Essar Ar2012

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Essar Energy Annual Report 2012

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Contents Company Overview 01 Highlights 15 months to 31 March 2012 02 Essar Energy at a glance 04 Chairmans statement 06 Chief Executive Ofcers review Business Review 08 Market overview 10 Our strategy and business model 12 Our strategy in action 13 Key performance indicators 14 Operating review 14 Rening and Marketing India 18 Rening and Marketing UK 22 Exploration and Production 24 Power 28 Corporate responsibility 32 Principal risks and uncertainties 38 Financial review Governance 48 Board of Directors 50 Senior Management team 52 Directors report 57 Corporate governance report 65 Remuneration report 71 Statement of Directors responsibilities Financial Statements 72 Independent auditors report 74 Consolidated income statement 74 Consolidated statement of comprehensive income 75 Consolidated balance sheet 76 Consolidated statement of changes inequity 78 Consolidated statement of cash ows 80 Notes to the consolidated nancial statements 135 Company balance sheet 136 Company statement of changes in equity 137 Company statement of cash ows 138 Notes to the company nancial statements 142 143 144 145 148 Appendix 1 Appendix 2 Appendix 3 Glossary Shareholder information page
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Energising India
Essar Energy plc Annual Report and accounts 2012
Company overview
Objective
Essar Energys strategy remains clear; to create a world-class, low cost integrated energy company, positioned to capitalise on Indias rapidly growing energy demand. Our portfolio includes operations and growth projects in the areas of rening and marketing, exploration and production and power generation and transmission. Since January 2011, we have completed approaching US$4 billion of growth projects across rening and power generation which positions us to deliver a signicant increase in cash ows in future years.
Company overview
01
Highlights
15 months to 31 March 2012
C O M PA N Y OVERVIEW
Group highlights Solid operating performance across rening and power Vadinar phase I renery expansion commissioned 380 MW of new power capacity commissioned Current capital expenditure cycle coming to an end Focus moving to asset optimisation and cash generation
Group Financial highlights Revenue1 (15 months) increased to US$22.0 billion (2010(12 months): US$10.0 billion) Operational EBITDA1,2 (15 months) decreased to US$696.2million (2010 (12 months): US$718.9 million) Capex (15 months) increased to US$2,760.6 million (2010(12 months): US$2,732.3 million) Loss before tax (15 months) of US$1,147.7 million after US$1,276.7 million of exceptional items (2010 Prot before tax (12 months): US$365.5 million)
1 Including sales tax benet but before its subsequent reversal. 2 See pages 40 and 41 for analysis ofOperational EBITDA.
BUSINESS REVIEW GOVERNANCE FINANCIAL S TAT E M E N T S
Oil and Gas Rening and Marketing India See p14 Vadinar renery is Indias second largest private renery Throughput (15 months) 17.1mmt/125 mmbbl (2010: 14.7 mmt/107.2 mmbbl) Renery phase 1 expansion project completed Capacity enhanced from 14 mmtpa to 18 mmtpa Complexity improved from 6.1 to 11.8
Oil and Gas Rening and Marketing UK See p18 Stanlow renery acquisition completed on 31 July 2011 US$350 million purchaseprice High quality, large scale renery located in north west England 6.8 mmt/51.3 mmbbl throughput for eight month period of ownership Integration complete 100day plan identied opportunities to signicantly increase margins
Oil and Gas Exploration and Production See p22 Sharp uplift in 2P and 2C resources to 209 mmboe from 150 mmboe Current test production at Raniganj c.25,000 scm/d Peak production from Raniganj of c.3.0 mmscm/d in 2014
Power Generation and Transmission See p24 93 to 99% power plant availability Vadinar P1 (380 MW) commissioned Capacity to increase to 4,510 MW by end of March 2013 and 6,700 MW by end of March 2014 Go/No-Go concept on coal blocks removed clearing way to develop captive coal mines
Company Overview > 01 Highlights 15 months to 31 March 2012 > 02 Essar Energy at a glance > 04 Chairmans statement > 06 Chief Executive Ofcers review Business Review > 08 Market overview > 10 Our strategy and business model > 12 Our strategy in action > 13 Key performance indicators > 14 Operating review > 14 Rening and Marketing India > 18 Rening and Marketing UK > 22 Exploration and Production > 24 Power > 28 Corporate responsibility > 32 Principal risks and uncertainties > 38 Financial review
Governance > 48 Board of Directors > 50 Senior Management team > 52 Directors report > 57 Corporate governance report > 65 Remuneration report > 71 Statement of Directors responsibilities Financial Statements > 72 Independent auditors report > 74 Consolidated income statement > 74 Consolidated statement of comprehensive income > 75 Consolidated balance sheet > 76 Consolidated statement of changes in equity > 78 Consolidated statement of cash ows > 80 Notes to the consolidated nancial statements > 135 Company balance sheet > 136 Company statement of changes in equity > 137 Company statement of cash ows > 138 Notes to the company nancial statements
> 142 > 143 > 144 > 145 > 148
Appendix 1 Appendix 2 Appendix 3 Glossary Shareholder information page
02
Company overview
Essar Energy at a glance
The Companys strategy is clear; to create a world-class, low cost Indian energy company, positioned to capitalise on Indias rapidly growing energy demand. While the focus is on India, Essar Energy will also pursue opportunities overseas which support our strategy and deliver value toshareholders.
+ Power
13 15 14 1 2 8 18 19 20 12 11 16 10 3 5 41 9 29 24 17 26 21 25 22 23 27 28 6 7
Captive projects 11. Hazira 12. Bhander 13. Vadinar 14. Vadinar PI 15. Vadinar PII 16. Hazira II 17. Paradip
515 MW 500 MW 120 MW 380 MW 510 MW 270 MW 120 MW
Imported coal projects 18. Salaya 1,200 MW 19. Salaya II 1,320 MW 20. Salaya III 600 MW
+ Rening and Marketing

2. 3. 4. 5. 6. 7. 8. 9. 10. Mehsana Oil Block Ratna/R Series Assam Oil Blocks Mumbai Offshore Raniganj CBM Rajmahal CBM Sohagpur CBM Talchir CBM IB Valley CBM
1. Vadinar renery 20 mmtpa
+ Exploration and Production
Domestic coal projects 21. Mahan I 1,200 MW 22. Tori I 1,200 MW 23. Tori II 600 MW 24. Navabharat I 1,050 MW
+ Coal Mines
25. Mahan Coal Block 73 mmt 26. Amelia Coal Block 50 mmt 27. Ashok Karkata Coal Block 100 mmt 28. Chakla Coal Block 71 mmt 29. Rampia Coal Block 112 mmt
30 36 39
41
International Assets 30. Stanlow renery, UK 31. Kenya renery 32. Block 114, Vietnam 33. South East Tungal Block, Indonesia 34. OPL 226 Block, Nigeria 35. Madagascar Blocks 36. Algoma Power Plant 85 MW 37. Aries Coal Block 64 mmt 38. Mozambique Coal Block 35 mmt 39. Registered Ofce, London 40. Head Ofce, Mauritius 41. India Ofce, Mumbai
34 31
32 37 33 38 35 40
03
Oil and Gas Rening and Marketing India

See p14
The Vadinar renery had a throughput capacity of 17.1 mmtpa in the 15 months ended 31 March 2012. Having completed its phase 1 expansion (March 2012) and optimisation (June 2012) projects, it is now Indias second largest single-location renery, with an annual capacity of 20 mmtpa, or 405,000 bpd, up from
14.7mmtpa/300,000 bpd previously, anda complexity of 11.8, up from 6.1 previously. This puts the Vadinar renery amongst the most complex reneries in the world. The Vadinar renery can now process a heavier crude diet and produce higher value, high-quality products, which will lead to increased rening margins.
BUSINESS REVIEW GOVERNANCE
Oil and Gas Rening and Marketing UK

See p18
The acquisition of the Stanlow renery, 14 mmtpa capacity, was completed on31July 2011. The acquisition price was US$350 million payable in two instalments. The Stanlow renery is a 100% subsidiary of Essar Energy and is the second largest renery in the UK
supplying around 15% of transport fuels in the UK. Stanlow is strategically located in the industrial heartland of north west England with excellent infrastructure links through port, pipeline androad.
FINANCIAL S TAT E M E N T S
Oil and Gas Exploration and Production

See p22
Essar Energy has a diverse portfolio of 15 blocks and elds for the exploration and production of oil and gas in India and overseas. The Company has net 2P (proven and probable reserves) and 2C (contingent resources) of 209 mmboe, best estimate prospective resources of929 mmboe and an unrisked in-place resource base of 971 mmboe.
OurExploration and Production focus is moving towards CBM where Essar Energy is the leading player in India with 2,733 square kilometres of acreage and more than 10tcf of reserves and resources across ve CBM blocks.
Power Generation and Transmission

See p24
Essar Energy has ve operational power plants in India and one in Algoma, Canada, with a total installed capacity of 2,800 MW. This capacity is increasing to 4,510 MW by the end of March 2013 and
to 6,700 MW by the end of March 2014. Essar Energy also has access to approximately 500 mmt of coal resources across seven coal blocks inIndia andoverseas.
04
Company overview
Chairmans statement
If India is to meet its 12th Five Year Plan target of 9% GDP growth each year from 2012 to 2017, then this will require energy supplies to grow at a rate of between 6.5% and 7% per year, which is above the rates of the last ve years.
Introduction Welcome to Essar Energys annual report for 201112. Following on from a positive rst year as a listed company in 2010, the 201112 period has been more mixed. In some areas we have made excellent progress, notably in our oil business with the completion in March this year of the phase 1 expansion of our agship Vadinar renery, which is now a world class plant producing high value fuels to international and Indian specications. However, there have alsobeen a number of challenges, particularly inthe Indian power sector. Essar Energy and other power companies across India have been impacted by delays in obtaining regulatory approvals, particularly in relation to approvals for coal blocks. Furthermore, near the end of the nancial period, Essar Oil was also affected by the loss of the Gujarat deferred sales tax case in the Indian Supreme Court. These factors coupled with a highly volatile market led to a sharp fall of the share price in the March 2012 nancial period.
05
Despite this, including the ongoing challenges surrounding sales tax we are looking forward witha positive outlook and are ready to deliver the fullpotential of your company. One of the reasons for optimism is theoutlook for the Indian economy. Notwithstanding the recent policy impasse and adverse macro economic factors, over the last Five Year Plan, the Indian economy has grown around 35%, pulling many people out of poverty and increasing the wealth of the middle classes. As more and more people in India see pathways opening up to a better way of life, they want to improve their living conditions and fundamental to this is the provision of energy; be that petroleum products for cars and other transportation or electricity for lighting and household goods. Demand is rising rapidly and the provision of petroleum products and electricity to the Indian market is central to what we do and why I am so condent in our business model (see pages 10 and 11). If India is to meet its 12th Five Year Plan target of 9% GDP growth each year from 2012 to 2017, then according to Indias Planning Commission, this will require energy supplies to grow at a rate of between 6.5% and 7% per year, which isabove the rates of the last ve years. Longer term, India is very well placed inhaving a young population, not onlyin comparison to advanced economies, but also in relation to the large developing countries of China and Brazil. As a result, the labour force is expected to increase by around 30% and the urban population is expected to increase from around 31% today to over 40%, both over the next 20 years. Strategy As a result, our strategy remains unchanged; to create a world-class, low-cost, integrated energy company focused on India and positioned to capitalise on Indias growing energy demand. We will only look outside of India for two reasons; rst to secure upstream resources, which is mainly applicable to the coal required for our
Indian power stations, and second, to secure market access, which applies to our reneries in Kenya and the UK. In pursuit of this strategy, in July 2011 wecompleted the acquisition of the Stanlow renery in the UK. This high quality renery, which has a capacity of 296,000 bpd and supplies around 15% of transport fuels in the UK, gives us options to bring high quality product from India tothe UK and European markets. In addition, the acquisition costof just US$350 million was very competitive when compared to other similar transactions in Europe over the last three years. In recent years, Stanlow has suffered from a lack of investment, but we see tremendous scope to improve the performance and protability of this asset and we areimplementing a plan developed duringour rst 100 days of ownership todeliver this. Given the issues we have been facing inthe power business recently, together with the loss of the sales tax case, we have decided to focus in the near term on managing risk more effectively and look to ensure the delivery of our current suite of growth projects before we start to reinvest in the portfolio. This does not signal a lack of condence in the India growth story, but rather a short-term adjustment to the current marketrealities. Board governance The Company has adopted the principles of the new UK Corporate Governance Code and has only departed from such principles in a small number of instances where the Board has considered that good governance can be achieved by other means which are preferable for the Essar Energy business. Our Nomination and Governance Committee keeps key governance matters under review onaregular basis. Following a telecom investigation in Indiarelating to the equity holding of the Essar Group in Loop Telecom, Mr Ravi Ruia decided to step aside from the Chairmanship of Essar Energy. While
these charges do not relate to Essar Energy and are not expected to have any impact on Essar Energys business operations, Mr. Ravi Ruia decided to step down from the Chairmanship as agood governance measure and to ensure that the Board and management of Essar Energy continue to be fully focussed on successfully delivering against their laid out strategy. The EssarGroup has always been open, transparent and law abiding, and I am condent that these charges will be dismissed by the courts in India. On 29 March 2012 we appointed SteveLucas as a fth Independent Non-Executive Director to the Board of Essar Energy. Steve brings a wealth of experience to the Board, particularly in the areas of power and nance given his background as the Finance Director of National Grid from 2002 to 2010. This move further strengthens the experience and independence of ourBoard. People Our strategy is based on building world-class assets, but this cannot beachieved without the people to construct, operate and manage these assets. As I visit the different parts of our business, I am always impressed by the quality of the people that we have within Essar. Last year, we welcomed 1,007 new colleagues into the Essar family through the acquisition of the Stanlow renery. Despite having very different backgrounds, I have been very impressed with how quickly Stanlow has been integrated into Essar Energy and we are already seeing the benets of some real knowledge sharing between our UK and Indian operations. Much of the credit for this must go to Naresh Nayyar and his Senior Management team. He continues to develop and grow the talent within the organisation and on your behalf, the Board would like to thank him and the entire Essar Energy team for the contribution they have made this year. Prashant Ruia Chairman 22 June 2012
C O M PA N Y OVERVIEW BUSINESS REVIEW GOVERNANCE FINANCIAL S TAT E M E N T S
06
Company overview
Chief Executive Ofcers review

On 31 July 2011, we completed the acquisition of the Stanlow renery which supplies approximately 15% of transport fuels in the UK. This is a good quality asset witha mid complexity of 8.2 and is strategically located near Manchester to supply north west and central England. The acquisition cost, at US$350 million, is very competitive when compared to similar transactions completed over the last three years. Since the acquisition, the operating performance has been in line with expectations processing 51 million barrels of oil in the rst eight months ofownership. More importantly, we completed our 100 day plan post acquisition and have identied a number of opportunities to improve the renery which should deliver a minimum US$2/ barrel to the GRMs, or US$150 million of additional EBITDA, by the end of 2013. Delivery of these improvements will ensure that Stanlow is positioned to becash ow positive in even the worst market conditions, such as those that we saw in Europe in the last quarter of2011. In Power, we saw strong availability across our portfolio with each plant being available more than 93% of the time. Actual power generation was slightly lower than last year (adjusted for the 15 month period) mainly due to high gas prices leading to reduced demand from our customers offset by the commissioning of the Vadinar Phase 1 380 MW co-generation plant in Gujarat,India. Financial results: Impacted by external factors Earlier this year, we decided to move ournancial reporting to a March year end to bring our reporting into line with the Indian tax year. As a result, we are reporting a 15 month period for this setof annual results. Despite our solid operating performance, we are reporting a loss before tax of US$1,147.7 million, mainly as a result ofthree critical factors. First, as a result of us losing the sales tax benet case in the Supreme Court of India which resulted in the reversal of the entire sales tax benet revenue previously recognised of US$1,053.7 million together with other related adjustments (see Note 8a for further details). Second, as a result of the lapse of a prepayment option on Essar Oils MRA loans, which has resulted in a non-cash charge of US$321.5 million
The completion of our Vadinar renery now puts this asset amongst the best in the world in terms of scale and complexity.
The nancial year 201112 provided anumber of challenges for your company. Increased ination fed through to higher interest rates, we saw a slowdown in the receipt of regulatory approvals and in January of this year we lost our sales tax case in the Indian Supreme Court which removed a signicant scal benet. Despite these challenges, our operations performed well and we made good progress on our growth projects. Solid operating performance During the year, we saw a strong operating performance across our rening and power portfolios. The Vadinar renery in India continues to perform well with production broadly at on last year, after adjusting for the 35 day outage in September and October for routine maintenance and to tie in the new expansion units for the phase 1 expansion. In total we processed 125 million barrels of oil through Vadinar in the 15 month period. Operating costs remain very competitive at just US$3/ barrel, including marketing and distribution costs.
07
(see Note 8b for further details). And third, during the nancial year, the Indian Rupee depreciated sharply by 14% resulting in foreign exchange losses of US$316.9 million (see Note 7 for further details). Excluding the impact of these factors, prot before tax for the year wasUS$445.9 million. The loss of the sales tax benet case inparticular has led us to place more focus on debt and funding in the eventthat we receive a demand for immediate repayment and interest thereon on the deferred sales tax liability or we are unable to reach anacceptable deferred repayment schedule. We are currently in the advanced stages of establishing a newc.US$1 billion debt facility with ourIndian lenders to potentially fund the sales tax liability, as well as pursuing funding options with other lenders toimprove liquidity. As our projects commission, our focus will move to delivering the promised cash ows and reducing debt levels. Growth projects: Capex cycle coming to an end We continued to execute our signicant pipeline of growth projects during the 15 months to March 2012, investing a total of US$2.8 billion across our oil and gas and power projects. In Rening, I am pleased to report the completion of the phase 1 expansion ofour Vadinar renery and, post year end, the completion of the renery optimisation project, which now puts this asset amongst the best in the world in terms of scale and complexity. The expanded renery now has a capacity of 20 mmtpa or 405,000 bpd and a complexity of 11.8. The increased complexity in particular will allow us tosignicantly enhance our renery margins as we can process a much heavier, and hence cheaper, crude dietand produce a higher proportion ofmore valuable middle and light distillates. I expect to see a signicant uplift in the cash ow and protability ofthis asset during this current year. In Power, we commissioned the 380 MW Vadinar P1 gas red co-generation project and post year end have commissioned the 1,200 MW Salaya I coal red power project. Salaya I is the rst coal red plant that the Company has built and commissioned and triggers a string of coal projects that
willcomplete over the next two years totake our total generation capacity to 6,700 MW by the end of March 2014 from 2,800 MW today. We are condent of delivering on this target. One of the disappointments this year however, has been the continued delays to regulatory approvals in India and elsewhere. In particular, this has impacted our ability to develop our captive coal blocks and current coal shortages in India increase the risks of us having to run the plant that we are commissioning at lower load factors than planned. We were encouraged in January by the Prime Minister of Indias intervention in the power sector to resolve all major issues, and that we received in June provisional forest clearance for our Mahan coal block. However, delays to approvals will still impact the Mahan (1,200 MW) and Tori (1,800 MW) power projects which are due to commission in the near term. Asa result, we are putting in place contingency plans to ensure that we have sufcient coal at these power stations to cover, as a minimum, all ofour cash costs until our own mines areoperating. Given ongoing regulatory delays, wehave also decided to defer three ofour construction projects; Salaya II (1,320 MW), Salaya III (600 MW) and Navabharat I (1,050 MW). This is very disappointing given the unquestionable demand for power in India, but we believe this to be a prudent decision to allow us to manage risk and focus on those power projects which will provide more certain cash ows and protability. The deferred projects will now only proceed against specic milestones related to land and environmental approvals and us securing the necessary fuel supplies. Completion of the Vadinar renery optimisation project brings to an end the current capital expenditure cycle in the rening business and we expect the capital expenditure cycle in power to ramp down over the next two years. The focus will then move to ensuring that all assets operate to expectations, that we secure the necessary feed stock and start to deliver the promised cash ow and protability. Health and safety The number one priority for our business remains to enable our employees to
operate in a healthy andsafe working environment. Our employees have embraced our values in this area and wecontinue to be recognised externally for our health and safety practices. As at31March 2012, our Vadinar renery operations crossed 1,460LTI free days and our Power operations at Hazira crossed 3,584 LTI free days. I am pleased to report that Stanlow also has an excellent safety record having now passed 794 LTI freedays as at 31March 2012, which is particularly pleasing asthis covers the handover and integration period. I was particularly impressed this year by the safety performance during the Vadinar renerys 35 day shut-down for routine maintenance and to tie-in all of the new units and revamp other units for the expansion project. In total, 2,492 maintenance and inspection jobs and over 1,600 tie-in jobs for the new and revamped units were completed involving some 15,000 employees andcontractors on site. All of these jobs were completed without any accidents or injuries and the overall project was delivered to the original 35day schedule. This was a signicant achievement in itself, but the overriding commitment to complete the work safely was excellent. While maintaining an excellent safety record at our operations, our focus for improvement continues to be at our under construction projects where thereis clear room for improvement. The health and safety of our employees and the communities where we operate is a priority for our Company and is important to me personally as well as the entire Senior Management team. The Company has a clear strategy inplace to capitalise on Indias rapidly growing energy demand. While we are making clear progress in certain areas, head winds remain in others, particularly in relation to regulatory approvals and the development of our coal mines. As aresult, we are adjusting our focus to complete our current growth projects and then focus on our operations to deliver to expectations. Naresh Nayyar Chief Executive Ofcer 22 June 2012
08
Business review
Market overview
Indian energy demand growth remains high
Economic outlook Despite a recent slowdown in GDP growth rates, India is expected to deliver high growth rates inthe future. The Reserve Bank of Indias quarterly survey of professional forecasters in March 2012 showed a downwards revision of expectations for real GDP growth for the current scal year 201213 to 7.2% from 7.3% in their previous survey. Forecasts for agriculture and services remained unchanged at 3.0% and 8.8% respectively, whereas industry growth isexpected to be in the range of 5.5%to 5.8%. Over the scal year to March 2012, Indian GDP growth slowed to 6.5%, including 5.3% in the nal quarter, compared with 8.4% in the previous year 201011. Most of this fall was due to the industrial sector, with the index ofindustrial production growing by just 2.8% at the end of the scal year to March, against 8.2% the previous year while mining fell to a negative (1.9%) against 5.2% growth the previous year.
Indian Government continuing growthagenda
India targeting 9% annual GDP growth from 201217 (12th Five Year Plan) India targeting US$1 trillion of infrastructure investment to include 75,000100,000 MW of new power generation from 201217 (12thFive Year Plan)
Power shortfall continues in India
Ination and the Rupee/US dollar exchange rate are among the factors constraining growth rates. At the end of the scal year to March 2012, wholesale price ination stood at 6.9%, relative to a year earlier. Consumer price ination was still higher at 9.5%, driven to a signicant degree by food prices. The crude oil and petroleum product price index jumped by 44% during thescal year, against 11.8% in the previous year. This inationary trend has continued over the past three months, with wholesale price ination in April running at 7.2% and in May 7.55%. Over the 15 month period toMarch 2012, the exchange rate weakened from Rs. 45.39 to Rs. 51.16 against the US dollar and has recently been around Rs. 55.5, representing a 22% depreciation over the last 18months. Meanwhile, Indias large trade decit continues to increase, with an excess of imports over exports of about US$185 billion during 201112. Foreign investment into Indian equities totalled only US$9.2 billion compared with US$21 billion a year earlier, according to the Securities and Exchange Board of India, helping to keep the Rupee under constant pressure.
10% peak power decit in 2011, constrained by supply (Indian Economic Survey 201112) 33% of Indian households still without power (Indian census 2011) Power demand forecast to rise at 6% pa 201217 (12th Five Year Plan)
Indian oil and gas consumption continues torise
Oil product demand forecast to rise at 4%to5% pa 201217 (12th Five Year Plan) Import component of domestic oil consumption in India was about 76% and gas was 19% in 201011 and expected to further rise to 80% and 28% respectively by201617 (12th Five Year Plan)
09
The scal decit has also increased. Inthe scal year to March 2012, the difference between government revenue and total expenditure was over US$100 billion, or an expected 5.9% ofGDP, higher than the Governments target of 4.6%. One major reason for this was the continued high level of fuel subsidies. However, the Government has set a target of cutting the scal decit to 5.1% in 201213, and subsequently, despite the high ination rate, the RBI decided in April to cut its repo interest rate by 0.5% to 8.0%. This was a welcome move for industry given that the cost of borrowing in India is one of the highest globally. Business outlook There remains a major shortage of power generation in India relative to demand, with peak decits in 2011 still running at around 10.6% of demand, according to Indias Economic Survey, published in March 2012. Around one third of the Indian population still has no access to electricity, according to the 2011 national census. India has laid out ambitious objectives for its 12th Five Year Plan running from 201217, with atarget of US$1 trillion of investment ininfrastructure, including 75100 GW ofnew power generation. This is designed to deliver GDP growth rates of around 9% p.a. over the plan period. The Indian Government is forecasting that the total energy requirement (in terms of million tonnes of oil equivalent) is projected to grow at 6.5% per year between 201011 and 201617. Hence the rationale for investment in the energy sector in India remains strong. However, it is clear that if the Government is to facilitate delivery of the targeted investment in infrastructure and energy, the regulatory issues described earlier will need to be tackled rapidly. In the 11th Five Year Plan, 200712, only 50 GW of new generation was built, against a target of 78.7 GW. There remain distortions in the energy sector in India, not least due to the continued heavy Government subsidy of energy and fuel prices for consumers. This is an issue across all sectors, particularly electricity where the rising cost of generating power from imported coal and gas is not reected in the prices set by state regulators for the customers of state electricity utilities.
If the Indian economy is to grow in a world of high energy prices it is clear that in the medium to long-term, the Government will need to remove these distortions, replacing them with far more targeted subsidies for the poor. This would require not just reforms of tariffs but also reductions in transmission and distribution losses and the opening up of domestic coal resources. These changes would be positive for EssarEnergy. In the fuel retail sector, the Government acknowledges that it needs to remove the general subsidies on petroleum products, given the cost to the Indian exchequer and the distortions to the economy and, as in electricity, instead focus specic subsidies on those who have a real need. However, there is strong political and popular pressure toresist fuel price increases. Although petrol prices are deregulated, stateowned reners and fuel retailers nonetheless kept petrol prices on hold for around six months, through to May 2012, despite sharp increases in crude prices. This meant that private sector retailers such as Essar could not compete on price without incurring losses, with the result that a number ofEssars franchised retail outlets wereforced to temporarily close. The state-owned retailers nally increased petrol prices by around 11% inMay 2012, allowing some outlets toreopen. Very heavy subsidies remain in diesel,where there has so far been noderegulation and indeed, there havebeen no increases in diesel prices since July 2011. Once the Government tackles this issue, it will benet Essar Energys strategy to further roll out its retail business. In the rening sector, demand for crude oil in India is forecast to rise from 164 mmt in 201011 to 205mmt in 201617, according to the Planning Commissions Approach to the 12th Five Year Plan document, with the proportion of crude oil coming from imports rising from 76% to 80% over that period. Vehicle ownership is forecast to rise from 15 per 1,000 of population currently, compared with Chinas 55, according to the International Energy Agency. The rate ofgrowth in vehicle sales in India is increasing sharply each year. Although India will remain the principal market for Essar Energys expanded renery capacity, there is expected to
A tough year, but growth outlook remains positive.

be an increase in exports from Vadinar in the short-term to around 45% of sales due to new capacity being built by public sector reners. Essar Energy expects demand to outstrip this new capacity within the next ve years, and potentially earlier for products such as gasoil. Essar Energy welcomes the move to increase the quality of fuels in major urban areas to BS IV standard as this should increase domestic demand for higher quality products from the Vadinar renery. Increased global demand, the earthquake in Japan and events in the Middle East and North Africa pushed up rening margins in the rst half of 2011. The fourth quarter of 2011 saw weakening rening margins driven by a number of factors including weakening demand for gasoline and naphtha, lower light/heavy crude spreads and the reintroduction of Libyan crude to the market. Following on from this, a recovery in margins during January and February 2012 was followed by weakness in March and April. It is likelythat margins will remain volatile throughout 2012, with ongoing weak growth in the Western world but robust demand in Asia. In our upstream Exploration and Production business, we continue tosee slow progress in receiving approvals for our oil and gas blocks, including our Raniganj CBM block in West Bengal, where we are still awaiting nal environmental approval and gas sales price approval from the Indian Government. This is despite the high level of imports of oil and gas needed to meet demand in India which in turn is putting upward pressure on prices. This situation is expected to continue despite signicant discoveries of both oil and gas in India in recent years. Essar Energy has 10 of its 15 oil and gas blocks located in India and given the forecast increases in domestic demand, commercialisation of these assets continues to represent a signicant opportunity for Essar Energy.
10
Business review
Our strategy and business model

Strategy Denition Essar Energy intends to capitalise on the existing assets by drawing on the Essar Groups signicant experience and expertise to carry out a number ofoptimisation projects that will consolidate Essar Energys position as one of Indias largest energy groups. This will be achieved through a combination of debottlenecking operating plants, further improving efciency, expanding output and increasing economies of scale Business model
Optimise performance of allexisting assets
Proven technology
Essar Energy uses proven technology in its operations. This helps to reduce design and construction costs, optimise delivery timelines and lower operating and maintenance risks
Deliver growth through a variety of power and oil and gas projects Leverage skills and Indian asset base to identify growth opportunities Be a good corporate citizen
Essar Energy plans to deliver growth bypursuing a number of green-eld and brown-eld energy projects in theareas of rening and marketing, exploration and production, power generation and transmission and rawmaterial acquisition
Fuel security
Essar Energy aims to have 100% long-term fuel security in its power business by either owning the fuel or having fuel as a pass through under the PPA. In its rening business it enters into medium and long-term crude supply agreements for the majority of its cruderequirements
Essar Energy intends to leverage its established skills and Indian asset basein oil and gas, and power, to seekorganic and inorganic growth opportunities in India and overseas, with the objective of improving market leadership, economies of scale, fuel security, synergies and maximising shareholder value
Low capital costs

Essar Energy uses a modular approach in the design,engineering and construction of its power plants. This helps in minimising front end design time, speeds up project schedules, and gives betternegotiating power with suppliers to lower the overall cost of development
Essar Energy 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. The maintenance of high environmental performance standards are signicant responsibilities within the conduct of Essar Energys operations and the aim of the Company is to be recognised as a leader in health, safety and environmental management
11
Low operating costs

Essar Energy has a continued focus on asset optimisation to lower operating costs and improve efciency without any compromise on safety orreliability
Community support
Essar Energy continues toengage with local communities near our assets by focusing on health, education and infrastructure improvements. Investments include schools, adult education initiatives, medical facilities, and basic facilities such aswater provision forthegeneral welfare anddevelopment of the localcommunities
BUSINESS REVIEW
Long-term purchase agreements

Essar Energy aims to be largely contracted in nature in terms of off-take both inpower, through longtermPPAs, and in rening through product supply agreements with both publicand private sector marketing companies
GOVERNANCE FINANCIAL S TAT E M E N T S
Diverse customerbase
The power business supplies to a number ofstate utility companies and sister companies withinthe Essar Group. Inrening, Essar Energy sells domestically in India to the three main oil marketing companies as well as otherbulk and retail salestodomestic and international companies
Economies ofscale
From raw material to end product, Essar Energy aims to build structurally low cost, scalable assets. This in turn reduces the average per unit cost of production
Meeting Indias growing energy needs

There is a huge demand for power in India and similarly, petroleum product demand is strong and growing at around 5% p.a. supported by strong auto fuels demand With a signicant pipeline ofgrowth projects across power and rening, Essar Energy is creating assets that are critical to the economic development ofIndia
12
Business review
Our strategy in action
Power
Solar plant at Bhuj
Essar Energy has commissioned its rst renewable energy project, a solar photovoltaic plant at Bhuj in Gujarat state. Power from the 1 MW project is being sold to the Gujarat state electricity utility, GUVNL, under a long-term PPA. The plant was built in less than two months ata cost of approximately US$2.2 million. Itis clear that there will be an increasing longer term need for clean, renewable energy in India and this rst step in that sector will give the Company valuable experience. Then, as low carbon generation becomes more important in India, we will be better placed to play our part in that change.
Exploration and Production

Raniganj community investment
The development of Essars CBM gas operations at Raniganj, West Bengal, brings its own challenges because of the large geographical spread of the gas wells being drilled the area covers 500 square kilometres and 25 villages. Essar is working hard to engage with these communities and invest in vital facilities. In healthcare, a mobile medical van caters for 2,200 patients per month. Health awareness workshops have beenset up, helping over 1,500 women and adolescent girls, while tanker water is being provided to 600 households in four villages, helping combat summer drinking water shortages. On the environmental front, over 7,000 saplings have been planted at various locations around Raniganj.
India Rening and Marketing

Vadinar renery expansion
As part of the Vadinar renery expansion, the whole plant was shut down during September and October 2011 so the original base renery units could be tied into the new units and extensive routine maintenance also completed. This required precision delivery of a hugely complex plan which would normally takearound 4560 days but thanks to exceptionally well coordinated team work, it was completed in a record 35 days, allowing production to be ramped up again. To deliver this turnaround, a team of about 15,000 worked 24 hours a day in shifts to complete 1,618 revamp tasks and 2,492 maintenance and inspection jobs involving about 190 pieces of heavy machinery, cranes, and other equipment.
India Rening and Marketing

Essar Oil has built a portfolio of approximately 1,400 retail fuel outlets inIndia, with another 200 under construction, which have beneted frompetrol price deregulation by the Government and will further benet if diesel prices are deregulated. To attract customers and provide additional income for its franchisees, Essar Oil hasbeen increasing non-fuel retailing activities. The products on offer include engine lubricants, batteries, food and cold drinks, agricultural products such as pesticides, mobile phone recharge facilities, money transfer and other banking facilities. These offerings have proved very popular with customers.
Power
Tori promoting entrepreneurship
At Essar Energys Tori power project in Jharkhand state, an initiative is running innearby villages to help people launch their own businesses by providing skills training, creating business opportunities and nurturing entrepreneurs. One example is Saro Kumari, pictured, a girl in the village of Angada, who was 15 years old when she joined an Essar training centre for women, covering stitching, cutting and tailoring. Today, Saro has her own tailoring centre and is able to support and help fund education for her siblings. Essars training center at Chatro village has now produced four entrepreneurs andEssar provides cloth from which they make school uniforms. The plan is to further develop this initiative.
UK Rening and Marketing

Stanlow natural gas installation
As part of a drive to increase prot margins and improve environmental performance at the Stanlow renery following its acquisition in 2011, Essar Energy is bringing in a natural gas supply for the rst time to provide fuel for the sixboilers on site and replace the fuel oil previously used. By June 2012, Essar waswell advanced with installation of the new 3 kilometre, 12 inch diameter pipeline, through which natural gas willow. Overall the project involves aUS$30million investment. The introduction of natural gas will reduce sulphur and carbon emissions as well ascutting odour, nitrogen oxide and particulate emissions within the localcommunity.
Essar Oils non-fuel retail offering
13
Key performance indicators

Revenue
(US$m)
15 months 2012 12 months 2010 0 5,500 11,000 16,500 22,000
1
+119%
US$21,956.7m
Strong Group revenue growth (including sales tax benet but before its subsequent reversal) up to US$22.0 billion (2010 12 months: US$10.0 billion), primarily due to
higher rening and marketing revenues in India from higher sellingprices and volumes and theStanlow renery acquisition.
C O M PA N Y OVERVIEW BUSINESS REVIEW
Operational EBITDA (US$m) -3%

15 Months 2012 12 Months 2010 US$696.2m 500 0 250 750
2,3
The decrease in Operational EBITDA was driven by foreign exchange impact offset by additional three months of higher GRMs.
GOVERNANCE
1,000
(US$m)
CP EBITDA
12 Months 2010 0 200
4,5
15 Months 2012 400
US$737.1m 600
+6%
800
The increase in the Groups CP EBITDA before exceptional items (see page 43) and other foreign exchange impact (see page 42) wascaused by the additional three months trading in the 15 month
period (compared with the 12 month period in 2010) and the inclusion of the Stanlow renery partially offset by the 35 day shut down of the Vadinar renery in September/ October 2011.
(Loss)/Prot before Tax (US$m) 414%

