equity contributions. . construction services and the supply of onshore and offshore equipment and bulk materials in relation to this project. and third-party debt financing. an Essar Affiliated Company.673 million. . amine regeneration. to carry out the detailed engineering for the Phase I Project’s critical process units. . in turn. sour water stripper and ATF merox For delayed coker unit For sulphur recovery unit For hydrogen manufacturing unit 132 . . . The Company has secured these financing commitments.’’ The Company has also entered into contracts with the following unaffiliated. of which US$985 million has been committed through third party debt financing. Vadinar Ports & Terminal Limited (‘‘VPTL’’). Haldor Topsoe . The Phase I Refinery Project has a cost of US$1. such as Technip India Limited. . including commencing the civil engineering works and pre-cast work for pipe racks and completing the foundation work for the pipe racks and other large equipment. The Company has entered into contracts with Essar Logistics for the transportation of imported plant and equipment to the project site for the Phase I Refinery Project. . . Aker Kvaerner Powergas Limited and Toyo Engineering India Limited. storage and dispatch of crude oil and petroleum products for the Phase I Refinery Project on a take-and-pay basis for a term of 20 years. . . . US$428 million has been funded from cash flows from operations and equity injected by the Essar Group. Essar Engineering has completed approximately 86% of the detailed engineering works for the Phase I Project. . . . The Company has entered into a contract with Essar Project Management. handling. . an Essar Affiliated Company. . For VGO hydrotreater. has subcontracted with third-party engineering firms. diesel hydrotreater. Jacobs Nederland . . . ATF hydrotreater. The Company has entered into a contract with Global Supplies for the procurement of the Phase I Refinery Project’s non-Indian equipment requirements and with Essar Projects. Under this contract. Essar Project Management will provide all services for managing the implementation of the Phase I Refinery Project. and US$260 million will be funded from the proceeds of the Offer. . . See ‘‘Indebtedness—Funding the Expansion Projects—Financing Arrangements for the Phase I Refinery Project’’ in Part 9 ‘‘Operating and Financial Review. . is providing services for the receipt. third-party providers for the supply of process technology for the Phase I Refinery Project: Provider Product/Service UOP . . an Essar Affiliated Company for the procurement of the project’s equipment requirements from within India and certain imported equipment. . . These companies have completed the ordering of all major long lead-time material and equipment. .

rail and road. through Essar Energy Overseas Ltd. All other existing EPC contracts of EOVL have been cancelled and new contracts have been entered into with Essar Projects and Essar Project Management for the Phase II Refinery Project. with the other 50% interest being held by the Government of Kenya. with approximately 32% of the refinery’s production by volume constituting fuel oil and the remainder constituting LPG.000 bpd). one with Essar Project Management in respect of the project management services and the second contract is with Essar Projects in respect of engineering. enabling the refinery to supply Kenya’s major inland population and industrial centres. For further information on the terms of these contracts. The refinery’s earnings are linked to the amount of crude oil processed. kerosene and diesel. Burundi and Rwanda. Licensing and basic engineering contracts for the Phase II Refinery Project will become part of Essar Oil upon the merger of Essar Oil Vadinar Limited (‘‘EOVL’’) with Essar Oil. The Mombasa refinery was commissioned in 1963 and has a nameplate capacity of approximately 4 mmtpa (80. gasoline. continuous catalytic reformer. The Company has also entered into contracts for the supply of process technology for an alkylation unit from Dupont.6 mmtpa of their marketing requirement under the tolling arrangements. Further work on the Phase II Refinery Project is expected to take place once the Company has assessed market conditions and has obtained definitive financing commitments for the project. The work under these contracts will commence only after definitive financial commitments being entered into. The Mombasa refinery is capable of receiving crude oil by ship and distributing its products by pipeline. The Company has committed to contribute equity required to modernise the Mombasa refinery subject to the economic viability of such an investment programme. The refinery currently processes only 1. KPRL owns and operates the refinery in Mombasa. The Group acquired its interest in KPRL in July 2009 with the acquisition of the stakes of BP plc (approximately 16%). primarily Murban crude sourced from the United Arab Emirates. the refinery is forced to run at sub-optimal capacity. naphtha hydrotreater. Mombasa Refinery (Kenya) The Company. for a bitumen processing unit from Poerner and for a Prime-G unit from Axens. propylene recovery.000 bpd) of crude oil. KPRL has appointed a consultant to carry out detailed feasibility and configuration studies. the contracts will terminate. The Mombasa port provides access to the Indian Ocean. (approximately 17%) in KPRL. The Mombasa refinery processes crude into refined petroleum products based on tolling arrangements with refined petroleum product marketing companies. VGO hydrotreater. including fuel storage tanks. The marketing companies are required to process at KPRL a minimum of 1. unsaturated LPG merox. amine regeneration. Due to the lack of investments historically in maintaining and upgrading the facilities.Part 6 Project Status—Phase II Refinery Project The Business UOP is expected to be the primary technology supplier for the Phase II Refinery Project and will provide key technology licensing for the fluid catalytic cracking. butamer. if Essar Oil has not notified the counter-parties that the work is to commence by September 2011. Implementation of the modernisation programme will occur only after feasibility has been established and the programme has been approved by the board of directors 133 .6 mmtpa (32. The Shell Petroleum Company Limited (approximately 17%) and Chevron Global Energy Inc. gasoline merox.. for a sulphur recovery unit from Jacobs Nederland and for a hydrogen manufacturing unit from Haldor Topsoe. Kenya. holds a 50% interest in KPRL. The refinery is configured as a simple hydroskimming type with atmospheric distillation and catalytic reforming units. and related infrastructure. and following which. The Mombasa refinery is the only oil refinery in East Africa and serves primarily the markets of Kenya and the neighbouring countries of Uganda. diesel hydrotreater. Essar Oil has entered into two contracts in relation to the implementation of the Phase II Refinery Project. refer to Paragraph 13 of Part 16 ‘‘Additional Information-Material Contracts’’. In addition. the Company has obtained licences for a delayed coker unit from Lummus Technologies Inc. (‘‘Essar Energy Overseas’’). procurement and construction services for the refinery. sour water stripper and ATF Merox units. The Mombasa refinery has access to the Trans Kenya Oil Pipeline to Nairobi and onwards to Eldoret and Kisumu.

domestic bulk prices are generally equivalent to.241. . . 13% in the quarter ended 30 June 2009. .1 17.8 3. . . .8 2. and in the international export market. . .1 291. . .6 98. . . . . . . . . the minimisation of emissions and the capability to produce products meeting AFRI IV specifications. .8 5.5% 100. . .262. . kerosene. . rail or pipeline.4 7.215. as well as to domestic industrial customers.1 7. .0% 4. .5% 5. in sales million billion revenue 1 April 2009 to 31 December 2009 Percentage of total product US$ in Rs. . It is proposed to fund the modernisation through an equity contribution of 30%. . . . . . .8 252.6 192. . . . .8% 8.691. . the Company engages in sales of products refined by other refiners (‘‘traded refined petroleum products’’) through its retail and direct bulk network.Part 6 The Business of KPRL. primarily due to fluctuations in domestic sales. . In addition to sales of products refined at the Vadinar refinery. .0% 94. 134 . . . . . .6 361. including motor spirits and HSD on a bulk-sales basis to domestic oil marketing companies whose marketing requirements are greater than what their own refineries produce. . LPG.4 13. the refinery is expected to increase its yield on gasoline.6 446. . Direct sales—oil marketing companies Bulk sales . 27% in the quarter ended 30 September 2009 and 34% in the quarter ended 31 December 2009.0% Total .000 metric tonnes per year. . . . 5. the Company has more flexibility in choice of delivery channels for domestic direct sales. .1 7.5 171. . . . The following table sets forth certain information about the Company’s sales of refined petroleum products for the periods indicated: 1 May 2008 to 31 March 2009 Percentage of total product US$ in Rs. .262. Compared to international export sales.0 353. KPRL also intends to have a captive power plant built at the refinery to reduce disruptions in power supplies. . .862. . .9 207.1% 6.5 252. . . . With the modernisation. . The Company sells a significant proportion of its refined petroleum products. . Retail sales . . . Own refined petroleum products .0 72.4 59. Export sales . in certain cases. . . . . . . .4% 61. .9 287. . in sales million billion revenue Refined petroleum product sales Domestic Indian sales . The Company’s domestic sales and international export sales as a percentage of the Company’s total sales have historically varied from quarter to quarter. . . fuel oil. . . .3% 100. .4 9. Total . international export sales. . . Traded refined petroleum products . .5 358.6% 100. as products may be shipped not only by sea but also by road. higher than those on the international spot market.7 5.0% 97. .8% 2.9 262. Depending on market conditions. .7% 2. kerosene and diesel by as much as 18% of its total crude throughput. or. . .974. . . . . HSD. . . including through direct bulk sales and retail sales through the Company’s network of retail fuel stations. . . . . . .4 13. Therefore. . . on a quantity basis. . .2 21. . In addition.000 metric tonnes per year to 115. . . . .8 5. . . . . .2 238. .9 361.6 4. . Planned upgrades include the re-configuration and modernization of the refinery to enable it to run at its design capacity of approximately 4 mmtpa including the construction of residue conversion facilities.7 154. . . . Refined Products Marketing and Sales Overview The Company markets refined petroleum products both in the domestic Indian market. . .9 7. Essar Energy’s domestic direct sales include both spot and term sales for primarily motor spirits. .7 1. . . . . . . .148. . .020.5% 23. . sulphur and bitumen. . with the balance to be funded by KPRL through debt financing.862. accounted for 26% of the Company’s total sales of refined petroleum products in the quarter ended 31 March 2009. . enabling the Company to generate higher profit margins.3% 3. .4 239. .6% 27. . the Company is of the view that the refinery’s LPG production is likely to go up from the current 30.714.7% 66. . . .215.2 76. .2% 100.

The Company’s direct sales customers include: • • petroleum product traders. 135 . The Company has entered into a four-year off-take agreement with BPCL effective from April 2008. The Company sold approximately 7 million metric tonnes of refined products in the year ended 31 March 2009 and 5. The Company’s domestic direct sales include both spot and term sales for primarily HSD. Sales to these customers are generally made against advance payment or the provision of letters of credit. with the amount of the discount varying by customer and depending on the discount offered by the OMCs on similar sales. respectively at the relevant rupee dollar parity rates. insurance and import duties. enabling the Company to generate higher profit margins with lower rail transportation costs. including Essar Agrotech. In relation to product delivery costs. However. the Company generally generates higher refining margins on sales to the OMCs than on exports. 100% of LPG production is also sold to these OMCs. taxes etc are on relevant appropriate dates. Domestic Bulk Sales The Company sold 6. Additionally. 31% of its fuel oil and 100% of its bitumen and sulphur was sold in the domestic market in the period from 1 April 2009 to 31 December 2009. These contracts include limitations on the trader’s sales territory. Direct sales to customers are priced at a discount to the import parity price for fuel oil and bitumen and to the trade parity price for HSD prevailing in the market at the time of sale. The Company does not have any long-term off-take agreements with any of its direct sales customers. with prices being adjusted on a fortnightly and monthly basis. The Company’s direct sales to traders are generally under one-year off-take agreements. Essar Projects and Essar Steel at market price.Part 6 Domestic Sales to Oil Marketing Companies The Business The Company sold 61.8% of its total sales (in terms of revenue) through direct bulk sales in the period from 1 April 2009 to 31 December 2009. in certain cases. a four-year off-take agreement with HPCL effective from January 2008 and a two-year off-take agreement with IOCL effective from April 2009 for the sale of refined petroleum products. Depending on market conditions. The Company also sells products to Essar Affiliated Companies. the Company absorbs the central sales tax related to rail. the Company obtained approval from the Directorate General of Aeronautical Quality Assurance of the Government of India’s Department of Defence Production and Supplies for the supply of ATF to the Indian defence services at Jamnagar airport. and the other costs on duties. higher than those on the international spot market. and direct commercial users. The OMCs are obligated to pay the base purchase price for the products within 21 days of invoicing. like cement factories for furnace oil and power plants for refinery residue. domestic bulk prices are generally equivalent to.6 million metric tonnes in the period from 1 April 2009 to 31 December 2009 to the OMCs. road. the off-take agreements contain no binding commitments from the OMCs to purchase any minimum volume of products. The quantity for the year is finalised with each OMC at the beginning of each financial year. security deposit and advance payment requirements and end-user certification requirements.1% of its total sales (in terms of revenue) to the major oil marketing companies (‘‘OMCs’’) in India in the period from 1 April 2009 to 31 December 2009. including motor spirits. fuel oil. Motor spirit and HSD products sold under these agreements are priced at 80% of the prevailing prices at which the relevant products could be imported into India plus 20% of the prevailing prices at which the relevant products could be sold for export outside of India. ATF and SKO products sold under these agreements are priced at 100% of the prevailing prices at which the relevant products could be imported into India. sulphur and bitumen. In August 2008. Of the refinery’s total production. Since import prices include the impact of freight. HSD. SKO and ATF. with prices being adjusted on a fortnightly basis. or. pipeline and coastal transport and the notional coastal freight charges related to coastal transport.

The Company sells gasoline and HSD under the ‘‘Essar’’ brand through the Company’s retail fuel station network. The Company then enters into land leaseback and franchisee agreements with the franchisee. the franchisee is required to bear all costs related to the operation of the retail station. Under the franchisee model.300 retail fuel stations across India.293 retail fuel stations as of 31 December 2009. Franchisee-Owned and -Operated Model The Company runs its retail fuel stations on a franchisee model and believes it was the first private entity to establish a retail station franchisee model in India. which is linked to the monthly targets decided at the time of the finalisation of the franchisee agreements. and 5% return on capital costs to set up the station. 30MAR201015201948 Products are delivered directly to the Company’s retail stations by road from the nearest terminals or depots. In return. Lease rent and return on investment paid to franchisees under the franchisee agreements amounted to Rs. The Company has terminals at Vadinar. The Company has also made arrangements with PSU oil marketing companies for trading of petroleum products for its retail network. The Company sold 8. the Company makes rental payments for the land on which the station is situated to the franchisee or third-party landowner at an annual rent of 5% of the land’s assessed value. This commission is a mark up in the retail selling price that the franchisee would charge to the final customer from the station. the Company has in the past paid the franchisees an amount equal to 12. the franchisee is obligated to make all necessary investments related to the construction and installation of the retail station in accordance with the Company’s specifications and designs. This model is designed to limit Essar Energy’s capital commitments to the construction and development of retail fuel stations.1 million 136 . In addition. the Company currently has India’s largest active private retail fuel station network. In addition.Part 6 The Business Domestic Retail Sales Overview With approximately 1. Under the franchisee agreement. 89.173 as of 31 March 2008 and 683 as of 31 March 2007. The Company is currently one of three private companies authorised to market retail petroleum products in India.5% p. The map below shows the location of the Company’s retail fuel stations. a third-party or franchisee generally owns or controls the land on which the station is located and leases or sub-leases the land to the Company for a period of 20 to 30 years. The franchisee also earns a fixed commission on the product sold from the retail fuel station.a. The Company had 1.5% of its total sales (in terms of revenue) through its retail fuel stations in the period from 1 April 2009 to 31 December 2009. of their investment to compensate them. Sirohi in the state of Rajasthan and at Jawaharlal Nehru Port Terminal near Mumbai in the state of Maharashtra. compared to 1. in circumstances where the franchisees are not able to earn a return on product sold as a result of higher fuel prices compared to its PSU competitors.

franchisees are required to purchase the products they sell from the Company only. international petroleum product traders such as Fal Oil. which control approximately 92% of the total retail fuel stations within India. the Company’s retail sales operations are reduced. The Company plans to sell automobile LPG and CNG through its retail stations by partnering with LPG and CNG companies. However. Shell. fertilizers. In addition. as well as the provision of automated teller machines. Where the retail prices are not adequate to cover the crude prices. jet fuel. and the increased complexity of the refinery. gas oil. food and beverages. Government Policy The profitability of the Company’s domestic retail operations is critically dependent on the international crude/product prices and the retail selling prices. The Company has to follow the selling prices of the PSU retail outlets to remain competitive. Any changes resulting in deregulation of auto fuel pricing will benefit the Company. Trafigura and Vitol. the Government of India compensates PSUs through a subsidy mechanism involving the issuance of oil bonds/cash subsidy/discounts on the crude prices supplied by the Government of India’s upstream companies. Export Sales The Company accounted for 23. Marubeni. will enable the Company to further diversify its refined petroleum product exports geographically. Depending on the buyer. when retail selling prices are below the crude prices. Conoco Philips and Total.3 million barrels of gasoline to an international oil company.86 million) in the nine months ended 31 December 2009. Parikh submitted its report on ‘‘A Viable and Sustainable System of Pricing of Petroleum Products’’ in February 2010 and has. Kirit S. gasoline and naphtha to over 15 countries. An expert panel under the chairmanship of Dr. The Government of India controls the retail prices in India for sales by PSUs. which was destined for the port of Bandar Abbas in Iran. recommended that the prices of petrol and diesel should be determined by the market for both PSUs and private companies. When the prices at PSU retail fuel stations are below cost. Koch. The Company has used its flexible franchisee model to its advantage by increasing its sales in retail operations when retail selling prices are above the crude prices and. Malaysia and Indonesia. Term contracts for exports are generally for six months or less in duration with the variable pricing terms generally tied to prevailing market prices at the time the products are loaded for delivery to customers. in select markets a small premium is charged to the PSU retail prices to continue sales operations. among other proposals. depending on the customer’s requirements and trading conditions. Essar Energy exported 0. Should this recommendation be passed. as the Company believes is likely. agricultural seeds. The Company employs a combination of spot contracts and short-term contracts for international export sales. to further enhance franchisees’ revenue-earning options. and the national oil companies of countries such as Sri Lanka. In addition.6% of its total sales (in terms of revenue) through export sales in the period from 1 April 2009 to 31 December 2009. 137 . in January 2009.Part 6 The Business (US$1. It will also allow it to seek enhanced refining margins along with the market access the Mombasa refinery and any other potential acquisitions may provide. The Company expects that the Refinery Expansion Projects. this would enable the Company to significantly step up the expansion of its retail operations. Glencore. Other Business Opportunities The Company has recently started exploring opportunities for the marketing of other petroleum products as well as non-petroleum products through its retail station network. the Company may require letters of credit to support payment obligations under term contracts. decreasing its retail sales. Chevron. the Company has entered into revenue-sharing arrangements with certain third parties with regard to the sale of products such as automobile lubricants and batteries. The Company’s export customers include: • • • oil majors such as BP. the Company exports products primarily on a free-on-board basis but also on a cost-and-freight basis. Over the years the Company’s exports include fuel oil. Under the franchisee agreements.

Under the terms of the petroleum handling agreement. providing easy transport of refined products via road to India’s western and northern domestic markets. In addition.5 kms offshore in the Gulf of Kutch. The costs for these additional facilities will be financed by VPTL. The Vadinar refinery is connected by an approximately 20-km-long dedicated crude pipeline to oil terminals owned and operated by VOTL at the port of Vadinar.26 million barrels. with 5. Distribution Facilities and Tankage All of the Vadinar refinery’s distribution and storage facilities described below are owned by VOTL.5 million barrels dedicated to crude and other feedstock and 6. Pursuant to this agreement.5 mmtpa LPG through the Gas Authority of India Limited’s LPG pipeline. rail. The refinery is located on the Jamnagar-Okha state highway number 25. 4. sea and pipeline. VPTL is currently configuring its facilities to be able to provide the additional annual capacity the Vadinar refinery will require upon completion of the Refinery Expansion Projects. see Part 15 ‘‘Relationship with the Essar Group’’. road. The Vadinar refinery’s refined petroleum products are transported to customers by road. an Essar Affiliated Company.000 dwt in size and a jetty capable of servicing marine product dispatch carriers with parcel sizes of up to 100. sea and pipeline. 5. crude. as well as other related infrastructure facilities. the Company is required to pay VOTL a monthly charge calculated on the basis of the higher of the actual quantity of crude oil and petroleum products handled or the minimum quantity specified in the Agreement.5 million barrels of crude and other feedstock tank storage facilities.86 million barrels of tank product storage facilities.9 million barrels of intermediate tank product storage facilities. product and intermediate tankages. truck-loading facilities equipped with 5 truck-loading gantries. among others: • • • • • • a single-buoy mooring facility capable of the receiving of crude oil carriers of up to 325. The facilities that are planned to be added during this phase include an additional berth. VOTL provides the port and terminal facilities required for the Vadinar refinery’s import of crude and other feedstocks and the facilities required for the distribution of refined petroleum products by rail. and railcar loading facilities connecting to the Western Railway with the capacity to load two rakes simultaneously. The Vadinar oil terminal also includes an on-site facility for transporting 0. In connection with the Phase II Refinery Project. Crude oil imported from abroad is transported to the facilities of VOTL located in the Vadinar port by way of tankers and very large crude carriers that anchor at the single-buoy mooring station located approximately 8. For a description of the Company’s agreements with VOTL. For a description of the Company’s agreements with VOTL. The Vadinar refinery’s on-site tankage capacity is 12. 1. The refinery has access to this railway line via a branch railway line terminating at the refinery. The Vadinar refinery is located approximately 12 kms from the broad-gauge railway line between Rajkot and Okha.76 million barrels to intermediate and finished products.000 dwt. see Part 15 ‘‘Relationship with the Essar Group’’. The Vadinar oil terminal facilities currently include. 138 . the Company intends to construct an extender bridge line to connect the additional refinery stream to this existing railway connection line.Part 6 The Business Petroleum Handling Agreement The Company has a petroleum handling agreement with VOTL. VOTL has agreed to handle the Company’s crude oil and intermediate and refined petroleum products on a take-or-pay basis.

The Company expects that competition in the domestic Indian refining sector is likely to increase as additional refineries are constructed and as capacity upgrades at existing refineries in India are completed. the Company also has a terminal service agreement with Indian Oil Tanking Limited at Jawahar Lal Nehru Port Trust and Jainsons at Kosikalan and has its own location under a finance lease at Sirohi. The Company’s largest power company competitors include National Thermal Power Corporation. such as the Reliance Group. To service the expected expansion of its retail station network. the Company has product purchase agreements with the Indian national oil companies. production. For the import of capital goods.Part 6 Transportation Services The Business Essar Logistics provides the Vadinar refinery’s logistical services for transporting refined petroleum products from the refinery to various locations within India where these products are ultimately sold. BP and ExxonMobil. The Tata Power Company Limited. refining. refinery efficiencies. including oil and gas exploration and production. To supply petroleum products to its retail fuel station network. the Company plans to: • • open inland storage points at strategic locations. including retail sales. as well as domestic Indian competitors. The Company competes for supply of feedstocks with Indian and international competitors. the Company currently has 29 locations across India from which it sells products from the refinery. These developments could result in overcapacity and reduced refining margins. For the import of crude oil and the dispatch of refined petroleum products. Essar Oil charters tankers directly from the market. including port handling. largely as a result of the Government of India’s measures to deregulate. in addition. that produce the same products as the Company and are engaged in the same petroleum industry businesses as the Company. 139 . In total. The Company is presently in discussions with HPCL for the distribution of refined petroleum products to the Company’s retail fuel stations through the Mundra-Delhi pipeline. The Company’s oil and gas business spans the entire oil and gas value chain. refined product mix. including exploration. petroleum refining. marketing and transport. unloading of equipment at the site and related services. The principal competitive factors that affect the Company’s refining operations are the price and availability of crude oil and other feedstocks. it sells refined petroleum products through its network of retail stations. the Company charters tankers on the open market. For the import of crude oil and the despatch of certain refined products. see Part 15 ‘‘Relationship with the Essar Group’’. For a description of the Company’s agreements with Essar Logistics. liberalise and increase private investment in the Indian power sector. Some of these terminals are expected to also have rail unloading facilities. and continue negotiations with PSUs for the lease of certain of their depots and terminal facilities. Oil and Gas The oil and gas industry is highly competitive both in India and internationally. Essar Logistics provides transport services for moving materials and equipment from the shipment port to the destination port. Rajasthan. Essar Energy’s principal competitors in the refining sector are multinational oil companies. Adani Power Limited and JSW Energy Limited. such as Shell. and the marketing and sales of refined petroleum products. • COMPETITION Power The Indian power sector is becoming increasingly competitive. clearance. Reliance Power Limited. use private tanks that may already be available or construct new depots or terminals on a build-own-operate-transfer basis. product distribution and transportation costs.

in accordance with the core perceived risk exposures for the power plants and also in accordance with the requirements of Group’s lenders’ insurance consultants. but excluding losses resulting from terrorism. The Company’s power project financing arrangements also require the Company to maintain a certain level of insurance coverage for the term of the financing. For other power projects. For these two power plants. natural gas. as well as infrastructure that is ancillary to the projects during the construction phase. Oil and Gas The existing Vadinar refinery is insured under an annually renewable umbrella risk insurance policy covering material damage. the PSUs owned 35.374 million) (Essar Oil Rs. including exclusions for wilful misconduct. Although the Company is free to set its own prices.62 billion). This includes third-party insurance for these projects in respect of the risks associated with the Company’s assets. under which the coverage is Rs. The Essar Power-Hazira and Bhander Power-Hazira plants are insured under an annually renewable umbrella policy covering material damage. In addition.800 million (US$574 million) and VPCL 140 . 26.621 out of a total of 38.573 retail stations in India according to Industrial Performance Review. penalties and punitive damages.8 TMT of retail petroleum products sold in India in the period from 1 April 2009 to 30 November 2009. fines. BPCL and HPCL. The Company believes that its existing insurance coverage is adequate to cover all general material risks associated with the Company’s operations and is in accordance with industry standards in India. acts of foreign enemies and nuclear risks. as long as the PSUs sell petroleum products below cost. invasion.62 billion (US$2. the Company faces significant competition from IOCL.200 million (US$4.8 TMT of the total of 37. loss of profits and equipment failure as well as a public liability policy covering third-party liabilities. including equipment failures. Standard exclusions apply to this policy. war. the Company maintains an umbrella marine and erection insurance policy covering marine transit risks as well as risks relating to erection. such as Cairn and Premier Oil. the transportation and storage of crude oil. Within the PSUs. As of 30 November 2009.642 million). the Company either has to sell its refined petroleum products below cost for a loss. enabling the PSUs to price their products below cost. The power projects are also covered for acts of terrorism for an aggregate amount of Rs.22 million). BP and ExxonMobil. under which the total coverage for these two plants is Rs. 122. 204. including ONGC and Reliance Industries Limited. oil refining. 46. and other international companies. VOTL Rs. the Company also possesses public liability insurance coverage. The Government of India provides PSUs with price subsidies for retail refined petroleum products. major multinational oil companies. In the aggregate. In addition to the insurance coverage described below. INSURANCE Overview The Company’s operations are subject to the risks normally associated with exploration and production activities.000 million (US$ 3. the Company’s primary competitors are the PSU-owned or controlled retail stations. these entities sold 36. In retail distribution of refined petroleum products. the Company’s operations are subject to the general hazards associated with the disposal of waste. under which the coverage is Rs. coal.Part 6 The Business In its exploration and production business. such as Shell. business interruption and loss of profit caused by equipment failures. the Company also maintains marine (import and inland) and marine open cover (cargo) insurance policies covering certain items in transit to or from the relevant power plant. 170. Power The Company believes that it possesses adequate insurance to cover the power business’s current operations. the generation and transmission of power and other raw materials and the transportation and storage of petroleum products. money policies and fidelity guarantee policies. The power business obtains insurance coverage for all power projects during the construction phase. 10 billion (US$214. the Company faces significant competition from other Indian companies. or charge higher. non-competitive prices.32 billion (US$992.28 million). testing and commissioning.

. . . . . unsuitability of packing. . . . . . . . . . . . . . . 3. . an operational umbrella policy covering the single buoy mooring at the Vadinar terminal and associated pipelines. . . . . . . . . . . . . . air and rail and Rs. . . . . . . . . . . rail and road to the project site and erection. . . . . . . . . . . . . . . . . . . . work in process and finished goods under which the coverage is Rs. . . . . . . . . . . . . . . . .339 million) for erection all risks works. . Total . . . . . . Petrochemical . . 26. . . . . . . . . . . . . . . The Company has also obtained an umbrella policy covering marine and erection insurance to provide cover for potential losses associated with the Phase I Refinery Project. . . . . . . . . HR and Administration . . . . . . . . . . . . . .000 million (US$3. EMPLOYEES The following table provides an overview of the Company’s full-time-equivalent employees by business (including employees shared between the businesses) and by function as of the dates indicated: As of 31 March 2007 2008 2009 As of 31 December 2009 Power MD/CEO and Directors . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . .374 million) (Essar Oil Rs. . . . . . . . . . . . . . . . . . . . . . . . . . . . Energy Corporate . . . . . . . . . . . . VOTL Rs. . . . . . . war. . . . . . . .294 1. . . . . . . . . .250 million (US$927 million) for the value of equipment damaged or destroyed during transit by ocean. . . . . . . . . . . . . . . . . . . . .889 7 37 322 26 5 65 0 50 15 63 0 590 167 322 667 37 182 178 0 1. . . . . . Standard exclusions apply to this policy. . . . . Trainee . . . . . Business development . . . . . . Exploration and production . . . . . . . . . . . . . . 141 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750 million (US$16 million) for third party liability arising out of project work at site. . . . .780 million (US$81 million). . . . . . Subtotal—Energy . . 150 million (US$3 million) and other insurance policies covering other specific risks faced in its operations in accordance with industry standards. . 7. . . . . . . Refinery expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990 million (US$21 million). . 7. . . . . .200 million (US$4.510 million (US$1. an umbrella public liability policy covering third-party liabilities under which the coverage is Rs. . ordinary wear and tear. .500 million (US$750 million). . . Project development . . . . risers and other equipment under which the coverage is Rs. . . . including cover for the value of certain items of equipment damaged or destroyed during transit by ocean. . . . Rs. . . . . . . . . . . . . . .311 6 22 216 16 3 55 0 0 19 49 0 386 91 231 541 65 115 141 110 1. Finance accounts . . . . . . VOTL Rs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 million (US$4. . . 62. . . . . . . . . . . . . . . . .680 7 33 290 25 8 58 0 57 12 38 0 528 148 283 487 40 159 202 42 1. . . In addition. . . . Materials and procurement Project Management . . . . . Marketing . such as for wilful misconduct. . .Part 6 The Business Rs. . . . . . . . . . 225. an umbrella policy covering acts of terrorism under which the coverage is Rs. 170. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Refinery . . . . . . . . . . . . . . . . . . . . .820 million). . . . . . . . . . 43. . . . . . . . . . . . . . . . . . . . . . . . . . . air. . . . . . . . . . . . . . the Company has a marine import insurance umbrella policy covering crude shipments under which the coverage is Rs. . . . . . . . . . . . .400 million (US$159 million). . . . . . . . . . . . . . 5. . . . . . . . . . . International supply and trading . . . . . . . . . . . . . . . . . . .361 1. . . . a stocks declaration umbrella policy covering raw material inventories. . . . . . . . . . . . .143 Subtotal—Power . . acts of foreign enemies and nuclear risks. . . . .800 million (US$574 million) and VPCL Rs. . . . . . . . . . . . . . . . . . . . . . . . . . . IT/CSR/Others . . . . 1 18 149 7 5 39 26 12 0 7 12 276 89 241 459 39 79 92 36 1. . .400 million (US$159 million). . commissioning and testing of the equipment at the project site. under which the coverage is Rs. . . . . . . . Technical . .580 million (US$120 million) (Essar Oil Rs. .642 million). . . . . . . . . .035 1. . . .553 2. invasion. . . . . . . . . . . . . . . 204. . . . . . . . .

Tech (Process Engineering and Design) Programme. The Company believes it enjoys good relations with its employees.Part 6 The Business Essar Energy has implemented various initiatives to improve employee performance such as comprehensive feedback systems. including employee health and social security schemes. In addition. participates in the M. The Company has not experienced any instances of industrial actions that have had a material adverse effect on the Company’s results of operation. (Oil and Gas Management) Programme. learning management systems. The Company’s corporate activities are directed by senior management from its corporate office in Mauritius. recordkeeping. incident reviews and corrective and preventive actions. Post Graduate Diploma (Refinery Technology) and M. recording and investigating all accidents to avoid recurrence. productivity enhancement schemes and performance management systems. procedures. and auditing and reviewing systems and procedures including implementation of recommendations. The Company believes that it is important to manage both process safety and occupational safety effectively. the Company has introduced various initiatives such as training programmes. M. the power business plans to set up a simulator centre for training operational and maintenance personnel. The Company has staff welfare schemes in place. The Company seeks to implement this goal by: • • • • • • establishing and maintaining systems and procedures. equipment malfunctions. safety and environment agencies. training employees in safe and environmentally friendly work practices. HEALTH. training. lost time due to injuries and other occurrences through the concept of leading and lagging indicators. The Company strives to continually improve its corporate health. The Company maintains comprehensive safety management systems. involving employees in improving safety and environmental practices.A. safety and environment programmes that meet or exceed applicable regulatory requirements. 142 . safety and environmental performance at the Company’s operating power plants and refineries. The Company’s goal is to be fully compliant with applicable environmental and health and safety laws and regulations at each of its locations and to operate in accordance with best practices specific to that site and industry. safety and environment management processes and to periodically review the flexibility and functionality of the Company’s processes. The power business offers its employees comprehensive ongoing training and has designed a 26-week training programme to raise their skills and capabilities with respect to power project operations. to upgrade the technical skills of employees.Tech (Refinery and Petrochemical Engineering) Programme. internal reviews. The Company’s management gives priority to accident and incident reporting and investigation with root cause analysis to ensure that the Company learns from experience. The oil and gas business. These methods include implementing and monitoring recommendations resulting from internal and external audits and tracking ‘‘near miss’’ events or unsafe acts and conditions. including policies.Tech (Exploration and Production) in conjunction with the Indian School of Petroleum and Energy (ISPE) and the University of Petroleum Studies. first aid and medical treatments. The power business also participates in a BS degree programme in power engineering in conjunction with the Birla Institute of Technology and Science in Pilani. In addition. Third-party audits are conducted for all of the Company’s offshore and onshore installations by established national and international health. coaching and mentoring programmes and team building programmes. encouraging an atmosphere of open communication. M. reporting.B. in addition to offering its employees comprehensive ongoing training. SAFETY Overview The Company is committed to protecting the health and safety of employees and contractors working at all of the Company’s locations. occupational health. AND ENVIRONMENT The Company’s operating power plants and refineries have health. executive development reviews. the people who come into contact with or are affected by the Company’s operations and the health and sustainability of the environment in which the Company operates. The Company uses methods to track health.

The fire-fighting resource is capable of fighting fires at two different locations simultaneously. all operational power plants in India have OHSAS 18001 certification. for further information. In addition. The Company equips all of its power plants with devices for the control of pollutants to levels within required norms. Oil and Gas The Vadinar refinery’s fixed and mobile fire-fighting resource is designed in accordance with the standards of the Oil Industry Safety Directorate. the Company is currently implementing in phases process safety management practices that are aimed at reducing the likelihood and severity of process-related incidents. the major pollutants likely to affect the environment at the projects currently under development include sulphur dioxide. including the site for the existing Vadinar refinery and the Refinery Expansion Projects. nitrogen oxide emissions. The Company has established procedures to oversee work safety and to determine safety measures and standards across all of the Company’s existing power plants and Power Plant Projects in accordance with the relevant safety laws and regulations in India and Canada. and each Power Plant Project once operational. integrated safety systems and emergency shutdown systems for smooth and safe stoppage in emergency and abnormal conditions. ISO 14001: 2004 and OHSAS 18001: 2007 certifications in September 2009. its own health. with particular emphasis on workplace monitoring of the facilities and reducing employee exposure to occupational health hazards.252 hectares of land acquired through direct purchases and grants by the Government of Gujarat. Of these 2. PROPERTY At Vadinar.Part 6 The Business While the Company takes precautions to avoid accidents and leakages. the Company owns approximately 2. The Company has also established a Health. Essar Power has ISO 14001 certification for its four operational power plants. see ‘‘Corporate Governance’’ in Part 8 ‘‘Directors. internal and external audits are conducted regularly to ensure the Company’s compliance with health. The Company has also established an occupational health centre at the Vadinar refinery and is currently providing health services to all employees and contractors. mock emergency response drills are carried out on a regular basis. Prior to the commencement of any power project. The Company’s Refinery Integrated Management System was implemented in June 2009 and received ISO 9001:2008. Senior Management and Corporate Governance’’. the Company has trained emergency response teams and equipment to deal with any emergency at the Vadinar refinery and the Company’s operating power plants.252 hectares of land. electrical machines and electronic control systems in accordance with international standards of industrial safety. to maintain effective waste prevention and reduction capabilities and to identify opportunities for improvement. the Company adopts fail-safe technology for all equipment.003 hectares to VOTL for the construction of its terminal facilities and approximately 65 hectares of this land to VPCL for its power facilities. an organisation recognised by many petroleum companies in India which sets safety standards in the petroleum industry. is intended to have. The Company expects to have available 24-hour. liquid effluents and noise generated during project operations. safety and environment department to ensure compliance with applicable health. The Company’s operational power plants have. spillages and any other incidents of pollution. Due to the nature of the Company’s oil and gas operations. In addition. Starting at the design and engineering stage of a power project. the Company has leased approximately 1. To gauge the performance of the emergency response team. the Company undertakes environmental impact assessment studies to international standards to determine the environmental impact of the construction and operation of the project at the selected site. and each of the Power Plant Projects once operational is intended to have. Safety and Environment Committee. 143 . safety and environmental standards. Generally. experienced and well-equipped fire fighting crews for all of the Company’s future power plants once they commence operations. safety and environmental protection norms. Power Each of the Company’s operating power plants has.

India. CORPORATE SOCIAL RESPONSIBILITY The Company’s corporate social responsibility programme focuses on taking care of its employees and enabling and enriching the communities located around its facilities. such as building and maintaining local infrastructure for the provision of electricity. 1 million (US$0. The Company has also entered into a lease agreement with Vadinar Properties. the construction of primary health centres and the provision of subsidised medical care. The Company provides disaster relief.02 million) for its oil and gas business. an Essar Affiliated Company. to lease transit accommodation and other assorted facilities for the use of visiting employees and guests. 202. Opp. 2. under certain classes of trademarks. for a refundable deposit of Rs.6 million and a monthly rent of Rs. In times of national environmental calamities. also in Jamnagar. In addition. the Company provides aid and assistance by way of donations as well as relief supplies.’’ LEGAL AND OTHER PROCEEDINGS For information about the Company’s legal and other proceedings. The Company also owns land. The Company entered into a rental agreement with Essar House. drinking water and community toilets. and supporting other community activities and events. such as ‘‘DDX’’. for its power business. together with approximately 73 residential flats in Jamnagar. 144 . to lease three floors of the Essar House building at 11. In addition. which has built a residential colony for employees involved in the construction of the Vadinar refinery and the Refinery Expansion Projects.8 of Part 16 ‘‘Additional Information—Material Contracts. creating self-help groups for village women and awareness programmes about AIDS and substance abuse. whose participation in such activities is actively encouraged by the Company. the Company has entered into three rental agreements with Essar House to lease three additional floors of the Essar House building for a period of 36 months from 1 January 2008.1 million) and a monthly rent of Rs. for an aggregate refundable deposit of Rs. Mahalaxmi Mumbai 400034 in April 2006 for a period of 11 months from 1 April 2006. For further information see Part 15 ‘‘Relationship with the Essar Group’’ and paragraph 13. ‘‘Essar Ace’’ and ‘‘Punch’’. INTELLECTUAL PROPERTY The Company has registered some of the brands under which it sells its refined petroleum products.04 million). The rental agreement has been extended until 31 March 2011. Keshavrao Khadye Marg. the provision of technical training programmes to teach local residents new job skills. see ‘‘Litigation’’ in Part 16 ‘‘Additional Information’’. certain members of the Group have been granted the right to use the ‘‘Essar’’ name for the purposes of their corporate identities and for operating their business worldwide. supports employee initiatives and undertakes focused development efforts for local communities. Race Course. Group employee initiatives include motivating employees to participate in and contribute to community activities. and Essar Affiliated Company. 240 million (US$5. The Company’s commitment to local communities is both an enterprise-level activity and a personal commitment for many of its employees. installing the infrastructure to support local primary schools.Part 6 The Business The Company also owns approximately 25 hectares of freehold land at Baid Village in Jamnagar District in the state of Gujarat which has been leased out to Vadinar Properties Limited (‘‘Vadinar Properties’’).1 million (US$0.

Electricity Act 2003 The Electricity Act is the main legislation relating to generation. is consumed by the captive user. distribution and trade of electricity are regulated activities which require licences from the appropriate electricity regulatory commission. No restriction is placed on the establishment of a captive power plant by any consumer or group of consumers for their own consumption. unless he is authorised to do so by a licence. determined on an annual basis. no separate licence is required for supply of electricity generated from the captive power plant to any licensee or the consumer. POWER The generation and transmission of power in India is governed by various rules and regulations described below. as defined under the Electricity Act. if two or more companies together own 26 percent or more of a power plant and consume. 145 . Under the Electricity Act. The Electricity Rules 2005 (the ‘‘Rules’’) lay down the conditions for a power plant to be categorised as a ‘‘captive power plant’’. regional and inter-regional generation and transmission of electricity. unless exempted by the appropriate government in accordance with the provisions of the Electricity Act. Generation Currently under Indian law. Generating companies are now permitted to sell electricity to any licensees and where permitted by the respective SERCs. wheeling of electricity and retail sale of electricity. economical and integrated transmission and supply of electricity with the Government of India and empowers it to designate regions of the country for this purpose. The Rules provide that no power plant qualifies as a captive power plant unless: • • not less than 26 percent of the ownership is held by the captive user(s). In addition. transmission. The Electricity Act was amended in 2007 to exempt captive power generation plants from licensing requirements for supply to any licensee or consumer. Licensing The Electricity Act stipulates that no person can transmit or distribute or undertake trading in electricity. more than 51 percent of the electricity generated by a power plant. also it will be considered a captive power plant. distribution. The Central Government also announced a National Electricity Policy in 2005. to consumers. Transmission The Electricity Act vests the responsibility of efficient.PART 7 REGULATORY OVERVIEW Set forth below is a brief overview of the laws and regulations governing the power and the oil and gas industries in India. and not less than 51 percent of the aggregate electricity generated in such plant. to guide the development of the electricity sector in India. state government and the techno-economic clearance from the CEA are required only for hydroelectric projects. Therefore. trading and use of electricity. transmission. the Central Government is required to facilitate voluntary inter-connections and coordination of facilities for inter-state. or otherwise exempt under the Electricity Act. any generating company can establish. in aggregate. transmission of electricity. Further. An appellate tribunal has been established to hear appeal against the decisions of the CERC and SERCs. established under the Electricity Regulatory Commissions Act 1998. The respective regulatory commissions determine the tariff for supply of electricity from a generating company to any distribution licensee. operate and maintain a generating station if it complies with the technical standards relating to connectivity with the transmission grid. Approvals from the central government.

Part 7 Regulatory Overview The transmission licensee is required to comply with technical standards of operation and maintenance of transmission lines specified by the CEA. the appropriate commission may. to prevent unfair competition. in case of shortage of supply of electricity. to ensure reasonable prices of electricity. Unregulated Rural Markets The licensing requirement does not apply where a person intends to generate and distribute electricity in rural areas as. central transmission utility and state transmission utilities. maintaining and operating an efficient transmission system. 146 . 2009 (the ‘‘Trading Licence Regulations’’) to regulate inter-state trading of electricity. distribution and supply through one licence. no licence is required for the purposes of supply of electricity. only fix the maximum tariff for retail sale of electricity. Trading The Electricity Act specifies trading in electricity as a licensed activity. a distribution licensee can undertake three activities: trading. providing that long-term customers and the medium-term customers shall have priority over short-term customers for use of the interstate transmission system. The Electricity Act mandates formulation of national policies governing rural electrification and local distribution and rural off-grid supply. However. wheeling of electricity. A CERC notification dated 16 February 2009. Under the Trading Licence Regulations. Terms and Conditions for grant of trading licence and other related matters) Regulations. A CERC notification dated 20 May 2009 amended the CERC (Open Access in Inter-State Transmission) Regulation 2008. provided that the appropriate commission may. Under the Electricity Act. transmission of electricity. fix the minimum and maximum tariffs for: • • • • sale or purchase of electricity under agreements between a generating company and a licensee or between licensees. for promoting competition among distribution licensees. and other transmission licensees are not allowed to trade in power. the appropriate electricity regulatory commissions are empowered to determine the tariff for supply of electricity by a generating company to a distribution licensee. The National and Regional Load Despatch Centres. Thus. provided that in case of distribution of electricity in the same area by two or more distribution licensees. for building. Tariff Principles The Electricity Act has introduced significant changes in terms of tariff principles applicable to the electricity industry. for a period not exceeding one year. the supplier is required to comply with the requirements of the CEA and system specifications for supply and transmission of electricity. and retail sale of electricity. any person who wishes to undertake inter-state trading in electricity is required to make an application to the CERC for the grant of a licence. The distribution licensee may engage in any other activities for optimal utilisation of its assets with prior permission of the appropriate commission. implemented the CERC (Procedure. specified by the state government. The relevant electricity regulatory commissions also have the right to fix a ceiling on trading margins in intra-state trading. Distribution and Retail Supply Under the Electricity Act. and to provide non-discriminatory open access to its transmission system for use by any licensee or generating company on payment of transmission charges and surcharge in accordance with the Electricity Act.

tariffs can be determined in two ways: (i) based on the principles prescribed by the CERC (cost-plus basis consisting of a capacity charge. an unscheduled interchange charge and incentive payments). However. MoU Route The MoU route with a cost plus approach initially adapted to attract investment. safeguarding consumer interests and ensuring recovery of the cost of electricity in a reasonable manner. The determination of the tariff for a particular power project depends on the mode of participation in the project.Part 7 Regulatory Overview The appropriate Electricity Regulatory Commission is required to observe the following principles in determining tariffs: • • • • • • • • • • the principles and methodologies specified by the CERC for determination of the tariff applicable to generating companies and licensees. the CEA no longer has power to determine capital cost for the projects and the requisite filings for approval of capital cost and tariff are with the regulatory commissions. The two modes of participating in power projects are either through the MoU route or the bidding route. efficiency. good performance and optimum investments. the promotion of co-generation and generation of electricity from renewable sources of energy. the nature of costs for independent power plants is very different from public sector power project 147 . the Electricity Act provides that the Electricity Regulatory Commission shall adopt such tariff as is determined through a transparent process of bidding in accordance with the guidelines issued by the Central Government. Unlike the CERC. The Electricity Act empowers the state regulatory commissions to specify tariff regulations from time to time as applicable for the respective states. generation. which becomes difficult to verify and monitor over the life of the PPA. tariffs are to progressively reflect the cost of supply of electricity. Modes of Participation in Power Projects The Government of India announced major policy reforms in October 1991 widening the scope of private sector participation in power generation. The Ministry of Power has issued Guidelines for Determination of Tariff by Bidding Process for Procurement of Power by Distribution Licensees 2005 (‘‘Bidding Guidelines’’) for competitively bid projects. Broadly. multi-year tariff principles. The state governments are also empowered under Electricity Act to grant a subsidy on the tariff specified by the respective state regulatory commissions. transmission. despite the capital cost of the project being frozen by the CEA. an energy charge. distribution and supply of electricity are to be conducted on commercial principles. However. the Electricity Regulatory Commissions have not been expressly permitted to depart from the tariff determining factors set out above. or (ii) competitive bidding route where the tariff is purely market based. tariffs are to progressively reduce and eliminate cross-subsidies as specified by the CERC. This cost-plus tariff mechanism is not ideally suited for competitive bidding. Under the Electricity Act. subject to certain conditions. economical use of resources. the factors which would encourage competition. as it would require bidding on every element of cost of generation. there were several complications in calculating the above costs. incorporation of principles which reward efficiency in performance. and the National Electricity Policy and Tariff Policy. at an adequate and improving level of efficiency. The initial batch of private sector power projects were therefore awarded generally on the basis of negotiation between the SEB and a single developer (‘‘MoU route’’). Further.

it would be impossible to design a competitive bidding process based on the cost-plus approach that is fair to both sides. marketing and the transportation of oil and gas. MoPNG of India issues guidelines related to petroleum and natural gas. a competitive bid route was envisaged. Pre-conditions for availing of benefits: Goods required for setting up of any mega power project qualify for the above fiscal benefits after the project has been certified such that: • • the power purchasing state has granted to the regulatory commissions full powers to fix tariffs. the Air (Prevention and Control of Pollution) Act 1981 and the Hazardous Waste (Management and Handling) Rules 1989. The Bidding Guidelines recommend bid evaluation on the basis of levelised tariff. in respect of discovered fields. technology and fuel is not specified by the procurers. MoPNG set up the Directorate General of Hydrocarbons in 1993. so as to elicit good investor response. the regulatory commission is required to adopt a bid-based tariff. in principle. Deemed Export Benefits: Deemed export benefits are available to domestic bidders for projects both under public and private sector on meeting certain requirements. an income-tax holiday under Section 80-IA of the Income Tax Act 1961 is also available. the generating company has the freedom to choose the site and the technology for the power plant). Environmental Regulations The Company’s power generation operations are required to comply with the provisions of the Environmental Protection Act 1986. stating that the Tariff Policy is merely indicative and not binding.000 MW or more supplying power to more than one state were classified as ‘‘mega power projects’’. The Tariff Policy 2006 requires that all procurement of power after 6 January 2006 (except for PPAs approved or submitted for approval before 6 January 2006 or projects whose financing has been tied up prior to 6 January 2006) by distribution licensees has to be through competitive bidding. and Case II bids.Part 7 Regulatory Overview costs and in the absence of complete knowledge of cost profile. where the location. some state regulators have continued to purchase power under the MoU route. refining. Bid Route Under the Electricity Act. although the Bidding Guidelines permit the bidding authority to reject all price bids received. (i. Policy for Setting up Mega Power Projects The Mega Power Policy was introduced by the Ministry of Power on 10 November 1995. The following concessions and goods benefits are available for mega power projects: Zero Customs Duty: The import of capital equipment is free of customs duty for these projects. relevant Forest Conservation Acts. The Company is required to obtain and maintain statutory clearances relating to pollution control and environment in relation to its power projects. whereby projects with capacity of 1. within a period to be fixed by the Ministry of Power. Income Tax benefits: In addition. However. In light of the same. ensuring 148 . determining the viability of undertaking commercial extraction of oil and gas resources and undertaking all activities associated with extracting the oil and gas from the reservoir (including marketing the oil and gas produced from the source to the relevant downstream purchasers). the Water (Prevention and Control of Pollution) Act 1974. and the power purchasing state undertakes. as amended from time to time. to privatise distribution in all cities in that state having a population of more than one million. OIL AND GAS Oil and gas exploration and production activities in India are subject to extensive government regulations.e. where the projects are location specific and fuel specific. including exploration and production. The Bidding Guidelines envisages two types of bids: Case I bids. whose main functions include. These regulations govern exploration for oil and gas reserves.