15 Months 2012 US$(1,147.7)m (880) 12 Months 2010 (1,200) (560) (240) 0 80 400
(Loss)/prot before tax was primarily impacted by exceptional items of US$(1,276.7) million (See page 43) and the 14% depreciation of the Indian Rupee against the US dollar
resulting in an operational foreign exchange loss ofUS$316.9 million. Excluding the impact of these factors, prot before tax for the yearwas US$445.9 million.
(US$m)
Capex spent
15 Months 2012 12 Months 2010 0 750 1,500 2,250 3,000 US$2,760.5m
+1%
Capex increased by 1% to US$2.8billion due to US$310 million reduction in power capex which was largely offset by a US$204 million increase in Rening and Marketing India capex and US$61 million spent at the Stanlow
renery post acquisition. Exploration and Production capex increased by US$72 million. Capex is expected to reduce sharply in the current nancial year as we reach the end of the current capex cycle.
(US$m)
Net Debt
15 Months 2012 12 Months 2010 0
+76%
2,000 4,000 6,000
US$6,273.0m 8,000
The increase in borrowings is in linewith funding requirements in respect of expansion projects in Power, Exploration and Production and Rening and Marketing India segment. The 14% depreciation ofthe Rupee from December 2010
caused a reduction in loans of US$570.1 million compared with the exchange rate at 31 December 2010 plus a US$321.5 million balance sheet impact from exceptional items.
15 months ended 31 March 2012 12 months ended 31 December 2010 1 2 3 4 5 6 Including sales tax benet but before its subsequent reversal of US$1,053.7 million. Including sales tax benet but before its subsequent reversal. See pages 40 and 41 for analysis of Operational EDITDA. Including sales tax benet but before its subsequent reversal and before foreign exchange impact. See page 41 for analysis. Note CP EBITDA presented above is on a Group wide basis. See Note 25.
14
Business review
Operating review
Oil and Gas Rening and Marketing India Essar Energys rening business primarily consists of the Vadinar renery, the second largest private sector renery in India and 1,600 operational and under construction retail fuel outlets across India. 201112 Performance
Oil and Gas
Rening and Marketing India
Vadinar renery is Indias second largest private renery Throughput (15 months) 17.1 mmt/125 mmbbl (2010: 14.7 mmt/107.2 mmbbl) Renery phase 1 expansion project completed Capacity enhanced from 14 mmtpa to 18 mmtpa Complexity improved from 6.1 to 11.8
Lalit Kumar Gupta, Managing Director and Chief Executive Ofcer, Essar Oil
Divisional performance indicators
Revenue
(US$m)
15 months 2012 12 months 2010
+57%
US$15,245m 0 5,000 10,000 15,000 20,000
Operational EBITDA Capex spent (US$m) +1% (US$m) +27%

1,2
US$522.1m
15 months 2012 12 months 2010 12 months 2009*
US$953.3m
12 months 2009*
12 months 2009* 0 100 200 300 400 500 600
0 200
400
600
800 1,000
1 2 *
Including sales tax benet but before its subsequent reversal. See pages 40 and 41 for analysis of Operational EBITDA. 15 months ended 31 March 2012 12 months ended 31 December 2010 12 months ended 31 December 2009
15
Oil and Gas Rening and Marketing UK Oil and Gas Exploration and Production Power Generation and Transmission
The Vadinar renery had a throughput capacity of 17.1 mmtpa in 15 months ended 31 March 2012. Having completed its phase 1 expansion (March 2012) and optimisation (June 2012) projects, it is now Indias second largest single-location renery, with an annual capacity of 20 mmtpa, or 405,000 bpd, up from 14.7 mmtpa/300,000 bpd previously, and a complexity of 11.8, upfrom 6.1 previously. This puts the Vadinarrenery amongst the worlds most complex reneries. The Vadinar renery can now process a heavier crude diet and produce higher value, high-quality products, which will lead toincreased rening margins.
Essar Energy has, through a franchise model, approximately 1,600 operating and under construction retail fuel outlets across India, selling petrol anddiesel under the Essar brand. Additionally, theCompany is increasing non-fuel retailing activities in this portfolio of retailoutlets to provide anadditional source of revenue.
201213 Objectives
Focus on asset optimisation and cash generation Target Net debt: Operational EBITDA of 2:1
16
Business review
Operating review
In the Rening and Marketing Indiabusiness, operational and projectprogress was excellent during the 15month period. The Vadinar renery phase 1 expansion project was completed towards the end of March 2012, increasing capacity to 18 mmtpa, or 375,000 bpd, and complexity to 11.8from 6.1 previously. This will signicantly improve gross renery margins by allowing the percentage oflower cost heavy and ultra heavy crudes processed to rise to around
80% of the total throughput, while at the same time permitting production ofa greater proportion of high value middle and light distillate products, with middle distillates, diesel and jet fuel, becoming the principal products. It is expected that throughput fromVadinar will be approximately 19mmt/135 mmbbl of crude oil in the current nancial year from April 2012 toMarch 2013.
The further optimisation project at Vadinar, to lift capacity to 20 mmtpa, or 405,000 bpd, was completed in June 2012, four months ahead of schedule. This project included the conversion of one original renery unit, a Visbreaker, into a crude distillation unit specically designed to process ultra heavy crude, from the Mangala eld in Rajasthan. Completion of this project brings to an end the current capital expenditure programme in the Rening and Marketing India business.
17
Rening growth projects completed.
Case study
C O M PA N Y OVERVIEW BUSINESS REVIEW GOVERNANCE
During the 15 month period, Vadinar continued to operate at well above itsprevious nameplate capacity of10.5mmtpa. Despite a 35 day shutdown to allow the new phase 1 expansion units to be tied in during September/October 2011, the renery achieved a throughput during the 15 month period of 17.1mmt/125 mmbbl compared to 14.7 mmt/107.2 mmbbl, inthe 12 months of2010. During the 15 month period, CP GRM improved to US$4.45 per barrel (excluding sales tax incentive) compared with a CP GRM of US$3.98per barrel in 2010. The Vadinar renery processed 27 varieties of crude during the period, including ultra-heavy and tough crudes. Around 11.7% of the crude slate comprised Mangala crude from the Barmer oileld in Rajasthan. Essar Oil continues to focus on the domestic market for the sale of its products because of the superior price realisation. However, export quantities from the Vadinar renery in the 15 month period to March 2012 were 39% of the total sales quantity as compared to 31% in 2010. The majority of exports in 201112 were fuel oil, but in 2012 post the upgrade in complexity, exports will consist primarily of higher value middle and light distillates, such as diesel andgasoline.
Vadinar renery optimisation project

One of the key focus areas of the Vadinar renery team is to maximise the use of resources at the minimum cost, thereby improving protability. The Vadinar renery expansion meant that one major original unit, a Visbreaker, became redundant due to installation of a new delayed coker unit. Essar Oil therefore implemented anoptimisation project to turn the Visbreaker into an additional Crude Distillation Unit dedicated to the exclusive processing of heavy and ultra heavy crudes. This has added another 2 mmtpa of processing capacity while helping increase prot margins.
In its fuel retail business, Essar Oil retails gasoline and gasoil/diesel inIndia under the Essar brand. At31March 2012, Essar Oil had approximately 1,400 operational retail outlets with approximately 200 more under construction. The operational sites include 17 Auto LPG and CNGstations.
18
Business review
Oil and Gas Rening and marketing India
Operating review
Oil and Gas
Rening and Marketing UK
Divisional performance indicators2
Revenue
(US$m)
15 months 2012
Operational EBITDA Capex spent

1
(US$m)
US$6,353.9m 4,000 6,000 8,000
(US$m)
US$(30.2)m nil 30 20 10 0
15 months 2012 12 months 2010 nil 0 20
US$61.2m 40 60 80
12 months 2010 nil
0 2,000
40
1 See pages 40 and 41 for analysis of Operational EBITDA. 2 Essar Energy acquired Stanlow on 31 July 2011, hence no data available for comparative period. 15 months ended 31 March 2012 12 months ended 31 December 2010
19
Oil and Gas Rening and Marketing UK Stanlow is the UKs second largest oil renery. It supplies approximately 15% of the countrys transport fuel requirements. Oil and Gas Exploration and Production Power Generation and Transmission
201112 Performance
Stanlow renery acquisition completed on 31 July 2011 US$350 million purchase price 6.8 mmt/51.3 mmbbl throughputfor eight month period of ownership Integration complete 100 day plan identied opportunities to signicantly increase margins
Volker Schultz, Chief Executive Ofcer of Essar Oil UK
201213 Objectives
Introduce natural gas to yieldenvironmental and fuel exibility benets Diversify crude slate, improve crude blending capacity and focus on asset optimisation Deliver minimum US$2 bpd additional GRM premium by FY201314
Stanlow has a nameplate capacity of 296,000 bpd but is currently operating at about 70% of this level. The Stanlow renery lies near to Liverpool, north west England, on the south bank of the Manchester ship canal and is the UKs second largest oil renery. It supplies approximately 15% of the countrys transport fuel requirements. Rened fuels from Stanlow are distributed across the UK, mainly by road andpipeline.
Essar Energy completed the acquisition of the Stanlow renery on 31 July 2011. The Company then immediately began a 100 day evaluation, resulting in a clear plan to integrate the renery into Essar Energy and to identify opportunities to improve margins. These opportunities include a signicant broadening of the number of crude oils processed, including lower cost options, together with improvements to the product mix, energy efciencies and some operational cost savings.
20
Business review
Operating review
During the rst eight months of ownership, to March 2012, Stanlow processed eight opportunity injection crudes and completed a project to further improve its crude blending capability. The aim is to further expand the crude basket and, by being more exible in terms of the crude diet, toprovide signicant economic advantages through the reduction of crude purchasing costs and enhanced utilisation of the renerys capacity.
In the rst eight months of ownership, Stanlow had a throughput of 6.8mmt/51.3 mmbbl of crude oil. CPGRMs were US$3.06 per barrel, representing a signicant premium to the International Energy Agency North West European benchmark margin of US$1.19 per barrel. On the product side, gasoline continues to be oversupplied in the Atlantic basin and as a result, Stanlow is seeking to diversify its customers and markets and to produce alternative products such as petrochemicals.
Diesel and gasoil continue to be in high demand in Europe and the UK and the aim is to enhance the production of these products and place them in our domestic market. Work continues to install a natural gassupply into Stanlow to fuel the six boilers on site, which are currently run on fuel oil. This initiative is expected to be completed by the end of 2012, to deliver signicant environmental benets and improve margins. The taskof installing a 3 kilometre, 12 inch diameter pipeline to transport the natural gas is now well advanced.
21
Stanlow renery fully integrated into Essar Energy.
Case study
It is expected that these, and other initiatives, will deliver approximately US$1 per barrel of margin benets in 201213 and a further US$1 per barrel in 201314, with the potential ofafurther US$1 per barrel thereafter. These 100 day plan improvements are to ensure that Stanlow will be net cash positive even when market conditions are at the bottom of the cycle and will provide attractive returns through the market cycle. The Stanlow renery, which is the second largest renery in the UK, is currently processing around 220,000 bpd, which is approximately 70% of its 296,000 bpd nameplate capacity. The consideration for the renery wasUS$350 million. The consideration is payable in cash and in two stages, withUS$175 million, less adjustments reecting certain costs associated withthe Stanlow renery, paid on completion of the acquisition and US$175 million plus interest at the rate of LIBOR plus 4% payable on the date of the rst anniversary of completion. A separate payment of US$878 million was made for the crude and rened product stock at the Stanlow renery site, based on market prices at the time of completion. On 1 July 2011, Essar Oil UK entered into a US$1.5 billion three year secured revolving credit working capital facility. This facility was used to purchase the crude and rened product stock at the Stanlow renery site at completion and may also be used to meet operational working capital requirements.
The 100 Day Plan designed to create a sustainable renery lifecycle

Following the acquisition of the Stanlow renery, the second largest in the UK, Essar Energy embarked on a 100 day exercise to identify the key investments and improvements needed to deliver sustainably higher prots in the future. The resulting 100 Day Plan is now being implemented with the aim of delivering a sustainably protable renery lifecycle even during the lowest margin market environment. Around US$23 per barrel margin improvements within a three year time frame are being targeted. Thefocus of the plan includes renery capacity and utilisation improvements, reliability, cost reduction and inventory optimisation, with each aspect screened for feasibility and tested for value creation. The plan, created through a combination of strong operational excellence at Stanlow and Essars entrepreneurial spirit and business acumen, is already seeing the development of a reliable, protable and growing business underpinned by a strong safetyculture.
22
Business review
Operating review
Oil and Gas
Exploration and Production
Iftikhar Nasir, Chief Executive Ofcer of Exploration and Production Business
No. of blocks
15 months 2012 12 months 2010 0 5 10 15 20
CBM net 2P reserves

15
15 months 2012 12 months 2010 0 50 100 150
12%
& 2C resources (mmboe)
Capex
(US$m)
250
+39%
209 mmboe 200
+141%
US$122.9m 90 0 30 60 120 150
15 months ended 31 March 2012 12 months ended 31 December 2010
201213 Objectives
Successfully deliver Raniganj project Continue to progress early stage projects in India Farm out or exit non-core assets to manage risk
Essar Energy has a diverse portfolio of 15 blocks and elds for the exploration and production of oil and gas in India and overseas. The Company has net 2P (proven and probable reserves) and2C (contingent resources) of 209 mmboe, best estimate prospective resources of 929 mmboe and an unrisked in-place resource base of 971mmboe. Our Exploration and
23
Oil and Gas Rening and Marketing UK Oil and Gas Exploration and Production Essar Energy has a diverse portfolio of 15 blocks and elds for the exploration and production of oil and gas in India, Australia, Indonesia, Madagascar, Nigeria and Vietnam. 201112 Performance
Power Generation and Transmission
Progress impacted by regulatory delays.

Production focus is moving towards CBM where Essar Energy is the leading player in India with 2,733 square kilometres of acreage and more than 10 tcf of reserves and resources across ve CBM blocks. In the Exploration and Production business, Essar Energy continues toevaluate ways of managing risk across the portfolio of oil and gas blocks itcurrently owns, with a view to maintaining a stronger focus on India. Essar Energys Exploration and Production business currently has approximately 2.1 billion barrels of oil equivalent of reserves and resources, spread across a portfolio of 15 offshore and onshore oil and gas blocks. Within this, during the 15 month period there was a sharp uplift in the total of 2P and 2C resources to 209 mmboe from 150mmboe previously following a fresh independent evaluation of the Raniganj CBM block inWest Bengal, by international consultants Netherland, Sewell & Associates, Inc. (NSAI). Within the overall portfolio, there arealso 929 mmboe of best estimate prospective resources and just under1,000 mmboe of unrisked, in-place resources. At Raniganj, Essar Energys rst CBM project to be brought into development, total 2P proven and probable reserves, as evaluated by NSAI in September 2011, are 113 bcf gross, or 18.8 mmboe, while best estimate 2C contingent resources are 445 bcf gross, or 74.1mmboe. This compares with the previous evaluation in December 2009,
Sharp uplift in 2P and 2C resources to 209 mmboe from 150 mmboe Current production at Raniganj c.25,000 scm/d Peak production from Raniganj of c.3.0 mmscm/d in 2014
Case study
also by NSAI, which showed only 201bcf gross, or 34 mmboe, of 2C resources. The latest evaluation also shows that there also remains 297 bcf gross, or 49 mmboe, of best estimate prospective resources of gas at Raniganj. In addition, NSAI also upgraded the caloric value of the gas from 8,500 kcal/scm to 9,660 kcal/scm. Current production at Raniganj is around 25,000 scm/d, reduced to minimise aring while test sales through a pipeline to the Durgapur industrial estate are continuing. Once all clearances have been received peak production is expected to be around 3million scm/d. A provisional gas price for test sales of US$5.25/mmbtu plus US$1.00/mmbtu for transportation charges has been approved by the Government of India for incidental gasproduced during phase II. The Government is now in the process ofmaking a decision on the full commercial sales price for Raniganj and other CBM developers in India. Aspart of this process, Essar Energy completed a gas price discovery exercise in accordance with Government policy. To date, Essar Energy has consents for 73 wells, which have been drilled, and is in the process of getting environmental approval to extend this to 500 wells, which will be required to achieve full production. The full eld development plan has already been approved by theDGH. Overall, Essar Energy has the largest acreage of CBM blocks in India, with approximately 10 tcf of gas resources across ve CBM blocks.
Introduction of V cone meters for CBM gas ow at well site to give accurate, reliable and cost effective measurement system
A key task at Essar Energys CBM gas block at Raniganj is to measure gas ows. Here, the Company has introduced an innovative ow measurement solution so-called V Cone type ow meters, rather than the conventional orice type of meter, marking a new development for coal bed methane production in India. This type of meter works better in wells which have higher volumes of water and where pressures are lower, such as Raniganj. The V Cone also has a far lower maintenance requirement and delivers more accurate measurements over its likely lifespan of 2530 years than the conventional meters, resulting in lower operating costs.
24
Business review
Operating review
Power
Generation and Transmission
Revenue
(US$m)
15 months 2012 12 months 2010 12 months 2009* 0
1 *
+11%
US$356.5m 100 200 300 400
15 months 2012 12 months 2010 12 months 2009*
Operational EBITDA Capex (US$m) +4% (US$m)

1
US$222.5m
15 months 2012 12 months 2009*
16%
US$1,621.8m 0 500 1,000 1,500 2,000
12 months 2010 0 50 100 150 200 250
See pages 40 and 41 for analysis of Operational EBITDA. 15 months ended 31 March 2012 12 months ended 31 December 2010 12 months ended 31 December 2009
25
Oil and Gas Rening and Marketing UK Oil and Gas Exploration and Production Power Generation and Transmission Essar Energy, a rst mover among the private sector players in the Indian power industry, currently has an installed generation capacity of 2,800 MW.
201112 Performance
93% to 99% power plantavailability Vadinar P1 (380 MW) commissioned Go/No-Go concept on coal blocks removed clearing way to develop captive coal mines
KVB Reddy, Executive Director Essar Power
Essar Energy has ve operational power plants in India and one in Algoma, Canada, with a total installed capacity of 2,800 MW. This capacity is increasing to 4,510 MW by the end of March 2013 and to 6,700 MW by the end of March 2014. Essar Energy also has access to approximately 500 mmt ofcoal resources across seven coal blocks in India and overseas. Essar Energys power generation portfolio is segmented, with captive plants in one grouping and the other non-captive plants grouped according to their fuel source being international coal or domestic coal. In the 15 month period to March 2012, the operational plants, totalling 1,600 MW of capacity, were primarily captive plants.
After the period end, the 600 MW unit1 at the coal red Salaya I project was commissioned in early April 2012, with unit 2, also 600 MW commissioned in June 2012. Essar Energy also commissioned its rst renewable energy project in early 2012, a solar photovoltaic plant at Bhuj in Gujarat state. Power from the 1 MW project is being sold to GUVNL, under a long-term PPA. The plant was built at a cost of approximately US$2.2 million. This will give Essar Energy valuable experience of running renewable energy generation, given that there will be an increasing longer term need for clean, renewable energy in India.
201213 Objectives
Increase capacity to 4,510 MW by end of March 2013 and to 6,700 MW by end of March 2014 Progress three power projects against milestone (US$3.1 billion) Key focus to secure temporary coal supplies for Mahan I
De-risk the portfolio and focus onnear term value.
26
Business review
Operating review
construction and pre-operative expenses, including the acquisition of commissioning coal (which was not included in the original budget). Coal for Salaya I is due to come fromtheAries coal mine in Indonesia, which was acquired in April 2010. The company received in principle Pinjam Pakai (forest) approval for the Aries mine during October 2011 and received nal approval on 8 June 2012, with rst coal now expected within 912 months. Construction of supporting road and port infrastructure in Indonesia is continuing. Until coal can be supplied from the Aries mine, Salaya I will be supplied with fuel under a contract withEssar Shipping and Logistics Limited, Cyprus. Essar Energy continues to await certain regulatory approvals from the Indian Government for the dedicated Salaya coal import jetty, near to the power project. Alternative temporary arrangements have been made to import coal from other nearby ports and for onward delivery by road to the Salaya site. The delay in obtaining the regulatory approvals has also impacted construction of the sea water pipeline to meet the plants water requirements and temporary arrangements have been made to source water from the nearby Narmada River instead. To mitigate these issues, and also to mitigate the adverse impact of the new Indonesian coal pricing law on its PPA with the Gujarat state electricity utility, GUVNL, Essar Power is planning to operate Salaya I at a lower load factor of around 65%. Domestic coal projects Mahan 1 1,200 MW Unit 1 of 600 MW is expected to begincommercial operations in July. Asdisclosed in the 31 December 2011 interim nancial statements, the commissioning of Unit 2, also 600 MW, will be linked to the availability of coal (see below). Also as disclosed in the 31 December 2011 interim nancial statements, costs at Mahan I have increased by US$153 million, or 14.7%, over the previously announced capital costs. This was due to increases in interest costs during construction and pre-operative expenses, acquisition of commissioning coal and development of logistics and road infrastructure and the transmission line of around 45 kilometres which were not envisaged inthe original budget.
Captive power projects Essar Energy has ve captive power projects operational, with a further three in construction. Operational, total 1,600 MW Hazira (515 MW) and Bhander (500MW) are primarily captive to theEssar Steel plant at Hazira, while Vadinar (120MW) and Vadinar P1 (380MW) arecaptive to the Essar Oil renery at Vadinar. Algoma (85 MW), iscaptive tothe Essar Steel plant at Algoma, Canada. Under construction, total 900 MW Vadinar P2 (510 MW) is primarily captive to the Essar Oil renery at Vadinar; Hazira II (270 MW), is captive to the Essar Steel plant at Hazira; and Paradip (120 MW), is captive to Essar Steels facility at Paradip, Orissa state. All the operational captive plants performed well in the 15 month period,with the key measure of plant availability between 93% and 99%. Generation in the 15 month period fromEssars portfolio was 7,907 MU/7.91 GWh, compared with 6,624 MU/6.62 GWh, in the 12 months for 2010. The pro-rata reduction in generation was primarily due to lower demand for power from the Bhander and Hazira I gas-red stations in Gujarat due to higher gas prices andimport through UI, against exportin the previous period.
The smaller 85 MW gas-red plant at Algoma, Canada, providing power for Essar Steel, again performed well with generation for the 15 month period at 671 MWh, a similar level to2010. Of the power and steam produced from the Vadinar P2 plant, the fuel cost can be passed through to customers in respect of 391 MW, comprising Essar Oil (301 MW) and Essar Steel (90 MW). Essar Oil will benet from power and steam generated from the Vadinar P2 power plant as it provides the lowest cost option for the Vadinar renery, thereby contributing positively to the renerys GRMs. The balance of the power (119 MW) will be sold as merchant power. These captive projects deliver stablerevenues with payments basedon availability, rather than onpower generated, and the fuel priceand delivery risk lies with the power purchaser. Imported coal projects Salaya I 1,200 MW Unit 1 of 600 MW was fully commissioned in early April 2012. Unit 2, also of 600 MW, was commissioned in June 2012. As disclosed in the 31December 2011 interim nancial statements, costs at Salaya I increased by US$84 million, or 8%, over the previously announced gure due to increases in interest during
27
According to reports, Essar Energy was given provisional approval at the end of May 2012 for stage 1 forest clearance for its Mahan coal block, which was previously assigned to the power project by the Government to provide captive fuel for the Mahan I power station. However, no ofcial notication has yet been received from the Government of India, and our understanding is that the nal decision will be taken by the Indian Cabinet. Delays in granting such clearances have delayed the development of a number of coal blocks and power projects in India. Once we receive conrmation of stage 1 forest clearance, it will still take 1518 months to produce rst coal from the Mahan block. In the meantime, fuel for the Mahan I plant will be supplied from alternative sources. We currently have 186,000 tonnes of domestic e-auction coal at the site and we are also in the process of ordering imported coal. In addition to e-auction and imported coal, Essar Energy has applied for medium term allocations of coal under Coal Indias tapering coal linkage system to provide us with sufcient coal to cover the period until our own mining activities are operational. We are continuing to pursue this application. To ensure that we can transport sufcient coal to the Mahan site untilthecaptive coal mine is fully operational, we continue with work oninfrastructure investments, primarily road strengthening, to facilitate movement of coal to Mahan from therailway terminal delivery points at Singrauli and Mahdeiya, a distance of around 5060 kilometres. This work willallow the plant to operate on an economic basis until the Mahan coal block can be brought into production. For the rst year post-commissioning, itis expected that approximately 2.25 mmt of imported and domestic coal will be delivered to Mahan I. Given these coal constraints, Unit 1 of the plant will berun at a high plant load factor to optimise operating efciencies and Unit 2 will be commissioned and operated after the monsoon has nished, by which time we expect the logistics constraints to ease. As the infrastructure constraints are removed, coal volumes and load factors will be increased.
Tori I 1,200 MW and Tori II 600MW The Tori I and Tori II projects in Jharkhand state are due to be completed by March 2014. As at the end of May 2012, Tori I was 38.8% complete and Tori II 15.7% complete. Coal for these projects will be supplied from the nearby captive coal blocks at Chakla and Ashok Karkata. Essar Energy is currently awaiting forest clearance and environmental consents from the Indian Government in order that mining operations can begin. These delays in securing approvals willrequire alternative sources of coal to be obtained in the rst year. Asrequired, e-auction coal will be purchased to provide fuel for this project and an application has also been made for coal under the taperingcoal linkage system. Later stages power projects As disclosed in the 31 December 2011interim nancial statements, duetoregulatory delays in the Indianpowersector, and to ensure efcient deployment of capital, Essar Energyhasdecided to progress the construction of three of its later stage power projects at Salaya II, Salaya III and Navabharat I, totalling 2,970 MW, which were due to be commissioned in2014, only against certain milestones. There have been continued delays insecuring regulatory approvals, particularly relating to the environment and coal sourcing, and also delays inland acquisition approvals at Navabharat I. The total investment cost of the three projects is c.US$3.1 billion.
Case study
Salaya I unit 1 commissioning challenges

The power team showed great innovative skill in overcoming a series of challenges as they prepared for commissioning of the 1,200 MW Salaya I project in Gujarat, which is Essar Energys rst thermal coal power plant in India. These included major voltage problems with the transmission line, solved by building a temporary 33,000 volt line from Essars nearby Vadinar renery, which allowed various key units to be commissioned and saved four months potential delay. Similar ingenuity was shown in the way theSalaya team secured temporary supplies of river water for cooling, due to delays with sourcing sea water, and also in the deployment of temporary coal handling systems.As a result, the time from commencement of construction of the structure to synchronisation of the rst 600 MW unit with the grid was only 29 months.
28
Business review
Corporate responsibility
201112 Performance:
201213 Priorities: Our priorities in terms of building a sustainable business remain consistent. They are:
Expansion of healthcare initiatives and medical facilities in villages and communities around the sites at the Vadinar renery, the Salaya, Mahan and Tori power projects and the Raniganj gas block Increased provision for education and entrepreneurship initiatives Good progress towards a robust greenhouse gas management system Excellent health and safety record again Vadinar renery at 1,460 LTI free days and Stanlow renery at 794 LTI free days. Essar Power operations at Hazira at 3,584 LTI free days Introduction of new people development initiatives across Essar Energy, principally in internal talent development and learning
To ensure health and safety remains the number one priority, with senior management taking the lead To build on the healthcare provision and medical facilities we provide to communities around our operating and construction sites To further develop environmental initiatives and improve infrastructure around our sites To continue investment in schools and childrens education, adult education facilities and entrepreneurship in the communities where we have a presence To develop people and to maximise the array of talent within Essar Energy
29
Committed to sustainability
Essar Energy is the rst to recognise the degree of challenge associated with building and operating a major portfolio of oil and gas, exploration and production and power assets in India. Such large-scale activities, more than most, inevitably impact the people and communities in the areas where they take place. We are equally clear that the Company and its employees must meet these challenges, and ensure that our strategy, business and operations are founded on a culture of responsible behaviour towards all our stakeholders. We know that without this, we cannot create sustainable value. As we make clear in our accompanying rst annual sustainability report, published in tandem with this main annual report, there has been signicant progress in seeking to meetthese objectives. Our 201112 sustainability report can be accessed at www.essarenergy.com. Our aim is to ensure we have a positiveimpact whether on individuals, communities or the environment and that by careful management, we minimise risks. How can we do this? One way is to continually benchmark ourselves against best practices in our industries and in our communities, whether in India or overseas. Another way is to keep challenging ourselves to do better, to ask how performance can beimproved and to encourage positivechange. Our rst sustainability report carries a great deal more detail on all of our CSR activities. While this is a positive step forward, we recognise that we have a great deal more to improve on what we do and the quality of reporting in the vital areas of our business. This section of the main annual report is intended to summarise our approach, policies and performance across the principal areas of health and safety, the environment and our communities, including our 3E framework spanning entrepreneurship, environment and education. Health and safety Health and safety continues to be one of our critical sustainability priorities. The objective is an injury-free and healthy workplace, promoted by institutionalising a culture of safety. Health and safety is an integral part of the management of business and is given equal importance alongside prots, costs, production and quality. During the 15 month period to March2012, there was a particular focus on managing safety issues among contractors. Here, there is an ongoing push to ensure competency assessments are carried out for those involved in safety critical jobs and these were made mandatory for certain trades such as riggers, crane operators, welders and electricians. More broadly, health and safety training is carried out through a variety of means, including online, classroombased and on site. During the 15 month period to March 2012, there were 5,146 health and safety training sessions given to employees, against 3,703 the previous year, and 5,504 sessions given to contractors, against 4,961 the previous year. The result has been a very low level of incidents. There were only six LTI incidents across the entire business in the nancial year 201112.
Further investment in education is one of our main sustainability priorities.
30
Business review
Corporate responsibility
Environment Given the need for businesses of allkinds to make a real contribution totackling climate change and the importance of this to business performance and growth in future, Essar Energy has taken action and will continue to take action to ensure it is well positioned. After a detailed structured GHG accounting process and disclosure atthe CDP, following international protocols, Essar Oil, Essar Power andEssar Oil UK are working towards arobust GHG management system. This is aimed at delivering results on ayear on year basis and to show theirpositioning in relation to industry standards. CDP ranked Essar Oil the best in carbon management in India in the energy sector during the year 2011.
There are several strands to our drive to increase our support for the communities in which we operate. Among these, we see encouraging entrepreneurship as highly important.
Essar Oil gradually intends to build GHG reduction targets to operational levels, requiring each operation to assess their respective GHG performance and to look for best practices to monitor, inventories, report and own the GHG emissions due to its operations.
31
The accompanying sustainability report details Essar Oils GHG strategy as well as a large number of other environmental initiatives which are continuing across Essar Energy including pollution prevention, air quality, and protection of water resources and biodiversity. Community There are several strands to our driveto increase our support for the communities in which we operate. Among these, we see encouraging entrepreneurship as highly important. This is something that can enable entire communities especially when combined with improvements in education, infrastructure, increasing womens empowerment and betterhealthcare. Essar Energy is active in developing initiatives in all of these areas, with a particular focus on communities or individuals in India from whom land has been acquired to facilitate development of the Companys operations and in neighbouring communities. Projects include provision of water supplies to villages in times of drought, strong support of various kinds for schools and establishment or support for institutions which can help develop entrepreneurial and business skills. Again, more detail on these initiatives is laid out in our sustainability report at www.essarenergy.com.
Case study
Health and Safety at Stanlow

Essar Energys Stanlow renery has been lauded by the leader of a top UK health and safety organisation and has broken new records for its safety track record. Stanlow, acquired by Essar Energy on 31 July 2011, has registered no LTI incidents since the acquisition, and overall has recently passed 10 million man hours without an LTI incident. As renery general manager Jon Mason told a town hall meeting of all workers, this represents more than two years without an LTI incident and shatters the record for the site. Stanlow was visited recently by the chair of the UKs Health and Safety Executive, Judith Hackitt, who praised the work taking place at the renery to train young apprentices, whose work will engage them in some tasks where health and safety really can be a matter of life or death. Ms Hackitt, who herself worked in the chemical industry for more than 30 years, said that it was crucial that the risks involved in working on hazardous processes were properly understood and praised Stanlows approach to this. She stressed that health and safety should not be seen as an add-on but as a fundamental part of doing a job and went on to say that this was a key element of apprenticeship training, to ensure that young apprentices learned how to carry out their roles safely and efciently.
32
Business review
Principal risks and uncertainties

Effective risk management is integral to delivering our strategic goals, whilst protecting our reputation and shareholder value.
During 201112, the Board has made signicant progress in implementing a robust risk management framework which not only serves to identify and monitor risks across our business, but also establishes specic management controls to reduce the incident and impact of those risks. Approach to risk management The overall responsibility for risk management, and determination of appetite to undertake activities subject to risk and uncertainty, resides with the Board of Essar Energy. However, given the nature of our business, the boards of our divisions and key management personnel across the Company play an important part in managing and monitoring risks. The Company has established formal policies to promote an environment of good governance and robust risk management. The Board has established a risk register that identies strategic risks together with nancial, operational and compliance risks. The register includes a description of the nature, extent and implication of the risks together with the related management controls. Ongoing monitoring of risks The risk register is formally reviewed bythe Board on a half yearly basis tomonitor principal risks and the strategies deployed to mitigate them. Ongoing monitoring and management of risks takes place on a monthly basis at the Monthly Review Committee meetings where the Chief Executive Ofcer and Chief Financial Ofcer of Essar Energy along with divisional senior management discuss key developments and new risks arising within the underlying business divisions. Similarly, the developments inrisks impacting the Company at a corporate level are discussed at each Board meeting. The Audit Committee is also charged with monitoring effective implementation of controls across the business divisions that specically impact nancial risks. Further details of the procedures undertaken by the Board of Essar Energy and its Committees are set out in the Corporate governance report. There are a number of risks and uncertainties which could have an impact on the Companys results and operations in light of the nature of the industries in which our businesses operate. Our principal risks are:
Group-wide risks
Repayment of sales tax incentive collected amounting to US$1.19 billion and potential interest thereon
Implication The eligibility of Essar Oil to participate in the Sales Tax Incentive Scheme (the Scheme) was challenged by the Government of Gujarat in the Supreme Court of India, following a judgment by the High Court of Gujarat which conrmed that Essar Oil was eligible to participate in the Scheme. The case was heard at the end of 2011 and, on 17 January 2012, the Supreme Court of India set aside the Mitigation On 8 May 2012, Essar Oil led a writ petition before the High Court of Gujarat seeking directions on repaying the sales tax by instalments and for remission of interest. This writ petition was admitted by the Gujarat High Court on 11 May 2012. Pending the outcome of the petition, the signicant uncertainties around the nal outcome and the legal advice received by Essar Oil, the interest demanded by the sales tax authorities which amounts to US$396.0 million (Rs. 20.25 billion) up to 31 March 2012 has been treated as a contingent liability and we do not believe that material interest will be payable. previous judgment of the High Court of Gujarat and ruled that the Group could no longer participate in the Scheme. Essar Oil was served notice by the Government of Gujarat on 24 January 2012 requiring it to pay the outstanding sales tax liability of US$1,188.2 million plus associated interest of US$396.0 million.
Essar Oil is in the advanced stages of arranging a new c.US$1 billion (Rs. 50 billion) bank term loan facility. This facility is being put in place as a contingency measure for the future in the event that Essar Oil is required to pay its deferred sales tax liability to the Government of Gujarat.
33
Compliance with regulation and obtaining licences and permits

Implication All of the Groups operations are extensively regulated and the delivery of our strategy is largely dependent on obtaining the appropriate permits, approvals and licenses to complete our expansion projects, complying with their conditions and the exploration and development of oil, gas and coal blocks. Mitigation The Group closely monitors compliance with regulatory requirements across its business and heads of each business division and operations conrm compliance with allapplicable laws and regulations on a quarterly basis. The need for permits, approvals and licenses for expansion projects and the exploration and development of oil, gas and coal blocks is assessed prior to undertaking any works or investments. The ability to obtain the necessary regulatory approvals to successfully deliver our strategic goals on time is largely out of the control of our senior management. However, Essar Energy continues to have a successful The failure to obtain or comply with the terms of such permits and approvals would prevent the Group from achieving its growth targets and could ultimately lead to theimpairment of existing assets.
working relationship with national, state and local authorities and expects to obtain all necessary approvals. To further strengthen the framework for regulatory compliance, the oil and power businesses have recently embarked upon the implementation of compliance systems which would enable the key stakeholders to jointly review the status of key compliance requirements and clearances required for timely project execution. The critical activities and action plans including matters requiring management attention and decision making are reviewed at the PRMs.
Our ability to complete major projects on time and within budget

Implication The Group is reliant on the completion of major projects to maintain its projected growth levels. In particular, there is a need to ensure projects are managed on time, including the delivery by contractors and suppliers, and within budget Mitigation Progress on all major projects is monitored on a monthly basis by the relevant project managers at the PRMs. Critical issues are also discussed at the Monthly Review Committee which is attended by all members of the Essar Energy Senior Management team. The Group has contracted the management and construction of major projects to specialist expert project management and EPC contractors who are related parties. The risk of overruns is further mitigated through entering turnkey contracts with these contractors and suppliers. Renery expansion project Oil and Gas business: The Vadinar renery optimisation project to enhance the renery processing capacity to 20 mmtpa was completed four months ahead of the scheduled completion date of 30September 2012. using efcient technologies to achieve the required specications. If projects are not executed on time and to budget, the planned growth and protability of the Group will not be achieved.
Exploration and Production Oil and Gas business: Within the Exploration and Production business, the Company is actively pursuing efforts to obtain environmental clearances required to ensure timely completion of the project for production of gas from CBM in Raniganj, West Bengal. In the event of any signicant delays in obtaining the required environmental clearance and government approval for the gas price, the Company has the option under the Gas Supply and Purchase Agreement to renegotiate contractual terms. Power: The commencement of operations date of each ongoing power project is closely monitored and all contractor deadlines are accordingly decided and rigorously followed up during the meetings of the Monthly Review Committee.
34
Business review