The Directorate General of Hydrocarbons (i) monitors upstream petroleum operations in India. The Government of India has the right to order a royalty to be paid in natural gas obtained instead of 149 . the conservation and development of mineral oils. which provides for the regulation of oilfields and for the development of mineral oil resources. making merchantable. Under the Oilfields Act. Oilfields (Regulation and Development) Act. granting a petroleum exploration or prospecting licence. which provides financial and other assistance for the conducive development of the oil industry. a ‘‘mining lease’’ is defined as a lease for the purpose of searching for. Under the Oilfields Act. The P&NG Rules prohibit the prospecting or exploitation of any oil or gas unless a licence or lease has been granted thereunder. Under the Oilfields Act. reservoir evaluations and advising on mid-course corrections and. The term of a PEL is for a period of four years. including natural gas and petroleum. which develops standards for safety. (iii) reviews the management of petroleum reservoirs by a licensee or a lessee. (vii) exercises the powers of the Government of India. However. quarried. working. for onshore areas. they may also contain additional terms and conditions agreed between the licensee or the lessee and the Government of India. Upon grant of the PML. (vi) lays down norms for the declaration or announcement of discoveries by a licensee or a lessee. the Government of India framed the Petroleum and Natural Gas Rules. A PML gives the lessee an exclusive right to extract oil and gas from the relevant contract area. the Directorate General of Hydrocarbons is required to discharge its duties in accordance with. training programmes and information dissemination. Where the Government of India has executed a PSC. and (viii) monitors oil and gas production and the payment of royalties or any other charges. partially refined oil and any of the products of petroleum in a liquid or solid state. fees or levies due to the Government of India. (iv) asks for and maintains all geo-scientific data. carrying away or disposing of mineral oils. whichever is higher. and the area covered by it should ordinarily be 250 km2. in respect of the exploration blocks.Part 7 Regulatory Overview optimum exploitation. The term of a PML is generally 20 years. and ‘‘mineral oils’’ are defined to include natural gas and petroleum. is to be or is being carried on. (ii) reviews and monitors the exploration programme and development plans for commercial discoveries of hydrocarbon reserves proposed by licensees or lessees. the lessee has to pay either the prescribed rental or the royalty. renewable twice for a period of one year. ‘‘Oilfields’’ are defined as areas where any operation. The Oilfields Act also provides for payment of royalties in respect of any mineral oil mined. fire fighting. PELs and PMLs are granted by the MoPNG for offshore areas and by the relevant state governments. While the rental is payable based on the area of the land leased. 1948 (the ‘‘Oilfields Act’’) Oil and natural gas exploration activities are governed by the Oilfields Act. such PSC. Other bodies under the control of the MoPNG include the Oil Industry Safety Directorate. and in a manner consistent with. Petroleum Exploration Licence (‘‘PEL’’) and Petroleum Mining Lease (‘‘PML’’) under the Petroleum and Natural Gas Rules. and the Oil Industry Development Board. in relation to the concerned lease. Companies must also comply with safety regulations prescribed by the Director General of Mines and Safety in respect of onshore petroleum mining installations. with the prior approval of the Government of India. getting. The safety standards prescribed by the Oil Industry Safety Directorate apply to oil companies. reports and information from a licensee or a lessee. the production of oil and regulation of oilfields. the Government of India is empowered to frame rules with respect to regulating the granting of mining leases. winning. excavated or collected from the leased area. A PEL or a PML must contain the terms and conditions specified in the P&NG Rules. (v) reviews the reserves discovered by the licensee or lessee in accordance with generally accepted international petroleum industry practices. refined oil. the royalty is the amount that is generally payable as a percentage of the value at well head of the natural gas obtained by the lessee. 1959. reviewing and approving development plans. prohibiting the grant of such leases. for the purpose of obtaining natural gas and petroleum. and conducts periodic safety audits of all petroleum-handling facilities. 1959 (the ‘‘P&NG Rules’’) The P&NG Rules provide the framework for the granting of PELs and PMLs. work programmes. the Directorate General of Hydrocarbons has been designated as the authority or agency to exercise the powers and functions of the Government of India with a view to promoting sound management of the hydrocarbon resources in India. budgets. Pursuant to its powers under the Oilfields Act. crude oil. appraising work programmes and monitoring exploration activities.

1976 This act regulates the exploration and production of oil and petroleum in offshore areas and provides for the grant of a licence by the Government of India to explore and exploit the resources of the continental shelf and the exclusive economic zone. geochemical. in the event of a national emergency in respect of petroleum. The Mines Act 1952 This act regulates the law relating to the regulation of labour and safety in mines. If an accident were to occur in a mine. Under the Oilfield Act. 1955 This act contains provisions controlling the production. after deducting the expenses of collection. The Central Government may pay to the board from time to time. the right of pre-emption in relation to the natural gas extracted from the area under a lease. at fair market price prevailing at the time of the pre-emption. cuttings and production data as well as all interpretive and derivative data.Part 7 Regulatory Overview money. restrict the amount of petroleum or natural gas that may be produced by a lessee in a particular field. magnetic tapes. which is produced in India. in the interests of conservation of mineral oils (which include natural gas). agent or manager of the mine is required to give notice of the occurrence to the relevant appointed body. The act also provides for levy and collection of duty of excise on specific items specified in the act including crude oil. provided that the licensee or lessee shall have the right to make use of such data. Continental Shelf. cores. In the case of crude oil. such sums of money as it may think fit for being utilised exclusively for the purposes of this act. for the purposes of petroleum operations under the licence or lease. analysis. by notification in the Official Gazette. geophysical. The Government of India. free of cost. reports. Exclusive Economic Zone and other Maritime Zones Act. The purpose of the board is to render financial and other assistance for the promotion of all such measures conducive to the development of oil industry. and the Air (Prevention and Control of Pollution) Act 1981 provide for the prevention. The Essential Commodities Act. the Government of India may. The proceeds of the duty levied under the act is initially credited to the Consolidated Fund of India. The levy is set at such rate as the Central Government may. The Oil Industry Development Act 1974 This act provides for the establishment of a board for the development of the oil industry. interpretations and evaluations prepared in respect of petroleum operations. supply and distribution of certain essential commodities. the licensee or lessee is under an obligation to provide to the Government of India or its designated agency all data obtained or to be obtained as a result of petroleum operations under the licence or lease. which includes natural gas. well logs. Environmental Regulations The Environmental Protection Act 1986. including. control and abatement 150 . The Territorial Waters. Such data is the property of the Government of India. during the period of such an emergency. The Government of India has the right to disclose to the public all non-proprietary data without the consent of the licensee or lessee and all proprietary data with the consent of the licensee or lessee. the levy of a royalty is permitted up to 20% of the sale price of the mineral oil. Further. the duty is payable on the quantity received in a refinery. including geological. The Government of India is the sole authority to determine what is proprietary and what is not. petrophysical and engineering data. from out of such proceeds. the owner. maps. The Central Government may order for a formal inquiry into the causes of and circumstances leading to the accident and appoint a competent person to hold such inquiry. including petroleum and petroleum products including natural gas. has. This levy is payable by the person by the producer of a specified item. specify. under the P&NG Rules. the Water (Prevention and Control of Pollution) Act 1974. Further.

as amended from time to time. a draft of which is part of NELP documents provided by the Government of India. The salient features of NELP are as follows: General terms • • • • fiscal stability provisions in the PSC. sharing of profit petroleum based on investment multiple achieved by the operator. no customs duty on imports required for petroleum operations. In addition. define ‘‘waste oils and emulsions’’ as one of the hazardous wastes and impose an obligation on each occupier and operator of any facility generating hazardous waste to dispose of such hazardous wastes properly and without any adverse effects. and royalty for offshore areas payable at the rate of 10% for both crude oil and natural gas. Each occupier and operator of any facility generating hazardous waste is required to obtain an approval from the relevant state Pollution Control Board for collecting. Pollution control boards have been established in states in India to exercise the powers under these statutes for the purpose of preventing and controlling pollution. no minimum expenditure commitment during the exploration period. royalty for onshore areas payable at the rate of 12. Companies must obtain the prior clearance of the relevant state pollution control board for emissions and discharge of effluent into the environment. 151 . treatment and storage of hazardous wastes.Part 7 Regulatory Overview of pollution. and royalty for discoveries in deep water areas beyond 400m isobath chargeable at half the applicable rate for offshore areas for the first seven years of commercial production. The successful bidder must enter into a PSC with the Government of India. and possibility of the use of seismic data in the first phase of the exploration period. biddable cost recovery limit up to 100%. petroleum tax guide to facilitate investments. India is a signatory to the International Convention on Civil Liability for Oil Pollution Damage 1992 and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1992. licences are offered under NELP. New Exploration Licensing Policy To encourage investment in the oil and gas sector. issued under the Environmental (Protection) Act 1986. freedom for the operator to market oil and gas in the domestic market. These Conventions govern liability for pollution damage caused by ships. storing and treating and disposing of the hazardous waste. discovery or production bonuses. The Hazardous Waste (Management and Handling) Rules 1989. option to amortise exploration and drilling expenditures over a period of ten years from first commercial production. wherever such escape or discharge occurs. NELP was formulated by the Government of India in 1997-98 to provide a level playing field in which all parties may compete on equal terms for the award of exploration acreage. finalisation of a contract on the basis of a model PSC. the Merchant Shipping Act 1958 provides for liability in respect of loss or damage caused outside the ship by contamination resulting from the escape or discharge of oil from the ship. no mandatory state participation by national oil companies and no mandatory carried interest in their favour. and also impose obligations in respect of the collection.5% for crude oil and 10% for natural gas. Fiscal and contractual terms • • • • • • • • • • no payment of signature.

marketing and sale of petroleum. distribution. pipelines or terminals. This law is limited to the acquisition procedure. The Petroleum and Natural Gas Regulatory Board Act 2006 The Petroleum and Natural Gas Regulatory Board Act 2006 provides for the establishment of the Petroleum and Natural Gas Regulatory Board to regulate the refining. announced by the Government of India in December 2002. store or transport petroleum except in accordance with the rules framed by the Government of India under the Petroleum Act 1934. storage. petroleum products and natural gas (excluding production of crude oil and natural gas) so as to protect the interests of consumers and entities engaged in specific activities relating to petroleum. 1996. Pursuant to the policy. maintaining an information database and administering government subsidies in the petroleum industry. Companies laying new pipelines are required to provide at least 25% extra capacity beyond that needed by themselves and their interested companies for other users. provisions for assignment. Petroleum Pipeline Guidelines The Petroleum Product Pipeline Policy. and operates directly and through organisations under its administrative control. to market transportation fuels. which is responsible for analysing market and price trends. blend. The Petroleum Rules 2002 now regulate these activities. Dealers are selected by the oil marketing companies themselves pursuant to their own internal guidelines.45 million) in exploration. These include 152 . any company that intends to lay a pipeline originating from a port or a pipeline exceeding 300 km in length and originating from a refinery must publish its intention and allow other interested companies to take capacity in the pipeline on a ‘‘take or pay’’ or other mutually agreed basis. The Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act 1962 This provides the framework governing the acquisition of rights of a user in land for laying pipelines for the transportation of petroleum and minerals and other matters connected therewith. 20 billion (US$428. refine. transportation. processing.Part 7 • • • Regulatory Overview income tax holiday for seven years from the start of commercial production. The Petroleum Act 1934 and the Petroleum Rules 2002 The Petroleum Act 1934 provides that no person shall produce. The Government of India through a Gazette Notification dated 8 March 2002 authorised companies investing or proposing to invest at least Rs. a variety of local regulatory approvals are required for the commissioning of a retail outlet. including the Petroleum Planning and Analysis Cell. Regulation of Refining and Marketing of Refined Petroleum Products MoPNG issues guidelines in respect of the refining and marketing of petroleum products. provides a mechanism for laying pipelines in India on the basis of a ‘‘common carrier’’ principle. Other Approvals Essar Oil needs to obtain certain approvals from various Central and State Ministries. petroleum products and natural gas in all parts of the country and to promote competitive markets. Apart from relevant marketing rights. restrictions on use of land and compensation payable to the persons interested in the land. agencies and regulators in connection with the existing refinery and Refinery Expansion Projects. refining. production. Retail Marketing Oil marketing companies can freely commission new retail outlets at locations of their choice based on the Government of India guidelines. and dispute resolution in accordance with the Indian Arbitration and Conciliation Act. petroleum products and natural gas and to ensure uninterrupted and adequate supplies of petroleum.

Director of Industrial Safety & HealthGovernment of Gujarat. Director of Boiler-Government of Gujarat. he is required to do so only on the basis of arms-length transactions between non-affiliates. from projects which reduce emissions in developing nations under the clean development mechanism. by a notice dated 6 March 2007.Part 7 Regulatory Overview approvals and licences required for the refinery sites from the GPCB. Ministry of Environment and Forests. These can be bought either from financial exchanges. which are directly or indirectly controlled by the Government of India. each long-term crude oil or natural gas supply contract has a price review clause every 5 years. For this purpose. governments have been separated into developed nations (who have accepted green house gases emission reduction obligations) and developing nations (who have no green house gases emission reduction obligations). Pricing As per the model production sharing contract provided by the Government of India under NELP (‘‘Model PSC’’). parties may either determine the sales price of crude oil or natural gas through a competitive bidding process or may negotiate sales price of crude oil or natural gas. prior to sale of crude oil or natural gas to buyers. subject to the Government of India approval of the formula or basis on which such prices were determined. refinery prices cannot be said to be currently based on competitive pricing parameters. 153 . the Indian domestic market has the first call on production of gas. and necessary licence for concessional rate of custom duty from the Director General of Foreign Trade under the Ministry of Commerce. the pricing of most refined petroleum products is influenced by market factors but subject to limited freedom to revise prices within a moving price band. Chief Controller of Explosives. has directed that uniform pool prices shall be charged on supply of re-gasified liquid natural gas to all customers under all long term contracts. the joint implementation scheme or from developed nations with excess allowances. Kyoto protocol and carbon credits Under the Kyoto Protocol. Typically. the Government of India may take into consideration any prevailing pricing policy or any linkages with traded liquid fuels. The protocol includes ‘‘flexible mechanisms’’ which allow developed nations to meet their green house gases emission limitation by purchasing green house gases emission reductions from elsewhere. The Government of India. on a non-discriminatory basis. In terms of the Model PSC. Due to the market domination of large national oil companies. Currently in India. Although the contractor is free to sell gas within India. Gujarat Maritime Board.

. . . . . . . Previously. . Mr Ruia has been involved with the Group’s operations and management since 1985. . . . positions and ages of the Directors of Essar Energy plc: Name Age Position Date appointed Ravi Ruia . . . . . . . . . CEO Mr Nayyar is Chief Executive Officer of Essar Energy as well as the managing director and CEO of Essar Oil. . . . . . . . SENIOR MANAGEMENT AND CORPORATE GOVERNANCE Directors The following table lists the names. . . . . Sattar Hajee Abdoula . . . . .PART 8 DIRECTORS. . . Prashant Ruia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr Nayyar was also 154 . . . Mr Nayyar was director of planning and business development at Indian Oil Corporation Limited from October 2002 to November 2005. . He has been responsible for driving the adoption of best practice corporate governance and health. . . . Naresh Nayyar. The management expertise and experience of each of the Directors are set out below: Ravi Ruia. . . . . . . He was also a member of the prime minister of India’s advisory council on trade and industry in 2007. . . . . . . . Philip Aiken . . and is actively involved in the Group’s growth and diversification both within India and internationally. . . . . . . He has participated in the growth and diversification of the Essar Group into its various businesses. . . . . Simon Murray . . . Mr Ruia is also a director of Essar Steel Holdings Ltd. . . . Mr Ruia was instrumental in structuring the Vodafone and Essar Partnership. commissioning the Vadinar Refinery in record time. Mr Nayyar joined Essar Oil in October 2007. . . . . and was recently appointed to the audit committee of the World Steel Association. . . . . . . . . . . . . . . Mr Nayyar was the CEO of ONGC Mittal Energy Limited (a joint venture between Oil & Natural Gas Corporation Limited and Mittal Investments) from November 2005 to September 2007. . Africa and North America. . . . . . Port Louis. . Naresh Nayyar . . . . . . . . . Shashi Ruia. . . . . . . . . . and in growing the Essar Group to a premier position and expanding the Essar footprint within India as well as operations in other markets such as South East Asia. . . . Lallah . . . . . . . . . . 60 yrs 40 yrs 58 yrs 50 yrs 61 yrs 64 yrs 70 yrs Chairman Vice-Chairman CEO NED NED NED NED 6 April 2010 6 April 2010 6 April 2010 6 April 2010 6 April 2010 6 April 2010 6 April 2010 The business address of each of the Directors is the DCDM Building. . Mr Ravi Ruia is recognised as one of Indian industry’s leading members who led the private sector’s contribution to the economy by setting up projects in key sectors. . . . . . 10 Frere Felix de Valois Street. . . Chairman Mr Ruia. . . . . . . . He began his career in the family business and has worked together ever since with his elder brother. . . . . . . Vice-Chairman Mr Prashant Ruia. He is fundamental to the Essar Group strategy. . . . Mr Ruia is a member of the Energy Boardroom at the World Economic Forum. . . . . and involved in the acquisition of Algoma Steel in Canada. . . . safety and environmental practices within the Essar Group. . Mr Ruia holds several key positions on various regulatory and professional boards. . Mauritius. is Vice-Chairman of Essar Energy and chief executive of Essar Group. . . Prior to joining Essar Oil. . . . . . . . . . . . . . . . Born in 1969. . . . . . . . . . . a non-resident Indian is the Chairman of Essar Energy and Vice-Chairman of Essar Group. . . a non-resident Indian. . . Mr Ruia is an engineer by training and is involved in the strategy and direction of the Essar Group in order to take full benefits of the emerging opportunities in India. . . . . . . . . . where he had worked since 1975. . . . . . . Prashant Ruia. Subhash C. Mr Ruia is the Chairman of Vodafone Essar and a member of the World President’s Organisation. .

Since 1999 he has been specialising in transaction services and advising clients in various sectors including. Rothschild. Mr Lallah read law and political science and was called to the UK Bar in 1970 and the Mauritius Bar in 1971. and Hong Kong Electric. non-executive director Mr Hajee Abdoula is an independent director on the Board of the Company. Simon Murray. Deutsche Bank Group. Subhash C Lallah. He has over 35 years 155 . Previously. Mr Hajee Abdoula has significant experience in global business (offshore) where he has been advising on structures and tax issues. After 10 years at Hutchison. non-executive director Mr Murray has joined Essar Energy as a Non-Executive Director.M. and Richemont SA. USI Holdings Ltd. Mr Hajee Abdoula is also the lead partner for litigation support. insolvency and global business. He has over 30 years experience in accounting.. Senior Independent Director of Kazakhmys plc and a Non Executive Director of National Grid plc and Miclyn Express Offshore. which include Vodafone Group plc.Part 8 Directors. Sattar Hajee Abdoula. In 1984 Mr Murray became the group managing director of Hutchison Whampoa. Mr Lallah was a member of parliament of the Republic of Mauritius between 1982 to 1995 and was also a deputy chief whip and deputy speaker of the national assembly. China’s first international launching of a satellite. Currently. Mr Hajee Abdoula is a lead advisor to the Government of Ghana in setting up the Ghana International Financial Services Centre. Mauritian Eagle Leasing Co Ltd and Deutsche Bank Offshore Mauritius Ltd.. (USA). Mr Murray is also a director of a number of public companies.. Mr Hajee Abdoula qualified as a Chartered Accountant (ICAEW) in 1985 and became a fellow of the Institute in 1995. Bain (the consultancy company). non-executive director Mr Lallah is an independent director on the Board of Essar Energy. Petronet LNG and IBP. He is a former member of the board of governors of the Mauritius Broadcasting Corporation and he has acted as chairman of the National Transport Corporation and appeared as chairman and counsel in a number of enquiries. Arnhold Holdings Ltd. He was instrumental in the launching of AsiaSat. Cross Harbour Tunnel Company. Mr Murray is also a member of the advisory board of both China National Offshore Oil Corporation and of Imperial College London. He has been the transaction services partner of Grant Thornton in Mauritius since its launch in 1999. Hong Kong Aircraft & Engineering Corporation.. banking. where he stayed for the next 10 years. audit and consultancy. He was also chairman of the Sheraton and Hilton Hotels between 1985 and 1993. and N. He has represented domestic and international companies in arbitration and has a legal career that spans 40 years. Mr Lallah sits as independent director on the boards of many international funds. Philip Aiken. He sits as an independent member on the board of two non-bank financial institutions in Mauritius and is also the chairman of the Audit Committee. on the board of which he served as chairman between 1989 and 1993. Mr Murray became the executive chairman of Asia/Pacific. He is currently an advisor to Macquarie Bank. Mr Murray served on the boards of a number of Hong Kong public companies including South China Morning Post. Mr Hajee Abdoula is actively involved in providing support to Grant Thornton offices in African countries. He was also the chairman of the Indian Oil Marubeni Panipat Power Project from March 2003 to November 2005. Mr Murray has served as a member of the International Advisory Board of General Electric Co. His independent directorships include Mauritian Eagle Insurance Company Ltd. non-executive director Philip Aiken is currently Chairman of Robert Walters plc. Cheung Kong Holdings Ltd. Orient Overseas (International) Ltd. between 1975 and 1993. Senior Management and Corporate Governance chairman of Lanka IOC Limited from October 2002 to November 2005 and a member of the boards of Oil & Natural Gas Corporation Limited. financial services.

. . . . In addition. 47 yrs 44 yrs CFO Head of Investor Relations and Communications Gerry Bacon. Mr Lidiard was previously group communications director at Lloyds TSB from 2008 to 2009. . He is also a Chartered Accountant. . Mr Bacon was the President of the Association of Corporate Treasurers until April 2010 and has NED positions at a Maltese insurance group and an autistic charity. Mr Bacon was Group Treasurer for Vodafone from 1993 to 2009 and Chief Financial Officer at one of its operating subsidiaries from 2004 to 2009. . . . . is a fellow of the Association of Corporate Treasurers and is an Associate Fellow of Oxford Said Business School and holds a degree in Mathematics. Senior Management and Corporate Governance experience in industry and commerce having previously from 1997 to 2006 been Group President Energy and President Petroleum of BHP Billiton. . . he worked for Kingfisher. Senior Management Teams The Company’s current senior management. . . He has a post graduate certificate in business management from Thames Valley University and a degree in Physics with Geology from Southampton University. . . . . vice president of investor relations and communications at BHP Billiton from 2002 to 2007 and head of investor relations at Powergen Plc from 2000 to 2002. . . . . Essar Energy intends to appoint a fifth independent non-executive Board member and is currently in the process of identifying suitable candidates.Part 8 Directors. . . From 1997 to 2000. The Company’s Corporate Senior Management team is as follows: Name Age Position Gerry Bacon . . is as follows: The following tables list the names. . . . . Head of Investor Relations and Communications Mr Lidiard is currently employed as a consultant to the company and will take up full time employment with Essar Energy on Admission. . positions and ages of the Senior Management teams for the Company’s power business and oil and gas business. Mark Lidiard . . holds an MBA from Cranfield School of Management. . . 156 . It is intended that the fifth non-executive director has appropriate UK market experience. Mark Lidiard. in addition to the Executive Directors listed above. World Energy Council and Monash Mt Eliza Business School. Merrill Lynch and Stoy Hayward. . Prior to that he held senior positions with BTR (1995-1997) and The BOC Group (1970-1995). . both in the UK and Australia. CFO Mr Bacon has been employed as a consultant in the role of interim Chief Financial Officer designate from January 2010 and was appointed as CFO in April 2010. . . . . . was Chairman of the 2004 Sydney World Energy Congress and served on the Boards of Governor of Guangdong International Consultative Council. Mr Lidiard was assistant group treasurer and head of project finance at Powergen which included responsibility for power project financings in India. . . . Previously. He has also been a Senior Advisor for Macquarie Capital (Europe). . . . .

Mr Shrivastava is also currently responsible for developing the new businesses and projects. Bhatt .T Bhopal with more than 25 years of experience in the power industry. . . . . . .K. . . . . Mr Reddy is also responsible for formulating and directing the overall business strategy of the power business group and project execution. . . . . . including NTPC. pharmaceuticals. Shubh Shrivastava . . Gupta . He has experience in the construction of large thermal. . T. . .P. . His extensive experience covers a wide range of industries including power. . . . . . . . . Essar Power Mr Shrivastava has more than 27 years experience in the power and oil and gas industry. Aditya Birla Group. budgeting and corporate secretarial functions of the entire power business. Enron/Dabhol Power Company and Shell Gas and Power. Currently. . . Prior to joining Essar Power. . . . . . . steel. . . . . . . . . . . Executive Director. . materials. In addition to being executive director of Essar Power. . construction and consumer markets. . . . . R. . . . . . . . . . . Jamnagar in Gujarat. . . Essar Power-Hazira Group Head Development and Regulatory. . . . . Essar Power CFO Essar Power CEO.I. Sterlite and LNT Bilwara Group. . financial accounts and budgeting. . . . CFO. . . Head Development and Regulatory. . . . . . . Auraiya and Kawas. . . . . . .S. . . . . . . . of the power business group. . Department of Atomic Energy. . 49 yrs 54 yrs 52 yrs 63 yrs 72 yrs 61 yrs 66 yrs 55 yrs Executive Director. . . 600 157 . . . . . . V. . . . . . . CEO. R. . . . Essar Power Jharkhand-Tori MD. . . . . . Senior Management and Corporate Governance The Company’s Senior Management team of the power business is as follows: Name Age Position K V B Reddy . . . .C. Narayan . .Part 8 Directors. Shubh Shrivastava. . as well as the commercial and regulatory functions. . Singh . . . . Essar Power Group Mr Reddy is a graduate in mechanical engineering from N. . .P. . . . He has previously worked for the National Thermal Power Corporation where he gained in-depth experience in the areas of project planning. .P. media. AK Singh . . . . . . .C. . oil and gas. . . . . . V Suresh. . . . Essar Power Gujarat-Salaya and Vadinar Power-Jamnagar Mr Singh has more than 38 years of experience in the power sector. . . . financial accounts. . Essar Power Gujarat-Salaya and Vadinar Power-Jamnagar Head of Transmission CEO. . . . . . . . . . . . . . Singh. . . . During this time he set up three gas-based combined cycle power projects at Anta. Mr Suresh was chief financial officer of Essar Oil and was responsible for project and corporate finance. . . . Mr Suresh joined the Essar Group in 2002. . . . commercial and erection and commissioning. . . . . . Mr Singh is presently designated as chief executive officer for implementation of the Company’s 2 MW imported coal-based power plant near Salaya. B. . hydro and nuclear power plants within both the public and private sectors. Essar Power Mr Suresh is a chartered accountant and company secretary and has more than 25 years of experience in investment banking and management consultancy. He has been involved with the Company’s power business since 1995. Essar Power MP-Mahan CEO. . . . Bhander Power-Hazira K V B Reddy. Mr Suresh is chief financial officer of the power business group and is in overall charge of the corporate and project finance. . . . . B. . During this time he has gained experience working for a number of industry players including NTPC. . . . . Suresh . . .

. . He is also a council member of the Indian Institute of Metals. a Fellow of All India Management Association and a Fellow of Indian Council Of Arbitration. HRD. . . Refining Head. . . . Madhya Pradesh. . . .260 MW Vindhyachal Super Thermal Power Project. . . . . . . Oil and Gas Executive Director. The Company’s Senior Management team of the oil and gas business is as follows: Name Age Position C. at present. Bhatt is currently in charge of the maintenance and operations of the both the power plants at Hazira. . Mr Singh is a Fellow of Institution of Engineers. Khairahi and Karsua village. . . . . . He is. . . . Senior Management and Corporate Governance R. . . . Besides the above Mr Narayan was also on the Board of NTPC. . . . corporate planning and marketing. Narayan. . He played a key role in improving MTI. Krishnamurthy Govindarajan . CEO. MD. . . He graduated in Electrical Engineering in 1965 from Jadavpur University and joined Rourkela Steel Plant. . After 25 years of experience in various departments in Rourkela and Bokaro. . . . He has attended several higher management programmes in IIMs. . .S. . . . Sampath . . . . . . . . Shishir Agarwal . Ranchi. . Ashwini Kumar Singh. . He has held many senior level positions. . ASCI Hyderabad and MTI Ranchi. Essar Power MP-Mahan Mr Gupta has more than 36 years of experience in power projects in both the public and private sector. including chairman and managing director of U P Power Corporation Ltd. . Bandhaura. Mr Gupta has been associated with Essar since June 2007. .Part 8 Directors. . . . . Iftikhar Nasir . general manager and chief executive of Delhi Electric Supply Undertaking and president of the International Association of Electricity. Transmission and Distribution (Afro-Asian). Singrauli. . . R. . . . Narendra Vachharajani . Member of (Thermal) Central Electricity Authority. . . training.K. . Thangapandian . . S. the largest power station in India. chairman of Damodar Valley Corporation. . . . . . T. erection and commissioning of large sized power plants. . . . . . . CEO. the Management College of SAIL. . SAIL at Bokaro Steel Plants etc. Refinery Expansion Head. . . . P. Mr. . . designated as Chief Executive Officer for implementation of the Company’s 2x600 MW coal-fired pit-head thermal power plant near the Mahan coal block. Manoharan . Exploration and Production Head. . Dist. engineering. Operations and IST 158 . a Fellow of National HRD Network. . . Gupta. Mr Bhatt was with the National Thermal Power Corporation where he was involved in the designing. . Marketing CFO. Essar Power Jharkhand-Tori Mr Singh is presently resident director of Essar Steel Ltd. . . . . HSL in the same year. . . . . . to the level of an ISO-9001 institute. chairman and managing director of Power Grid Corporation of India. . . . . . e sectors. . . Mr Singh has had extensive management experience in many areas such as: manufacturing. . . . . . including NTPC. . in 1993 he took leadership of the HRD function at SAIL as an additional director. . Generation. . .P. . . . . . . Head of Transmission Mr Narayan has had extensive experience in the field of power. . . Strategy and Business Development Head. . NLC and GRIDCO—ORISSA among others. . . . . . He has also been Head of the 3. . . . . . . Bhander Power-Hazira Prior to joining Essar in 1997. Bhatt. . . . He later also worked in the Bokaro Steel Plant in various capacities in various areas. . 56 yrs 54 yrs 48 yrs 54 yrs 44 yrs 59 yrs 58 yrs Head. .

Prior to joining the Essar Group.. Mr Agrawal’s responsibilities at Essar include managing the commercial operations of the Group and its exploration and production business. He also progressed to the position of managing director of GHCL Ltd where he worked for 18 years. CFO Oil and Gas Mr Sampath joined Essar in 2008. Manoharan is head of refining at Essar Oil. He joined Essar in 2004 and is currently the chief executive officer of marketing with the energy business group. commercial and business development) across the Middle East. Mr Manoharan had enjoyed a long and illustrious career with Indian Oil Corporation Limited from 1977 to 2008. corporate business planning. Agrawal is a certified chartered accountant from the Institute of Chartered Accountants of India and has also passed the Company Secretary’s examination from the Institute of Company Secretaries of India. Head of Marketing Mr Thangapandian has over 28 years of experience and has successfully set up and introduced companies. Strategy and Business Development Mr Nasir joined Essar in 2008. Mr Manoharan is in charge of technical. A graduate in chemical engineering. Shishir Agrawal. S. investor relations. managing non-technical risks for 159 . Mr Thangapandian has also been involved in setting up operating teams for companies in India as well as abroad. Mr Agrawal was employed by Estrella Batteries as a full-time director. Head of Refining Directors. Maintenance and Technical Services and was closely involved in revamping. Thangapandian. Total Finaelf and Reliance Petroleum Limited. Mr Thangapandian has done his BSc. Prior to joining Essar Mr Thangapandian was executive director of retail at National Oil and Chemical Marketing Co. and the construction and commissioning of various process units and other facilities. Nigeria where he was in charge of the overall operations of 250 outlets. He is the director of finance of Essar Oil and chief financial officer of oil and gas. He is executive director of strategy and business development for Essar Oil. During this period. Mr Manoharan also briefly worked for the Oman Refineries and Petrochemicals Company in 2008. debottlenecking. He has worked extensively with organisations such as HPCL. he led the operations and new projects of the Panipat Refinery between 2006 and 2008. Mr Sampath holds a Bachelor of Commerce from Madras University and a Fellow member of the Institute of Cost and Works Accountants of India and the Institute of Company Secretaries of India. from Madurai Kamraj University. Mr Nasir has over 20 years of industry experience and has previously worked for BP plc. Iftikhar Nasir. Executive Director. mergers and acquisitions. Mr. Mr Sampath has over 30 years of experience in the many fields including global corporate finance and treasury. C.Part 8 C. Nasir’s recent assignments include taking responsibility for BP’s exploration and production activities (strategy. Senior Management and Corporate Governance Mr. He joined the Essar Group in May 2008. Petrofina. As an Executive Director of IOCL. Head of Exploration and Production Mr Agrawal is CEO of exploration and production. Gulf Oil India Limited. During his time with BP Mr Nasir led a range of business activities across the energy value chain from exploration and production to petrochemicals. Manoharan. Mr Sampath held a senior position as management board member and group chief financial officer of RPG Enterprise Ltd. He joined the Essar Group in May 1986. brands and products into the Indian market. global HR strategy and financial and management accounting. Mr. P. Prior to joining the Essar Group. Prior to joining Essar. production and marketing functions associated with refinery management and is also responsible for the smooth and safe commissioning of all of the process units and other facilities related to refinery expansion and management. London where he was the vice president of group business development. he handled a variety of key assignments in Refinery Operations. Sampath.

Prior to joining Essar. The Combined Code recommends that at least half the board of directors of a UK listed company. should comprise non-executive directors determined by the board to be independent in character and judgement and free from relationships or circumstances which may affect. Para Xylene and PTA. Russian and Caspian regions and more recently. In addition. He is the chief executive officer of the Refinery Expansion Projects. Senior Management and Corporate Governance the African. operations. Mr Vachharajani worked with IPCL for over 18 yeas. Essar Energy intends to appoint a fifth independent non-executive Board member and is currently in the process of identifying suitable candidates. Indian Petrochemicals Corporation Limited (IPCL) Calico Mills. However. the CEO of Essar Energy plc and four independent non-executive directors. Narendra Vachharajani. in view of the Chairman’s extensive involvement with Essar Oil and Essar Power over a period of many years. The Board considers that the Company complies with the requirements of the Combined Code in this regard. Head of Operations and IST Mr Vachharajani joined Essar in 1996. The Board will initially consist of the Chairman. Mr Vachharajani graduated in Chemistry and took his post graduate diploma in marketing management. Mr Govindarajan was also responsible for initiating the strategy for the marketing of Polymers. the Vice Chairman. Prior to Joining Essar. During this time Mr Govindarajan was involved in the implementation of IOC’s petrochemicals master plan strategy which included the marketing of petrochemical products such as LAB. Head of Refinery Expansion Mr Govindarajan joined Essar 2008. Mr Govindarajan also has considerable experience in the area of LNG/gas marketing as well as refinery planning and coordination. Krishnamurthy Govindarajan. Mr Nasir is a graduate of the Royal Society of Chemistry. Government of India. Mr Govindarajan was an executive director of petrochemicals with Indian Oil Corporation Ltd. marketing and business development. at Vadodara. Mr Govindarajan has a graduate degree in Chemical Engineering from the Indian Institute of Technology. or could appear to affect. Mr Vachharajani was seconded to the Government of India. and Duphar Interfarn Limited. On and following Admission. He has over 35 years of experience in various refinery projects. Corporate governance Combined Code The Board is committed to the highest standards of corporate governance. responsible for policy planning of the petrochemicals industry. the Board considers that he has made a major contribution to the Company’s growth and success and is unanimously of the opinion that his continued involvement is crucially important to the ongoing success of the Company following Admission. Madras. During this time he was responsible for sales. Middle East. (‘‘IOC’’). He has held key roles in the Department of Chemicals and Petrochemicals. the Board will comply with the requirements of the Combined Code on Corporate Governance published in June 2008 by the Financial Reporting Council save that the Chairman did not on appointment meet the independence criteria of the Combined Code due to his interest in the Company as disclosed in ‘‘Directors’. He is the chief executive officer of operations at Essar Oil. Ministry of Petroleum and Chemicals as a Deputy Secretary cum project officer. 160 . Senior Management and other interests’’ in Part 16 ‘‘Additional Information’’. excluding the chairman.Part 8 Directors. leading Group Strategy and business development activities in Southern Asia. Calcutta and Delhi. the director’s judgement. It is intended that the fifth non-executive director has appropriate UK market experience. maintenance and overall supervision. a post-graduate member of the Chartered Institute of Marketing and has completed the Stanford Senior Executive Program. Mr Vachharajani has over 35 years of experience and has worked within both the public and private sector.

including reviewing Essar Energy plc’s annual financial statements and interim reports prior to approval. considering the scope of the annual audit and the extent of the non audit work undertaken by external auditors. The Combined Code also recommends that the Board should appoint one of the independent non-executive directors to be the senior independent director. As recommended by the Combined Code. as the need may arise. by giving written notice to Essar Energy plc. The audit committee will meet at least three times a year. advising on the appointment of external auditors and reviewing the effectiveness of the internal control systems in place within Essar Energy plc. The committee will also review the operation of share and share option schemes and the granting of such options. Essar Global Limited is entitled.4. The nominations and governance committee will meet at least twice a year. The audit committee is chaired by Sattar Hajee Abdoula. determines the levels of remuneration for Executive Directors. The remuneration committee is chaired by Subhash C Lallah. a nominations and governance committee and a remuneration committee. The Combined Code recommends that a majority of members the nominations and governance committee be independent non-executive directors. safety and environment committee. focusing on changes in accounting policies and practices. an independent non-executive Director with a financial background. Audit committee The audit committee’s role is to assist the Board with the discharge of its responsibilities in relation to internal and external audits and controls. Nominations and governance committee The nominations and governance committee assists the Board in determining the composition and make up of the Board. as well as prepare an annual remuneration report to be approved by the members of Essar Energy plc at the annual general meeting. the Board may set up additional committees as appropriate. Senior Management and Corporate Governance Pursuant to the relationship agreement described in Part 15. and its other members are Simon Murray and Philip Aiken. Its other members are Simon Murray and Subhash C Lallah. Simon Murray has been appointed Senior Independent Director. If the need should arise. 161 . Remuneration committee The remuneration committee recommends what policy the Company should adopt on executive remuneration. The Nominations and Governance Committee will therefore work collaboratively with Essar Global Limited regarding appointments to the Board and. The Combined Code recommends that all members of the audit committee be independent non-executive directors. The Board considers that Essar Energy plc complies with the requirements of the Combined Code in this regard. the board appointment process differs from that set out in Code provision A. the investment committee and the health. The Board considers that the Company complies with the requirements of the Combined Code in this regard. all of whom are independent. to nominate for appointment to the Board such number of directors as are required to ensure that the composition of the Board complies with Combined Code requirements on board composition. The remuneration committee will meet at least twice a year. the financial management Committee. to this extent.1. the Board has established three committees: an audit committee.Part 8 Directors. the Chairman and the ViceChairman and recommends and monitors the level and structure of remuneration for members of senior management. The nominations and governance committee is chaired by Simon Murray and its other members are Prashant Ruia and Subhash C Lallah. The Board considers that Essar Energy plc complies with the requirements of the Combined Code in this regard. The senior independent director should be available to shareholders if they have concerns which contact through the normal channels of chairman or chief executive has failed to resolve or for which such contact is inappropriate. The nominations and governance committee also determines succession plans for the Chairman and Chief Executive. It has set up a number of additional committees including the management committee. The Combined Code recommends that all members of the remuneration committee be independent non-executive directors. It is also responsible for periodically reviewing the Board’s structure and identifying potential candidates to be appointed as Directors.

the model code as published in the Listing Rules. Relationship with the Essar Group For information about the Company’s relationship with the Essar Group. safety and environmental decisions and actions upon employees. safety and environmental regulatory requirements. Gerry Bacon and the Group Treasurer (once appointed) and the Group Financial Controller. Naresh Nayyar. The health. a code of securities dealings in relation to the Shares which is based on. on behalf of the Board. Naresh Nayyar and KVB Reddy as members. and making recommendations to the Board on major investments. Sampath. P. safety and environment committee is responsible for evaluating the effectiveness of the Company’s policies and systems for identifying and managing health. organisational design and operational matters to ensure the Board’s strategic directions are implemented and to make recommendations to the Board. Naresh Nayyar. Senior Management and Corporate Governance Health. with Prashant Ruia. The committee is responsible for assessing the performance of the Company with regard to the impact of health. 162 . The members of the financial management committee are Gerry Bacon. assisting in treasury functions and investment management. with effect from Admission. Share dealing code The Company has adopted. It shall. The code adopted will apply to the Directors and other relevant employees of the Company. Investment Committee The purpose of the investment committee is to assist the management committee in providing oversight of the Company’s investment guidelines. an independent non-executive director. the Group Treasurer (once appointed) and the Group Financial Controller. safety and environment committee is chaired by Philip Aiken. The management committee comprises Prashant Ruia (Chair). The Investment Committee will meet twice a year. safety and environmental risks within its operations. The members of the Investment Committee are Prashant Ruia. safety and environment committee will meet at least twice per year. The financial management committee shall meet ten times per year. Gerry Bacon and Mark Lidiard.Part 8 Directors. The management committee meets on a monthly basis to review the operating performance of each of the principal subsidiaries. V. see ‘‘Relationship with the Essar Group’’ in Part 15. acquisitions and divestitures. communities and other third parties and on the reputation of the Company. The health. receive reports from management concerning any fatalities and/or serious accidents within the Company and any resulting action. and is at least as rigorous as. Suresh. Management Committee The management committee focuses on monitoring the Company’s strategy. Safety and Environment committee The health. Financial Management Committee The financial management committee assists the management committee in fulfilling its responsibilities to the Company and the Board including making recommendations on the Company’s capital structure. Business Group Chief Executive Officers. It assesses the policies and systems within the Company for ensuring compliance with health.

The Company’s oil and gas business is engaged in the exploration and production of oil and gas.1 million for the nine months ended 31 December 2009. OVERVIEW The Company is a power and oil and gas group predominantly located in India. On 29 April 2010 EGL completed a reorganisation whereby the power and oil and gas businesses of the Essar Group were reorganised under the Company for the purposes of listing on the London Stock Exchange. The Company’s EBITDA for the year ended 31 March 2009 was US$123. the Company expects to generate additional revenues from these operations. The Company’s financial year ends on 31 December. including the schedules and notes thereto and the reports thereon.PART 9 OPERATING AND FINANCIAL REVIEW The following discussion of the Company’s financial condition and results of operations should be read in conjunction with Part 5 ‘‘Industry Overview’’. 2008 and 2007 and the nine months ended 31 December 2009 and 2008. which comprises the Company’s oil and gas exploration and production operations as described under ‘‘Oil and Gas—Exploration and Production’’ in Part 6 ‘‘The Business’’. petroleum refining and the sales and marketing of petroleum products. • To date. whereas the financial year end of its operating subsidiaries is 31 March. The Company expects expenses of the exploration and production segment to increase over the next few years as it intensifies and expands its exploration and production activities. which comprises the Company’s refinery and refined petroleum product sales and marketing operations as described under ‘‘Oil and Gas—Vadinar Refinery’’ and ‘‘Oil and Gas— Mombasa Refinery’’ in Part 6 ‘‘The Business’’. 2008 and 2007 reflects the financial year of the Company’s operating and other subsidiaries. which appear in Part 11: ‘‘Financial Information’’. The financial information considered below has been extracted from Part 11 ‘‘Financial Information’’. exploration and production. Part 6 ‘‘The Business’’ and the Company’s combined financial information as of and for the years ended 31 March 2009. see Note 3 to the Company’s financial statements included in Part 11 ‘‘Financial Information’’. The Company generated revenues of US$8. For information about the results of operations of the exploration and production segment.1 million in the year ended 31 March 2009 and US$5. The combined financial information referred to in this discussion have been prepared in accordance with IFRS as adopted by the European Union except for the purposes of presenting the financial information on a combined basis in respect of certain matters explained in Part 11 ‘‘Financial Information’’. The Company’s power business owns and operates three power plants in India as well as one power plant in Canada. For further details see paragraph 3 of Part 16 ‘‘Additional Information’’. the exploration and production segment has not contributed materially to the Company’s results of operations nor had any material impact on the Company’s financial condition. and refining and marketing.7 million and US$433.6 million in the nine months ended 31 December 2009. As the exploration and production segment’s assets begin commercial production. The Company’s actual results could differ materially from those that it discusses in these forward-looking statements. SEGMENTAL REPORTING The Company has three segments for accounting purposes: • • power.453. particularly in Part 1’’Risk Factors’’ and ‘‘Information regarding forward-looking statements’’ in Part 2 ‘‘Presentation of Financial and Other Information’’.654. The following discussion of the Company’s results of operations and financial conditions contains forwardlooking statements. which comprises the Company’s power operations as described under ‘‘Power’’ in Part 6 ‘‘The Business’’. 163 . The inclusion of financial information as of and for the years ended 31 March 2009. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this document.

This interest has been accounted for as an acquisition in the Company’s financial statements. In financial periods ending on or prior to 31 March 2008. and The Company’s 50% interest in Kenya Petroleum Refinery following the Company’s acquisition of this interest on 31 July 2009. • In addition.370 MW of installed capacity. and will add a further 5. 145-MW unit of Bhander Power-Hazira plant following its commissioning on 7 October 2008. and the Vadinar refinery following commencement of its commercial operations on 1 May 2008. the Company’s revenues were primarily derived from: • its power business’s operation of its 515-MW Essar Power-Hazira power plant. As a result. The Phase II Power Projects involve development projects for the construction and/or expansion of six power plants expected to be completed in 2013 and 2014. which was commissioned in December 2007. 200-MW unit of the Bhander Power-Hazira plant. which involve an expansion of the power business’s installed power generation capacity by 4. the Company will seek to further expand its operations with the Phase II Power Projects. which was commissioned in 1997.Part 9 Operating and Financial Review OF FACTORS AFFECTING RESULTS OPERATIONS AND FINANCIAL CONDITION Recent and Future Expansion of Operations The Company’s pursuit of its growth strategy in recent years has involved the installation of additional megawatt capacity through the acquisition or construction of additional power plants. and the construction of the Vadinar refinery. and the expansion of the Vadinar refinery’s production capacity from its current level of 14 mmtpa to 18 mmtpa through the Phase I Refinery Project. certain periods are not directly comparable. 164 . • The Company’s financial information for the periods ending after 31 March 2008 also include the results of operations of: • • the third. and its oil and gas business’s petroleum products sales and marketing business.880 MW through the construction of six additional power plants that are expected to be completed between 2011 and 2012. This acquisition has not had a material impact on the Company’s results for the nine months ended 31 December 2009. 155-MW unit of the Bhander Power-Hazira plant. including the refinery’s captive 120-MW Vadinar Power-Jamnagar co-generation power plant. The Company’s financial information for the nine months ended 31 December 2009 include: • • the results of operations of the 85-MW Essar Power (Canada) plant following its commissioning on 13 June 2009. the first. and the second. Essar Energy’s growth strategy in the next few years involves: • an increase in the power business’s installed megawatt capacity through the Phase I Power Projects. which was commissioned in January 2006 and acquired from an Essar Affiliated Company in September 2006. which was acquired in June 2006 with the acquisition of Essar Oil.

is currently estimated to require approximately US$1. . The expansion projects may not be completed on time. and completion of the Phase I Refinery Project to expand the Vadinar refinery’s refining capacity to 18 mmtpa. . . . US$1.470 MW. . .27 billion for the acquisition and development of captive coal mines.220 1. see the risk factor ‘‘The Company plans to expand significantly.22 16. . will be used to fund the projected equity funding requirements of its various growth projects as follows: • completion of the Power Plant Projects and acquisition of captive mines to expand the Company’s total installed capacity to 11. 670 870 1.91 13.75 6. Funding Costs for the Expansion Projects The Company operates in a capital intensive industry and has significant funding requirements for its existing operations and its growth strategy.45 billion for the Phase I Power Projects. It is currently expected that the net proceeds from the Offer. .11 18. . exploration and development of the Company’s oil and natural gas blocks.50 billion from the net proceeds from the Offer will be used for general corporate purposes including working capital requirements for the oil & gas business. which are currently estimated to require approximately US$0.96 MMT.53 12.600 4. which.Part 9 Operating and Financial Review The following table provides an overview of the Company’s historical actual and expected total installed megawatt capacity at its operational and planned power plants and the historical actual and expected throughput capacity at the Vadinar refinery.25 billion of equity funding for the period 2010-2014. .22 billion for the Phase II Power Projects and US$0. (1) (2) (2) 1. which is currently estimated to require approximately US$0. For the 12 months ended 31 March 2007(1) 2008(1) 2009(1) Actual capacity For the 12 months ending 31 December 2009 2010 2011 2012 Expected capacity Power Installed megawatt capacity in MW . comprising of US$0. 165 . according to specifications or within budget’’ in Part 1 ‘‘Risk Factors’’. . • • In addition a further US$0. . The above amounts are the current best estimate of capex and funding plans and given the long term nature of some of these projects may be subject to change. Not including throughput or capacity of the Mombasa refinery in Kenya. The Company’s major growth projects will be funded by a combination of debt as well as by the net proceeds from the Offer and excess cash flows from operations.94 billion of equity funding.26 billion of equity funding. Throughput as of 31 March 2009 includes trial run throughput of 0. .135 1. For a discussion of the factors that could lead to delays and costs overruns for the Expansion Projects. .570 6. along with cash from operations.00 Actual throughput prior to the Vadinar refinery’s commencement of commercial operations on 1 May 2008 related to trial runs. involving substantial capital expenditures and execution risks that it may not be able to manage.21 13.100 Actual throughput Expected capacity Oil and gas Vadinar refining throughput in mmtpa .