Funding requirements for future operations and growth
Implication The Group operates in a capital intensive industry and has signicant nancing requirements. This requires continued access to commercial banking facilities, capital markets and maintenance of short-term working capital funding. Oil: Financial closure is pending on certain key projects (Raniganj CBM project and HMU). Power: The current Power sector environment and signicant lenders exposure to the Power sector makes fund raising challenging. The Company requires funding to cover the cost of overruns on power projects.
Mitigation The Group has historically successfully rolled over facilities in line with market practice and retains good banking relationships. Banking covenants are reviewed on an ongoing basis to monitor compliance. Recently the Group has renanced a US$450 million bridge loan which was due in December 2012 with a new US$300 million three year secured loan facility and US$150 million of internal cash resources. Separately, the Group has also signed a US$250 million 3.5 year subordinated unsecured loan facility with Essar Global for general corporate purposes. The facility is currently undrawn, but can be drawn in full or in part at any time during the 3.5 year life of the facility to meet any shortfall in project and working capital nancing.
Oil: The successful commissioning of the Vadinar renery marks an inexion point in the Groups capital expenditure cycle and is expected to augment the cash ows over the foreseeable future. While nancial closure is achieved on most projects, there are a few projects (Raniganj, HMU) where the Group is pursuing efforts to achieve nancial closure. Essar Oils efforts to achieve CDR exit is at an advanced stage and this is expected to further boost fund raising ability. The Company also maintains working capital and cash ow projections to identify funding requirements and ensure facilities are available to meet short-term funding needs. Power: For projects with cost overruns, the Company is engaged in discussions with lenders for nancing of cost overruns. Cost overrun funding has been largely secured for one project (Mahan) and discussions are at an advanced stage for another project (Salaya). Efforts are also underway to secure a facility for development of the Aries coal mine in Indonesia.
Fluctuations in foreign exchange rates

Implication The price of feedstock, natural gas, and imported coal needed to run the Groups power operations and crude oil required for the production of rened petroleum products are generally denominated in or tied to the US dollar. Additionally, the Groups functional and presentational currency is the US dollar. Therefore, it also faces translation Mitigation Each business division enters into forward foreign exchange contracts to cover foreign currency payments and receipts as well as to manage foreign exchange risks associated withanticipated sales, purchase and borrowings in foreigncurrencies. The Monthly Review Committee monitors the level of exposure to foreign exchange rate uctuations across the business and makes recommendations in respect of future hedging. risk to the extent assets, liabilities, revenues and expenses of its subsidiaries are denominated in currencies other than the US dollar. Depreciation in the Indian Rupee against the US dollar hasresulted in an increase in project costs of ongoing powerprojects.
Post the recent sudden depreciation in the Indian Rupee, the Company has re-evaluated its foreign currency exposures at a project level and hedging levels have been identied based on project IRRs to be maintained/protected.
35
Challenging business environment

Implication The general business environment in which the Group and its businesses operate is challenging thereby putting a strain on the Groups cash ows and operating margins. Within the Companys oil business, product rening margins are Mitigation Improve operating efciencies aimed at margin enhancements (e.g. diversifying the crude basket and cross functional integration of businesses). Constantly evaluate the macroeconomic scenario through sensitivity analysis and re-align the strategy to meet business
under severe pressure and exposed to market volatility. Availability of fuel for power plants is challenging the Groups ability to operate its power plants protably.
priorities (e.g. decision to defer certain power projects until certain milestones are achieved). Secure alternative channels for fuel supplies.
GOVERNANCE
Reliance on Essar Global and afliated Essar Group companies as major suppliers and customers and managing conicts of interest
Implication The Power business, in particular, is dependent on Essar Group companies as major suppliers and customers. The loss of this relationship could have a signicant impact on the Groups continued success. In addition, as the controlling shareholder, Essar Global may have conicting interests withthe Company. Mitigation The Group has a close working relationship with EssarGlobal with representation of senior Essar Global memberson the Board. There are also long-term contractual arrangements with Essar Global and other Essar companies to ensure the Companys interests remain protected. The Group has robust processes for entering into transactions with afliated companies on an arms length basis.
Commercial and reputational damage as a result of Health, Safety or Environmental incident or conicts with local communities
Implication The Group is at risk of commercial and reputational damage as a result of Health, Safety or Environmental incident given the nature of its operations. Further, relationships built with local communities in locations where the Company operates need to be maintained to avoid any operational disruptions. The loss of condence any incident might create could have an adverse effect on the overall valuation of the Group and Mitigation The Group has a formal HSE policy with related HSEMS in place. These are communicated to the relevant businesses and employees with training provided on regular basis. Regular reviews are carried out of compliance with the HSE policy and related HSEMS as well as adherence to regulatory requirements. The HSE Committee reports directly to the Board, which ultimately monitors the effectiveness of various policies and systems. The results of safety and other inspections of the Companys power plants and reneries are frequently reviewed by the Groups senior management to assess the actions taken to close the gaps. its ability to work effectively with local and national authorities. As a UK listed entity, the Company is required to comply with cross border regulatory requirements (e.g. the UK Bribery Act). The Company needs to ensure that these are adhered to.
Tools are in place to monitor emissions from plants and reneries. Medical expertise and support is available at alllocations. The Group works closely with local communities to maintain relationships and to ensure that concerns are heard and acted upon on a timely basis. The Group has recently drawn up a detailed anti-corruption policy and code of conduct which has been rolled out across all areas of operations including the key decision making personnel at various sites. Additionally, all senior management personnel are subject to ongoing communications and training to build awareness of the Companys anti-corruption and bribery policies and procedures.
36
Business review

Oil and Gas business risks
Inability to achieve the planned GRMs/cracks
Implication The Oil and Gas business is dependent on the margin between crude oil prices and rened petroleum product prices to maintain protability. Operating efciency andaccess to crude oil of the required quantity, quality andprices has a signicant impact on the Companys performance. Mitigation The Oil and Gas business uses long-term contracts as wellas open international markets to source crude oil at competitive prices. Management prepare four month rolling plans on a weekly basis to identify any changes in risk prole and take appropriate action on a timely basis. Whilst rened product normally tracks changes in feedstock prices, there is normally a lag which could seriously impact short-term working capital and protability.
Essar Oil and Essar Oil UK each have a risk management committee which meets weekly to take decisions on commodity hedging.
Breach of sanctions on Iranian crude

Implication The Group has met 33% of its overall crude requirements from Iranian suppliers. Recent sanctions on Iranian crude Mitigation The Group has re-evaluated its crude procurement strategy in the light of recent international sanctions on imports of Iranian crude. Overall, a 15% reduction has been made in the quantum of term crude imports from Iran. To compensate for could impact continuity of crude supplies and consequently the achievement of planned GRMs.
the shortfall in Iranian crude, Essar Oil is looking at alternative options including increasing the proportion of tough and heavy crudes which are considered suitable for processing by the Vadinar renery post expansion.
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Power business risks

Coal availability and logistical challenges associated with coal transportation
Implication The Groups Power business is on track to commission 6,700 MW of power by the end of March 2014. Delays in the start of mining activities within the allocated coal blocks due to regulatory clearances in both India and overseas has resulted in the Group having to seek alternative coal sourcing arrangements with a potential impact on protability. Mitigation Essar Power is in constant discussions with the Committee nominated by the Empowered Group of Ministers on securing tapering coal linkages. Essar Power has also started work on developing the road infrastructure to overcome the logistical challenges associated with transportation of coal procured through e-auction and imports. Changes in regulatory requirements relating to coal access/pricing (e.g. Indonesia) have resulted in higher overall fuel costs.
Further, Essar Power has set up a coal trading desk to manage both domestic and imported coal procurement across projects. The Group is proactively taking steps to seek enhancements in tariffs under PPAs.
Reliance on a few major customers

Implication The Power business supplies to a small number of large customers under PPAs. In particular, there is a signicant relationship with GUVNL in respect of the provision of power. The Company has in the past experienced payment Mitigation The litigation with GUVNL continues to be ongoing at the date of this report. To date the court rulings have been largely in favour of the Company and the Board consider the need for appropriate provisions at nancial reporting period end. difculties for services provided to GUVNL, which if continued could have a signicant impact on the Companys results. There is also an ongoing litigation case with GUVNL, which may result in nancial losses.
The Group has tight monitoring controls over receipt of overdue amounts from customers and litigation is undertaken where necessary.
38
Business review
Financial review
The following section provides an overview of our nancial performance for the 15 month period ended 31 March 2012, highlighting the key nancial drivers and performance indicators for Essar Energy plc and its subsidiaries (together referred toas the Group). The Income Statement (excluding exceptional items (see page 43))
15 months 12 months ended ended 31 March 31 December 2012 2010
(US$ million)
Change %
Revenue1 Operational EBITDA 2 Adjusted EBITDA2 Prot before tax (before exceptional items) Prot after tax (before exceptional items) Exceptional items3 (Loss)/prot after tax after exceptional items
1 Including sales tax benet but before its subsequent reversal. 2 See pages 40 and 41 for analysis. 3 See page 43.
21,956.7 10,005.6 696.2 718.9 613.1 431.0 129.0 365.5 98.2 248.3 (862.5) (764.3) 248.3
119% (1%) 42% (65%) (60%) (408%)
Segmental revenue and Operational EBITDA

Revenue1 15 months 12 months ended ended 31 March 31 December 2012 2010 Operational EBITDA 2 15 months 12 months ended ended 31 March 31 December 2012 2010
(US$ million)
Change %
Change %
Power Exploration and Production Rening and Marketing India excluding exceptional items (see page 43) Rening and Marketing UK Corporate Total
356.5 1.3
321.8 3.2
11% (59%) 57% 119%
222.5 (2.1) 522.1 (30.2) (16.1) 696.2
213.5 1.1 514.7 (10.4) 718.9
4% (291%) 1% (3%)
15,245.0 9,680.6 6,353.9 21,956.7 10,005.6
1 Including sales tax benet but before its subsequent reversal. Revenue stated after deducting inter-segmental consolidation adjustments of US$60.4 million (2010: US$27.8 million). 2 See pages 40 and 41 for analysis.
Revenues (including sales tax benet but before its subsequent reversal) Group Essar Energy increased revenue (before reversal of sales tax benet) by US$11.9 billion in the 15 month period ended 31March 2012, compared to the 12 month period to December 2010. Of this amount, US$6.4 billion reected the acquisition of the Stanlow renery and US$5.5 billion was the increase in revenue attributable to the Vadinar renery (before the reversal of the sales tax benet). Revenues Power Power revenues increased in 201112 by US$34.7 million to US$356.5 million from US$321.8 million in 2010 (after eliminating inter-segmental revenues for the current period of US$60.4 million (2010: US$27.8 million). On a 12 month pro rata basis revenue has decreased, due to lower UI in Bhander Power (US$23.5 million) compared to 2010 and adverse foreign exchange differences (US$12.9 million).
39
Production and availability from the Companys main operating power plants compared to the prior period was as follows:
Generation MU 15 months 12 months ended ended 31 March 31 December 2012 2010 Availability % 15 months 12 months ended ended 31 March 31 December 2012 2010 Plant Load Factor % 15 months 12 months ended ended 31 March 31 December 2012 2010
Asset
Hazira I (515 MW) Bhander (500 MW) Vadinar1,4 (120 MW) Vadinar P11,2,3,4 (380 MW) Algoma (85 MW) Salaya I5 (1200 MW) Total3
1 2 3 4 5
2,687 3,069 735 632 671 113 7,907
2,692 2,515 797 82 538 NA 6,624
98% 98% 93% 99% 95% NA
97 99 96 NA 94 NA
48% 56% 56% 15% 82% NA
60 57 75 NA 82 NA
BUSINESS REVIEW
Vadinar and Vadinar P1 results include steam supply converted into equivalent units of power generation. 2011 includes trial generation of 100 MU (including steam generation). VPCL Ph1 was under trial run in Q4 2010. PLF & Availability not considered, as plant under trial run. In VPCL Base Plant and Ph1, method of computing equivalent units of Power and PLF have been revised. Previous period gures CY2010 have been revised accordingly. Salaya I generation under trial run.
Operationally, all plants performed well in 201112, with the key measure of plant availability between 93% and 99%. Given the issues of high gas prices and low gas availability from Indias KG-D6 eld, overall generation from Essars portfolio in the 15 month period was 7,907 MU. This compares with 6,624 MU generated in the 12 months of 2010. The pro rata reduction in generation was primarily due to lower demand for power from the Bhander and Hazira I gas-red stations in Gujarat due to higher gas prices and import through UI, against export in the previous period. The smaller 85 MW gas-red plant at Algoma, Canada, providing power for Essar Steels plant, again performed well with generation for the 15 month period at 671 MWh. Revenues Exploration and Production Revenues were primarily impacted by lower production from the CB-ON/3 eld in Gujarat which led to decreased sales of 8,696 barrels in the 15 months of 201112 from 9,616 barrels in 2010, due to delays in receiving replacement sub-surface pumps. Revenues (including sales tax benet but before its subsequent reversal) Rening and Marketing India Rening and Marketing India revenues (including sales tax benet but before its subsequent reversal) increased by US$5,564 million from US$9,681 million in 2010 to US$15,245 million in the 15 months to March 2012. This was primarily as a result of an increase in the quantity of the products sold and higher product prices partly offset by decreased sales of traded products. In more detail: t US$3,936 million increase due to increases in the selling price of renery products. The average selling price of renery products was US$891/MT during the 15 month to March 2012 as against US$647/MT in 2010 t US$1,483 million increase in sales quantity of renery products. During the 15 month period ended March 2012 (including the 35 day scheduled shutdown), 16,113 KT of petroleum product was sold, again 13,819 KT in 2010 t US$46 million increase in sales tax benet mainly due to an increase in selling prices and the higher quantity of products sold as compared to the comparative period t Increase of US$143 million in traded crude oil sales t US$151 million decrease in traded products sales t Increase in Duty Draw Back Income of US$8 million t Decrease in Hedging Loss by US$13 million Revenues Rening and Marketing UK Stanlow renery has contributed sales of US$6.4 billion in the rst eight months of ownership to March 2012.
40
Business review
Financial review
Rening and Marketing operational information Throughput and production from the Companys rening assets compared to the prior period is as follows:
Throughput (mmt) 15 months 12 months ended ended 31 March 31 December 2012 2010 Production (mmt) 15 months 12 months ended ended 31 March 31 December 2012 2010
Operational Assets
Vadinar Stanlow Mombasa
17.1 6.8 2.0
14.7 1.6
16.3 6.3 1.9
13.9 1.5
The signicant change in the period was the acquisition of the Stanlow renery in August and the planned 35 day shut down at the Vadinar renery. EBITDA Operational EBITDA represents earnings before interest, tax, depreciation and amortisation and any non-operational items. Non-operational items include the reversal of the sales tax benet, the bargain purchase on acquiring the Stanlow renery, the gain on settlement liabilities and in addition, in 2010, the foreign exchange gain on conversion of the IPO proceeds in to US dollars and the prot on available for sale investments. Adjusted EBITDA removes the other foreign exchange impact (see page 42) and the deferred sales tax benet recognised in the period before its subsequent reversal. The reconciliation to prot after tax is shown in the table below:
Group 15M 31 Mar 2012 12M 31 Dec 2010 Power 15M 31 Mar 2012 12M 31 Dec 2010 Exploration and Production 15M 31 Mar 2012 12M 31 Dec 2010 R&M India 15M 31 Mar 2012 12M 31 Dec 2010 R&M UK 15M 31 Mar 2012 12M 31 Dec 2010 Corporate 15M 31 Mar 2012 12M 31 Dec 2010
(US$ million)
(Loss)/Prot after tax Exceptional items (see page 43) Depreciation and amortisation Net nance costs (before exceptional items) Tax (before exceptional items) Other non-operational Operational EBITDA (before exceptional items) Other Foreign Exchange Impact1 Sales tax benet (net of provision for welfare scheme)2 Adjusted EBITDA
1 See page 42. 2 See Note 8a.
(764.3) 248.3 862.5 204.2 127.0 383.9 287.4 30.8 117.2 (20.9) (61.0) 696.2 243.2
85.7 55.7 66.0 15.3 (0.2)
74.1 42.2 67.5 37.6 (7.9) 213.5 (16.7)
(3.2) 0.7 0.3 0.1 (2.1)
(1.1) (725.4) 148.1 862.5 0.3 129.0 84.5 1.9 221.8 218.8 39.5 75.1 (5.3) (11.8) 1.1 522.1 (2.8) 176.7 514.7 12.9
(63.5) 18.8 52.3 (24.1) (13.7) (30.2) 22.6
(57.9) 43.5 (1.7) (16.1)
27.2 (0.8) 4.5 (41.3) (10.4)
718.9 222.5 (6.6) 43.8
(326.3) (281.3) 613.1 431.0 266.3
196.8
(2.1)
(326.3) (281.3) (1.7) 372.5 246.0
(7.6)
(16.1)
(10.4)
The Groups Operational EBITDA before adjustment for loss of sales tax benet decreased by US$22.7 million, or 3.17%, inthe 15 months ended March 2012 compared to the 12 months ended December 2010. Operational EBITDA Power Powers operational EBITDA in the 15 months to March 2012 was higher by US$9.0 million at US$222.5 million than the US$213.5 million in the 12 months of 2010. Pro rata, this represented a decrease of 17%. This reduction in pro rata operational EBITDA was largely driven by the signicant Rupee depreciation during the period which created foreign exchange losses of US$43.8 million (2010: gain US$16.7 million) on borrowings and trade payable in foreign currencies. Operational EBITDA Rening and Marketing India R&M India operational EBITDA increased to US$522.1 million during the 15 month period ended March 2012 from US$514.7 million in the 12 months to December 2010. Operational EBITDA increased due to increase in GRMs of US$299.5 million, increased sales tax incentive of US$46.8 million which were offset by higher operating costs of US$36.8 million and foreign exchange losses of US$259.9 million (2010: gain U$33.6 million). Operational EBITDA Rening and Marketing UK The renerys performance in its rst period end of operation was an operational EBITDA loss of US$30.2 million. The results were primarily impacted by a reduced Northern European rening margin index which limited the Stanlow GRM to US$3.06/ bbl. This downward revision on the index has impacted the region as a whole.
41
Rening and Marketing CP EBITDA and CP GRM For further understanding of our Rening and Marketing operations we also present its operational EBITDA on an adjusted internal measure using the CP GRM, as dened in Appendix 1. CP GRM is not calculated under IFRS, but management believes that this information should be provided as it enables investors to better understand the underlying performance ofour reneries. The differences between CP EBITDA and Operational EBITDA for the Rening and Marketing operations are set out in the table below:
(US$ million unless specied) R&M India 15 months 12 months ended ended 31 March 31 December 2012 2010
CP GRM India (US$ per barrel) (including sales tax benet but before its subsequent reversal) CP GRM India (US$ per barrel) (excluding sales tax benet) CP EBITDA (excluding sales tax benet) (A) Add: sales tax benet (B) Foreign exchange impact (C) CP EBITDA (including sales tax benet but before its subsequent reversal and before foreign exchange impact) A+B+C CP EBITDA (including sales tax benet but before its subsequent reversal) (A+B) Impact of: Timing differences in pricing domestic products Time lag in crude prices Impact of inventory movement Hedging losses and other items Operational EBITDA Renery and Marketing India (including sales tax benet but before its subsequent reversal)
(US$ million unless specied) R&M UK
7.1 4.5 (36.3) 326.3 176.7 466.7 290.0 (99.2) 156.9 217.9 (43.5) 522.1
6.6 4.0 218.1 281.3 13.2 512.6 499.4 (99.1) 70.9 45.5 (2.0) 514.7
15 months ended 31 March 2012
CP GRM UK (US$ per barrel) CP EBITDA (A) Foreign exchange impact (B) CP EBITDA (before foreign exchange impact) (A+B) CP EBITDA (A) Impact of: Time lag in crude prices Impact of inventory movement Hedging losses including hedging costs and other items Operational EBITDA Renery and Marketing UK
3.1 (0.4) 22.6 22.2 (0.4) (8.1) 17.7 (39.4) (30.2)
Group CP EBITDA
Group 15M 31 Mar 2012 12M 31 Dec 2010 Power 15M 31 Mar 2012 12M 31 Dec 2010 Exploration and Production 15M 31 Mar 2012 12M 31 Dec 2010 R&M India 15M 31 Mar 2012 12M 31 Dec 2010 R&M UK 15M 31 Mar 2012 12M 31 Dec 2010 Corporate 15M 31 Mar 2012 12M 31 Dec 2010
(US$ million)
CP EBITDA (before exceptional items) Other Foreign Exchange Impact1 CP EBITDA (before exceptional items and before foreign exchange impact) Sales tax benet2 (net of provision for welfare scheme) CP EBITDA (before other foreign exchange impact)
493.9 243.2 737.1
703.6 222.5 (6.6) 43.8 697.0
213.5 (16.7)
(2.1) (2.1)
1.1 290.0 (2.8) 176.7 (1.7) 466.7
499.4 12.9 512.3
(0.4) 22.6 22.2
(16.1) (16.1)
(10.4) (10.4)
266.3 196.8
(326.3) (281.3) 410.8 415.7 266.3 196.8 (2.1)
(326.3) (281.3) (1.7) 140.4 231.0 22.2 (16.1) (10.4)
See Appendix 1 for details of how CP GRM is calculated. 1 See page 42. 2 See Note 8a.
42
Business review
Financial review
Net nance costs (excluding exceptional items)
(US$ million)
Total nance costs (excluding exceptional items) Less: borrowing costs capitalised Unwinding of discount Finance cost charged to the income statement (excluding exceptional items) Total nance income Less: interest income capitalised Finance income recognised in the income statement Net nance costs (excluding exceptional items)
(889.2) 399.8 (32.5) (521.9) 146.7 (8.7) 138.0 (383.9)
(471.7) 154.6 (19.5) (336.6) 64.2 (15.0) 49.2 (287.4)
The total nance cost has increased by US$417.5 million primarily due to increases in loans taken for power projects, expansion of the Vadinar renery, convertible bonds and the bridge loan. Net nance costs increased due to the increased interest cost of loans mentioned above offset by an increase in interest income from the short-term deployment of surplus funds of US$82.5 million together with an increase in interest capitalised of US$245.2 million in respect of costs directly attributed to assets under construction. The adjustment within nance costs for the loss of sales tax benet amounts to US$58.6 million and reects the unwinding of the discount on the liability to the State of Gujarat and the additional interest provided of US$321.5 million on the lapse of a prepayment option relating to a facility that was part of the MRA loan. Foreign exchange impact The total foreign exchange impact for the 15 months to 31 March 2012 was US$316.9 million, excluding a non-operational gain of US$1.7 million (2010: US$41.3 million), due to the depreciation of the Rupee against the US dollar. A certain portion of the foreign exchange impact amounting to US$73.7 million is offset in the pricing of products in our Renery and Marketing businesses. The other foreign exchange impact items amounting to US$243.2 million relate to the revaluation of assets and liabilities at the end of the period, the foreign exchange impact on project nance transactions and the cost of foreign exchange hedging.
Group 15M 31 Mar 2012 12M 31 Dec 2010 Power 15M 31 Mar 2012 12M 31 Dec 2010 Exploration and Production 15M 31 Mar 2012 12M 31 Dec 2010 R&M India 15M 31 Mar 2012 12M 31 Dec 2010 R&M UK 15M 31 Mar 2012 12M 31 Dec 2010
(US$ million)
Foreign exchange offset impact (loss)/gain Other foreign exchange impact (loss)/gain Total forex (loss)/gain
(73.7) (243.2) (316.9)
46.5 6.6 53.1
(43.8) (43.8)
16.7 16.7
(83.2) 2.8 (176.7) 2.8 (259.9)
46.5 (12.9) 33.6
9.4 (22.6) (13.2)
Taxation The Groups March 2012 effective tax rate was 33.4% compared with December 2010 rate of 32.1%. The tax income of US$383.4 million in March 2012 (December 2010: tax charge of US$117.2 million) comprises current tax of US$38.1 million (December 2010: US$30.6 million) and a deferred tax income of US$421.5 million (December 2010: deferred tax expense of US$86.6 million). The current tax charge has increased due to an increase in prots which are subject to corporate income tax or MAT as appropriate. The majority of prots derived from operations in India are subject to MAT. MAT is charged on book prots in India at a rate of 20.01%, but is available as a credit against corporate income tax in the following 10 years. In addition a deferred tax asset was created at 24% on the losses incurred by Essar Oil UK. The adjustment within taxation for the loss of sales tax benet reects a deferred tax asset amounting to US$309.9 million based on the India Corporate tax rate has been recognised on the consequential losses of the sales tax benet to be set off against future prots and US$104.3 million of additional interest recognised due to the expiry of a prepayment option in April 2012 of a facility that was part of the MRA loan.
43
Other non-operational gains and losses Other gains and losses include non-operational gains that have decreased by US$40.1 million to US$20.9 million for the 15month period to 31 March 2012 compared to US$61.0 million in 2010. The decrease is largely due to the one-off gain in 2010 of US$41.0 million from conversion of the IPO proceeds into US dollars partially offset by a gain on the acquisition of the Stanlow renery in the 15 month period to 31 March 2012 of US$18.9 million. Exceptional items During the 15 month period there were two non-recurring items of such signicance that they have been disclosed separately on the face of the prot and loss account. The rst item concerns the eligibility of the Groups subsidiary Essar Oil to participate in the Sales Tax Incentive Scheme (the Scheme) where on 17 January 2012, the Honourable Supreme Court of India set aside the previous judgment of the High Court of Gujarat and ruled that the Group could not participate in the Scheme. The Group continued to apply the accounting policy in respect of the Sales Tax benet up to 31 December 2011 as the revenue was earned. The result of the Honourable Supreme Court judgment on 17 January meant the entire amount previously recognised to 17 January 2012 was adjusted in the current period. The second item is an additional non-cash interest charge due to the lapse of a prepayment option relating to a facility that is partof Essar Oils MRA loans. Essar Oil is in the process of replacing the current MRA loans with a new loan facility (the CDR exit). The new facility is in the nal stages of documentation and we expect nal approval for the CDR exit shortly. As a result of the current stage of replacing the MRA loans, Essar Oil did not exercise a prepayment option on one of the MRA facilities which was available up until 24 April 2012. Previously, the assumption had been that Essar Oil would exercise this pre-payment option. However, as the new facility has not yet been signed, under IFRS the accounting treatment reects the current MRA terms, which means a revaluation of the loans excluding the prepayment option. The impact, net of deferred tax, is US$217 million which is an accounting provision and has no immediate cash ow impact. We expect this provision to be partially reversed oncethe new facility is nalised. The impact of both these exceptional items on the 15 months to 31 March 2012 is as follows:
15 months ended 31 March 2012 (US$ million) Loss of Sales Tax Benet Interest on lapse of prepayment option
Total
Adjustment to Revenue Adjustment to General and administration expenses Impact on EBIDTA Adjustment to Finance costs/additional interest charge Impact on Prot before tax Adjustment to tax Impact on Prot after tax
(1,053.7) 39.9 (1,013.8) 58.6 (955.2) 309.9 (645.3)
(1,053.7) 39.9 (1,013.8) (321.5) (262.9) (321.5) (1,276.7) 104.3 414.2 (217.2) (862.5)
Loss after tax Loss after tax is US$764.3 million compared to prot after tax of US$248.3 million in 2010 resulted in a decrease of US$1,012.6 million. This is after providing for exceptional items of US$862.5 million as explained in exceptional items above and the balance of US$150.1 million was as a result of the operations as discussed above. Operational earnings per share of 3.2 US cents in 201112 is down from 17.1 US cents per share in 2010 as a result of the reduced prot after tax. Basic earnings per share shows a loss of 53.0 US cents reecting the impact of the exceptional items discussed above and in further detail in Note 11. Further information on earning per share is included in Note 11.
44
Business review
Financial review
Balance sheet
(US$ million) As at As at 31 March 31 December 2012 2010
Property, plant and equipment (net of depreciation) Other non-current assets Current assets Total assets Current liabilities Non-current liabilities Total liabilities Total equity including non-controlling interests Interest-bearing loans and borrowings Less: Short-term working capital loan Gross debt (underlying) (A) Cash and cash equivalents and bank deposits Less: Lien/earmarked for specic use including restricted cash Cash available for operations (B) Net debt (underlying) (A-B)1 Total equity Gearing % (net debt (underlying)/(net debt (underlying) + total equity))
10,202.1 8,411.8 673.0 698.8 6,532.5 3,363.6 17,407.6 12,474.2 7,603.5 2,772.0 6,157.6 5,060.1 13,761.1 7,832.1 3,646.5 4,642.1 7,646.5 936.9 6,709.6 1,138.7 702.1 436.6 6,273.0 3,646.5 63.2% 4,497.6 457.8 4,039.8 1,093.1 618.6 474.5 3,565.3 4,642.1 43.4%
1 Net debt adjusted for bank deposits, restricted cash, amounts earmarked for specic use and short-term working capital loans. See Note 25 of the nancial statements.
Capital expenditure
(US$ million)
Power Exploration and Production R&M India R&M UK Corporate Total
1,621.8 122.9 953.3 61.2 1.4 2,760.6
1,931.5 51.0 749.8 2,732.3
Property, plant and equipment (Net)

As at 31 March 2012 Net book value (US$ million)
Assets under construction1
As at 31 December 2010 Assets under construction1
Operational
Total
Operational
Total
Power Exploration and Production R&M India R&M UK Corporate Total

1 Assets under construction include mining properties and exploration and evaluation assets.
841.8 50.8 4,577.1 377.0 5,867.4
3,874.3 4,716.1 261.2 312.0 143.0 4,720.1 75.6 452.6 1.30 1.3 4,355.4 10,202.1
806.8 46.1 3,203.9 4,056.8
2,856.2 160.1 1,338.7 4,355.0
3,663.0 206.2 4,542.6 8,411.8
Property, plant and equipment (net) has increased by 21% against December 2010. The increases by segment, including assets under construction after impact of exchange difference, are as follows: t Power US$1,053.1 million t Exploration and Production US$105.8 million t Rening and Marketing India US$177.5 million
45
The Group acquired assets of US$408.9 million as part of the acquisition of the Stanlow renery and a further US$61.2 million was spent post acquisition. In the Power segment, operational assets increased mainly due to the commissioning of Vadinar P1 with the transfer of the related assets from assets under construction to operational offset by exchange rate variations. The operational assets in R&M India increased mainly due to commissioning of the Vadinar renery phase 1 project. The 14% depreciation of the Rupee from December 2010 caused a reduction in property, plant and equipment of US$505.4 million, US$26.9 million and US$623.0 million in the Power, Exploration and Production and Renery and Marketing India segments respectively. Debt
(US$ million unless specied) As at As at 31 March 31 December 2012 2010
Rupee debt (Rs. in billion) Rupee debt US dollar debt Gross debt (underlying) Cash available for operations Net debt (underlying)1 USD/INR Rates at the end of each period
1 See Note 25.
231.7 4,529.9 2,179.6 6,709.6 436.6 6,273.0 51.16
126.2 2,817.4 1,222.4 4,039.8 474.5 3,565.3 44.81
The increase in borrowings is in line with funding requirements in respect of expansion projects in Power, Exploration and Production and Renery and Marketing India segment and a US$321.5 million impact from exceptional items. The 14% depreciation of the Rupee from December 2010 caused a reduction in loans of US$641.9 million compared with the exchange rate at 31 December 2010. Other non-current assets Other non-current assets have decreased by US$25.8 million over December 2010 primarily as a result of reclassication ofreceivable of sales tax assignment liability paid to current assets and reduction in prepayment of arrangement fees on unutilised debt facilities partly offset by deferred tax assets created on business losses. Current assets Current assets have increased by US$3,168.9 million to US$6,532.5 million over December 2010 primarily as a result of thefollowing: t Current assets of the Stanlow renery US$2,321 million t US$405 million reclassication from non-current assets to current assets of the sales tax assignment liability which is partlyset off by a reduction of US$46 million in the sales tax liability already paid included within non-current assets t An increase in export debtors of US$164 million made over the period end which was partly offset by a decrease in domestic debtors of US$11 million t An increase of US$35 million in inventory as result of coal inventory for power plant Current liabilities Current liabilities increased by 174% to US$7,603.5 million from 31 December 2010, primarily due to: t Current liabilities of the Stanlow renery of US$2,221.3 million including deferred consideration for the Stanlow renery t Deferred sales tax liability of US$1,206 million t An increase in crude oil liabilities up by US$900 million t A loan of US$450 million to acquire Stanlow renery t Increase in short-term working capital loan US$235.8 million Non-current liabilities Non-current liabilities have increased by US$1,097.5 million, representing a 22% increase, from 31 December 2010 primarily due to the following: t US$224.0 million decrease on the discounted sales tax liability following reclassication to current liability t US$2,064 million increase in long-term borrowings which include a convertible bond of US$550 million and a US$450 million secured and guaranteed term loan as noted in the capital and liquidity section t Decrease by US$160 million in deferred tax liabilities driven primarily by the impact of property, plant and equipment as well as unabsorbed depreciation, business losses and recognition of MAT credit
46
Business review
Financial review
Cash ows
(US$ million)
Net cash generated from operating activities (A) Acquisition of subsidiary, including cost of acquisition Purchase of property, plant and equipment Other investments Net cash used in investing activities (B) Interest paid (C) Free cash ow excluding bank deposits (A+B+C) Proceeds from issuance of share capital Total cash change before net borrowings Cash ow from nancing activities other than interest paid Net increase in cash and cash equivalents Cash and cash equivalents at end of period Bank deposits at end of period Cash, cash equivalents and bank deposits at end of period Restricted cash and amounts earmarked for trade payables Net cash, cash equivalents and bank deposits
1,116.3 (261.8) (1,024.0) (31.2) (2,268.2) (2,556.2) (29.2) (24.6) (3,321.4) (2,612.0) (622.7) (309.1) (2,827.8) (3,182.9) 2,442.5 (2,827.8) (740.4) 2,956.7 1,194.2 128.9 453.8 674.0 563.7 464.7 529.4 1,138.7 1,093.1 (702.1) (618.6) 436.6 474.5
Net cash used in investing activities has increased by US$709.4 million from US$2,612.0 million in 2010. The increase is mainly due to investment of US$1,024.0 million in the Stanlow renery and the lower expenditure is as a result of certain projects nearing completion. At the 31 March 2012 there was net cash, cash equivalents and bank deposits amounting to US$436.6 million (2010 US$474.5 million) which will be used by the business in funding future growth. Capital and liquidity During 2011, the Company issued a convertible bond which raised US$550 million (before transaction costs) to pursue current and further investments. On 1 July 2011, Essar Energy entered into a US$450 million secured and guaranteed term loan. Essar Energy utilised this loanto enable Essar Oil UK to nance the Stanlow acquisition and may also utilise the loan, amongst other things, for general corporate purposes. This loan was renanced on 14 May 2012 with a new US$300 million three year secured loan facility and US$150 million of internal cash resources. Separately, Essar Energy also signed on the same date a US$250 million 3.5 year subordinated unsecured loan facility with Essar Global for general corporate purposes. A US$1.5 billion working capital revolving credit facility was executed on 1 July 2011 to nance the inventory and operating requirements of the Stanlow renery. Despite volatile market conditions, syndication of US$750 million was completed with seven new lenders added to the original six underwriting banks. Essar Oil has submitted a proposal to exit the current MRA loan facility of US$1.7 billion by a fresh loan facility with standard terms and conditions. Essar Oil is currently at the nal stages of negotiation to exit the existing MRA loan facility, nal approval for which is expected shortly. Essar Oil is also in the advanced stages of arranging a new c.US$1 billion (Rs. 50 billion) bank term loan facility. This facility is being put in place as a contingency measure for in the event that Essar Oil is required to pay its deferred sales tax liability to the Government of Gujarat. Essar Energy had underlying gross debt of US$6,710 million, net debt (underlying) of US$6,273 million and gearing of 63.2% as of 31 March 2012. At 31 December 2010, Essar Energy had gross debt of US$4,040 million, net debt (underlying) of US$3,565 million and gearing of 43.4%. The gross and net debt increased largely as a result of the Companys continued capital expenditure programme in the Power, Exploration and Production and Rening and Marketing India businesses and following the acquisition of the Stanlow renery. It is anticipated that the Groups debt will continue to increase as projects are funded with peak debt forecast to occur in FY 2013. Any surplus funds are invested in highly rated liquid securities, bank deposits, a trade advance and short-term recoverable advance in line with the Groups nancial and risk policy. The Group continues to be able to borrow at competitive rates for working capital and expansion projects.
47
Going concern The Group has prepared detailed annual business plans for the year to June 2013 based on the annual business plans for the 2013 nancial year. These business plans were used as the basis for assessing the Groups cash headroom and compliance with banking covenants. The Groups forecasts and projections, taking account of reasonably possible charges in trading performance, show that the Group should be able to operate within its current available funding and anticipated roll-over of facilities which mature in the ordinary course of business together with other facilities which have been agreed with the relevant banks but await nal documentation. As set out in Note 8, on 17 January 2012, the Supreme Court of India ruled that the Group was not entitled to participate in the Sales Tax Incentive Scheme (the Scheme), and on 24 January the Government of Gujarat served notice on the Group requiring it to pay the outstanding sales tax liability of US$1,186.9 million plus associated interest. The Group has now led a writ petition with the High Court of Gujarat to waive or reduce the interest owed, and to defer the payment of sales tax over a number of years as may be permitted under the Gujarat Value Added Tax Act 2003. The High Court of Gujarat has admitted the writ petition and asked the Government of Gujarat to consider this application. In view of the matter being sub judice, the timing of payment of the sales tax liability and related interest, if any, is not denitive and will not be known until determined by the current legal process. In view of this and based on legal advice, the interest on the Sales Tax liability has been treated as a contingency as set out in Note 29. The Group plans to fund any repayment of the sales tax liability through a combination of internal funding and through obtaining a new loan facility. The Group is currently in advanced stages of establishing credit facilities of c.US$1 billion with its lenders to ensure that the Group has adequate funds available to meet any liabilities due to the State of Gujarat as and when the decision of the Government of Gujarat/the High Court is established. Although the facility is expected to be committed shortly, the process is ongoing. For this reason the Directors are required to conclude that these circumstances represents a material uncertainty that may cast signicant doubt upon the Groups and Companys ability to continue as a going concern. Although there is no denitive sales tax liability payment schedule at this time, the Board is condent of arranging the facility well ahead of any payments falling due, resulting from the pending legal process. In addition, if the Government of Gujarat permits payment of the liability in instalments as requested then the facility may not be fully drawn down with the liability partly met through the Groups internal resources. The Directors have examined all available evidence and have concluded that although there is a risk that they will not be able to secure agreement with the lenders outlined above, in light of the supportive nature of the relationship held with the lenders and the advanced stage the Group is in establishing the facility, the Directors are satised that adequate nancial resources will continue to be made available to the Group and the Company so as to enable it to continue to trade on a going concern basis. As a result, the Directors continue to adopt the going concern basis inpreparing the Group and Companys nancial statements.
48
Governance
Board of Directors
Mr Prashant Ruia, 43 Chairman and Non-Executive Director