. . . . . .060 4. . . . . . Neptune I(3) . .200 MW MW MW MW MW MW 82 70 162 165 159 509 1. .478 1 27 26 6 44 0 105 110 2. . . . . . .394 — — — — — — 0 — 3. . . . 2010-2013 2010-2013 2010-2013 2010-2013 2010-2013 2010-2014 2010-2011 4. . . . . . . . . . . . project design specifications and the availability of financing. 46. . . . . . . . . . . . . . . . . . . . .769 298 207 0 505 0 4.879 122 9. . . .693 75% 75% 75% 75% 75% 75% 70% 75% 781 774 116 377 231 110 200 915 3. . however current economic interest of 39%. . . . .116 707 997 1. . . . .050 1. . . . . . Salaya II . .659 — 3. . . . . . . . . . .221 4. . . . . . . . . . Power Hazira . . . 5. . . . . . . . . . . Equity required reflects equity infused by Essar Global which is yet to be apportioned to specific Phase I Power Projects. . . . . . . among other factors. . . . . . . . . . Other blocks . .188 166 144 39 64 — 7 14 7 300 742 — — — — — — 0 0 742 3 34 123 160 428 1. . . . . . . . . . . . Totals may not match due to rounding errors. . . . . . . . . . . The data set forth in the table below is indicative and subject to change.041 1. . .788 113 86 55 254 260 2. . Vadinar Power-Expansion Phase 1 Vadinar Power-Expansion Phase 2 Essar Hazira. . . . .530 166 Sub-total . . . . Mines(4) . . . .Part 9 The following table shows the current estimated phasing of capital expenditure and the planned debt-to-equity funding required for the Company’s expansion projects (at an exchange rate of US$1 : Rs. . . . . . . . .147 296 19 0 315 — 1. . . . . . . . . .632 Sub-total . . . . .711 12 2. . . . . . . . . . . . . . . . . . . . . . .147 — 1. . This table does not include any capital expenditure costs in relation to the Mombasa refinery. . .694 414 327 178 919 1. . . . . . . . . (1) (2) (3) (4) (5) (6) (7) up to 2014 2009-2011 18 mmtpa (7) 160 613 1. . . . .370 MW 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .379 — — — — — 110 — — 110 374 374 837 530 748 795 3. . . .200 380 510 270 120 MW MW MW MW MW MW — 1. Raniganj Block . . . . . . . . . . . . . Power (including coal mines)—total . . . . . . . . .085 93 238 598 252 482 47 1. . .071 — — — — 43 14 — 216 273 323 164 330 283 312 505 1. . .164 25% 25% 25% 25% 25% 25% 100% 125 125 279 177 249 265 1. . . . . . . . . . . . . . . . . . . . . . . . . .287 75% 75% 75% 75% 75% 75% 0% 374 374 837 530 748 795 3. . . . . . . . . . . . .462 499 499 1. . . Salaya III . .191 79 46 8 133 — 2. . . . . Neptune II(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assumes 100% capital expenditure for Neptune. .630 Figures rounded to nearest million. . . . . . . . . . . . . .274 25% 25% 25% 25% 25% 25% 30% 25% 260 258 39 126 77 37 86 306 0 1. . . . . . .880 MW 600 600 1. 2009-2011 2009-2011 2009-2010 2009-2011 2010-2012 2009-2012 2009-2011 2009-2012 1. . . . . . . . . . .801 65 51 — 61 157 69 44 638 1.504 781 774 116 377 231 0 200 915 3. . . . Essar Power Jharkhand-Tori . . . . . . . .220 122 1. . . . . . .220 122 2.659 — 7. . . . . . . . . . .200 1. . . Essar Power Gujarat-Salaya . . Chakla and the Indonesia coal block. . .693 9 97 27 133 975 3. . . . . . . . . . . . . . . . . for the remaining E&P blocks the stated capex is for a 27-month period to March 2012 based on minimum work commitments. . . . . . . . . . . . . . . . . . . . . . . . Coal mine capital expenditure includes Mahan. . . . . .601 million is committed and an additional US$793 million is agreed by way of non-binding MOUs or sanction letters. . . .917 — 2. .302 Sub-total . . . . . . . . . . . . . . . . . . . Equity required(2) .200 MV 316 323 116 73 — 7 14 7 856 — — — — — — 0 0 856 3 34 123 660 659 39 369 108 56 227 360 2. . . . . . Transmission . . . .(1) Capital expenditure Year ended 31 December 2009 and earlier Year ended 31 December 2010 2011 2012 2013-14 Total Debt (%) Debt Obtained(6) Planned funding split Required Equity % Equity Obtained Required (US$ in million) Operating and Financial Review Project Capex Periods Capacity (US$ in million) POWER Phase I Essar Power MP-Mahan . The stated capital expenditure is up to and including CY2014 for Ratna Fields and Raniganj Block projects.808 27 131 20 178 85 3. . US$2. . . . . . . . . . REFINING Vadinar Refinery—Phase 1 . exchange rate movements. . . . . Capital expenditure for expansion from 14 mmtpa to 18 mmtpa. . . . . . . . . . . . . . . . . .250 MW 72% 63% 55% 59% 298 207 — 505 985 8. . . The E&P equity requirement is inclusive of internal accruals. . . . . . . . . based on. . GRAND TOTAL . . .320 600 1. . . . . .330 94 114 — 62 77 29 71 299 (300) 446 125 125 279 177 249 265 1. . . . . . . . . . . . . . . In respect of the Phase I Power Projects.394 — — — 0 985 4. . .033 155 503 308 146 286 1. . . . . . . . . . . . Essar Power Orissa-Paradip . . . . . . . . changes in costs. . . . . . EXPLORATION and PRODUCTION(5) Ratna Fields . . . . . .68).324 — — — — — — — — 1. . . . . . . .673 12. . Phase II Essar Power Jharkhand-Tori Expansion Essar Power MP-Mahan Expansion . . . . .654 28% 37% 100% 45% 41% 116 120 178 414 688 3. . .

The projected capital expenditure for 2010 and 2011 in respect of the Company’s exploration and production assets are focused on activities in its Raniganj Block and Ratna Fields and the Company has only minimal capital commitments under the PSCs for its other oil and gas blocks. The Company’s long-term PPAs with: • off-take customers. the provision and costs of fuel are the responsibility of the off-take customer. Essar Energy has entered into project financing arrangements for the total expected debt financing required for the Phase I Refinery Project. and with off-take customers that supply the relevant power plant’s fuel requirements generally contain only a capacity charge. that do not supply the relevant power plant’s fuel requirements provide for two-part tariffs for the power comprising a fixed component called a capacity charge and a variable component called an energy charge. For a discussion of the factors related to funding the Company’s growth strategy. Once the 10. The structure and terms of the Company’s financing arrangements could give rise to additional risks’’ in Part 1 ‘‘Risk Factors’’. The majority of the Company’s future capital expenditure for the Phase II Power Projects. Crude oil expenses and other applicable costs (other than general and administrative expenses) related to these trial runs as well as the proceeds received from sales of refined petroleum products produced in these trial runs were capitalised until the refinery commenced commercial operations on 1 May 2008. The Company is currently in discussions with various banks in order to secure funding for the Raniganj CSG project. Essar Energy has currently secured commitments for 73% (97% if non-binding sanction letters are included) of the total expected debt financing required for the Phase I Power Projects.Part 9 Operating and Financial Review As a substantial portion of the funding for the Company’s expansion projects is expected to be indebtedness. Essar Energy currently has incurred some expenditure on certain work such as basic/detailed engineering but will not proceed with equipment procurement and construction until all debt and equity commitments for the Phase II Refinery Project have been tied up. the Company will have a substantially higher level of indebtedness and increased interest expense in the future.71 million). Once the production facility related to that project is commissioned for commercial operations. The Company’s power business derived approximately 92% of its revenue in the period from 1 April 2009 to 31 December 2009 from sales of power pursuant to long-term PPAs to captive customers and the state-utility company GUVNL with terms of between 20 and 30 years. Long-Term Power and Other Off-take Agreements Substantially all of the Company’s current power production that is not used by Essar Oil is sold and is expected to continue to be sold pursuant to long-term PPAs. the applicable costs related to the construction of each Expansion Project will be capitalised on the Company’s balance sheet. Capitalisation of Expenses and Revenues As was the case with the Company’s expansion projects that were constructed and completed during the period under review. In PPAs with such captive customers. as of 31 March 2010 it had raised a short-term bridge loan of Rs. see ‘‘The Company has substantial debt requirements. In addition. For example. the Company’s income statement will reflect revenue and cost streams arising from the project. the Company currently expects to reach a combined installed capacity of 11. Essar Energy may incur additional capital expenditures and indebtedness not reflected in the table above. the Vadinar refinery was under trial runs for the crude and vacuum distillation units from November 2006 until it commenced commercial operations on 1 May 2008 upon the sequential completion of construction and integration of the remaining refinery units. LC facility agreements and a foreigncurrency facility agreement. • 167 .470MW. 500 million (US$10. the Phase II Refinery Project and the exploration and production projects is expected to be incurred in 2012 and beyond.250MW combined additional installed capacity from the Power Plant Projects has been commissioned. of which 74% is expected to be sold pursuant to long-term PPAs with captive and other customers. including Rupee term-loan agreements. including for the Shell Refineries in the event they are acquired. Essar Energy currently has not secured any debt financing commitments for the Phase II Power Projects. other than one PPA with GUVNL for Essar Power—Hazira.

The Company’s expansion into merchant sales is subject to certain risks’’ in Part 1 ‘‘Risk Factors’’ and paragraph 14. the Company expects that once the 10. Merchant Power Sales While the Company historically has not engaged in any merchant sales of power. There may be greater variability in the operating expenses of these power plants than in the operating expenses of the Company’s other power plants. electric transmission availability and reliability within and between regions. As a result of capacity charges under its PPAs. See ‘‘Power—Overview’’ in Part 6 ‘‘The Business’’. the price per unit received for merchant sales will fluctuate due to a number of factors. the Company is unable to capture the benefits of any future increases in market prices for power to the extent it has committed to sell its generation capacity under PPAs. If this were to happen. supplying fuel to the Company’s captive power plants. under its PPAs with captive customers. including daily and hourly changes in demand for electricity. While the Company expects that the fuel needs for some of the Power Plant Projects will be supplied pursuant to similar supply arrangements. Fuel Expenses The largest variable cost for the Company’s power business is the cost of fuel. procedures used to maintain 168 . Moreover. Therefore. Historically.250MW combined additional installed capacity from the Power Plant Projects has been commissioned. While long-term PPAs create greater stability of revenue streams. For additional information about the Company’s PPAs. See also the risk factor ‘‘If the Company does not operate its power plants efficiently or otherwise breaches its PPA contractual obligations. the Company is not exposed to adverse changes in fuel prices. the power business’s results of operations may be affected if its power plants. as captive off-take customers are responsible for. Merchant sales are sales on a merchant basis pursuant to short-term or spot sales at market rates in the open wholesale market. In addition. The Company has no prior experience in coal-mining activities and plans to mine coal using expertise of individuals hired from other coal mine operators and to subcontract certain other coal-mining operations. the Company’s profit margin on power sold under the PPAs is in part determined by the Company’s ability to run its power plants efficiently and keep its operating and fuel costs for PPAs with non-captive customers low. as a result of the long-term nature of the PPAs.1 ‘‘Dispute with GUVNL’’ in Part 16 ‘‘Additional Information’’. price and availability of fuel supply. if the Company’s power plants do not achieve their contracted available capacity. instances of extreme peak energy demand. fail to achieve the availability levels contracted for in their respective PPAs. the relevant power plant may not succeed in recovering its fixed costs from its off-take customers. Merchant sales will create additional variability in the power business’s revenues. see ‘‘Power—Long-Term PPAs’’ in Part 6 ‘‘The Business’’. 26% of the Company’s total installed megawatt capacity is expected to be sold pursuant to merchant sales. the Company may face increased irrecoverable costs. A power plant is generally eligible to receive the capacity charge regardless of how often the plant is operated so long as the plant is available when needed to maintain desired power generation levels. merchant sales allow the Company to benefit from potentially higher market prices. The recovery mechanism provides the Company with a relatively predictable and recurring source of revenues designed to provide the necessary incentive for construction of the relevant power project and continued operation of operating plants. However. the Company expects that approximately 35% of its total installed megawatt capacity following completion of the Power Plant Projects will be fuelled by coal mined by the Company in India.Part 9 Operating and Financial Review The capacity charge under the PPAs is generally recovered at the relevant contracted plant availability. The profitability of the power plants that are fuelled by coal mined by the Company will be dependent on the success of the Company’s coal-mining operations and on its ability to control the cost of these operations. the capacity charge received under the plant’s PPA would be generally adjusted downwards for the shortfall in generation below the contracted available capacity. While the Company has achieved the contracted availability levels in all of its PPAs during the period under review. and the Company has entered into long-term fixed-price fuel supply arrangements for certain of its expected fuel needs. the Company has not been subject to the risk of fluctuations in fuel expenses. due to the fault of the Company. and bear the risk of. The tariffs under the PPAs are designed to allow the Company to recover its expected costs and provide a return on capital invested and there is no provision for escalation in any of the PPAs governing current generation capacity.

global and regional political affairs.. (excluding sales tax .. respectively.. which.. see ‘‘The Company enjoys significant tax incentives.. Other factors affecting refining margins include changes in the cost and availability of logistics services for crude oil (which is often reflected directly in the cost of crude oil) and for refined petroleum products (the effect of which is likely to be greater where transport distances are greater). the refinery’s ability to maintain and improve its gross refining margins depends critically on its ability to maximise its use of lower-cost heavy and tough crude oils and to produce 169 . The amount of electricity that the Company will be able to generate and sell as merchant sales is dependent on the availability and efficiency of the Company’s power plants. .02 per bbl US$7. merchant sales may not provide the Company with the same level of protection for coverage of the fixed and variable costs involved in generating power that the Company currently receives under some of its existing PPAs and other long-term off-take agreements. Gross Refining Margins The Company’s oil and gas business’s results from its refinery operations are driven substantially by realised gross refining margins.. In addition. ..62 per bbl US$4. depend on. Therefore..12 per bbl The Vadinar refinery commenced commercial operations on 1 May 2008. when electricity demand generally decreases. See ‘‘Gross refining margin or GRM’’ in Part 2 ‘‘Presentation of Financial and Other Information’’ for a description of how the Company calculates the Vadinar refinery’s GRM. The Company’s gross refining margins.. and demand for. Processing heavy and tough crudes generally results in higher gross refining margins... are impacted significantly by the benefit of sales tax incentives provided by the state of Gujarat with respect to sales of refined petroleum products made in that state... production levels. 2010 announced in February 2010 may have a material adverse effect on the Company’s results of operations.. certain provisions of the Finance Bill. Should the power deficit not continue as the Company expects. The Vadinar refinery’s gross refining margins have been impacted by changing mix of the refinery’s crude oil throughput over the period under review. especially during the monsoon season months of July to September.’’ in Part I ‘‘Risk Factors’’ and ‘‘Litigation—Dispute in relation to sales tax incentives’’ in Part 16 ‘‘Additional Information’’.. The cost to acquire crude oil and the price of refined petroleum products ultimately sold depend on numerous factors beyond the Company’s control.. GRMs are shown for eleven months and eight months for year ended 31 March 2009 and the nine months ended 31 December 2008. availability of crude oil imports. Gross refining margins generally represent the difference between realised refined petroleum product prices and the prices for crude oil used to produce the refined petroleum products. . which may not be available in the future. and is involved in litigation in relation to certain tax incentives.03 per bbl US$3.. available refining capacity... For a discussion of the risks associated with these incentives. Therefore. diesel and other refined petroleum products..... in turn. GRM per barrel incentive) . this could make it more difficult for the Company to make merchant sales on profitable terms. The Company could experience seasonality in the level of its revenues from merchant sales.46 per bbl US$2.. the marketing of competitive fuels. see ‘‘—Sales Tax Incentives’’ below... including the supply of... For further details of the tax incentives.. In making capital expenditures to create additional installed power generation capacity for merchant sales. the Company is assuming that the power deficit in the regions of India served by the Power Plant Projects will continue in the long term.. the Company’s operating expenses increase and the Company may earn lower margins on merchant sales... prevailing exchange rates and the extent of government regulation.. weather conditions.. US$7. gasoline.. (1) (including sales tax . . The following table shows the Vadinar refinery’s gross refining margin per barrel for the financial periods indicated: Eleven months ended 31 March 2009(1) Eight months ended 31 December 2008(1) Nine months ended 31 December 2009 GRM per barrel incentive) ... crude oil. changes in global and regional economies. If the Company’s power plants are not able to generate electricity efficiently. and consequently its operating profits..97 per bbl US$5.Part 9 Operating and Financial Review the integrity of the overall electricity generation and transmission system during extreme conditions and the number of generating units undergoing maintenance.. among other factors... In addition..

. . . . . . . . . .8 as per the Company’s calculation. . . . . . . . This decrease was largely due to the accounting of inventory losses resulting from the decline in crude oil prices during the fourth quarter coupled with lower refined petroleum product margins. . . . the Company expects that the strong increase in auto vehicle sales in recent years will result in strong demand for refined petroleum products. . . with the margin (including the sales tax incentive) decreasing from US$8. . . . Therefore. . . . . . For a description of how the Company’s Nelson Complexity Index calculations differ from the standard methodology.27 32. Close (average) . . . . .00 43. .90 per barrel in the quarter ending September 2008 to US$2.83 68. . . . . . . Total . This higher refinery complexity is expected to enable the Vadinar refinery to use a wider range and percentage of low-cost. . . . . The Company expects the Vadinar refinery’s gross refining margins to improve in 2010 from their levels in 2009. .Part 9 Operating and Financial Review the optimal slate of higher value products demanded by the markets. . . . . . . . . . . . . . . . . . . . . . .80 82. . . In India in particular. . . . . The Phase I and Phase II Refinery Projects are expected to improve the Vadinar refinery’s refining margins by increasing its weighted average complexity from 6. . . . . . . . . particularly motor spirit. . . . . . . see ‘‘Nelson Complexity Index’’ in Part 2 ‘‘Presentation of Financial and Other Information’’.09 The Company’s gross refining margins and operating results are influenced by changes in the prices of refined petroleum products and changes in crude oil prices. . . .900 The Vadinar refinery commenced commercial operations on 1 May 2008. . . . .15 147. . the throughput figures are for eleven and eight months for the year ended 31 March 2009 and the nine months ended 31 December 2008. . . . . . particularly in the fourth quarter of 2008 had a negative impact on the Vadinar refinery’s gross refining margin. . . . Source: Reuters 147. . . . These activities are intended for risk protection and not carried out for speculative purposes. . . . . . . . . . . . .40 98. . While the Vadinar refinery generally processes crude oil within 20 to 30 days from the date of its purchase. . . . . . . . . . . . .1 to 12. . . respectively. as the global demand for crude oil and refined petroleum products is projected to increase in connection with the global economic revival. . . . . . . Ultra-heavy . . . . Hedging Activities The Company’s oil and gas business engages in hedging or commodity price risk management activities in a limited manner in relation to the price of crude oil and crack spreads. . The following table shows the Vadinar refinery’s crude oil throughput for the periods indicated: Eleven months ended 31 March 2009(1) Eight months ended 31 December 2008(1) Nine months ended 31 December 2009 Light . . . . . . . . . .637 28% 55% 17% 100% 9. . . . . . . . . . . . Crude Oil Prices Changes in crude oil prices significantly affect the Vadinar refinery’s gross refining margins. .949 29% 56% 15% 100% 8. . . . . . . Total in KT . These activities are carried out within regulatory 170 . heavier and tough crude oils than are currently being used to produce high-quality transport fuels and other value-added petroleum products and thereby increase its gross refining margins. . . . . . . . resulting in inventory gains or losses. Crude oil costs have historically been subject to wide fluctuations both between periods as well as within periods. . . . . . . . . . . . as indicated by the following table showing per-barrel WTI Futures Front month crude oil benchmark prices: 1 May 2008 to 31 March 2009 1 May 2008 to 31 December 2008 (US$) Nine months ended 31 December 2009 High . . Low . . .27 32. .68 per barrel in the quarter ending December 2008. . . . . the steep decline in crude oil prices in the second half of 2008. . . (1) 29% 57% 14% 100% 11. For example. . any change in the price of crude oil will still affect the cost of inventory. . Medium and Heavy . . . . . . . . . . .40 84. . . . . . . . . . . . . . .

see ‘‘—Quantitative and Qualitative Disclosures About Market Risks—Commodity Price Risk’’. which are received in rupees at import parity rates of exchange against the US dollar that are reset at fortnightly or monthly intervals.Part 9 Operating and Financial Review requirements. Payments in most of these contracts is in stages or on pre-determined dates in the future. Following commissioning. The Company’s results were affected by losses on these instruments of US$10. net. In the oil and gas business the Company covers its exchange rate risks on a regular basis. feedstocks.68 billion (US$2. In the period from 1 April 2009 to 31 December 2009. depreciation of the rupee against the US dollar will significantly increase the rupee cost of the Company’s US dollardenominated or correlated payment obligations but will be partially offset by the Company’s US dollardenominated or correlated revenues. which. Additionally. 65. In its oil and gas business. will affect the Company’s results of operations. in particular. there may be a mismatch between the Company’s rupeedenominated revenues and the rupee-equivalent cost of its US dollar-denominated expenditures on.40 billion (US$1. For example. may significantly increase outflows and consequently the capital cost of the relevant power projects. gains and losses relating to commodity derivatives were separately classified on the income statement under net loss on commodity derivatives.39 billion) of liabilities in currencies other than the rupee the Company had taken forward/option cover of Rs. In the period from 1 May 2008 to 31 March 2009. the US dollar. the Company recorded gains of US$16. the Company’s profitability will be affected by exchange rate fluctuations to the Company’s aggregate US dollar-denominated expenses and revenues to the extent such expenses and revenues do not match its rupee-denominated expenses and revenues. US$199. 171 . and the Company has not currently entered into any contractual arrangements to hedge the risks associated with the Indian Rupee depreciating against the US dollar in relation to such contracts. The Company currently has not applied hedge accounting under IFRS. Exchange Rates The prices of the crude oil. natural gas and imported coal needed to run the Company’s power operations and the Company’s production of refined petroleum products are generally denominated in or tied to the US dollar. The Company faces exchange rate risks in particular in relation to its revenues from sales of refined petroleum products to PSUs. in particular. in the event of unfavourable currency movements. a substantial number of contracts for critical plant and equipment and the transportation thereof into India for the Company’s Power Plant Projects are denominated in US dollars.6 million on crude oil commodity derivatives. When there are rapid fluctuations in exchange rates. Gains and losses on commodity derivative instruments have had a material effect on the Company’s results of operations. 111. The exchange rate between the rupee and other major currencies has fluctuated significantly in recent years.6 million on refined petroleum commodity derivatives and losses of US$56. The Company recorded gains of US$25.5 million on crude commodity derivatives instruments and of US$53.2 million in period from 1 April 2008 to 30 April 2008. For additional information about the Company’s commodity price risk management. Prior to the Vadinar refinery’s commissioning of commercial production on 1 May 2008. while most of the Company’s other operating expenses and revenues are denominated in rupees.8 million in the year ended 31 March 2008 and US$61. gains and losses relating to commodity derivatives are included on the income statement under revenues for refined petroleum product derivative instruments and under the cost of sales for crude derivatives. and the Company’s power operations in India are not expected to have any revenues in US dollars.4 million on refined petroleum product commodity derivatives. Therefore.9 million in the year ended 31 March 2007. See ‘‘The Company is exposed to fluctuations in exchange rates’’ in Part 1 ‘‘Risk Factors’’. the Company currently hedges a portion of its foreign currency exposure. As of 31 December 2009 out of Rs. Changes in the exchange rate of the rupee against other currencies in which the Company does business. See ‘‘—Quantitative and Qualitative Disclosures About Market Risks—Foreign Currency Risk’’.40 billion) which included capital credit. capital goods procured for its Expansion Projects.

respectively. To date. Essar Oil has not made any claim under the tax holiday. The Indian rupee depreciated against the US dollar by approximately 27.0 million for the year ended 31 March 2009 and a gain of US$146. in particular the rupee.6 million as of 31 December 2009 to Essar House. in its income statement.3 million) under this scheme during the periods from 1 May 2008 to 31 March 2009 and from 1 April 2009 to 31 December 2009. In preparing the Company’s financial statements. The Company’s oil and gas business also benefits from a 100% exemption from Indian income taxes on the Vadinar refinery’s profits for the period from 1 April 2008 to 31 March 2015. 1961. the Company experienced a loss of US$459. liabilities. Income Tax Benefits Some of the Company’s operational power plants are. revenues and expenses are translated into US dollars at the applicable exchange rates. with respect to the computation of total income for Indian tax purposes. If the final decision of the Supreme Court were to be adverse to the Company. Changes in the exchange rate between the Indian rupee and the US dollar have had a significant effect on the Company’s results of operations.6 billion (US$221.15. an Essar Affiliated Company and paid the agreed assignment value of US$112. The Company remains ultimately liable for the payment of the sales tax liability to the state of Gujarat in the event that Essar House does not make payments on the due dates.1 million for the nine months ended 31 December 2009 from currency exchange effects in translating items to the Company’s functional currency. which was US$413. even if their value has not changed in their original currency. the values of those assets. which may not be available in the future. net of unwinding of discounts and contribution to social welfare fund as of 31 December 2009. that may result in future interest cost. whichever is earlier. See ‘‘The Company enjoys significant tax incentives.4 million). revenues and expenses of its subsidiaries are denominated in currencies other than the US dollar. entitled to certain tax benefits under the Indian Income Tax Act.3 million to Essar House to take on such liability.949.5% in the year ended 31 March 2009 and appreciated by approximately 8% in the nine months ended 31 December 2009. it also faces translation risks to the extent that the assets. In addition there may be other potential consequences associated with this. the state government of Gujarat continues to assert that the Company is not eligible to participate in the sales tax incentive scheme on the grounds that the Vadinar refinery did not commence commercial production by 15 August 2003 and has challenged this ruling before the Supreme Court of India and the matter is pending before the court. The Company has accounted for the difference between the value of its sales tax liability (US$551.4 million. The Company is required to repay the retained sales tax to the state of Gujarat in six equal annual instalments from 2021/2022 or on the exhaustion of the full eligible limit. liabilities. and is involved in litigation in relation to certain tax incentives.10.3 million) in the Company’s income statement under revenues under IFRS. certain provisions of the Finance Bill. In addition.16 billion (US$330. 2010 announced in February 2010 may have a material adverse effect on the Company’s results of operations’’ in Part 1 ‘‘Risk Factors’’ and ‘‘Litigation—Dispute in relation to sales tax incentives’’ in Part 16 ‘‘Additional Information’’.Part 9 Operating and Financial Review The Company’s functional and presentational currency is the US dollar. distribution or transmission of power for any ten consecutive tax assessment years out of 15 years beginning in the year in which the relevant plant begins generating. as it has incurred tax losses. the Company would be required to recognize the sales tax benefit as an expense to the extent already considered as income. increases and decreases in the value of the US dollar against other currencies. 91 billion (US$1. For example. provided that such date is prior to 31 March 2011. The Essar Power-Hazira power plant’s benefit under this exemption expired in the year ended 31 March 2007. Consequently. Sales Tax Incentives The Vadinar Refinery avails itself of certain sales tax incentives provided by the State of Gujarat pursuant to which the Company believes it may retain sales tax collected on domestic sale of refined petroleum products in the state of Gujarat up to an amount equal to 125% of the eligible fixed capital investment. Primarily as a result of these changes. The Company believes that it is entitled to this treatment in view of a judgment given in its favour by the High Court of Gujarat. and some of the Power Plant Projects are expected to be. Therefore. will affect the value of these items in the Company’s financial statements. these plants and projects are entitled to a deduction of 100% of profits derived from the generation. transmitting or distributing power. The Company assigned its sales tax liability of US$551. 172 . which is estimated to be Rs. The availability of this seven-year income tax holiday was recently extended to all refineries that commence operations by 31 March 2012. However. The Company collected sales tax in the amount of Rs.3 million) and Rs.6 million) and its present value (US$113.

wharfage charges on sales. following commencement of the Vadinar refinery’s commercial operations on 1 May 2008. income from technical services and other miscellaneous income. following commencement of the Vadinar refinery’s commercial operations on 1 May 2008. terminalling and transportation costs. including gas and naphtha. and wages and salaries paid to sales and marketing personnel.Part 9 DESCRIPTION Revenues OF Operating and Financial Review KEY LINE ITEMS In the power business. income arising from sales tax incentives and. consumption of stores and spares. Cost of Sales In the power business. lease payments to franchisees and return on investment made by franchisees. revenues include revenues from sales of refined and traded petroleum products (net of trade discounts). water and fuel costs. cost of sales includes primarily: • • • • • fuel costs. operating and maintenance expenses. Selling and Distribution Expenses Selling and distribution expenses are incurred only by the oil and gas business and include: • • • • • handling charges for refined petroleum products. revenues include revenues received under PPAs and other off-take agreements. operating expenses. operational and maintenance income of power plants. port terminal income. cost of traded refined petroleum products. gains and losses on commodity derivatives for hedging the risk of movements in crude oil prices. In the oil and gas business. wages and salaries of plant personnel. depreciation of power plant assets. brokerage and sales commissions. cost of sales includes primarily: • • • • • • • • • cost of crude oil and chemicals and catalysts. In the oil and gas business. gains or losses on instruments hedging the risk of movements in refined petroleum product prices. and consumption of stores and spares. including tankage. to the extent that fuel is not provided by off-take customers. Other Operating Income Other operating income includes primarily profits on sale of investments. including commissions paid to retail petrol station franchisees. and depreciation of refinery and exploration and production assets. changes in inventories of finished and intermediate products. 173 . power. salaries and wages of operational personnel.

Net Loss on Commodity Derivatives Net losses on commodity derivatives include net losses on crude and refined product hedges during the trial run period for the Vadinar refinery. 174 . net of borrowing costs capitalised. insurance premiums. which ended on 30 April 2008. contributions to the state of Gujarat welfare scheme. debentures and working capital borrowings. includes the surplus arising on the acquisition of joint controlled entities. rates and taxes. including office and IT equipment. professional and advisory fees. wages and salaries paid to corporate and administrative personnel. and depreciation related to the administrative offices. Net Finance Costs Finance costs include primarily interest on term borrowings. finance lease cost and other finance charges. IT expenses. In addition other gains/ (losses) in the nine month period ended 31 December 2009. travelling expenses. currency exchange differences have related mostly to the oil and gas business. During the period under review. Other Gains/(Losses) Other gains/(losses) primarily comprise the consequences of exchange rate movements between the date of foreign currency transactions or opening exchange rates at beginning of the year and settlement of transactions or year-end exchange rate in respect of monetary items.Part 9 Operating and Financial Review General and Administrative Expenses General and administrative expenses include primarily rents. Finance income mainly comprises of interest from bank deposits.

. . . . . .3 227. . . . ..083. . General and administration expenses Net loss on commodity derivatives(2) . . . . ..5) — 197. . .0) (27. .. . .0) (6.6) (64. . . . .0 347. . . . . . . . .9 139. . . .. . . . .5) (118.. . . .. . . .. . . Current tax . . . . . . . .6) (11. Minority interest . . .. . . . . . ..7 92. .3 54. . . ... . . . .8 (191. . . .658. . .8 232. .. . .4 (76.7) (47. .1 7. . .4) (114. .. . Attributable to: Equity holders of the parent . . . . . . .6) (45. Deferred tax ..5 (6. ... . .. .3) (16.. . . . . . . . . . ..2) (61. . . . .. .5 192. .8 0. . . . . . . . . . ... . . . . .2) 4. . . . . . .891.6) (28.7) (10.4) (178. . . .. .. . . . . . . . . . .. . . . . . Power . . .1) 1.0) (459.6 6.9) (35. .457.2) (67.. .. . . .0 (6. . .8 8.7) (44. .6 (167. . . . . . . . . . . .. . . . .2 129.5) (188. . . . . . . ... . . . . . . . .6 (2. . . . . .6) 40. . .. .4 95. net finance cost and other gains/ . . .618. . ..9) 44. . . .. . .6) (14. .2) (147.. .4) (2. . .9 5. Cost of sales . . . . . . . .9 (3. . . . . 202. .8 30. . .9) (70. .192.. .9) 255.3 8.. . . . . . Incurred only in the oil and gas business. . .. .4 33. . . .1 (25. .. .. . ... . .3) (383. Power . . . .6) (75. . . . . tax . .9 78. .. . . . . .1) 0. . .230. .. .1 574.6 26.Part 9 RESULTS OF Operating and Financial Review OPERATIONS The following table sets forth the Company’s results of operations for the periods indicated: Nine months ended Year ended 31 March 31 December 2007 2008 2009 2008(1) 2009 (US$ in million) Continuing Operations Revenues .6) (51. .332. . . . .4) 13. . .. . .0) 2.. .. ..... . Power . .5 260.3) (62. Tax . .. .5 (26. . . .2) 474. . . .. Oil and gas . . . . . . . . . . . . . . ... . ..1) (144. . . . . . .. . . . . . ... . . . . .7) (153.4) (1.1 33. .6 (422.... . . . . .7) (37. . . Other Operating Income . . . .7 (61. . . . Oil and gas . . .. . . . . . .2 34. . . ... . . . . . . .8 (61. . .. . .. .4) (7. . . . . .... . . . . .0) (50. .1 (215.. .. . . .. . . . . .. . . . . . . . . .4 (84. . . . . .. . .4) 80...6 106. . . . . . . . . .6) (95. . . .0) (5. . ... .. . .. . . .2) (447. . . . . . . . . . (Loss)/Profit after tax .. . Other gains/(losses) (Loss)/Profit before Power . . . . 175 . . . . . . . .2) (0. . .. .7) (7. . . .7 (162. . .4) (33.9 Gross profit .9) (199. .7 372. . . . . ..0 (40. . . . .. . . . . . .. .6) (25. .. . . . .. (1) (2) Unaudited. . . .1 77. . .0) (244. . . .6 11. . . . .. . . . . Oil and gas . . . . .7 (297. . . . .. .3) 681. . .. . . . . .7) (297. . . . .5 (10. . . .7 114. .9 147.9) 2.5 (254.6 0.7 88.3) 165.. . . .3 82. .. .9) (20. . . Oil and gas .. . . Selling and distribution expenses(2) .6) (32.7) 52. . .7 (7. .0 74.. . .. .. . . Power . . .. . . . . . . . . . . . . . . . .. . .. . .7) (212.7) (81.9) 86. .5) (149. . . . . . . . . .4) (0. . . . .654. . . .. .7) (5. .. . .1) 39. . . . . . . .771.7) 322.. .0) (133..5) 135..2) 131. . .. . .7 (8. .9 5. .. .7) (2. . . . . .. . . . .7 107. . . . .3 196.9 39. .9 95.. .. . . . . . . Oil and gas .0 (259. . . . .. . . . .. Net finance costs . . . .3) 119.3) (101.1 11. . . . . .4) (159..543. . .4 3.. . . . Oil and gas . . Power .. . . . . . .1) (30. . .. . . . .1) (197. . . . . . . .6 5.. ..8) (10.4) (6. .. . . . . . . . . .6) 425.. .453. . .. ... . . . . . .4) (56.. .. . . . .. . .. . . . .. (Loss)/Profit before (losses) . . ..

. . . . . . . . . . .8% (3. . .3)% (31.8)% 11. . . . . . .1% (31.Part 9 Operating and Financial Review The following table shows certain line items from the income statement as a percentage of revenues for the periods indicated: Nine months ended Year ended 31 March 31 December 2007 2008 2009 2008(1) 2009 (as a percentage of revenues) Gross profit margin . . . . .2% (103. Oil and gas business Crude processed following commissioning of the Vadinar refinery on 1 May 2008 (in MMT) .012 1.6)% (25. Bhander Power sales in MKWh . . . . . . . . Oil and gas . . . (1) (2) (3) (3) 1. . . . . . . .6% 27. . . . . the data in the table does not include data for the trial runs. . Selling and distribution expenses(2) . . . . . . .5)% (17. . . . . . . . . . . . . .1% 6. . . . . . . . . . . . . . . . . . .4)% (13. . . . . . .9 9. .6)% (6. . . . . . . . . . . . . . . . . . . . .7)% (1. . . . . . . . . . . . . Therefore. . . .9)% (0. Both Essar Power and Bhander Power were acquired on 30 September 2006. . . . . . .4)% 0. . Oil and gas . . . . .1)% 12. . . . . . . . . . . . . 19. . . . . . . . . . .12 The Vadinar refinery was shut down for 18 days in April 2009 for a planned maintenance turnaround. . . . . . . . . Incurred only in the oil and gas business. . . . . . . . . .8% 0.0% 4. . . . . . .7% (41. . . .498 1. .0)% (0.6)% (2. . . . . . . . . . . . . . .0% 5. . .0)% (19. .736 — — — — 12.3 8. . . . .26 — — 7. . . .877 1. . . .7% 36.891 1. Total (in MKWh) . . . . . . 176 . .298 3. .2% 20. . . . . . . . .1)% (1. . . . . . . Power . . .9)% (5. . . . .02 3. . .8)% (19. . . Oil and gas . . . . . . . Power . . . .03 4.2)% (17. . . . . . .3)% (3.0% 5.7)% (3.3)% (2. .3)% 8. . . .4% 7.175 3. . .7% 41.741 2.0 11. . . . . General and administration expenses Net finance costs . . . Figures exclude Vadinar Power-Jamnagar because the power it generates is used in the Vadinar refinery’s operations. .0)% (2. . . (1) (2) Unaudited. . . . . . . . . . . . . . . . . . .8)% (18. . . . . . . . The crude oil and other expenses incurred during the Vadinar refinery’s trial runs as well as the proceeds received from sales of refined petroleum products produced in these trial runs were capitalised until the refinery commenced commercial operations on 1 May 2008. . . .6% 48. . . . .7% The following table provides certain operational data for the periods indicated: Nine months ended 31 December 2008 2009(1) Year ended 31 March 2007 2008 2009 Power business(2) Essar Power sales in MKWh . . . . . . . . . . Gross refining margin per barrel (excluding sales tax incentive) in US$ following commissioning of Vadinar refinery on 1 May 2008 . .1% 40. . . . . . . . . . . . . .1)% (2. . . .724 3.178 1. . . . . .6% 20. . . . . . . . . . .1)% 1. . .8)% 20. . . . . . . . . . . . . . . . . . . . . Power . . . .1)% (19. . .3)% (16. .2% (0. .394 3. . . . . . . . . . . . . . . . . . . .64 8.786 5. . .3)% (3.7% (3.97 7. . . . . . . . . . .46 — — 5. . . . . . Gross refining margin (including sales tax incentive) per barrel in US$ following commissioning of Vadinar refinery on 1 May 2008 . . . . Refined petroleum products sold following commissioning of the Vadinar refinery on 1 May 2008 (in MMT) .1% 35. . . .4)% 2. . . . . . . (Loss)/Profit before tax .62 2. . . . . . . . .6% (5. .572 2. . . . . . .7%) (0. . . . . . . . . . . . . . .284 2. . . . . . . . . . . . .9)% (1. . . . . . .850 4. . . . . . . . . . .18 9. . . . . . . .4)% (12. . . .

9 million in the nine months ended 31 December 2008 to US$227.0 million in the nine months ended 31 December 2008 to US$95.891.230.2 million in the nine months ended 31 December 2009. 177 .1 million in the nine months ended 31 December 2009. cost of sales was 59.9 million in the nine months ended 31 December 2008 to US$322.8 million in the nine months ended 31 December 2009. The oil and gas business’s revenues decreased from US$6.7 million in the nine months ended 31 December 2008 to US$11.6 mmt. Other Operating Income The Company’s other income increased from US$5.6 million in the nine months ended 31 December 2009. the power business’s gross profit increased from US$78. during the nine months ended 31 December 2008. predominantly crude oil costs.332. respectively.543. Cost of Sales The Company’s cost of sales decreased from US$6.55/MT compared to US$486.3 million in the nine months ended 31 December 2008 to US$196. The oil and gas business’s cost of sales decreased from US$6. which was commissioned on 7 October 2008. As a percentage of revenues.0 million in the nine months ended 31 December 2008 to US$5. cost of sales was 95.8% in the nine months ended 31 December 2008 and 2009. The higher percentage in the nine months ended 31 December 2009 was primarily due to the prices for refined products decreasing at a greater rate than the decrease in the cost of crude oil.9 million in the nine months ended 31 December 2009. The lower percentage in the nine months ended 31 December 2009 was primarily due to the decrease in revenues from GUVNL at the Essar Power-Hazira plant.6 million in the nine months ended 31 December 2009.083. which was partly offset by an increase in cost of sales due to full period operations of the third 145-MW unit of the Bhander Power-Hazira plant and commissioning of the Essar Power (Canada) plant in June 2009. partially offset by lower sales to GUVNL from the Essar-Power Hazira plant. The decrease was primarily due to a decrease in raw material cost. As a percentage of revenues.4% and 51.6 million in the nine months ended 31 December 2008 to US$5. despite an increase in overall sales volumes from 8.3 million in the nine months ended 31 December 2008 to US$101.51/MT during the nine months ended 31 December 2009. 145-MW unit of the Bhander Power-Hazira plant.7 million in the nine months ended 31 December 2008 to US$5.9 million in the nine months ended 31 December 2008 to US$5. Gross Profit Largely due to the factors discussed above: • • • The Company’s gross profit decreased from US$425. and the oil and gas business’s gross profit margin decreased from US$347. respectively. and commissioning of Essar Power (Canada) on 13 June 2009.1 mmt to 9. The increase was primarily due to full period of operations of the third. The decrease was primarily due to a decrease in average sales prices of refined petroleum products by US$ 269.7 million in the nine months ended 31 December 2009.0% and 95. The power business’s cost of sales decreased from US$114.Part 9 Operating and Financial Review Results of Operations for the Nine Months Ended 31 December 2008 and 2009 Revenues The Company’s revenues decreased from US$7.6% in the nine months ended 31 December 2008 and 2009.6 million in the nine months ended 31 December 2009.2/MT for the nine months ended 31 December 2008 to US$565.658.8/MT for the nine months ended 31 December 2009 largely due to downward pricing pressure on refined petroleum products resulting from the effects of lower crude prices.4 million in the nine months ended 31 December 2009. The decrease was primarily due to a decrease in power supplied to GUVNL from Essar-Power Hazira. respectively. Average raw material costs during the nine months ended 31 December 2008 was USD$708.654.3 million in the nine months ended 31 December 2009.457. The power business’s revenues increased from US$192.4/MT from US$ 835.

The increase was primarily due to higher interest expenses and higher bank charges in the nine months ended 31 December 2009 and also due to a full period of interest on borrowings related to the third unit of the Bhander Power-Hazira plant and the commissioning of the Essar Power (Canada) plant on 13 June 2009.8 million in the nine months ended 31 December 2008 to US$197.9% and 1. As a percentage of revenues. respectively.5 million being capitalised prior to the commencement of commercial production of the Vadinar refinery on 1 May 2008 and only the expenses related to traded refined petroleum products being recorded under the selling and distribution expenses on the income statement during the period from 1 April 2008 to 30 April 2008. The higher percentage in the nine months ended 31 December 2009 was primarily due to an increase in expenses coupled with a decrease in average sales prices in the oil and gas business during nine months ended 31 December 2009.6 million were included in cost of sales during the period ended 31 December 2008 and 31 December 2009.6 million were included in sales revenue during the period ended 31 December 2008 and 31 December 2009 respectively and gains of US$17. professional fees.Part 9 Operating and Financial Review Selling and Distribution Expenses The Company’s oil and gas business’s selling and distribution expenses were US$61.1% in the nine months ended 31 December 2008 and 2009. selling and distribution expenses were 0. The net positive effect in the nine months ended 31 December 2009 largely reflected the 8.9 million and losses of US$56.7% and 1.3 million in the nine months ended 31 December 2008 and other gains of US$165. general and administrative expenses were 0. Post commissioning such gains and losses relating to commodity derivative instruments are included in the sale of refined petroleum products in the case of product derivative instruments and in the cost of sales for crude derivative instruments.6 million in the nine months ended 31 December 2008 to US$215. insurance expenses as well as repair and maintenance expenses related to the planned 19-day maintenance shut-down of the Vadinar refinery. respectively.7 million in the nine months ended 31 December 2009. Net Loss on Commodity Derivatives Net loss on commodity derivatives for the nine months ended 31 December 2008 was US$62. net’’. The net negative effect in the nine months ended 31 December 2008 largely reflected the depreciation of the rupee against the US dollar in that period. The higher percentage in the nine months ended 31 December 2009 was primarily due to selling and distribution expenses incurred on sales of refined petroleum products produced during trial runs of the Vadinar refinery in the amount of US$3. (Loss)/Profit before net finance cost and other gains/(losses) Largely due to the factors discussed above.6 million and US$16.1 million in the nine months ended 31 December 2009.3 million in the nine months ended 31 December 2008 compared to foreign currency gains of US$146.9 million compared to nil for the nine months ended 31 December 2009. Accordingly.3 million in the nine months ended 31 December 2008 to US$75.3% in the nine months ended 31 December 2008 and 2009. Net Finance Cost The Company’s net finance cost increased from US$ 191. gains of US$28.4% 178 . respectively. General and Administration Expenses The Company’s general and administration expenses increased from US$51. gains and losses relating to commodity derivative instruments are separately classified on the income statement under ‘‘loss on commodity derivative instruments. Prior to the start of commercial production of the Vadinar Refinery.5 million in the nine months ended 31 December 2009. The increase was primarily due to higher provisions recorded for the welfare scheme in the state of Gujarat in pursuance of the sales tax incentives scheme. Other Gains/(Losses) The Company recognised other losses of US$447.9 million in the nine months ended 31 December 2009.6 million for both the nine months ended 31 December 2008 and the nine months ended 31 December 2009. Foreign currency loses were US$447. As a percentage of revenues.1 million in the nine months ended 31 December 2009. the Company’s (loss)/profit before net finance cost and other gains/(losses) decreased from US$255.

7 million in the nine months ended 31 December 2008 compared to a profit before tax of US$92. The power business’s revenues increased from US$106.453.0 million and an income tax expense of US$27. Under Indian tax laws.7 million in the nine months ended 31 December 2009. the tax losses of the Company’s Indian subsidiaries may not be used to offset the taxable profits of other the Company Indian subsidiaries. there is no consolidation for offsetting revenues and profits of one subsidiary against those of another subsidiary.3 million in the nine months ended 31 December 2009. (Loss)/Profit Before Tax Largely due to the factors discussed above: • The Company’s profit/loss before tax increased from a loss of US$383. respectively. respectively. and the oil and gas business had a loss before tax of US$422.5 million in the year ended 31 March 2008 and to US$260. Results of Operations for the Years Ended 31 March 2007.8 million in the year ended 31 March 2007 to US$232. and an increase in revenues of approximately US$18.Part 9 Operating and Financial Review appreciation of the rupee against the US dollar in that period.6 million in the nine months ended 31 December 2008 and 2009. which was acquired in September 2006 and from the commissioning of the second. 200-MW unit of the Bhander Power-Hazira plant in December 2007.6 million in the nine months ended 31 December 2009.7 million in the nine months ended 31 December 2009. These effective tax rates reflect the lack of tax benefits in the oil and gas business given the historical lack of profits in that business.0 million from the full-year of results of the Essar Power plant. 155-MW unit of Bhander Power-Hazira plant.0 million from the full year of results of the first.1 million in the nine months ended 31 December 2008 and the Company’s profit after tax was US$119. 179 . the oil and gas business acquired a 50% interest in Kenya Petroleum Refinery and accounted for US$19. an approximately US$19. therefore. (Loss)/Profit After Tax Largely due to the factors discussed above.1 million as a surplus arising on acquisition.0 million increase in variable charges received by Essar Power from GUVNL largely due to higher power supply. the power business had a profit before tax of US$39.7% and 18. The income tax benefit in the nine months ended 31 December 2008 was primarily due to the loss before tax in that period. During the nine months ended 31 December 2009.1 million in the nine months ended 31 December 2008 to a profit of US$147.1 million in the year ended 31 March 2009. 2008 and 2009 Revenues The Company’s revenues increased from US$202. which was acquired in September 2006.7% in the nine months ended 31 December 2008 and 2009. The Company’s effective tax rate was 33.6 million in the nine months ended 31 December 2008 compared to US$54.3 million in the year ended 31 March 2008 and to US$8. the Company’s loss after tax was US$254. The increase in the year ended 31 March 2008 compared to the year ended 31 March 2007 was primarily due to: • • • an increase in revenues of approximately US$69.7 million in the year ended 31 March 2007 to US$372.5 million in the year ended 31 March 2009. The income tax expense in the nine month ended 31 December 2009 was primarily due to the profit before tax in that period. • • Tax The Company recognised an income tax benefit of US$129.

to US$147.217 MT compared to 105.2 million in the year ended 31 March 2007. Cost of sales as a percentage of revenues increased from 99.188 MT to 147. the Company also recorded a gain on commodity hedging instruments for refined petroleum products of US$53.1 million (US$5.6 million under revenues in the year ended 31 March 2009 in relation to the fair value of the sales tax incentive of US$330.Part 9 Operating and Financial Review The increase in revenues in the year ended 31 March 2009 compared to the year ended 31 March 2008 was primarily due to: • an increase in revenues of approximately US$24 million due to the commissioning of the third.8 million in the year ended 31 March 2008 and to US$8.7 million in the year ended 31 March 2008 and to US$153.4 million in the year ended 31 March 2009. partially offset by lower gas consumption at the first unit of the Essar Power-Hazira plant as a result of a decrease in power supply to GUVNL.4 million in the year ended 31 March 2008 and to US$7.37 Rs:1 USD.152. approximately US$26 million net increase in variable charges received by Essar Power from GUVNL from the pass-through of higher charges.7 million in the year ended 31 March 2008 and to US$7. primarily higher average fuel costs. 213.188 MT in the year ended 31 March 2007. Cost of sales as a percentage of revenues in the power business increased from 63. In addition.5 million in the year ended 31 March 2007 to US$149. both of which were acquired in September 2006.0 million in the year ended 31 March 2009.6 million in the year ended 31 March 2009. Although the Vadinar refinery produced significant quantities of refined petroleum products during its trial runs. 200-MW unit of the Bhander Power-Hazira plant. 200-MW unit and the commissioning in October 2008 of the third.2% in the year ended 31 March 2007 to 64. largely due to pricing pressures from the subsidized prices offered by the Indian national oil companies. The increase in revenues in the year ended 31 March 2009 was primarily due to the Vadinar refinery’s commencement of commercial production on 1 May 2008. Revenues generated on products produced during these trial runs in the amount of Rs.4 million in the year ended 31 March 2009.6 million calculated at 41. The power business’s cost of sales increased from US$67. 200-MW unit of Bhander Power-Hazira plant in December 2007. 269/mmBTU to Rs. respectively. • • The oil and gas business’s revenues increased from US$95.192. which took place from November 2006 until 30 April 2008 and during which construction of the remaining units was occurring in parallel. 415/mmBTU as well as the first full year of operations of the second.4 million. The increase in cost of sales in the year 180 .7% in the year ended 31 March 2008. The increase in the year ended 31 March 2008 was primarily due to an increase in the volume of traded refined petroleum products sold to retail petrol stations. partially offset by the depreciation of the Indian rupee against the US dollar.7 million in the year ended 31 March 2007 to US$297. the Company sold 145. the oil and gas business recorded income of US$264. Cost of Sales The Company’s cost of sales increased from US$162. The increase in the year ended 31 March 2008 was largely due to the first full-year results of the first. 145-MW unit of the Bhander Power-Hazira plant.6 million mmBTU.3 million as of 31 March 2009. In the year ended 31 March 2009. primarily due to higher costs of fuel and lower sales to GUVNL.161.9% in the year ended 31 March 2009. and the commissioning of the second.3% in the year ended 31 March 2007 to 105. 145-MW unit of the Bhander Power-Hazira plant on 7 October 2008 and full year operation of the second. This increase was primarily due to per-unit cost of traded petroleum products increasing at a higher rate than the prices realised on their sales. The increase in the year ended 31 March 2009 was primarily due to per-unit fuel costs increasing from Rs. The increase in the year ended 31 March 2008 was primarily due to an increase in traded petroleum products sales volume from 106. The oil and gas business’s cost of sales increased from US$95.9 million in the year ended 31 March 2007 to US$139.4% in the year ended 31 March 2008 and decreased to 58. being the average exchange rate for the period 24 November 2006 to 30 April 2008) were capitalised after adjusting for the cost of raw materials and other related operating expenses.7 million mmBTU to 15. In the year ended 31 March 2008.771. as well as higher prices following on from the increase in crude oil prices.618. Refined petroleum prices followed the trend in crude oil prices in that year. These factors largely resulted in gas consumption increasing from 8. increasing significantly from April 2008 to June 2008 and then decreasing significantly thereafter until December 2008.218 MT largely as a result of higher sales to the Group’s retail petrol stations. 155-MW unit of the Bhander Power plant and of the Essar Power-Hazira power plant.