Appointed as the Interim Chairman of Essar Energy in December 2011 combining this with his previous role as the Vice Chairman andalso serves as a member of the Nomination and Governance Committee. Mr Prashant Ruia is a non-resident Indian and the ChiefExecutive of Essar Group. Mr Ruia has been involved with the EssarGroups operations and management since 1985 and he is fundamental to its strategy, continued growth and diversication bothwithin India and internationally. Mr Ruia is known for his project management skills, nancial expertise and people management capabilities. Mr Ruia holds several key positions on various regulatory and professional boards, and was a member of the Prime Minister of Indias advisory council on trade and industry in 2007. He is currently a member of the audit committee of the World Steel Association and a member of the Energy Boardroom at the World Economic Forum. (With effect from 1 July 2012 Mr Prashant Ruia will be appointed as the permanent Chairman of Essar Energy.)
Mr Naresh Nayyar, 60 Chief Executive Ofcer

Appointed to current role in 2010 and a member of the Health, Safety and Environment Committee and of the Monthly Review Committee. Mr Nayyar joined Essar Oil in October 2007 and servedas its Managing Director and CEO until 1 December 2011. He now serves as the Deputy Chairman of Essar Oil. Prior to joining Essar Oil, Mr Nayyar was the CEO of ONGC Mittal Energy Limited (a joint venture between Oil & Natural Gas Corporation Limited andMittal Investments) from November 2005 to September 2007. Previous directorships include Indian Oil Corporation, Oil & Natural Gas Corporation, Petronet LNG Ltd, IBP, and Lanka IOC Limited where he served as Chairman. He was also Chairman of the Indian Oil Marubeni Panipat Power Project between March 2003 and November 2005.
Mr Ravi Ruia, 63 Non-Executive Director

Chairman of Essar Energy until December 2011, he remains a Non-Executive Director. Mr Ravi Ruia is a non-resident Indian andisthe Vice Chairman of Essar Group. Mr Ruia belongs to the generation of industrialists who have played a signicant role in leading Indias industrial renaissance. An engineer by training, with proven entrepreneurial skills, he has helped to develop the Essar Group with his elder brother, Mr Shashi Ruia, to become one of the leading names in the global industry. Mr Ruia has overseen Essar Groups globalisation plans including new ventures in Africa, South East Asia and the Middle East and has led the acquisitions ofAlgoma Steel (now called Essar Steel Algoma) in Canada, Minnesota Steel (now called Essar Steel Minnesota) and Trinity Coalin the USA. He was the recipient of the Business India Businessman of the year in 2010.
Mr Sattar Hajee Abdoula, 53 Independent Non-Executive Director

Appointed to the Board in April 2010, Chairman of the Audit Committee and a member of the Health, Safety and Environment Committee. Mr Hajee Abdoula has over 30 years of experience in audit, consultancy and taxation with signicant experience in providing advice to global businesses on structures and tax issues. Mr Hajee Abdoula qualied as a Chartered Accountant in 1985 and had a successful career with BDO in London before moving to Mauritius. Asa founder partner of Grant Thornton and CEO of Grant Thornton inMauritius, he has been the Senior Taxation and Advisory Services partner since its launch in 1999, advising a wide variety of clients. Heis also the lead partner for litigation support. Mr Hajee Abdoula is currently an Independent member of the board of two non-bank nancial institutions in Mauritius. Mr Hajee Abdoula has a wide advisory experience in Africa and has also advised the Government ofGhana on scalissues.
49
Mr Philip Aiken, 63 Independent Non-Executive Director

Appointed to the Board in April 2010. Chairman of the Health, Safety and Environment Committee and a member of the Remuneration Committee. Mr Aiken is currently Senior Independent Director of Kazakhmys plc, a Non-Executive Director of National Grid plc and Miclyn Express Offshore and was recently appointed Deputy Chairman of the AVEVA Group. He recently stepped down as Chairman of Robert Walters plc. He has over 35 years of experience in industry and commerce having held senior positions with BTR and the BOC Group in the UK and Australia. Previous appointments include Group President Energy, BHP Billiton and President BHP Petroleum, Chairman of the 2004 Sydney World Energy Congress and a board member of Governor of Guangdong International Consultative Council, World Energy Council, and Monash Mt Eliza Business School. (With effect from 1 July 2012 MrAiken will be appointed as the Senior Independent Non-Executive Director of Essar Energy and will be appointed totheNomination and Governance Committee.)
Mr Subhas Lallah S.C., 67 Independent Non-Executive Director

Appointed to the Board in April 2010. Chairman of the Remuneration Committee and a member of the Audit and Nomination and Governance Committees. Mr Lallah is a Senior Counsel in Mauritius and has had a legal career that spans 40 years. He has represented domestic and international companies inarbitration and sits as an independent Director on the boards of Mauritius Eagle Insurance Company Ltd, Mauritian Eagle Leasing Co Ltd, Deutsche Bank Offshore Mauritius Ltd, and a number of international funds. Mr Lallah is a former member of the Board ofGovernors of the Mauritius Broadcasting Corporation, was Chairman of the National Transport Corporation, was a member ofparliament of the Republic of Mauritius between 1982 and 1995 and was also a deputy chief whip and deputy speaker of the national assembly. Mr Lallah read law and political science and wascalled to the UK Bar in 1970 and the Mauritius Bar in 1971. (With effect from 1 July 2012 Mr Lallah will relinquish his role on theAuditCommittee.)
Mr Simon Murray CBE, 72 Senior Independent Non-Executive Director

Appointed to the Board in April 2010. Chairman of the Nomination and Governance Committee and a member of the Audit and Remuneration Committees. Mr Murray is currently the Chairman ofGEMS, and was appointed the independent Non-Executive Chairman of Glencore International plc in April 2011. He is also a Board Director of Cheung Kong Holdings Ltd, Orient Overseas (International), Wing Tai Properties Ltd, Richemont SA, and IRC Limited. He has, in the past, served on boards and held advisory positions with a number of companies such as Vodafone, Tommy Hilger Corporation, Vivendi Universal, Usinor SA, Hermes, General Electric (USA), China National Offshore Oil Corporation (CNOOC), Macquarie Bank, N.M. Rothschild, and Bain (the consultancy company). He continues to serve on the advisory board of Lightbridge Corporation (USA), SouthWest Energy (BVI) Ltd, and isa Senior Advisor on the International Advisory Council of Huawei Technologies Co. Ltd, PRC. Until recently Mr Murray served on the Development Advisory Board of Imperial College, London. (With effect from 1 July 2012, Mr Murray will be appointed as the Vice Chairman of Essar Energy and will relinquish his role on the Remuneration Committee.)
Mr Steve Lucas, 58 Independent Non-Executive Director

Appointed to the Board on 29 March 2012. Mr Lucas is currentlyaNon-Executive Director of the drilling company Transocean Ltd, Essar Infrastructure Limited and Tullow Oil plc where he is the Chairman of the Audit Committee and a member of the Remuneration Committee. Before that, he was Finance Director at National Grid plc from 2002 to 2010 and has signicant expertise in energy and power, infrastructure nance and treasury. Previously heworked for 11 years at Royal Dutch Shell and for six years at BG Group, latterly as Group Treasurer. Mr Lucas retired last year as aNon-executive Director of Compass Group plc where he was chairman of the Audit Committee. (With effect from 1 July 2012, MrLucas will be appointed to the Audit Committee and the Remuneration Committee of Essar Energy.)
50
Governance
Senior Management team
Mr P Sampath Chief Financial Ofcer

Mr Sampath was appointed the Chief Financial Ofcer of Essar Energy in September 2010. He joined the Essar Group in August 2008 and was previously the Director Finance of Essar Oil. He hasover 30 years of experience in various elds including globalcorporate nance and treasury, mergers and acquisitions, corporate business planning, investor relations, global HR strategy and nancial and management accounting. Prior to this, MrSampath held a number of senior nance roles including Group Chief Financial Ofcer for RPG Enterprises Limited and Managing Director of GHCLLimited. Mr Sampath has a rst class Bachelor of Commerce degree from Madras University, is a Fellow Member of both the Institute of Cost and Works Accountants of India and the Institute ofCompany Secretaries of India.
Mr Lalit Kumar Gupta Managing Director and Chief Executive Ofcer of Essar Oil
Mr Lalit Kumar Gupta has been head of the downstream Oil Rening Business of Essar in India since December 2011. Mr Gupta has 31 years of diverse leadership experience in core sectors across Energy (Oil & Gas), Utilities (Power) and Steel. Prior to joining Essar Group, he has held Board level positions as CEO and Joint Managing Director of JSW Energy Ltd and Director (Finance) with MRPL (ONGC subsidiary). He has diverse experience across all strategic business functions including international oil trading, nance, taxation, insurance, legal and commercial function. MrGupta is a Rank Holder Chartered Accountant and also a Company Secretary and holds a Bachelors Degree in Commerce (Gold Medallist), from Jiwaji University, Gwalior.
Mr KVB Reddy Executive Director Essar Power

Mr Reddy is the Executive Director of Essar Power. He is responsible for formulating and directing the overall business strategy of the Power business group and project execution and has been with theEssar Group since 1995. Mr Reddy has more than 29 years of experience in the power industry and has previously worked for the National Thermal Power Corporation where he gained in-depth experience in the areas of project planning, materials, commercial and erection and commissioning. During this time, he set up three gas-based combined cycle power projects at Anta, Auraiya and Kawas. Mr Reddy is a graduate in mechanical engineering from NITBhopal.
Mr Iftikhar Nasir Chief Executive Ofcer of Exploration and Production business

Mr Nasir is Chief Executive Ofcer of Essar Energys Exploration andProduction business. He joined Essar Energy in July 2008 asExecutive Director of Strategy and Business Development and spearheaded closure of Essars acquisitions of the Mombasa renery in Kenya and the Stanlow renery in the UK. Mr Nasir has over 24 years of industry experience. He joined Essar from BP, where he was the Regional Vice President of Group Business Development. During his tenure with BP he led a range of business activities across the energy value chain from Exploration and Production to Petrochemicals. Previous roles included Commercial Director for the Exploration and Production Segment across the Middle East and for the Africa, Middle East, Russia and Caspian Region at Group level. Mr Nasir is a Graduate from the Royal Societyof Chemistry, a Post Graduate member of the Chartered Institute ofMarketing and has completed the Stanford Senior Executive Program.
51
Mr Volker Schultz Chief Executive Ofcer of Essar Oil UK

Mr Schultz joined Essar Energy in October 2011 as Chief Executive Ofcer of Essar Oil UK, which includes the Stanlow renery, the UKs second largest renery. Mr. Schultz joined Essar Energy from BP, where he worked for 23 years in various senior commercial, strategy and manufacturing positions including global Head of Rening and Marketing Strategy and Portfolio and beforehand Business Unit Leader/Managing Director of the BP Lingen renery. He has worked in the UK, Germany, the USA and South Africa. MrSchultz holds a Master of Science in Management from the Stanford University Graduate School of Business and a Bachelor ofScience in Chemical Engineering from the University of KwaZulu-Natal in South Africa.
Mr Mark Lidiard Director of Investor Relations and Communications

Mr Lidiard is the Director of Investor Relations and Communications for Essar Energy and joined the Company in April 2010. Mr Lidiard was previously the Group Communications Director at Lloyds TSB from 2008 to 2009, 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. From 1997 to 2000, Mr Lidiard was the Assistant Group Treasurer and Head ofProject Finance at Powergen which included responsibility for power project nancings in India. He has a postgraduate certicate in business management from Thames Valley University and a degree in Physics with Geology from Southampton University.
52
Governance
Directors report
The Directors have the pleasure in presenting their annual report and audited accounts for the 15 month period ended 31 March 2012. The information contained in the Business review, Board of Directors, the Corporate governance report and the Statement of Directors responsibilities forms part of the Directors report. Principal activities Essar Energy plc is a holding company. The principal activities of the Group of which it is the parent are those of an India-focused energy company with assets across the power and oil and gas industries. The Group comprises four operating divisions: t Rening and Marketing India; t Rening and Marketing UK; t Exploration and Production; and t Power. Business review A detailed Business review for the Group as required by section 417 of the Companies Act 2006 can be found in the sections of this annual report listed below, which are incorporated into this Directors report by reference. These comment on the operation and development of the business and its future prospects along with details of key performance indicators and the description of the principal risks and uncertainties facing the Group. t Highlights on page 1; t Essar Energy at a glance on pages 2 and 3; t Chairmans statement on pages 4 and 5; t Chief Executive Ofcers review on pages 6 and 7; t Market overview on pages 8 and 9; t Our strategy and business model on pages 10 and 11; t Key performance indicators on page 13; t Operating review on pages 14 to 27; t Corporate responsibility on pages 28 to 31; t Principal risks and uncertainties on pages 32 to 37; and t Financial review on pages 38 to 47. This Business review and other sections of this annual reportcontain forward looking statements. The extent to which the Companys shareholders or anyone may rely on these forward looking statements is set out inside the back cover of this annual report. Corporate governance The Company is required to comply with the Governance Code throughout the period or explain its reasons for non-compliance. A report on corporate governance and compliance with the provisions of the Governance Code is set out on pages 57 to 64. Dividends No nal dividend for the 15 month period ended 31 March 2012 has been declared, and no nal dividend was declared for the 12 month period ended 31 December 2010. No interim dividend was declared for the six month period to 30 June 2011 or the 12 month period to 31 December 2011. Relationship agreement Prior to Listing in May 2010, Essar Energy was a wholly owned subsidiary of Essar Global. On 30 April 2010 Essar Energy and Essar Global entered into a relationship agreement to regulate the ongoing relationship between the Company and Essar Global. The principal purpose of the Relationship Agreement is
to ensure that the Group is capable of carrying on its business independently of Essar Global and its associates (for the purpose of this summary, as dened in the Relationship Agreement) and that transactions and relationships are at arms length and on normal commercial terms (other than certain de minimis transactions). The Relationship Agreement will continue for so long as the ordinary shares are listed on the premium listing segment of the Ofcial List and traded on the LSE and Essar Global, together with its associates, has an aggregate interest of at least 30% inthe issued shares of Essar Energy. The key terms of the Relationship Agreement are set out in Appendix 2 of this Report on pages 143 and 144. The Directors believe that the terms of the Relationship Agreement enable the Company to carry on its business independently from the Essar Group and its associates. Directors and Directors authority The names and biographies of each Director as at the date of this report appear on pages 48 and 49. On 21 December 2011, Mr Ravi Ruia stepped down as Chairman of the Board although he remains a Non-Executive Director of the Company, and Mr Prashant Ruia was appointed as Chairman in his place. On 29 March 2012, following the recommendation of the Nomination and Governance Committee, Mr Steve Lucas was appointed asanIndependent Non-Executive Director. The Directors may from time to time appoint one or more Director(s). Any such Director shall hold ofce only until the next AGM and shall then offer themselves for election by the Companys shareholders. In accordance with the Companys Articles of Association, which require the Directors to retire and offer themselves for election by shareholders at the rst AGM after their appointment, Mr Steve Lucas will offer himself for election at the forthcoming AGM. Notwithstanding that the Articles of Association provide that one third of the Directors (or the number nearest to one third) are to retire by rotation at each AGM and offer themselves for re-election by the shareholders, all of the Directors will seek re-election at the forthcoming AGM and intend to do so thereafter on an annual basis at each future AGM, in compliance with the Governance Code. At the Companys 2011 AGM the Directors were given authority to allot up to an aggregate nominal amount of 21,723,954.88, being an amount equal to one third of the Companys issued ordinary share capital. The Company was also authorised by a shareholders resolution to make market purchases of its ordinary shares up to 130,343,729 ordinary shares representing 10% of its issued ordinary share capital. These authorities will expire on 18 August 2012 and similar authorities will be proposed at the 2012 AGM to be held on 4 September 2012. In addition, the Company may not generally allot shares for cash without rst making an offer to existing shareholders in proportion to their existing holdings. This is known as rights of pre-emption. A resolution to allow a limited waiver of these rights was passed at last years AGM. This authority expires on 18 August 2012 and it is proposed that a similar waiver be approved at the forthcoming AGM. Full details of the proposed waiver and of the other authorities to be renewed are set out in the Notice of the AGM. No shares were allotted by the Directors or purchased by the Company during the 15 month period to 31 March 2012.
53
Directors indemnities and insurance Directors and ofcers are indemnied under the Articles of Association of the Company, to the extent permitted by the Companies Act 2006. In addition, the Company has entered into a deed of indemnity with each Director in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006. The Company has also purchased Directors and Ofcers liability insurance, which was renewed in May 2012 and remains in place at the date ofthis report. Directors interests The number of ordinary shares of the Company in which theDirectors (or a person connected with a Director) were interested, as at 31 March 2012, were as follows:
31 March 2012
Voting rights Ordinary shareholders are entitled to receive notice and to attend and speak at any general meeting of the Company. On a show of hands every shareholder present in person or by proxy (or being a corporation present by a duly authorised representative) shall have one vote, and on a poll every shareholder who is present in person or by proxy or (in thecase of a corporate member) by a duly authorised representative) shall have one vote for every share of which he is the holder. A shareholder entitled to attend and vote at a general meeting may appoint one or more proxies to attend and vote instead of him. If a member appoints more than one proxy he must specify the number of shares which each proxy is entitled to exercise rights over. A proxy need not be a shareholder of the Company. Variation of rights Subject to the Companies Act 2006, whenever the share capital of the Company is divided into different classes of shares, the rights attaching to any class of shares may be varied with the consent in writing of the holders of threequarters in nominal value of the issued shares of the class or with the sanction of a special resolution passed at a separate general meeting of the shareholders. Transfer of shares Essar Global and the Directors were subject to a lock-up arrangement in accordance with an underwriting agreement dated 30 April 2010 and related arrangements under which they were not permitted to sell their shares for a period of 365 days following the Listing. The Company itself was also subject to a lock-up arrangement pursuant to the Underwriting Agreement. The Company agreed that, subject to certain exceptions, during the period of 365 days from Listing, it would not, without the prior written consent of the joint global coordinators and the Sponsor, issue, offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, any shares (or any interest therein) or enter into any transaction with the same economic effect as any of the foregoing. On 18 January 2011, the Company entered into an additional lock-up arrangement in relation to the convertible bond issue under which it agreed that, subject to certain exceptions, it would not, during the period of 60 days from the date of the agreement, issue, offer, sell or contract to sell or otherwise dispose of, directly or indirectly, any ordinary shares (or any interest therein) or enter into any transaction with a similar economic effect as any of the foregoing. All lock-up arrangements as detailed above have now lapsed and therefore all restrictions relating to the shares under such arrangements no longer apply. As at 31 March 2012, there were no restrictions on the transfer of the ordinary shares other than as set out in the Articles of Association and certain restrictions that may from time to time be imposed by laws and regulations and pursuant to the Listing Rules of the Financial Services Authority whereby certain Directors, ofcers and employees of the Company require the approval of the Company to deal in the ordinary shares.
Mr Ravi Ruia Mr Prashant Ruia Mr Naresh Nayyar Mr Philip Aiken Mr Sattar Hajee Abdoula Mr Simon Murray Mr Subhas Lallah Mr Steve Lucas
See below1 See below1 333,088 2 14,285 23,809 71,428 0 0
1 Mr Ravi Ruia and Mr Prashant Ruia have an indirect interest in the Company. Essar Global has benecial interests in 1,000,000,000 ordinary shares (76.72%) of the Company. Essar Global, incorporated in the Cayman Islands, is the ultimate parent company of the Group. Kettle River Holdings Limited and Copper Cayman Holdings Limited have signicant inuence over Essar Global. Essar Global also acquired an economic interest in up to a further 16,973,961 ordinary shares of the Company on 18 January 2011 pursuant to an Equity Swap Transaction as part of the convertible bond arrangements. As part of the equity swap transaction, Essar Global has the option to settle the swap by acquiring these further 16,973,961 shares (and therefore the benecial interest in such shares). 2 Outstanding executive share option awards held by Mr Naresh Nayyar, further details ofwhich are set out in the Remuneration report.
During the 201112 nancial year, Mr Naresh Nayyar was granted a further 128,644 share options in March 2011 in addition to the 204,444 share options he was granted during the previous 12 month period. There were no other changes to the Directors interests in the ordinary shares of the Company throughout the 15 month period ended 31 March 2012. No Director had any dealings in the shares of the Company between 31 March 2012 and a date not more than one month prior to the date of the notice convening the AGM, other than as disclosed in Appendix 3 on page 144. Share capital Details of the Companys share capital are set out in Note 24 to the nancial statements. The issued share capital of the Company at 31 March 2012 was 1,303,437,293 ordinary shares of 5 pence each. The Companys shares are listed onthe LSE. The rights and obligations attached to these shares are governed by English law and the Companys Articles of Association. On 6 December 2011 the Company launched a Sponsored Level 1 ADR programme. Each ADR represents two of theCompanys ordinary shares and is traded on the US over-the-counter market under the symbol ERERY. This ADR programme has no impact on the overall share capital of the Company.
54
Governance
Directors report continued

No shareholder holds securities carrying special rights as to the control of the Company. There are no limitations on the holding of securities. Other than those dened in the Relationship Agreement there are no restrictions on voting rights or any arrangements by which, with the Companys cooperation, nancial rights carried by securities are held by a person other than the holder of the securities. There are no agreements between holders of securities that are known to the Company which may result in restrictions on the transfer of shares or on voting rights. Major interests in shares As at 31 March 2012, the Company had been notied, in accordance with DTR5 of the Disclosure and Transparency Rules of the following interests of 3% or more (whether directly or indirectly held) in its voting rights:
Name of Shareholder Number of voting rights %
2
Essar Global Lloyds Banking Group plc

1
1,000,000,000 81,833,216
76.72% 6.278%
1 Essar Global, incorporated in the Cayman Islands, is the ultimate parent company of the Group. Kettle River Holdings Limited and Copper Cayman Holdings Limited have signicant inuence over Essar Global. 2 On 18 January 2011, Essar Global acquired an economic interest in a further 16,973,961 shares pursuant to an equity swap transaction as part of the convertible bond arrangements (see Convertible bond issue below). As part of the equity swap transaction, Essar Global has the option to settle the swap by acquiring these further 16,973,961 shares (and therefore the voting rights attached to such shares).
In addition, on 18 April 2012 the Company received notication from Lloyds Banking Group plc that it had increased its interest in the voting rights of the Company to 7.002%. Subsequently, on 7 June 2012 the Company received notication from Lloyds Banking Group plc that it had decreased its interest in the voting rights of the Company, to 6.971%. On 18 June 2012, the Company received two further notications from Lloyds Banking Group plc, (i) that it had increased its interest in the voting rights of the Company, to 7.148%, and subsequently (ii) that it had then decreased its interest in the voting rights of the Company, to 6.800%. No further DTR5 notications were received during the period 31 March 2012 to a date not more than one month prior to the date of the notice convening the AGM, other than as disclosed in Appendix 3 on page 144. Employee Share Schemes and Plans As at 31 March 2012 the following share based plans in existence were:
Name of Plan Who it covers Performance Related Summary Description Total Outstanding Awards Source of shares
CEO and other selected Essar Energy Executive Share members of the Senior Management of the Option Plan Company, subject to ESOP Scheme the eligibility conditions as set out in the ESOP Scheme All eligible employees of Essar Oil UK Essar Oil UK subject to Essar Save As service criteria You Earn Share Option Scheme Launched in January 2012 Essar Oil UK Essar All Employee Share Investment Plan Launched in January 2012
Yes
Market price options to acquire shares 659,352 subject to achievement of performance targets over a period of three years.
No
All eligible employees of Essar Oil UK subject to certain service criteria
No
The scheme allows employees the opportunity to save money over a xed contract period of 3 or 5 years with the purpose of purchasing shares in Essar Energy at a xed price at the end of the contract period. The xed price is based upon the market price at the time of grant. 261,776 shares The plan gives employees the opportunity to purchase Essar Energy purchased shares tax effectively from gross monthly pay. Employees can invest up to a maximum of 1,500 in a tax year and shares are purchased at market price each month.
To be determined upon exercise of the share options as per the rules of the ESOP Scheme 3 year 895,181 Market Purchase 5 year 1,314,112
Market Purchase
Further details relating to the awards under the ESOP Scheme are set out in the Remuneration Report on pages 68 to 70. Shares intended to satisfy options granted and shares awards under the Share Save and Share Investment Plan schemes will be purchased in the market and held by the trustees of the Essar Energy Employee Benet Trust, which is currently in the process of being established.
55
Essential contracts Essar Oil Limited has entered into long-term rened petroleum product off-take agreements, which together accounted for 39% of the Groups net sales, with the following Indian national oil companies: a four year agreement with Bharat Petroleum Corporation Limited effective from April 2012, a four year agreement with Hindustan Petroleum Corporation Limited effective from January 2008 (extendable by one year) which is currently being nalised, and a three year agreement with Indian Oil Corporation Limited effective from November 2011. Under the terms of these agreements, the Company is not guaranteed any binding minimum off-take quantity from the Indian national oil companies, however, due to the pricing terms for sales to the Indian national oil companies, the Company is able to generate higher margins on sales to these customers than on export sales and the Company considers these arrangements are essential to the business of the Group within the meaning of Section 417(5)(c) of the Companies Act 2006. Amendments to the Articles of Association Any amendments to the Articles of Association of the Company may be made by special resolution of the shareholders. The Companys Articles of Association are available on the Companys website, www.essarenergy.com. Signicant agreements The Companies Act 2006 requires disclosure of signicant agreements that take effect, alter or terminate on a change ofcontrol of the Company. These are as set out below: Convertible bond issue On 18 January 2011, Essar Energy launched an offering ofUS$500 million 4.25% guaranteed senior unsecured convertible bonds due 2016. The bonds were successfully priced with a coupon of 4.25% payable semi-annually in arrears and a conversion price set at a premium of 30% to the reference price of US$8.5277 (c. 5.37) per share. The offering size was subsequently increased to US$550 million due to the exercise of an over-allotment option of US$50 million. The convertible bonds were issued on 1 February 2011. Pursuant to the nal terms attaching to the bonds, the bondholders have the right to require the Group to redeem the bonds at a price equal to the principal amount, together with accrued and unpaid interest to the date of redemption ifthere is a change of control of the Company in which any person or persons, acting together (other than Essar Global or any person(s) controlled by or acting together with Essar Global) acquires or becomes entitled to control more than 50% of the voting rights of the Company. Essar Global, the majority shareholder of Essar Energy, did notparticipate in the convertible bond transaction, but it did enter into an equity swap transaction with Standard Chartered Bank whereby Essar Global acquired an additional economic interest in 16,973,961 of Essar Energys ordinary shares. The swap will last for the life of the convertible bonds and may be settled by Essar Global receiving cash or, at Essar Globals option, shares. The result of the equity swap transaction is to increase Essar Globals economic interest in Essar Energy to 78.02% from 76.72%. Relationship Agreement The Relationship Agreement between Essar Global and the Company (described in detail on page 52) will terminate should
Essar Global, together with its associates (as dened in the Relationship Agreement), cease to have an aggregate interest in 30% or more of the issued share capital of the Company. US$300 million secured term loan facility On 1 July 2011, Essar Energy entered into a US$450 millionsecured bridge loan facility due December 2012. EssarEnergyutilised this loan to enable Essar Oil UK to nance the acquisition of the Stanlow renery and, amongst other things, for general corporate purposes. On 15 May 2012 Essar Energyrenanced this loan with a new US$300 million three year secured loan facility and US$150 million of internal cash resources. The new facility is being provided by a consortium ofbanks who were the lenders under the original US$450 million bridge loan. Pursuant to the terms of the new facility, each lender has the right to terminate its respective participation in the facility should Essar Global cease to have the power to direct the management and policies of the Company, or cease to own (legally and benecially) directly orindirectly more than 50% of the total issued share capital ofthe Company. Other The service contract of the Chief Executive Ofcer contains certain provisions for compensation to be paid in the event of a change of control of the Company or a loss of ofce. Further details are set out in the Remuneration report on page 70. Employees The Company is committed to providing employees with information about the Company on a regular basis and employee communication and consultation is widely encouraged throughout the Group. For example, within Essar Oil UK, employees are invited to hear directly from Senior Leaders during quarterly townhall sessions and via the Essar Oil UK Intranet. Matters requiring specic consultation are managed via established employee bodies and consultation forums. Essar Oil UK operates performance management systems to align business and individual goals and has introduced share schemes whereby employees can purchase shares and have a vested interest in the success and performance of the Company. Employment opportunities are open to applicants from diverse backgrounds and all levels of ability throughout the Company. Disabled persons are encouraged to apply and will be provided with the appropriate training according totheir level of aptitude and ability. In the event that an employee becomes disabled during the course of their employment, the Company seeks to redeploy or retrain theemployee wherever possible. Further information relating to employees of the Group is contained in the Companys separate 201112 sustainability report, which can be accessed at www.essarenergy.com. Creditor payment policy It is the Groups payment policy, in respect of all suppliers, to settle agreed outstanding accounts in accordance with terms and conditions agreed with suppliers when placing orders and suppliers are made aware of these payment conditions. The Groups trade creditors as a proportion of amounts invoiced by suppliers represented 58 days at 31 March 2012.
56
Governance
Directors report continued

Post balance sheet events See Note 32 to the nancial statements for full details of post balance sheet events. Market value of land and buildings Land is carried at cost within the nancial statements. It is not practical to estimate the market value of land at each balance sheet date. Political and charitable donations The Group has made no political donations during the 15 month period to 31 March 2012 (including in India). Essar Oil UK donated a total of 15,000 to various British charitable causes during the 15 month period. No further charitable donations were made by the Group during the period (including in India). The Group made no charitable or politicaldonations in 2010 (including in India). Further information in respect of the Groups community initiatives are set out in the Companys separate 201112 sustainability report, which can be accessed at www.essarenergy.com. Financial instruments Details of the Companys use of nancial instruments, together with objectives and policies on nancial risk including information on the Companys exposures to foreign currency, credit, commodity, price, liquidity and interest rate risks can be found in Notes 25 and 26 to the nancial statements. Going concern Disclosures in respect of going concern are provided in the Financial Review on page 47. Audit information Each of the Directors at the date of the approval of this report conrms that: t so far as the Director is aware, there is no relevant audit information of which the Companys auditor is unaware; and t the Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Companys auditors are aware of such information. The conrmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. Auditors The Companys auditor, Deloitte LLP, was rst appointed by the Company in April 2010 and has indicated its willingness to continue in ofce, and resolutions seeking to reappoint it as the Companys auditor and to authorise the Directors to determine its remuneration will be proposed at the forthcoming AGM. Annual General Meeting The Companys AGM will be held at 11.00am on Tuesday, 4September 2012 at Deutsche Bank Auditorium, Winchester House, 1 Great Winchester Street, London EC2N 2DB. Details of the meeting and the resolutions to be proposed are set out in a separate Notice of Meeting which accompanies this annual report. By order of the Board Elaine Richardson Joint Company Secretary 22 June 2012
57
Corporate governance report

Introduction The Company is committed to maintaining high standards ofcorporate governance both in respect of its management of the Group and its businesses and its accountability to itsshareholders as a whole. This section of the annual reportsets out the corporate governance framework for theCompany. The principal governance rules applying to UK companies listed on the London Stock Exchange are now contained in the Governance Code, which can be found on the FRCs website at http://www.frc.org.uk/corporate/ukcgcode.cfm. During the 15 month period to 31 March 2012, the Company has complied with the Governance Code in all respects, save for the following: (i) Code Provision A.3.1. Neither Mr Prashant Ruia, the current Chairman nor Mr Ravi Ruia, the previous Chairman met the independence criteria set out in the Governance Code on their appointment as Chairman, due to their interests in the Company and their involvement with Essar Group; and (ii) Code Provision B.2.4. The Governance Code stipulates that open advertising or an external search consultancy should be used within the appointments process for aNon-Executive Director. Neither were considered necessary for Steve Lucas appointment to the Board inMarch 2012 because it was felt that the Nomination andGovernance Committee could identify between themselves a broad range of potential candidates; see Nomination and Governance Committee below. The previous Chairman was not independent at the time of his appointment as he was, and still is, also Vice Chairman of the Essar Group and is indirectly a majority shareholder in the Company. In view of the previous Chairmans position as one of the founders of the Essar Group and his extensive involvement with Essar Oil and Essar Power over a period of many years, the Board considered that his knowledge of Essar and role in building it into one of Indias premier business groups provided signicant benets to Essar Energy, outweighing any potential conicts. The previous Chairman made a major contribution to the Groups growth and success and the Board was unanimously of the opinion that his continued involvement was crucially important to the ongoing success of the Company. The current Chairman was previously the Vice Chairman of the Company and a Non-Executive Director of the Company. The Independent Non-Executive Directors and the Chief Executive Ofcer considered Mr Prashant Ruia to be best placed to take over the role of Chairman when the previous Chairman stepped down on 21 December 2011, due to the depth and breadth of his knowledge of the Company and its strategy, business activities and operations. The role and structure of the Board The Board consists of eight Directors, made up of the Chairman, Chief Executive Ofcer and six Non-Executive Directors, of whom ve are independent. Biographies of all the Board members appear on pages 48 and 49 of this annual report. Mr Steve Lucas was appointed as the fth Independent Non-Executive Director of the Company on 29 March 2012.
There were a number of changes to both Board structure and Committee membership in June 2012, which will take effect as of 1 July 2012. Please see The Board and The Board Committees below for further details. The Board is the decision making body for all matters material to the Companys nances, strategy and reputation. It is collectively responsible for the long-term success oftheCompany and has ultimate responsibility for the management, direction and performance of the Group and its businesses. The Board is required to exercise objective judgement on all corporate matters and is accountable to shareholders for the proper conduct of the business. The matters which are reserved for the Board are set out in a formal schedule, approved by the Board and include: t the overall Group strategy and long range plans; t stewardship of business performance; t devising and reviewing the corporate governance structure of the Group; t approval of all new capital projects and any acquisitions including joint ventures or divestments; t approval of the annual budget, including maintenance and project capital expenditure, and the operating plan; t delegated levels of authority and the annual and half-year nancial results and shareholder communications; t the system of internal control and risk management; t the Group management structure; t recommending dividend policy for shareholder approval; t appointment of external auditors; t entering into related party transactions; t entering into new committed nancial facilities; t approving the Financial and Treasury Risks Policy; and t appointments to the Board. Otherwise, the day to day management of the Company is delegated to and run by the Chief Executive Ofcer and his Senior Management, the role of which is described below. The Board has also delegated specic responsibility to thefour Board Committees, being the Nomination and Governance Committee, the Remuneration Committee, the Audit Committee and the Health, Safety and Environment Committee. Further information on each of these committees is set out on pages 60 to 62 of this report. Subsidiary Board structure Essar Energy operates its Oil and Gas business in India through Essar Oil. Essar Oil has a free oat of 10.04% of its shares on the Bombay Stock Exchange and the National Stock Exchange of India. Essar Oil has its own board of Directors along with an audit and governance committee thatundertakes all the subsidiarys corporate governance requirements and ensures and monitors compliance with the Indian listing requirements. The Exploration and Production business operates within Essar Oil and is subject to the same corporate governance requirements. Similarly, Essar Power, which operates Essar Energys power business in India, also has its own board of Directors along with an executive committee and audit committee. Essar Oil UK hasits own board of Directors along with an executive committee. The Chief Executives of each of these businesses are members of the Essar Energy SeniorManagement.
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Governance
Corporate governance report continued

The Senior Management The Senior Management focuses on monitoring implementation of the Companys strategy, progress against agreed plans and operational matters to ensure the Boards strategic directions are implemented and to make recommendations to the Board. The Senior Management membership comprises the Chairman, Mr Prashant Ruia, as Chairman of the Committee, the Chief Executive Ofcer of the Company, Mr Naresh Nayyar, the Chief Executives of the business groups, the Chief Financial Ofcer, Mr P Sampath and the Director of Investor Relations and Communications, Mr Mark Lidiard. The Senior Management meets on a monthly basis. Senior Management members generally receive papers a week inadvance of the meeting. Agenda items for each meeting include nancial and operational highlights, project updates, businessdevelopment, statutory compliance updates, investor relations updates and updates on use of funds. The agenda also includes, at least twice a year, an item to monitor and review the effectiveness of the Groups risk management policy. The agenda is currently under review to ensure the appropriate topics are being discussed at each meeting. The Board Mr Prashant Ruia is the current Chairman of the Company and is the Chief Executive of the Essar Group. Mr Ravi Ruia, who was the previous Chairman until 21 December 2011, remains a Non-Executive Director of the Company and is Vice Chairman of the Essar Group. Mr Naresh Nayyar is the Chief Executive Ofcer of the Company. The majority (ve out of seven) of the Non-Executive Directors are determined by the Board to be independent in character and judgement in compliance with the Governance Code. Their independence provides a strong foundation for good corporate governance. The Directors who served during the year are set out in the table below:
Independent Non Independent
Mr Philip Aiken Mr Sattar Hajee Abdoula Mr Simon Murray (Senior Independent Non-Executive Director) Mr Subhas Lallah Mr Steve Lucas (appointed March 2012)
Mr Ravi Ruia (Chairman until December 2011) Mr Prashant Ruia (Chairman since December 2011) Mr Naresh Nayyar (Chief Executive Ofcer)
Mr Simon Murray is, and was throughout the period, the Board appointed Senior Independent Non-Executive Director (SID) and is available to address shareholders concerns that have not been resolved through the normal channels of communication with the Chairman, Chief Executive Ofcer or Chief Financial Ofcer, or in cases when such communications would be inappropriate. In June 2012, the Board appointed Mr Simon Murray to the role of Vice Chairman of the Company, and also appointed Mr Philip Aiken to the role of Senior Independent Non-Executive Director. Both appointments will take effect on 1 July 2012. There is a clear division between the roles of Chairman and Chief Executive Ofcer and a written statement of their responsibilities has been approved by the Board. The Chairman is responsible for the operation, leadership and governance of the Board and for ensuring its effectiveness and setting its agenda. The Chief Executive Ofcer is responsible for guiding the implementation of Board strategy and policy with respect to the Groups business, with the assistance of the SeniorManagement. Since his appointment as Chairman in December 2011, Mr Prashant Ruia undertakes the duties of both Chairman and Vice Chairman until 1 July 2012. The appointment of Simon Murray to the role of Vice Chairman of the Company comes into effect on 1 July 2012.
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The Board holds at least four scheduled Board meetings a year and in addition meets on an ad hoc basis in response to business needs. Generally, all the meetings of the Board and Board Committees are held at the Essar Energy Head Ofce in Mauritius. During the period, ve scheduled Board meetings and three ad hoc meetings were held. A table of attendance of members of the Board and Board Committees at meetings held during the period is set out below:
Remuneration Committee Meetings Audit Committee Meetings Nomination and Governance Committee Meetings Health, Safety and Environment Committee Meetings
Board Meetings Scheduled Ad Hoc1
Mr Prashant Ruia Mr Ravi Ruia Mr Naresh Nayyar Mr Philip Aiken Mr Sattar Hajee Abdoula Mr Simon Murray Mr Subhas Lallah Mr Steve Lucas
4/5 3/5 5/5 5/5 5/5 5/5 5/5 0/02
1/3 1/3 2/3 3/3 3/3 2/3 3/3 0/02
3/3 3/3 3/3
5/5 4/5 5/5
4/5 5/5 5/5
3/3 3/3 0/03
1 Board meetings convened at relatively short notice to deal with ad hoc commercial matters. Representation at such meetings reects the short notice period given. Board members who were unable to attend received the brieng papers in advance and had the opportunity to provide their input prior to the meeting. Any such comments received were duly noted at the relevant meeting. 2 No Board Meetings were held during the period since the appointment of Mr Lucas as an Independent Non-Executive Director on 29 March 2012. 3 No Committee Meetings were held during the period since Mr Hajee Abdoula was appointed as a Committee member on 23 February 2012.
The Directors receive appropriate brieng papers on substantive items, which are, in general, circulated at least a week beforethe relevant Board meeting to give the Directors adequate time to prepare for the meeting and to enable any Director who is unable to attend the meeting to have an opportunity to review the matters to be discussed and, if necessary, to provide comments to the Chairman in advance of the meeting. The Directors also receive monthly updates on key matters relating tothe business operations, project updates, nancial information, legal and corporate governance, tax and investor relations. The Directors also receive other ad hoc updates between Board meetings. All Directors have the right to have their concerns about the running of the Company, or a proposed action which cannot be resolved, recorded in the minutes. During the period, the Non-Executive Directors have met without the Executive Directors being present. The Non-Executive Directors met in November 2011 without the Chairman to appraise the Chairmans performance. The SID was to discuss theoutcome of the review with the Chairman, Mr Ravi Ruia, however, due to the subsequent interim change in Chairman in December 2011, it was felt to be inappropriate to continue with this review. The Non-Executive Directors considered it too early in the appointment of Mr Prashant Ruia as Chairman to conduct a meaningful evaluation of his performance. The Board has undertaken an evaluation of its performance and the performance of its committees. The evaluation process included each Director completing an evaluation questionnaire and the subsequent outcome was considered and reviewed by the Nomination and Governance Committee in detail, the results of which were reported to the Board. The evaluation of the Board did not identify any material issues. Certain areas for improvement were identied and these were addressed during the period. The Company intends to engage an external facilitator to undertake an evaluation of the Board at least every three years, incompliance with the Governance Code. The rst such externally facilitated evaluation will likely be undertaken during the nancial year ending 31 March 2013. All new Directors receive a comprehensive induction upon appointment to the Board. Programmes of continuing professional development are arranged, as required, taking into account the individual qualications and experience of the Director. The Chairman is responsible for ensuring induction and training programmes are provided and the Company Secretary is tasked withorganising such programmes. Individual Directors, with the support of the Company Secretary, are also expected to take responsibility for identifying their own training needs and to ensure that they are adequately informed about the Group and their responsibilities as a Director. All of the Directors have received a comprehensive brieng on their duties and responsibilities as Directors of a UK Listed company by the Company or its advisors. Further briengs and updates on key regulation, industry practices and other matters relating to the business were provided at Board meetings during the period to ensure that the Directors were kept informed of relevant developments. A number of the Directors attended site visits during the period and further visits are planned during 2012. All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with. Both appointment and removal of the Company Secretary are a matter for the Board as a whole. All Directors also have access to other members of the Senior Management and to the Groups professional advisors whom they can consult at the Companys expense should they consider this necessary in order tobetter discharge their responsibilities.
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Governance

The Board is required to disclose any actual or potential conicts of interest and the Directors are aware of the need to notify the Company of any potential conicts of interest. Directors declaration of interests forms a standard item on the agenda for each Board meeting. Potential conicts are considered and, if appropriate, approved and noted with any conicted Director not voting on the matter. During the period a number of potential conict situations were considered bythe Board and since no actual conict of interest was identied in each case, they were authorised by the Board. Arecord of conicts or potential conicts for each Director is maintained and reviewed on a regular basis by the Company. In accordance with the Articles of Association of the Company, Mr Steve Lucas will submit himself for election by shareholders at the Companys forthcoming AGM, being the rst AGM following his appointment. In addition, in compliance with the Governance Code, all of the other Directors will offer themselves for annual re-election by shareholders at the forthcoming AGM and intend to do so thereafter on an annualbasis at each future AGM. The Board remains satised that following formal performance evaluation, each individual Board members performance continues to be effective and demonstrates commitment to their respective roles, and therefore following the recommendation of the Nomination and Governance Committee, that each Director proposed for election continues to be fully competent to carry out his responsibilities as a member of the Board. The Board Committees Terms of reference for each of the following committees are available on the Companys website, www.essarenergy.com. Audit Committee Chairman: Mr Sattar Hajee Abdoula Members: Mr Subhas Lallah and Mr Simon Murray (until 1 July 2012) As of 1 July 2012, Mr Simon Murray and Mr Steve Lucas will be members of the Audit Committee. Mr Sattar Hajee Abdoula will remain as Chairman of the Committee. Under its terms of reference, the Audit Committee is required to meet at least three times a year or more frequently as circumstances require. During the period, the Audit Committee has met ve times. The Audit Committee reports on its activities to the Board, immediately following its meetings. During the period the Audit Committee has carried out various activities in accordance with the responsibilities set out in its terms of reference including the activities described below. The Audit Committee has reviewed the 2012 Annual Report including the Preliminary Results before recommending them to the Board. In doing so the Committee reviewed and discussed the preliminary results and annual nancial statements with management and the external auditor focusing particularly on: t the quality and acceptability of the accounting policies and practices and nancial reporting disclosures and changes thereto; t areas involving signicant judgement, estimation oruncertainty; t the detecting of material misstatements by the auditor that individually or in aggregate have not been corrected and managements explanations as to why adjustments have not been made; t the basis for the going concern assumption; and t compliance with nancial reporting standards and relevant nancial and governance requirements. The Audit Committee oversees the relationship with the external auditor, Deloitte LLP. Auditor objectivity and independence is safeguarded through a variety of mechanisms. To ensure the Auditors independence, the Committee annually reviews the Companys relationship with Deloitte. The Company has various policies in place which aim to safeguard the independence and objectivity of the external auditor. This includes policies in respect of the potential employment of former auditors, the types of non-audit services which the external auditors may and maynot provide to the Group, and the approval process in respect of permitted non-audit services. In addition to the approval process for specic non-audit services, the Audit Committee monitors the total level of non-audit services to ensure that neither the objectivity nor independence of the Auditor is at risk. Following the review in 2012, the Company concluded that it continues to have an objective and professional relationship with Deloitte and that there are sufcient controls and processes in place to ensure the required level of independence. In addition, the Auditor is required to review and conrm its independence to the Committee on a regular basis. When considering the reappointment of the Companys external auditor before making a recommendation to the Board to be put to shareholders, the Committee reviewed and monitored theexternal auditors independence and objectivity and theeffectiveness of the audit process. Accordingly, the Committee recommends the reappointment of Deloitte LLP at the forthcoming AGM. During 2010, the Committee appointed the remuneration consultancy practice of Deloitte LLP to provide independent advice to the Remuneration Committee. The Remuneration Committee advisors terms of reference are in accordance with APB Ethical Standard 5 and restrict the provision of certain services in order to maintain auditor independence. During the 15 month period ended 31 March 2012, the scope and value of services provided by the remuneration consultancy practice of Deloitte LLP was reviewed and the Remuneration Committee took steps to consider alternative advisors to advise the Remuneration Committee. The Audit Committee is responsible for monitoring and reviewing the effectiveness of the internal audit function. Since 2010, the Group internal audit function was provided through an outsourced service by Ernst & Young Pvt. Limited. In September 2011, a Head of Internal Audit was appointed to take over responsibility for this function with Ernst & Young Pvt. Limited being retained as a service provider to the Head of Internal Audit. Internal audit is an independent review and support function whose primary role is to provide an objective evaluation ofoperations, information and control systems that the Company has put in place, primarily to the Audit Committee
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but also as a service to management. It provides analysis, recommendations, counsel, and information concerning the activities examined and provides assurance as well as guidance on the development of effective and efcient controls with respect to process integrity, accuracy in reporting and compliance with policies and regulation. As part of this service to management the Head of Internal Audit meets quarterly with the management of each of therespective business groups, as well as the senior management of the Company, as part of a Management Audit Committee to appraise senior management about important audit issues and the steps taken by management to address control gaps. The Management Audit Committee meetings are chaired by the Chief Executive Ofcers of the respective business groups and are held every quarter. Atthese meetings functional/departmental heads are also invited to provide clarications and explanations on the audit ndings and action plans. The meetings also provide an opportunity for the internal audit team to report on their activities directly to management to ensure actions are takingplace and highlight any remedial actions necessary. Additionally, the Head of Internal Audit also meets separately with the Chairman of the Audit Committee at least once every quarter either in person or through a teleconference. Remuneration Committee Chairman: Mr Subhas Lallah Members: Mr Philip Aiken and Simon Murray (until 1 July 2012) As of 1 July 2012, Mr Philip Aiken and Mr Steve Lucas will bemembers of the Remuneration Committee. Mr Subhas Lallah will remain as Chairman of the Committee. The role of the Remuneration Committee is to determine thelevels of remuneration for the Chief Executive Ofcer andthe Chairman, and recommends and monitors the leveland structure of remuneration for members of the Senior Management and key management personnel. Under its terms of reference, the Remuneration Committee isrequired to meet at least twice a year or more frequently as circumstances require. During the period, the Remuneration Committee met three times. The Remuneration Committee reports on its activities to the Board, immediately following itsmeetings. The main areas of focus of the Remuneration Committee during the period has been on the performance parameters for the Chief Executive Ofcer and other Senior Management, post 2011 AGM feedback from investor institutional bodies, and the establishment of two UK All Employee Share Schemes in respect of Essar Oil UK. The Directors Remuneration report is set out on pages 66 to70. Nomination and Governance Committee Chairman: Mr Simon Murray Members: Mr Prashant Ruia and Mr Subhas Lallah (until 1 July 2012) As of 1 July 2012, Mr Prashant Ruia, Mr Subhas Lallah andMr Philip Aiken will be members of the Nomination and Governance Committee. Mr Simon Murray will remain as Chairman of the Committee.
The role of the Nomination and Governance Committee istoidentify and nominate, for the approval of the Board, candidates to ll Board vacancies as and when they arise aswell as putting in place plans for succession for Directors and senior executives within the Group, in particular with respect to the Chief Executive Ofcer and Chief Financial Ofcer of the Company. Such plans are reviewed at least every sixmonths. Under its terms of reference, the Nomination and Governance Committee is also responsible for reviewing the structure, size and composition, including the skills, knowledge and experience, of the Board and making recommendations to the Board about adjustments. When making an appointment, the Committee is required by its terms of reference to evaluate the balance of skills, knowledge and experience on the Board and consider candidates on merit and against objective criteria, taking care that appointees have enough time available to devote to the position. During the period the Committee met ve times and details of members attendance is set out in the table on page 59. The main focus of the Committee during the period has been management reorganisation, succession planning, review of Board structure, size, composition and diversity (including gender diversity), evaluation of the Boards effectiveness, appraisal of the Chairman and the appointment of a fth Independent Non-Executive Director. The appointment of Mr Steve Lucas as the fth Independent Non-Executive Director to the Board of the Company followed the process as set out in the Nomination and Governance Committees terms of reference, save as set outbelow with regard to external advertising. The Committee developed a list of potential candidates based upon the agreed criteria from which they created a short list, taking into account the benets of diversity on the Board, including gender diversity. On this occasion, the Committee did not make use of open advertising or the services of an external search consultancy as recommended in the Governance Code, because it was felt that the Committee could identify between themselves a broad and diverse range of good potential candidates that could be included in the short list for further consideration. The Committee did resolve, however, that should it have been unable to identify a short list of suitable candidates, itwould have engaged an external search consultancy to assist with the process. Health, Safety and Environment Committee Chairman: Mr Philip Aiken Members: Mr Naresh Nayyar and Mr Sattar Hajee Abdoula The membership and Chairman of this Committee will remain the same as of 1 July 2012. In February 2012, the members of the Committee were reviewed and Mr Sattar Hajee Abdoula replaced Mr KVB Reddy as a member of this Committee to achieve the correct balance of Non-Executive Directors.
62
Governance

The Health, Safety and Environment Committee assists the Board and the Senior Management in obtaining assurance that appropriate systems are in place to deal with the management of health, safety and environmental risks. TheHealth, Safety and Environment Committee meets at least twice a year and in general the Health, Safety and Environment Committee meetings are held in India with eachmeeting including a site visit, or on site at the Stanlow renery in the UK. During the period the Committee met three times. The focus of those meetings has been on process safety management (also known as PSM) and the development of the Groups health, safety and environment culture within all operations and at all sites. For further information on health, safety and environment, please refer to the Companys separate 201112 sustainability report, which can be accessed at www.essarenergy.com. Internal Control The Board has overall responsibility for the Groups system of internal control and risk management and has delegated to the Audit Committee its responsibility for reviewing the effectiveness of these controls. The system of internal control is designed to manage rather than eliminate risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The Group maintains a register of key controls and procedures which is reviewed and updated annually. As part of its risk based internal audit plan, the Group Internal Audit function continually assesses the control environment to provide assurance on the design and operating effectiveness of thecontrols. Control structure The Board sets the policy on internal control that is implemented by management. This is achieved through a clearly dened operating structure with lines of responsibility and delegated authority. The policy set by the Board is formally documented in the Group Governance and Administration Manual (the Manual) which clearly denes the limits of delegated authority and provides a framework for management to deal with areas ofsignicant business risk. The Manual conrms a Code of Conduct that applies to allareas of the business and covers a requirement for all employees to comply with all applicable laws and regulations in the territories in which the Group operates. At operational level this Code of Conduct is covered through the detailed human resource policies that are available on the Groups intranet. The Board also approves individual policies covering areasthat are identied as key for the Board to monitor. Forexample, a policy on the process for entering into and reporting related party transactions has been approved and circulated throughout the Group with individual briengs to the key individuals responsible for managing the process. These policies and procedures are reviewed and, where necessary, updated at Senior Management meetings.
Control environment The Groups operating procedures include appropriate systems for reporting information to the Directors. These procedures are business dependent but all signicant operational businesses use SAP general ledger computer systems with automated controls and reconciliation processes. Budgets are prepared by the management of the respective business groups and subject to review by the Chief Executive Ofcer and then the Directors. The approved budgets are thenused as the basis for controlling expenditure, with approval levels varying based on whether an item is within orexceeds budget. The Senior Management and the Board review monthly management reports on the nancial results and key operating statistics, together with a brief written explanation of signicant variances or operational matters. The management reports are presented by the respective accountable individuals who provide further explanations as required. The individual businesses monitor the progress of the expansion projects through regular project management review meetings to review progress and escalate issues to the Chief Executive Ofcer, with any major issues reported tothe Board. Emphasis is placed on the quality and abilities of the Groups employees, with structured evaluation processes and access to a variety of online, internally and externally provided learning and development tools. This is provided through a shared service agreement with the Essar Global Human Resources function that was agreed as part of the Listing process and enabled the seamless transition of employee development. The President Human Resources of Essar Global is invited toattend Remuneration Committee meetings. The acquisition of any business requires a rigorous analysisof the nancial implications of the acquisition and key performance gures. A sensitivity analysis takes place ofthe key assumptions made in the analysis with formal presentations to the Board. The Senior Management and the Board have been provided with a report detailing any signicant legal actions involving Group companies, which provides a background to the case and its current status within the appropriate legal system. Monitoring and review activities A number of processes are in place for monitoring the system of internal control and reporting any signicant control failings or weaknesses together with details of corrective action, and the Directors of each business division are required to certify on an annual basis the operation of their control systems and to highlight any weaknesses. Since 2010 the Group internal audit function was provided through an outsourced service provided by Ernst & Young Pvt. Limited. In September 2011, a Head of Internal Audit was appointed to take over responsibility for this function with Ernst & Young Pvt. Limited being retained as a service provider to the Head of Internal Audit. The internal audit function reports directly to the Audit Committee and has prepared a risk-based audit plan agreed with the Audit Committee and undertaken a
63
number of audits based on that plan. The Group has also formed a Management Audit Committee within each signicant business area of operation that meets on a quarterly basis. These meetings, chaired by the Chief Executive Ofcers of the respective businesses, review the results of internal audit reports and follow up actions to assess the overall robustness of the control environment. Within each business area, detailed risk registers are maintained which provide information regarding the various risks within the business. Within each business area, there is a designated Risk Ofcer who works closely with the Head of Internal Audit to compile the half yearly and annual risk update report that is presented to and reviewed by the Audit Committee. Material changes are reported to the Audit Committee. Signicant risks and their mitigating actions along with any remedial actions are monitored by the Senior Management and subsequently reviewed by the Audit Committee and the Board. Reports from the external auditor, Deloitte LLP, on certain internal controls and relevant nancial reporting matters, arepresented to the Audit Committee and management. A Whistleblowing hotline provides arrangements by which staff may, in condence, raise concerns about possible improprieties in matters of nancial reporting or other matters. Staff may raise concerns in either English or the local language using a hotline phone number or by sending an email or letter to addresses especially created for the purpose. Regular updates on the Whistleblowing hotline are provided to the Audit Committee by respective Management Audit Committees. The Companys Whistleblowing policy is available on the Companys website, http://www.essarenergy. com/about-us/contact-us/whistleblower-policy.aspx. Anti-Corruption and Bribery Essar Energy is committed to ensuring that its strategy, business and operations are built around a culture of ethical business practice at all levels within the Company. Since theUK Bribery Act 2010 came into force, the Company has carried out comprehensive risk assessment and developed and strengthened our policies and systems/procedures relating to anti-corruption and bribery in line with the Act. OurAnti-Corruption Policy is fundamental to this. The Group has implemented extensive measures to ensure that the Group, all its subsidiaries, branches, divisions and controlled afliated companies and all of its employees comply with the Companys anti-corruption policies and procedures. All employees of the Company, including senior management, are subject to ongoing communications and training to build awareness of its anti-corruption and bribery policies and procedures. The policies and procedures contain requirements in relation to i) the conduct of employees; ii) arrangements pertaining to political contributions, charitable donations, gifts, hospitality, entertainment and sponsored travel and retaining third parties; and iii) prohibition of facilitation payments. To create enterprise-wide awareness and improve understanding of the anti-corruption policies and procedures across all levels of employment, the Group utilises various channels of information and communication technologies, including an online competency evaluation tool on
awareness, face to face training sessions such as leadership programmes, train the trainers programmes, awareness programmes, e-news alerts and road shows. In addition, the Group ensures that all third parties are engaged following proper due diligence and that all contracts signed by the Group incorporate appropriate anti-corruption clauses, according to the relevant risk, in order to safeguard the interests of the Group. Compliance reporting systems have also been implemented to regularly monitor and track compliance with these policies and procedures at all levels of the Group. The Group undertakes continuous review of its policies and procedures and continues to improve these to ensure that they are adequate and meet the requirements of applicable anticorruption and bribery laws. The Companys internal audit programme also monitors implementation of the policies, procedures and systems in relation to anti-corruption and bribery to ensure that strategies are effectively implemented across the Group. Review of effectiveness The Directors, the Chief Executive Ofcer and the Chief Financial Ofcer consider that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. The Groups management is required to apply judgement in evaluating the risks facing the Group in achieving its objectives, in determining the risks that are considered acceptable to bear, in assessing the likelihood of the risks concerned materialising, in identifying the Companys ability to reduce the incidence and impact on the business of risks that do materialise and in ensuring the costs of operating particular controls are proportionate to the benet. In reviewing the effectiveness of the Groups system of internal controls, during the period the Board has, through the Management Audit Committee and the Audit Committee, taken account of the matters summarised above. The Board considers that these matters provide the key building blocks for an assessment of the control environment and that the measures that have been implemented are appropriate to the Group. The Board is committed to building on these measures through the execution of the internal audit programme and the continued review by the Management Audit Committee and Audit Committee. The control environment is assessed on an annual basis and the results are reported to the Audit Committee through the Internal Audit department. This review covers the control structure, control environment and the monitoring and review activities and is approved by the Audit Committee and reported to the Board. Relations with investors The Company is committed to the promotion of investor condence by ensuring that trade in its securities takes place in an efcient, competitive and informed market. The Board is keenly aware of the importance of forthright communication as key to building shareholder value and of the importance of developing a dialogue with shareholders to ensure that the Board keeps abreast of and understands the views and opinions of shareholders.
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Governance

It has achieved this during the period in a number of waysincluding: t ensuring that all material information on the Company is broadly disseminated to investors, analysts and the media and that this information is available on the Companys website at www.essarenergy.com. Distribution of information is via the UKs regulatory news service, via email to the Companys extensive contact database and through an email alert system on the Companys website; t the Chief Executive Ofcer, Chief Financial Ofcer and Director of Investor Relations and Communications regularly meet institutional shareholders, potential investors and analysts either individually or as part of group meetings; t holding presentations to or conference calls with investors and analysts at the time of announcements of quarterly Interim Management Statements and nancial results or other major news. Historical web-casts of half and full year nancial results announcements are held on the Companys website for a minimum of 12 months; t regularly providing investor relations update reports describing investor and analyst opinions to the Board; t arranging site visits for investors and analysts in order to provide more detailed knowledge of the Essar Energy Group. During 2011, two site visits were organised in India for investors and analysts which included presentations by the business teams, copies of which are available on the Companys website; and t ensuring that relevant and up-to-date information on theCompany and its operations, together with press releases, nancial results and Annual Reports, are available on the Companys website. The Company has taken advantage of the provisions of the Companies Act 2006 which allow the Companys website to be used as the primary means of communicating with those shareholders who have not specically requested hard copy documentation. The Shareholder Information section of this report contains further details on electronic communications with shareholders. The Board regards the Companys AGM as a valuable opportunity to communicate with the Companys investors and to address shareholders questions. In addition, the Directors generally make themselves available before and after the formal meeting to talk informally to shareholders. The Companys Director of Investor Relations and Communications, Mr Mark Lidiard, is based in the London ofce and is contactable on +44 (0)20 7408 7660 or ir@essar.com The Annual General Meeting The Companys AGM will be held on Tuesday, 4 September 2012. Separate resolutions on substantially separate issues will be put to the AGM and proxy forms will allow shareholders to vote for, against or withhold a vote on a resolution. Details of the proxy votes counted will be announced at the meeting and on the Companys website after the meeting. The Chairman of the Board and the Chairmen of each of the Board Committees will be available to answer questions put forward to them by shareholders of the Company. The 2012 Annual Report and the Notice of the AGM will be sent to shareholders at least 20 working days prior to the date of the meeting. Simon Murray Senior Independent Non-Executive Director on behalf of the Board 22 June 2012
65
Remuneration report
I am pleased to present the Remuneration report of Essar Energy for the 15 month period ended 31 March 2012. The Remuneration Committees key role is to advise the Board on the remuneration policies for the Chief Executive Ofcer, members of the Senior Management and key management personnel. It advises on the determination of a remuneration framework that reects our performance driven culture and rewards our people appropriately. It takes into account the global imperatives and local perspective while devising the rewards framework and the need to attract, motivate and retain our people. During the 15 month period 1 January 2011 to 31 March 2012, the Remuneration Committee discussed the following key topics and agenda items: t Review of the Committees Terms of Reference t Feedback from Institutional Bodies and proxy voting agencies on the 2010 Remuneration Report and 2011 AGM t Review of the suitability of performance measurement criteria for members of the Senior Management for the Annual Performance Linked Incentive (APLI) scheme t Grant of options under the Essar Energy Employee Stock Option Plan t Remuneration related issues and Employee Share Plans resulting from the acquisition of the Stanlow renery by Essar Oil UK t Review and restructuring of the Chief Executive Ofcers compensation t Review of remuneration advisors Going forward, the Committee intends to keep remuneration arrangements under review to ensure that they drive and enhance performance in a fair and responsible manner and reward contributions to the continuing success of the Group. I hope that you will nd this report clear and informative, and I welcome all of your feedback on this report should you have any. Subhas Lallah Chairman of the Remuneration Committee 22 June 2012 Introduction This report has been prepared in accordance with the Companies Act 2006 and Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority. The Committee has adopted the Principles of Good Governance relating to Directors remuneration as set out in the Governance Code. As required by the Companies Act 2006, a resolution to approve the Directors Remuneration report will be proposed at the AGM. The Remuneration Committee The Remuneration Committee recommends to the Board the policy Essar Energy should adopt on the Executive Directors remuneration. It determines the levels of remuneration for the Executive Director and the Chairman and recommends and monitors the level and structure of remuneration for members of the Senior Management and key management personnel. The Committee also reviews and approves the operation of share and share option schemes and the granting of such options, as well as preparing an annual remuneration report to be approved by the shareholders of Essar Energy plc at the AGM. The Remuneration Committee is chaired by Mr Subhas Lallah, and until 1 July 2012 its other members are Mr Simon Murray and Mr Philip Aiken. As of 1 July 2012, Mr Simon Murray will relinquish his role on the Committee and will be replaced by Mr Steve Lucas. Mr Subhas Lallah will remain the Chairman ofthe Committee and Mr Philip Aiken will remain a member. All current and future members of the Committee are considered by the Board to be independent Non-Executive Directors in accordance with the recommendation of the Governance Code. The Committees Terms of Reference are reviewed periodically and are available on the Companys website, www.essarenergy.com. During the period the Committee met three times. The attendance of members isset out in the Corporate Governance report on page 59. Deloitte LLP was independently retained by the Committee as advisors and have provided information on relevant current market practice and developments in best practice guidance. Deloitte LLP are signatories to the Remuneration Consultants Groups Code of Conduct. Deloitte LLP also provided audit and other services compatible with their roles as auditors to the Group, as set out in Note 9 to the nancial statements and described more fully in the Corporate Governance report. The Committee also received advice from Adil Malia (President Human Resources of Essar Global) and Rahul Taneja (SVP & Head of Corporate Human Resources of Essar Global) during the 201112 nancial year. Further, during the 15 month period a review of the scope and value of the services provided to the Committee by Deloitte LLP was undertaken, and the Committee took steps to consider alternative advisors to advise the Committee.
66
Governance
Remuneration report continued

Remuneration policy The Companys policy is to ensure that the Board and key management personnel are fairly rewarded with regard to responsibilities undertaken, taking into account appropriate market practice. Corporate and individual performance is taken into account in setting the pay level for the Chief Executive Ofcer, and is reviewed on an annual basis to ensure it remains appropriate. The Committee does not intend to increase the Chief Executive Ofcers salary over the 201213 nancial year. The Groups policy is that Executive Directors should be employed on a rolling term, with a notice period not exceeding six months and that in the event of early termination, they should be treated fairly but paid no more than is necessary. It is the Companys policy that there should be no element of reward for failure. In determining executive remuneration, the Committee takes into account pay and employment conditions in place across the wider workforce of the Group. Total rewards guiding principles: The pay framework is designed to support the Companys strategy and to be: t Simple and understandable t Transparent and easily communicated t Competitive with the relevant external market t Attractive to participants t Strategically and culturally aligned Pay for performance There is a clear link between Company performance and the pay that can be earned by Executive Directors: t Plans allow for differentiation based on performance t Plans are linked to overall Group performance t The expected performance measures are communicated at the beginning of the performance period and are linked to both the Companys Annual Business Plan and the longer term strategic objectives of the Group. The measures are also evaluated by the Remuneration Committee at the end of the period t Annual bonus measures include prots and cost management targets as well as broader measures of performance to support the Companys culture including compliance and stakeholder relations t Share options can only be exercised if earnings grow above the three year target and only have value if the share price rises above the exercise price Proportion of total pay that is xed/variable Fixed compensation (base salary and pension) for the ChiefExecutive Ofcer represents approximately 70% of totalcompensation and variable pay of approximately 30% (for achieving target performance). Summary of remuneration philosophy for the Chief Executive Ofcer and other members of the Senior Management: The Committee aims to maintain an appropriate balance between xed and performance-related remuneration and between elements linked to nancial performance and long-term shareholder value creation. The APLI and ESOP are considered performance-related elements, while base salary is essentially xed, although performance is considered when determining annual increases. In addition to the APLI and ESOP, the Chief Executive Ofcer also receives healthcare insurance for himself and his family through InterGlobal Ltd.
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Components of remuneration
What Main Features
Base Salary
Base salary of the Chief Executive Ofcer is reviewed on an annual basis Review takes into account the individuals skills and experience in the context ofthe relevant market, his performance, and the scope, size and complexity of his role Targeted at or around the median of the market and may be positioned below orabove the median depending on individual performance Annual incentive. The Chief Executive Ofcer and the members of the Senior Management participate in an annual incentive scheme, which is based on achievement of pre-dened, Committee-approved corporate objectives and theindividuals contributions toward achieving those objectives Based on a range of nancial and non-nancial, corporate and individual performance criteria Target 33.3% of base salary up to a maximum of 45% for stretch performance The Chief Executive Ofcers performance contract has goals with clear linkage to the Annual Business Plan
BUSINESS REVIEW
Annual Performance Linked Incentive
GOVERNANCE
Employee Stock Option Plan
Progress against the performance contract is monitored throughout the year Annual grants Market value options Subject to three year growth in EPS performance condition Grant values up to 100% of Base Salary for Executive Directors (with a maximum of 300% in exceptional circumstances) Benchmarked against the market in which the Company operates Cash supplement in lieu of pension Chief Executive Ofcer is entitled to receive a pension contribution equivalent to 10% of his base salary under his service contract
Pension
The Performance Graph The Remuneration Committee has elected to compare the total shareholder return on the Companys ordinary shares against the FTSE 100 index, principally because this is the index of which the Company was a constituent member for the majority of the 15 month period. The values indicated in the graph show the share price performance from a 100 hypothetical holding of ordinary shares in the Company and in the index, from the IPO date to 31 March 2012 and have been calculated using daily closing values.
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Essar Energy FTSE 100
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68
Governance

Employee Stock Option Plan The Essar Energy Employee Stock Option Plan is intended to reward the Chief Executive Ofcer and selected members of the Senior Management who contribute signicantly to the Companys business/prots and the growth of shareholder value as well as to encourage improvement in employee performance and retention of talent. The Scheme entitles the holder to acquire up to a maximum number of ordinary shares of the Company at a market value exercise price, provided certain performance criteria are met. The ESOP has a performance period of three years where the following percentage of options will vest depending on the growth in Earnings per Share (EPS):
EPS Growth Percentage of option that vests
Below 5% per annum 5% per annum 10% per annum and above
None 30% 100%
Shares will vest on a straight-line basis between 30% and 100% where EPS growth is between 5% and 10% per annum. None of the options vest below 5% per annum EPS growth. EPS growth is seen as a straightforward way to assess the Groups performance over the period of the ESOP scheme. The Committee may make such adjustments to the growth in EPS targets as it considers appropriate to take account of any factors which are relevant in the opinion of the Committee, as per the ESOP scheme rules. The performance conditions will be retained in their current form for the 201213 nancial year. The performance measures and targets are reviewed annually to ensure they remain appropriate. Directors interests The Directors interests are set out in the Directors report. Directors remuneration and service contract The following table summarises amounts paid during the 15 month period to 31 March 2012 or from date of appointment, ifshorter. Please note that the Companys 201112 nancial year covers a 15 month period, and therefore elements of compensation in the table below are larger than for a 12 month nancial year and as a result cannot be directly compared with the 2010 remuneration gures set out below. All amounts are in pound sterling. Information regarding the various elements of the Directors annual remuneration package, service contract and terms is further discussed below. Directors emoluments (audited)
Name Base salary and fees Cash in lieu of pension Other (APLI) Total
Chairman Prashant Ruia Chief Executive Ofcer Naresh Nayyar Essar Oil (to 3 December 2011) Essar Energy Services (Mauritius) Limited Total for Naresh Nayyar Non-Executive Directors Ravi Ruia1 Philip Aiken Sattar Hajee Abdoula3 Simon Murray Subhas Lallah Steve Lucas2 Total
218,750
218,750
146,396 907,356 1,053,752 375,000 106,250 107,273 118,750 118,750 682 2,099,207
6,333 90,735 97,068 97,068
49,008 337,5384 376,546 376,546
201,737 1,335,629 1,537,366 375,000 106,250 107,273 118,750 118,750 682 2,582,821
Note: 1 Ravi Ruia was Chairman of the Company for the majority of the 15 month period until 21 December 2011. 2 Steve Lucas was appointed as an Independent Non-Executive Director of the Company on 29 March 2012. 3 The increase in Sattar Hajee Abdoulas salary reects his appointment to the Health, Safety and Environment Committee on 23 February 2012. 4 This gure includes an end of year bonus of 56,906 paid to Naresh Nayyar see Changes to the structure of the Chief Executive Ofcers remuneration below for further details.
69
The total pay for each Director during the 2010 nancial year is set out in the table below. Please note that as each Director listed below was appointed to the Board of the Company on 6 April 2010, the below gures represent payments received for the period 6 April 2010 until 31 December 2010. Directors total pay for the 2010 nancial year (audited)
Name Total pay for nancial year 2010
Prashant Ruia Naresh Nayyar Ravi Ruia Philip Aiken Sattar Hajee Abdoula Simon Murray Subhas Lallah Total
131,250 794,163 225,000 63,750 63,750 71,250 71,250 1,420,413
Changes to the structure of the Chief Executive Ofcers remuneration Until 3 December 2011 Mr Nayyar was paid a combined annual salary, including bonus payments, of 976,808 under two service contracts with each of (i) Essar Energy Services (Mauritius) Limited dated 6 April 2010 and (ii) Essar Oil dated 24 July 2007. Amounts paid in India have been converted at a rate of 1 = INR 85.15. On 3 December 2011, these service contracts were consolidated within a single service contract with Essar Energy Services (Mauritius) Limited. There was no base salary increase as a result of this consolidation. The gure of 1,537,366 in the rst above table represents amounts paid to MrNayyar over the 15 month period of 1 January 2011 to 31 March 2012. Mr Nayyar is eligible to participate in an Annual Performance Linked Incentive scheme which provides a payment of up to45% of base salary (at stretch level) subject to the achievement of certain performance targets relating to corporate and personal performance (with 33.3% of base salary for achieving target performance). In determining Mr Nayyars APLI amount, the Committee has taken into account a range of nancial and non-nancial, corporate and individual performance criteria including asset operating performance, business nancial performance, health and safety performance, and the skills needed to run such a complex organisation including the execution of a major capital expenditure programme across the Companys Rening and Marketing and Power businesses. In accordance with employment laws in Mauritius, Mr Nayyar also received a bonus of 56,906 equivalent to one month of hisbase salary from Essar Energy Services (Mauritius) Limited during the 15 month period ended 31 March 2012. The options issued under the current ESOP scheme will not begin to vest until 2013 at the earliest. Mr Nayyar is also eligible to participate in the ESOP awards granted since Listing, as set out in the table below. ESOP awards for Mr Nayyar (audited)
Number of shares Date of grant Market value of shares on grant Exercise price Date from which exercisable Date of expiry
204,444 128,644
15/11/2010 22/03/2011
523p 440p
420p 440p
15/11/2013 22/03/2014
15/11/2020 22/03/2021
During the 15 month period, the Companys share price reached a high of 590.5 pence, and a low of 99.8 pence. Theclosingprice of the shares as at 31 March 2012 was 155.3 pence. There were no movements in the options held otherthanas noted above. As indicated on IPO, it was the Committees intention to grant options to certain members of Senior Management under theESOP scheme shortly following IPO at around the Listing price of 420 pence. The Committee was unable to make these option grants until 15 November 2010, but the market price of the Companys shares rose strongly in the intervening period. Inorder to ensure the Chief Executive Ofcer and certain members of Senior Management were not disadvantaged by the delay in granting options to them, the Committee awarded each individual concerned an additional cash right. This right is exercisable in conjunction with or in place of the share option, depending on the share price at exercise. The salary multiple used in determining the number of shares under these options was calculated by reference to the 420 pence Listing price, notthe share price shortly before the grant date.
70
Governance