2 million in the year ended 31 March 2009.4 million in the year ended 31 March 2009.6% in the year ended 31 March 2008 and to 41. In addition.0 million in the year ended 31 March 2007 to US$74.Part 9 Operating and Financial Review ended 31 March 2009 was primarily due to an increase in sales volume following the Vadinar refinery’s commencement of commercial production on 1 May 2008. during the Vadinar refinery’s trial runs was US$10.7 million in the year ended 31 March 2008 and to US$81. The increase in the year ended 31 March 2009 was largely due to the provisions relating to contributions to the state of Gujarat welfare scheme and additional expenses of $9.4 million in the year ended 31 March 2007 to US$3.9 million in the year ended 31 March 2008 and to US$681. Selling and Distribution Expenses The Company’s oil and gas business’s selling and distribution expenses decreased from US$6. Post commissioning such gains and losses relating to commodity 181 .6 million in the year ended 31 March 2007 to US$64. General wage inflation. Gross Profit Largely due to the factors discussed above: • The Company’s gross profit increased from US$40. and the oil and gas business’s gross profit margin decreased from profit of 0.1% in the year ended 31 March 2009. Once the Vadinar refinery was commissioned.0% in the year ended 31 March 2009.9 million in the year ended 31 March 2008 and increased to US$76. in the year 2008-2009. Prior to the commissioning of the Vadinar refinery on 1 May 2008. In the oil and gas business. the power business’s gross profit decreased from 36.0 million in the exploration and production segment. other income post commencement of commercial production from May 2008 was considered in the profit and loss account resulting in higher income.8 million in the year ended 31 March 2008 and US$61. Net Loss on Commodity Derivatives Net loss on commodity derivatives. other income for the years ended 31 March 2007 and 31 March 2008 was capitalised because the Vadinar refinery was under project stage and accordingly was lower than expected in the profit and loss account. net’’. The increase in the year ended 31 March 2008 was primarily due to the first-full year of results of the Essar Oil in that year. as well as additional headcount and bonuses paid in connection with the commissioning of the Vadinar refinery and second and third units of the Bhander Power-Hazira plant have also driven the year-to-year increases in costs of sales.9 million in the year ended 31 March 2007. gains and losses relating to commodity derivatives were separately classified on the income statement under ‘‘loss on commodity derivative instruments.7 million in the year ended 31 March 2009. the Company incurred additional expenses of $3.7)% in the year ended 31 March 2008 and increased to a profit of 7.7% in the year ended 31 March 2007 to (5. General and Administration Expenses The Company’s general and administration expenses increased from US$35.91 million in the exploration and production segment.5 million in the year ended 31 March 2008 and to US$11.7 million in the year ended 31 March 2009. US$199. which has averaged around 10% year-on-year. However.4 million in the year ended 31 March 2007 to US$1. following its acquisition in June 2006. all selling and distribution expenses related to the Vadinar refinery’s production were recorded under selling and distribution expenses on the income statement. selling and distribution expenses incurred on sales of refined petroleum products produced during trial runs of the Vadinar refinery in the amount of US$3.8% in the year ended 31 March 2007 to 35. Prior to the start of commercial production of the Vadinar refinery.2 million in the year ended 31 March 2009. • • Other Operating Income The Company’s other income increased from US$2.5 million were capitalised and only the expenses related to traded refined petroleum products were recorded under selling and distribution expenses on the income statement.

4 million in the year ended 31 March 2008 and of US$244.6 million as of 31 March 2007.6 million in the year ended 31 March 2007 to US$26.Part 9 Operating and Financial Review derivative instruments are included in the sale of refined petroleum products in the case of product derivative instruments and in the cost of sales for crude derivative instruments. However. Net Finance Costs The Company’s net finance costs decreased from US$50.7 million and US$2. net finance expense post commencement of commercial production from May 2008 was considered in the profit and loss account resulting in higher finance expenses.0 million in the year ended 31 March 2008 and a (loss)/profit before net finance cost and other gains/(losses) of US$474. 28. US$17.1 million were capitalised.5 million.6 million were included in sales revenue during the years/ periods ended 31 March 2009. respectively. net finance expense for the years ended 31 March 2007 and 31 March 2008 were capitalised because the Vadinar refinery was under construction and accordingly were lower than expected in the profit and loss account.0 million in the year ended 31 March 2009. 182 .7 million in the year ended 31 March 2007 to US$44. In the oil and gas business. gains of US$53. The negative effect in the year ended 31 March 2009 largely reflected the 27.7 in the year ended 31 March 2009. US$33.4%. in the year ended 31 March 2009.0 million. The higher gross interest charges and higher capitalised interest expenses in the year ended 31 March 2008 were primarily due to higher amounts borrowed in that year for capital works in progress.4 million in the years ended 31 March 2007 and 2008.6 million and US$16.4 million in the year ended 31 March 2008 and US$297.9 million in the year ended 31 March 2008 and increased to US$259.097. Accordingly. Net borrowings were US$2.4% appreciation of the rupee against the US dollar in that year. of which US$260. compared to US$253. 2008 and 2009.9 million and a loss of US$56. US$28.0 million in the year ended 31 March 2008 and US$52. respectively. and gains of US$25. • • Income Tax The Company recognised income tax benefits of US$0.1 million were capitalised. respectively. (Loss)/Profit Before Tax Largely due to the factors discussed above: • the Company had a loss before tax of US$26.3 million of which US$40.5 million in the year ended 31 March 2007 and of US$188.5 million and US$77. 2008 and 2009.3% and 31. In the year ended 31 March 2008. compared to other losses of US$459. 31 December 2008 and 31 December 2009. These gains and losses related to currency exchange differences. the power business’s profit before tax increased from US$13.0 million in the year ended 31 March 2009.8%.9 million. in the year 2008/09. Other Gains/(Losses) The Company recognised other gains of US$34. and the oil and gas business’s loss before tax increased from US$40. respectively.7 million in the year ended 31 March 2009.4 million in the year ended 31 March 2009.7 million in the years ended 31 March 2007.6 million. gross interest charges were US$304.4 million. Essar Energy’s effective tax rate was 3. the Company had a (loss)/profit before net finance cost and other gains/(losses) of US$10.7 million in the year ended 31 March 2009. respectively.447.7 million and US$114.1 million in the year ended 31 March 2007 to US$144. (Loss)/Profit Before Net Finance Cost and Other Gains/(losses) Largely due to the factors discussed above.5 million in the year ended 31 March 2007. The gains in the year ended 31 March 2008 largely reflected the 8.557.5% depreciation of the rupee against the US dollar in that year. respectively. US$3. respectively. 31 December 2008 and 31 December 2009.6 million were included in cost of sales during the years/periods ended 31 March 2009. of US$118.

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The tax rate for 2007 was lower in comparison to other periods as a result of losses incurred where a deferred tax asset was not created because it was not probable that the losses would be utilised. In 2008 and 2009, the effective rate increased as a result of profits being generated. (Loss)/profit After Tax Largely due to the factors discussed above, the Company’s loss after tax was US$25.6 million, US$84.9 million and US$167.0 million in the years ended 31 March 2007, 2008 and 2009 respectively. LIQUIDITY Overview The Company’s power generation and oil and gas businesses are capital intensive. To date, the Company has funded its power expansion and oil and gas projects through borrowings, equity issuances and surplus cash from operations. The Company’s Expansion Projects will require substantial capital expenditures, which the Company expects to fund through a combination of the net proceeds of the Offer, additional debt and equity financing and increasingly from surplus operating cash flows as the projects are completed over the next few years. The following table summarises the Company’s cashflows for the periods indicated:
Nine months ended 31 December 2008(1) 2009
AND

CASH FLOWS

Year ended 31 March 2007 2008 2009 (US$ in million)

Net cash generated/(used) in operating activities . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . . . . . . Net increase/(decrease) in cash and cash equivalents . . . . Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of period . . . . . . . Cash and cash equivalents at end of period . . . . . . . . . . .
(1) Unaudited

(47.7) (126.5) 350.1 229.6 164.2 (1,289.3) (589.6) (498.2) (413.4) (556.9) 1,367.1 772.2 97.9 89.7 392.6 30.1 10.2 — 40.3 56.1 4.1 40.3 100.5 (50.2) 12.3 100.5 62.6 (94.1) 6.6 100.5 13.0 (0.1) 8.9 62.6 71.4

Nine Months Ended 31 December 2008 and 2009 Cash Flows From Operating Activities Operating activities generated net cash of US$229.6 million and US$164.2 million in the nine months ended 31 December 2008 and 2009, respectively. The lower net cash generated by operating activities in the nine months ended 31 December 2009 was largely due to: • in the power business, net cash generated by operating activities was US$32.8 million and US$82.9 million in the nine months ended 31 December 2008 and 2009, respectively, and related primarily to higher profits and increase in trade and other payables; in the oil and gas business, net cash generated by operating activities was US$196.8 million and US$81.3 million in the nine months ended 31 December 2008 and 2009, respectively. The net loss during the period ended 31 December 2008 was US$422.7 million as compared to a net profit of US$92.6 million for the period ended 31 December 2009. After adjustments for non-cash currency losses, depreciation and amortisation and other non-cash items, and net finance expenses, the oil and gas business recorded a net cash inflow from operating activities before working capital changes of US$312.4 million for the period ended 31 December 2008 and US$130.1 million for the period ended 31 December 2009; and working capital related changes and income tax payment charges resulted in cash outflow of US$115.6 million in December 2008 as against cash outflows of US$48.8 million in December 2009.

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Cash Flows Used in Investing Activities Net cash used in investing activities was US$413.4 million and US$556.9 million in the nine months ended 31 December 2008 and 2009, respectively. During the period under review, investment activities relate primarily to additions to fixed assets and capital work in progress related to the Vadinar refinery, the expansion of installed megawatt capacity and investments in subsidiaries and associates and the expansion of exploration and production activities. The movements in cash outlays for investing activities in the nine months period ended 31 December 2008 and 2009 primarily reflect: • in the exploration and production segment, net cash outlays related to the exploration and production activities were US$18.3 million and US$20.1 million in the nine months ended 31 December 2008 and 2009, respectively, and related primarily to exploration expenditure; in the power business, net cash used in investing activities was US$141.5 million and US$372.0 million in the nine months ended 31 December 2008 and 2009, respectively, and related primarily to change in fixed assets and capital working progress for projects and the acquisition of 50.1% interest in Essar Power (Canada); and in the oil and gas business, net cash used in investing activities was US$253.6 million and US$164.8 million in the nine months ended 31 December 2008 and 2009, respectively, and related primarily to the refinery and refinery expansion project.

For more information about the Company’s historical capital expenditures, see ‘‘—Capital Expenditures— Historical Capital Expenditures’’. Cash Flows From Financing Activities Net cash provided by financing activities was US$89.7 million and US$392.6 million in the nine months ended 31 December 2008 and 2009 respectively. The movements in cash provided by financing activities primarily reflect: • In the nine months ended 31 December 2008, the power business received net proceeds from financing activities in the amount of US$100.3 million, primarily reflecting US$130.7 million of net proceeds received from the issuance of shares and share application money and US$89.5 million from borrowings, offset by repayment of borrowings of US$90.8 million and interest payment in the amount of US$29.1 million. In the nine months ended 31 December 2009, the power business received net proceeds from financing activities in the amount of US$287.7 million, primarily reflecting US$89.1 million of net proceeds received from the issuance of shares and share application money and US$365.8 million from borrowings, offset by repayment of borrowings of US$92.7 million and interest payment in the amount of US$74.5 million; and in the nine months ended 31 December 2008, the oil and gas business used net cash in financing activities in the amount of US$10.6 million, primarily reflecting net proceeds in the amount of US$107.8 million from Essar Oil’s issuance of global depositary shares and changes in the balance of bills of exchange accepted in the amount of US$61.5 million, partially offset by interest payments of US$119.9 million and net repayments of borrowings of US$60.0 million; in the nine months ended 31 December 2009, the oil and gas business received net proceeds from financing activities in the amount of US$104.9 million, primarily reflecting net proceeds from borrowings of US$146.5 million and changes in the balance of bills of exchange accepted of US$77.8 million, partially offset by interest payments of US$104.3 million and payment of share application of US$15.1 million due to EEPSEAL carve-out.

For more information about historical the Company’s indebtedness, see ‘‘—Indebtedness’’. Years Ended 31 March 2007, 2008 and 2009 Cash Flows From Operating Activities Operating activities generated net cash of US$350.1 million in the year ended 31 March 2009 compared to net cash used in operating activities of US$47.7 million and US$126.5 million in the year ended

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31 March 2007 and 2008, respectively. The switch to positive cash generation from operating activities in the year ended 31 March 2009 is largely attributable to the Vadinar refinery commencing commercial operations on 1 May 2008. The power business also generated positive net cash flows from operating activities in each of the years ended 31 March 2007, 2008 and 2009. The higher net cash used in operating activities in the year ended 31 March 2008 compared to 31 March 2007 was largely due to: • in the power business, net cash flows generated by operating activities were US$50.4 million and US$68.9 million for the years ended 31 March 2007 and 2008, respectively. Net working capital changes used cash of US$31.8 million in the year ended 31 March 2008 and were largely due to an increase in trade and other receivables and other assets as a result of a dispute with GUVNL under its PPA and payment of upfront finance charges to banks; and in the oil and gas business, net cash flows used in operating activities was US$98.1 million and US$195.4 million for the years ended 31 March 2007 and 2008, respectively, and related primarily to traded refined petroleum product operations. Key factors in the negative cash flow from operations in these years include the sale of traded refined petroleum products below their cost, largely due to pricing pressures from the subsidized prices offered by the Indian national oil companies.

The Company’s net cash generated by operating activities in the year ended 31 March 2009 compared to the net cash used in operating activities in the year ended 31 March 2008 was primarily due to: • cash flows generated by operating activities in the total amount of US$350.1 million in the year ended 31 March 2009 compared to cash flows used in operating activities of US$126.5 million in the year ended 31 March 2008 following adjustments arising from non-cash currency losses, depreciation and amortisation and net finance expenses; in the power business, net cash flows generated by operating activities was US$70.0 million for the year ended 31 March 2009. There was a net negative movement in working capital and payment of taxes of US$55.2 million. This change largely reflected a decrease in current liabilities on account of payment to creditors and finance lease payment; and in the oil and gas business, net cash flows generated from operating activities were US$280.1 million for the year ended 31 March 2009, primarily reflecting the gross refining margins generated by, and the volume of production of, the Vadinar refinery, which commenced commercial production on 1 May 2008. After adjustments for non-cash currency losses, depreciation and amortisation and other non-cash items, the oil and gas business recorded a net cash inflow from operating activities before working capital changes of US$514.3 million in the year ended 31 March 2009. Changes in the level of working capital and payment of taxes decreased operating cash flow to US$234.2 million in that year. These changes included decreases in trade and other payables, including provisions and payment of taxes, to US$349.1 million and an increase in receivables, advances and deposits to US$481.5 million, partially offset by a decrease in the level of inventory by US$596.4 million.

Cash Flows Used in Investing Activities Net cash used in investing activities was US$1,289.3 million, US$589.6 million and US$498.2 million in the years ended 31 March 2007, 2008 and 2009, respectively. The movements in cash outlays for investing activities in the years ended 31 March 2007, 2008 and 2009 primarily reflect: • in the exploration and production segment, net cash outlays related to exploration and production activities were US$23.1 million, US$56.3 million and US$18.1 million in the years ended 31 March 2007, 2008 and 2009, respectively; net cash used for the acquisition of subsidiaries and minority interests was US$740.2 million, US$295.8 million and US$nil in the years ended 31 March 2007, 2008 and 2009, respectively. In the year ended 31 March 2007, the power business’s acquisition of Essar Power Holdings Ltd. (‘‘EPH’’) and other subsidiaries used cash of US$1.3 million and the oil and gas business’s acquisition of Essar Vadinar Oil, including its shares in Essar Oil and Vadinar Power Company Limited (‘‘VPCL’’), and other subsidiaries used net cash of US$738.9 million. In the year ended 31 March 2008, the oil and gas

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business used cash of US$212.1 million for its acquisition of minority interests and the power business used net cash of US$83.7 million for its acquisition of its initial 49.9% stake in Essar Power (Canada) (formerly, Algoma Energy LLP); • in the power business, cash outlays of US$47.5 million, US$168.3 million and US$223.0 million in the years ended 31 March 2007, 2008 and 2009, respectively, related primarily to changes in fixed assets and capital work-in-progress and purchases/sale of investments. In the year ended 31 March 2007, the outlays related primarily to the construction of the second and third units of the Bhander PowerHazira plant and modification and upgrade capital expenditures for the Essar Power-Hazira plant. In the year ended 31 March 2008, the outlays related primarily to construction of the second and third units of the Bhander Power-Hazira plant, the Essar Power-Salaya project and the Essar Power MP-Mahan plant. In the year ended 31 March 2009, the outlays related primarily to the construction of the Essar Power (Canada) plant, the Essar Power MP-Mahan plant, the Essar Power-Salaya project and the third unit of Bhander Power-Hazira plant; and the oil and gas business used net cash for purchases of property, plant and equipment of US$477.8 million, US$68.7 million and US$257.1 million in the years ended 31 March 2007, 2008 and 2009, respectively. The higher cash outlays in the year ended 31 March 2007 compared to the prior year related primarily to higher expenditures during the Vadinar refinery’s construction and trial runs. The high cash outlays in the year ended 31 March 2009 compared to the prior year related primarily to payments made in connection with the Refinery Expansion Projects, including purchases of land.

Cash Flows From Financing Activities Net cash provided by financing activities was US$1,367.1 million, US$772.2 million and US$97.9 million in the years ended 31 March 2007, 2008, 2009, respectively. The movements in cash provided by financing activities primarily reflect: • in year ended 31 March 2007, the power business received US$8.7 million net proceeds from financing activities, primarily reflecting US$10.4 million of net proceeds received from the issuance of shares and share application money and proceeds from borrowing in the amount of US$56.1 million, offset by interest payments in the amount of US$20.1 million and the repayment of borrowings in the amount of US$37.7 million. In year ended 31 March 2008, the power business received net proceeds from financing activities in the amount of US$204.7 million, primarily reflecting net proceeds from issuance of share application money in the amount of US$361.7 million and proceeds from borrowings in the amount of US$64.1 million, partially offset by repayments of long-term bank borrowings, including prepayment of a loan to Power Finance Corporation, in the amount of $167.2 million and interest payments in the amount of US$53.9 million. In the year ended 31 March 2009, the power business received net proceeds from financing activities in the amount of US$138.7 million, primarily reflecting net proceeds from the issuance of shares and share application money in the amount of US$143.7 million and proceeds from borrowings in the amount of US$152.5 million, partially offset by repayments of borrowings, including a loan related to the third unit of the Bhander Power-Hazira plant, in the amount of US$112.8 million and interest payments in the amount of US$44.7 million; and in the year ended 31 March 2007, the oil and gas business received net proceeds from financing activities in the amount of US$1,358.4 million, primarily reflecting net proceeds from borrowings in the amount of US$1,258.0 million, net proceeds from the issuance of share capital in the amount of US$183.4 million and changes in the balance of bills of exchange accepted of US$12.0 million partially offset by interest payments in the amount of US$95.0 million. In the year ended 31 March 2008, the oil and gas business received net proceeds from financing activities of US$567.5 million, primarily reflecting net proceeds from long term borrowings in the amount of US$278.3 million and net proceeds from the issuance of share capital in the amount of US$426.0 million, partially offset by a change in the balance of bills of exchange accepted in the amount of US$11.2 million and by interest payments of US$125.6 million. In the year ended 31 March 2009, the oil and gas business used net cash from financing activities of US$40.8 million primarily reflecting net proceeds in the amount of US$130.2 million from Essar Oil’s issuance of global depositary shares and changes in the balance of bills of exchange accepted in the amount of US$197.6 million, partially offset by interest payments of US$154.3 million and net repayments of borrowings of US$214.3 million. In accordance with the

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terms of the Vadinar refinery’s project financing arrangements, the oil and gas business began making quarterly interest payments under these arrangements from the quarter ended March 2008, which largely resulted in the increased use of cash for interest payments during the year ended 31 March 2009. CAPITAL EXPENDITURES Historical Capital Expenditures The following table provides an overview of the Company’s capital expenditures and other capital investments for the periods indicated:
Nine months ended 31 December 2009

Year ended 31 March 2007 2008 2009 (US$ in million)

Power business Construction of the Bhander Power-Hazira plant . . . . . . Construction of the Vadinar Power-Jamnagar power plant Essar Power MP-Mahan . . . . . . . . . . . . . . . . . . . . . . . . Essar Power Jharkhand-Tori . . . . . . . . . . . . . . . . . . . . . . Essar Power Gujarat-Salaya . . . . . . . . . . . . . . . . . . . . . . Essar Power (Canada) . . . . . . . . . . . . . . . . . . . . . . . . . . Sustaining capital expenditures etc . . . . . . . . . . . . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

35.2 4.0 — — — — 12.6 51.8 375.8 47.0 15.4 438.2 490.0

52.0 — 83.2 0.7 14.2 33.2 11.2 194.5 445.3 152.9 80.60 678.8 873.3

6.6 68.6 111.8 6.6 123.0 49.6 3.2 369.4 (34.1) 262.9 9.4 238.2 607.6

— 110.0 129.3 0.5 176.1 43.3 22.1 481.3 16.1 168.1 22.9 207.1 688.4

Power business total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil and gas business Construction of the base Vadinar refinery . . . . . . . . . . . . . . . . . . . Upgrades to the Vadinar refinery . . . . . . . . . . . . . . . . . . . . . . . . . Other oil and gas business capital expenditures . . . . . . . . . . . . . . . Oil and gas total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Planned Capital Expenditures

For information regarding the expected capital expenditures that will need to be made to complete the Company’s various expansion projects, see—‘‘Recent and Future Expansion of Operations—Funding Costs for the Expansion Projects’’. INDEBTEDNESS Overview The Company’s policy is generally to optimise borrowings at an operating company level within an acceptable level of debt. The Company’s existing and future project financing arrangements are usually secured by pledges and charges over substantially all of the assets to which the financing arrangements relate, including the shares of significant subsidiaries of the Company. The Company’s target capital structure by project is 75%:25% debt-to-equity ratio for power projects and 60%:40% debt-to-equity ratio for refining projects. Equity funding for existing operations or new projects and acquisitions is raised centrally, first from equity financing or operating cashflows and then from new group-level borrowings, while retaining an acceptable level of debt for the consolidated the Company group. The Company’s policy is to borrow using a mixture of long-term and short-term debt from both local and international financial markets as well as multilateral organisations.

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Historical Indebtedness The following table sets forth the Company’s financial indebtedness as of the dates indicated:
As of 31 March 2007 2008 2009 (US$ in million) As of 31 December 2009

Non-convertible debentures . . . . . . . . . . . . . . . Borrowings from banks and financial institutions Cumulative redeemable preference . . . . . . . . . . Working capital loans . . . . . . . . . . . . . . . . . . . Loan from related parties . . . . . . . . . . . . . . . .

. . . . .

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. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

254.5 2,052.7 — 147.0 110.7

159.8 2,447.9 — 415.1 82.1

105.8 1,981.8 69.6 260.8 34.1

104.2 2,349.5 86.4 474.8 97.8 3,112.7 (3.7) 3,109.0 773.1 2,335.9 (918.9) 2,190.1

Total borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: unamortized finance cost . . . . . . . . . . . . . . . . . . . . . . . Net borrowings . . . . . . . . . . Power business . . . . . . . . . Oil and gas business . . . . . Less: payable within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,564.9 3,104.9 2,452.1 (7.3) (7.2) (4.5) 2,557.6 3,097.7 2,447.6 529.2 495.8 440.8 2,028.4 2,601.9 2,006.8 (385.4) (745.7) (581.5) 2,172.2 2,352.0 1,866.1

Non-current borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . Of the Company’s total borrowing as of 31 December 2009: • •

US$2,693.8 million related to fixed-rate borrowings and US$415.2 million related to floating-rate borrowings; and US$2,318.1 million related to rupee-denominated borrowings and US$606.6 million related to US$ dollar-denominated borrowings.

As of 31 December 2009, the Company’s cost of debt was 8.0% to 20.5% on Indian rupee borrowings in the amount of US$2,318.1 million and 1% to 7% on US dollar borrowings in the amount of US$606.6 million. As of 31 December 2009, the Company had available committed working capital facilities in the amount of US$2,252.5 million, of which US$1,296.9 million was outstanding. The following table shows the Company’s gearing ratio as of 31 December 2009:
As of 31 December 2009 (US$ in million)

Interest bearing loans and borrowings . Less: cash and bank deposits . . . . . . . Net debt . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

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. . . .

. . . .

. . . .

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. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

3,109.0 71.4 3,037.6 2,038.8 5,076.4 59.8%

Equity and net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gearing ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The table below summarises the power business’s financial indebtedness as of 31 December 2009 in US dollars (computed at an exchange rate of US$1.00 : Rs. 46.68) and rounded to the nearest million. Management believes that the facilities listed in the table below contain terms and conditions that are standard for facilities of these types in the power sector in India.
Facilities Facilities committed agreed as at as at 31 December Rate of 31 December (1) 2009 Interest 2009(2)
(4)

Purpose of debt ESSAR POWER LTD Rupee term loan . . . Short term loans . . . . Working capital . . . . Equipment lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Term June 2010—June 2013 April 2010—December 2010 September—December 2013

Amount outstanding as at 31 December 2009 108 107 61 18 294

210 107 188 38 543 161

8.83% 13.03% 12.06% 14.40%

TOTAL . . . . . . . . . . . . . . . . . . . . . . BHANDER POWER LTD Rupee term loan . . . . . . . . . . . . . VADINAR POWER COMPANY LTD (BASE PLANT 120MW) Rupee term loan . . . . . . . . . . . . . ESSAR POWER M.P. LIMITED Rupee term loan . . . . . . . . . . . . . ESSAR POWER GUJARAT LIMITED Rupee term loan . . . . . . . . . . . . . Unsecured loan . . . . . . . . . . . . . . . . .

10.33%

November 2013—December 2016

115

. . . . . . . . . . . .

80 787 766 8 774

13.24% 12% 11.25% 0

January 2013 July 2022 June 2021—June 2023

50 72 32 1 33

TOTAL . . . . . . . . . . . . . . . . . . . . . . VADINAR POWER COMPANY LTD (EXPANSION) Rupee term loan . . . . . . . . . . . . . . . . ESSAR POWER TRANSMISSION COMPANY LTD Rupee term loan . . . . . . . . . . . . . . . . ESSAR POWER (JHARKHAND) LTD Rupee term loan . . . . . . . . . . . . . . . . TOTAL . . . . . . . . . . . . . . . . . . . . . . ESSAR POWER HAZIRA LTD Rupee term loan . . . . . . . . . . . . . . . . ESSAR POWER CANADA term loan . . . . . . . . . . . . . . . . . . . . . ESSAR POWER OVERSEAS BVI . . . . . . (1) (2) (3) (4)

494(3)

12.60%

11.70% 321.34(3) 11.50%

200 593.4 593.4

— — — — May 2020 March 2011 190.5 —

231(3) 190.5 300(3)

8.73% 9.10% 11%

Facilities committed means facilities in respect of which binding loan agreements have been entered into. Facilities agreed means facilities which have been agreed with lenders in the form of non-binding term sheets or sanction letters. These facilities have been committed post 31 December 2009. Axis Bank has entered into a subscription agreement dated 19 April 2010 to subscribe to secured redeemable non convertible debentures at 11.25% for a term starting fiscal year 2011 to fiscal year 2018 of Essar Power Limited on a private placement basis for Rs. 8,000 million (US$171.38 million). The purpose for this sanction is to refinance the existing term loans of Essar Power Limited and general corporate purposes.

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The table below summarises the oil and gas business’s debt facilities available as of 31 December 2009 in US dollars (computed at an exchange rate of US$1.00 : Rs. 46.68) and as of 31 March 2010 in US dollars (computed at an exchange rate of US$1.00 : Rs. 45.14) and in both cases rounded to the nearest million. Other than the MRA discussed at ‘‘Corporate Debt Restructuring’’ below, management believes that the facilities listed in the table below contain terms and conditions that are standard for facilities of these types in the oil and gas sector in India.
Facilities Facilities committed agreed as at as at 31 December 31 December (1) 2009 2009(2) — 50 — 174 2,193(6) 311 — 100 900 5 1 — — — 63 Amount outstanding as at 31 December 2009 1,660 73 13 113 1,291 107 — 99.22 280 4 1 —

Operating and Financial Review

Purpose of debt

Lenders

Facility type Debt restructured as per MRA ECB (including funded interest) Non Convertible Debentures Inter company debt/Finance lease Working capital Bills Discounting Short term loan

Date of Agreement entered 17-Dec-04 15-May-01 12-Jan-95 Various dates 30-Mar-09 Various dates 30-Mar-10 26-Jun-07 Agreement yet to be entered 31-Mar-08 28-Apr-93 31-Mar-10

Rate of Interest Per MRA terms Libor + 2.25% 6 to 9.25% 0 to 14% Various MIBOR + 2.5 to 3.0% 6.5% Libor + 1.50% up to Oct-09 and Libor + 2.75% thereafter Various rates linked to PLR 11.25% N.A. 11%

Term Per MRA 8 years Repayable in March 2010(4) Between 2 to 20 Years Various 12 months 15 days 11 Years 8.5 Years 5 Years N.A. 6 months

Base Refinery . . . . . . . . . Various Banks & debenture holders covered by MRA American Express Bank(3) Debenture holders not covered by MRA Group Companies Working Capital(5) . . . . . . . Various banks

190
Phase I Refinery Expansion . . . . . . . . . . ICICI Bank Various Banks E&P Business . . . . . . . . . Bank Bank Bank (1) (2) (3) (4) (5) (6) (7) Repaid by the Company in March 2010.

ECB Rupee Term Loan(7) Rupee Debt Conditional Grant Short term loan

Facilities committed means facilities in respect of which binding loan agreements have been entered into. Facilities agreed means facilities which have been agreed with lenders in the form of non binding term sheets or sanction letters. The American Express Bank Loan was settled by making a lump sum payment of US$63 million in March 2010.

See ‘‘Other Available Sources of Liquidity—Oil and gas business’’ below for a description of this facility. In addition, Essar Oil has a committed credit line from two suppliers, State Trading Corporation and MSTC Limited. This facility has been renewed and the current facility is for Rs. 106,500 million (US$2,281.5 million). Prior to final documentation being signed the lenders have permitted Essar Oil to draw down up to US$643 million as LC facilities.

Part 9

Operating and Financial Review

For information on the extent to which the Company has secured debt financing for the Expansion Projects, see ‘‘Factors Affecting Results of Operations and Financial Condition—Funding Costs for the Expansion Projects’’. Corporate Debt Restructuring As of 31 December 2009, Essar Oil had Rs. 77,486.5 million (US$1,659.9 million) of indebtedness outstanding that was subject to the corporate debt restructuring scheme discussed below. Due to the Vadinar refinery construction coming to a standstill for various reasons but mainly on account of disruptions caused by a tropical cyclone, Essar Oil was referred to the Corporate Debt Restructuring in 2003 by ICICI Bank being the lead bank to restructure Essar Oil’s then-outstanding indebtedness of Rs. 50,120 million. On 17 December 2004, Essar Oil entered into corporate debt restructuring scheme (the ‘‘CDR Scheme’’) with its then-existing lenders by executing a master restructuring agreement. The CDR Scheme provided for, among other things: the rescheduling of accrued interest; the restructuring of existing loans, including the extension of the relevant repayment schedules and the reduction of interest rates; a waiver of liquidated damages, disbursement of further loans, etc. Essar Oil and its then-existing lenders (being ICICI Bank Limited, Industrial Development Bank of India Limited, IFCI Limited, Punjab National Bank, Life Insurance Corporation of India, United India Insurance Company Limited, General Insurance Corporation of India, National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited, Allahabad Bank, and Central Bank of India, (the ‘‘Existing Lenders’’) subsequently entered into a master restructuring agreement, dated 17 December 2004 (the ‘‘MRA 2004’’). In terms of the MRA, Essar Oil was eligible to avail further loans, called the additional priority loans. Pursuant to entering into these additional priority loans, State Bank of India, State Bank of Saurashtra, Indian Bank, Indian Overseas Bank, Syndicate Bank, Oriental Bank of Commerce, Housing and Urban Development Corporation Limited and Bank of Baroda (the ‘‘Acceded Lenders’’ and together with the Existing Lenders, the ‘‘Lenders’’) also became party to the MRA. An amendment agreement dated November 21, 2006 was entered into between Essar Oil and the Lenders in order to amend certain terms of MRA 2004 (the ‘‘Amended MRA’’ and together with MRA 2004, the ‘‘MRA’’). Under the terms of the MRA, the interest rates under the then-existing loans were reset and the repayment schedules were revised. All interest on loans at the contracted rate of interest for the Vadinar refinery project for the period from October 1, 1998 to December 23, 2003 was converted into a funded interest facility called Facility Stoppage carrying interest at the rate of 5% per year and maturing on 31 March 2026. The amount of Facility Stoppage totalled approximately Rs. 26,747 million as of 31 December 2009. Interest on various facilities including Facility Stoppage for the period from 30 December 2003 until 30 September 2004 was funded and converted into a facility called Facility Pre-Start. The amount of Facility Pre-Start totalled approximately Rs. 2,923.1 million as of 31 December 2009. Interest on Facility Pre-Start for the period up to 31 March 2007 totalled approximately Rs. 633.2 million was also funded. The Facility Pre-Start and interest accrued thereon until 31 March 2007 will mature on 31 March 2027. Under the MRA, Essar Oil, subject to the consent of its Lenders, can prepay the Facility Stoppage at its net present value by applying discounted rate of 10% per year on quarterly basis. The indebtedness under the MRA has been at interest rates ranging from 5% to 12.5% per year subject to variation of these interest rates on prepayment of any of the facilities under the terms of the MRA. Additionally, a lenders monitoring committee (the ‘‘Lenders Monitoring Committee’’) was constituted under the MRA to monitor the implementation of the CDR Scheme and procedures as laid down in the MRA. Pursuant to the terms of the CDR Scheme, the Lenders have the right to appoint four directors to the board of directors of Essar Oil. The Lenders have appointed three directors and have the right to appoint a further director. Further, the right of the promoters of Essar Oil to appoint the non-executive chairman of Essar Oil’s board of directors is subject to the approval of the Lenders Monitoring Committee. The Lenders Monitoring Committee can also direct Essar Oil to appoint one of the independent directors as

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the chairman of the board of directors. Further, a nominee of the Lenders is required to be a member of the audit committee of the board of directors of Essar Oil. Pursuant to the terms of the MRA, Essar Oil requires prior approval of the Lenders for certain corporate actions, including, availing any further indebtedness, seeking an extension of any existing indebtedness, making any investment in any other concern, undertaking any new project or expansion or acquiring or leasing any assets exceeding Rs. 250 million (US$5.4 million), declaring dividends, undertaking a merger or consolidation or entering into any related party transactions. Further, any change to the terms of sanction of the MRA requires an approval of the CDR Empowered Group of the CDR forum. It is a condition of the MRA that Essar Oil obtains the benefit of the sales tax deferral. While the CDR lenders have provided extensions since 2005, with the current extension valid until June 2011, in the event Essar Oil is unable to receive further extensions from the CDR lenders, or the ongoing sales tax incentive litigation described in paragraph 14.8 of Part 16 ‘‘Additional Information’’ is not resolved in Essar Oil’s favour, this may be considered an event of default under the MRA. Other events of default under the MRA include: (i) any non-performance by Essar Oil of its obligations under the MRA, or (ii) the occurrence of an event of default under the VOTL master restructuring agreement or the exercise by the VOTL lenders of a right of revocation under the VOTL master restructuring agreement. Each Lender, on occurrence of an event of default, may convert all or any portion of the amounts outstanding into shares of Essar Oil. This maybe at a price lower than the market price of the shares of Essar Oil. Where the event of default relates to a failure to make repayments or interest payments on due dates, Essar Oil may be liable to pay interest at the rate of 14.5% per annum quarterly from the date of such default on such amounts. Further, in the event the Lenders Monitoring Committee, in its sole discretion, determines that the cash flows of Essar Oil allow acceleration in repayment, then it may accelerate the repayments on a pro-rata basis. If the Lenders believe that the profitability and cash flows of Essar Oil are such that recompense payments can be made by Essar Oil, then it will be required to make additional recompense payments to the Lenders in respect of certain facilities, at either (i) 14% for Rs. lenders or (ii) LIBOR plus 4%/9.5% for lenders in other currencies, in each case per annum depending upon the type of facilities, payable quarterly (‘‘Recompense Payments’’). However, the Lenders cannot seek Recompense Payments if Essar Oil makes repayment within five years of the completion date (i.e., 24 April 2007) or prepays the facilities in terms of the MRA otherwise than out of its cash flows. The Lenders also have a right to revoke the remedies provided to Essar Oil under the MRA, in the event of certain events taking place, which include any material breach of representations and warranties provided by Essar Oil. The Amended MRA requires Essar Oil to maintain specific ratio levels for the total outside liabilities to tangible net worth; gross debt service coverage ratio; and the debt to equity ratio. In the event of non-adherence of any two of these ratios, where the adverse deviation shall be more than 20%, Essar Oil shall be liable to pay a penal interest of 1% per annum on the document rate during the period of non-adherence. In addition, in the event of continuous non-compliance with such financial covenants, the Lenders have the right to stipulate further conditions or covenants on Essar Oil. In terms of the MRA, a first-ranking security interest has been created over all Essar Oil’s movable and immovable assets, both present and future for the facilities provided by the Lenders under the MRA, except on the port facilities, facilities for import, storage and export of petroleum, certain receivables under specific contracts and assets in relation to exploration, development and production of petroleum by Essar Oil in the Ratna Fields. Further, 51% of shares having voting rights of Essar Oil is pledged and is required to be pledged at all times till the MRA subsists. Further, Lenders through the security trustee have an option to exercise vote on the pledges shares, upon notification to the pledgors, even prior to an event of default. Essar Oil intends to exit the CDR Scheme at an appropriate time and continues to evaluate its options with regard to such an exit. In the nine months ended 31 December 2009, the weighted average interest rate on the borrowings under the CDR Scheme was approximately 9.0%. Essar Investments and VOTL, Essar Affiliated Companies, have provided guarantees to the lenders for certain of Essar Oil’s obligations under the corporate debt restructuring.

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For a discussion of some of the risks related to the Group’s current and future financing arrangements, see ‘‘The Company has substantial debt requirements. The structure and terms of the Company’s financing arrangements could give rise to additional risks’’ in Part 1 ‘‘Risk Factors’’. Funding the Expansion Projects The Company expects to fund its plans for the development and construction of the Expansion Projects through a combination of net proceeds of the Offer, additional debt and equity financing and increasingly from excess operating cash flows as the projects are completed over the next few years. For a description of the current and expected funding arrangements for: • • the Power Plant Projects, see ‘‘Power—Financing Arrangements’’, ‘‘Power—Phase I Power Projects’’ and Power—Phase II Power Projects’’ in Part 6 ‘‘The Business’’; and the Phase I Refinery Project, see ‘‘Oil and Gas—Vadinar Refinery—The Refinery Expansion Projects—Project Costs and Financing’’ in Part 6 ‘‘The Business’’.

Essar Global, an Essar Affiliated Company, has guaranteed Essar Oil’s obligations under the facility arrangements in relation to Phase I Refinery Project. Power Project Financing Arrangements The debt financing for the Power Plant Projects is expected to be financed under project financing arrangements similar to those that Essar Power Limited and certain of its subsidiaries that were or are involved in setting up of the operational power plants and the Power Plant Projects (the ‘‘Project Companies’’) have entered into, including term-loan agreements with individual lenders and financing agreements with a consortia of lenders (collectively, ‘‘Project Financing Arrangements’’). The Project Financing Arrangements limit the use of all borrowings to fund the relevant power plant project. In most cases, the Project Companies do not have an option to prepay the outstanding principal amounts of the facilities in full or in part without prior approval of the lenders and may be required to pay prepayment premium. The Project Financing Arrangements are secured by security interests over substantially all the assets of the relevant Project Companies in relation to the project, corporate guarantees by Essar Investments, Essar Global and Essar Projects, Essar Affiliated Companies, pledge over shares of Project Companies and charges on trust and retention accounts, debt service reserve accounts and other bank accounts of the Project Companies. The Project Companies are required to provide additional security as acceptable to the lender to cover any deficiency in the securities created and perfected in favour of the lenders. Each of the Project Financing Arrangements provides the interest rate for the facility, along with additional interest payable by the Project Companies for any failure to create and perfect security within the agreed period and default interest rate payable by Project Companies for non-payment on the due date. The Project Financing Arrangements impose a number of restrictive covenants on the Project Companies, including limitations on the Project Companies: • • • • • • • • creating liens or charges on any assets to be mortgaged or charged as security; selling or otherwise disposing of assets; incurring additional debt or making any inter-corporate investments; repaying subordinated debt; changing the general scope of their business; changing their registered office; entering into mergers, acquisitions, consolidation or corporate restructuring; making any material investment or capital expenditure;

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Operating and Financial Review

undertaking new project or expansion/modification of existing facilities; making any change in their capital structure; undertaking guarantee obligation on behalf of any other person; changing their ownership or management structure; declaring of dividends; issuing debentures, equity or preference capital; paying commission to promoters, directors or managers for furnishing guarantees or indemnities or undertaking; acquiring companies or incorporating subsidiaries; amending or modifying memorandum of association or articles of association; and listing or delisting the shares on any stock exchange.

Further, the Project Financing Arrangements contain certain affirmative covenants that the Project Companies, including requiring the Project Companies to: • • • • • • • provide financial and other information; comply with certain financial ratios, including a debt equity ratio, a debt service coverage ratio and a loan to collateral ratio; appoint nominee directors on behalf of the lenders; maintaining adequate insurances coverage on the projects; making out a good and marketable title of the secured properties to the satisfaction of lenders; operating the projects properly and complying will all its obligations under the projects documentation; and maintaining certain debt/equity ratios.

The Project Financing Arrangements generally include the following events of default: • • • • • • • • • • • • • • • failure to make principal and interest payments on time; misrepresentations; non compliance with covenants and obligations; cross-default; insolvency and analogous events; change of control without prior approval of the lender; illegality; termination or breach of certain financing and project documents; destruction or abandonment of the project; inadequate insurance/failure to insure/suspension of insurance contract; buyers’ failure to issue letter of credit under the relevant PPAs; cessation or threatened cessation of business; expropriation or a moratorium declared by a government agency; failure to create and perfect security; and delay in achieving project completion date.

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In the event of defaults in payment, lenders under certain Project Financing Arrangements have certain rights including the right to convert the whole or part of the outstanding amount into fully paid equity shares of the concerned Project Company. Financing Arrangements for the Phase I Refinery Project Essar Oil has entered into project financing arrangements for the Phase I Refinery Project with ICICI Bank, ICICI Bank, Bahrain, IDBI Bank Limited and State Bank of India, including external commercial borrowings and rupee term loan agreements. The proceeds of the financing arrangements are required to be used for the Phase I Refinery Project. Essar Oil has, in most cases, the option to prepay the outstanding principal amounts of the facilities in full or in part upon an agreed notice period or with prior approval of the lender. Essar Oil is, in certain circumstances, such as receipt of certain insurance proceeds or excess cash flow, required to prepay the facilities in full or in part. The financing arrangements are secured by security interests over substantially all the assets of Essar Oil in relation to the Refinery Project, corporate guarantees by Essar Global, an Essar Affiliated Company, in certain cases, a pledge over a part of shares/GDS of Essar Oil and Essar Oil’s other ownership interests under the project documents. Essar Oil is required to create and perfect the security within the period provided in the respective financing agreements and to provide additional security as acceptable to the lender to cover any deficiency in the securities created and perfected in favour of the lenders. Each of the financing arrangements provides the interest rate for the facility, along with an additional interest rate payable by Essar Oil for non creation and perfection of security within the agreed period and a default interest rate payable by Essar Oil for non payment of dues on the due date. The interest rates applicable to the financing arrangements with ICICI Bank, IDBI Bank and State Bank of India for the Phase I Refinery Project are the ICICI Bank benchmark advance rate plus liquidity premium minus 2% per year, the IDBI benchmark prime lending rate minus 1% p.a. and the State Bank of India advance rate, respectively. In addition, there are interest tax and or other statutory levies applicable to such interest payments. The interest rate paid by Essar Oil under the foreign currency facility agreement with ICICI Bank is the London Interbank offered rate plus a 1.50% margin until October 2009 and thereafter a 2.75% margin. The Phase I Refinery Project financing arrangements impose a number of standard restrictive covenants on Essar Oil, including regarding the incurrence of additional debt, creation of liens on security granted to the lender, disposing of project assets, entering into mergers or acquisitions or consolidation or corporate restructuring, making any material investment or capital expenditure, undertaking new project or expansion/modification of schemes and making any material change in capital structure. There are further restrictions on Essar Oil’s ability to undertake guarantee obligations on behalf of any other person, change ownership or management structure, declare dividends, issue any debentures, equity or preference capital, accept deposits from the public or acquire a company or incorporate a subsidiary. Further, certain affirmative covenants are also required to be complied with by Essar Oil under the financing arrangements, including, maintaining certain insurances, complying with specified financial ratios, including debt equity ratio, debt service coverage ratio and loan to collateral ratio, appointment of nominee director(s) on behalf of the lenders and making out a good and marketable title of the secured properties to the satisfaction of lenders. The financing agreements include certain representations and warranties, undertakings and events of default. Under certain of the financing arrangements for the Phase I Refinery Project, the lenders have a right to unconditionally cancel the relevant arrangements if part of the funding limits are not utilised by Essar Oil, there is a deterioration in the loans accounts or if Essar Oil fails to comply with the terms and conditions of the arrangements. In addition, if there is default in payment, the lenders under certain financing arrangements have the right to convert the whole or part of the outstanding amount into equity shares of Essar Oil.

195

Ravi Ruia and Prashant Ruia.5% above LIBOR. . has a guarantee facility of US$50 million with Bank of India for providing performance guarantees under various oil and gas exploration contracts. . Essar Exploration & Production Ltd. As at 31 March 2010 the limit utilised was US$6. an Essar Affiliated Company.306 million) were outstanding under the working capital facility. 58. . renewing the working capital consortium agreement dated 30 March 2009.Part 9 Operating and Financial Review Other Available Sources of Liquidity Oil and gas businesses To finance the working capital requirements including the oil imports of the Vadinar refinery. No amounts were outstanding under this facility as of 31 March 2010. * ** 266 — BPLR + 0 to 2. Under the working capital agreement. at their sole discretion. . . an amount of Rs. 23. . the lenders may.00 million (US$1. bank guarantees) . making drastic changes in management or changing its capital structure. . . making certain loans or investments. 196 .135 million) as at 31 December 2009 and the outstanding amount under the facilities was Rs. elect not to accept security offered by Essar Oil and cease making advances against such security. held by another Essar Affiliated Company and a charge over Essar House. which is owned by an Essar Affiliated Company. pledges of the promoters’ 51% shareholding in Essar Oil with voting rights and pledges over 63. Essar Oil entered into a working capital consortium agreement dated 15 March 2010 for a working capital facility in the amount of Rs. The total sanctioned facility from MSTC Limited and STC Limited amounts to Rs. In addition.359 million) with a consortium of 14 bank lenders. . with State Bank of India as the lead bank.956 million (US$1. . .100 million (US$512 million) as at 31 March 2010. 53.45 to 2. MSTC Limited and STC Limited for the purchase of crude oil on a long payment basis. an Essar Affiliated Company. . The working capital consortium agreement provides that the working capital facility may be used to meet the working capital needs and requirements of the oil and gas business’s Vadinar refinery and its marketing and sales operations in India and comprises of the following components: Amount outstanding as at 31 March 2010 (US$ millions) Component Component limit (US$ millions) Rate of interest Typical term Funded facility*—cash credit . giving certain guarantees. Non-funded facilities** (including letters of credit.6% to 1. Essar Oil has arrangements with two government corporations. personal guarantees by Shashikant Ruia. including restrictions on creating security interests over any or all of its properties or assets. a corporate guarantee by Essar Investments Limited. The working capital consortium agreement contains covenants that restrict certain activities of Essar Oil. . interest rates for which range from 0. .500 million (US$2.78% 30–180 days The funded facility of US$244 million is fully interchangeable with non-funded facilities. 106. The working capital consortium agreement also contains financial covenants requiring Essar Oil to maintain a current asset cover ratio and any other ratio as required by the lenders. .093 1. Essar Oil keeps availing an overdraft facility against its own fixed deposits with the banks. The working capital facility is secured by first charge security over the current assets and a second charge security over the refining assets of Essar Oil with certain exclusions.095 shares of Essar Shipping Ports and Logistics. formulating schemes of amalgamation or reconstruction.306 Commissions of 0.000. The non-funded facilities also includes buyers credit facilities funded by foreign banks against letters of comfort.75% 12 months 2.125.84 million. As of 31 March 2010.

The working capital consortium agreement contains covenants that restrict certain activities of Essar Power including the creation of security interests. pre-shipments and post-shipment credit. Power To finance its working capital requirements. Essar Power also has domestic bill discounting facilities of Rs. Axis Bank has provided bank guarantees aggregating to Rs. expansion or modernisation (other than routine capital expenditure) and the provision of certain guarantees without the prior consent of the lenders. an Essar Affiliated Company. Essar Power enjoys working capital facilities in the form of supplier’s channel credit. formulation of schemes for amalgamation and reconstruction. bid bond. including borrowings under long term and short term debt facilities including working capital facilities. opening of letter of credits.4 million) were outstanding under the working capital facility.000 million (US$44. of which Rs.9 million) to Essar Power. 350 million (US$7. Also. not accept the security offered by Essar Power and discontinue the facilities.485 million (US$32. Essar Power has entered into a working capital consortium agreement dated 7 October 2009 with State Bank of India. 359 million (US$7. The working capital facilities under the working capital consortium agreement aggregates to an amount of Rs. both present and future. at their sole discretion. in an amount of Rs.6 million). 1.3 million) from Bank of Baroda. Further. Essar Investments has guaranteed Essar Power’s obligation under the working capital consortium agreement. State Bank of India has provided a bid bond guarantee of Rs. 90 million (US$2. Essar Investments. State Bank of Mysore. The amount is repayable on 31 March 2031. 359 million (US$7.4 million) to Essar Power of which Rs. 1. Pursuant to the term loan agreement dated 29 March 2001.455 million (US$32. Central Bank of India. Outside the limits covered by the working capital consortium agreement. 751 million (US$16. has guaranteed Essar Oil’s obligations for repayment of differential interest/ liquidated damages. an Essar Affiliated Company.8 million). changes of capital structure. The lenders may. As of 31 March 2010. 1. The working capital facility is secured by security interest over Essar Power’s assets including by way of a first charge over Essar Power’s current assets.7 billion of borrowings outstanding. which is now one of the facilities under the MRA. receivables and book debts and by way of second charge over fixed assets.Part 9 Other Guarantees Operating and Financial Review Essar Steel.2 million) from Bank of India.780 million (US$61. cash credits. were outstanding as of 31 March 2010. The outstanding borrowing under these bill discounting facilities as of 31 March 2010 was Rs.8 million). 2. 973 million (US$21. has provided a guarantee in favour of the Punjab National Bank for an amount of Rs. Essar Power Overseas BVI has entered into a bridging facility of US$300 million dated 30 March 2010 with Standard Chartered Bank to finance the acquisition and development of the Indonesia and Mozambique 197 . 2. The outstanding borrowing under these facilities as of 31 March 2010 was Rs.5 million) was outstanding as of 31 March 2010. losses or expenses incurred by them in respect of the facilities.0 million) and Yes Bank Limited has provided a bid guarantee of Rs.6 million). cash credit. The working capital consortium agreement also contains certain financial covenants including the requirement to maintain a prescribed current asset cover ratios and security margins. 1.280 million (US$28. Financing arrangements post 31 December 2009 As of 31 March 2010. 800 million (US$17.9 million) plus interest and other dues thereon. Bank of India and Yes Bank Limited. Essar Power has agreed to indemnify the lenders for claims.9 million).7 million) from HDFC Bank Limited and of Rs. 90 million (US$2. the Company had US$3. letters of credit and guarantees aggregating to Rs. borrowings in the amount of Rs. outside the limits covered by the working capital consortium agreement. 2. to IDBI Bank Limited pursuant to IDBI Bank Limited’s letter dated 31 March 2009. respectively. the repayment for the facility shall be under the terms of the MRA.012 million (US$22. The working capital consortium agreement comprises various facilities including overdrafts. issuing of guarantees including deferred payment guarantees and indemnities and bill discounting.0 million) and Rs.068 million (US$45.