Total ESOP shares outstanding during the 15 month period (audited)
Date Number of ESOP share outstanding
As at 1 January 2011 Additions from 1 January 2011 to 31 March 2012 Total
386,329 273,023 659,352
Service Contract Mr Nayyars service contract is terminable by either party on service of six months prior written notice. The Company has the ability to terminate the agreement by the payment of a cash sum in lieu of notice equal to the salary and other contractual benets, excluding bonus, payable for any unexpired portion of the notice period. Mr Nayyar is subject to a condentiality undertaking without limitation in time and to non-competition, non-solicitation, non-dealing and non-hiring restrictive covenants for a period of 12 months after the termination of his employment. Termination payment The amount of annual bonus payable upon termination of employment in any circumstances, other than for change in control, is at the discretion of the Committee and is capped at the contractual target level. Where employment terminates following a change of control compensation payable is: t One years salary and the cash equivalent of one years pension, car allowance and other contractual benets; and t Annual bonus payment is at the discretion of the Committee and is capped at the contractual maximum level. Chairman and Non-Executive Directors The details of the Boards re-election are provided in the Directors report. The appointments may also be terminated at any time by the Company in accordance with its Articles of Association or the Companies Act 2006. Upon termination, none of the Chairman or any of the Non-Executive Directors are entitled to any damages for loss of ofce and no fee shall be payable in respect of any unexpired portion of the term of the appointment. The letters of appointment are available for inspection at the Companys registered ofce during normal business hours and at the AGM (for 15 minutes prior to and during the meeting). Mr Prashant Ruia was appointed as Vice Chairman of the Company in April 2010 and is paid an annual fee of 175,000 in accordance with the terms of his Letter of Appointment. He is currently serving as the Chairman of the Company. For the 15 month period, the Non-Executive Directors were each entitled to an annual fee of 60,000 together with an additional fee of 10,000 per annum for serving on a Board Committee and an additional 5,000 per annum for chairing a Board Committee. Such amounts were revised by the Board in June, and with effect from 1 July 2012, the Non-Executive Directors will each be entitled to an annual fee of 75,000, together with an additional 12,000 per annum for serving on a Board Committee and an additional 5,000 for chairing a Board Committee. The Non-Executive Director who chairs the Audit Committee will be entitled to receive an additional 5,000 per annum, to reect the time commitment required for such role. The dates of appointment for the Chairman and the Non-Executive Directors are set out in the table below. The Companys policy is for Non-Executive Directors to have written terms of appointment for no more than three years at a time. The Company has adopted the practice of annual re-election of all Directors as recommended by the Governance Code.
Chairman and Non-Executive Directors Name Date of Appointment Effective Date of current Letter of Appointment Expiry of present Term of Appointment (subject to annual re-election)
Prashant Ruia Ravi Ruia Philip Aiken Sattar Hajee Abdoula Subhas Lallah Steve Lucas Simon Murray
6 April 2010 6 April 2010 6 April 2010 6 April 2010 6 April 2010 29 March 2012 6 April 2010
6 April 2010 6 April 2010 6 April 2010 6 April 2010 6 April 2010 30 March 2012 6 April 2010
Three years from date of appointment Three years from date of appointment Three years from date of appointment Three years from date of appointment Three years from date of appointment Three years from date of appointment Three years from date of appointment
71
Statement of Directors responsibilities

The Directors are responsible for preparing the Annual Report and the nancial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare nancial statements for each nancial year. Under that law the Directors are required to prepare the Group nancial statements in accordance with IFRS as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the Company nancial statements under IFRSs as adopted by the EU. Under Company law the Directors must not approve the accounts unless they are satised that they give a true and fair view of the state of affairs of the Company and of the prot or loss of the Company for that period. In preparing these nancial statements, International Accounting Standard 1 requires that Directors: t properly select and apply accounting policies; t present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; t provide additional disclosures when compliance with the specic requirements in IFRSs are insufcient to enable users to understand the impact of particular transactions, other events and conditions on the entitys nancial position and nancial performance; and t make an assessment of the Companys ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufcient to show and explain the Companys transactions and disclose with reasonable accuracy at any time the nancial position of the Company and to enable them to ensure that the nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and nancial information included onthe Companys website. Legislation in the United Kingdom governing the preparation and dissemination of nancial statements may differ from legislation in other jurisdictions. Responsibility statement We conrm that to the best of our knowledge: t the nancial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, nancial position andprot or loss of the Company and the undertakings included in the consolidation taken as a whole; and t the management report (entitled Business Review), which is incorporated into the Directors report, includes a fair review of the development and performance of thebusiness and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. By order of the Board Naresh Nayyar Chief Executive Ofcer 22 June 2012 The Directors are listed on pages 48 and 49 of this AnnualReport
72
Independent auditors report

Independent auditors report to the members of Essar Energy plc We have audited the nancial statements of Essar Energy plc for the 15 month period ended 31 March 2012 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and parent company Balance Sheets, the Group and parent company Cash Flow Statements, the Group and parent company Statements of Changes in Equity and the related Notes 1 to 45. The nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company nancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Companys members, asabody, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Companys members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Companys members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditor As explained more fully in the Directors Responsibilities Statement, the Directors are responsible for the preparation ofthe nancial statements and for being satised that they give a true and fair view. Our responsibility is to audit and express an opinion on the nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards Ethical Standards for Auditors. Scope of the audit of the nancial statements An audit involves obtaining evidence about the amounts anddisclosures in the nancial statements sufcient to give reasonable assurance that the nancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the groups and the parent companys circumstances and have been consistently applied and adequately disclosed; the reasonableness of signicant accounting estimates made by the Directors; and the overall presentation of the nancial statements. In addition, we read all the nancial and non-nancial information in the annual report to identify material inconsistencies with the audited nancial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on nancial statements In our opinion: t the nancial statements give a true and fair view of the state of the Groups and of the parent companys affairs as at 31 March 2012 and of the Groups loss for the period then ended; t the Group nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; t the parent company nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and t the nancial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group nancial statements, Article 4 of the IAS Regulation.
73
Emphasis of matter Going concern In forming our opinion on the nancial statements, which is not modied, we have considered the adequacy of the disclosure made in Note 1 to the nancial statements concerning the Group and Companys ability to continue as a going concern. As discussed in Note 1, following a ruling of the Supreme Court of India, the Group has a liability to pay sales tax, although the timing of such payment is uncertain and is dependent on a separate legal process. The Group is in advanced stages of establishing a new loan facility with its lenders to fund the sales tax repayment as and when required but the facility is not yet committed. Accordingly in these circumstances, the Directors have had to conclude that this represents a material uncertainty which may cast signicant doubt about the Group and Companys ability to continue as a going concern. The nancial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern. Emphasis of matter Interest on sales tax liability In forming our opinion on the nancial statements, which isnot modied, we have considered the adequacy of the disclosures made in Note 29 to the nancial statements concerning the uncertain outcome of a lawsuit relating to theGroups liability to pay interest on sales tax owed to the State of Gujarat. The Group has led a writ petition seeking remission of interest and is awaiting the outcome of such action. The ultimate outcome of the matter cannot presently be determined, and no provision for any interest liability that may result has been made in the nancial statements. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: t the part of the Directors Remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and t the information given in the Directors report for the nancial period for which the nancial statements are prepared is consistent with the nancial statements.
Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: t adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or t the parent company nancial statements and the part of the Directors Remuneration report to be audited are not in agreement with the accounting records and returns; or t certain disclosures of Directors remuneration specied by law are not made; or t we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: t the Directors statement, contained within the Directors report and Financial review sections of the Annual Report, in relation to going concern; t the part of the Corporate Governance Statement relating to the Companys compliance with the nine provisions of the UK Corporate Governance Code specied for our review; and t certain elements of the report to shareholders by the Board on Directors remuneration. James Leigh (Senior statutory auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 22 June 2012
74
Financial statements
Consolidated income statement

15 months ended 31 March 2012 $ million 12 months ended 31 December 2010 $ million
Note
Continuing operations Revenue before adjustment for loss of sales tax benet Adjustment for loss of sales tax benet Revenue Cost of sales Gross prot Other operating income Selling and distribution expenses General and administration expenses before adjustment for loss of sales tax benet Adjustment for loss of sales tax benet General and administration expenses (Loss)/prot before net nance costs and other gains Finance income Finance costs before adjustment for loss of sales tax benet and interest arising on lapse of prepayment option Interest arising on lapse of prepayment option Adjustment for loss of sales tax benet Finance costs Other (losses)/gains (Loss)/prot before tax Tax expense before adjustment for loss of sales tax benet and interest arising on lapse of prepayment option Tax on interest arising on lapse of prepayment option Adjustment for loss of sales tax benet Tax income/(expense) (Loss)/prot after tax Attributable to: Owners of the Company Non-controlling interest Earnings per share (US cents per share) basic Operational earnings per share (US cents per share) basic
4 8a 5 4
8a
6 6 8b 8a 7 5
21,956.7 (1,053.7) 20,903.0 (20,833.0) 70.0 35.7 (136.0) (214.5) 39.9 (174.6) (204.9) 138.0 (521.9) (321.5) 58.6 (784.8) (296.0) (1,147.7)
10,005.6 10,005.6 (9,288.2) 717.4 34.0 (91.7) (120.9) (120.9) 538.8 49.2 (336.6) (336.6) 114.1 365.5
8b 8a 10
(30.8) 104.3 309.9 383.4 (764.3) (690.3) (74.0) (53.0) 3.2
(117.2) (117.2) 248.3 201.5 46.8 17.1 17.1
11 11
Consolidated statement of comprehensive income

Note 15 months 12 months ended ended 31 March 31 December 2012 2010 $ million $ million
(Loss)/prot after tax Exchange difference arising on translation of foreign operations Losses on available for sale investment during the year Reclassication adjustments for gains included in prot Other comprehensive (loss)/income Total comprehensive (loss)/income for the year Attributable to: Owners of the Company Non-controlling interest
(764.3) (440.7) (440.7) (1,205.0) (1,051.5) (153.5)
248.3 88.9 (2.3) (11.4) 75.2 323.5 251.2 72.3
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Consolidated balance sheet

31 March 31 December 2012 2010 $ million $ million
As at
Note
Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments in joint controlled entities Trade and other receivables Other nancial assets Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Other nancial assets Derivative nancial assets Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Provisions Finance leases Borrowings Derivative nancial liabilities Total current liabilities Non-current liabilities Trade and other payables Provisions Finance leases Borrowings Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium Currency translation reserve General reserve Statutory reserves Convertible bond reserve Other reserves Retained decit Equity attributable to owners of the Company Non-controlling interest Total equity
13b 13a 12 28 15b 16b 10
117.0 61.5 10,202.1 47.4 97.9 77.8 271.4 10,875.1
133.6 56.1 8,411.8 32.3 424.7 51.9 0.2 9,110.6
BUSINESS REVIEW
17 15a 16a 22a 18
2,544.2 1,194.2 2,834.6 1,089.2 446.0 514.4 33.7 2.1 674.0 563.7 6,532.5 3,363.6 17,407.6 12,474.2 5,630.4 56.2 6.3 1,835.4 75.2 7,603.5 118.6 63.3 27.0 5,811.1 137.6 6,157.6 13,761.1 3,646.5 99.0 2,043.8 (387.3) 1,160.6 53.5 85.8 1,436.3 (1,056.7) 3,435.0 211.5 3,646.5 1,922.2 58.0 10.8 750.0 31.0 2,772.0 980.0 18.2 14.9 3,747.6 299.4 5,060.1 7,832.1 4,642.1 99.0 2,043.8 (26.1) 1,160.6 1,436.3 (431.9) 4,281.7 360.4 4,642.1
20a 21 29 19 22b
20b 21 29 19 10
24
The Financial Statements of Essar Energy plc, registration number 7108619 were approved by the Board of Directors and authorised for issue on 22 June 2012. They were signed on its behalf by: Naresh Nayyar Chief Executive Ofcer
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Consolidated statement of changes in equity

Share capital $ million Share premium $ million Currency translation reserve $ million Attributable to equity interest Convertible bond reserves $ million General reserve $ million Statutory reserves $ million Other reserves $ million Retained decit $ million Noncontrolling interest1 $ million Total equity $ million
Total $ million
1 January 2011 Reversal of commitment to acquire non-controlling stake (refer Note 30e) Reserve recognised on issuance of convertible bonds (refer Note 19) Transfer Creation of statutory reserve Increase in non-controlling stake Total comprehensive loss for the period 31 March 2012
99.0
2,043.8
(26.1)
1,160.6
1,436.3
(431.9)
4,281.7
360.4
4,642.1
99.0
99.0
99.0
99.0
2,043.8
(361.2) (387.3)
107.0 (21.2) 85.8
1,160.6
53.5 53.5
1,436.3
21.2 (53.5) (1.2)
107.0 (1.2)
4.6
107.0 3.4
(690.3) (1,051.5) (1,056.7) 3,435.0
(153.5) (1,205.0) 211.5 3,646.5
Invested capital $ million Share capital $ million Share premium $ million
Attributable to equity interest Currency translation reserve $ million Fair value reserve $ million General reserve $ million Other reserves $ million Retained decit $ million
Noncontrolling interest1 $ million
Total equity $ million
Total $ million
1 January 2010 2,301.7 Capital contribution 625.7 Issues of shares to parent (1,491.1) Issues of shares under IPO Transfer (1,436.3) IPO related expenses Commitment to acquire non-controlling stake (refer Note 30e) Acquisition of non-controlling stake Total comprehensive income/(loss) for the year 31 December 2010
76.5 22.5
1,414.6 1,864.1 (1,160.6) (74.3)
(89.5)
13.7
1,160.6
1,436.3
(543.4)
1,682.5 625.7 1,886.6 (74.3)
356.3
2,038.8 625.7 1,886.6 (74.3)
(99.0) 9.0
(99.0) 9.0
(68.2)
(99.0) (59.2)
99.0
2,043.8
63.4 (26.1)
(13.7)
1,160.6
1,436.3
201.5 (431.9)
251.2 4,281.7
72.3 360.4
323.5 4,642.1
1 Includes share of non-controlling interest in currency translation reserve of US$(50.8) million (2010: US$28.7 million).
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General reserve In 2010, following a board resolution, amounts previously held within share premium of US$1,160.6 million relating to Essar Global Limiteds investment in the Company were transferred to the General Reserve. Statutory reserves During the year, a separate statutory reserve comprising US$31.6 million relating to the Preference Share Redemption Reserve and US$21.9 million relating to a Debenture Redemption Reserve were created in accordance with Indian Company Law concerning certain subsidiaries in India, which are not distributable reserves in the subsidiaries concerned. Other reserves As part of the reorganisation of the Group prior to IPO in 2010, Essar Global Limited gifted its interest of US$1,436.3 million in the Power and Oil & Gas businesses to Essar Energy plc. The gift of this interest was transferred to Other Reserves.
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Consolidated statement of cash ows

15 months 12 months ended ended 31 March 31 December 2012 2010 $ million $ million
Cash ow from operating activities (Loss)/prot before tax Adjustments to reconcile (loss)/prot before tax to net cash generated from/(used in) operating activities: Depreciation and amortisation Unrealised loss on derivatives Interest cost, net Written off/(gain) on disposal of property, plant and equipment Surplus on acquisition of a subsidiary Share in loss/(prot) of joint controlled entity Inventory written down Foreign exchange losses/(gains) Prot on sale of investments Gain on settlement of liabilities Operating cash ow before changes in working capital Tax paid Changes in working capital: Increase in trade and other receivables Increase in inventories Increase in other nancial assets Increase/(decrease) in trade and other payables (Decrease)/increase in other liabilities and provisions Net cash generated from/(used in) operating activities Cash ow from investing activities Acquisition of subsidiary (net of cash acquired) Costs related to acquisition of subsidiary Purchase of property, plant and equipment Payment for exploration and evaluation assets Proceeds on disposal of property, plant and equipment Purchase of intangible assets Purchase of investments Movement in bank deposits Investments in joint controlled entities Proceeds from disposal of investments Decrease/(increase) in non-controlling interest Net cash used in investing activities
(1,147.7)
365.5
204.2 45.2 727.5 3.2 (18.9) 2.3 4.0 315.2 (0.2) (5.4) 129.4 (58.0) (1,637.3) (664.2) (126.8) 3,516.6 (43.4) 1,116.3
127.0 28.9 249.0 (0.3) (1.7) (94.4) (11.2) (10.1) 652.7 (10.4) (380.5) (287.1) (91.5) (158.2) 13.2 (261.8)
(999.0) (31.2) (25.0) (2,128.9) (2,496.5) (135.2) (58.5) 2.6 0.5 (4.1) (1.2) (32.9) (17.3) (18.1) (2.9) 33.1 37.0 3.4 (59.2) (3,321.4) (2,612.0)
79
Cash ow from nancing activities Proceeds from capital contribution Proceeds from issue of equity shares Proceeds from borrowings Repayment of borrowings Proceeds from acceptances Repayment of acceptances Movement in bills of exchange and other nancing Interest paid Net cash provided by nancing activities Net increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period
5,116.7 (1,967.0) 700.6 (1,133.8) 240.2 (622.7) 2,334.0 128.9 (18.6) 563.7 674.0
630.2 1,812.3 2,051.6 (909.1) 217.0 (194.8) 29.5 (309.1) 3,327.6 453.8 38.5 71.4 563.7
Non-cash transactions: 1. Material non-cash transaction in the periods presented include gifting of shares in subsidiaries by the parent company on reorganisation of the Group prior to IPO as described in Notes 1.2 and 23. 2. Amount of interest expenses converted into borrowings as per the terms of agreements during the period is US$195.3 million (2010: US$40.3 million)
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Notes to the consolidated nancial statements

1. Presentation of nancial statements 1.1 Corporate information Essar Energy plc (the Company) is a public limited Company incorporated in the United Kingdom under the Companies Act. The address of the registered ofce is 3rd Floor, Lansdowne House, Berkeley Square, London, W1J 6ER and its head ofce is 10, Frere Felix Valois Street, Port Louis, Mauritius. The Company was incorporated in the UK on 18 December 2009 as a wholly owned subsidiary of Essar Global Limited (EGLor parent company). Between 18 December 2009 and 7 May 2010, the Company was party to a series of transactions with other EGL group companies whereby it acquired control of the Renery and Marketing, Exploration and Production, and Power businesses ofEGL prior to IPO. The consolidated nancial statements of the Company comprise the Company and its subsidiaries (together referred to as the Group) and the Groups interest in joint ventures and associates. The nature of the Groups operations and its principal activities are set out in Note 31. Change in accounting year The Indian Income Tax Act requires Indian companies to le their annual accounts and returns based on the year ended 31 March. All Indian companies within the Group prepare their accounts on this basis. To ensure that all accounting periods are aligned within the Group, the Company announced in August 2011 that it had decided to also change its year end to 31 March. This change in year end means that Essar Energy plc is publishing nancial statements for the 15 months ended 31March 2012. Comparative gures are for the 12 months ended 31 December 2010 and hence are not directly comparable. 1.2 Basis of preparation The consolidated nancial statements presented in this report have been prepared in accordance with International FinancialReporting Standards (IFRSs) as adopted by the European Union and therefore comply with Article 4 of the EU IAS regulations. The consolidated nancial statements have been prepared under the historical cost convention as modied by the revaluation of available-for-sale assets, and nancial assets and liabilities. The Group was formed under a series of transactions with entities under the same control as the Company, referred to ascommon control transactions between 18 December 2009 and 7 May 2010. The Company was party to a series of transactions with other Essar Global Limited group companies whereby it acquired control of the Renery and Marketing, Exploration and Production, and Power businesses of Essar Global Limited prior to IPO on 7 May 2010. The Group accordingly prepared its rst set of IFRS consolidated nancial statements for the year ended 31 December 2010 using merger accounting principles, as if the transactions giving rise to the formation of the Group took place prior to 1January2009. Once control was obtained, further acquisitions of non-controlling interests have been dealt with through reserves. Businesses which were transferred out of the ownership of the Groups subsidiaries to entities held under common control were excluded from the consolidated nancial statements. The assets, liabilities and the prot or loss of the entities comprising the Group have been consolidated and all transactions and balances between entities included within the Group have been eliminated on consolidation. Invested capital reected the aggregated equity of the Renery and Marketing, Exploration and Production, and Power businesses, prior to the formation of the Group. At the point at which the Company became the parent company of the Group, the Groups equity reected the share capital and share premium of the Company, together with other reserves arising on consolidation as shown in the statement of changes in equity and Note 23. Note 11 sets out how the Group has applied these principles in establishing its earnings per share for 2010. EGL remains the ultimate parent company of the Group and its controlling party. The Groups business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review. The Business Review also includes a summary of the Groups nancial position, its cash ows and borrowing facilities.
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1. Presentation of nancial statements continued 1.3 Going concern The Group has prepared detailed annual business plans for the year to June 2013 based on the annual business plans for the 2013 nancial year. These business plans were used as the basis for assessing the Groups cash headroom and compliance with banking covenants. The Groups forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within its current available funding and anticipated roll-over of facilities which mature in the ordinary course of business together with other facilities which have been agreed with the relevant banks but await nal documentation. As set out in Note 8, on 17 January 2012, the Supreme Court of India ruled that the Group was not entitled to participate in the Sales Tax Incentive Scheme (the Scheme), and on 24 January the Government of Gujarat served notice on the Group requiring it to pay the outstanding sales tax liability of US$1,186.9 million plus associated interest. The Group has now led a writ petition with the High Court of Gujarat to waive or reduce the interest owed, and to defer the payment of sales tax over a number of years as may be permitted under the Gujarat Value Added Tax Act 2003. The High Court of Gujarat has admitted the writ petition and asked the Government of Gujarat to consider this application. In view of the matter being sub judice, the timing of payment of the sales tax liability and related interest, if any, is not denitive, and will not be known until determined by the current legal process. In view of this and based on legal advice, the interest on the sales tax liability has been treated as a contingency as set out in Note 29. The Group plans to fund any repayment of the sales tax liability through a combination of internal funding and through obtaining a new loan facility. The Group is currently in advanced stages of establishing credit facilities of US$1 billion with its lenders to ensure that the Group has adequate funds available to meet any liabilities due to the State of Gujarat as and when the decision of the Government of Gujarat/the High Court is established. Although the facility is expected to be committed shortly, the process is ongoing. For this reason the Directors are required to conclude that these circumstances represents a material uncertainty that may cast signicant doubt upon the Groups and Companys ability to continue as a going concern. Although there is no denitive sales tax liability payment schedule at this time, the Board is condent of arranging the facility well ahead of any payments falling due, resulting from the pending legal process. In addition, if the Government of Gujarat permits payment of the liability in instalments as requested then the facility may not be fully drawn down with the liability partly met through the Groups internal resources. The Directors have examined all available evidence and have concluded that although there is a risk that they will not be able to secure agreement with the lender outlined above, in light of the supportive nature of the relationship held with the lender and the advanced stage the Group is in establishing the facility, the Directors are satised that adequate nancial resources will continue to be made available to the Group and the Company so as to enable it to continue to trade on a going concern basis. As a result, the Directors continue to adopt the going concern basis in preparing the Groups and Companys nancial statements. 1.4 Adoption of new and revised standards In the current year, the following new and revised standards and interpretations have been adopted by the Group, none of which had a material impact on the current or prior year reported results and the nancial position: t Amendment to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters; t IAS 19 (revised) will impact the measurement of the various components representing movements in the dened benet pension obligation and associated disclosures, but not the Groups total obligation. It is likely that following the replacement of expected returns on plan assets with a net nance cost in the income statement, the prot for the period will be reduced and accordingly other comprehensive income increased; t IAS 24 (2009) Related Party Disclosures; t Amendment to IAS 32 Classication of Rights Issues; t Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement; t IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments; t IFRIC 18 Transfer of Assets from Customers; and t Improvements to IFRSs 2010.
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Notes to the consolidated nancial statements continued

1. Presentation of nancial statements continued 1.5 Standards, interpretations and amendments to published standards that are not yet effective At the date of authorisation of these nancial statements, the following standards and interpretations which have not been applied in these nancial statements were in issue but not yet effective (and in some cases had not yet been adopted by theEU): t IFRS 1 (amended) Severe Hyperination and Removal of Fixed Dates for First-time Adopters; t IFRS 7 (amended) Disclosures Transfers of Financial Assets; t IFRS 9 Financial Instruments; t IFRS 10 Consolidated Financial Statements; t IFRS 11 Joint Arrangements; t IFRS 12 Disclosure of Interests in Other Entities; t IFRS 13 Fair Value Measurement; t IAS 1 (amended) Presentation of Items of Other Comprehensive Income; t IAS 12 (amended) Deferred Tax: Recovery of Underlying Assets; t IAS 27 (revised) Separate Financial Statements; t IAS 28 (revised) Investments in Associates and Joint Ventures; and t IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. The Directors do not expect that the adoption of the standards listed above will have a material impact on the nancial statements of the Group in future periods, except as follows: t IFRS 9 will impact both the measurement and classications of Financial Instruments; t IFRS 12 will impact the disclosure of interests that the Group has in other entities; and t IFRS 13 will impact the measurement of fair value for certain assets and liabilities as well as the associated disclosures. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed. 2. Accounting policies and estimates 2.1 Signicant accounting policies 2.1.1 Business combinations The acquisition of subsidiaries and businesses from third parties are accounted for using the purchase method. The cost of acquisition is measured at the aggregate value of the identiable assets, 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, except for a business combination under common control which is described below. The acquirees identiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (revised 2008) Business Combinations are recognised at their fair value at the date of acquisition, except for non-current assets that are classied 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. Where it is not possible to complete the determination of fair values by the date on which the rst post-acquisition nancial statements are approved, a provisional assessment of fair values is made and any adjustments required to those provisional fair values, and the corresponding adjustments to purchased goodwill, are nalised within 12 months of the acquisitiondate. Goodwill arising on acquisition is recognised as an asset and is initially measured at cost, being the excess of the cost of thepurchase consideration over the Groups interest in the net fair value of the identiable assets, liabilities and contingent liabilities recognised. If, however, the fair values of the identiable assets, liabilities and contingent liabilities exceeds the cost ofacquisition, the excess is recognised immediately in prot or loss. Goodwill is subsequently measured at cost less any accumulated impairment losses. Goodwill that is recognised as an asset and is initially measured at cost, is reviewed for impairment at least annually. Any impairment is recognised immediately in prot or loss and is not subsequently reversed. Internally generated goodwill is not recognised. The interest of non-controlling shareholders in the acquiree is initially measured at the non-controlling shareholders proportion of the net fair value of the assets, liabilities and contingent liabilities recognised and subsequently also includes the non-controlling shareholders proportion of changes in equity since the date of combination. The Group follows the entity concept method of accounting for changes in ownership interest in subsidiaries. In the event of apurchase of a minority shareholders interest where the Group holds the majority of shares of a subsidiary, any excess over the Groups share of net assets is recorded in retained earnings without change in goodwill.
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2. Accounting policies and estimates continued Common control acquisitions The assets and liabilities of subsidiaries acquired from entities under common control are recorded at the carrying value recognised by the transferor. Any differences between the carrying value of the net assets of subsidiaries acquired, and theconsideration paid by the Group is accounted for as an adjustment to retained earnings. When the transferor contributes the subsidiaries to the Group, the original cost paid by the transferor is recorded as capital investment with the differences recorded as an increase in retained earnings. The net assets of the subsidiaries and their results are recognised from the dateon which control of the subsidiaries was obtained by the transferor. 2.1.2 Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Groups interest in the fair value of the identiable assets and liabilities of a subsidiary, associate or joint controlled entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in prot or loss and is not subsequently reversed. For the purpose of impairment testing goodwill is allocated to each of the Groups cash generating units expected to benet from the synergies of the combination. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated rst 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. On disposal of a subsidiary, associate or joint controlled entity, the attributable amount of goodwill is included in the determination of the prot or loss on disposal. 2.1.3 Revenue recognition Revenue from the sale of petroleum products is measured at the fair value of consideration received or receivable, net of trade discounts, volume rebates, value added tax, sales taxes and duties. A sale is recognised when economic benets associated with the sale are expected to ow to the Group and the signicant risks and rewards of ownership of the goods have passed and it can be reliably measured. This is usually when title and insurance risk has passed to the customer. Revenue from power supply is accounted for on the basis of billings to consumers or unbilled supply of power. Generally all consumers are billed on the basis of recording of consumption of electricity by installed meters. Sales of electricity are accounted for based on relevant tariff rates applicable under the contract with the customer. Revenue associated with sales tax deferral is recognised in accordance with the Groups policy for accounting for government grants set out in 2.1.4. 2.1.4 Sales tax incentives The Group believed it was entitled to the benet of certain sales tax incentives under the Capital Investment Incentive Premier/ Prestigious Units Scheme 19952000 (the Sales Tax Incentive Scheme). The benets under the Sales Tax Incentive Scheme were recognised when it was reasonable to expect that the benet would be received and that all related conditions would be met. The benet of a sales tax deferral with no associated interest outow was recognised as a liability in accordance with the imputation rule under IAS20 Accounting for Government grants and disclosure of Government assistance. This deferred liability was measured in accordance with IAS39 Financial Instruments: Recognition and Measurement. The benet of the below market rate of interest (or no interest) was measured as the difference between initial carrying value of the nancial liability as determined in accordance with IAS39 and the sales tax collected. The benets under the Sales Tax Incentive Scheme were available when eligible domestic sales were made from the Gujarat State and the sale was therefore treated as the key condition giving rise to the recognition of the benet. It was expected that all other conditions related to the deferral of sales tax would be met and therefore the benet was recognised as eligible domestic sales were made. The deferred liability to the State was recognised at its net present value, and therefore a nance charge was recorded as the discount on this liability. Note 8a sets out details of the adjustments made following the ruling of the Honourable Supreme Court of India that the Group could not participate in the Scheme.
84

2. Accounting policies and estimates continued 2.1.5 Foreign currency transactions and translation Each entity in the Group determines its own functional currency and items included in the nancial statements of each entity are measured using that functional currency. Transactions in currencies other than the functional currency are translated into functional currency at the exchange rates at the date of transaction. Monetary assets and liabilities denominated in other currencies are translated into functional currency at exchange rates at the reporting date and exchange differences are recognised in prot or loss. 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. The consolidated nancial statements are presented in US dollars. For the purposes of consolidation, 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. The related balance sheets are translated at the rates at the balance sheet date. Goodwill arising on consolidation which is attributed to an entity for which the US dollar is not the functional currency is translated into US dollars at the rates at the balance sheet date. Exchange differences arising on translation are reported in the consolidated statement of changes in equity. The rates used to translate the consolidated nancial statements were as follows:
15 months 12 months ended ended 31 March 31 December 2012 2010 INR/$ INR/$
Opening rates Average rates Closing rates
44.81 47.40 51.16
46.68 45.74 44.81
2.1.6 Derivative nancial instruments In order to reduce its exposure to foreign exchange, commodity price and interest rate risk, the Group enters into forward, option and swap contracts. The Group also enters into nancial instruments to acquire non-controlling stakes of its subsidiaries to increase its stake. Additionally the Group provides warrants over stakes held in certain subsidiaries. The Group does not use derivative nancial instruments for speculative purposes. 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. Other derivatives are presented as current assets or current liabilities. The Groups derivative arrangements are not designated hedges under the denitions of IAS39. Consequently, all fair value movements in respect of derivative nancial instruments are taken to the income statement. Further details of derivative nancial instruments including fair value measurements are disclosed in Note 22. 2.1.7 Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses, if any. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the decommissioning obligation, and for qualifying assets, borrowing costs if the recognition criteria aremet. The cost of mining properties and leases, which include the cost of acquiring and developing mining properties and mineral rights, are capitalised as property, plant and equipment in the period in which such costs are incurred. Costs directly related to construction, including costs and revenues arising from testing, specic nancing costs and foreign exchange losses, are capitalised up to the point where the property, plant and equipment become operational. Property, plantand equipment become operational once all testing and trial runs are complete and it is ready for use in the manner management intended. 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. The purchase price or construction costis the aggregate amount paid and the fair value of any other consideration given to acquire the asset. The capitalised value of a nance lease is also included within property, plant and equipment. Likewise, when a major inspection or major maintenance is undertaken, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satised. All other repairs and maintenance costs are recognised in the prot or loss as incurred. Property, plant and equipment in the course of construction is carried at cost, less accumulated impairment losses, if any, andis not depreciated.
85
2. Accounting policies and estimates continued An item of property, plant and equipment is derecognised upon disposal or when no future economic benets are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in prot or loss in the year the asset is derecognised. The assets residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each nancial year end. Depreciation of property, 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, over its expected useful life. Depreciation begins when the assets become ready for use. Depreciation is calculated over the estimated useful lives of assets and on the basis of depreciation methods as follows:
Asset Depreciation method Expected useful life (years)
Buildings Plant and equipment Renery India Renery UK1 Power plant Related assets Producing properties Mining properties Ofce equipment and xtures Motor vehicles
1 Expected useful life post acquisition of Stanlow renery.
Straight line Straight line Straight line Straight line Straight line Unit of production basis Unit of production basis Straight line Written down value
40 40 15 20 1130 10 25
320 9 11
Property, plant and equipment held under nance leases are depreciated over the shorter of lease term and estimated usefullife. 2.1.8 Impairment of non-nancial assets The carrying amounts of property, plant and equipment, including producing properties and leases, intangible assets (excluding goodwill) and investments in joint controlled entities are reviewed for impairment at each balance sheet date ifevents or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cashgenerating unit to which the asset belongs. If there are indicators of impairment, an assessment is made to determine whether the assets carrying value exceeds its recoverable amount. Whenever the carrying value of an asset 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 prot or loss. An assets recoverable amount is the higher of an assets or cash generating units fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash ows are discounted to their present value using a pre-tax discount rate that reects current market assessments of the time value of money and the risks specic to the asset. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, 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) inprior years. A reversal of an impairment loss is recognised immediately in prot or loss. 2.1.9 Borrowing costs Borrowing costs directly relating to the acquisition, construction or production of qualifying assets are added to the costs ofthose assets during the construction phase on an effective interest basis, until such time as the assets are ready for their intended use or sale which, in the case of producing or mining properties, is when saleable material begins to be extracted from such properties. Where surplus funds are available for a short-term out of money borrowed specically to nance a qualied asset, the income generated from such short-term investments is deducted from capitalised borrowing costs. All other borrowing costs are recognised in prot or loss in the period in which they are incurred.
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2. Accounting policies and estimates continued 2.1.10 Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date of; whether the fullment of the arrangement is dependent on the use of a specic asset or assets or the arrangement conveys a right to use the asset. Assets held under nance 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, at the present value of the minimum lease payments. Lease payments are apportioned between the nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Groups policy on borrowing costs (see above). Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Payments made under operating leases, where the lessors effectively retain substantially all the risk and benets of ownership of the lease property, plant and equipment are recognised in the income statement on a straight line basis over the lease term. Lease incentives received are recognised as an integral part of the total lease expense over the term of the lease. Property, plant and equipment used by the Group under operating leases are not recognised in the Groups balance sheet. 2.1.11 Financial assets All nancial assets are recognised and derecognised on a trade date where the purchase or sale of a nancial asset is under acontract whose terms require delivery of the nancial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those nancial assets classied as at fair value through prot or loss, which are initially measured at fair value. The Group classies its nancial assets into the following specied categories: at Fair Value Through Prot or Loss (FVTPL), cash and cash equivalents, loans and receivables and Available-for-sale (AFS) nancial assets. The classication is dependent on the nature and purpose of the nancial assets acquired. Management determines the classication of its nancial assets at initial recognition. Further details on the Groups nancial assets and fair value measurement are disclosed in Note 26. Financial assets at FVTPL Financial assets at FVTPL include nancial assets held for trading or designated upon initial recognition as at FVTPL. Financialassets at FVTPL are stated at fair value, with any resultant gain or loss recognised in prot or loss. Financial assets are classied as held for trading if: (i) acquired principally for the purpose of selling in the near term; (ii) they are a part of an identied portfolio of nancial instruments that the Group manages together and has a recent actual pattern of short-term prot-taking; or (iii) they are derivatives unless these are designated as effective hedging instruments. A nancial asset other than a nancial asset held for trading may be designated as at FVTPL upon initial recognition if: (i) such designation eliminates or signicantly reduces a measurement or recognition inconsistency that would otherwise arise; (ii) the nancial asset forms part of a group of nancial assets or nancial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Groups documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or (iii) it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in prot or loss. The net gain or loss recognised in prot or loss incorporates any dividend or interest earned on the nancial asset and is included in the other gains and losses line item in the income statement. Fair value is determined in the manner described in Note 26. Loans and receivables Loans and receivables are non-derivative nancial assets with xed or determinable payments that are not quoted in an active market. After initial measurement loans and receivables are measured at amortised cost using the effective interest method less any allowance for impairment. Interest income is recognised by applying effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Gains and losses are recognised in prot or loss when the loans and receivables are derecognised or impaired as well as through the amortisation process.
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2. Accounting policies and estimates continued AFS nancial investments Listed shares held by the Group that are traded in an active market are classied as being AFS and are stated at fair value. The Group invests in unlisted shares that are not traded in an active market but classied as AFS nancial investments and stated at fair value (because the Directors consider that fair value can be reliably measured). Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated reserves with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in prot or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is reclassied to prot or loss. Dividends on AFS equity instruments are recognised in prot or loss when the Groups right to receive the dividend is established. 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 foreign exchange gains and losses that are recognised in prot or loss are determined based on the amortised cost of the monetary asset. Other foreign exchange gains and losses are recognised in other comprehensive income. Impairment of nancial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the nancial asset, the estimated future cash ows of the investment have been affected. For nancial assets carried at amortised cost the Group assesses whether objective evidence of impairment exists for assets that are individually signicant, or collectively for nancial assets that are not individually signicant. Objective evidence of impairment could include: (i) signicant nancial difculty of the issuer or counterparty; (ii) default or delinquency in interest or principal payments; or (iii) it becoming probable that the borrower will enter bankruptcy or nancial reorganisation. If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash ows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash ows is discounted at the nancial assets original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. 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. For AFS nancial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a Group of investments is impaired. In the case of equity investments classied as AFS, objective evidence for impairment would include a signicant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss (measured as he difference between the acquisition cost and the current fair value, 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. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are recognised directly in other comprehensive income. 2.1.12 Financial liabilities Financial liabilities are classied as nancial liabilities at FVTPL or other nancial liabilities at initial recognition. The Groups other nancial liabilities include borrowings, trade and other payables and nance lease payables. All nancial liabilities are recognised initially at fair value and in the case of loans and borrowings, include directly attributable transaction costs. The measurement of nancial liabilities depends on their classication as follows: Financial liabilities at FVTPL Financial liabilities at FVTPL include those held for trading and nancial liabilities designated upon initial recognition as at fair value through prot or loss. Financial liabilities are classied as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on liabilities held for trading are recognised in the income statement.
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2. Accounting policies and estimates continued Other nancial liabilities Other nancial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other nancial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a nancial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the nancial liability, or, where appropriate, a shorter period, tothe net carrying amount on initial recognition. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process. Financial guarantee contracts The Group provides certain guarantees in respect of the indebtedness of subsidiary undertakings, claims under contract and other arrangements in the ordinary course of business. The Group evaluates each arrangement to determine whether it is an insurance or a nancial guarantee contract. Financial guarantee contract liabilities are measured initially at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of the amount of the obligation under the contract and the amount initially recognised less cumulative amortisation over period of guarantee provided. Once the arrangements are designated as insurance contracts, these are disclosed as contingent liabilities unless the obligations under guarantee become probable. Derecognition of nancial liabilities The Group derecognises nancial liabilities when, and only when, the Groups obligations are discharged, cancelled, extinguished or expire. 2.1.13 Provisions and contingencies Provisions are recognised when the Group has a present legal or constructive obligation, as a result of past events, and it is probable that an outow of resources, that can reliably be estimated, will be required to settle such an obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash ows to net present value using an appropriate pre-tax discount rate that reects current market assessments of the time value of money and, where appropriate, the risks specic to the liability. Unwinding of the discount is recognised in the income statement as a nance cost. Provisions are reviewed at each balance sheet date and are adjusted to reect the current best estimate. An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed theeconomic benets expected to be received under it. The unavoidable costs under a contract reect the least net cost ofexiting from the contract, which is the lower of the cost of fullling it and any compensation or penalties arising from failure to full it. These provisions are charged to the income statement as and when the contract is executed. A contingent liability is disclosed where the existence of an obligation will only be conrmed by future events or where the amount of the obligation cannot be measured reliably. Contingent assets are not recognised, but are disclosed where an inow of economic benets is probable. In normal course of business, contingent liabilities may arise from litigation and other claims against the Group. 2.1.14 Inventories Inventories (other than crude oil extracted by the Exploration and Production segment) are valued at lower of cost and net realisable value. Crude oil extracted and in saleable condition is valued at net realisable value. Cost is determined on the following bases: (i) Raw materials and consumables are determined at weighted average cost except crude oil for the renery which is measured on a rst-in rst-out basis. (ii) Finished products and work in progress are determined at direct material cost, labour cost and a proportion of manufacturing overheads based on normal or allocated capacity. (iii) Inventories held for trading purposes are determined at weighted average 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.
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2. Accounting policies and estimates continued 2.1.15 Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses, if any. Intangible assets with nite lives are amortised over their useful lives and assessed for impairment whenever there is an indication that an intangible asset may be impaired. The assets useful lives and methods of amortisation are reviewed, and adjusted if appropriate, at each nancial year end. 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 prot or loss when the asset is derecognised. Finite lived intangible assets, which are subject to amortisation, are amortised over their useful lives as mentioned below:
Intangible asset Expected useful life (years)
Software Power sales contract
35 20
2.1.16 Joint controlled entities A joint controlled entity is an entity in which the Group shares joint control over the strategic, nancial and operating decisions with one or more ventures under a contractual arrangement. Investment in joint controlled entities are accounted for using the equity method of accounting, except when the investment is classied as held for sale, which is recognised at fair value less costs to sell. In accordance with the equity method, investments in joint controlled entities are measured at cost plus post acquisition changes in the Groups share of net assets of joint controlled entities, less any impairment in the value of individual investments. Goodwill arising from the excess of the cost of acquisition over the Groups interest in the net fair value of the identiable assets, 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. Any excess of the Groups share of the net fair value of the identiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in prot or loss. The income statement reects share of results of operations of the joint controlled entities. Where there has been a change recognised directly in equity of the joint controlled entities, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Prots and losses resulting from transactions between the Group and the joint controlled entities are eliminated to the extent of the Groups interest in the relevant joint controlled entities. 2.1.17 Exploration and evaluation expenditure Exploration and evaluation activity involves the search for oil and gas resources, the determination of technical feasibility and the assessment of commercial viability of an identied resource. Exploration and evaluation activity includes: (i) researching and analysing historical exploration data; (ii) gathering exploration data through geological and geophysical studies; (iii) exploratory and appraisal drilling; (iv) evaluating and testing discoveries; (v) determining transportation and infrastructure requirements; and (vi) conducting market and nance studies. Administration costs that are not directly attributable to a specic exploration area are charged to the prot and loss account. License costs paid in connection with a right to explore an existing exploration area are capitalised. Exploration and evaluation expenditure (including amortisation of capitalised license costs) is charged to the prot and loss account as incurred except in the following circumstances: (i) the exploration and evaluation activity is related to an established discovery for which commercially recoverable reserves have already been established; or (ii) at the balance sheet date, exploration and evaluation activity has not reached a stage which permits a reasonable assessment of the existence of commercially recoverable reserves.
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2. Accounting policies and estimates continued Capitalised exploration and evaluation expenditure considered to be tangible is recorded as a component of property, plant and equipment at cost less impairment losses, if any. All capitalised exploration and evaluation expenditure is monitored for indicators of impairment. Where a potential impairment is indicated, 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. To the extent that capitalised expenditure is notexpected to be recovered it is charged to the prot and loss account. 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. 2.1.18 Development expenditure When commercially recoverable reserves are determined and development is sanctioned, the capitalised exploration and evaluation expenditure is transferred to assets under construction after impairment is assessed and any resulting impairment loss is recognised. Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells are capitalised as assets under construction. On completion of a development, all capitalised exploration and evaluation expenditure together with the subsequent development expenditure transferred to producing properties are depreciated using unit of production method. This is carried out with reference to quantities, 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. 2.1.19 Tax Tax expense represents the sum of current tax and deferred tax. Current tax is provided on taxable income at amounts expected to be paid or recovered, using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided, using the balance sheet method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for nancial reporting purposes. In India, the current tax payable by a company is charged to the income statement in the applicable period at the corporate tax rate computed under the normal provisions of the Indian Income Tax Act or the minimum alternate tax (MAT), whichever is higher. Excess paid under MAT can be carried forward for up to 10 years as a credit against corporate income tax in the future. Where the MAT credit satises the relevant criteria under IAS 12 Income Taxes, it is recognised as a deferred tax asset. Deferred tax is recognised for all taxable temporary differences, 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, at the time of the transaction, affects neither the accounting nor taxable prot or loss; and (ii) in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint controlled entities, 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. Deferred tax assets are recognised for all deductible temporary differences, unused tax credits carried forward and unused tax losses, to the extent that it is probable that sufcient taxable prot will be available to allow all or part of the assets to be recovered. 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 sufcient taxable prot will be available to allow all or part of the asset to be recovered. 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, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. 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 prot will allow the deferred tax asset to be recovered. Current and deferred tax are recognised as an expense or income in the income statement, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirers interest in the net fair value of the acquirees identiable assets, liabilities and contingent liabilities over the cost of the business combination. 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.
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2. Accounting policies and estimates continued 2.1.20 Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, short-term deposits with banks with original maturity of lessthan 90 days and short-term highly liquid investments, that are readily convertible into cash and which are subject to insignicant risk of changes in the principal amount. Bank overdrafts, which are repayable on demand and form an integral part of the operations are included in cash and cash equivalents. 2.1.21 Retirement benets The Group operates both dened benet and dened contribution schemes for its employees as well as post employment benet plans. For dened contribution schemes the amount charged as expense is the contributions paid or payable when employees have rendered services entitling them to the contributions. For dened benet pension and post-employment benet plans, full actuarial valuations are carried out every year end using the projected unit credit method. Actuarial gains and losses arising during the year are recognised in the prot and loss account. Past service cost is recognised immediately to the extent that the benets are already vested and otherwise is amortised on a straight line basis over the average period until the benets become vested. The employee benet obligation recognised in the balance sheet represents the present value of the dened benet obligation as reduced by the fair value of the related plan assets. Any asset resulting from this calculation is limited to the reductions in future contributions to the plan. Detailed disclosures are not provided within the nancial statements as amounts associated with such schemes are not considered to be signicant. 2.1.22 Share-based payments The cost of granting share options and other share-based remuneration is recognised in the income statement at their fair value at grant date. They are expensed straight-line over the vesting period, based on estimates of the shares or options that will eventually vest. Charges are reversed if it appears that non-market performance will not be met. Options are valued using the Black-Scholes model. 2.1.23 IPO costs Incremental directly attributable costs incurred on issue of equity shares are offset against the share premium account in accordance with Companies Act 2006 and IAS 32 Financial Instruments: Presentation. 2.2 Critical accounting judgements and key sources of estimation uncertainty In the course of applying the policies set out in section 2.1 above, management have made estimations and assumptions that impact the amounts recognised in the consolidated nancial statements and related disclosures. Several of these estimates and judgements are related to matters that are inherently uncertain as they pertain to future events. These estimates and judgements are evaluated at each reporting date and are based on historical experience, internal controls, advice from external experts and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates may vary from the actual results. The Group believes that the assumptions, judgements and estimations that have a signicant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next nancial period are the following areas: 2.2.1 Sales tax benet The Group in the past recognised a benet from its application for certain sales tax incentives given by the state of Gujarat provided the sales were made from the state of Gujarat. Under these incentive schemes, the Group believed it was able to defer the payment of up to approximately Rs.91billion (US$1.95billion) collected as sales tax for eligible domestic sales made from the state of Gujarat until the nancial year ending 31March 2021 (or earlier if the full eligible limit was exhausted), after which it would be required to repay the retained amounts of sales tax in six equal annual instalments. There were a number ofconditions under which this benet has been granted including: (i)ensuring that certain percentages of the employees are local people; (ii)re-investing certain amounts of the benet; (iii)adhering to specied pollution control measures; and (iv)contributing a certain amount to the prescribed rural development scheme in the state of Gujarat. The amount of benet recorded was based on managements expectation that it would begin repayments in 2021 and that itwould comply with all the related conditions. This was based on the fact that management intended to comply with all suchconditions, was able to control its compliance, and intended to monitor the sales to allow the Group to benet from themaximum deferral period. Any change in this assessment would have resulted in a change in the benet that would be recorded in that period.
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2. Accounting policies and estimates continued The Group had recorded the sales tax benet as revenue in the period in which the associated eligible domestic sales were made to customers. Under IAS20, the benet may only be recognised when there is reasonable assurance that the entity will comply with the conditions attached to the benet and must be recognised over the period necessary to match the benet systematically with the related costs which they are intended to compensate. Recognition of the benet in prot or loss on an accruals basis was appropriate only where no suitable basis exists for allocating the benet to periods other than the one in which it is received. Management had exercised its judgement in assessing the period over which to recognise the benet and believed there were no signicant costs or expenses that the incentive was intended to compensate, as the plants location was determined before the incentive became available and as this incentive was set up, amongst other things, to improve the economic wellbeing of the state of Gujarat. Accordingly, the Group had recognised the benet in the period of the eligible domestic sales made from the state of Gujarat, being the primary condition associated with the benet. An alternative view would be that the sales tax benet was intended to compensate recipients for the costs of setting up and/or conducting their business in the State of Gujarat, in which case the benet could have been recognised over the period necessary to match such costs. For example, a differing judgement may be to (i) recognise the benet during the period in which the Company incurred operating expenses whilst it enjoyed the benet (for example, 13 years being the remaining period for which the sales tax payment could be deferred) or (ii) recognise the benet over the expected life of the capital asset constructed, namely the Vadinar renery (the depreciation period for which is 40 years) both of which would have resulted in materially different results in the periods presented with signicantly lower revenue and prot. The Groups eligibility to participate in the Scheme was challenged by the State Government of Gujarat (see Note 8a) and on 17 January 2012 the Honourable Supreme Court of India set aside the previous judgment of the High Court of Gujarat and ruled that the Group could not participate in the scheme. The Group continued to apply the accounting policy in respect of the sales tax benet up to 17 January 2012 as the revenue was earned. The loss of the benet as a result of the Honourable Supreme Court judgment on 17 January 2012 is a change in estimate of revenue earned up to 17 January 2012. This requires that the entire amount previously recognised to 17 January 2012 is adjusted in the current period against each individual line item through which the relevant benet or associated costs were recognised. 2.2.2 Borrowing costs The Group is required to calculate the borrowing costs associated with certain nancial liabilities based on the estimated future cash ows arising on those liabilities under the effective interest method of accounting. These estimated future cash ows may be uncertain due to various options and other terms within the related borrowing agreements which may provide for early repayment of borrowings, so reducing future interest payments. The Group reassesses its best estimate of such future cash ows under each borrowing agreement at each reporting date, and gains and losses may arise as a result (refer Note 8b). 2.2.3 Contingencies and commitments In the normal course of business, contingent liabilities may arise from litigation and other claims against the Group. Potential liabilities that have a low probability of crystallising or are very difcult to quantify reliably, are treated as contingent liabilities. Such liabilities are disclosed in the notes but are not provided for in the consolidated nancial statements. There can be no assurance regarding the nal outcome of these legal proceedings. For further details, refer to Note 29. 2.2.4 Depreciable lives The Groups relevant non-current assets are depreciable over their estimated useful lives as set out in section 2.1 above. 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, alternative sources of supply, relative efciency and operating costs. Accordingly depreciable lives are reviewed annually using the best information available to management. 2.2.5 Impairment testing Goodwill is tested for impairment annually. Other non-current assets are tested for impairment when conditions suggest that there is a risk of impairment. Where impairment testing is carried out, management uses the best information available to them to assess the likely cash ows available to the relevant asset. Key assumptions are inherently uncertain and include commodity prices, anticipated production costs, likely asset lives, the timing of granting of licenses and permits and the relevant discount rates. 2.2.6 Tax The Group is subject to tax, principally within India. The amount of tax payable in respect of any period is dependent upon the interpretation of the relevant tax rules. Whilst an assessment must be made of the deferred tax position of each entity within the Group, these matters are inherently uncertain until the position of each entity is agreed with the relevant tax authorities.
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2. Accounting policies and estimates continued Deferred tax assets are recognised to the extent that it is probable that future taxable prots will be available against which thetemporary differences can be utilised. The Group reviews the deferred tax assets at the end of each reporting period and reduces them to the extent that it is no longer probable that sufcient taxable prot will be available to allow all or part of the deferred tax assets to be utilised. The estimation of that probability includes judgements based on the expected performance of the Group. Various factors are considered to assess the probability of the future utilisation of deferred tax assets, including past operating results, operational plans, expiration of tax losses carried forward, and tax planning strategies. 2.2.7 Exploration and evaluation expenditure Exploration and evaluation expenditure are capitalised in accordance with the accounting policy in Note 2.1.17. In making a decision about whether to continue to capitalise exploration and evaluation expenditures, it is necessary to make judgements about the satisfaction of, 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 rmly planned for the near future or other activities are being undertaken to sufciently progress the assessing of reserves and the economic and operating viability of the project. If there is a change in one of these judgements in a subsequent period, then the related capitalised exploration and evaluation expenditures would be expensed in that period resulting in a charge to income. 2.2.8 Fair valuation on acquisition On 31 July 2011 the Group acquired the oil renery and other associated assets at Stanlow, near Ellesmere Port, Cheshire (Stanlow renery) from Shell UK Limited (Shell). The assets and its existing employees that enable the renery to be managed to process crude and other inputs to create outputs in the form of saleable products are considered to be an integrated set of activities. The acquisition was thus treated as a business combination. The management has fair valued all the assets and liabilities acquired as part of the business combination. The fair value of the assets acquired (primarily being the renery plant and equipment) using a discounted cash ow model. The model was based on cash ows projected for the operations of the assets acquired for 10 years. The projected cash ows were discounted at a discount rate specic to the business. The inventory was purchased at fair value. The difference between the amount paid as purchase consideration plus the deferred consideration and the fair value of theassets and liabilities showed a gain on bargain purchase. Management reassessed the identication of all assets and liabilities. In particular, the exercise focused on the identication of intangibles like brand or favourable customer contracts, provision for untaken employee leave, lease agreements, unfavourable contracts and other liabilities. This review identied additional provisions that were made based on their fair value. No other items were identied by management that required recognition or measurement of asset or liability. The surplus of the value in use calculated from the fair value exercise after the identication of all assets and liabilities was recognised in the income statement as a gain on bargain purchase in line with the Group policy. 3. 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, rather than the geographical location of these operations. This is reected by the Groups organisational structure and internal nancial reporting systems. The protability ofthe segments is reviewed based on prot or loss after tax and is based on IFRS. The Group has the following reportable operating segments: (i) R&M-India (Renery and Marketing India and others): The Group owns a petroleum renery on the west coast of India, together with a 50% interest in a petroleum renery in Kenya, and oil retailing stations on franchise across India. Its main products are high speed diesel, motor spirit, fuel oil and superior kerosene oil. The activities of Rening and Marketing include the rening of crude oil and trading, marketing and transportation of nished products and by-products. (ii) R&M-UK (Renery and Marketing UK): On 31 July 2011 the Group acquired the Stanlow renery in the United Kingdom as discussed further in Note 27. Its main products are high speed diesel, motor spirit, fuel oil and superior kerosene oil. Theactivities of Rening and Marketing include the rening of crude oil and trading, marketing and transportation of nished products and by-products. (iii) Exploration and Production: The Group has a diverse portfolio of 15 blocks for the exploration and production of oil and gas in India, Indonesia, Madagascar, Nigeria and Vietnam. (iv) Power: The Group operates gas and liquid fuel-based power plants in India and Canada together with a number of miningassets. (v) Corporate: This comprises Essar Energy plc and its subsidiary companies that provide services to the Group as a whole. Sales between the segments are made at contractually agreed prices. The segment revenues and segment results include transaction between business segments. All inter and intra transactions including all prot or loss made within these segments are eliminated on Group consolidation.
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3. Segment information continued 3a. Operating segments The following tables present revenue, prot and certain asset and liability information regarding the Groups operating segments for the 15 months ended 31 March 2012 and 12 months ended 31 December 2010:
15 months ended 31 March 2012 Exploration and production $ million
R&M India $ million
R&M UK $ million
Power $ million
Corporate Eliminations $ million $ million
Total $ million
Revenue from external customers Sales tax benet Inter-segment revenue Total segment revenue before adjustment for loss of sales tax benet Cost of sales1 Other operating income Selling and distribution expenses1 General and administration expenses before adjustment for loss of sales tax benet1 Other (losses)/gains excluding non-operational items Operational EBITDA Adjustment for loss of sales tax benet Adjustment to Revenues (Note 8a) Adjustment to General and administration expenses (Note 8a) EBITDA Depreciation and amortisation EBIT Finance income Finance cost before adjustment for loss of sales tax benet and interest arising on lapse of prepayment option Adjustment for loss of sales tax benet (Note 8a) Interest arising on lapse of prepayment option (Note 8b) Non-operational items included in other gains/(losses) Segment (loss)/prot Tax Adjustment for loss of sales tax benet (Note 8a) Adjustment for interest arising on lapse of prepayment option (Note 8b) (Loss)/prot after tax
1 Excludes depreciation and amortisation.
14,905.7 339.3
6,353.9
1.3 1.3 (1.7) 0.4 (2.1) (2.1) (2.1) (0.7) (2.8) 0.1 (0.4) (3.1) (0.1) (3.2)
356.5 60.4 416.9 (133.8) 2.3 (19.1) (43.8) 222.5 222.5 (55.7) 166.8 12.1 (78.1) 0.2 101.0 (15.3) 85.7
(26.7) (26.7) (26.7) (26.7) 19.4 (62.9) 1.7 (68.5) (68.5)
21,617.4 339.3 (60.4) (60.4) 21,956.7 71.0 (20,632.1) 35.7 (135.7) 10.6 10.6 10.6 (17.3) 17.3 10.6 10.6 (211.5) (316.9) 696.2 (1,053.7) 39.9 (317.6) (204.2) (521.8) 138.0 (521.9) 58.6 (321.5) 20.9 (1,147.7) (30.8) 309.9 104.3 (764.3)
15,245.0 6,353.9 (14,250.5) (6,317.1) 33.0 (117.4) (18.3) (128.1) (259.9) 522.1 (1,053.7) 39.9 (491.7) (129.0) (620.7) 123.1 (344.9) 58.6 (321.5) 5.3 (1,100.1) (39.5) 309.9 104.3 (725.4) (35.5) (13.2) (30.2) (30.2) (18.8) (49.0) 0.6 (52.9) 13.7 (87.6) 24.1 (63.5)
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3. Segment information continued

12 months ended 31 December 2010 Exploration and production $ million
R&M India $ million
Power $ million
Corporate $ million
Eliminations $ million
Total $ million
Revenue from external customers Sales tax benet Inter-segment revenue Total segment revenue Cost of sales1 Other operating income Selling and distribution expenses1 General and administration expenses Other (losses)/gains excluding non-operational items Operational EBITDA EBITDA Depreciation and amortisation EBIT Finance income Finance cost Non-operational items included in other gains/(losses) Segment (loss)/prot Tax (Loss)/prot after tax
1 Excludes depreciation and amortisation.
9,388.0 292.6 9,680.6 (9,044.9) 28.1 (91.5) (91.2) 33.6 514.7 514.7 (84.5) 430.2 43.8 (262.6) 11.8 223.2 (75.1) 148.1
3.2 3.2 (3.8) 2.0 (3.1) 2.8 1.1 1.1 (0.3) 0.8 (1.9) (1.1) (1.1)
321.8 27.8 349.6 (141.6) 3.9 (15.1) 16.7 213.5 213.5 (42.2) 171.3 3.7 (71.2) 7.9 111.7 (37.6) 74.1
0.1 (10.5) (10.4) (10.4) (10.4) 3.0 (2.2) 41.3 31.7 (4.5) 27.2
9,713.0 292.6 (27.8) (27.8) 10,005.6 27.8 (9,162.5) (0.1) 34.0 (91.5) 0.1 (119.8) 53.1 718.9 718.9 (127.0) 591.9 (1.3) 49.2 1.3 (336.6) 61.0 365.5 (117.2) 248.3
One customer of Renery and Marketing Segment UK contributing revenue of US$2,327.5 million and three customers in the Rening and Marketing Segment India contributing revenues of US$3,637.1 million, US$2,797.0 million and US$2,128.0 million respectively accounted for approximately 50% of the Groups net sales (2010: Three customers in the Rening and Marketing India segment contributing revenues of US$2,414.5 million, US$1,512.5 million and US$1,309.9 million respectively accounted for approximately 52% of the Groups net sales). Segment assets and liabilities
As at 31 March 2012 Exploration and production $ million
R&M India $ million
R&M UK $ million
Power $ million
Corporate Eliminations $ million $ million
Total $ million
Segment assets Borrowings Other liabilities Segment liabilities Addition to property, plant and equipment1
1 Excluding addition due to business combination.
8,374.2 3,729.0 3,633.0 7,362.0 953.3
2,812.5 590.2 2,044.2 2,634.4 61.2
353.1 63.5 33.2 96.7 122.9
5,700.9 3,007.3 493.0 3,500.3 1,621.8
936.0 903.0 17.4 920.4 1.4
(769.1) 17,407.6 (646.5) 7,646.5 (106.2) 6,114.6 (752.7) 13,761.1 2,760.6
As at 31 December 2010 Exploration and production $ million
R&M India $ million
Power $ million
Corporate $ million
Eliminations $ million
Total $ million
Segment assets Borrowings Other liabilities Segment liabilities Addition to property, plant and equipment1
1 Excluding addition due to business combination.
7,409.3 2,696.6 2,761.9 5,458.5 749.8
276.7 23.4 14.0 37.4 51.0
4,493.6 1,777.6 855.8 2,633.4 1,931.5
634.9 12.6 12.6
(340.3) 12,474.2 4,497.6 (309.8) 3,334.5 (309.8) 7,832.1 2,732.3
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3. Segment information continued The majority of the Groups non-current assets other than nancial instruments and deferred tax assets are located in India other than the assets related to Renery and Marketing Segment UK and certain mining assets located in Indonesia within the Power segment. 3b. Geographical information The Groups operations are located mainly in India and the United Kingdom. The following table provides an analysis of the Groups revenue by destination, irrespective of the origin of the goods:
India Indonesia Singapore United Arab Emirates United Kingdom Other Total revenue before adjustment for loss of sales tax benet
10,136.9 6,918.3 1,537.6 900.4 1,248.0 836.1 1,362.6 749.7 6,240.8 1,430.8 601.1 21,956.7 10,005.6
4. Revenue
Sale of petroleum products Revenue from power supply Sales tax benet Revenue before adjustment for loss of sales tax benet Other operating income Finance income Revenue before adjustment for loss of sales tax benet Adjustment for loss of sales tax benet (refer Note 8a) Total revenue
21,260.9 9,391.2 356.5 321.8 339.3 292.6 21,956.7 10,005.6 35.7 34.0 138.0 49.2 22,130.4 10,088.8 (1,053.7) 21,076.7 10,088.8
The sales tax benet above relates to the benet previously recognised on eligible domestic sales within the State of Gujarat from the Vadinar renery. Under the incentive scheme, sales tax collected within Gujarat from customers was deferred for payment to the State of Gujarat by up to 17 years. This deferral gave rise to time value benet as the difference between the cash received and the net present value of the liability to the State. The benet was earned as the eligible domestic sales were made within the State of Gujarat; the benet did not compensate the Group for any particular costs or expenses, and the Group expected all other conditions related to the benet to be met in full. The benet was included within revenue as it was derived directly from sales made to customers. The Group continued to apply the accounting policy in respect of the sales taxbenet up to 17 January 2012 as the revenue was earned. The loss of the benet as a result of the Honourable Supreme Court judgment on 17 January 2012 is a change in estimate of revenue earned up to 17 January 2012 (see Note 8a). 5. (Loss)/prot before tax
(Loss)/prot before tax is stated after charging: Cost of inventories recognised as an expense Losses on commodity derivatives recognised within gross prot Depreciation and amortisation Staff costs
(19,274.2) (9,011.6) (93.3) (61.2) (204.2) (127.0) (159.2) (42.3)
Cost of inventories recognised as an expense includes inventory write downs amounting to US$4.0 million (2010: nil).
97
5. (Loss)/prot before tax continued Average employee numbers

15 months 12 months ended ended 31 March 31 December 2012 2010 No. No.
Rening and Marketing India Rening and Marketing UK Exploration and Production Power Corporate Total
1,401 1,007 263 1,012 16 3,699
1,389 210 748 10 2,357
BUSINESS REVIEW
Staff costs
GOVERNANCE
Salaries and wages Social security costs Dened benet plans Dened contribution plans Total staff cost Less: staff costs capitalised Staff costs charged to the income statement
(151.4) (6.5) (22.9) (1.5) (182.3) 23.1 (159.2)
(55.7) (1.9) (1.1) (58.7) 16.4 (42.3)
The Company granted options to the Chief Executive and certain members of the Groups senior management team to purchase shares under the Employee Share Option Plan (ESOP). Details of the scheme and its performance criteria are set out in the Remuneration Report. The total charge in the year relating to the scheme was US$623,569 (2010: US$45,506) which is not considered to be signicant to the Groups results and therefore no further disclosures have been provided withinthe nancial statements. 6. Net nance costs before adjustment for loss of sales tax benet and lapse of prepayment option
Finance costs Interest Bank charges Other Total nance costs Less: borrowing costs capitalised Unwinding of discount Finance cost before adjustment for loss of sales tax benet and interest arising on lapse of prepayment option charged to the income statement Finance income Interest accrued on assigned receivables Interest income Total nance income Less: interest income capitalised Finance income recognised in the income statement Net nance costs before adjustment for loss of sales tax benet and interest arising on lapse of prepayment option
(780.8) (92.8) (15.6) (889.2) 399.8 (32.5) (521.9) 33.2 113.5 146.7 (8.7) 138.0 (383.9)
(369.8) (85.1) (16.8) (471.7) 154.6 (19.5) (336.6) 17.5 46.7 64.2 (15.0) 49.2 (287.4)
Borrowing costs capitalised during the year relate to interest ranging from 1.4% to 16.0% (2010: 1.3% to 13.7%) incurred on specic borrowings undertaken to nance construction of assets.
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6. Net nance costs before adjustment for loss of sales tax benet and lapse of prepayment option continued As sales tax was collected from customers, a corresponding liability to the State of Gujarat was recognised at its net present value. Accordingly, the discount on the liability unwound over time resulting in the nance costs as shown above. The Group continued to apply the accounting policy in respect of this liability up to 17 January 2012. As a result of the Honourable Supreme Court judgment on 17 January 2012 there is a change in estimate of the liability up to 17 January 2012 (see Note 8a). In a related transaction, the Group had deposited amounts based on the then estimated net present value of its future sales tax payments with a related party. The interest accruing on these deposits of 9.0% (2010: 9.0%) per annum is included in nance income above. In addition to the above, a further interest charge of US$321.5 million (before tax) arose on the lapse of a prepayment option (see Note 8b). 7. Other (losses)/gains
Foreign exchange (losses)/gains Share in (loss)/prot from joint controlled entities (Note 28) Prot on disposal of available for sale investments Surplus on acquisition of a subsidiary (Note 27) Gain on settlement of liabilities Others Total other (losses)/gains
(315.2) (2.3) 0.2 18.9 5.4 (3.0) (296.0)
94.4 1.7 11.2 10.1 (3.3) 114.1
The signicant depreciation in INR from Rs. 44.81/USD to Rs. 51.16/USD has impacted foreign currency assets and liabilitiesand resulted in foreign exchange losses (2010: Appreciation in INR from Rs. 46.68/USD to Rs. 44.81 resulted foreign exchange gains). Included in foreign exchange (losses)/gains is a non-operational gain of US$1.7 million (2010: US$41.3 million) from the sale of the initial public offering proceeds into US dollars with the remainder loss of US$316.9 million (2010: gain of US$53.1 million) arising from operational payments to creditors and receipts from customers in US dollars where the settlement date rate was different from the transaction date or closing period rate. 8. Exceptional items 8a. Adjustment for loss of sales tax benet As referred to in the Groups contingent liability note to its annual nancial statements for the year ended 31 December 2010, the eligibility of the Groups subsidiary Essar Oil Limited (EOL) to participate in the Sales Tax Incentive Scheme (the Scheme) was being challenged by the Government of Gujarat in the Honourable Supreme Court of India, following a judgment by the High Court of Gujarat which conrmed that EOL was eligible to participate in the Scheme. The case was heard at the end of 2011 and, on 17 January 2012, the Honourable Supreme Court of India set aside the previous judgment of the High Court of Gujarat and ruled that the Group could not participate in the Scheme. The Group continued to apply its accounting policy in respect of the Sales Tax benet up to 17 January 2012 as the revenue was earned. The loss of the benet as a result of the Honourable Supreme Court judgment on 17 January 2012 is a change in estimate of revenue earned up to 17 January 2012. This requires that the entire amount previously recognised to 17 January 2012 is adjusted in the current period against each individual line item through which the relevant benet or associated costs were recognised. This adjustment affects four line items within the income statement. Adjustments have been made to: t Revenue since the difference between the cash received, and the net present value of the liability to the State of Gujarat, was originally recognised in revenue in the period in which the associated eligible domestic sales were made to customers; t General and administration expenses since as part of the conditions for the Scheme monies were set aside for payment to a welfare scheme that were originally recognised within general and administration costs; t Finance costs since the unwinding of discount on the liability to the State of Gujarat was previously recorded within nance costs; t Taxation since a deferred tax asset based on the India corporate tax rate has been recognised on the consequential losses to be set off against future prots.
99
8. Exceptional items continued A provision was recognised as at 31 December 2011 of US$1,139.8 million reecting the estimate of the sales tax liability subject to the outcome of the review petition led by the Group. As at 31 March 2012, the provision has been transferred into a nancial liability as the review petition has not been admitted and the liability has not become payable. A current liability has been recognised in the balance sheet at 31 March 2012 of US$1,205.9 million reecting the liability to the State of Gujarat. Notwithstanding the submission of the petition, EOL was served notice by the Government of Gujarat on 24 January 2012 requiring it to pay the outstanding sales tax liability specied plus associated interest.
Based on legal advice obtained by the Group, the Directors do not consider it likely that material interest is payable on the outstanding sales tax liability as the Group collected the sales tax and deferred its payment in accordance with a judgment by the High Court of Gujarat in favour of EOL. The Company led a writ petition before the Honourable Gujarat High Court seeking directions on repaying the sales tax by instalments and for remission of interest. This writ petition was admitted by the Honourable Gujarat High Court on 11 May 2012. Pending the outcome of the petition and taking into account the signicant uncertainties around the nal outcome and the legal advice received by EOL, the interest demanded by the sales tax authorities which amounts to US$396.0 million (Rs.20.25 billion) up to 31 March 2012 has been treated as a contingent liability (See Note 29). The impact against each line item in the income statement, together with the accounting period in which the original item was recognised, is as follows:
15 months 12 months ended to ended to 31 March 31 December 2012 2010 $ million $ million
Adjustment to Revenues Recognised in the period prior to 31 December 2009 Recognised in the 6 months to June 2010 Recognised in the 6 months to December 2010 Recognised in the 6 months to June 2011 Recognised during July 2011 to 17 January 2012 Exchange difference Total recognised in current period Adjustment to General and administration expenses Recognised in the period prior to 31 December 2009 Recognised in the 6 months to June 2010 Recognised in the 6 months to December 2010 Recognised in the 6 months to June 2011 Recognised during July 2011 to 17 January 2012 Exchange difference Total recognised in current period Adjustment to Finance costs Recognised in the period prior to 31 December 2009 Recognised in the 6 months to June 2010 Recognised in the 6 months to December 2010 Recognised in the 6 months to June 2011 Recognised during July 2011 to 17 January 2012 Exchange difference Total recognised in current period Impact on prot before tax Adjustment to deferred tax Impact on prot after tax Attributable to: Owners of the Company Non-controlling interest
(438.3) (149.5) (143.1) (199.5) (139.8) 16.5 (1,053.7) 16.7 5.5 5.5 7.6 5.4 (0.8) 39.9 8.4 8.9 10.6 14.4 16.8 (0.5) 58.6 (955.2) 309.9 (645.3) (562.0) (83.3)
100