2 million. State Bank of Mysore for an amount of Rs. as they come due as of 31 December 2009: Within one year One to More than five years five years ($ in million) Total 920. The primary purpose of this issuance is to refinance Essar Power’s existing term loans. 500 million (US$11. the Company estimated amount of contracts. largely relating to the development and construction of the Phase I Power Projects and the Refinery Expansion Projects. or on account of such leased equipment. excluding interest. 1. including indemnity to the lessor for any loss caused to. These debentures are to be redeemed in eight unequal annual installments commencing 31 March 2011. CONTRACTUAL COMMITMENTS Borrowings The following table sets forth the Company’s borrowings. 2.4 million) of secured redeemable non-convertible debentures of Essar Power.8 833.0 million) to IFCI Limited and Rs. change of capital structure. See Part 10 ‘‘Capitalisation and Indebtedness Statement’’ for a statement of the Company’s capitalisation and indebtedness as of 31 March 2010.000 million (US$22. Essar Steel has guaranteed Essar Power’s obligations under these lease finance facilities.8 million) to ICICI Bank.129. Axis Bank has agreed to subscribe for Rs. borrowings in the amount of Rs. As of 31 March 2010.3 million).2 million). In accordance with a sanction letter dated 7 April 2010 and a subscription agreement dated 19 April 2010. including the Company’s joint venture shares in such amounts. 500 (US$11.7 3. 224 million (US$4.000 million (US$44.000 million (US$22.1 million).5 Capital Commitments 1. remaining to be executed on capital account and not provided for on 31 December 2009 was US$6. 198 .8 million) were outstanding under these short term loan facilities. The amount outstanding under this facility as of 31 March 2010 was US$300 million. Essar Power has equipment lease finance facilities from IFCI Limited and ICICI Bank for certain equipment for its Essar Power Hazira power plant.0 As of 31 December 2009. 606.877.Part 9 Operating and Financial Review coal mines discussed in ‘‘Overseas Coal Blocks’’ in Part 6 ‘‘The Business’’ as well as to bridge other capex requirements for Power Projects. 1.1 million).374. Certain of these short term loan agreements contain covenants including financial covenants such as the requirement to maintain a prescribed current ratio and interest coverage ratio and certain other covenants including restriction on the creation of security interests. Equipment lease finance In addition. These equipment lease facilities contain covenants primarily in relation to the specific equipment being leased pursuant thereto to secure the lessor’s interest and to safeguard the lessor’s investment in such equipment. formulation of scheme for amalgamation and reconstruction and providing certain guarantees without the prior consent of the short term lenders. 8 billion (US$171. State Bank of Bikaner and Jaipur for an amount of Rs. Short term loans Essar Power has also obtained short term loan facilities from Canara Bank for an amount of Rs.8 million (US$13. Allahabad Bank for an amount of Rs. The outstanding lease rentals payable under these facilities as of 31 December 2009 was Rs.2 million) and The Jammu and Kashmir Bank Limited for an amount of Rs. 5 billion (US$110.

. there are a number of legal claims against the Company for which the outcome is uncertain and the potential liability is not reasonably assessable. . . . . . Corporate guarantees . . . This amount represents the additional interest that would have been charged to the income statement in the period if the debt was assured to run to the maximum term of the loan. . . . . . . . . . . . . . . . . . Essar Power and Essar Steel have entered into a memorandum of understanding for sharing claims. to finance the construction of its existing terminal facilities at Vadinar. . . . . . . . . . . . . . . .770. 8. . . .9 73. . . . . . . . . . . . . . . . . Relates to contractual obligations for future crude oil term sales and purchases. . . . . . . . . . . . . . . Fuel purchases (pass through) . . . . . . . Essar Steel has also provided a similar guarantee. . . . .5 17. . . . . . . . . . . .9 Total . . . . .8 101. . . . . . . . . . . . . . . These obligations were calculated using information current as of 31 December 2009 and. . . . . . . . . . . . . . . . . . . . . . . . . on behalf of Loop Telecom Private Limited. . As at the date of this document.8 48. . . . . . . . . . .0 — 20. . . . . . . . . . . . . . . . . . .2 — — — 5. . . . . . . . . . . Disputed custom duty . . . . . . These obligations were calculated using information current as of 31 December 2009 and. as such. . . . . . . . 11. . based on factors such as oil price and volume purchased. . . . . . . . . . . .6 334. . .5 3. . . . . . Other Contingencies post 31 December 2009 Essar Power has guaranteed Loop Telecom Limited’s bank guarantee provided by the State Bank of India in an amount of Rs. .5 3. . . Potential liabilities for these claims are not included in the table above. . . which serve the Vadinar refinery. . . . . . . 23. . The contingent liabilities in the table above relate primary to actual or potential legal claims relating to the Company for which the amounts of the potential liability are reasonably assessable but the liability is not probable. . . . (2) CONTINGENCIES The following table sets forth the Company’s contingent liabilities not otherwise provided for in the Company’s combined financial statements as of 31 December 2009: ($ in million) Claims . . . .7 — — — 37. . . . . . . . . . . . .0 11. . . . . . . . . . . . For a discussion of these contingencies see Note 24 ‘‘Contingencies and Commitments’’ in Part 11 ‘‘Financial Information’’. . . . Disputed income and indirect tax . . . . . . . . . . . .770. . . . . . . . equally in relation to this 199 . . . . . .120 million (US$174. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . In addition. . . . . . . . . . . . .Part 9 Other Contractual Commitments and Obligations Operating and Financial Review The following table sets forth the Company’s other contractual obligations and commitments as they come due as of 31 December 2009: Within one year One to More than five years five years ($ in million) Total Finance lease and hire purchase commitments Export obligations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . based factors such as product price and actual quantity exported. . . .8 98. . . . . . . . . . . . . . . . . . . . . . . . Bank guarantees . . . . . . . . if any. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest* . Government of India.9 101. .0 million) issued in favour of the Department of Telecommunications. . . . . . . . Crude oil purchases(2) . . . . . . . .7 million consist of a guarantee Essar Oil has provided in respect of a bank loan to VOTL. . . . . . the actual commitment amount may vary. . . . . . . . . . . . . . Corporate guarantees given on behalf of entities outside of the Company of US$58. . . . . . . . . . . . . .0 — Relates to future obligations for refined petroleum product exports under term contracts for periods beyond 31 December 2010. . . . . . . . . . Others . . The facility is due for repayment in instalments on various dates between 2010 to 2014. . . . . . Loop Telecom Limited has yet to incur any liability to the Department of Telecommunications. . (1) . . . . . . . . . . . . . . as such. . . . . . . * The Group has assumed that certain facilities as will be paid at the earliest redemption date after obtaining required consent of the lenders and this interest charge has been based on applicable early redemption rates. . . . the commitment amount may vary. . . . . .3 61. . . . . an Essar Affiliated Company. . . . . . . . . . . .

interest payments are made quarterly and the repayment of the principal amount is to be made in instalments up to 25 April 2014.0 million (US$26.Part 9 Operating and Financial Review guarantee. 5.432 million (US$73.0 million (US$55.6 million) under the Rs.6 million). Loop Mobile Holdings India Limited pays a commission at the rate of 1% per annum of the amount of the term loan.7 million) for the first and second guarantees referred to herein above. Essar Oil has three inter company loans outstanding with Essar Investments. The Company has various financial assets.500.000 million (US$85. VOTL provided a loan of Rs. The Company has also received a back-to-back guarantee from Mobile Holdings India for these two guarantees with the counter guarantee amount being capped to Rs. The total outstanding balance under these loans as at 31 December 2009 was Rs.000 million (US$85. 54 million (US$1. the Company does not have any off-balance sheets arrangements that could have a material adverse effect on the Company’s results of operations and financial condition. 9. OFF-BALANCE SHEET ARRANGEMENTS Other than as set forth above under ‘‘—Contingent Obligations’’. the outstanding balance was Rs. 4.2 million). Essar Power and Essar Steel have jointly guaranteed Loop Telecom Limited’s term loan facility dated 7 January 2010 with State Bank of India for an amount of Rs.75% and 12. Loop Mobile Holdings India Limited (promoter of Loop Telecom Private Limited and formerly known as BPL Communications Limited) pays a commission to Essar Power at the rate of 0. 5.102. 2. As at 31 December 2009. and one for Rs.5% per annum. 2. 2. 16 November 2009 and 15 April 2009 respectively. EOVL has a temporary unsecured interest free loan facility of up to Rs. 2. comprise bank loans and overdrafts. one for Rs.5% per annum of the amount of the bank guarantee. The total outstanding amount of the Company’s borrowings from Essar Affiliated Companies for the nine months ended 31 December 2009 was Rs.4 million) dated 8 March 2010. 3.0 million facility and Rs. 15. 200 .8 million). as described below. 5. if any. As at 31 March 2010 Essar Oil has drawn Rs.500. Accordingly. 960.000. which is shared by Essar Power and Essar Steel in equal proportion.000.3 million) and Rs.5 million). Each facility agreement is for a term of five years. 1. 2.0 million (US$42. each of which is for a five year term and under which Essar Oil borrowed Rs.0 million (US$23.25% per annum.370. cash. 4.4 million) with Essar Investments.250.8 million (US$113. hire purchase contracts and loans taken. 1.2 million) under the Rs.0 million (US$20. The main purpose of these financial liabilities is to raise funding for the Company’s operations and the expansion plans. at interest rates of 9.7 million) issued in favour of State Bank of India.1 million). The outstanding balance under this loan as at 31 December 2009 was Rs. including as trade receivables. FINANCING ARRANGEMENT WITH ESSAR AFFILIATED COMPANIES Members of the Group have certain loan facilities with Essar Affiliated Companies.000 million (US$110.5 million) to Essar Oil on 1 April 2006. 730 million (US$16.465 million (US$54. equally in relation to their guarantee for the aforesaid term loan facility. This commission is shared equally between Essar Power and Essar Steel pursuant to the memorandum of understanding. debentures.0 million (US$42.50%.8 million) on 15 December 2009.0 million (US$329. trade payables. Further. other than derivatives. 1. that arise directly from its operations. finance leases. Essar Oil also has two further facility agreements with Essar Investments.000 million facility.7 million) dated 19 March 2010. with an interest rate of 9. short-term deposits and put options.280. The loan was provided from VOTL to Essar Oil on the same terms as Essar Oil’s master restructuring agreement dated 17 December 2004 (see Part 9 ‘‘Operating and Financial Review’’ for further details of this agreement). Rs.25% per annum respectively. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Financial Risk Management Objectives and Policies The Company’s principal financial liabilities. Essar Power and Essar Steel have amended the aforementioned memorandum of understanding thereby extending it to cover the said term loan facility dated 7 January 2010 for sharing claims.000 million (US$21. at an interest rate of 10.8 million) and a further Rs.

0 (1. . primarily US dollars. . . US dollars . .2 119. . . primarily in the nature of commodity option and swap contracts and forward currency contracts. . . . . . .0) 0. Rupee-denominated borrowings . . . . . . . . . . . . . . .8 million were fixed-rate borrowings and US$415. . . . . . . . . . . . . . . . . . . . .7) Foreign Currency Risk While the Company’s functional currency is the US dollar. .1 3. . . . Pounds sterling . . . . .2 million were floating-rate borrowings. .164. . Accordingly. . . . . . The Company has foreign currency transaction exposures. . liquidity risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest Rate Risk The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term debt obligations with floating interest rates. . . . . . . . . . The main risks arising from the Company’s financial instruments are market risk. . . .1 The Company’s exposure to foreign currency translation risks arises where a Group subsidiary holds financial assets and liabilities denominated in a currency.254. . The Board of Directors reviews and approves policies for managing each of these types of risks. . . ./US$ exchange rates. . . 1. . different from that subsidiary’s functional currency. . . . . . . . . . . . . .7 2. . . . . . . . . . . . . . . . . the Company’s total borrowings were US$3. . 50 basis point decrease 50 basis point increase 50 basis point decrease 50 basis points increase 1. . commodity price risk and credit risk.315. . . . . . . . . The Company uses foreign currency swaps. . . .3 million in the nine months ended 31 December 2009 in the translation of the subsidiaries’ non-US dollar denominated financial assets and liabilities. . . . with all other variables held constant. A 10% strengthening of US dollar over the rupee compared to the exchange rate prevailing as of 31 December 2009 would have decreased Group’s profit before tax by US$80. Canadian dollars Euros . . . . . . interest rate risk. . 201 . Such exposure arises from sales or purchases by an operating unit in currencies other than the a subsidiary’s functional currency. .4 191. . . . . . . . . options and forward contracts to mitigate the risk arising from fluctuations in foreign exchange rates.693. .0 million. . . foreign currency risk. the Company has significant investments and operations in India. . . . The carrying amounts of the Company’s financial assets and liabilities in different currencies were as follows as of 31 December 2009: Financial assets Financial liabilities ($ in million) Rupees . . The Company’s policy is to manage its interest cost using a mix of fixed and floating rate borrowings. . . As of 31 December 2009.0 0. . . . . . . . . to manage commodity price risk and currency risks arising from the Company’s operations. .109. . .Part 9 Operating and Financial Review The Company also enters into derivative transactions. . . . . . . . . . . . . . . . .8 12. . . . . . . . . . . . . of which US$2. . . . . . . .4 2. . . . . . . .3 0. .7 (0. the Company’s results of operations and financial condition can be materially affected significantly by movements in the Rs. . . . . . .4 1. . The following table shows the effect that a change in interest rates. on the Company’s floating rate borrowings as of 31 December 2009 would have had on the Company’s loss before tax for the nine months ended 31 December 2009: Borrowing type Change Effect on profit before tax ($ in million) US-dollar denominated borrowings .

455. receivable balances are monitored on an ongoing basis to ensure that the Company’s exposure to bad debts is insignificant.7 million US$114. the Company’s policy is not to offer credit terms without the approval of the appropriate authority within the Company.7 million as of 31 March 2008 and US$33.1 million as of 31 March 2009. The Company establishes an allowance for doubtful accounts that represents its estimate of incurred losses in respect of trade and other receivables. The Company trades with recognised and creditworthy third parties. The Company’s policy is to hold cash.5 million as of 31 March 2007 of trade receivables were past due but not impaired. including as futures. liquid investments and term deposits in banks with strong credit ratings. The Company believes that it does not have any significant credit risks in relation to the Essar Affiliated Companies. the Group’s three largest customers—Indian national oil companies. US$840. For transactions that do not occur in the country where the relevant subsidiary is located. From time to time. In addition. and its projected cash flows from operations. US$105. These derivative transactions are considered economic hedges for which changes in their fair value are recorded in the Company’s income statement. the Company’s risk management desk uses a range of conventional oil-price-related commodity derivative instruments. debentures. such as accounts receivables and other financial assets. liability or transaction being hedged. The Company’s policy is to subject all customers that wish to trade on credit terms to credit verification procedures. receivables from Essar Affiliated Companies. Essar Energy uses commodity derivative instruments to hedge the price risk of planned transactions. US$106. This tool considers the maturity of both its financial investments and financial assets.Part 9 Operating and Financial Review Credit Risk The Company is exposed to credit risk from trade receivables.2 million (US$68.3 million as of 31 March 2009. The Company operates a risk management desk that uses hedging instruments to reduce the impact of market volatility in crude oil and refined petroleum product prices on Group’s profitability. The main components of this allowance are a specific provision that relates to individual exposures and a provision for expected losses that have been incurred but have not been identified. The Company’s open positions in commodity derivative instruments are monitored and managed on a daily basis to ensure compliance with its stated risk management policy which has been approved by the Group’s management. respectively—accounted for approximately 56. liquid investments and other financial instruments. The derivative instruments used for hedging purposes generally do not expose the Company to market risk because the change in their market value is generally offset by a corresponding opposite change in the market value of the underlying asset.8 million. term deposits. Liquidity Risk The Company monitors its liquidity risk using a recurring liquidity planning tool. As of 31 December 2009.5 million and US$899. swaps and options available in the international commodity derivative markets. US$139. The Company’s history of trade receivables shows negligible provisions for bad and doubtful debts.4 million.6 million as of 31 March 2007) were overdue for more than 90 days. The Company’s had no allowances for doubtful accounts as of 31 December 2009. US$58. each contributing revenues of US$1. 202 .5% of the Company’s revenues. In the nine months ended 31 December 2009. preference shares and finance leases. To this end. including expected crude oil purchases and refined petroleum product sales. The Company aims to maintain a balance between continuity of funding and flexibility through the use of bank loans. Commodity Price Risk The Company’s revenues are exposed to the risk of fluctuation in prices of crude oil and refined petroleum products in the international markets. As of 31 December 2009.1 million as of 31 March 2008 and US$76.

. The Group recorded a benefit of US$264. . . . . . . . . . (iii) adhering to specified pollution control measures. . . . . . . . . CRITICAL ACCOUNTING JUDGEMENT AND ESTIMATES The preparation of the Company’s financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amount of assets. . . The amount of benefit recorded is based on management’s expectation that it will begin repayments in 2021 and that it will comply with all the related conditions. . . . . Management bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances and provide a basis for making judgments about the carrying value of assets and liabilities that are not readily available through open market quotes.Part 9 Operating and Financial Review Set out below is the impact the change in the value of the Company’s commodity derivative contracts as of 31 December 2009 from a 10% increase or decrease in base crude and petroleum product prices over their levels as of 31 December 2009 would have on the Company’s pre-tax results: Effect of 10% increase in prices (US$ in million) Crude oil . . . . . . . (ii) re-investing certain amounts of the benefit.7 Crack spread refers to the difference between the per-barrel price of refined petroleum products and the related cost of crude oil used for their production. . . . . . the Group is able to defer the payment of up to approximately Rs. . . . . . . .7) Effect of 10% decrease in prices (US$ in million) Crude oil . . . liabilities. . . . . . . and actual results may differ from those estimates under different assumptions or conditions. . . . . is able to control its compliance. . . Sales Tax Incentive The Group benefits from certain sales tax incentives given by the state of Gujarat provided if the sales are made from the state of Gujarat. . . . . . . . . . There are a number of conditions under which this benefit has been granted including: (i) ensuring that certain percentages of the employees are local people. . (1) 9. . . . . . . . . . .2 0. .6 million in the year ended 31 March 2009 and US$173. . . . This is based on the fact that management intends to comply with all such conditions. . . . . . . . . see ‘‘—Indebtedness—Overview’’. . . . . . . . . . . . . . . Under these incentive schemes. Estimates and assumptions are reviewed periodically. . . . . . . . . . . . . . . . . . . The majority of the benefit is expected to be earned over a period of five to seven years from the date on which the Vadinar refinery commenced commercial operations. . . Below is a summary of the Company’s accounting estimates that require more subjective judgment by its management in making assumptions or estimates regarding the effects of matters that are inherently uncertain and for which changes in conditions may significantly affect the results in the Company’s financial statements. . . . . . . . . Crack spread(1) . . . . . . . . . . .7 million in the nine months to 31 December 2009. . . . . . . Crack spread(1) . . . . . . . . . . . . . . . . . . revenues and expenses and related disclosure of contingent assets and liabilities. . . . . . . . . . . . . . . . . 91 billion (US$1. . . . . . . . .3) (0. .95 billion) collected as sales tax for eligible domestic sales made from the state of Gujarat until the financial year ending 31 March 2021 (or earlier if the full eligible limit is exhausted). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management must use its judgment related to uncertainties in order to make these estimates and assumptions. . . and intends to monitor the 203 . and (iv) contributing a certain amount to the prescribed rural development scheme in the state of Gujarat. after which it is required to repay the retained amounts of sales tax in six equal annual instalments. . . . . Capital Management For information about the Company’s capital management. (10.

a differing judgement may be to (a) recognise the benefit during the period in which the Company incurs operating expenses whilst it enjoys the benefit (for example. Any change in this assessment would result in a change in the benefit that would be recorded in that period. An alternative view would be that the sales tax benefit is intended to compensate recipients for the costs of setting up and/or conducting their business in the state of Gujarat. these matters are inherently uncertain until the position of each entity is agreed with the relevant tax authorities. relative efficiency and operating costs. namely the Vadinar refinery (the depreciation period for which is 40 years) both of which would result in materially different results in the periods presented with significantly lower revenue and profit. The Group has recorded the sales tax benefit as revenue in the period in which the associated eligible domestic sales are made to customers. management use the best information available to them to assess the likely cash flows available to the relevant asset. Key assumptions are inherently uncertain and include commodity prices. are treated as contingent liabilities. These liabilities are disclosed in the notes to the Company’s financial statements but are not provided for in the consolidated financial statements themselves. likely asset lives. Contingencies and Commitments In the normal course of business. amongst other things. Where impairment testing is carried out. alternative sources of supply. Such lives are dependent upon an assessment of both the technical lives of the assets and also their likely economic lives based on factors including commodity prices. principally within India. Other non-current assets are tested for impairment when conditions suggest that there is a risk of impairment. Accordingly. in which case the benefit could be recognised over the period necessary to match such costs. The amount of tax payable in respect of any period is dependent upon the interpretation of the relevant tax rules. to improve the economic wellbeing of the state of Gujarat. as the plant’s location was determined before the incentive became available and as this incentive was set up. Whilst an assessment must be made of the deferred tax position of each entity within the Group. the Group has recognised the benefit in the period of the eligible domestic sales made from the state of Gujarat. Tax The Group is subject to tax. Potential liabilities that have a low probability of crystallising or are difficult to quantify reliably. the benefit may only be recognised when there is reasonable assurance that the entity will comply with the conditions attached to the benefit and must be recognised over the period necessary to match the benefit systematically with the related costs which they are intended to compensate.Part 9 Operating and Financial Review sales to allow the Group to benefit from the maximum deferral period. Management has exercised its judgement in assessing the period over which to recognise the benefit and believes there are no significant costs or expenses that the incentive is intended to compensate. Accordingly depreciable lives are reviewed annually using the best information available to management. Under IAS 20. For example.1 above. Recognition of the benefit in profit or loss on a receipts basis is appropriate only where no suitable basis exists for allocating the benefit to periods other than the one in which it is received. Depreciable lives The Group’s relevant non-current assets are depreciable over their estimate useful lives as set out in section 2. the timing of granting of licenses and permits and the relevant discount rates. There can be no assurance regarding the final outcome of these legal proceedings. 13 years being the remaining period for which the sales tax payment can be deferred) or (b) recognise the benefit over the expected life of the capital asset constructed. Impairment testing Goodwill is tested for impairment annually. 204 . contingent liabilities may arise from legal and other claims against the Company. being the primary condition associated with the benefit. anticipated production costs.

Part 9 Exploration and evaluation expenditure Operating and Financial Review Exploration and evaluation expenditure are capitalised in accordance with the accounting policy in Note 2. if (a) proved reserves are booked or (b) (i) if they have found commercially producible quantities of reserves and (ii) if they are subject to further exploration or appraisal activity in that either drilling of additional exploratory wells is under way or firmly planned for the near future or other activities are being undertaken to sufficiently progress the assessing of reserves and the economic and operating viability of the project. then the related capitalised exploration and evaluation expenditures would be expensed in that period resulting in a charge to income. In making a decision about whether to continue to capitalise exploration and evaluation expenditures. If there is a change in one of these judgements in a subsequent period. it is necessary to make judgements about the satisfaction of . REVENUES AND CAPITAL EXPENDITURES BY GEOGRAPHICAL MARKET For information about the Company’s revenues by geographical market. see Note 3b to the financial statements included in Part 11 ‘‘Financial Information’’.17. 205 . For further details.1. refer note 9.

. . . . . . . . . . . . . . . . . . .629.1 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . respectively. . . . . .708. . . . . . . . . . . . . . . . . . . .7 3. Secured . . . . . . . . . . . . . . . . . . Non-current debt Guaranteed .0 million in current and non-current liabilities. . . . . . The following table sets out the Company’s net indebtedness as of 31 March 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments of equity since 31 March 2010 has increased Essar Global’s invested capital in the Company to over US$2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total capitalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0 6. . . . . . Other non current loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 — 245. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Excludes finance lease obligations as of 31 March 2010 of US$10. . . . . . . . . . . . . . . . . . . . . . .263. . . . . . . . .1 11. . . . . . . . . . . . . . . . Other reserves . . . . .4) 378. . . Cash and cash equivalents reduced since 31 March 2010 as a result of US$250 million of capital expenditure in the Power Business. . . . . . . . . . . . . . . . . . . . . . Equity Invested capital(3) Legal reserve . . . . . Secured . . . . . . . . . . Net debt(1) . Bonds issued . . . . . . . .3 2. . . . . . . . . . . . As of 31 March 2010 (US$ in million) Current debt Guaranteed . . . Non-current financial debt Non-current bank loans . . . .8 billion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total debt increased since 31 March 2010 as a result of additional draw downs of facilities. . Current financial debt Current bank debt . . . . . . . . . . . . . . . . . . . .258. . . . . . . . . . Current portion of non-current debt . . . . . (1) (2) (3) (4) 444. . . . . . . . . . . . . As of 31 March 2010 (US$ in million) Current financial receivable Cash and cash equivalents(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 . . .4 — (506. . . . . . . Salaya (US$8 million) and Vadinar Power (US$29 million). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unguaranteed/unsecured . . . . . . . . . . . . . . . . . . . . . . including primarily facilities in respect of Mahan (US$42 million). . . . . . . . . .209. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 190.7 — 2. . . . . . . . . . . . . . . .PART 10 CAPITALISATION AND INDEBTEDNESS STATEMENT Capitalisation and indebtedness The table below sets out the Company’s capitalisation as of 31 March 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .501. . . . .9 256. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . there has been no material change since 31 March 2010. . .0 2. . . . . . . . . . .7 1. . . . Unguaranteed/unsecured . . . . . . . . . . . . . . .003.5 2. . . . . . . . . . . . . . .256. . . . . . .5 Total equity . . . . Total debt(1)(2) . . Other than as set forth in footnotes 2 and 3 below. . . . . . . . . . . — 947. . . . . . . Minority . . . . . . . . . . .2 million and US$22. . . . .8 247. . . . . . . . . . . . . . . . . . . .

and to report our opinion to you. consistently applied and adequately disclosed. This report is required by Annex I item 20.3R(2)(f) to any person as and to the extent there provided.PART 11 FINANCIAL INFORMATION Section A—Accountant’s report on combined financial information of Essar Energy plc 5MAY200502184203 Deloitte LLP 2 New Street Square London EC4A 3BZ The Board of Directors on behalf of Essar Energy plc 8th Floor 20 Berkeley Square London W1J 6EQ J. the ‘‘Group’’) We report on the financial information set out Part 11 of the prospectus dated 30 April 2010 of Essar Energy plc (the ‘‘Prospectus’’). to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of. Basis of opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom.1 of Commission Regulation (EC) No 809/2004 (the ‘‘Prospectus Directive Regulation’’) and is given for the purpose of complying with that requirement and for no other purpose. Morgan Securities Ltd. Responsibilities The Directors of the Company are responsible for preparing the financial information on the basis of preparation set out in Note 1 to the financial information.1 of the Prospectus Directive Regulation. 207 . together with its subsidiaries.5. arising out of. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error. 125 London Wall EC24 5AJ 30 April 2010 Dear Sirs Essar Energy plc (the ‘‘Company’’ and. This financial information has been prepared for inclusion in the Prospectus on the basis of the accounting policies set out in Note 2 to the financial information. required by and given solely for the purposes of complying with Annex I item 23. Save for any responsibility arising under Prospectus Rule 5. for the purposes of the Prospectus. It is our responsibility to form an opinion as to whether the financial information gives a true and fair view. or in accordance with this report or our statement. It also included an assessment of significant estimates and judgments made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity’s circumstances.P. consenting to its inclusion in the Prospectus. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information.

2 of the Prospectus Directive Regulation. a Swiss Verein. Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’). This declaration is included in the Prospectus in compliance with Annex I item 1.deloitte. Declaration For the purposes of Prospectus Rule 5. the financial information gives.3R(2)(f). Please see www. whose member firms are legally separate and independent entities. cash flows and comprehensive income and changes in equity for the periods then ended in accordance with the basis of preparation set out in Note 1. London EC4A 3BZ. for the purposes of the Prospectus.2 and Annex III item 1. and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. 208 .5. United Kingdom. in accordance with the facts and contains no omission likely to affect its import. a true and fair view of the state of affairs of the Group (excluding the Company) as at the dates stated and of its results.Part 11 Financial Information Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in jurisdictions outside the United Kingdom. including the United States of America.co.uk/about for a detailed description of the legal structure of DTT and its member firms. to the best of our knowledge. Yours faithfully 26APR201017151818 Deloitte LLP Chartered Accountants Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square. we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is. Opinion In our opinion.

4 5 4 202.4) 33. . . . . .0) (131. . . .6) (124.4 21.7) (620.5 (84. . Tax . . . . .9) (10.7 165. . . . .6) (75. . . .8 (61. Cost of sales .9) 114.3 (430. . . Notes 1 to 27 form an integral part of this combined historical financial information Combined Statement of Comprehensive Income For the year ended 31 March 2007 2008 2009 US$ million US$ million US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million Note (Loss)/profit for the year/period . . . .4 22. . (Loss)/profit after tax . . . . Attributable to: Equity interest . Attributable to: Equity interest . . . . . Unrealised (loss)/gain on available for sale investments . . .9 5 5 6 7 5 8 (Loss)/profit before net finance costs and other gains/(losses) . . . (Loss)/profit before tax . .7 (167.7) (597.4) 681. .3) (383. .4 210.0) (244. . . .5 (118. .8) (188. .7 (26.6) (51.6) (10.9 3. .7) 77. .453. . .4) (33.0) (133.7) 165.2) 322.332. . . Exchange difference arising on translation of foreign operations . . . . .3 — 128. . .7 283. . . . . .0) 16. . . . .5) (50. . . . . . . .9 (6. .9) (64. . . . . . . .5) — 197. . Minority interest . . . . . .8 (191. .7 22. . . . . . . . . . . Other comprehensive income/(loss) Total comprehensive income/(loss) for the year/period . . . . . . .7) (199. .7 (162.3 (1.6) (1. .7) 5. . . . . . . . .9) (70. . .6) (447.6) 119. . . . .0 (254. . .9 147. .8) (489.1 (84. .7) (473. .1 (215. . .1) (197. (25. . .7 88.8 209 . .1 (7.9 5.0) (447. . . .3 (27. .4 (76. . .7) 34. . . . . . . .8) 119. .2) (61. .7 (61.3) (62. .1) (365. . .3 (297. .7) 40.4) 74.0 (259. Selling and distribution expenses . Gross profit . . . .658. .6) 7. .9 (25. .6) 71. . . . .0) 425.0) (44.6) (28. . .3 43. . Other operating income . .3 45. . . . . . .3) 8. .Part 11 Section B—Combined financial information of Essar Energy plc Combined Income Statement For the year ended 31 March 2007 2008 2009 US$ million US$ million US$ million Financial Information Note For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million Continuing operations Revenue . . .5 (1. . .654. . . . .6 72.4 372. .0 (167. .6 23.5) 0. . .6 (5. . . . . . . .4) (56. .4 11.4 (6. . . . .4) (35.1) (366. Net loss on commodity derivatives . . .9) 128. General and administration expenses .6) 163. .6) (14.7) (81.7) (459. . . Net finance costs . . . . .0 2. .1) 129. . . . .083. .8 30.9) 255. .1) (254.0) 2. .771. . . . Minority interest . . Other gains/(losses) .3 11 — 71. . . .7 11.2) 474.

. . . . . . . . . . . . .227.670. .8 31. . . . . .4 2.. . . . . Total equity . .682. . . . . . . . . .185.301. . . . .4 289.6 26. . . . . . . . . . . . . . .4 — 329.3 2.953. . . . . . . .5 9.3 1. .895. .512.3 59. . .7 100.9 12. .060.7 130. . . . . . .274. . .. .9 5. . .3 0. . . . .5) 1. .1 3.7 2. . .7 17. .585. . .0 267. . .626. . . . .3 2. . .7 40. . . .8 2. . . . . . . . .5 148.9 2. .063. . .2 20.3 (549. . . . . . . .884.1 9.290. . . . . . Trade and other receivables .5) 13. . . . . . . . .015. . . . .1 7. . . . . . .1 41. . .478. .9 2. .1 179. . . Other financial assets . .1 50. . . . . Derivative financial liabilities Non-current liabilities Trade and other payables Finance leases . . . .442. . .3 1. . . . . . .. . . . . . . .3 5. .7 1. . . . . . . .6 — (425. . . .8 1.1 2. .651.240. .8 2. . .8 Total non-current assets . . . . . . ..7 2. .6 — 136. . . . . . . . . . . . . . . . . . . .6 50.0 4. .1 385.3 292. . .4 918.4 5. . . . . . . . .9 15. . . . 210 . . . ..5 8. . ..8 2.2 859. .4 — 5. . .880. .. . . . .7 10.442. .0 2.3 Total current assets . . . . . . . . . . . . .190. . .5 356. . . . . .9 71. .523.5 392. . . . . . Net assets . . . . plant and equipment . . .7 22. . .877.441.282. . . .6 6. . . . . . .063.. . Current assets Inventories . .9 29. . . .0 2. . .9 2. . . . Property. . .7 38. . . . . . 17b 24 16 8 14. . . . . . . . . .5 0. . .. . . .2 41.1 40. . . . . .3 4. Finance leases . . . .8 142. . . . . . .9) 1.. . . . . . . . . .1 6. . .2 260.. . .7 (212. .081.6 3. . .6 1.3 2. .. . . . . . .3 4.8 5.7 0. . .0 194.062. . Deferred tax assets . . . . .6 291. . . . . . Trade and other receivables .3 62. .337. . . . . . . . . . .5 2. . . . . .6 6. . . .344.5 2. . . . . . . .9 607. . .770. . . .866.4 31. .7 — 4. . . . . . . . . Retained deficit . Equity Invested capital . . . . .135.3 864. . . . . . . . . . . . . . . Investments in joint controlled entities . . .352. . . . Borrowings . . . . . . . . . . . . . . . . .3 1. . . . . . . . .1 1. . Minority interest . . . . . .090. . .409. . .3 241. .7) 1. Total assets . .3 2. . . . . . . . .416.7 (543. . . . Current liabilities Trade and other payables .977..2 745.3 3. . . . . . . .0 Equity interest . . . . . . .7 360. . .5 56. . . . . .3 1. . . . . . . . . . . . . . . . .6 1. .105. . . . . .038. . . 10b 10a 9 23 12b 13b 8 136. . . . .067. . . . . . . Other intangible assets . Total liabilities .7 18. . . . . .1 10. . . . Available for sale investments Other financial assets . . . . . reserve . . Borrowings .678. .011. . .038. Derivative financial assets . . . . . .4 117. . .4 3. . . . . . . Deferred tax liabilities . . Cash and cash equivalents .6 6.147.Part 11 Financial Information Combined Balance Sheet As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Note Non-current assets Goodwill .4 2. Currency translation Fair value reserve . . .4 13. . .6 2..5 586. .1 581. . . . . . . .9 9. . .9 Total current liabilities .. . . . . . .9) 15.6 — (116.0 72. .7 29. . . . .6 1. . .172.453. . 14 12a 11 13a 18a 15 799.6 5.0 127. . . . . . . .8 0. . . .563. . .1 139.3 1. .6 5. . .2 457.4) 1.480.770. . . . . . . . . . .2 50. . . .0 Total non-current liabilities .4 18.453. . . . . . 17a 24 16 18b 1. . . . . . . . . . . . . . .7 (89. . . . . .4 1. . . . 19 1. . . . . . . .

. .7 1.0 433. . .4 273.063. . .0 433. .4) (549. . . Acquisition of minority interest . Acquisition of Essar Power Holdings Ltd .081. Balance at 31 March 2008 . . . .5 — 592. . . Balance at 31 December 2009 .953.5 273.4 (89. . . .9) — 9.0) (116. . .4) — 72. . . .6) (223. . . . . .0 392. . .6 806. .9 — 20. . Common control transaction . . . . .1) 289. Acquisition of Essar Energy Holdings Limited . .Part 11 Combined Statement of Changes in Equity Financial Information Attributable to equity interest Currency Invested translation Fair value Retained Minority capital reserve reserve deficit Total interest Total equity US$ million US$ million US$ million US$ million US$ million US$ million US$ million Balance At 1 April 2006 . .442. . . .301. Capital contribution . Capital Contribution .0 433. .6 1. .4) (13. .5) (212.4 (597.6 22. . . . . Acquisition of minority interest . . Acquisition of minority interest Increase of minority interest . . Capital contribution .6) 43. . . . . .7) 1.4) (13. . .9) 45.1) 72.3 — — (1. .6 — — (355. . .6) 283.1 360. . .7 806. .8 273. .8 (543.2) 21.3 15. .682.038. .0 806.1) (2. .7) 24. . .6 — (6.6) (223. . .0 (88.5) 88. .9 30. Acquisition of Hazira Steel 2 .7 — — — — — — — — — 50.6) 13. Acquisition of minority interest Total comprehensive income/ (loss) for the year .0) (28. . .1 50.7 74.6) (425.6 — — — 92.1 50. .770.2) (70.9 9.7 — — — — — — (73. . . 211 .8) 22. Total comprehensive income/ (loss) for the year .8 (124.6 50. .9) — — 123.8 Balance at 31 March 2007 .0) 22.9) 23.0 — 314. .5) 210. Acquisition of Algoma Energy LLP . .7) — (82. .5) — (15. .9 — — 2. . Capital contribution . . .6) 1. .8 356. . .2 (15.4 — — (60.0 — — — — 1.480.147. . . . . .6 (473.3 — 134.1) (2. . . .4 592. . . . .4 74. . .5 — 62. .227.5 — 592. . Minority arising on business combination (Note 22 b) . . Total comprehensive income/ (loss) for the period .4 1. .4 2. . . Balance at 31 March 2009 .0 (15. . . . Total comprehensive (loss)/ income for the year .6) (212.3 — — 10.6 (133. . .6 1. . . . . . .0 142. — 72.2 (15.2 — — — 1.5 314.4 (2.0 74.5) — — — — — — — — — — — — — — — — — — 15.0 — — 2. .4 2. .0 (82.0 (73.1 50. .670.0 (133. . . .

. .2 56. . . . .3 100.8) (2.9 (296.1) (0. . . . .3) — (1.3) (56.7 — — — — (34. . Repayment of borrowings .7) (2. . . . . . Proceeds from borrowings . . . . .9 62. . . . . . . . . . . . .0) (23. .6 (8. . . . .9) 23. . . .. . .2) (1.5) 77. .0 (212. . . .5) (64. . . . . . Other liabilities and provisions . . . Payment for exploration and evaluation assets . . . . . . .6 (13. .0 (8. . . . . . . . . . Interest paid . . . . Effect of exchange rate changes on cash and cash equivalents . . . Inventory written down . . . . . . . . . . . . . . . . .7) (735. . plant and equipment . . .1 (0. . .367. . . . . . .7 177. .7) (19.1) 6.6 (114. . . . .5 34.307. . . . .9) 656. . Other assets . . .6 71. . .1 — (449. . . Net cash provided by financing activities .6 (133. .5 (115. . . .8) (2. . . . . Proceeds on disposal of property. .9) 74. . . . .3 (179. . . . .7) — (5. . . . . .5) 0. . .0) (516. . . . . . .5 62. .. .0) (2. . .6) 24. .0 168. . . . Cash flow from investing activities Acquisition of businesses (net of cash acquired) Purchase of property. Net increase/(decrease) in cash and cash equivalents . .9 (50. . . . .4) (27. . . . .2 (218. .8) 12. .3 (454. . . . . . . . . . . .1) 8. . .2) (589. . .9) (57. . . .4 43. . . .5 13. . . Share in profit of joint controlled entities .7) (383. . . . . . . . . Cash flow from financing activities Proceeds from issuance of invested capital .2 — — — 114. . . . . .4 Net cash (used in)/generated from operating activities . . . .1) 0. . (26. . . . . . . . . . . . .Part 11 Financial Information Combined Cash Flow Statement For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million US$ million US$ million US$ million For the year ended 31 March 2007 2008 2009 Cash flow from operating activities (Loss)/profit before tax . . . . . . .1 40. .1) 1.9 5. . . .. . .0 (250. . . . . . . . . . . .9 141. . . . . .5) (105. . . . . . . . . .3) (3.3) — (2. .0 345. . . . 212 . Acquisition of minority interest .0 (143. . . . . . .5 447. . . . . . . . Payment for purchase of intangible assets . . . . . . Inventories . .9) (40.6) (199.3 . . . . . . . . .5 (4. . . . .289.4 (3. . . . . .7 (199. . .6) (77. . . . . .9) (7. . . Movement in acceptances . . . . . . Adjustments to reconcile (loss)/profit before tax to net cash(used in)/generated from operating activities: Depreciation and amortisation .7 (11. . . . . .0 89. .0) (556. . . . .2 7. . . . . . . . . . . . .3 229.1) (27. . .5) (20. .2 — (405. . . .0) 213. . .1) 1. Cash and cash equivalents at the beginning of the year/period . . . . . 13.6) (18. . . . .0) 15. . . . . . .. . . . Foreign exchange (gains)/losses . . .8) — (120. . . . . . .2) 210. .7 (94. . . . .0) (149. .1 49.0) (18. .2 — — — 114.5) 164. . .3 459.5 73.6) 583.3 (1.7) 13. . . . Cash and cash equivalents at the end of the year/ period (Note 15) . . . . .1 30. .4 (244. .4 153. . . . .0) 97. Tax (paid)/refund . Proceeds from disposal of investments . . . plant and equipment Surplus on acquisition of joint controlled entity .8 218. . . . . . . . . .7) (47. . . . . . . . . . . . Payment for purchase of investments . . . . .6 — (391. . Movement in bills of exchange and other financing . .7) 350. Changes in assets and liabilities: Trade and other receivables . . . . . .9 — — — 0. . . . . . . plant and equipment . . .0) 89.3 30. . . . Net cash used in investing activities . .1) — (1. . . . . .2) 12. . . . . .6 (182.3) 61. . . . . . . . . . . .2) (8.2 0. .1) (126. Investments in joint controlled entities . . . .5) (118. .2 — 40. . . . . . . .1) (0.1) (305.6 84. . . . . . . Unrealised loss/(gain) on derivatives . . . .8 (19. . .5) (35. . . .8) 392. . . . . .7) (369.1 (178. .3) 193. .4) (244. . . . . .8) — — — (498. .5) (5. . . . . . . . . . . .6 (17. . .1 4. . .6 (146. . . . . . .8 1. .6) 197. . . . . . . . . . Loss on disposal of property. .2 (240. . .. .4) 238. ..6) 787.5) 772. .0 (130. . .6 100.0) 0. . . .5) 17.9) 593.4) (311. Trade and other payables . .1) 147. .1) (11.3) (8.6 (0.2) 273. .7) (0.3) — — — (413. .3 100.1 10. . . .5) 154.5 108. . . . Interest cost . . .

London. and they were therefore under common ownership. Immediately thereafter Essar Energy Holdings Limited became the holding company of Vadinar Oil. for the purposes of listing on the Main market of the London Stock Exchange. A significant portion of the Group’s activities have been executed with Essar Group related parties who do not form part of this combined historical financial information. These legal entities have not previously constituted a legal Group and hence consolidated historical financial information does not exist for the Group. The Group’s principal businesses are oil refining. The Energy and Power groups were expanded by further acquisitions during the periods presented (see Note 22). is prepared on a basis that combines the results 213 . Prior to listing the Company was ultimately held by EGL. Essar Power Holdings Ltd’s interest in Essar Power Limited increased over the period presented in the historical financial information to 66. The ultimate Shareholder of these companies was EGL both before and after the Pre-IPO Reorganisation and this economic interest is not transitory. gas and power businesses through the acquisition of: • 67. W1J 6ER. the financial information. the combined historical financial information presented in this Part 11: ‘‘Financial Information’’ is in respect of the entities brought in to the Group under the Pre-IPO Reorganisation (the ‘‘Group’’). Accordingly. Essar Energy Holdings Limited and its subsidiaries formed the energy business of the Essar Group (the ‘‘Energy Group’’). the ‘‘Power Group’’). • The combined Energy and Power groups are defined as the Group in the combined historical financial information.22% of Essar Oil Limited by EGL’s subsidiary Vadinar Oil on 30 June 2006 and the acquisition of Essar Energy Holdings Limited (and its subsidiaries) by EGL in September 2006. Financial Information PRESENTATION OF COMBINED HISTORICAL FINANCIAL INFORMATION 1. and as detailed in Note 27. In 2006-07 it consolidated its oil. 2008. The combined historical financial information for the years ended 31 March 2007. that held a 42.Part 11 Notes to the combined historical financial information 1. On 29 April 2010.20%. Its balance sheet at such date comprised £1 share capital.26% interest in Essar Power Limited through another subsidiary on 5 October 2006. As a result. The financial statements of EGL are not publicly available. The Company’s registered office is 3rd Floor Lansdowne House.2 Basis of preparation The combined historical financial information comprises the historical financial information of the oil. 100% of Essar Power Holdings Ltd (‘‘EPHL’’) on 13 September 2006 (together with its subsidiaries. Accordingly. EGL completed a reorganisation whereby the Energy and Power groups. 2009 and nine months ended 31 December 2009 (and the comparative nine months ended 31 December 2008) in respect of the Group was authorised for issue by the Board of Directors of the Company on 30 April 2010. The Company is not included in the combined historical financial information and it did not trade or enter into any transaction between the date of its incorporation and 31 December 2009. Entities included in the combined historical financial information are listed in Note 26. 1. gas and power businesses of the Essar Group represented by the Energy and Power Group which will comprise the Group at the date of admission of the Company’s shares to the London Stock Exchange. Berkeley Square. were reorganised under the Company (the ‘‘Pre-IPO Reorganisation’’). The Essar Group also acquired a 36. The Essar Group has been established for over 40 years and operates in various businesses. which has been prepared specifically for the purposes of the prospectus. The Company is a public limited company incorporated on 18 December 2009 under the Companies Act 2006 and registered in England and Wales (registered number 07108619).1 Corporate Information Essar Energy plc (the ‘‘Company’’) is currently a wholly owned subsidiary of Essar Global Limited (‘‘EGL’’) (together with its subsidiaries the ‘‘Essar Group’’). the generation of power and the exploration and production of oil and gas.86% interest in Essar Power Limited.

All other items within equity have been aggregated in a manner consistent with the assets and liabilities. The results and net assets of an associate interest held by the Power Group. acquired by the Company under the pre-IPO Reorganisation. The application of these conventions results in the following material departure from IFRS: The historical financial information is prepared on a combined basis and therefore does not comply with the requirements of IAS 27 Consolidated and Separate Financial Statements. a steel business. Further acquisitions of minority interests in those entities have been reflected as a change in reserves. the Group has consolidated such entities from the date the Essar Group obtained control with the portion of the entity not owned by the EGL Group reflected as minority interest. In all other respects IFRS as adopted by the European Union have been applied. and accordingly in preparing the combined historical financial information certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements on historical financial information) issued by the UK Auditing Practices Board have been applied. This did not form part of the Group to be listed. IFRS does not provide for the preparation of combined historical financial information. which have been distributed within the Essar Group have similarly been excluded from the combined historical financial information. Further. This basis of preparation has resulted in the following: When the Essar Group has control of entities which have later been transferred in to the Energy or Power Group. however the combined historical financial information has been prepared by applying the principles underlying the consolidation procedures of IAS 27. • • 214 . liabilities and the profit or loss of the entities comprising the Group have been aggregated. The minority interest in the Power and Energy Group reduced throughout the periods presented as a result of a number of further direct and indirect acquisitions by the Group. share application monies and share premium of the Energy and Power Groups have been combined and reflected as invested capital. Oil and gas interests in an exploration block. this interest in the steel business was exchanged for a smaller interest in the Teletech Investments India Limited during the period of the combined historical financial information. Transactions and balances with entities in the Essar Group that are not within the combined Group are classified as related party transactions. The combined historical financial information has been prepared in accordance with the requirements of the Prospectus Directive regulation and the UK Listing Rules and in accordance with this basis of preparation. The comparative balance sheet is represented by the balance sheet as at 31 March 2008. and so is excluded from the combined historical financial information. Myanmar. except as described below. the requirements of IAS 28 Investments in Associates to equity account for the interest in the aforementioned steel associate has not been complied with in this respect. The share capital. Internal transactions within the Group have been eliminated on combination. did not form part of the Group transferred to the Company as part of the Pre-IPO Reorganisation and therefore has not been reflected in the combined historical financial information.Part 11 Financial Information and assets and liabilities of the Power and Energy Groups. All transactions and balances between entities included within the combined historical financial information have been eliminated. Accordingly. Unaudited comparative financial information for nine months ended 31 December 2008 has also been included. The combined historical financial information has been prepared based on the following: • The assets. The basis of preparation describes how the financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (‘‘IFRS’’) that are effective for financial years beginning on or after 1 April 2009.

the Group has taken account of its financial position. The Essar Group purchases power from the Group’s power station.Part 11 • Financial Information The Essar Group acquired certain other entities through the Energy and Power Groups during the periods presented in the combined historical financial information. the following: • Administrative cost include payments to the Essar Group for administrative services comprising administration. stand-alone entity during the periods presented. its bank and other facilities. the Group considers that it has adequate resources to continue in operational existence for at least the next 12 months from the date of this document and that it is appropriate to adopt the going concern basis in preparing this financial information. In addition. 1. but are not limited to. They are not necessarily representative of the capital expenditure that may be incurred in the future. These are detailed in Note 22 and have been recorded in accordance with the business combination policy described below. due to the fact that these entities were part of the larger Essar Group and therefore benefited from its structure and central operations. No information is presented for proposed directors of the Company or for individuals who served as directors of companies within the Group but who are not to be directors of the Group following the transaction. Further details of shared services between the Group and Essar Group companies are included in Note 25. management and other services based on the historical intercompany charges. After making appropriate enquiries. anticipated future trading performance. • • • • 1. These include.4 Standards. interpretations and amendments to published standards that are not yet effective The Group has applied all accounting standards and interpretations issued by the IASB and IFRIC except for the following standards and interpretations which were in issue but not yet effective: • • • • • • IFRS 1—Amendment—Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters 1 July 2010 IFRS 2—Amendment—Group Cash-settled Share-based Payment Transactions 1 January 2010 IFRS 9—Financial instruments 1 January 2013 IAS 24—Related Party Disclosure (Revised) 1 January 2011 IAS 27—Consolidated and Separate Financial Statements (Revised) 1 July 2009 IAS 39—Amendment—Eligible Hedged Items 1 July 2009 215 . These costs were affected by the arrangements that existed in the Essar Group and are not necessarily representative of the position that would have been reported had the Group been an independent Group or that may prevail in the future. They are not necessarily representative of the interest income and expenses that would have been reported had the Group been an independent Group. the net proceeds receivable by the Group in the underwritten offer of new shares and its capital expenditure commitment and plans. The amounts recorded reflect the arrangements in place at the time and are not necessarily reflective of alternate arrangements the Group could have entered into had the Group been an independent Group. together with the other risks facing the Group.3 Going concern In assessing its going concern status. Interest income and expenses recorded in the combined income statement have been determined in accordance with the historical financing arrangements within the Essar Group. there are certain items within this financial information that may not be indicative of the Group’s future performance and does not necessarily reflect what the Group’s financial position and results of operations would have been had it operated as a separate. The amounts recorded are reflective of the arrangements in place at the time and are not reflective of alternative arrangements the Group may have entered into had it been an independent Group. They are not necessarily representative of the interest income and expenses that may arise in the future. Essar Group undertakes capital projects for the Group.

the Group plans to adopt these standards on their effective date as described above. and the consideration paid by the Group is accounted for as an adjustment to retained earnings. the original cost paid by the transferor is recorded as capital investment with the differences recorded as an increase in retained earnings. If. the excess is recognised immediately in profit or loss. any excess over the Group’s share of net assets is recorded in retained earnings. a provisional assessment of fair values is made and any adjustments required to those provisional fair values. 1 January 2010 The adoption of these standards and interpretations is not expected to have a material impact on the financial information of the Group in future reporting periods. Common control acquisition The assets and liabilities of subsidiaries acquired from entities under common control are recorded at the carrying value recognised by the transferor. except for non-current assets that are classified as held for sale in accordance with IFRS 5 Non-Current Assets held for sale and discontinued operations which are recognised at fair value less costs to sell. liabilities and contingent liabilities recognised. except for a business combination under common control which is described below. Any differences between the carrying value of the net assets of subsidiaries acquired. liabilities and contingent liabilities exceeds the cost of acquisition. and the corresponding adjustments to purchased goodwill. In the event of a purchase of a minority shareholder’s interest where the Group holds the controlling interest in a subsidiary. ACCOUNTING POLICIES AND ESTIMATES 2. liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the date of acquisition.1 Business combinations The acquisition of subsidiaries and businesses from third parties are accounted for using the purchase method. The acquiree’s identifiable assets. Goodwill arising on acquisition is recognised as an asset and is initially measured at cost. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets. after reassessment. are finalised within twelve months of the acquisition date. The net asset of the subsidiaries and their results are recognised from the date on which control of the subsidiaries was obtained by the transferor. liabilities and contingent liabilities recognised. liabilities incurred or assumed and equity instruments issued by the Group on the basis of fair value at the date of acquisition in exchange for control of the acquiree.Part 11 • • • • • • Financial Information IAS 39 and IFRIC 9—Amendment—Embedded Derivatives 1 July 2009 IFRIC 14—Amendment—Prepayments of a Minimum Funding Requirement 1 January 2011 IFRIC 17—Distributions of Non-Cash Assets to Owners 1 July 2009 IFRIC 18—Transfers of Assets from Customers 1 July 2009 IFRIC 19—Extinguishing Financial Liabilities with Equity Instruments 1 July 2010 Improvements to IFRSs 2009. plus cost directly attributable to the acquisition. The Group follows the entity concept method of accounting for changes in ownership interest in subsidiaries. 216 . the fair values of the identifiable assets. being the excess of the cost of the business consideration over the Group’s interest in the net fair value of the identifiable assets.1 Significant accounting policies 2.1. 2. The cost of acquisition is measured at the aggregate value of the identifiable assets. Where it is not possible to complete the determination of fair values by the date on which the first post-acquisition financial statements are approved. When the transferor contributes the subsidiaries to the Group.

A sale is recognised when economic benefits associated with the sale are expected to flow to the Group and the significant risks and rewards of ownership of the goods have passed and it can be reliably measured. value added tax. Goodwill which is recognised as an asset is reviewed for impairment at least annually. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit.5 Foreign currency transactions and translation Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Revenue from power supply is accounted for on the basis of billings to consumers. Transactions in currencies other than the functional currency are translated into functional currency at the exchange rates at the date of transaction. or more frequently when there is an indication that the unit may be impaired. The benefit of a sales tax deferral with no associated interest outflow is recognised as a liability in accordance with the imputation rule under IAS 20 Accounting for Government grants and disclosure of Government Assistance. The benefits under the Sales Tax Incentive Scheme are recognised when it is reasonable to expect that the benefit will be received and that all related conditions will be met.1. Revenue associated with sales tax deferral is recognised in accordance with the Group’s policy for accounting for sales tax incentives set out in 2.1. 2.1.1. associate or joint controlled entity.4 Sales tax incentives The Group receives the benefit of certain sales tax incentives under the Capital Investment Incentive Premier/Prestigious Units Scheme 1995 . the attributable amount of goodwill is included in the determination of the profit or loss on disposal. associate or joint controlled entity at the date of acquisition. For the purpose of impairment testing goodwill is allocated to each of the Group’s cash generating units expected to benefit from the synergies of the combination.1. This deferred liability is measured in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Sales of electricity are accounted for based on relevant tariff rates approved under the contract with the customer. and therefore a finance charge is recorded as the discount on this liability unwinds. Internally generated goodwill is not recognised. Monetary assets and liabilities denominated in other currencies are translated into functional 217 . Any impairment is recognised immediately in profit or loss and is not subsequently reversed.4. net of trade discounts. 2. This is usually when title and insurance risk has passed to the customer. The benefit of the below market rate of interest (or no interest) is measured as the difference between initial carrying value of the loan as determined in accordance with IAS 39 and the sales tax collected. The deferred liability to the State is recognised at its net present value. volume rebates. The benefits under the Sales Tax Incentive Scheme are available only when eligible domestic sales are made from the Gujarat State and the sale is therefore treated as the key condition giving rise to the recognition of the benefit. Cash-generating units to which goodwill has been allocated are tested for impairment annually. It is expected that all other conditions related to the deferral of sales tax will be met and therefore the benefit is recognised as eligible domestic sales are made.2 Goodwill Financial Information Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary. sales taxes and duties.Part 11 2. 2. Generally all consumers are billed on the basis of recording of consumption of electricity by installed meters. the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.3 Revenue recognition Revenue from the sale of petroleum products is measured at the fair value of consideration received or receivable.2000 (the ‘‘Sale Tax Incentive Scheme’’). On disposal of a subsidiary.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. . * Blended rate for the period 44. . . . .68 48. The capitalised value of a finance lease is also included within property. plant and equipment. . . . . . Consequently. plant and equipment Property. Costs directly related to construction.95 44. .59 40. all fair value movements in respect of derivative financial instruments are taken to the income statement. . the Group’s derivative arrangements are not designated hedges under the definitions of IAS 39. . A derivative is presented as a non-current asset or liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Any gain or loss arising on derecognition of the asset 218 . . the income statement items of those entities for which the US dollar is not the functional currency are translated into US dollars at the average rates of exchange during the year. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. plant and equipment in the course of construction is carried at cost. Property.91 50. . . . . Exchange differences arising on translation are reported in the combined statement of changes in equity. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. For the purposes of combination. . . . any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management. . Income from the sale of products as a result of testing and trial runs of a new asset are part of the directly attributable cost of assets and therefore deducted from the cost of the asset.7 Property. .6 Derivative financial instruments In order to reduce its exposure to foreign exchange. . . if any. . . commodity price and interest rate risk.24 39. The combined historical financial information is presented in US dollars. The initial cost of an asset comprises its purchase price or construction cost. 2. . .1. and is not depreciated. . Other derivatives are presented as current assets or current liabilities. Likewise. . . plant and equipment is stated at cost less accumulated depreciation and impairment losses. The rates used to translate the combined historical financial information were as follows: 2007 INR/US$ 31 March 2008 INR/US$ 2009 INR/US$ 31 December 2008 2009 INR/US$ INR/US$ Average Rates .97 45.50 47. plant and equipment become operational. . . Further details of derivative financial instruments including fair value measurements are disclosed in Note 18. when a major inspection or major maintenance is. . . . . . .Part 11 Financial Information currency at exchange rates at the balance sheet date and exchange differences are recognised in profit or loss.90* 43. . All derivative contracts and instruments are held at fair value in the balance sheet within other financial assets or other financial liabilities. . An item of property. . the Group enters into forward. plant and equipment becomes operational once all testing and trial runs are complete and it is ready for use in the manner management intended. The Group does not use derivative financial instruments for speculative purposes. option and swap contracts. including costs and revenues arising from testing. . . less accumulated impairment losses. the initial estimate of the decommissioning obligation and for qualifying assets. At present. . . . . . . Closing Rates . borrowing costs if the recognition criteria are met. Property.68 2. . All other repairs and maintenance costs are recognised in the profit or loss as incurred.1. . . . if any. The related balance sheets are translated at the rates at the balance sheet date. are capitalised up to the point where the property. . its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. .92 46. plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal.

. . construction or production of qualifying assets are added to the costs of those assets during the construction phase on an effective interest basis. . . —Power plant . . . . . . . an assessment is made to determine whether the asset’s carrying value exceeds its recoverable amount. the carrying value of the asset or the cash generating unit is reduced to its recoverable amount and impairment loss is recognised in profit or loss.1. —Related assets . . . . . . . . . .. . . . Whenever the carrying value of an asset exceeds its recoverable amount. . . until such time as the assets are ready for their intended use or sale which. . . . . the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount. Office equipment and fixtures Motor Vehicles . . . . Depreciation begins when the assets become operational. . . . . Where an impairment loss subsequently reverses. . . . . . . . . . . in the case of producing properties. useful lives and methods of depreciation are reviewed. . plant and equipment held under finance leases is depreciated over the shorter of lease term and estimated useful life. at each financial year end. but such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. .1. Where it is not possible to estimate the recoverable amount of an individual asset. . . . . . . . . the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. . . . . . . An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use. . . . If there are indicators of impairment. . . . Producing properties . . .. 2.9 Borrowing costs Borrowing costs directly relating to the acquisition. . intangible asset (excluding goodwill) and investments in joint controlled entities are reviewed for impairment at each balance sheet date if events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. . . Depreciation of property. . over its expected useful life. . . . . . . . The Group also capitalises exchange differences arising from foreign currency borrowings used for the construction of qualifying assets to the extent that they are regarded as an adjustment to interest costs.Part 11 Financial Information (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. A reversal of an impairment loss is recognised immediately in profit or loss.. . .... . . . is when saleable material begins to be extracted from the producing properties. Depreciation is calculated over the estimates useful lives of assets and on the basis of depreciation methods are as follows: Expected useful life (years) Asset Depreciation Method Buildings . and adjusted if appropriate. . . . . .. . Straight line Straight line Straight line Straight line Based on reserves on a unit of production basis Written down value Written down value 40 40 25 10-25 3-20 9-11 Property. . . . including producing properties and leases. . the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. . . . . The asset’s residual values. .. . . . plant and equipment other than freehold land and properties under construction is calculated to write off the cost of the asset to its residual value using the straight line method or the written down value method or on a unit of production basis as appropriate. . . . 2. . . Plant and equipment —Refinery . . Where surplus funds are 219 .8 Impairment of non-financial assets The carrying amounts of property. In assessing value in use. . . . . . . . . . plant and equipment. .

Financial assets at FVTPL Financial assets at FVTPL include financial assets held for trading or designated upon initial recognition as at FVTPL. Management determines the classification of its financial assets at initial recognition. with any resultant gain or loss recognised in profit or loss. or (iii) they are derivatives unless these are designated as effective hedging instruments. loans and receivables and Available-for-sale (AFS) financial assets. the income generated from such short term investments is deducted from capitalised borrowing costs. at the present value of the minimum lease payments. Assets held under finance leases are initially recognised as assets of the Group at the inception of the lease at the fair value of the leased property or. if lower. and are initially measured at fair value. Financial assets are classified as held for trading if: (i) acquired principally for the purpose of selling in the near term. A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: (i) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise. The classification is dependent on the nature and purpose of the financial assets acquired. plant and equipment are recognised in the income statement on a straight line basis over the lease term. at Fair Value Through Profit or Loss (FVTPL).1. cash and cash equivalents. Finance charges are recognised in the income statement. which are initially measured at fair value. or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.1. 220 . 2. Lease incentives received are recognised as an integral part of the total lease expense over the term of the lease. The Group classifies its financial assets into the following specified categories. plus transaction costs. unless they are directly attributable to qualifying assets. (ii) they are a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking. plant and equipment used by the Group under operating leases are not recognised in the Group’s balance sheet. Further details on the Group’s financial assets and fair value measurement are disclosed in Note 21. if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. 2. Property. except for those financial assets classified as at fair value through profit or loss. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.11 Financial assets All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned. in which case they are capitalised in accordance with the Group’s policy on borrowing costs (see above). Payments made under operating leases. where the lessors effectively retain substantially all the risk and benefits of ownership of the lease property. Financial assets at FVTPL are stated at fair value.10 Leases The determination of whether an arrangement is.Part 11 Financial Information available for a short term out of money borrowed specifically to finance a project and/or a qualified asset. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.

Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired as well as through the amortisation process. except for short term receivables when the recognition of interest would be immaterial. are assessed for indicators of impairment at each balance sheet date. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘other gains and losses’ line item in the income statement. or (iii) it forms part of a contract containing one or more embedded derivatives. Impairment of financial assets Financial assets. The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. and IAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.Part 11 Financial Information (ii) the financial asset forms part of a Group of financial assets or financial liabilities or both. with any gains or losses arising on remeasurement recognised in profit or loss. Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive the dividend is established. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated reserves with the exception of impairment losses. Other foreign exchange gains and losses are recognised in other comprehensive income. Fair value is determined in the manner described in Note 21. The Group also has investments in unlisted shares that are not traded in an active market but are also classified as AFS financial assets and stated at fair value (because the directors consider that fair value can be reliably measured). The foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset. If a loan has 221 . After initial measurement loans and receivables are measured at amortised cost using the effective interest method less any allowance for impairment. which is managed and its performance is evaluated on a fair value basis. AFS financial investments Listed shares held by the Group that are traded in an active market are classified as being AFS and are stated at fair value. in accordance with the Group’s documented risk management or investment strategy. Financial assets at FVTPL are stated at fair value. The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the balance sheet date. the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). and information about the Grouping is provided internally on that basis. the cumulative gain or loss previously recognised in the investments revaluation reserve is reclassified to profit or loss. which are recognised directly in profit or loss. as a result of one or more events that occurred after the initial recognition of the financial asset. other than those at FVTPL. Fair value is determined in the manner described in Note 21. Objective evidence of impairment could include: (i) significant financial difficulty of the issuer or counterparty. or (iii) it becoming probable that the borrower will enter bankruptcy or financial reorganisation. (ii) default or delinquency in interest or principal payments. the estimated future cash flows of the investment have been affected. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets. Interest income is recognised by applying effective interest rate. If there is objective evidence that an impairment loss has incurred. For financial assets carried at amortised cost the Group assesses whether objective evidence of impairment exists for assets that are individually significant. Financial assets are impaired where there is objective evidence that. or collectively for financial assets that are not individually significant. Where the investment is disposed of or is determined to be impaired.

the Group’s obligations are discharged. Insurance contracts are disclosed as contingent liabilities unless the obligations under guarantee become probable. For AFS financial investments. and only when. if not designated as at FVTPL. The Group evaluates each arrangement to determine whether it is an insurance or a financial guarantee contract. the cumulative loss (measured as the difference between the acquisition cost and the current fair value. increases in their fair value after impairment are recognised directly in other comprehensive income. Other financial liabilities Other financial liabilities. a shorter period. the discount rate for measuring any impairment loss is the current effective interest rate. claims under contract and other arrangements in the ordinary course of business. cancelled or expire. Where there is evidence of impairment. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process. The measurement of financial liabilities depends on their classification as follows: Financial liabilities at FVTPL Financial liabilities at FVTPL include those held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. to the net carrying amount on initial recognition. Impairment losses on equity investments are not reversed through the income statement. including borrowings.Part 11 Financial Information a variable interest rate. include directly attributable transaction costs. are initially measured at fair value.12 Financial liabilities Financial liabilities are classified as financial liabilities at FVTPL or other financial liabilities at initial recognition. Financial guarantee contract liabilities are measured initially at their fair values and. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. objective evidence for impairment would include a significant or prolonged decline in the fair value of the investment below its cost. trade and other payables and finance lease payables. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. In the case of equity investments classified as AFS. net of transaction costs. The Group’s other financial liabilities include borrowings. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings. are subsequently measured at the higher of the amount of the obligation under the contract and the amount initially recognised less cumulative amortisation. where appropriate. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. 2. less any impairment loss on that investment previously recognised in the income statement) is removed from other comprehensive income and recognised in the income statement. Gains or losses on liabilities held for trading are recognised in the income statement.1. with interest expense recognised on an effective yield basis. Derecognition of financial liabilities The Group derecognises financial liabilities when. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. the Group assesses at each reporting date whether there is objective evidence that an investment or a Group of investments is impaired. 222 . or. Financial guarantee contracts The Group provides certain guarantees in respect of the indebtedness of subsidiary undertakings.

.1. . If the effect of the time value of money is material. . . In normal course of business. . .15 Intangible assets Intangible assets acquired separately are measured on initial recognition at cost.Part 11 2. 223 . . . . . . . . . but are disclosed where an inflow of economic benefits is probable. . . . . labour cost and a proportion of manufacturing overheads based on normal or allocated capacity. . . . . . . . .1. Contingent assets are not recognised. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimate. . . . . and it is probable that an outflow of resources. . The asset’s useful lives and methods of amortisation are reviewed. where appropriate. . . .13 Provisions and contingencies Financial Information Provisions are recognised when the Group has a present legal or constructive obligation. . . . . . . . . . . as a result of past events. Power sales contract . .14 Inventories Inventories (other than crude oil extracted by the exploration and production segment) are valued at lower of cost and net realisable value. . . . Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. .1. . .1. . (c) Inventories held for trading purposes are determined at weighted average cost. . . . . will be required to settle such an obligation. (b) Finished products and work in progress are determined at direct material cost. . . . . . financial and operating decisions with one or more ventures under a contractual arrangement. Finite lives intangible assets which are subject to amortisation are amortised over their useful lives as mentioned below: Expected useful life (years) Intangible asset Software . . . Following initial recognition. Crude oil extracted and in saleable condition is valued at net realisable value. . . . provisions are determined by discounting the expected future cash flows to net present value using an appropriate pre-tax discount rate that reflects current market assessments of the time value of money and. . . . . . . . contingent liabilities may arise from litigation and other claims against the Group. . . . at each financial year end. . . intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. . . . . Cost is determined on the following bases: (a) Raw materials and consumables are determined at weighted average cost except crude oil for the refinery which is measured at first-in first-out basis. . . . The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. . 2.16 Joint controlled entities 3-5 20 A joint controlled entity is an entity in which the Group shares joint control over the strategic. . . 2. . . . . . if any. . . . . . Intangible assets with finite lives are amortised over their useful lives and assessed for impairment whenever there is an indication that an intangible asset may be impaired. Unwinding of the discount is recognised in the income statement as a finance cost. Net realisable value is determined by reference to estimated prices existing at the balance sheet date for inventories less all estimated costs of completion and costs necessary to make the sale. . . . . . . 2. . . . . . and adjusted if appropriate. that can reliably be estimated. the risks specific to the liability. . A contingent liability is disclosed where the existence of an obligation will only be confirmed by future events or where the amount of the obligation cannot be measured reliably. . . .

Profits and losses resulting from transactions between the Group and the joint controlled entities are eliminated to the extent of the Group’s interest in the relevant joint controlled entities. (b) gathering exploration data through geological and geophysical studies. Exploration and evaluation activity includes: (a) researching and analysing historical exploration data.17 Exploration and evaluation expenditure Exploration and evaluation activity involves the search for oil and gas resources. the capitalised exploration and evaluation expenditure is transferred to assets under construction after impairment is 224 . Goodwill arising from the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets. (d) evaluating and testing discoveries. The income statement reflects share of results of operations of the joint controlled entities. or (b) at the balance sheet date. liabilities and contingent liabilities recognised of the joint controlled entities is included in the carrying amount of the investment and is assessed for impairment as part of that investment. plant and equipment at cost less impairment losses. when applicable. is recognised immediately in profit or loss. Where there has been a change recognised directly in equity of the joint controlled entities. 2. Exploration areas at which reserves have been discovered but that require major capital expenditure before production can begin are continually evaluated to ensure that commercial quantities of reserves exist or to ensure that additional exploration or evaluation work is under way or planned.Part 11 Financial Information Investment in joint controlled entities are accounted for using the equity method of accounting. liabilities and contingent liabilities over the cost of acquisition. which is recognised at fair value less costs to sell. Any excess of the Group’s share of the net fair value of the identifiable assets. Exploration and evaluation expenditure (including amortisation of capitalised license costs) is charged to the profit and loss account as incurred except in the following circumstances: (a) the exploration and evaluation activity is related to an established discovery for which commercially recoverable reserves have already been established. if any. Where a potential impairment is indicated. the determination of technical feasibility and the assessment of commercial viability of an identified resource.1.18 Development expenditure When commercially recoverable reserves are determined and development is sanctioned. (e) determining transportation and infrastructure requirements. investments in joint controlled entities are measured at cost plus post acquisition changes in the Group’s share of net assets of joint controlled entities.1. All capitalised exploration and evaluation expenditure is monitored for indicators of impairment. exploration and evaluation activity has not reached a stage which permits a reasonable assessment of the existence of commercially recoverable reserves. in the statement of changes in equity. 2. License costs paid in connection with a right to explore an existing exploration area are capitalised. except when the investment is classified as held for sale. To the extent that capitalised expenditure is not expected to be recovered it is charged to the profit and loss account. less any impairment in the value of individual investments. Capitalised exploration and evaluation expenditure considered to be tangible is recorded as a component of property. Administration costs that are not directly attributable to a specific exploration area are charged to the profit and loss account. (c) exploratory and appraisal drilling. the Group recognises its share of any changes. In accordance with the equity method. after reassessment. an impairment test of the capitalised exploration and evaluation expenditure is performed for each area of interest in conjunction with the Group or pool of operating assets (representing a cash generating unit) to which the exploration is attributed. and (f) conducting market and finance studies.

using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same tax authority. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Expenditure on the construction. liabilities and contingent liabilities over the cost of the business combination. except when they relate to items credited or debited directly to equity. using the balance sheet method. all capitalised exploration and evaluation expenditure together with the subsequent development expenditure transferred to producing properties are depreciated using unit of production method. 2. where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. 2. Current and deferred tax are recognised as an expense or income in the income statement. except: (i) where the deferred tax arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and. Bank overdrafts. in which case the tax is also recognised directly in equity. 225 . the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets. Current tax is provided on taxable income at amounts expected to be paid or recovered. with depletion computed on the basis of the ratio that oil and gas production bears to balance proved and probable reserves at commencement of the year. Deferred tax assets are recognised for all deductible temporary differences. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset will be realised or the liability will be settled. installation or completion of infrastructure facilities such as platforms. which are repayable on demand and form an integral part of operations are included in cash and cash equivalents. In the case of a business combination. Deferred tax is provided.19 Tax Tax expense represents the sum of current tax and deferred tax.1.1. The carrying amount of deferred tax assets is reviewed at each balance sheet date and is adjusted to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. and (ii) in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint controlled entities. on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. pipelines and the drilling of development wells are capitalised as assets under construction. This is carried out with reference to quantities. based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. On completion of a development. short-term deposits with banks with original maturity of less than 90 days and short-term highly liquid investments. to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the assets to be recovered.20 Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand. Deferred tax is recognised for all taxable temporary differences. at the time of the transaction.Part 11 Financial Information assessed and any resulting impairment loss is recognised. affects neither the accounting nor taxable profit or loss. or where they arise from the initial accounting for a business combination. that are readily convertible into cash and which are subject to insignificant risk of changes in the principal amount. unused tax credits carried forward and unused tax losses.

91 billion (US$1. For defined contribution schemes the amount charged as expense is the contributions paid or payable when employees have rendered services entitling them to the contributions. internal controls. Any change in this assessment would result in a change in the benefit that would be recorded in that period. is able to control its compliance. the benefit may only be recognised when there is reasonable assurance that the entity will comply with the conditions attached to the benefit and must be recognised over the period necessary to match the benefit systematically with the related costs which they are intended to compensate. full actuarial valuations are carried out every year end using the projected unit credit method. after which it is required to repay the retained amounts of sales tax in six equal annual instalments. For defined benefit pension and post-employment benefit plans. and (iv) contributing a certain amount to the prescribed rural development scheme in the state of Gujarat. The majority of the benefit is expected to be earned over a period of five to seven years from the date on which the Vadinar refinery commenced commercial operations. including expectations of future events that are believed to be reasonable under the circumstances.7 million in the nine months to 31 December 2009. Under IAS 20. This is based on the fact that management intends to comply with all such conditions. The Group believes that the assumptions. The resulting accounting estimates may vary from the actual results. These estimates and judgments are evaluated at each reporting date and are based on historical experience. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight line basis over the average period until the benefits become vested. The Group has recorded the sales tax benefit as revenue in the period in which the associated eligible domestic sales are made to customers. Several of these estimates and judgments are related to matters that are inherently uncertain as they pertain to future events.1. Actuarial gains and losses arising during the year are recognised in profit and loss account. advice from external experts and other factors. judgments and estimations that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are the following areas: 2. Any asset resulting from this calculation is limited to the reductions in future contributions to the plan. There are a number of conditions under which this benefit has been granted including: (i) ensuring that certain percentages of the employees are local people. Management has exercised its judgement in assessing the period over which to recognise the benefit and believes there are no significant costs or expenses that the incentive is intended to compensate. the Group is able to defer the payment of up to approximately Rs.Part 11 Financial Information 2.1 above. Recognition of the benefit in profit or loss on a receipts basis is appropriate only where no suitable basis exists for allocating the benefit to periods other than the one in which it is received.21 Retirement benefits The Group operates both defined benefit and defined contribution schemes for its employees as well as post employment benefit plans. The amount of benefit recorded is based on management’s expectation that it will begin repayments in 2021 and that it will comply with all the related conditions.1 Sales tax incentives The Group benefits from certain sales tax incentives given by the state of Gujarat provided if the sales are made from the state of Gujarat.6 million in the year ended 31 March 2009 and US$173. The employee benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as reduced by the fair value of the related plan assets.95 billion) collected as sales tax for eligible domestic sales made from the state of Gujarat until the financial year ending 31 March 2021 (or earlier if the full eligible limit is exhausted).2 CRITICAL ACCOUNTING JUDGMENT AND ESTIMATES In the course of applying the policies outlined in all notes under section 2.2. and intends to monitor the sales to allow the Group to benefit from the maximum deferral period. Under these incentive schemes. (ii) re-investing certain amounts of the benefit. The Group recorded a benefit of US$264. as the 226 . 2. (iii) adhering to specified pollution control measures. management have made estimations and assumptions that impact the amounts recognised in the combined historical financial information and related disclosures.

principally within India. Key assumptions are inherently uncertain and include commodity prices. Potential liabilities that have a low probability of crystallising or are very difficult to quantify reliably. are treated as contingent liabilities. For example. amongst other things. to improve the economic wellbeing of the state of Gujarat.4 Impairment testing Goodwill is tested for impairment annually. The amount of tax payable in respect of any period is dependent upon the interpretation of the relevant tax rules. Accordingly.3 Depreciable lives The Group’s relevant non-current assets are depreciable over their estimate useful lives as set out in section 2.5 Tax The Group is subject to tax. 2. in which case the benefit could be recognised over the period necessary to match such costs. refer Note 24.2 Contingencies and commitments In the normal course of business. the Group’s eligibility to participate in the Scheme is being challenged by the State Government of Gujarat (see Note 24). 13 years being the remaining period for which the sales tax payment can be deferred) or (b) recognise the benefit over the expected life of the capital asset constructed.2. Whilst an assessment must be made of the deferred tax position of each entity within the Group. 2. Where impairment testing is carried out. Such liabilities are disclosed in the notes but are not provided for in the combined historical financial information. it is necessary to make judgements about the satisfaction of .2. the Group has recognised the benefit in the period of the eligible domestic sales made from the state of Gujarat. 2. 2. 2. In making a decision about whether to continue to capitalise exploration and evaluation expenditures. Accordingly depreciable lives are reviewed annually using the best information available to management. For further details. namely the Vadinar refinery (the depreciation period for which is 40 years) both of which would result in materially different results in the periods presented with significantly lower revenue and profit. contingent liabilities may arise from litigation and other claims against the Group.1. An alternative view would be that the sales tax benefit is intended to compensate recipients for the costs of setting up and/or conducting their business in the state of Gujarat. Such lives are dependent upon an assessment of both the technical lives of the assets and also their likely economic lives based on factors including commodity prices. these matters are inherently uncertain until the position of each entity is agreed with the relevant tax authorities.2. There can be no assurance regarding the final outcome of these legal proceedings. alternative sources of supply.6 Exploration and evaluation expenditure Exploration and evaluation expenditure are capitalised in accordance with the accounting policy in Note 2. a differing judgement may be to (a) recognise the benefit during the period in which the Company incurs operating expenses whilst it enjoys the benefit (for example. then the related capitalised exploration and 227 .Part 11 Financial Information plant’s location was determined before the incentive became available and as this incentive was set up. the timing of granting of licenses and permits and the relevant discount rates. Other non-current assets are tested for impairment when conditions suggest that there is a risk of impairment. but the Group does not expect them to have a materially adverse impact on its financial position or profitability.2. relative efficiency and operating costs.2.1 above. likely asset lives. anticipated production costs. Further. being the primary condition associated with the benefit. management use the best information available to them to assess the likely cash flows available to the relevant asset. If there is a change in one of these judgements in a subsequent period. if (a) proved reserves are booked or (b) (i) if they have found commercially producible quantities of reserves and (ii) if they are subject to further exploration or appraisal activity in that either drilling of additional exploratory wells is under way or firmly planned for the near future or other activities are being undertaken to sufficiently progress the assessing of reserves and the economic and operating viability of the project.17.

The Group has the following reportable operating segments: (i) Refinery and marketing: The Group owns a petroleum refinery on the west coast of India and oil retailing stations on franchise across India. Nigeria and Vietnam. Madagascar. rather than the geographical location of these operations. All inter and intra transactions including all profit or loss made within these segments are eliminated on Group combination. Its main products are high speed diesel. refer note 9. The segment revenues and segment results include transaction between business segments. motor spirit. SEGMENT INFORMATION Information reported to the board for the purpose of resource allocation and assessment of performance is primarily determined by the nature of the different activities that the Group engages in. Sales between the segments are made at contractually agreed prices. Australia. (ii) Exploration and production: The Group has a diverse portfolio of blocks for the exploration and production of oil and gas in India. 3a. This is reflected by the Group’s organisational structure and internal financial reporting systems.Part 11 Financial Information evaluation expenditures would be expensed in that period resulting in a charge to income. The profitability of the segments is reviewed based on profit or loss after tax and is based on IFRS. This includes gas and liquid fuel based power plants. The activities of refining and marketing include the refining of crude oil and trading. (iii) Power: The Group operates a number of electricity generating plants across various locations in India and Canada. For further details. marketing and transportation of finished products and by products. fuel oil and superior kerosene oil. Indonesia. 228 .

. exploration and production and power.3) — — — (1.5 25.6) (0.4) (26. .8) 3.2) (10.453. .9 (287.6) 0. . .9) 0. . .5) (10. . Total segment revenue .9) 1. .9 0. . .9) 15.9 — 95.8) (61.1 (32. .1 — 8. .2) (7. .453.9 (30.7 — 202.5 82.3) 106. 2009 and for the nine months ended 31 December 2008 and 2009: For the year ended 31 March 2007 Refining and marketing Exploration and production Refining and marketing Exploration and production 2008 Refining and marketing Exploration and production 2009 Power Eliminations US$ million Total US$ million Power Eliminations US$ million Total US$ million Power Eliminations US$ million Total US$ million 229 Revenue from external customers Inter-segment revenue .7) — 1. .7 (167. . Segment (loss)/profit before tax . . refining and marketing.8 (29. .7 (8.3 (12.8 — (25. . . .7 (30. .3 — 0. .3) (199.8 — 138. . Gross profit/(loss) .5 (49. 2008.3 (1. .5) (199. . . .5 — 232. .0) (118. (Loss)/profit after tax . . .9) — (1. .0 (1.0 (13.192.8) (142.7 (0.6) (25.7 107.6) 13. Depreciation and amortisation Loss on commodity derivative instruments .1 — — — — — — — — — — — 372.3 74. . . . .7 576.9) 232. . Tax .2 285.8) 2. . US$ million US$ million US$ million US$ million US$ million US$ million US$ million US$ million US$ million 95. .2) 26. .3) (0. .6 (3.9 (25.2) 27. .9) — 1. .6) — — — — — — — — 8. . .8 — 106.8) — 1.7 (52.1 681.1 (0. Finance income .8 (8.2) 26.4) (8.4 8. .2) 52. .0 — 1. . . Finance cost .0) Part 11 Financial Information .0 (21.6) 87. .2) (289.8) 4.0 0. profit and certain asset and liability information regarding the Group’s operating segments for the years ended 31 March 2007.3 0. . . . . .6) 138.OPERATING SEGMENTS IFRS 8 requires operating segments to be identified on the basis of internal report about components of the Group that are regularly received by the board to allocate resources to the segments and to assess their performance. .7 40.0 (10.192. . .7) — — — — — — — — (0.6) (244.4 — — — — — — — — — — — 202. .7) (61. . . .4 (0.4 (98.3) — (0.1) 1. . .1) — 0.5) 44.3 (238.1 (48. The Group comprises three classes of business. .2) 260.8) (0.5) 0. . . . . . .2 (75.4) 33. .7) 77.8 39. .3 — 372. .1 (35.2) 10.9) 8.0 (202.5 (84. . The following tables present revenue.9) 43. . .7 (108.1 (46.8) (39.

.3 (0.7 230 Segment (loss)/profit before tax . . $1. .0 million and $1.7 217.9 — 7.4% of the Group’s net sales) (2009: Three customers in the Refining and marketing segment contributing revenues of $2. . .3 (27.344.083.654. .6) (62.891.3 million and $34. . .315.3 — 0. .2 (16. . . . Finance cost .1) — 20.3) — — — — — — — — Total US$ million 7. . .0) Refining and marketing US$ million 5.9 million.6) — 1. . .654.6 — 5.3 (198.7% of the Group’s net sales (2008: Two customers in the Power segment contributing revenues of $152. .0) — (1.457.3 0.9) 24.2) 54. .8 (39.457. . . . .4 78. .4 million and $1.8 million respectively accounted for approximately 56. .4 (33. . . .7) (62.1) — — (0.7 million respectively. . . .950.7) 135. . Finance income . .1) (1. . . .2) (1. .8) 39.4 million.3 (28.0 (215.5) (0. .1) Power US$ million 196. . . Total segment revenue .891.0 Exploration and production US$ million — — — (0. . . . . . . . . . .217. . .6 322. . .083. (December 2009: Three customers in the Refining and marketing segment contributing revenues of $1. .8) 147. . .6) (383. . . .6) 119. . accounted for approximately 62. .5 348. . . . . .6 95.2) 94. . . . .0 (254.3 19. . Inter-segment revenue .4 (58.6 (6. . . . . .5 (286. Depreciation and amortisation Loss on commodity derivative instruments . . . . . .7 — 5.7) (20.7 (11.4) (1. .9) 22.0 (25.4 (89.3) (19. $840.2) Exploration and production US$ million 0.1 million respectively accounted for approximately 64. .Part 11 Financial Information For the nine months ended 31 December 2008 (unaudited) Refining and marketing US$ million 6. .5 million respectively.9 20. . . $1. .1 211. . Two customers in the Power segment.3) — — (0.2 (61. . .8 million and $79.656.7) 2009 Revenue from external customers . contributing revenues of $72. . . .1 Eliminations US$ million — (19. . .3) 43.5 million and $899.9) — 22.1) (0. .1 million respectively accounted for approximately 63.2) 78.455. .5) 33.490. . . . Power US$ million 192. . .6 (181. (Loss)/profit after tax . . .7) — — — — — — — — Total US$ million 5.1) 129. . .9 425.2 6. .5% of the Group’s net sales). .7) — 1. .7 227. . Tax . . . . . . accounted for approximately 52.6% of the Group’s net sales) (December 2008: Three customers in the Refining and marketing segment contributing revenues of $1.7% of the Group’s net sales). Gross profit . . . . . .9 (84.1 (237.4 million. . . . . . .6) (421. .4 Eliminations US$ million — (20.6) (0.

.7 2. . . . . . .6 5.384.3 2. Borrowings . . Borrowings . .1 117.5 — (33.2 52. Other liabilities . . .7 529. . .868.871.2 494. .5) 4.6 1. . .977. . . . .7 4.3 2. . .626.7 799.3 Refining and marketing US$ million 5.3) Total US$ million 6.109. .371. Segment liabilities .4 495. . . . . . . . .6 1.7 4.4) 5.563.5 2.106.495.842. .060.170. .7 3.1 (150. .5 4.5 — (31. .6) Segment assets . .0 Part 11 Financial Information . . .9 3. .2 (53. .6 1. . .0 As at 31 March 2008 Exploration and production Power Eliminations US$ million US$ million US$ million 129. .447. .097.597.1 3. .051. . .267.3 35.8 303. .6 43. . .3 Total US$ million 7.557.000. .2 As at 31 March 2007 Exploration and production Power Eliminations US$ million US$ million US$ million 59. .4 39.0 5. . Total US$ million 5. . . . . .3 2.8 3. . .382. . . .2) Total US$ million 8.0) 5.465.9 46. . .6 773.337. . .8 — (121.1 (57. .8 As at 31 December 2009 Exploration and production Power Eliminations US$ million US$ million US$ million 243. . .8 48.0 (54. . . .747. .3 2.5 112.3 2. . .7 3.330.532.0 1. .9) (29. . . . . .Segment assets and liabilities Refining and marketing US$ million 4. .1 755. . .8 2. Other liabilities .496.337.1 440. . .712.2 226. . . . .0 As at 31 March 2009 Exploration and production Power Eliminations US$ million US$ million US$ million 140.8) 4.9 1.3 2.8 334. .7 775. .9 2.130. . .2) (121.1 960. . .290. . . . . . .1 1. .3) (33. Segment liabilities . . . . . .024. . . .0 2.015.895. .9) Refining and marketing US$ million 6. Refining and marketing US$ million 4. .3 231 Segment assets .149.6) (31.442.3 — (29.5 1. . .

The benefit is earned as the eligible domestic sales are made from the State of Gujarat as the benefit does not compensate the Group for any particular costs or expenses.4 62. . .9 4. . United Arab Emirates . . . Other .3 218.113. . . .1 11. Revenue . . This deferral gives rise to time value benefit as the difference between the cash received and the net present value of the liability to the State.6 23. . . . .7 32. .7 — 40. .9 8.7 24. .2 199. .9 5. . .7 372. . . . .1 378. .8 — 30. . . . . . irrespective of the origin of the goods: For the year ended 31 March 2008 US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million 2007 2009 US$ million US$ million India . 95. . . . . . . .284.8 6. . . . . .8 22. . . .9 — 13. .9 106. . Indonesia .8 196. . . . .559.1 1. . . . . .2 6. Depreciation and amortisation . . .4 264. . . .083.1 82. . .9 22. . . . . (LOSS)/PROFIT BEFORE TAX For the year ended 31 March 2008 US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million 2007 2009 US$ million US$ million (Loss)/profit before tax is stated after charging: Cost of inventories recognised as an expense . .Part 11 Financial Information 3b. . . . . . .8 759. . . . . . . .3 3. . . . .9 173. .5 36.928. . . . . .0 260. . . . .0 60. . .654. . . . . . . . .3 6. . .453. .0 228. . .5) 84. . . . .2 994. . 4. . . . . Staff costs . . .6 8. . Total revenue . GEOGRAPHICAL INFORMATION The Group’s operations are mainly located in India. . (Gains)/ losses on commodity derivatives recognised within gross profit . . . . . . . . .6 5.8 139. . . . . . . . . . .5 3. . . . . . .5 7. . and the Group expects all other conditions related to the benefit to be met in full. . .453.8 232. .0 7. . . . . . .040. . . . . . . .7 2. . . .1 5.2 61.673.210.9 (46. .5 — 372. . . . . REVENUE 2007 For the year ended 31 March 2008 US$ million 2009 US$ million US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million Sale of petroleum products . .4 6. . . . . . . . . 202. . . . .0 89. . . .6 5. . . . . .0 7. . . .6 11.8 — 202. . . .654. . . . .688. . Under the Sales Tax Incentive Scheme.9) 108. . .9 82. .395. . . . . . . . .1 5. . . . . . . . . . . . . .2 819. . The following table provides an analysis of the Group’s revenue by destination. . . . .2 (78. . . . . .7 — — — — 202. . . . Net losses on commodity derivatives . . .628. . . . . . 149. . . Revenue from power supply . . . . . Sales tax benefit . .7 206. . The benefit is included within revenue as it is derived directly from sales made to customers. . .6 Total revenue .2 353. . . . . .5 264. .1 10. . . . . . .083. . . . sales tax collected with sales from Gujarat is deferred for payment to the Sales Tax Authority in the State of Gujarat by up to 13 years.5 The sales tax benefit above relates to the benefit recognised on eligible domestic sales from the State of Gujarat. . . .9 7. .8 8. . . . .4 27. .125.492. .7 5. . . 5.1 5.0 196. . . . Other operating income . . .3 — — — — 372. .5 22. . . .4 1. Singapore . . . .6 192. .9 7. .305. .0 232 . . . . Finance income . . . . .4 627.

. . Less: staff cost capitalised . .3) 27. . . (185. . . . . . . . .3 43. . . . . . Finance cost charged to the income statement . . . . . . . . . . . . . . Less: interest capitalised . . .9 (259.5) (287. . . . . . . .1 — (215. .5) 3.3) (53. . . .8) 5. .0) — 17. .4 (20. . . . . . . . . .9) (253.3) (8. .1) 260.3 million) (31 December 2008: US$114. . . .2 (5.5 1. Cost of inventories recognised as an expense Cost of inventories recognised as an expense includes inventory write downs amounting to US$nil (2008: US$0.4 43. .6) 22. . . . . .6 25. .9 0. . . . .4) (8. Net finance costs .0 (6. . . Finance income Interest accrued on assigned receivables . . .7) (191.5) 1. .7 16. . . Defined contribution plans . . . . . . . . . . .9 0. . .2 7. .1) 135. . . . . Bank charges . . . . . . . . . . . . . .7) Borrowing costs included in the cost of assets during the historical financial period arose on the specific borrowings taken on to finance those assets based on the interest rate of those borrowings. . .6 million). . .5 22. . . . . . . .6 (0.4 41. .5) 22.7 (50.7) (304. . .9 42. . Staff costs charged to the income statement . . . . . . . . . . . . . . .6) (326. . .8 32. . Less: amounts capitalised . NET FINANCE COSTS 11. . .1 — (48. .1) 23. . . . .6) — 31. . . .4) — 7. . . .7) — (188.2 1.5 million) (31 December 2009: US$13. . . . Staff cost For the year ended 31 March 2008 US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million 2007 2009 US$ million US$ million Salaries and wages . . . . . .9) (237. . . . Total finance cost .0) (252. . . . . .6 (14. .3) (64. . . . . . . . . . . .9) (7. Defined benefit plans . Unwinding of discount . . Interest income on bank deposits .9 (11. . . . . .7 — (52.1) 22. . . . .6 million) (2009: US$114. . . . . . .1 (1.6 (4. . . .0 (6. . 233 . .6 24. . . .8 0. . . . . .6) 6. Total staff cost . . . . . .6) — 24.7) 37. .2 (3.3 13.7) (308. . . Total finance income .6) (212. . . . . 6. . Subsequent to commission such items appear within gross profit. . .4) (1. . .6) 24. .0) (2. . . . . . . .5 33.2 (0. . . . . . . .3 0.4 0.7 (10. . . . . . .1 (215. . .2) 40.1) 32. .Part 11 Loss on commodity derivative instruments Financial Information The Group incurred a net loss in respect of commodity derivative transactions undertaken to hedge the price risk of crude and petroleum products used during the refinery project testing trials which were completed in April 2008. . . . . . . . . . . . . Other .4 26. . . .6 0. These amounts have been charged to the income statement outside gross profit as the plant was not commissioned in this period.2 31. . . . .0 2007 For the year ended 31 March 2008 US$ million 2009 US$ million US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million Finance Costs Interest .2) (69. . . .1 1.8) (289.0 0. . . .1 (44.9) 59. . . .4) (2. Finance income recognised in the income statement . . . . . .6 17. .0 (191. . . . . . . . . . . .

. . . . . (26. . .7) 5. .2) 131. . . . . . .1 0.6) 18. . . . Tax holidays / non taxable income . .0 (50. .7 114. . .6) 0. the discount on the liability unwinds over time resulting in the finance costs as shown above. .5 28. . . . . . . Others . . . . . .0) — — (459. Surplus on acquisition of joint controlled entities (Note 23) .6 (2. . .99%) (December 2008. . . .9 — (4. . .66% (2008. .9 3. . . . . . . Effective tax rate (%) . . . .9 40. . . . .1) 147. . .7) (2. .5) 2. . . (0. .1) — (5. . Other . In a related transaction. . . .7 31. . . Effect of non-Indian rates .9 (0. . . . . . . . . . . . . The interest accruing on these deposits is included in finance income above. . . . . . . . .2 — (2. . . . .0 33. . .3 (2. . . . . . . . . . . .3) 33. . . . . . . . . . Minimum alternate tax (MAT) . a corresponding liability to the State of Gujarat is recognised at its net present value. . .4) 80. The applicable tax rate is the standard effective corporate income tax rate in India.2 129. . . . .1 77.3) 6. . . . . . 2009: 33. .5) (118. .4) — 1.7 165.1) 1.3 (27. . . 2009: 33. .0 11. . . . . . . . . .99% with effect from 1 April 2008. .6 33. .5 (459.0) (27. Deferred tax not recognised . . . . Deferred tax . Total other gains/(losses) . .0 (1. . . . . OTHER GAINS/(LOSSES) For the year ended 31 March 2008 US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million 2007 2009 US$ million US$ million Foreign exchange gains/(losses) .6) Income taxes recognised in the income statement . . . . . . . .66% to 33. 7. . . . .7 A reconciliation of the income tax expense applicable to the (loss)/profit before income tax at statutory India rate to the income tax expense at the Group’s effective income tax rate for the years ended 31 March 2007. . . . . .2 — (1.4) (244. . .5 83. Adjustment in respect of prior period . . . .9 2007 For the year ended 31 March 2008 US$ million 2009 US$ million US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million Current tax .8) (1. . .6) (1. . . . . Accordingly. 2008. . .1 0. . .0 (4.99%) . .9 2.2) 1. . .1) 33. . . . The Indian tax rate increased from 33.2 (1. .1 0.7) (383. .6 6. . 8. the Group has deposited amounts based on the net present value of its future sales tax payments with a related party. . . Indian companies are subject to corporate 234 .1 19.Part 11 Financial Information As sales tax is collected from customers. . . . . . . Surplus on acquisition of joint controlled entities . . . . .7 (2.3 .0) (447.2 — (0. . . . . .7 — — 34.1) 2. TAX 34. . .8 (2. . . .9) (1. . . . .6) (0.3) — — (447. . . . . . . Income tax Tax at the standard rate of corporation tax 33. . . . . . . . . .9) — (4.1) — (1.2) 129. . . . . . . . . . . . . .7 130.4 (0. . . . . . . . .5 — — 114. . . . . . . . . . .6) (25. . . 8. 2009 and the nine months ended December 2008 and 2009 is as follows: For the year ended 31 March 2008 US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million 2007 2009 US$ million US$ million (Loss)/profit before tax . Tax . . .3) 146.7) 77.

8 Closing balance . . . . . plant and equipment Unabsorbed depreciation . . . . .1) 0. . . . . .7) (48. . . . . . . . . Movement in deferred tax assets As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Opening balance . . . . . .4 235 . . . . . . . . . . . . . . . . . . . .3 1. . . . .0 241. . . . . Other temporary differences . . . . . .7 179. . . . . .6 0. . . .7 20. . . . — — — — — — — — — 0. . . .2 16. . . . . . . . . . . . . . . . .4 260. . . .0 2. Net deferred tax liability . . . . .4 308.6 0. . . . . . . . .7 420. .0 267. . . . . . . . . . .6) 23. .9 179.7 7. . . .5 139. . . .2 — 313.8 267. . .995% and 10 years). . . . . . . .0 17. . . . . . .0 18. .0 14. . . . . .33% and 7 years) (December 2008: 11. . .3 7. . . .1 15. . . . . . . . . . . . . . . . . . . . . . . . . (Credited)/ charged to income statement . . . The net deferred tax liability is recorded in the financial information based on the tax position of each Group company as follows: Movement in deferred tax liabilities As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Opening balance . .3 — 21. .9 — 25. plant and equipment Intangible assets . . . . . . . . . . . . . . . . If MAT is greater than corporate income tax then MAT is levied.9 282. . . . . . . . . . . . . Deferred tax assets and liabilities As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Deferred tax asset Property. . . . . . . .3 52. . . . . . . . .5 — 17. . . . . . . . . .5 2. . . . .6 — (79. . . . . .3 37. . . . Borrowings . . . . . Deferred tax liabilities Property. . . . . . . . . . . . Borrowings . . . . . .9 310. . .4 61. . . . . . . . . . . . . . . . . . . . . . . . Closing balance .6 267. .4 (0. . . . .6 17. .1) 17.1 165. . . .1 0. . . . . . . . . . .4 5. Addition due to acquisition (Note 22) . . .4 18. . . . but is available as a credit against corporate income tax in the following seven years (2008 and 2009: 11. . . . . . . . .2 — 3. .0 14. . . . . . .5 16. Credited to income statement . . . . . . . . . . Provisions . . . . .8 260. . . . .6 85.3 — 16. . .8 (1. .93% from 1 April 2010. . . . . .9 (33. . . . . .1 20. . Exchange difference .33% and 7 years) (December 2009: 16. . . . .9 305. . . . . . . .Part 11 Financial Information income tax or Minimum Alternative Tax (MAT). . . . . . .3 18. . . The Finance Bill 2010 includes proposals to reduce the effective corporate income tax rate to 33.22%. . . . . . . . . . .0) 139. . . . .3 — 0. . . . . . . . .9 17.0 170. . . . . . . . . . . .5 260. . . . — 243. . .22% and to increase the rate of MAT to 19. .3 5. . . . . .4 0. . . . . Total deferred tax liability . . . . . . . . . . . . . MAT is charged on book profits at a rate of 11. . . . . . . . . .9 139. . . . Exchange difference . . . . . . . Accruals . . . . . . . . . . . . .4 Total deferred tax asset . . — 13.3 0. . . . . . . . . . . . . . . . .3 398. . . . . . . . Other temporary differences . . .6 — 329. . .

. .7 2. .1) (3. . .0 21. . . . . .2 9. . . . .7 — 17. .1 5. . for which deferred tax liabilities have not been recognised. .0) The Group has unrecognised deferred tax assets related to unutilised tax losses.7) 80. . . . . . . . . .0 million (2008: US$23. . . .7 4. . . . .0 Total . . . .4 1. . . . . . . . . as explained above. . . . . . . . .1 3. . . .8 19. . . . . These temporary differences will expire in accordance with prevailing tax laws as follows: As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Expiry Date 31 March 2012 31 March 2014 31 March 2015 31 March 2016 . .7 8. . .7 8. . .1 1. . . . . . aggregate to US$15. . .3 21. . 236 . . . and (ii) the Group’s joint controlled entities cannot distribute their profits without consent of all joint controlled entities partners.7) 1.5) 33. . . . . 4. . .2 6. . The temporary differences associated with investment in subsidiaries and joint controlled entities. .0) (2. . . . . . .6 79. . . . . . .8 0. .2) (6. . 0. . . . . .3 3.1 9.1) 131.2 (15. . . . . . . . . .7) (25. . . . . . . .2 million). . . . . .3 (2. . . . . . . Borrowings . .9 million) (December 2009: US$25. . . . .Part 11 Financial Information Deferred tax recognised in Income Statement For the year ended 31 March 2008 US$ million For the nine months ended 31 December 2008 2009 (Unaudited) US$ million US$ million 2007 2009 US$ million US$ million Depreciation and amortisation . . Others . . . .5 3. . . .7 million) (2009: US$19. . . . . . . . . . . . . .1 million as at 31 December 2009 in respect of credits for MAT which have not been recognised. . . . . . . . . . . . . . . . . . . . . .3 5. .1 (4. The Group does not foresee giving such consent at the balance sheet date. . . . . The deferred tax liabilities for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries or joint controlled entities have not been recognised as: (i) the Group has determined that undistributed profit of its subsidiaries will not be distributed in the foreseeable future. . . . . . . . . . . . . . . . . but rather tax-free returns of capital may be made if necessary. . .5 (5. . . . . .1 40.0 2. . . . . . No benefit has been recognised for the above losses and credits on the grounds that it is not probable that suitable taxable profits will arise before the tax losses and credits expire. . . . . . The Group also has unrecognised deferred tax assets of US$7. . Total deferred tax recognised in Income Statement . . .1 135. . .9 3. . . . .7 (0. .

.3 3. .4) (19.3 — — — 0. .1 1. .3 5. .7 5. . . . .6 48. . . Addition due to business combination (refer Note 22) . . Exchange difference .9) 30. .9) 3. . .0) 1.0 35.4 76. . . . .2 35. . . Producing properties US$ million Accumulated depreciation At 1 April 2006 . . . . . .4 156. At 31 December 2009 .6 139.3 48. . .4 80. Disposals . Charge for the year . . . . .1 — (0. At 31 March 2008 . .3 1. . . .1 3.9) 429. .9 82.147.1 4. . Additions . Additions . . Exchange difference . . .3 Exploration and evaluation US$ million — — — — — — — — — — — — — — — — — (1. . .0) 310. . . .9) 2.9 237 . . . Additions . Disposals . . .4 76.0 16. . . . Transfers . . . . . . . . Transfers . .8 688.3 Other US$ million — 1. Additions . . . . . . .6) (51. . . — — 0. PLANT AND EQUIPMENT Producing properties US$ million Cost At 1 April 2006 . — — — — 0. . . . .9 2. . .8 — (1.1 15. . . .5 9. .8 — — (2. . .6 478. .6 Assets under construction US$ million — — — — — — — — — — — — — — — — — — 4. .6 — (12.174.9 5.7 8. .7 48. .5 3. . . .3 30. . . . . At 31 March 2009 .1 — — — 3.3 233. . .4 — 1.451. . Charge for the year .9 101.1 607.5) 35. .560.0 3. .8 38. Exchange difference . .6 At 31 March 2008 .067.2) 291.1 2. . .5 304. . Disposals .8 0.7) 910.5 Assets under construction US$ million — 458.7 (1.4 5. .Part 11 9. . . . At 31 March 2007 .1 — 1. .7 (1. .1) 1. . . .4) (21. .4 45. .1 3.099. .8) 3. .9 146.2) (1. . . .6 (11. .0 Total US$ million — 490.6 873. .7 (1. . . . .9 1.6) (444. .3 14. .2 — 444.6 465.7 219. .9 8. . . . . .0 4. . . .5 651.4 606. .1 6. . .5 542. .9) — (614.0 611.5 — 0.0 0. . . Disposals .1) — (9.1 287.4 20. .1 194.9 — (0. . . .4 (157.3 1. At 31 March 2009 . .202.2 (9. Charge for the year .0 — (0. . Addition due to business combination (refer Note 22) . . . . At 31 March 2009 . . . .6 9.1 2.441. .451.2 196.6 2.3 0.202. . .0 107. Net book value At 31 March 2007 .9 736. .3 — 23. .6 (10.300. .7 (2. . . . . .9 33. . . . .1) 9.5 88.2 30.877.5 6.2 — 13.8 — 3.1) 0. . .3 44.0) 0. . . . . .0 156. . Exchange difference .6 (1. . . . . .582. .2 6. At 31 December 2009 .0 14.3 — 1.0 . .147. .3 — — 14. .7 — 35.3) 353.3 — — 0.1 3. . PROPERTY. .207. . .9 22. . . . . . . .3 7. . .892.6) 82. Exchange difference . Disposals .2 107. . .2 38. Exchange difference . . .5 — 0. . .1 — (8. — — — 14.7) 138. . . At 31 December 2009 .0 195.0 21. . .1 (3.5 1. Charge for the year . . .1) — 87.6 0. .7) 4. . .8 3.6 22.579. . .5 Freehold land and buildings US$ million — 0.1 4. .2 34.4 2. . . . . . .3 4. . . .3 13. .9 79.5 910.1 (0.1 162. .0 (79.8) 4. . .4 — (1. . .2 2. Exchange difference . .3 Plant and equipment US$ million — 11.7 Exploration and evaluation US$ million — 15.6 23. . . .9 (1. . . . .131. Exchange difference . . . . .2 — — 1. .9 4. . .695. . . . .0 (20. .9) 242. . Disposals . . .3 5. . . . .4 65.164. .0 112. .9 7. .6 3.4 49. At 31 March 2008 .5 — 8. . . .8) 125. . . — — Freehold land and buildings US$ million — 1.8 (8. .9 — — 43.1 3. .0 1. .116. .1 — 15. . .6 7.3 Plant and equipment US$ million — 13.1) 0.2 Total US$ million — 14.0) 9. .5 Financial Information Other US$ million — 3.3 — At 31 March 2007 .779. Transfers .453. . . .6 25.1 241. . . .

. . .8 4. . .2 0. . . . . . . . . .9 449. .1 325. . . . . . . . . . . .6 42. .779. . . .9 3. . .1 910.0 — 3. . . Total assets under finance lease . . Expansion of petroleum refinery . . . .7 18.202.1 16.1 45. . . . . .0 0. . . . . . .2 1. . . . . . .147. . . . . . . . . .5 18. . . . . . . . . . . . . . . . . . . . . . . . . Plant and equipment . . . . .9 246. . .2 25. . . . .4 613. . . . .0 238 . . .1 29. . . . . . . .1 0. . . . . . . .7 5. . .4 7. . . . .0 — 838. . . 2. . Others . . . . . . . . . . . . . . .6 The carrying value of assets held under finance leases included above is set out below: As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Buildings . . . .451. . . . . . .1 — 32. . . . . . — 32. . . . . Power plants . . .956. .Part 11 Financial Information Major items included in asset under construction As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Petroleum refinery . . . .2 24. . . . .5 — 460. . . .

.1 (12. . . . .1 59. . . . . . . . . . . . . . . . . . . . . .. . . .3 0. . . . . .6 — 1.. .. . . . . . . . . . . . . . . . . .. . At 31 March 2007 . . . . . . .1 61. . .1 2.7 0.. . . . . At 31 December 2009 . . . . .. . . . . .3 0. . . . . . . . Exchange difference . . . . . . .. Exchange difference . . . . . . . . . . . .. . . . At 31 December 2009 . . At 31 March 2008 . . . . . . . . . . . . . . . .9 2.. . . .. .. . . .1 1. . . . . . . .1 7. . . . . . . . . . . . . . .3 55. . . . . . . . . .. . . . . . .. . . . Exchange difference . . . . . . . . . . . . .3 1. . . . . . . . . . . .8 1. . . . . .9 50. . . . .1 4. . . . . . . At 31 March 2008 . . . . . . . . . . . . . . . . . . . . .. . At 31 March 2009 . . . . .. . . . . . . . . . . . . . .9 — 5. .9 0. . . . . . . . . . . . . Exchange difference . . . . — — — — — 53. .. .4 — 2. . . . . . . combination (Note 22) . . .1 2. . . . . .6 — 1. . . . . . . . . . .4 4. . . . . . . . . . . . . . At 31 March 2009 . . . . . . . OTHER INTANGIBLE ASSETS Power sales contract US$ million Financial Information Software US$ million Total US$ million Cost At 1 April 2006 . .1 4. . . At 31 March 2008 . Additions .. . . . . . . . . . . . . . . . .7 — 0. . . . . Amortisation . . . . . . . . . . .0 3. . . . . . . . . . .. . . . . . . .. . . . . The power sales contract relates to the Algoma power plant (Note 22a(iii)) and is amortised from the commencement of generation for a period of 20 years. . . . . . . . . . . . . . . . . . . . .. . .. . .. . . . . . Software is amortised over 3-5 years. . . . . .6 52. . . . . . . . .1 1. . . . . . . . . . .3 0. . . . .3 9. . . . . . . . . . .1 2. . . . . . . . . . . .0 53. . . . . Amortisation . . . .. . . . . . . . . . . . . . . . . .4 53. . ..2 (0. . .. .6 — 8.1 3. . . . .1 (2. . . . . . . . . . . . . . . . .9 1. . .4 — 2. . .7 — (10. . . . . . . . . . . . . . Exchange difference . . . . . . . . . .2 0. . . . . . .2 (0.. . . . . . . . . . . . . . . . . . . . . 239 . . .. . . . . . . . . . Additions . . . . . . Addition due to business Additions . At 31 March 2009 .. .0 — 1. . ... . . . . . . . . . . . . . . . . . . . .3 0. . . . . . . . . . . . . . . . . . . . . . . . . ..1 0. . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .3 61. . . . . . . . . . . . . . . .. . . . . . .1) 6. .3 — 0.1) 45. . . . . . . . . . . . . . . . . . . . .. . . . . . .. . . . . . . . .3 0. . . . . . . . . . .3 3. . .1 1.6 — 55. . . . . . .. .. . . . . . . . . . . . . . . . . . . . . .Part 11 10a. . . . . .. . . .. . . .4 2. . . . . . . . . .. . . . . . .. . . . . . . . . . . . . .. . . . .. . . . . . . .2 0. . . Exchange difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 2. . . . . . . . . . . . . .. . . . .. . . . . . . .. .0 56. . . . . . . . . . . . .6 At 31 March 2007 . . Amortisation . . . . . . . Net book value At 31 March 2007 . . . . . .2 4.8 1. . . . . . . . . . . . . .7 2. . . .2) 51. . .7 45. . . . . . . . .6 — — — — — — — — 1. . . . . . . At 31 December 2009 . . . . . . . . . . . . . .. . . . . . . Addition due to business combination (Note 22) . . . . . . . . . . . . . . . . .4) 1. . Accumulated amortisation At 1 April 2006 . . . . . . . . . Amortisation . . . . . . . .. . . . . . .. . . .1 1. . . . . . . . . . . . . . . .. . Additions . . . . . . . .4) 1. ..

GRM is worked out based on market information and past experience of management.77% p. . Closing balance . . . . . . . Hazira . If discount rate increased by 12% (2008: 20%) (2009: 35%) above what is considered for impairment testing. The Group calculates the recoverable amount as the value in use using a discounted cash flow model. . . The estimated recoverable amount for the refinery unit exceeds its carrying amount in all periods. . . .5 As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Petroleum Refinery .5 In assessing whether goodwill has been impaired. such as oil prices.8 27. .9 136.g. . Essar power plant. which are approved on an annual basis by management. . . . . . .3 — (31. The discount rate is derived from the Group’s pre-tax weighted average cost of capital and is adjusted where applicable to take into account any specific risks relating to the country where the cash-generating unit is located. The three-year business plans contain forecasts for refinery throughputs. . . . Bhander power plant. . Refinery Project’s recoverable amount would be equal to its carrying amount. . . . . refined product margins and cost inflation rates. Hazira .11% p. . The future cash flows are adjusted for risks specific to the cash-generating unit and are discounted using a pre-tax discount rate. . . 240 . . are set by senior management. . . Gross Refining Margin (GRM) is the difference between revenue from refined petroleum products and related cost of crude oil used for their production. revenues. . . Prices of the petroleum products and crude are exposed to movement in crude prices on the Nymex.3 24. . . . . .4 — 11. .) (2009: 10. . . These contain forecasts for plant load factor. . .4 136. .4 127. . . . 103. .a. If GRM falls by 11% (2008: 16%) (2009: 5%) compared to what is considered for impairment testing.4 117. sales volumes for various types of refined products (e.4 4. . . . International Petroleum Exchange and Dubai Mercantile Exchange. . refining margins.1 96. .3 148. . . . .). . . . . . The discount rate is estimated based on the weighted average cost of the capital of Essar Oil Limited (EOL). . . . . . .1 117. . .1 5. . . . . .2) 117. . . . . . (2008: 13.4 113. . .a.Part 11 Financial Information 10b. which are approved based on signed contracts in place and are the primary source of information for the determination of value in use based on a discount factor of 11.a. . In the absence of any information about the fair value of a cash-generating unit. . . . . . . .1 5. Exchange differences . . . . . . Refinery Project’s recoverable amount would be equal to its carrying amount. . . . . . . . . . . .9 148. . . . . . . . gasoline and lubricants). . . and are the primary source of information for the determination of value in use based on a discount factor of 11. . . .76% p. .5 29. .3 88. . . GOODWILL As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Opening balance . . . . .7 26. . .7 4.a. .3 136. . the carrying amount of the cash-generating unit (including goodwill) is compared with the recoverable amount of the cash-generating unit.6 4.2 127. . . . . . . . . . . . Petroleum Refinery The three-year business plans are used together with long term market expectations to estimate gross refining margins and other cash flows for 17 years. . . . the recoverable amount is deemed to be the value in use. As an initial step in the preparation of these plans. . Closing balance .1 — 10. . . . . . Power Plants The company uses the long term power sale agreements for estimating the cash flows. Goodwill arising on business acquisition (Note 22) . . . . Goodwill relates to the following acquisitions: — 131. . . . . The recoverable amount is the higher of fair value less costs to sell and value in use. . .7 148. . various economic assumptions. .02% p.01%) (December 2009: 10. costs and capital expenditure. .

.8 36. . Receivable from related Tax receivable . . The above investments relate to a shareholding of 3. . . . . . . . the recoverable amount will decrease by US$31. . . .0 4. operating costs and sustaining capital expenditure. . .2 60. . . parties . .5 35..3 — 17. . . . . . . . .2 859. .2 41. . .3 (4. 11. Plant load factor is the generation capacity of the plant at a given point of time and is based on the demand from the customer with a direct impact on variable revenue. . .. . . . . . . . . .8 133. .9 2. . .3 46. . . . a company in the Essar Group. . . . . . .6 14. If plant load factor falls by 10%. . fixed and variable revenue. .3 (2. ... . . . . . . . . The estimated recoverable amount for the power plants exceeds its carrying amount in all approvals. Sales tax receivable represents amount receivable by Essar Oil Limited (EOL) from the sales tax authorities being sales tax collected and deposited for the period when EOL was entitled to the sales tax deferral scheme.. . .8 — 16.. 140. . . . . .5 12. .. . . .7 million (2008: US$97. . . . . ... . . . .1 Total current trade and other receivables .0 million. . . .. .3 Closing balance . . The discount rate is estimated based on the weighted average cost of the capital of power entity.. . .9) — — — — 27. . . . . . . . . . .. . . The credit period given to customers ranges from zero to ninety days.. . Advances to suppliers . . .9 586. . . . TRADE AND OTHER RECEIVABLES 12a. . Similarly if plant load factor increases by 10%. . Disposals . .3 41.3 3. .4 374. . 241 . . . .0 million. .5 million.4 million) (2009: nil) (December 2009: US$107.. . . . . .. for cash at their fair value at that date for US$31. . . . . . . . 12.9 (17. . .6) 3. This formed part of a wider Group reorganisation.0 80. . . Discount rates reflect the current market assessment of the risks specific to each cash generating unit. . . . . .. .Part 11 Financial Information generation in Megawatts (MW). The Group has discounted receivables amounting to 2007: US$21. . . . . . . then the coverable amount of power plans will increase by US$16. . . .3 607. . . . . . .6 404. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 21.2 627. . . . . .5 7. . .5 25. . . . . . . . . . . an unlisted company in which the Essar Group is the majority shareholder. .3 10. . .. . . . . . . . .. . . . . . . These debtors have been included under trade receivables disclosed above as they do not qualify for de-recognition. .9) (1. . Prepayments .. . . . . . . .. . . . Others receivables . Sales tax receivable .. .. . . . . .. . . . . . . These shares were sold on 14 April 2010 by the Group to Essar Steel Holdings Limited. AVAILABLE FOR SALE INVESTMENTS As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Opening balance . Available for sale investments are unquoted. . . . . . ..9 18. . . . . . A 1% increase in discount rate reduces the recoverable amount by US$23. . . . . . .8) 41. .0 — 20. . .5 51. . . . details of which are disclosed in Note 27.3 31. . .. Trade and other receivables (Current) As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Trade receivables . . . . . . . .23% of the shares in Essar Steel Limited.. . . . . . . . .4 291. . . . . Additions . . . . Movement in fair value Exchange difference . . . .0 56. . .2 million) with the lenders having recourse to the Group in the event of default by the debtor to settle the bills discounted with the lender. .. . . .. . .5 million. . . . For further details. . — — — — — — — 17.. . see Note 24.6 60. . . ..3 50. .

. .6 121. .. .7 9. . INVENTORIES As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Raw material and consumables . .9 124. . . . . . . . . . . . . . . . . . . Other deposits are principally deposits to government controlled business parties. . . . . . .1 31. . Finished products .0 241. . . . .6 208. . . .0 149. . . 14. .5 18. . . . . .3 17. . . . .2 136.2 34. . . . . . . . . . .7 million) (2009: US$204. . . . . . . . parties . . . . . .7 8. . . . . Trade and Other Receivables (Non-Current) As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Receivable from related Others . . . . . . . . . . . . . . ..240. . . . .5 Bank deposits include restricted cash of US$135. .. Work in progress . . . 6. . . . .0 329. ..6 30.4 132. . .1 56. . . .0 188. . 12b. . . .0 million). . .8 — 18. . OTHER FINANCIAL ASSETS 13a. . .0 29. . . . . . . . ..3 194. . . . . . . .4 Total non-current trade and other receivables ..2 235. . . . . . .4 864.7 9. .0 292.6 57. . . . . . . . .9 8.4 1. . . . Restricted cash represents margin deposits with banks against various bank facilities such as guarantees. . . . Other Financial Assets (Current) As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Bank deposits . . Amounts receivable from related parties include $nil as at 31 March 2007 (2008: nil) (2009: nil) (31 December 2009: US$121. . . . . . .1 9.2 million as at 31 March 2007 (2008: US$216. . . . . . . . Other deposits . 518. . . .. .5 38. . . . . . . .6 120. . .5 562. . . . .. . . . . . . . . . . . . . . . .4 — 3. . . .1 19.4 8. . . . . letters of credit for import of raw material and capital goods.3 21. 9. . . .8 457. . . . .5 17. . . . . . . Total non-current other financial assets . .0 20. . . . . .3 799. Prepayments .. . .Part 11 Financial Information Management consider that the carrying amount of trade and other receivables is approximately equal to their fair value. . . . 13.. . . .6 854. Total inventories . . . . . .8 15. Total current other financial assets . . Advances to suppliers .. . . . . .2 242 . . . . . 13b. The relevant related party has committed that such amounts plus interest will be available to meet the Group’s sales tax liability when it becomes due in up to 17 years. . .8 152.3 93. . . .6 million) which reflects sales tax collected and deposited with the relevant related party. . . . . . . .1 8.6 207.. . . . . . Details of the ageing of receivables are set out in Note 20. . Other Financial Assets (Non-Current) 128. .9 7. . .. . . .. . . . . . . . . . . . . . . . . . .0 million) (31 December 200: US$235. . . . . . . . .4 254. .9 280. . . . . . . . .5 — 1.1 1. .6 As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Bank deposits . . .0 50. . . . .6 4. Other deposits ..0 1. . .

.0 105. . . .9 — 13. . . . . . . . .3) 2.6 107. . . Bank and financial Institutions The Group has borrowings under various loan agreements with a number of banks and financial institutions. . . .1 104. . . . . . . . . . .9 (7. .1 (4.5 — 100.1 million as at 31 March 2007 (2008: US$2. .2 159.5) 2.6 581. . . . . . . . . . . . .172. .6 260. . . . . .7 (4. the Group also has long term liabilities. . The interest 243 . . . . . 254. . . . .6 385. . . Secured non-convertible debentures Non-convertible debentures include US$148. . . . . . . . . . .8 66. . . . . . . . .1) 62. . . . . .3 — 40.4 2. . . .2 100. . . .981. . Bank deposits . . . . .3 83. Total cash and cash equivalent . .644. . . . . . . . .1 3. . . . Less : unamortised debt issue cost . . . .7 23.Part 11 15. . . . . .3 — 17.564. . . Cumulative Redeemable Preference Shares Working Capital Loans . .8 million) (31 December 2009: US$104. . . . .097.2 97. . . .452. . .866. . . set out in Note 17b.557. . . 16. . Loans from related parties . . . .1 2. . . .4 — 71.7 2. revolving facilities and letters of credit facilities. .8 1. . . . particularly in respect of deferred sales tax. Non-convertible debentures also include US$105. . . . Less: overdrawn bank balance .8 million) (2009: US$1.109. .2 million) of debentures issued by the Energy Group during 1995-96 at coupon rates of 6. . .3%). . . . BORROWINGS As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Non-convertible debentures . . . . .3 71. . .7) 3. . . Current borrowing . . . . . . . .104.6 million as at 31 March 2007.7 110. . . . .6 23. . . . . .2 2. . . . . . . . . . .7 2.4 Bank deposits have a maturity period of less than 90 days. . . . . . . . . .5 1. . . . . . . . . . .9 2. . . . . These institutions provide the Group with term loans. . . . . . . . Liquid investments represent cash deposited in mutual funds which are fully liquid and can be realised without notice and without significant risk of loss of value. . . . 26. . .8 — 34. . . .7 745.5 39. . . prior to its acquisition by the Group. . . . Liquid investments . .5 86. . . . .352. . . . . . . . . the majority of which were converted to 8.9 — 317. . . . .8 69. . . . . .8 3. . . . .8 2. . . . . . . .4 367.3 million) (2009: US$105. . . .9 million (2008: US$147. . . . . . . .0% to 12. . .112. Banks and Financial Institutions .5 2. . .0 918. . . In addition to the amounts shown above.7 21. Bills of exchange . . . . . . . .156. . . . . Net borrowings .805. . . . . . . . . .2 million) (31 December 2009: US$1. an option to make early repayments at any time over the term of borrowings.5% per annum (interest expensed at effective interest rate of 10. . . . . . .2 3. .0% Rupee term loan from banks and financial institutions in 2007-08.1 Total borrowings .447. .7 97. . . . . . . . . Non-current borrowing . Cash and cash equivalents . .9 million) are subject to a master restructuring agreement entered into by Essar Oil Limited with the lenders on 17 December 2004 (the ‘‘MRA’’).349. .7 (3. . . CASH AND CASH EQUIVALENTS Financial Information As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Cash at banks . .7 — 125. The MRA provided the Essar Oil Limited. .4 26. .3 21. . Borrowings from banks and financial institutions of US$1. . . . . .052. .2) 3. . . . .9 (7. . . . .190. . . . . .4 40. . .659. . . . . a subsidiary of the Group. . .4 82.447. . repayments of which commenced on 30 April 2006 and will continue until 24 September 2018. . . . . .

6 million) (2007: US$71. followed by charges over current assets and pledges of certain equity shares in subsidiaries held by the Group.a.1 million as at 31 December 2009 with maturities ranging from 1 to 2 years.0% to 14.0% to 13. This was principally due to initial losses made by the Oil Refinery as a result of delays in commencement of commercial production. If there is no Qualified offering of Essar Power Limited. plant and equipment. which at the time of this report.2%) (December 2009: 1.0 million of equity shares in Essar Power Limited at any time before an IPO of Essar Power Limited at an exercise price based on a predetermined valuation of Essar Power Limited. Further details of the settlement are outlined in Note 27. During the reporting period the Group breached certain terms and covenants set out in the MRA. Interest rates on Indian Rupee borrowings range from 8.1% and 8.5%) (2009: 8.5%) while the interest rate on borrowings in other currencies ranges from 5. These loans were repaid subsequent to the year end. Essar Power Limited has also issued a warrant to the OCPRS holder for a consideration of INR 100.5%) (December 2009: 8.0% to 12. at the end of the original term. Bills of exchange Bills of exchange are accepted by banks towards payment of customer invoices and typically carry an interest rate ranging from 6.5% per annum (2008: 8. 244 . The conversion price will be determined based on the equity valuation of the subsidiary at the time of conversion.0% per annum for the first two years and subsequent five years.8%.Part 11 Financial Information rates ranging from 5% to 12. Working capital loans are secured by a first charge on the current assets and a second charge on property.5% per annum are subject to variation on prepayment of any borrowings. the lead bank of the CDR lenders.5% per annum (2008: 5. which entitles the holder to subscribe to the equivalent of US$15.0% to 14. until the final redemption date. Working Capital loans The Group has a number of working capital loans which are used in the ordinary course of business which are subject to interest rates ranging from 1% to 4% over the bank’s prime lending rate and short term in nature.25% per annum on the outstanding loan balance (Note 25).487. The OCPRS carry interest rate of 0. The Group has undrawn committed facilities of US$2.5% to 13. respectively.500 million (US$68. had been met by Essar Oil Limited under the MRA and other restructuring documents.5%) (2007: 2.8% to 7. Other loans held by the Group include an amount due to American Express Bank Limited (Amex) of US$73. confirming the compliance with the covenants subject to conditions.9 million) which were due to be separately restructured in line with MRA terms agreed by Essar Oil Limited. Amount repayable to related parties of the Group carry a range of interest from 0% to 12. Details of the maturity and interest profile of the Group’s borrowings are included in Note 20.2 million) were issued on 18 March 2009 by Essar Power Limited. The Company has accounted the OCPRS at amortised cost with effective interest rate of 20. Essar Oil Limited has obtained a letter dated 23 March 2010 from ICICI Bank. The OCPRS are convertible into equity shares at the option of the investor in the event of a covenant default or an IPO of Essar Power Limited. Loans from related parties The Group has entered into loan agreements with companies within the Essar Group. a subsidiary of the Group.0% to 7.0%).0% per annum and are settled in a period ranging from 7 to 21 days. plant and equipment as well as certain other securities and guarantees.0 to 7. Cumulative Redeemable Preference Shares Convertible Cumulative Redeemable Preference Shares (OCPRS) of INR 3.0% to 7. Borrowings from banks and financial institutions are secured pari passu with a first charge on property. Management believe that no events have taken place which would trigger conversion. The OCPRS continues to be held as long term borrowings.5% interest p.0 million) (31 December 2009: US$72. adverse economic conditions and unprecedented volatility in exchange rates and crude prices.0 million (2008: US$67. then the Preference shares will be redeemed at 20.

. .. .8 — 1. . . . . . . . 17b. .7 2.. . . . . . . . . Deferred sales tax liability . . . Additions due to acquisition .. .. the Group operates a defined benefit scheme for its employees. . . .. .6 4. . . .5 122. . . . . . . . (2008: US$31. .. 17.. . . . .5) 218. . . . . . other financing . .6) (133.9 5. .6 — 200. .. .. .9 (143.5 6. . . . . . . .. . .. . . . . . . . . .3 — 60. . . . . . . . .. . . . . . . . . . .. . .6 2. Other trade creditors are not interest bearing and are normally settled within 60 to 90 days. .1 7. .. . . . . . .7 — 177.7 (1. . 888. .5 6. Due to related party . . .875.447. . . . Loans raised . . . . .. . . . . . . . . . . .888.6 — — 10. . . . .0 56. . . . . .. .8 203. .5 million) (2008: US$0.. . . . .7 Total non-current trade and other payables . . . .3) 168. . . .. . . . . . . . .. . . . .0 2.4 0.1 Total current trade and other payables . . . .5 (212. . . TRADE AND OTHER PAYABLES 17a. .. . .4 24.5 2. . .. Trade creditors include amounts payable within 180-365 days of as at 31 March 2007 US$47.6 8. .1 2.4 million. . . . .223. . . . . .1 8.3 (565. . . .5 7. .. ..7) 2. .6 78. . . .557. .4 4.0%. . .5 68. .447. . . . .. .5 1. .. .1 25. . . . . Accrued expenses .. . . . . (2009: 245 . . . . 4. . . . .3 49. Due to related parties .. . . . Security deposits . .6 3. . .6 million) which carry interest ranging from 6.. . . . . .6 — — 0. .1 130.4 — 3. .3 72. . . . . . Advances from customers . .. . Accrued employee cost . . . . ..4 65. .7 29. Security deposits . . . . . .. ... . . . (2009: US$193. . . . .. .557. . . . . . . . . . ..1 3.5 73. ..2 127. . . .7 1. . . . . . . . . . .. . . ..5 (182. . . . .8 — 2. . .109. . .3 60. ... . .512. . .0 1.090. . .3 0. . . . .. . . .2 7. . Retirement benefit obligations As stated in the accounting policies.3 million). . . . . . . . . .6 2. . . . . .3 — — 6. .0% to 18.. . . .6 1. . . . . . .9 14..6) 54... . . . . . . .7 4. .. . .. . . . . .. .. . .8 — 1. . . . .6 — 357.. .. . . . . . . .. . . . .1 3. . . .7 12.1 18. . . . .. . .. .7 3.Part 11 Movements in borrowings Financial Information As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Opening balance . .2 — 3. . . . . . . . .4 million) and (December 2009: US$518. .3 125. . .097. .3 million).. . . ..1 — 4. . . . . Tax payable .. . .5 1. Others .0 Closing balance . . . . . . . .002.. .7 130. Loans repaid .8 1. Exchange and other differences .3 216. Trade and Other Payables (Non-Current) As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Interest accrued but not due Acceptances . . . . . . . . .585. . . . . .. . . . .1) 210.. . . . . . . Other current payables . . . . . . . The net liability associated with the scheme at (31 March 2007: US$0. .6 6. — 1. .307. . . . .011. . .5 6. . .7 5. . Trade and other payables (current) As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Trade creditors . . . . . . . . .332.8 4. . .. . . . . .7 137. . . . .. .. . Financial guarantee obligations . . .097. . . .. . .. . . . . . . . . . . . . . .8 74. . .. Movement in bills of exchange and Funded interest . . .

Commodity options . . . . . . . Currency forward contracts .227. . .8 38. Further disclosure is not provided as the amounts included are immaterial. . .1 2. . . . . 18.301. . . .1 12. . . . . . . . . . . . . . . . . . . . but also uses a volatility surface derived from quoted option volatilities Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. . .9 20. . . . . . . . . . . . .2 million). . .1 — — 38. .8 — — — 273. Acquisition of Hazira Steel 2 . Capital contribution . . . Hazira Steel 2 was acquired by the Essar Group in September 2006 with the intention that it would form part of the Group to be listed and has therefore been reflected in the combined historical financial 246 . . . As described in Note 1. . .6 — 6. . . . .147. . . . . . . . INVESTED CAPITAL As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Opening balances . . . . . . . . . . . Derivative financial assets (current) As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Commodity swaps .8 13. . . . .953.0 433. . .6 1. .953. . . .8 1.147. .3 2. .4 2.3 9. 18b.6 4. . . . . .7 — 6. .3 5. . . . . . . . .2 — 10. .3 The fair values of derivative instruments are calculated using quoted prices. . . Currency forward contracts . Total derivative financial assets (current) .7 3. . . . .5 50.0 592. . . 9. .2 0. . . Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts. . . . . . . . . . a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives. . . . . . . . . . . . . . . . . Commodity swaps are measured using a forward curve based on quoted futures or forward prices and yield curves derived from quoted interest rates matching maturities of the contracts. .0 0. .7 — — 3. . . . . Acquisition of Essar Energy Holdings Limited .9 As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Commodity swaps . . . . . . . . . . . . .4 million) included above.7 — — — 74. DERIVATIVES 18a. . . . . . . . . Derivatives financial liabilities (current) 6.9 2. . . . . . . . No derivatives are designated as hedges for the purposes of financial reporting. . .8 3. . .7 2. . . . . . . . .1 1. . . .227. 19. . . . . Total derivative financial liabilities (current) .0 11. . . . . . . .0 2.2 1. . . . The Energy and Power Groups were acquired by the Essar Group during 2006 and therefore their capital is initially brought into the combined historical financial information as acquisitions. Where such prices are not available.4 6. . . .6 — — — 806. and option pricing models for optional derivatives. . Commodity options are measured using the same data as the commodity swaps. . . . . . . . — 72. . . . . . . .7 Closing balance . . (31 December 2009: US$0. . . . . . . . . . . . . . . . . . . . .3 1. . . .7 2. Acquisition of Essar Power Holdings Ltd . . the share capital and share application money of the Energy and Power Groups have been combined and reflected in invested capital. . Commodity options . . . .Part 11 Financial Information US$0. . .

6 431. The purpose is to manage commodity price risk and currency risks arising from the Group’s operations. . . * Prime Lending Rate (‘‘PLR’’) — 0. .1 2. . . . foreign currency risk. . which arise directly from its operations. .5 1. . finance leases. . . However.693. . . . other than derivatives. of the Group’s (loss)/ profit before tax due to the impact on floating rate borrowings. . . . Foreign currency risk The Group has significant investments and operations in India. 2. . . . . . The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.6 398. . . . . . 20. . . FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities. . . . . . the net assets of Hazira Steel 2 are brought into the combined historical financial information as invested capital in 2007. . . . . . Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates. . . 247 . . Therefore. . debentures. . As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Effect on profit before tax: LIBOR—Decrease by 50 bps . Floating rate borrowings . .Part 11 Financial Information information from this date. comprise bank loans and overdrafts.2 The following table demonstrates the sensitivity to a reasonably possible change in interest rates. it did not become a subsidiary of the Energy Group until September 2007 when it was transferred within the commonly controlled Essar Group to Essar Energy Holdings Limited for consideration of US$50. and loans taken.7 The impact of a 50 bps increase in interest rates on profit before tax will be as disclosed above with the exception of gains which would be converted to losses.049. . . .0 million in the form of shares. . . liquidity risk.6 0. The Group enters into derivative transactions. .1 — 0. The main risks arising from the Group’s financial instruments are interest rate risk.2 2. . . . its financial state of affairs can be affected significantly by movements in the Rs. primarily in the nature of commodity option and swap contracts and forward currency contracts. The Group is subject to fluctuations in commodity prices and currency exchange rates due to nature of its operations. . commodity price risk and credit risk. with all other variables held constant. trade payables. The following table provides a breakdown of the Group’s fixed and floating rate borrowings: As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Fixed rate borrowings . . . .666. . and short-term deposits.4 265. . . .8 415.2 1. . being a 0. Capital contribution represents further capital and share application money invested by EGL in Essar Energy Holdings Limited and Essar Power Holdings Ltd. ./US dollar exchange rates. .0 0. . The Group has various financial assets such as trade receivables. Accordingly. .5% increase or decrease in interest rate. The Group’s policy is to manage its interest cost using a mix of fixed and floating rate debts. . .292. . . cash. .0 2. . . PLR*—Decrease by 50 bps . . . . The main purpose of these financial liabilities is to raise finance for the Group’s operations.

5 0. . .0 0. . . . . . . . . Such exposure arises from sales or purchases by an operating unit in currencies other than the unit’s functional currency. . .315.7 0. . . . . . .4 1. .9 5. .3 1. . . . . . dues from related parties. . .1 0. .079. . . term deposits. . .6 15. . . .487.7 5. . . . . The Group has taken forward cover of US$35. . . The carrying amounts of the Group’s financial assets and liabilities denominated in different currencies are as follows: As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Financial assets Indian Rupees (INR) . . . . . . . options and forward contracts are used to mitigate the risk arising from fluctuations in foreign exchange rates. United States Dollar (USD) Canadian Dollars (CAD) . Euro (EUR) . .4 191. . . . . . . . . . . . . . 248 . . .2 119. . The Group is exposed to credit risk from trade receivables. . . .7 — 1. .1 5. . . . .6 795.3) The Group enters into forward foreign exchange contracts to cover foreign currency payments and receipts. . . . ./US dollar. . .388.1) (80. .3 0. . . . . . . . .8 2. .8 3. . .1 69. .7 0. . . .6 The Group’s exposure to foreign currency arises where a Group company holds financial assets and liabilities denominated in a currency different from the functional currency of that entity with US dollar being the major non-functional currency of the Group’s main operating subsidiaries. .Part 11 Financial Information The Group also has transactional currency exposures. . . The Group also enters into forward foreign exchange contracts to manage the risk associated with anticipated sales and purchase transactions. . . . .572.5 57. .8 2.0 3.592. . Foreign currency swaps.567. . . . Great Britain Pound (GBP) . . . . . . .377. . . . . . (91. . . . Great Britain Pound (GBP) . . . . . . .4 1. . . . . . . . . . . . .4 2. . . . . . . . . Euro (EUR) . . .8 0. Credit risk The Group is exposed to credit risk in the event of non-payment by customers. . .7) (52. . .6 967. . .1 0.164. . . .9 million) (December 2009: US$1. . . . . . . .9 million (2008: US$20. . .2 3.0 107. . .8 1.286. .8 12. . . .891. . . . . . . . . . . . . . . .8 As at 31 December 2009 US$ million As at 31 March 2007 2008 2009 US$ million US$ million US$ million Financial liabilities Indian Rupees (INR) . . .4 0. . . . . . . . . . . .3 — — — 447. . . . . . . .0 million) (2009: US$986. . The impact of a 10% weakening of the US Dollar on profit before tax will be the same as disclosed above except that losses would be converted to gains. . . .8 962. . . . . . .3 4. 2.7 2. Set out below is the impact of a 10% movement in the US dollar on profit before tax arising as a result of the revaluation of the Group’s foreign currency financial assets and liabilities: As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Effect of 10% strengthening of US Dollars on profit before tax: INR . United States Dollar (USD) Canadian Dollars (CAD) .3 million) to hedge against currency risk against movement in Rs. . . . . . . liquid investments and other financial instruments. . . . . . . .2 — 7. . .7) (121. . . . . . . . . 390. . . . . .7 2.2 — 903.1 1. .672. .254. . . . . . .186.032.

7 114. . . . . . Ageing of past due but not impaired receivables is as follows: As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million 0-30 days . .1 7. For transactions that do not occur in the country of the relevant operating unit. . . . . . . . . .6 million) (December 2009: US$118. . . . . .6 249 . . . . . . . . 37. . It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. 13.6 — 1. . . . . . . . . .5 11. Financial guarantee contracts . . .9 36. . .8 — 975. .4 13.2 18. . . . . . .1 — 36. . . . . . . . . . . . . . . . .9 13. . The allowance for doubtful accounts at 31 March 2007 was nil (2008: nil) (2009: nil) (31 December 2009: nil). . . The aged receivables include US$56. . .3 13. . . . . . .4 2.5 12.2 13.8 9. . 8. .357. . The Group establishes an allowance for doubtful accounts that represents its estimate of incurred losses in respect of trade and other receivables. . . .5 20. . . . .5 24. .0 6. . . . . . .4 10. . . .1 million) (2009: US$95. . receivable balances are monitored on an ongoing basis. . . .8 952. .8 3. . .8 1. . . This model considers the maturity of both its financial investments and projected cash flows from operations. . . preference shares and finance leases. 60-90 days . debentures. . .1 13. .0 106. . .7 5. the Group does not offer credit terms without the approval of the appropriate authority.6 6. Derivatives . . . . .9 938. . . . . . . . . Payments are received from GUVNL regularly and are off set against amounts due.0 15. . . . .0 388. . The awards have since been challenged by the counter parties. . . . . . .8 48. . . . The maturity profile of the Group’s recognised financial liabilities is given in the table below: Weighted Average effective interest rate % At 31 March 2007 <1yr US$ million 1-5 yrs US$ million >5 yrs US$ million Total US$ million Borrowings . . . . .3 11. Cash. . . . . . . The Group does not hold any collateral or other credit enhancements over these balances nor does it have a legal right of offset against any amounts owed by the Group to the counterparty. . . . Trade receivables disclosed above include amounts (see below for aged analysis) which are past due at the reporting date but against which the Group has not recognised an allowance for doubtful receivables because there has not been a significant change in credit quality and the amounts are still considered recoverable. .9 139. . . . . .5%). . . 120-365 days 5 years plus . . . . . . . . . .9 15. . . . . . 90-120 days . .9 9. . .589. .9 20. . .1 17. . . .Part 11 Financial Information The Group trades with recognised and creditworthy third parties. .0 10.256. . . .8 — 1. . . . The Group is exposed to credit risk in the event of non payment by customers. . In addition. . . . . Liquidity risk The Group monitors its risk of shortage of funds using a cash flow forecasting model. . . . .3%) (31 December 2009: 58. Out of the Group’s liabilities. . . . . 30-60 days . . . .8 million) in respect of amounts billed for supply of power to GUVNL. . . . . . . .1 million (2008: US$83. . . . . . . . . . . . . . . . .6 70. . . . . . . . . . . .3 14. The amounts have not been provided for on the basis of the arbitration award in favour of the Company. .9% will mature in less than one year at 31 March 2007 (2008: 53. . . . . . Overdue amounts which are five years or greater are in relation to amounts due for construction activities performed which the Company have been successful in securing award of payment through arbitration proceedings.7 20. . . . .3 1. There are no significant credit risks with related parties of the Group. . . Trade and other payables .4 936. .2 23. . . .4 76. . . . . . . . . .0%) (2009: 51. liquid investments and term deposits are held in banks with high credit ratings.7 Total . . . .568. . . Finance lease payables . . . . . . . . The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans.9 2.2 13.2 14. . .243. . .

975. . .2 — 1. . .9 60. . . . . .1 — 1.3 11.5 — 934.249.317.5 At 31 March 2009 Weighted Average effective interest rate % % <1yr US$ million 1-5 yrs US$ million >5 yrs US$ million Total US$ million Borrowings .8 2.9 920. .6 11. liability or transaction being hedged. . . . . . . .2 million (2008: US$54.472. . .1 3. . Derivative . . . .132.403.6 million).3 11. the Group’s risk management desk uses a range of conventional oil price-related commodity derivative instruments such as futures.374. Financial guarantee contracts . .3 54.3 The majority of the Group’s derivative financial instruments mature within 12 months of each reporting end. . . 8. . . . 250 . . . . Finance lease payables . .1 — 5. . 8. .7 4.581. . .3 — 1. .6 5. .509. . .1 9. .1 6. .8 4. . . .3 858.4 13. .6 584. . .1 4.1 1. . . .5 — 15.9 2.7 6.8 4. the Group uses commodity derivative instruments to hedge the price risk of forecasted transactions such as forecasted crude oil purchases and refined product sales. .8 11. . From time to time. . . . . Finance lease payables . . . . . .1 13. . . .285. . . . Trade and other payables . . The Group’s revenues are exposed to the risk of fluctuation in prices of crude oil and petroleum products in the international markets. .9 — 27.7 — 961. .2 1. . Trade and other payables . . . . .332. . . . . swaps and options that are available in the commodity derivative markets.9 — 1. .3 12. . . . . .9 4.8 5. .2 At 31 December 2009 Weighted Average effective interest rate % <1yr US$ million 1-5 yrs US$ million >5 yrs US$ million Total US$ million Borrowings . Trade and other payables . . . .181. The undiscounted cash flows in respect of derivative financial instruments are US$42. . .2 — 20. . . . . . the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date. . . .6 1. .028. . . . . . .2 11. . . . .7 1.119. . . . . . .0 1. .1 78.697. Commodity price risk The prices of refined petroleum products and crude oil are linked to the international prices.1 38. . The Group’s open positions in commodity derivative instruments are monitored and managed on a daily basis to ensure compliance with its stated risk management policy which has been approved by the management.3 37. 8. . .Part 11 Financial Information Weighted Average effective interest rate % At 31 March 2008 <1yr US$ million 1-5 yrs US$ million >5 yrs US$ million Total US$ million Borrowings . .513. . . .6 3. . Note where the amount payable or receivable is not fixed.122. . . . . . . . . . . Financial guarantee contracts . .068. .7 122. .5 9. . . Derivative .5 3. These derivative instruments are considered economic hedges for which changes in their fair value are currently recorded in the combined income statement.2 1.3 749.383.251. . . .5 million) (December 2009: US$1. . .5 2. .129. . Financial guarantee contracts .4 — 44. The derivative instruments used for hedging purposes typically do not expose the Group to market risk because the change in their market value is generally offset by a corresponding change in the market value of the underlying asset.783. .0 2. The Group operates a risk management desk that uses hedging instruments to seek to reduce the impact of market volatility in crude oil and product prices on Group’s profitability. .3 1.4 — 20. Finance lease payables .133.4 1.8 2. To this end. . . . . . .8 8. . . . . .993.3 38. . . . . . . . . . . .6 12. .5 11. .2 833. Derivatives . . .4 million) (2009: US$983. . .5 4. .

155. . . 4. . . . The Group’s policy is to borrow using a mixture of long-term and short-term debts from both local and international financial markets as well as multi-lateral organisations together with cash generated to meet anticipated funding requirements. .5 2.4 5.. .. .6 2. . . . . . . . . . . . . . . .6 9. .109. . . Effect of 10% decrease in prices on (loss)/profit before tax Crude Oil . . The Group’s policy is to keep the gearing ratio between 50% and 75%. . . . . . . . . ... . . . . . . . . . .6 2. . . .4 3. . .997. .038. .6% 3. . (4. . . . . . . .3 3.0 1.. . . . . . . . . . . . . . . . . . . . . within an acceptable level of debt. . . . . .517. . .8 5. . . . .. . . Crack . The Group monitors capital using a gearing ratio.0 4...1 19. . .2 2. . . . . . . .770. . . . . . . . . .385. . . Total Equity includes equity attributable to the equity holders of the Group as well as minority interests. . . .8% 251 .3 5. .3) (0. . .. . . . .. . .7 Crack refers to the difference between the per barrel price of petroleum products and related cost of crude oil used for their production. . . . .Part 11 Financial Information Set out below is the impact of 10% increase or decrease in base crude and petroleum product prices on profit before tax as a result of change in value of the Group’s commodity derivative instruments: As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Effect of 10% increase in prices on (loss)/profit before tax Crude Oil . . . . .. .3 63.9) (0. . . . . . .0 57. . Gearing ratio . which is net debt divided by total capital plus net debt. . . . . . . . . . The Group includes within net debt. . . . .3 2. . . . . . . . Capital management The Group’s objectives while managing capital are to safeguard its ability to continue as a going concern and to provide adequate returns for its shareholders and benefits for other stakeholders. .1 14. . Net debt . . . . . . interest bearing loans and borrowings less cash and cash equivalents. .3 1. .076. . . . . Equity and net debt . . .3) (5.6 59. . .9) (14. . .4% 3. . . . . Total Equity . . Equity funding for existing operations or new acquisitions is raised centrally.2 0. . . . . . .097. . . . . . . .063. Less: cash and cash equivalents .060. . Crack . . . . . The Group’s policy is generally to optimise borrowings at an operating Company level. . . first from excess cash and then from new borrowings while retaining on an acceptable level of debt for the consolidated Group. 2. . . . . .447. . As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Interest-bearing borrowings .. .6 40. .6 62. . .442. . .7 100. . on a non-recourse basis. . . .4) (10. . . .3) (3. . . . . .6 1. .2% 2. . . . . . .0 3.0 71. . . .959.037. . . . . . . .7) . .1) (19.4 59. . . . . . .557. .

.. . trade and other payables.5 35. ..581..25% to 12.109. . . The fair value of listed investments is determined by reference to market price at the close of business on the balance sheet date.. . AFS investments are classified as Level 3 fair value measurements.. The discounting rate ranges from 11.. as defined by IFRS 7.. . . .8 4... b) c) d) The Group financial assets and liabilities that are measured subsequent to initial recognition at fair value are derivatives (Note 18) and AFS investments (Note 11).. .. . ..7 1.8 3.. . —Trade and other payables . ..3 6..6 528.4 958.503. ..... . AFS investments .7 40..7 100.0 million) (December 2009: US$3. . .8 38... .9 71. .8 .. Derivative financial assets and liabilities are classified as Level 2 fair value measurements..3 248. . The following methods and assumptions were used to estimate the fair values: a) Cash and short-term deposits. Financial guarantee contracts . .6 Total .5 581.447. . .3 — 447.567. .. . . . Fair value of derivatives—refer to Note 18.. .4 347. .6 952.. . . price) or indirectly (i....2 million (2008: US$2.. The fair value of unlisted investments held by the Group is estimated with reference to the net assets of the underlying businesses at each reporting date. The fair value of loans from banks and other financial indebtedness as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt or similar terms and remaining maturities.0 2.8 3. . .1 million).. .. . . . . . other than in a forced or liquidation sale.. .. .8 2. either directly (i. The fair value of the financial assets and liabilities are estimated at the amount at which the instrument could be exchanged in a current transaction between willing parties..5 152. . . derived from prices)..004...1 311... . . .388.. . ..032. . —Other assets .00%.6 1.985.. . . .. .557. . .e... .. . . . . . The carrying value of all other financial assets and liabilities closely approximate their fair value except for borrowings (Note 16) where fair values are estimated to be US$2.. . .993....3 62.6 20.0 41. . . ..8 5. .6 million) (2009: US$2. .1 6. . . and other current liabilities approximate their carrying amounts largely due to the short-term maturities or nature of these instruments.. . . .. . . .. . . . .. .. . . . . ..e. .... .1 3. . ... .079.Part 11 Financial Information 21.3 903. . There were no transfers between categories throughout the historical financial period.. . 13.0 12. .1 251. .1 41. .0 — 1. . 6. .. . . . .. .. .. . . . . FINANCIAL INSTRUMENTS The accounting classification of each category of financial instruments and their carrying amounts has been tabulated below: Carrying amount As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Financial assets At FVTPL —Held for trading (derivatives) Cash and cash equivalents .1 4. . . .186. . . . .. .. . 252 ... . being those derived from inputs other than quoted prices that are observable for the assets or liability..3 2.4 6.1 51. .. trade and other receivables.097. . Loan and receivables —Trade and other receivables .... —Finance lease payables .. .. as assets held are unquoted. . .672. . .. . . . .8 9.6 33. .. .348...2 37. . .3 3..6 5. Financial liabilities At FVTPL —Held for trading (derivatives) At amortised cost —Borrowings . . .3 1.8 4. .. .. . .. . . . . . ..513. . .

. . . . . . . . . . . . BUSINESS COMBINATIONS Financial Information Below is set out a summary of the business combinations which have taken place during the historical period. .0 (2. Note Total net Share of Initial assets at Minority net assets acquisition fair value interest acquired cost Goodwill Equity US$ million US$ million US$ million US$ million US$ million US$ million Essar Power Holding Ltd . . . . . . . . . . . . Net assets . . . . .2 44. . . . . . . . . . . . .3 38. . . . . . .5) 322. . . .9 Total liabilities assumed . . . . . . . . . . . . . All consideration for this initial transaction has been paid in cash by the Essar Group and the business was contributed to the Group. . . . . . . . . .0 27. .(iii) Essar Oil Limited . . .6 743. . . . . .5 177. .1 72. . . . .8 27. . .1 36. . . . . . . . owns 74% of EPOL at the date of approving these financial statements. . . . .8 445.1 44. . . Essar Group acquired a 36. . At approximately the same time. . . . . . . . . . . .4 (59. . . . . . . . . . . .1 36. . . .8 393. and as a consequence of these transactions resulting in control being transferred to the Group. . . . . . . . . . . . . .9 — 98. the Group acquired 100% of Essar Power Holdings Ltd (EPHL). . . . . . . . . . . . Total assets acquired . . . . Share in net assets @ 42. . . . .9 549. . . . . . . . . .4 72. . . . . . . . .1 433. . . . . . . . . . . . . . . . . . . EPOL was an unlisted company based in India which operated three dual fuel fired combined cycle power plants with a total capacity of 515 MW. . . . the Group. . Borrowings (non-current) Trade and other payables Finance lease .6 644. . . . . . . . . . . 22a. . .1 91. . .(i) Hazira Steel 2 . . . . . . . . . . . .7 38. . . . . . The contribution has been reflected as invested capital in the statement of equity. . .2 45. Current assets (including cash and cash equivalents of $1. .0 50. . . . . .3 — — — — — 40. . . . . . 253 . .9) 51. Liabilities Borrowings (current) . plant and equipment .6 — (2.7 million) . . . . . . . .7 8. . . . . . . . . . .0 136. it has consolidated EPOL from the date that the Essar Group obtained control. . . . . . . . . . . .9 4.5 27. . . . . . . . . . . . POWER SEGMENT 103. . . 22a. . . . . . . . a holding company which held a 42. . . . . 22a. . .0 — — 91. . . .4) — 44. . . As a consequence of further transactions described below.1 54.(ii) Algoma Energy LLP . . . . .86% . . . . . . . . . . . . . . . . . . .8 231. . . . . . .0 36. . .1 (i) Acquisition of Essar Power Holdings Ltd (EPHL) On 13 September 2006.3 123. . .9) 362. . . Deferred tax liabilities . . . . . . . . . . . . . . In accordance with the Group’s policy for accounting for common control transactions. . . of which 12.1 45. . .1 41. . . . . . . . .3) (7. . . . . The fair values of the identifiable assets and liabilities of EPHL and its subsidiaries as at the date of acquisition were as follows: Book value US$ million Fair value adjustments US$ million Fair value US$ million Assets Property. . . . . . .Part 11 22. . . .9 (32. . . . . . . .9 103. .1 57. 22b Essar Energy Holding Ltd 22b 22a. Net invested capital . . . . . . . .26% was acquired from companies within the Essar Group. . . . . . . . .9 79.2 393.1 239. . . . . . . . . .6 959. . . . . . . . . . . . .7 8.1) — — (314. . . . . . . . . . . . . . . . . Goodwill arising . . . . . . . . . . . . . . . . . . .9 458. .5 177. . . . . . . . . .26% stake in EPOL and through its direct and indirect ownership controlled EPOL. . . . . . Other non-current assets .86% stake in Essar Power Limited (EPOL) and its subsidiaries. . . 271. . .

In accordance with the Group’s accounting policy for common control transactions.87%.Part 11 Financial Information The key fair value adjustments are as follows: • • • The valuation of property. (ii) Acquisition of Hazira Steel 2 (HS2) On 25 September 2006 the Essar Group acquired a 100% controlling interest in HS2.84% controlling stake in ETHL. From the date of acquisition to 31 March 2007.84% interest in EPOL at the date of acquisition. Acquisition in February 2007 of 100% of Essar Power Jharkhand Limited (EPJL) for US$11. A provision was recorded to reflect the probable outflow of economic benefit associated with a trade dispute with a significant customer of the business. In September 2007. the resultant figures for contribution to the Group’s revenues and results for the year would have been US$164.6 million and other assets of US$6.8 million respectively. which increased the Group’s ownership interest by 3. • In accordance with the Group’s accounting policy. Had the acquisition taken place at the beginning of the year. The fair valuation of finance lease liability was determined based on market interest rate available for leasing asset. the Group has accounted for the acquisition of HS2 and its subsidiaries retroactively as a business combination from the date HS2 was acquired by the Essar Group. plant and equipment was determined.9 million and US$8. which had a 91. 254 .4 million and profits of US$4. EPJL also held borrowings of US$20. Subsequent to the acquisition on 13 September 2006. These include the following: • • The transfer of approximately 15% of EPOL from Essar. based on professional valuers’ report at the time of the acquisition.5 million to the results of the Group before consolidation adjustments. The issue of new share capital of EPOL to EPHL in September 2008. which held a 5.7 million which were consolidated from the date of acquisition onwards. the Essar Group also obtained a controlling interest in Bhander Power Limited (BPOL) as BPOL was 100% subsidiary of ETHL. EPHL along with its subsidiaries has contributed revenues of US$94. the Group has entered into a number of transactions which increased its ownership in EPHL’s subsidiary EPOL. these transactions have been treated as acquisitions of minority interest with any surplus or deficit reflected in retained earnings. transferred in September 2007.000. the entire shareholding in HS2 was transferred to EPHL for nil consideration.0 million paid by the Essar Group which as paid in cash was treated as invested capital in the Group with any difference between that and the carrying value of the assets and liabilities of HS2 at the date of transfer in to the Group recorded as goodwill. The consideration of US$50. As a result of this acquisition.

. . Total assets acquired . . . . . . . . . . . . . . . . . .0 Total liabilities assumed . . . . . . . . . . through its commissioned naphtha-based power plants with a combined capacity of 500 MW in Hazira. . . . . . . . . .3 5. .9 50.7 24. . . . . . . . .1 4. . . . . . . . . . . . . .4 170. . . . . . .9 12. . . . . . These plants were put into commercial generation in stages including 155 MW on 15 January 2006. . . . . . . . Algoma Energy LLP was the subsidiary of ESAI as at that date. . . . . . . . . . . .2 6. . . . . . . . . . . . . . . . . . . . . . . . . . .3 106. . . . . Had the acquisition taken place at the beginning of the year. . . . . . . . . . . . India. .4 187.5 45. . HS2 is an unlisted company based in India and. . . . . . . . . (ESAI) was acquired by the Essar Group.6 17. . . Borrowings (non-current) Trade and other payables Deferred tax liabilities . . . . . . (iii) Acquisition of Algoma Energy LLP (AELP) On 18 June 2007 a 100% controlling interest in Essar Steel Algoma Inc.5 135. . .6 million respectively. . . . . before consolidation adjustments. .8 10. . . . . . . . . . . . . . . . . . The main fair value adjustment relates to the valuation of property. . . . . . the resultant figures for contribution to the Group’s revenues and profits would have been US$18. . . . . . . . Goodwill . . . . . . . . Share in net assets . .3 106. . . . . . . . . . . . . . . . . . . . . Total consideration paid by the Essar Group . .7 34.1 45. . . . . . . . . Net assets . .2 0. . . . .3 142. . . . . . . . . . . . . . . . . . . . . . .3 — — 1. . . . . plant and equipment based on professional valuers report at the time of the acquisition and the related deferred tax. 200 MW on 18 December 2007 and 145 MW on 7 October 2008. . . . . . .Part 11 Financial Information The table below represents the fair values of the identifiable assets and liabilities of HS2 and its subsidiaries as determined in the purchase price allocation of the Essar Group: Book value US$ million Fair value adjustments US$ million Fair value US$ million Assets Property. . . . From the date of acquisition to 31 March 2007 HS2 and its subsidiaries have contributed revenues of US$12.7 23. . . . . . . . . . . . . . . . .3 — 17. . . .0 5. . .6 5. . . . . .8 6. . . . . . . . . . . . . . . .5 million and profits of US$6. . . .5 175. Current assets (including cash and cash equivalents of $2. . . . . . . . . . . . . . . . .2 million to the results of the Group. . . . . .2 12. . . . . . . . . . . . 157. . . . . . . plant and equipment . .3 million) . . . . . . . . . . . . . . . Liabilities Borrowings (current) . . . . . . . . . . . . . . . . .8 million and US$7. 255 . . . . . .

. . .9 36. . EEHL acquired 100% voting shares in Vadinar Oil Limited from Essar Group for nil consideration. . .1million and the remaining 50. . . which operates a power plant adjacent to the Vadinar refinery owned by the EOL Group. . . . Net assets . . . . . . Liabilities Trade and other payables . . . .4 million) . . . . The Group acquired Algoma Energy LLP from Essar Group. . . . . .9 — 7. . . . . . Deferred tax liabilities . .6 — 0. . . Intangible assets . . .4 — 53. The value of the contract exceeded the value of property plant and equipment because at that stage. . . . .22% controlling stake in EOL and its subsidiary. . with 49. . . . a subsidiary company of the Essar Group. . . REFINING AND MARKETING AND EXPLORATION AND PRODUCTION SEGMENTS Acquisition of Essar Oil Limited (EOL) On 30 June 2006 a 67. .9% acquired in December 2007 for consideration of US$84. . . . .4 61. . . . . EOL has been consolidated retroactively from 30 June 2006. Total assets acquired . . . . . . . . 22b. . . .6 36. . . . Goodwill . . the reflected the acquisition as if it occurred on 18 June 2007 (the date on which the Essar Group obtained control). . . . . . The principal activity of EOL. . . . . . . . . . . .4 — 16.9 0. At that time VOL held the 67. . . . . . . . . . . . . . . . . . . .8 36. . . . . .9 24.1% stake acquired in November 2009 for consideration of US$120. . . . The contract was valued based on discounted cash flow methodologies and a comparison with market power prices at the time of acquisition. . . . . . . . . .6 53. . . . . . . . . . . . . . . . . Vadinar Power Company Limited (VPCL). . . . . . . . .4 0. . Total consideration paid by the Essar Group . . . . . The difference between the consideration paid and the carrying value of the respective share of the assets and liabilities of Algoma Energy LLP at those dates has been recorded as an increase in the retained deficit of the Group. . . . . . . . . . . . . . . . . . . . . .4 8. .0 million. . . . . . . Total liabilities assumed . . . .9 16. . . . . . . . . . the benefit of which was acquired with the business. . . . . through acquisitions of minority interests from the Essar Group and from third parties. . . . . . 7. . . As at Admission. . . . . . The petroleum refinery project started commercial production from 1 May. . . . . . . the Group owned 86. . . . . . . . On 26 October 2006. .39% of EOL. . . . . . . . . Since the acquisition by the Group is a common control transaction. .1 — 53. . . . . . . . . . . . . . . . . . . . . . . . The consideration paid by the Essar Group has been reflected as Invested Capital in the statement of equity. . . . . . . .6 The principal fair value adjustments relate to the valuation of the power sales contract. . . . In accordance with Group’s policy for common control transactions. . . .0 7. . . . . . and the related deferred tax balance. . . . . . . . . . . is refining of crude oil. .4 7. . . plant and equipment . . . . . . . .9 16. . . . . . . . Current assets (including cash and cash equivalents of $0. . . . . . .5 7. . whose equity is publicly traded on the Bombay Stock Exchange and the National Stock Exchange of India. . . . . . . . the plant was in the early stages of construction. . . . . . .22% controlling interest in EOL was acquired by Vadinar Oil Limited (VOL). . 256 . . . 2008. . . . . . . . .Part 11 Financial Information The table below represents the fair values of the identifiable assets and liabilities of Algoma Energy LLP as determined in the purchase price allocation of the Essar Group as at 18 June 2007. . .6 — 36. . . . . . exploration and production of crude oil and other related energy products. . . . . Book value US$ million Fair value adjustments US$ million Fair value US$ million Assets Property. . . . . . . . . . Share in net assets . .

. . . .. . . .5 541. . . Net assets . . . . . . . .4 (5. . .6 2. . . . . . . . Goodwill .. . . . .. .. of . . . . .2 644.1 149.844. . . . .1 million..643. . .9 195. . . . . . . .27% in January 2008. The deferred tax liability arising on the fair value adjustments. . . . .. . . . . .. . In January 2008. . . . .8 7. . the contribution to the Group’s revenues and results for the period ended 31 March 2007 would have been US$104. . . . Borrowings (non-current) . . . . . These include the following: • On 25 September 2006 the Group acquired a 100% controlling interest in Essar Energy Holdings Limited (EEHL) for US$433. . . . .005. . .. . . . . . . . . . . .. . . . . . . . . . .1 149.364.9 million and losses of US$15. . .0 204.403. .7 million to the results of the Group before consolidation adjustments. . 257 . . Had the acquisition taken place at the beginning of the year. .. .3 743. . . . . . . . . .9 14. . .9 1. . . . . . . . Trade and other payables . . . Other non-current assets . . .3 1. . . . . . . . . . . . .0 2. . . based on the cash flows related to the borrowings over the term of the respective loan and discounted at the market rate. .. . . . . . . . . the Group has entered into a number of transactions which increased its ownership in EOL. .2) 659. . From the date of acquisition to 31 March 2007 EOL contributed revenues of US$95. . . . . . . . . . . . Liabilities Borrowings (current) .5 — 38. . . . . . . . . . .1 Total assets acquired . . . . . . . . . . . . . .5 0.1 241. . the Group held approximately 77% of EOL at 31 December 2009. . . . .0 1.. . . . . .. . . These transactions have been treated as acquisitions of minority interest and any surplus or deficit has been as a change in the retained deficit. . .22% .. . . . . . . . . .8 98. 2. Intangible assets . . . . At this time EEHL held 4.. the Group acquired a further 2... . . . . . . . .885. . .184. . . . . . .49% of shares in EOL from third parties for a total consideration of approximately US$212.Part 11 Financial Information The table below represents the fair values of the identifiable assets and liabilities of EOL as determined in the purchase price allocation of the Essar Group as at 30 June 2006. . . . . . . . . . . . . . .1 188. . .3 664. . . . . . . .3 — 0.. Total consideration paid by the Essar Group . .1 29. . . .7 15.4% in November 2006 and an additional 1. EEHL also held trade and other payables of US$53. . .5 million. . . .. . . . .8 66. In addition to the acquisition from the Essar Group on 26 October 2006. . Other non-current liabilities . . . . . . . . . . . . . ..1 190. EOL made a preferential issuance of shares to EEHL which resulted in an increase in ownership of 1. plant and equipment was revalued based on an independent professional valuation of the tangible fixed assets acquired.2 14. . . . . . . . . .. . . . . . . . . . . . . . . . . .. . .. . . Book Value US$ million Fair value adjustments US$ million Carrying value US$ million Assets Property. . . . . . Total liabilities assumed . . .. . . . . . . Share in net assets @ 67. . . . . .8 million and losses of US$25. .5 1. . . . The fair valuing of borrowings. . .6 418. . • • As a result of these transactions. . . . .3 66. . . .0 1. . . . . . . . . . . . . . . .. . . .. . . .2 million) . .1 959.. .28% ordinary shares in EOL. .. . . . . . . . . . The key fair value adjustments are as follows: • • • The fair value of property.6 million respectively. . . . . . . . .3 million and other non-current assets of US$56. Current assets (including cash and cash equivalents $4. . . .5 1. . plant and equipment . .669. ... . . . . . . . .5 24.. . . . . . . ..7 million which have been consolidated in the Group since that date. .4 2. . Deferred tax liabilities . . . . .

. . . . . . . . . . . . . . . . . . . 2008. . . . . . . . . The Group is in process of fair value of assets. . . . . . . . . . .8 22. . . . . 2009 and 31 December 2009 for the years then ended. . . . . . . . . . . . . . The provisional value of assets and liabilities of KPRL as at acquisition date are under: Share of joint controlled entities US$ million US$ million Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .7 As at 31 December 2009 US$ million Current assets .8 (13. . assets and liabilities of the joint controlled entities at 31 March 2007. . . Non-current assets . . . . . . . . . .3 23. 0. . . . . . . . . . . . . . . . .9 26. . . . . . . . . . . . .9 7. . . . . . . . . . . . . .2 3. .3 — 3. . . . . . a joint controlled entity. . . . . . . . . INTEREST IN JOINT CONTROLLED ENTITIES The Group has acquired a 50% interest in Kenya Petroleum Refinery Limited (KPRL). Non-current liabilities . . . . . . . . . . . . . . . . . . . . .0 Further Group’s share in contingent liabilities and capital commitment of joint controlled entities are as follows: As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Group’s share in contingent liabilities . . . .3 44. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share in net assets . . . . . . . . . . 43. . . . . As at 31 March 2007 2008 2009 US$ million US$ million US$ million 6. . . . . hence considered the provisional value. . . . . . . .6 (27. . The share of revenue. Non-current liabilities . . . . . . . . . . . . . . . . . . .2 — 0. . . . . . . . . . . . . . . .1) 53. . . . . . . . . . . . .1 3. . . . . . . . . . . . . . . . Group’s share in capital commitments . . . . . . . . .7 22. . . . . . . .1) — 0. . . . . . . .7 — 1. — — — 4. . . . . . .6 0. . . . . . . . Non-current assets . . . . . . . . . . . . .0) (4. . . . . . . . . . .6) 26. .1 Net assets . . .5) (3. . . . . which is in the process of setting up coal mines. . . . . .2 — 4. . . . . . . . . . . . .7 258 . . . . . . . . . . . . . . profit. . . . Surplus on acquisition . liabilities and contingent liabilities of KPRL. . . . . . . . . . .3 3. . . . . . . . . . . . . . . . . .1) 29. . .0) (7. . . . .8 0. .2 — — 1. . .Part 11 Financial Information 23. . . . . . . . . . . . . . . The Group also has a 50% interest in Mahan Coal Limited. . Cost of acquisition . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . Profits . . . . . . . . . . . . .3 (13. . . . . . a joint controlled entity in July 2009.1 0. . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . .9 (0. . . . . . . . . . . . . . . .6 — — 0. . . . . . . . . . . . . . . . . . .8 21. . . . . . . . . . .8 19. . which are included in the combined historical financial information are as follows: Share of joint controlled entities’ results for the nine months ended 31 December 2009 US$ million Revenue . . . . . .

. . . . .6 334. . . . . . . . . . Management believes there is a high likelihood that these conditions will be met. . . . . .4 million).0 4. . .6 54. . .9 5. . .3 61. the outcome of which cannot be foreseen at present. . . . . . The effect of discounting (net of the effect of unwinding) is US$nil (2008: US$nil) (2009: US$253. .8 27. .4 91. . In addition to amounts set out above. . . . .1 35. . . . CONTINGENCIES AND COMMITMENTS Contingent liabilities Financial Information Contingent liabilities at the balance sheet date. . . . . amongst other things. . . . . . . not otherwise provided for in the combined historical financial information are categorised as follows: As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million Claims . . . . . . . .6 26. . . . .9 73. adhering to specified pollution control measures and also contributing a certain amount to prescribed rural development scheme in the state of Gujarat by the Group over a period estimated to be up to 13 years to ensure that the full benefit of the sales tax deferral which has been recorded can be retained by the Group. . . . . .8 98. .9 4. . . . .7 124. . . . . The case has not yet been heard by the Hon’ble Supreme Court but the Group believes it has a high likelihood of success. . . * The Group has assumed that certain facilities will be paid at the earliest redemption date after obtaining required consent of the lenders and thus interest charge has been based on applicable early redemption rates. . there are additional contingencies as described below: Sales tax benefit In relation to benefits under the Sales Tax Incentive Scheme. . Contingent liabilities relate predominantly to actual or potential litigation of the Group for which amounts are reasonably assessable but the liability is not probable and therefore the Group has not provided for such amounts in this combined historical financial information. . . . . . . .7 6. . . . . . . . . . . that Essar Oil Limited is eligible for the Sales Tax Incentive Scheme. . . . the payment of sales tax including interest to the State of Gujarat will be accelerated. .4 7. .5 17. . . . . which confirmed. . . . An order was issued by the Hon’ble High Court of Gujarat on 22 April 2008. . . . . . . . Disputed custom duty . . 24. there may be an additional potential liability resulting from a breach of financial covenants as stipulated under the MRA of Essar Oil Limited.Part 11 24. . . . Disputed income and indirect tax Others . . . In the event that such conditions are not met. . . . . Additionally. . Corporate guarantees . . . .2 34. . .9 13. . . . In order to qualify for the Sales Tax Incentive Scheme. . . . . GUVNL.5 — 50. . there are a number of legal claims or potential claims against the Group. As a consequence. . . and for which no amounts have been included in the table above. . . . various conditions must be met including ensuring certain percentages of employees are local. Bank guarantees . . . . .9 Total . .6 329. . . .2 23. . challenging the order of the Hon’ble High Court. . . there is an ongoing dispute surrounding eligibility of Essar Oil Limited to qualify for the Sales Tax Incentive Scheme. . . . This amount represents the additional interest that would have been charged to the income statement in the period if the debt was assumed to run to the maximum term of the loan. . . . . . . . . . . . Interest* . .0 11. . . . . . . . . and there will be an accounting charge to reflect the fact that the liability is discounted. . Subsequently the State Government of Gujarat filed a Special Leave Petition in the Hon’ble Supreme Court. . . . .2 million) (31 December 2009: US$413. . .7 153. . re-investing certain amounts of the benefit. .3 29. .2 66. Claim by customer On 14 September 2005. . . . . . . . . filed a complaint against Essar Power with the Gujarat Electricity Regulatory Commission (the ‘‘GERC’’) alleging that Essar Power 259 . an entity controlled by the state of Gujarat. . .9 52.2 31. . . . . . . . . . .8 48. . . .9 204. .3 313. The amounts relate to a number of actions against the Group. none of which are individually significant. . . . . . . .

6 million) (including interest of US$199. In respect of an insurance claim filed of US$403. the GERC ruled in favour of GUVNL for the diversion of electricity by Power Group. in violation of its power purchase agreement with the Gujarat Electricity Board. (31 December 2009: US$0. depreciation. 260 . The GERC. under certain abnormal conditions. Both Essar Power and GUVNL appealed the GERC’s ruling to the Appellate Tribunal for Electricity. The potential commitment cannot be quantified as it is dependent upon future market conditions including supply volumes and prices. interest on working capital and alleged wrongful deduction of rebate by GUVNL.6 million).0 (as at 31 December 2009) million mainly to cover the interest on the claim amount up to the date of filing the claim before the arbitration panel. The Appellate Tribunal held on 22 February 2010 that Essar Power was not liable to pay compensation for alleged wrongful diversion of power to Essar Steel or for the reimbursement of the annual fixed charges.8 million) (2009: US$345.9 million (2008: US$218.1 million from the Power Group. The amount paid for the year to 31 March 2007 was US$4. interest on debentures. (2008: US$0. Essar Power has made a claim for an aggregate amount of US$84. The amount paid in recent periods of operations under this scheme is not significant. Other claims There are a number of other claims in connection with the Group.8 million). an affiliate of Essar Power. In respect of the outstanding claims. The Company filed an insurance claim against loss of profits and material damage as a result to the incident.3 million). The past advice to the franchisees might have created an obligation to compensate them whenever the supplies are restricted in the future. however. the Group and the Insurer have agreed to settle the dispute by arbitration. foreign exchange variation.1 million). (2009: US$5. ruled that recovery of the incorrectly claimed generation incentives and of compensation for the electricity supplied to Essar Steel in breach of the PPA prior to September 2002 was barred by the applicable statute of limitation. The compensation period was effective from July 2006 and was to be continued until conditions normalised.0 million) (US$171.9 million. GUVNL claimed a total of approximately US$339. Contingent assets In June 1998 a cyclone hit the west coast of India which caused damage to the refinery leading to delays in the construction and commencement of commercial production.4 million comprising delayed payment charges. The arbitration proceedings were initiated during the year and the Group has revised its claim amount to US$647.0 million) (December 2009: US$376. however management believes the probability of future liabilities in respect of such claims is remote and no amounts have been provided or disclosed as contingent liabilities over the reporting period. Essar Oil Limited (‘‘Company’’) wrote to its Petrol station operations (‘‘Franchisees’’) that it will pay certain compensation whenever the company is required to limit the supply of Petrol and High Speed Diesel to the Franchisees or supply at higher prices than the market.3 million (2008: US$439. the Group does not expect to incur costs in excess of amounts provided in defending its position. The Appellate Tribunal further held that Essar Power was liable to refund to GUVNL the deemed generation incentive paid on and after 14 September 2002 which the Group had already provided for. Commitments Petrol station operators In 2006. bill discounting charges. On 29 January 2010 Essar Power filed a petition before the GERC against GUVNL claiming certain payments due to it under the PPA.Part 11 Financial Information diverted electricity generated by its Hazira power plant to Essar Steel. whose assets and liabilities were transferred to GUVNL in 2003 and incorrectly claimed certain fuel generation credits from GUVNL between 1996 and 2006. New Delhi.1 million) (December 2009: US$186. The GERC also awarded GUVNL a refund for generation incentives incorrectly claimed from 14 September 2002 to 29 May 2006. The matter is pending before the GERC. On 18 February 2009.

Part 11 Finance lease—the Group as lessee

Financial Information

The Group has finance leases for various items of buildings and plant and machinery. These leases have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease. Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows:
Minimum lease payments 2007 2008 2009 US$ million US$ million US$ million Present value of minimum lease payments 2007 2008 2009 US$ million US$ million US$ million

At 31 March

Payable less than 1 year . . . . . . . Payable later than 1 year and not later than 5 years . . . . . . . . . . Payable later than 5 years . . . . . . Total . . . . . . . . . . . . . . . . . . . . . Less: Future finance charges . . . . Present value of minimum lease payments . . . . . . . . . . . . . . . .

9.6 36.8 1.6 48.0 (10.6) 37.4

13.7 44.1 20.3 78.1 (27.0) 51.1

11.1 27.9 15.5 54.5 (18.7) 35.8

6.1 29.8 1.5 37.4

10.2 35.2 5.7 51.1

9.1 22.2 4.5 35.8

At 31 December

Minimum lease payments 2009 US$ million

Present value of minimum lease payments 2009 US$ million

Payable less than 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payable later than 1 year and not later than 5 years . . . . . . . . . . . . . . . . Payable later than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Future finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Present value of minimum lease payments . . . . . . . . . . . . . . . . . . . . . . Capital commitments

11.9 20.2 5.7 37.8 (4.7) 33.1

10.4 18.5 4.2 33.1

As at 31 March 2007 2008 2009 US$ million US$ million US$ million

As at 31 December 2009 US$ million

Estimated amount of contracts remaining to be executed on capital account and not provided for . . Export obligations

1,494.7

6,343.9

6,809.3

6,877.2

The Group imports capital goods under Export Promotion Capital Goods Scheme (EPCG) and raw materials under Advance License Scheme to utilise the benefit of zero or concessional customs duty. These benefits are subject to future exports by the Group within stipulated period. The Group has following outstanding export obligations:
As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million

Export obligations . . . . . . . . . . . . . . . . . . . . . . . . . .

1,355.4

1,040.4

150.7

101.5

Based on past performance, market conditions and business plans, the management expects to fulfil the entire export obligation within the stipulated period.

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Financial Information

25. RELATED PARTIES The Group, as discussed in Note 1, has historically been part of the Essar Group and as a result has entered into a number of transactions with other Essar Group entities. The Group shares many functions and services that are performed by various members of the Essar Group and costs are allocated across the relevant entities which have benefited. The costs have been historically allocated on the basis that the Essar Group believes is a reasonable reflection of the utilisation of each service provided or the benefit received by each Essar Group company. The allocated costs, while reasonable, may not necessarily be indicative of the costs that would have been incurred by the Company if it had performed these functions or received these services as a stand-alone entity. Essar Energy and Essar Global Limited have entered into a Relationship Agreement, the principal purpose of which is to ensure that following listing, the Group is capable of carrying on its business independently of EGL and its associates. Balances and transactions between entities within the Group, which are related parties, have been eliminated and are not disclosed in this note. EGL EGL is the ultimate parent company of the Group throughout the historic financial period. The ultimate shareholders of EGL are the Virgo Trust and Triton Trust, discretionary trusts, whose beneficiaries include, among others, companies, whose 100% shareholders are Ravi Ruia and Prashant Ruia. The Group’s balances outstanding with EGL are as follows:
As at 31 March 2007 2008 2009 US$ million US$ million US$ million As at 31 December 2009 US$ million

Outstanding balances

Trade and other receivables . . . . . . . . . . . . . . . . . . . Trade and other payables . . . . . . . . . . . . . . . . . . . . . Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— — —

— 37.7 —

— — 480.7

15.0 2.5 749.8

No significant transactions occurred with EGL during the period those which formed the combined group as described in Note 1 and those set out above. Transactions and balances with entities within the Essar Group The Group had transactions and balances with affiliates, which are related parties by virtue of being controlled by EGL, as follows:
For the year ended 31 March 2007 2008 2009 US$ million US$ million US$ million For the nine month ended 31 December 2008 2009 US$ million US$ million

Transactions with Essar Group companies

Sale of goods and services . . . . . . . . . Purchases of goods and services . . . . . Interest income . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . Purchase of investment . . . . . . . . . . . Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . Sale of investment . . . . . . . . . . . . . . Sale of property, plant and equipment

. . . . .

. . . . .

. . . . .

43.6 145.7 3.8 — — 7.3 — —

99.5 352.0 — 3.2 17.9 6.8 17.9 —

117.8 377.0 0.4 3.5 — 97.0 — 9.5

85.8 274.3 0.2 2.2 — 0.2 — 9.8

112.4 142.4 6.2 5.8 0.1 64.2 3.7 —

... ... ...

262

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Financial Information
As at 31 December 2009 US$ million

Balances with Essar Group companies

As at 31 March 2007 2008 2009 US$ million US$ million US$ million

Trade and other receivables —current . . . . . . . . . . . . . . . . . . . . . . . —non-current . . . . . . . . . . . . . . . . . . . . Amounts due for capital work in progress Trade and other payables —current . . . . . . . . . . . . . . . . . . . . . . . —non-current . . . . . . . . . . . . . . . . . . . . Loans payable—current . . . . . . . . . . . . . Finance lease payable . . . . . . . . . . . . . . Guarantees given* . . . . . . . . . . . . . . . . . Guarantees received** . . . . . . . . . . . . . .
* **

......... ......... ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60.5 9.5 141.3 29.5 — 110.7 — 57.2 633.9

133.5 7.1 195.9 37.1 — 82.1 17.0 69.2 1,467.7

51.3 9.3 128.3 130.7 — 34.1 12.5 53.5 2,129.1

65.9 124.5 158.5 135.2 0.5 97.8 14.9 58.7 2,383.5

The Group has given guarantees for borrowings of related parties. Certain of the Group’s borrowings are the subject of guarantees provided by related parties.

Transactions with joint controlled entities On 31 July 2009, the Group acquired 50% joint control of Kenya Petroleum Limited in Kenya (Note 26). No significant transactions have accrued with this entity in the period since acquisition, and no balances are outstanding. Terms and conditions of transactions with related parties The sales to and purchases from related parties are made on contractually agreed prices. Outstanding balances at the year end are unsecured and bear interest at rates ranging from 0% to 10.25%. The Group has not recorded any impairment of receivables due from related parties. An assessment for impairment of related party receivables is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates. Related party contracts Essar Global Limited and companies in the Essar Group are party to (and following Admission will continue to be a party to) a significant number of arrangements with the Group. The Group will be reliant on the Essar Group for a number of ongoing, and in some cases, long term, arrangements including customer and supply contracts, transport and logistics services, construction and other services in relation to the Expansion Projects and corporate and administrative services. These arrangements between members of the Group and the Essar Group are summarised below. Shared services The Group leases office and other space from certain companies in the Essar Group. In addition, the Group receives certain services from the Essar Group relating to accommodation, telecommunications infrastructure and internet connections, travel and related services (including management and maintenance services for aviation related activities, technical services and ground handling services), treasury functions, management consultancy, maintenance of greenbelt in respect of the Vadinar refinery, technical storage facilities, business centre facilities, managerial support and corporate functions including financial advice, legal advice, and advice on matters related to corporate governance, environmental management, risk and insurance, taxation, aircraft usage and related services, information technology services, payroll processing and other HR services and shared services for accounting activities. The services are generally provided for a period of between three and seven years, terminable by either party on 30 to 180 days’ notice.

263

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Financial Information

Intellectual Property Certain members of the Group have been granted the right to use the ‘Essar’ name for the purposes of their corporate identities and for operating their businesses worldwide. The total amount payable by Essar Energy under the licence agreement is £1. The total amount payable by Essar Oil and Essar Power under their licence agreement is equal to 0.25% of each of their net revenues (i.e. exclusive of value added tax and excise duty in the case of Essar Power, and exclusive of taxes, duties and crude oil cost in the case of Essar Oil) generated by their respective business each quarter, with an increase of 0.15% every year over a period of 5 years until it reaches 1.0%. Power Business Construction projects The power business has a number of contracts with companies in the Essar Group in relation to offshore engineering, construction, procurement, transportation and project management services. In addition, Essar Power Group has entered into an onshore turnkey contract with an Essar Group company for the construction of the transmission system for Essar Power MP Mahan power project. Power Purchase Agreements The Group has entered, and expects to enter into additional, long-term PPAs with companies in the Essar Group. Key contracts in respect of operational power plants include: • • • a PPA expiring in 2026 with Essar Steel Limited for the supply of power from the Essar Power-Hazira power plant to Essar Steel Limited. PPAs expiring in 2030 with a number of companies in the Essar Group for the supply of power from Bhander Power-Hazira power plant. PPAs expiring in 2029 with Essar Steel Algoma Inc. for the supply of all the power produced by the Essar Power Canada power plant.

Key contracts in connection with power plant projects not yet operational include a number of PPAs for the supply of power to Essar Steel Limited and other companies in the Essar Group. These contracts are each for period of 25 from the date of commencement of commercial operations of the plant to supply the power under the PPA. These power plant projects include the Essar Power MP-Mahan project, the Essar Power Hazira-Hazira project, the Essar Power Orissa-Paradip project and Phase II of the Vadinar Power Plant Expansion project. The Group has also issued a number of performance guarantees in favour of Essar Steel and other Essar Group companies in respect of its performance under the PPAs. Water and Fuel Supply Agreements Members of the Group are parties to a number of contracts with members of the Essar Group for the procurement, supply, management and handling of fuel and water needed to generate power. Key contracts in connection with operational power plants include: • The Group has a water and fuel management agreement with Essar Steel (to run concurrently with the Groups PPA with Essar Steel Limited) for the procurement and supply of fuel needed to generate the power that Essar Steel Limited has committed to take from the Essar Power-Hazira power plant pursuant to its PPA; The Group has contracts with Essar Steel Limited and other Essar Companies whereby those companies are responsible for providing the natural gas required by the Bhander Power-Hazira plant, to generate the power that the Essar Group has committed to take pursuant to the respective PPAs; and The Group is party to a contract with Essar Steel Algoma Inc. (expiring in 2029 or such later date as agreed by the parties) pursuant to which surplus blast furnace gases and coke oven gas are supplied by

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Essar Steel Algoma Inc. to the Group in return for power and steam for use at Essar Steel Algoma Inc.’s steelworks. Key contracts in connection with power plant projects not yet fully operational include: • The Group has entered into a number of long term agreements (ranging from 20 to 25 years) for coal supply, coal handling, coal affreightment, to secure the supply of coal to the Essar Power GujaratSalaya power plant and the Essar Power Gujarat-Salaya II project. The Group has entered in to a 15 year water and fuel supply agreement with Essar Steel Hazira the Vadinar power plant expansion project. Under certain agreement the Essar Group has an obligation to provide fuel and water for the power plants and projects at Orissa and Hazira.

• •

Other arrangements Operations and maintenance agreement with Essar Steel Essar Power has agreed to provide operations and maintenance services to Essar Steel for the 25MW power plant of Essar Steel located at Visakhapatnam for a term of 15 years from 1 July 2006. Leases A company within the Group has agreed to lease the site of the Essar Orissa-Paradip power plant from the Essar Group. The lease is required to be entered into by 11 May 2010 and will be for a period of 90 years. Rent payable under the lease will be determined by the parties at the time of execution of the lease. Oil and Gas Business Exploration and Production The Group has contracted with certain Essar Group companies for the hiring of drilling rig services, along with related equipment, personnel, instruments, materials, stores and other services at its various exploration blocks. These expiry dates of these agreements range from 2012 to 2019. The Group has also contracted with certain Essar Group companies to lay gas pipelines for certain engineering and design services. Refinery Expansion Projects In connection with the certain refinery projects, the Group has contracted with various Essar Group companies for engineering services, project management services, project construction, equipment transport and handling services, and the supply of equipment and bulk materials. Certain Essar Group companies are required to provide performance guarantees and corporate guarantees in favour of the Group in relation to each of the contracts for these services. Shipping and logistics The Essar Group provides the Vadinar refinery’s logistical services for transporting refined petroleum products by road from the refinery to various depots and other locations within India, where those products are ultimately sold. The contract relating to the provision of these services expires on 31 March 2017. Petroleum handling The Group has a petroleum handling agreement with an Essar Group company expiring on 31 March 2014, under which the Essar Group provides services for the receipt, handling, storage and dispatch of the Group’s crude oil and intermediate and refined petroleum products. The agreement includes a minimum monthly charge. Further, under the terms of the agreement, the Group supplies all utilities to the Essar Group company, including power, water and steam, at no additional cost.

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Maintenance and supplies The Group has contracted with certain Essar Group companies to provide maintenance services, including technical services and day to day maintenance to their facilities situated at the Vadinar Refinery. Leases The Group leases the site of the Vadinar port terminal operations to an Essar Group company under a 30 year lease (due to expire in December 2025 and renewable by the Essar Group for a further 30 year period) at an annual rent of approximately US$0.1 million. The residential township and transit accommodation, used by employees and visitors of the Petroleum Refinery, are leased by the Group for a period of 20 years at an annual rent of approximately US$3.1 million from a related party of the Essar Group. On expiry of the lease in 2027, the Group has an option to extend the lease under mutually agreed terms and conditions. Sales tax liability assignment The Group receives certain sales tax incentives as described in Note 24. In connection with this arrangement, the Group has assigned its liability for the sales tax collected during the three years ended 31 December 2009 to a related party of the Essar Group and has paid the present value in relation to such liability to that entity. Remuneration of Directors and key-management personnel The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
For the year ended 31 March 2007 2008 2009 US$ million US$ million US$ million For the nine month ended 31 December 2008 2009 US$ million US$ million

Short-term employee benefits Post-employment benefits . . . Other long-term benefits . . . . Termination benefits . . . . . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

. . . .

0.5 — — — 0.5

0.7 0.1 — — 0.8

0.4 — 0.1 — 0.5

0.5 0.1 — — 0.6

0.3 — 0.1 — 0.4

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26. ENTITIES INCLUDED FOR COMBINATION
% Voting held by the Group As at As at 31 March 31 December 2007 2008 2009 2009 100.0 100.0 72.9 100.0 — — — — — — 100.0 100.0 100.0 100.0 — — 100.0 — 100.0 — — NA 100.0 100.0 91.8 100.0 100.0 76.1 100.0 100.0 100.0 — — — — 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 NA 100.0 100.0 91.8 100.0 100.0 76.7 100.0 100.0 100.0 — — — — 100.0 100.0 100.0 100.0 100.0 100.0 100.0 NA NA 100.0 100.0 100.0 100.0 100.0 93.9 100.0 100.0 76.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 NA NA 100.0 100.0 100.0 100.0 100.0 NA economic % held by the Group As at As at 31 March 31 December 2007 2008 2009 2009 100.0 100.0 72.9 72.9 — — — — — — 100.0 100.0 100.0 100.0 — — 100.0 — 100.0 — — NA 100.0 100.0 91.8 100.0 100.0 76.1 76.1 76.1 76.1 — — — — 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 NA 100.0 100.0 91.8 100.0 100.0 76.7 71.2 76.7 76.7 — — — — 100.0 100.0 100.0 100.0 100.0 100.0 100.0 NA NA 100.0 100.0 100.0 100.0 100.0 93.9 100.0 100.0 76.7 68.9 76.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 NA NA 100.0 100.0 100.0 100.0 100.0 NA

# 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Company Energy entities Essar Energy Holdings Limited . . . . . . . . . . . . . . . . . Vadinar Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Essar Oil Limited(a) . . . . . . . . . . . . . . . . . . . . . . . . Vadinar Power Company Limited . . . . . . . . . . . . . . . Essar Oil Vadinar Limited . . . . . . . . . . . . . . . . . . . . Essar Energy Overseas Ltd . . . . . . . . . . . . . . . . . . . Essar Petroleum (East Africa) Limited . . . . . . . . . . . . Essar Oil (UK) Limited . . . . . . . . . . . . . . . . . . . . . Essar Oil Germany GmbH: . . . . . . . . . . . . . . . . . . . Essar Oil Stanlow Limited . . . . . . . . . . . . . . . . . . . . Essar Syngas Limited(b) . . . . . . . . . . . . . . . . . . . . . . Essar Infrastructure Africa Limited . . . . . . . . . . . . . . Essar Chemicals Limited . . . . . . . . . . . . . . . . . . . . . Essar Gujarat Petrochemicals Limited . . . . . . . . . . . . . Essar Arkema Chemicals Holdings Limited(b) . . . . . . . . Essar Eastman Chemicals Holdings Limited(b) . . . . . . . . Essar Exploration and Production Limited . . . . . . . . . . Essar Exploration and Production Bengal Limited(c) . . . . Essar Exploration and Production Gujarat Limited(c) . . . Essar Exploration & Production Limited . . . . . . . . . . . Essar Exploration and Production India Limited . . . . . . Essar Exploration and Production Madagascar Limited(b)

Country of Incorporation

Principal activities

. Mauritius Investment holding . Mauritius Investment holding . India Refinery . India Captive power plant . India Refinery . Mauritius Investment holding . Kenya Marketing and trading . United Kingdom Investment holding . Germany Investment holding . United Kingdom Investment holding . Mauritius Investment holding . Nigeria Investment holding . Mauritius Investment holding . India Petrochemical . Mauritius Investment holding . Mauritius Investment holding . Mauritius Exploration and Production . Mauritius Exploration and Production . Mauritius Exploration and Production . Nigeria Exploration and Production . India Exploration and Production . Madagascar Exploration and Production Mauritius Mauritius India Investment holding Investment holding Investment holding

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Part 11 Financial Information

Power entities 23 Essar Power Holdings Ltd . . . . . . . . . . . . . . . . . . . . . 24 Hazira Steel 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ETHL Global Capital Limited(b) . . . . . . . . . . . . . . . . .

Part 11 Financial Information

# 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 (a) (b) (c) (d) (e) (f)

Company Algoma Power Cooperatief U.A. . . . . . . . . . . . . . . . Algoma Power B.V. . . . . . . . . . . . . . . . . . . . . . . . Essar Power Canada Limited . . . . . . . . . . . . . . . . . Essar Power Limited(d) . . . . . . . . . . . . . . . . . . . . . Essar Power Overseas Limited . . . . . . . . . . . . . . . . Essar Power Transmission Company Limited . . . . . . . Essar Power (Jharkhand) Limited . . . . . . . . . . . . . . Essar Power Chhattisgarh Limited . . . . . . . . . . . . . . Essar Power Hazira Limited . . . . . . . . . . . . . . . . . . Essar Power MP Limited . . . . . . . . . . . . . . . . . . . . Essar Power Gujarat Limited . . . . . . . . . . . . . . . . . Essar Wind Power Private Limited . . . . . . . . . . . . . . Essar Power (Orissa) Limited(f) . . . . . . . . . . . . . . . . Essar Power Tamil Nadu Limited . . . . . . . . . . . . . . . Essar Electric Power Development Corporation Limited Bhander Power Limited(e) . . . . . . . . . . . . . . . . . . . Essar Power Salaya Limited . . . . . . . . . . . . . . . . . . Main Street 736 (Proprietary) Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Country of Incorporation Dutch Dutch Canada India BVI India India India India India India India India India India India India South Africa

Principal activities Investment holding Investment holding Investment holding Power plant Investment holding Power transmission Power plant Power plant Power plant Power plant Power plant Wind turbine Power plant Power plant Power trading Power plant Power plant Investment holding

% Voting held by the Group As at As at 31 March 31 December 2007 2008 2009 2009 N/A N/A N/A 63.7 100.0 100.0 100.0 — 100.0 100.0 NA 100.0 100.0 100.0 100.0 72.2 N/A N/A 100.0 100.0 100.0 66.2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 74.0 N/A N/A 100.0 100.0 100.0 66.2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 74.0 N/A N/A 100.0 100.0 100.0 66.2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 74.00 100.0 100.0 74.0 100.0 100.0

economic % held by the Group As at As at 31 March 31 December 2007 2008 2009 2009 N/A N/A N/A 62.0 62.0 62.0 62.0 — 62.0 62.0 — 100.0 100.0 100.0 61.9 44.8 N/A N/A 100.0 100.0 100.0 64.6 64.6 64.6 64.6 64.6 64.6 64.6 96.1 100.0 100.0 100.0 64.6 47.8 N/A N/A 100.0 100.0 100.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 48.1 N/A N/A 100.0 100.0 100.0 66.2 66.2 66.2 66.2 66.2 66.2 66.2 66.2 66.2 49.0 66.2 66.2 49.0 66.2 100.0

268

2.9% (2008: 2.8%) (2009: 8.6%) (December 2009: 8.6%) held by subsidiaries of Essar Group outside Essar Energy under liquidation Merged with Essar Exploration and Production Limited, Mauritius 36.3% (2008: 33.8%) (2009: 33.8%) (December 2009: 33.8%) held by subsidiary of Essar Group outside Essar Energy 27.8% (2008: 26.0%) (2009: 26.0%) (December 2009: 26.0%) held by subsidiary of Essar Group outside Essar Energy As at 31 December 2009, 26.0% held by subsidiaries of Essar Group outside Essar Energy

Part 11 27. SUBSEQUENT EVENTS Reorganisation of the Group prior to listing Gifting of the Power and Energy Group to the Company

Financial Information

Prior to listing, the Group undertook a reorganisation to bring together the Power and Energy Group under the holding of the Company. These businesses were previously held by the Essar Group. The following transactions were undertaken: (i) Energy Group—on 27 April 2010 EEHL gifted all of its shares in Vadinar Oil to the Company, followed by the gift by EGL of all of its shares in EEHL to Vadinar Oil; and (ii) Power Group—on 27 April 2010, EGL gifted all of its shares in EPHL to the Company. The above reorganisation did not resulted in any change of control of the Power and Energy Group by EGL. On 6 April 2010 the Company changed its name from Goliath I Limited to Essar Energy Limited. On 16 April 2010 the Company re-registered as a public company with the name Essar Energy plc. Capitalisation of Group For the purpose of capitalisation of the Group the following transactions were undertaken: (i) EPHL and EEHL refunded share application money to EGL; (ii) EGL injected the share application money into the Company in exchange for equity; and (iii) the Company injected the share application money back into EPHL and EEHL in exchange for equity. Reduction of minority interest Certain steps were undertaken to reduce minority interest in the Power and Energy Group held by other entities of the Essar Group. Interest of approximately 8.66% in EOL was transferred to the Group from other Essar Group companies, leaving a minority interest of 14.68%. Further, on 27 April 2010, EOL issued Global Depository Shares to EEHL on a preferential basis, which has resulted in the Company’s economic holding in EOL increasing by 1.07%. By Admission, after completion of all reorganisation steps, the Company’s economic interest in EOL was 86.39%. Similarly, the Group’s interest in EPOL was increased to 74.0%. EPHL converted part of its convertible preference shares in EPOL into equity shares, which increased its direct holding to 54.5%. Transfer of Myanmar block to the Essar Group The Group’s 100% holding in Essar Exploration & Production South East Asia Limited (the company holding the Myanmar blocks) was transferred to the Essar Group for nil consideration. As described in Note 1, this company has been excluded from the combined historical financial information. American Express Banks Ltd. Settlement In March 2010 Essar Oil Limited negotiated and settled a borrowing of US$73.0 million (including interest) which was due to be restructured under the terms of the MRA agreement. The Group was able to settle for an amount of US$63.0 million resulting in a gain of US$10.0 million. Acquisitions Overseas Coal Blocks Essar Energy is currently in the process of acquiring coal mines in selected overseas regions. Essar Recursos de Minerais de Mozambique Ltd, an Essar Affiliated Company holds a coal licence in the Cambulatsitsi area near Tete, Mozambique. Based on an initial exploration of the area, the mines were independently estimated to contain resources of approximately 35 mmt of mineable reserves. In addition, Essar Group has entered into a memorandum of understanding with CCFB (consortium of CFM-RITES-

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IRCON) for transporting the coal to Beira port. Essar Energy has executed a definitive share purchase agreement to acquire the entire equity stake (including the existing shareholders’ loan) in Essar Recursos de Minerais de Mozambique Ltd by Essar Power & Minerals S.A. Ltd and Essar Power Overseas Ltd, BVI for approximately US$30 million. In April 2010, Essar Energy also acquired a 100% interest in approximately 5,000 hectares of mining area, located in the West Kutai region of East Kalimantan, Indonesia. The mines have had a Joint Ore Reserves Committee compliant resource assessment which estimates the block contains approximately 64 mmt of mineable reserves with an annual potential production of 4 mmt of coal with an average gross calorific value of 5,400 to 5,500 Kcal/kg. It is expected that production will begin in the second or third quarter of 2011. Essar Energy has also executed an agreement to provide a loan facility to Essar Minerals FZE to fund acquisition and development costs of the Indonesian mines. The transfer of shares to Essar Energy is underway.

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PART 12 UNAUDITED PRO FORMA FINANCIAL INFORMATION Section A—Unaudited Pro Forma Statement of Net Assets The unaudited combined pro forma statement of net assets set out below has been prepared to illustrate the effects of the Offer, being the receipt of the net proceeds of the Global Offer, on the net assets of the Group (as defined in the historical financial information in Part 11 of this document), had the Global Offer taken place on 31 December 2009. The pro forma net assets statement is based on the audited historical financial information of the Company for the nine month period ended 31 December 2009 contained in Part 11 of the Prospectus and has been prepared in a manner consistent with the accounting policies adopted by the Company in preparing such information. The unaudited combined pro forma statement of net assets has been prepared for illustrative purposes only, and by its nature addresses a hypothetical situation and, therefore, does not reflect the Company’s actual financial position or results. The unaudited consolidated pro forma statement of net assets is compiled on the basis set out in the notes below and in accordance with the requirements of item 20.2 of Annex I and items 1 to 6 of Annex II to the Prospectus Rules. No account has been taken of any results or other activity since 31 December 2009.

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Unaudited Pro Forma Financial Information

Unaudited combined pro forma statement of net assets as of 31 December 2009
Historical combined net assets as at 31 December 2009 Adjustments Performa combined Net proceeds net assets as at from the 31 December Offer 2009 US$ million

Non-current assets Goodwill . . . . . . . . . . . . . . . Other intangible assets . . . . . Property, plant and equipment Investments in joint controlled Trade and other receivables . . Other financial assets . . . . . . Deferred tax assets . . . . . . . . Current assets Inventories . . . . . . . . . . . . . . Trade and other receivables . . Available for sale investments Other financial assets . . . . . . Derivative financial assets . . . Cash and cash equivalents . . .

...... ...... ...... entities ...... ...... ......

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. . . . . . .

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127.5 56.6 5,453.9 29.0 194.4 18.5 0.4 5,880.3 864.2 859.1