8. Exceptional items continued 8b. Interest arising on lapse of prepayment option Under the terms of the current Master Restructuring Loan Agreement (MRA) the Group had an option to repay a facility at advantageous terms, with lenders approval, before 24 April 2012 and thereby avoid various interest charges. As Essar Oil is at an advanced stage of exiting the MRA, it did not seek to exercise the prepayment option, which therefore lapsed in April 2012. As a consequence, the Group has recognised what was previously considered to be contingent liability, arising from interest which now becomes payable on these facilities, together with a reassessment of the carrying value of these facilities based onthe discounted estimated future cash ows. This has resulted in an additional interest charge of US$321.5 million, less an associated tax credit of US$104.3 million. The share of non-controlling interest is US$28.0 million in interest charge after tax. The Group expects to negotiate the terms of exiting the MRA during the next nancial year, and will re-assess the carrying value of these liabilities at that time. 9. Auditors remuneration
Fees payable to the Companys auditor and their associate for the audit of: Essar Energy plc annual accounts The Companys subsidiaries pursuant to legislation Total audit fees Fees payable to the Companys auditor and their associates for other services to the Group Audit-related assurance services Other taxation advisory services Other assurance services1 Total non-audit fees Total
0.3 1.7 2.0 1.0 1.2 1.2 3.4 5.4
0.1 1.5 1.6 0.4 0.2 3.0 3.6 5.2
1 Includes fees of US$ 1.2 million in respect of Reporting Accountant services provided as part of the acquisition of the Stanlow renery (2010: US$3.0 million services provided as part of the IPO). Other taxation advisory services include US$1.0 million related to the acquisition of the Stanlow renery
10. Tax
Current tax Deferred tax Deferred tax before adjustment for loss of sales tax benet and interest arising on lapse of prepayment option India Deferred tax UK Total deferred tax Tax expenses before adjustment for loss of sales tax benet and interest arising on lapse of prepayment option Tax on interest arising on lapse of prepayment option Adjustment for loss of sales tax benet Income tax income/(expense) Effective tax rate (%)
(38.1)
(30.6)
(16.8) 24.1 7.3 (30.8) 104.3 309.9 383.4 33.4
(86.6) (86.6) (117.2) (117.2) 32.1
101
10. Tax continued A reconciliation of the income tax expense applicable to the prot before income tax at the standard statutory income tax rate in India, as a majority of the companies are in India, to the income tax expense at the Groups effective income tax rate for the 15 months ended 31 March 2012 and 12 months ended 31 December 2010 is as follows:
(Loss)/prot before tax Income tax Tax at the standard rate of corporation tax 32.6% (2010: 33.41%) Surplus on acquisition of a subsidiary Deferred tax not recognised Minimum alternate tax (MAT), net of entitlement Tax holidays/non-taxable income Effect of non-Indian rates Adjustment in respect of prior period Impact of reduction in tax rates Others Income taxes recognised in the income statement
(1,147.7) 374.3 3.4 (19.8) 9.7 17.0 7.4 (1.5) 2.9 (10.0) 383.4
365.5 (122.1) 14.7 (25.7) 15.9 6.1 (8.3) 2.4 (0.2) (117.2)
The applicable tax rate is the standard effective corporate income tax rate in India. The Indian tax rate decreased from 33.99% to 33.22% with effect from 1 April 2010 and further decreased from 33.22% to 32.45% with effect from 1 April 2011. Indian companies are subject to corporate income tax or MAT. If MAT is greater than corporate income tax then MAT is levied. MAT is charged on book prots at a rate of 20.0% (2010: 19.93%). Tax paid under MAT can be carried forward for up to 10 years as a credit against corporate income tax liabilities arising in future periods. The applicable tax rate in the UK is 26%. The UK tax rate decreased from 26% to 24% with effect from 1 April 2012. Deferred tax assets and liabilities
As at 31 March 31 December 2012 2010 $ million $ million
Deferred tax asset Property, plant and equipment Unabsorbed depreciation Carry forward losses Minimum alternate tax (MAT), net of entitlement Accruals Borrowings Provisions Other temporary differences Total deferred tax asset Deferred tax liabilities Property, plant and equipment Intangible assets Other temporary differences Total deferred tax liability Net deferred tax (asset)/liability
5.6 146.9 44.0 31.3 391.2 81.3 15.1 85.0 800.4 652.3 12.2 2.1 666.6 (133.8)
139.4 70.1 19.9 14.9 35.0 279.3 541.8 20.8 15.9 578.5 299.2
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10. Tax continued The net deferred tax (asset)/liability is recorded in the nancial information based on the tax position of each Group company asfollows:
Deferred tax liabilities Deferred tax assets Net deferred tax (asset)/liability
137.6 (271.4) (133.8)
299.4 (0.2) 299.2
Movement in deferred tax liabilities

Opening balance Addition due to acquisition (Note 27) Charged to income statement Transfer Exchange difference Closing balance
299.4 1.4 (146.3) (16.9) 137.6
179.8 23.1 86.4 10.1 299.4
Movement in deferred tax assets

Opening balance Addition due to acquisition (Note 27) Credited to income statement Transfer Exchange difference Closing balance
0.2 5.8 422.9 (146.3) (11.2) 271.4
0.4 (0.2) 0.2
Deferred tax recognised in Income statement

Depreciation and amortisation (including impact of unabsorbed depreciation) Minimum alternate tax (MAT), net of entitlement Adjustment for loss of sales tax benet (refer Note 8a) Adjustment for interest arising on lapse of prepayment option (refer Note 8b) Carry forward losses Borrowings Others Total deferred tax recognised in Income statement
(120.2) 33.8 309.9 104.3 35.6 (43.7) 101.8 421.5
(153.4) (5.3) 72.1 (86.6)
The Group has not recognised deferred tax assets related to certain unutilised tax losses. These temporary differences of US$0.6 million (2010: US$0.7 million) will expire on 31 March 2014. The Group has also not recognised deferred tax assets ofUS$19.2 million (2010: US$31.1 million) in respect of certain credits for MAT. No deferred tax asset has been recognised for the above losses and credits on the grounds that it is not probable that suitable taxable prots will arise before the tax losses and credits expire. The recoverability of the unrecognised deferred tax asset will be reviewed at future balance sheet dates. Deferred tax assets have been recognised based on future protability and expected tax benets, and are recognised where the Group believes it will recover the deferred tax assets in future periods.
103
10. Tax continued The deferred tax liabilities for taxes that would be payable on the unremitted earnings of certain of the Groups subsidiaries or joint controlled entities have not been recognised as: (i) the Group has determined that undistributed prot of its subsidiaries will not be distributed in the foreseeable future, but rather tax-free returns of capital may be made if necessary; and (ii) the Groups joint controlled entities cannot distribute their prots without consent of all joint controlled entities partners. The Group does not foresee giving such consent at the balance sheet date. The temporary differences associated with investment in subsidiaries and joint controlled entities, for which deferred tax liabilities have not been recognised, as explained above, amount to US$213.0 million (2010: US$166.0 million). 11. Earnings per share Basic earnings per share is calculated by dividing prot after tax for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. Operational earnings per share is calculated by dividing prot after tax before adjustment for loss of sales tax benet, interest arising on lapse of a prepayment option and surplus on acquisition of subsidiary for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. As noted in the basis of preparation in Note 1, the nancial statements for the year ended 31 December 2010 combined the results, assets and liabilities of the Renery and Marketing, Exploration and Production and Power businesses acquired by the Company under the re-organisation prior to IPO. During the period, the holding companies of the Renery and Marketing, Exploration and Production, and Power businesses provided cash in exchange for equity in the underlying Group. To reect this in earnings per share, the weighted average number of shares was calculated on the basis that this cash represented the acquisition of shares at the listing price of 4.20 per ordinary share throughout both the current and the comparative periodpresented. The Company issued 999,999,980 fully paid shares to its parent company for a total of US$1,491.1 million in April 2010. At the date of Listing (7 May 2010) a further 303,030,302 shares were issued, and as part of the Listing there was a subsequent issue of 406,991 shares as an over-allotment option on 4 June 2010. Subsequent to 1 January 2010 the cash and the related equivalent number of shares calculated as though issued at the listing price of 4.20 was as follows:
Shares representing: Shares
Invested capital at 1 January 2010 Capital contributed in cash in 2010 of US$593.2 million Issued on IPO Shares capital at 31 December 2010 and 31 March 2012
907,893,739 92,106,261 303,437,293 1,303,437,293
The shares presented above for 2010 reect capital contributions made to the Group by its parent company prior to IPO in cash and are different to the amounts presented in the Consolidated Statement of Changes in Equity, which also include non-cash gifted investments. The options issued in accordance with the ESOP scheme in 2010 and 2011 did not result in a signicant dilutive potential impact. The impact of the convertible bonds issued in the period is anti dilutive because the interest that would be added back to basic EPS is greater than the relative adjustment to the weighted average number of ordinary shares.
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11. Earnings per share continued The following table contains computations for basic and diluted earnings per share:
(Loss)/prot after tax attributable to equity holders of the Company ($ in million) Adjustment for loss of sales tax benet (refer Note 8a) Adjustment for interest arising on lapse of prepayment option (refer Note 8b) Surplus on acquisition of a subsidiary (refer Note 27) Operational prot after tax attributable to equity holders of the Company ($ in million) Weighted average number of ordinary shares for basic earnings per share (million) Earnings per share (US cents per share) basic Operational earnings per share (US cents per share) basic
(690.3) 562.0 189.2 (18.9) 42.0 1,303.4 (53.0) 3.2
201.5 201.5 1,177.1 17.1 17.1
12. Property, plant and equipment

Producing Freehold land properties and buildings $ million $ million Plant and equipment $ million Assets under construction $ million Mining properties $ million Exploration and evaluation $ million Other $ million Total $ million
Cost At 1 January 2010 Additions Addition due to business combination (refer Note 27) Transfers Disposals Exchange difference At 31 December 2010 Additions Addition due to business combination (refer Note 27) Transfers Disposals Exchange difference At 31 March 2012 Accumulated depreciation At 1 January 2010 Charge for the year Disposals Exchange difference At 31 December 2010 Charge for the year Disposals Exchange difference At 31 March 2012 Net carrying value At 31 December 2010 At 31 March 2012
38.3 1.8 1.6 41.7 (5.2) 36.5 0.3 0.2 0.5 0.5 (0.1) 0.9 41.2 35.6
304.5 29.6 1.8 13.5 349.4 18.4 20.4 70.6 (48.8) 410.0 16.9 7.7 1.0 25.6 9.4 (3.7) 31.3 323.8 378.7
3,779.4 8.4 72.2 (1.1) 163.0 4,021.9 61.9
1,451.6 2,491.4 3.9 (74.7) 113.1 3,985.3 2,551.9
143.3 69.4 (3.1) 209.6 (6.0) 203.6
107.3 49.2 3.6 160.1 122.9 (21.8) 261.2 160.1 261.2
14.4 8.6 0.1 0.7 (0.3) 0.8 24.3 5.5
5,695.5 2,732.3 73.4 (1.4) 292.5 8,792.3 2,760.6
345.1 43.4 2,114.2 (2,185.2) (29.6) (9.7) (633.3) (495.1) 5,880.2 3,890.6 219.2 113.5 (1.0) 14.6 346.3 186.7 (16.7) (52.5) 463.8 3,675.6 5,416.4 3,985.3 3,890.6
408.9 0.4 (1.0) (40.3) (3.3) (1,213.5) 25.9 10,708.0 5.2 2.8 (0.1) 0.2 8.1 4.3 (0.6) (1.9) 9.9 241.6 124.2 (1.1) 15.8 380.5 200.9 (17.3) (58.2) 505.9
209.6 203.6
16.2 8,411.8 16.0 10,202.1
105
12. Property, plant and equipment continued Major items included in asset under construction
Power plants and coal mines Expansion of petroleum renery
3,670.4 220.2 3,890.6
2,646.3 1,339.0 3,985.3
BUSINESS REVIEW
Materially all property, plant and equipment held by the Group is subject to securities provided in respect of bank borrowings as described in Note 19. The carrying value of assets held under nance leases included above is set out below:
GOVERNANCE
Buildings Plant and equipment Others Total assets under nance lease
20.5 2.3 0.1 22.9
5.1 10.1 0.2 15.4
13a. Other intangible assets

Power sales contract $ million Software $ million Total $ million
Cost At 1 January 2010 Additions Exchange difference At 31 December 2010 Addition due to business combination (Note 27) Additions Exchange difference At 31 March 2012 Accumulated amortisation At 1 January 2010 Amortisation Exchange difference At 31 December 2010 Amortisation Exchange difference At 31 March 2012 Net book value At 31 December 2010 At 31 March 2012
53.6 2.9 56.5 0.2 56.7 1.6 2.8 0.1 4.5 3.6 8.1 52.0 48.6
7.8 1.0 0.3 9.1 8.8 3.9 (1.1) 20.7 3.2 1.6 0.2 5.0 3.5 (0.7) 7.8 4.1 12.9
61.4 1.0 3.2 65.6 8.8 3.9 (0.9) 77.4 4.8 4.4 0.3 9.5 7.1 (0.7) 15.9 56.1 61.5
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13b. Goodwill
Opening balance Exchange differences Closing balance
133.6 (16.6) 117.0
127.5 6.1 133.6
Goodwill relates to the following acquisitions:

Rening and Marketing India business segment Vadinar renery Power business segment Bhander power plant, Hazira Essar power plant, Hazira Closing balance
89.1 4.2 23.7 117.0
101.7 4.8 27.1 133.6
In assessing whether goodwill has been impaired, the carrying amount of the cash generating unit (including goodwill) is compared with the recoverable amount of the cash generating unit. The recoverable amount is the higher of fair value less costs to sell and value in use. In the absence of any information about the fair value of a cash generating unit, the recoverable amount is deemed to be the value in use. The Group calculates the recoverable amount as the value in use using a discounted cash ow model. The future cash ows are adjusted for risks specic to the cash generating unit and are discounted using a pre-tax discount rate. The discount rate is derived from the applicable business segment weighted average cost of capital and is adjusted where applicable to take into account any specic risks relating to the country where the cash generating unit is located. Vadinar renery The three-year business plans are used together with long-term market expectations to estimate gross rening margins and other cash ows, which are approved on an annual basis by management, and are the primary source of information for the determination of value in use based on a pre-tax discount factor of 11.49% p.a. (2010: 11.43% p.a.) and growth rate of 3.0% (2010: 3.0%). The three-year business plans contain forecasts for renery throughputs, sales volumes for various types of rened products, revenues, costs and capital expenditure. As an initial step in the preparation of these plans, various economic assumptions, such as oil prices, rening margins, rened product margins and cost ination rates, are set by senior management. The estimated recoverable amount for the renery unit exceeds its carrying amount by US$12,011.0 million (2010: US$3,332.0 million) reecting, amongst other things, work completed at the renery during the period. Gross Rening Margin (GRM) is the difference between revenue from rened petroleum products and related cost of crude oil used for their production. GRM is calculated based on market information and past experience of management. Prices of the petroleum products and crude are exposed to movement in crude prices on the Nymex, International Petroleum Exchange and Dubai Mercantile Exchange. If GRM falls by 52% (2010: 26%) compared to what is considered for impairment testing, the Vadinar renerys recoverable amount would be equal to its carrying amount. The discount rate is estimated based on the weighted average cost of the capital of Essar Oil Limited (EOL). If the discount rate increases by 155% (2010: 42%) above what is considered for impairment testing, the Vadinar renerys recoverable amount would be equal to its carrying amount. The Directors do not consider these outcomes to be reasonably likely. Essar Power Plant The Group uses the long-term power sale agreements for estimating the cash ows, 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 of10.14% p.a. (2010: 10.60% p.a.). These contain forecasts for plant load factor, generation in Megawatts (MW), xed and variable revenue, operating costs and sustaining capital expenditure. The cash ow projections are based on these forecasts which are approved by senior management. The estimated recoverable amount for the power plants signicantly exceeds its carrying amount in all cases and no impairment is necessary at the end of periods presented. The estimated recoverable amount for the power plant exceeds its carrying amount by US$382.5 million (2010: US$102.1 million).
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13b. Goodwill continued The discount rate is estimated based on the weighted average cost of the capital of Essar Power Limited (EPOL). If the discount rate increases by 138% (2010: 61.7%) above what is considered for impairment testing, the power plants recoverable amount would be equal to its carrying amount. The Directors do not consider these outcomes to be reasonably likely. Bhander Power Plant The Group uses the long-term power sale agreements for estimating the cash ows, 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 of10.44% p.a. (2010: 11.17% p.a). These contain forecasts for plant load factor, generation in Megawatts (MW), xed and variable revenue, operating costs and sustaining capital expenditure. The cash ow projections are based on these forecasts which are approved by senior management. The estimated recoverable amount for the power plants signicantly exceeds its carrying amount in all cases and no impairment is necessary at the end of periods presented. The estimated recoverable amount for the power plant exceeds its carrying amount by US$651.2 million (2010: US$259.3 million). The discount rate is estimated based on the weighted average cost of the capital of Bhander Power Limited (BPOL). If the discount rate increases by 293.1% (2010: 187.7%) above what is considered for impairment testing, the power plants recoverable amount would be equal to its carrying amount. The Directors do not consider these outcomes to be reasonably likely. 14. Available for sale investments
As at
Opening balance Additions Disposals Movement in fair value Exchange difference Balance as at 31 March
32.9 (32.9)
41.3 (37.0) (2.3) (2.0)
Disposals during 2012 include the disposal of debentures of Essar Teleholdings Limited, which were purchased during the period. Disposals during 2010 include disposal of 3.23% of shareholding in Essar Steel Limited, an unlisted company in which the Essar Group was the majority shareholder. These shares were sold by the Group to Essar Steel Holdings Limited, a company in the Essar Group, for cash at their fair value at that date of disposal for US$33.4 million. 15. Trade and other receivables 15a. Trade and other receivables (current)
Trade receivables Receivable from related parties Tax receivable Sales tax receivable Others receivables Prepayments Advances to suppliers Total current trade and other receivables
2,099.0 609.3 20.2 72.4 25.5 8.2 2,834.6
754.0 182.6 12.4 52.9 45.7 28.4 13.2 1,089.2
The credit period given to customers ranges from zero to ninety days. The Group has discounted its receivables with banks amounting to US$94.4 million (2010: US$144.5 million). The banks have recourse to the Group in the event of default by the debtor to settle the bills discounted with the lender. These debtors have been included under trade receivables disclosed above as they do not qualify for de-recognition. Management consider that the carrying amount of trade and other receivables is approximately equal to their fair value. Details of the ageing of receivables are set out in Note 25.
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15. Trade and other receivables continued Sales tax receivable represents amount receivable by EOL from the sales tax authorities being sales tax collected and deposited for the period when EOL believed it was entitled to the sales tax deferral scheme. This receivable has been netted against the provision in current period. For further details, see Note 8a. Amounts receivable from related parties include US$404.6 million (2010: nil) which reects sales tax collected and deposited with the relevant related party. With the Supreme Court judgment of 17 January 2012 which ruled that the Group could not participate in the scheme these amounts are now recognised as current. 15b. Trade and other receivables (non-current)
Receivable from related parties Prepayments Others Total non-current trade and other receivables
11.4 48.8 37.7 97.9
293.2 87.9 43.6 424.7
Amounts receivable from related parties include nil (2010: US$275.1 million) which reects sales tax collected and deposited with the relevant related party. With the Supreme Court judgment of 17 January 2012 which ruled that the Group could not participate in the scheme these amounts are now recognised as current. 16. Other nancial assets 16a. Other nancial assets (current)
Bank deposits Other deposits Total current other nancial assets
437.6 8.4 446.0
498.6 15.8 514.4
16b. Other nancial assets (non-current)

Bank deposits Other deposits Total non-current other nancial assets
27.1 50.7 77.8
30.8 21.1 51.9
Bank deposits include restricted cash of US$434.9 million (2010: US$509.8 million). Restricted cash represents margin deposits with banks against various bank facilities such as guarantees, letters of credit for import of raw material and capital goods. Other deposits are principally deposits to related parties and government controlled business parties for operations. 17. Inventories
Raw material and consumables Work in progress Finished products Stores and spares Total inventories
1,288.5 443.9 712.9 98.9 2,544.2
708.0 289.9 126.3 70.0 1,194.2
Materially all inventories held by the Group are subject to securities provided in respect of bank borrowings as described in Note 19. Inventory write downs during the 15 months ended 31 March 2012 of US$4.0 million (12 months ended 31 December 2010: nil) were recorded to adjust inventories to net realisable value and recognised as an expense in cost of sales in the period.
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18. Cash and cash equivalents

Cash at banks Liquid investments Bank deposits Total cash and cash equivalents
377.8 120.9 175.3 674.0
97.7 386.0 80.0 563.7
BUSINESS REVIEW
Bank deposits have a maturity period of less than 90 days. Liquid investments represent cash deposited in mutual funds which are fully liquid and can be realised without notice. 19. Borrowings
GOVERNANCE
Convertible bonds Non-convertible debentures Banks and nancial institutions Optionally cumulative redeemable preference shares Working capital loans Bills of exchange Loans from related parties Total borrowings Less: unamortised debt issue cost Net borrowings Current borrowing Non-current borrowing
462.4 182.4 5,786.6 114.1 879.2 94.4 230.9 7,750.0 (103.5) 7,646.5 1,835.4 5,811.1
214.9 3,524.4 109.8 321.6 136.2 213.9 4,520.8 (23.2) 4,497.6 750.0 3,747.6
Convertible bonds The Group has issued 4.25% US$550.0 million guaranteed unsecured convertible bonds on 1 February 2011. The bonds are convertible into fully paid ordinary shares of Essar Energy plc. The bondholders have the option to convert at any time from 14March 2011 to 24 January 2016. The loan notes are convertible at US$11.0861 per share at a xed exchange rate of 1GBP: US$1.5955. If the bonds have not been converted they can be redeemed at the option of the Company at any time on or after 15 March 2014 subject to certain conditions or if not converted or previously redeemed will be redeemed at par on 1 February 2016. The interest charged for the year is calculated by applying an effective interest rate of 9.5% to the liability component. The net proceeds of the convertible issue have been split between the liability element and equity and accounted US$107.0 million in equity as convertible bond reserves, representing the fair value of the embedded option to convert the liability into equity, asfollows:
31 March 2012 $ million
Nominal value of convertible note issued Less: Issue expenses Opening liability Equity component (net of issue expenses) Imputed liability on issue date Unwinding of effective interest rate Coupon interest paid/accrued Closing liability (net of issue expenses)
550.0 (9.2) 540.8 (107.0) 433.8 49.7 (27.3) 456.2
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19. Borrowings continued Secured non-convertible debentures Non-convertible debentures include US$85.6 million (2010: US$92.2 million) of debentures issued during 199596 at coupon rates of 5.0% to 12.5% per annum (interest expensed at effective interest rate of 10.3%), repayments of which commenced on 30 April 2006 and will continue until March 2027. Non-convertible debentures of US$96.8 million (2010: US$122.7 million) of the Power business issued during 2010 at coupon rates of 10.25% to 11.25% per annum (interest expensed at effective interest rate of 10.8%), repayments of which is commenced on 31 March 2011 and will continue until 31 March 2018. Banks and nancial institutions The Group has borrowings under various loan agreements with a number of banks and nancial institutions. These lenders provide the Group with term loans, revolving facilities and letters of credit facilities. Out of the total borrowings from banks and nancial institutions, US$4,101.7 million (2010: US$1,866.4 million) are ordinary borrowings at normal bi-lateral terms. Borrowings from banks and nancial institutions of US$1,684.9 million (2010: US$1,658.0 million) are subject to a master restructuring agreement entered into by EOL with the lenders on 17 December 2004 (the MRA), prior to its acquisition by theGroup. The MRA provided EOL an option to make early repayments at any time over the term of borrowings. The interest rates ranging from 8% to 13% per annum are subject to variation on prepayment of any borrowings. The interest rate variation on the prepayment option has since expired on 24 April 2012. Borrowings from banks and nancial institutions are generally secured pari passu with other lenders of the borrowing company with a rst charge on property, plant and equipment, followed by charges over current assets and pledges of certain equity shares in subsidiaries held by the Group. Interest rates on Indian Rupee borrowings range from 10.25% to 16.0% per annum (2010: 8.0% to 14.5%) while the interest rate on borrowings in other currencies ranges from 1.4% to 4.7% per annum (2010: 0.9% to 3.3%). The Group has undrawn committed facilities as at 31 March 2012 of US$5,287.7 million (2010: US$4,046.1 million) with maturities ranging from one to two years. Details of the maturity and interest prole of the Groups borrowings are included in Note25. Optionally cumulative redeemable preference shares Optionally convertible cumulative redeemable preference shares (OCCRPS) of a nominal value Rs. 3,500 million (US$68.2million) were issued on 18 March 2009 by Essar Power Limited (EPOL), a subsidiary of the Group. The OCCRPS carry interest rate of 0.1% and 8.0% per annum for the rst two years and subsequent ve years, respectively. The OCCRPS 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. The conversion price will be determined based on the equity valuation of the subsidiary at the time of conversion. Ifthere is no qualied offering of Essar Power Limited, until the nal redemption date, then the Preference shares will be redeemed at 14.5% to 20.5% interest p.a. at the end of the original term based on valuation of EPOL. The Group has accounted the OCCRPS at amortised cost with effective interest rate of 20.8%. EPOL has also issued a warrant to the OCCRPS holder for a consideration of Rs. 100, which entitles the holder to subscribe to the equivalent of US$15.0 million of equity shares in EPOL at any time before an IPO of EPOL at an exercise price based on a predetermined valuation of EPOL. The OCCRPS continues to be held as long-term borrowings. Refer to Note 22 for further information on the valuation of the warrant provided to the OCCRPS holder. 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 1.4% to 15.50% per annum (2010: 1.0% to 13.75%) and are short-term in nature. Working capital loans are secured by a rst charge on the current assets and a second charge on property, plant and equipment. Bills of exchange Bills of exchange are accepted by banks towards payment of customer invoices and typically carry an interest rate ranging from 10.0% to 11.0% per annum (2010: 8.9% to 9.0%) and are settled in a period ranging from seven to twenty-one days. Loans from related parties The Group has entered into various loan agreements with related parties. The loans carry a range of interest from 9.5% to 11.0% per annum (2010: 9.5% to 12.0%) (for further details, refer to Note 30). An analysis of the movement in underlying net debt (including current and non-current) is presented in Note 25.
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20. Trade and other payables 20a. Trade and other payables (current)
Trade creditors1 Accrued expenses Accrued employee cost Due to related parties (Note 30) Security deposits Liability towards acquisition of non-controlling interest2 Sales tax liability (Note 8a) Other current payables3 Advances from customers Financial guarantee obligations Deferred purchase consideration (Note 27) Tax payable Total current trade and other payables
3,069.6 83.2 8.7 187.0 2.3 1,205.9 875.9 8.8 1.8 175.0 12.2 5,630.4
1,494.1 53.5 8.5 184.4 2.1 98.2 28.4 6.4 4.5 19.0 23.1 1,922.2
1 Trade creditors include bills of exchange accepted by the Group (which are payable within 365 days) of US$48.9 million (2010: US$18.7 million) which carry interest ranging from 8.0% to 13.3%. Other trade creditors are not interest bearing and are normally settled within 60 to 90 days. 2 US$98.2 million in previous year reected amounts payable in respect of a share purchase agreement signed in April 2010 between the Group and Essar Steel Limited, a related party, topurchase the entire non-controlling interest of 26% in EPOL (refer to Note 30e). 3 Includes US$705.0 million of VAT payable by Renery and Marketing Segment UK.
20b. Trade and other payables (non-current)

Trade creditors1 Security deposits Due to related party Deferred sales tax liability Others Total non-current trade and other payables
66.1 0.6 41.7 10.2 118.6
560.7 0.5 136.0 224.0 58.8 980.0
1 Trade creditors includes bills of exchange accepted by the Group of US$66.1 million (2010: US$560.7 million) which are convertible, at the discretion of the Group, to a long-term loan facility under existing agreements with banks and nancial institutions and carry interest ranging from 8% to 13.3%.
The Group operates a dened benet scheme for its employees. The net liability associated with the scheme is US$1.0 million (2010: US$0.9 million) included above.
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21. Provisions
Rehabilitation and resettlement $ million Onerous contacts $ million Customers claim $ million Sales tax due $ million Rail access bridge $ million Total $ million
Opening 1 January 2010 Additions Exchange difference Balance at 31 December 2010 Of the above: Current Non-current Opening 1 January 2011 Addition due to business combination (refer Note 27) Additions Utilised/written back/transfer Exchange difference Balance at 31 March 2012 Of the above: Current Non-current
22.3 0.9 23.2 5.0 18.2 23.2 1.3 (2.8) (2.7) 19.0 3.9 15.1
61.9 (8.0) 53.9 5.7 48.2
50.9 2.1 53.0 53.0 53.0 (6.6) 46.4 46.4
1,281.0 (1,281.0)
0.2 0.2 0.2
50.9 22.3 3.0 76.2 58.0 18.2 76.2 61.9 1,282.5 (1,291.8) (9.3) 119.5 56.2 63.3
Rehabilitation and resettlement An obligation to incur rehabilitation and resettlement costs arises in land acquisition for project purposes. These costs are insome cases governed by the Policies of State Governments while allowing the industrialist to set up projects in rural parts ofIndia. These are in the nature of subsistence cost to the land owners who are relocated from their land. This provision is expected to be utilised over 36 years. Onerous contacts An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benets expected to be received under it. The unavoidable costs under a contract reect the least net cost of exiting from the contract, which is the lower of the cost of fullling it and any compensation or penalties arising from failure tofull it. This provision is expected to be utilised over nine years. Customers claim Refer Claim by customer section of Note 29 for further details relating to the customers claim. Sales tax due The sales tax due was recognised as a provision in the period but transferred to a liability when the legal appeal process was extinguished. Refer Adjustment for loss of sales tax benet section of Note 8a. 22. Derivatives 22a. Derivative nancial assets (current)
Commodity swaps Commodity options Currency forward contracts Total derivative nancial assets (current)
3.6 7.0 23.1 33.7
0.8 1.3 2.1
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22. Derivatives continued 22b. Derivative nancial liabilities (current)

Commodity swaps Commodity options Warrants (Note 19) Interest rate swaps Currency swaps Currency forward contracts Total derivative nancial liabilities (current)
0.6 36.4 3.3 6.1 26.8 2.0 75.2
6.2 3.3 3.9 2.8 14.8 31.0
The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash ow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives. Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts. 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. Commodity options are measured using the same data as the commodity swaps, but also uses volatility derived from quoted option volatilities. Interest rate swaps are measured at the present value of future cash ows estimated and discounted based on the applicable yield curves derived from quoted interest rates. No derivatives are designated as hedges for the purposes of nancial reporting. Warrants provided to the holder of the OCCRPS were valued through use of a binomial model by reference to forecast performance of the underlying assets. The principal amount in respect of interest rate swaps held at 31 March 2012 was US$97.7 million (2010: US$99.5 million) carrying an interest rate of 3.0%. 23. Invested capital
Opening balance Capital contribution from parent Issue of shares to parent Transfer to other reserves Closing balance
2,301.7 625.7 (1,491.1) (1,436.3)
The share capital and share application money of the Renery and Marketing, Exploration and Production and Power businesses was combined and reected in invested capital. The Energy and Power Groups were acquired by EGL during 2006 and therefore their capital is initially brought into the consolidated nancial statements as acquisitions. Capital contribution represents further capital and share application money invested by EGL in Essar Energy Holdings Limited and Essar Power Holdings Limited. Issue of shares to parent represents shares issued by the Company to EGL against share application money invested by EGL in Essar Energy Holdings Limited and Essar Power Holdings Limited. The transfer to other reserve reects the gifts of shares in Essar Energy Holdings Limited and Essar Power Holdings Limited by EGL to the Company.
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24. Share capital
Allotted and fully paid share capital of the Company 1,303,437,293 ordinary shares of 5 pence each
99.0
99.0
Since the Company was formed on 18 December 2009, it issued 1,000,000,000 fully paid shares to its parent company foratotal of US$1,491.1 million and issued 303,030,302 fully paid shares at a price of 4.20 in an initial public offering on 7May 2010 with a further related over-allotment option issue of 406,991 shares of 4.20 on 4 June 2010. The Company has reserved 659,269 and 49,610,000 shares for issue under employee stock option and arrangement with convertible bondholders.
Number
Ordinary shares of 1 per share at 1 January 2010 Impact of shares split from 1 per share to 5 pence per share Issues of shares to Parent Issues of shares on IPO Ordinary shares of 5 pence per share at 31 December 2010 and 31 March 2012
1 19 999,999,980 303,437,293 1,303,437,293
25. Financial risk management objectives and policies The Groups principal nancial liabilities, other than derivatives, comprise loans and overdrafts, debentures, nance leases and trade payables. The main purpose of these nancial liabilities is to raise nance for the Groups operations. The Group has various nancial assets such as trade receivables, cash, and short-term deposits, which arise directly from its operations. The Group is subject to uctuations in commodity prices and currency exchange rates due to the nature of its operations. The Group enters into derivative transactions, primarily in the nature of commodity option and swap contracts and forward currency contracts. The purpose is to manage commodity price risk and currency risk arising from the Groups operations. The main risks arising from the Groups nancial instruments are interest rate risk, liquidity risk, foreign currency risk, commodity price risk and credit risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below; Interest rate risk The Groups exposure to the risk of changes in market interest rates relates primarily to the Groups long-term debt obligations with oating interest rates. The Groups policy is to manage its interest cost using a mix of xed and oating rate debts. The following table provides a breakdown of the Groups xed and oating rate borrowings:
Fixed rate borrowings Floating rate borrowings
5,441.7 2,204.8
3,463.8 1,033.8
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, being a 0.5% increase or decrease in interest rates, with all other variables held constant, of the Groups prot before tax due to the impact on oating rate borrowings.
Effect on (loss)/prot before tax: LIBOR decrease by 50 bps PLR1 decrease by 50 bps
1 Prime Lending Rate (PLR), set by individual Indian banks in respect of their loans.
4.7 3.3
3.0 1.6
The impact of a 50 bps increase in interest rates on prot before tax will be as disclosed above with the exception that gains would be converted to losses.
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25. Financial risk management objectives and policies continued Foreign currency risk The Group has signicant investments and operations in India and the United Kingdom. Accordingly, its nancial state of affairs can be affected signicantly by movements in the INR/US dollar exchange rates. The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating unit in currencies other than the units functional currency. Foreign currency swaps, options and forward contracts are used to mitigate the risk arising from uctuations in foreign exchange rates. The carrying amounts of the Groups nancial assets and liabilities denominated in different currencies are as follows:
31 March 2012 Financial assets $ million Financial liabilities $ million 31 December 2010 Financial assets $ million Financial liabilities $ million
As at
Indian Rupees (INR) United States dollars (USD) Canadian dollars (CAD) Euros (EUR) Great Britain pound (GBP) Others
1,910.8 4,979.5 896.7 6,190.2 24.3 170.1 51.6 105.4 1,143.5 25.6 2.7 1.1 4,029.6 11,471.9
1,792.8 638.8 19.5 50.9 2.0 2,504.0
4,447.9 2,733.9 185.8 75.5 1.3 4.9 7,449.3
The Groups exposure to foreign currency arises in part where a Group company holds nancial 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 Groups main operating subsidiaries. Set out below is the impact of a 10% movement in the US dollar on (loss)/prot before tax arising as a result of the revaluation of the Groups foreign currency nancial assets and liabilities:
Effect of 10% strengthening of the US dollar against INR on prot before tax:
(241.9)
(185.0)
The Group enters into forward foreign exchange contracts to cover foreign currency payments and receipts. The Groupalsoenters into forward foreign exchange contracts to manage the risk associated with anticipated sales and purchasetransactions. The Group has taken forward cover of US$1,038.9 million (2010: US$910.5 million) to hedge against currency risk against movement in INR/US dollar. The impact of a 10% weakening of the US dollar on prot before tax will be the same as disclosed above except that losses would be converted to gains. The Group does not designate any instruments as effective hedge and thus has no impact on equity arising from a change in exchange rate arising from its nancial instruments. Credit risk The Group is exposed to credit risk in the event of non-payment by customers. The Group is also exposed to credit risk from trade receivables, dues from related parties, term deposits, liquid investments and other nancial instruments. The Group trades with recognised and creditworthy third parties. Cash, liquid investments and term deposits are held and derivatives are dealt with in banks either international or domestic with high credit ratings reecting the needs of the Group to operate in territories where international credit ratings are limited by the credit rating of the relevant territory. It is the Groups policy that all customers who wish to trade on credit terms are subject to credit verication procedures. In addition, receivable balances are monitored on an on-going basis. For transactions that do not occur in the country of the relevant operating unit, the Group does not offer credit terms without the approval of the appropriate authority. The Group does not consider there to be any signicant credit risks in respect of related parties. The Group is exposed to credit risk in the event of non-payment by customers. The Group establishes an allowance for doubtful accounts that represents its estimate of incurred losses in respect of trade and other receivables. 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 signicant change in credit quality and the amounts are still considered recoverable. No allowance for doubtful receivables has been made in the accounts as at 31March 2012 and 31 December 2010. None of those trade debtors past due or impaired have had their terms renegotiated.
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25. Financial risk management objectives and policies continued The maximum exposure to credit risk at the reporting date is the fair value of each class of debtors presented in the nancial statements. The Group does not hold any collateral or other credit enhancements over balances with third parties nor does it have a legal right of offset against any amounts owed by the Group to the counterparty. The Group has assigned certain amounts in respect of its sales tax liability to a related party which has been guaranteed by a counterparty as described in Note 30. Ageing of past due but not impaired receivables is as follows:
030 days 3060 days 6090 days 90120 days 120365 days 15 years 5 years plus Total
21.1 39.7 25.6 25.4 94.9 59.5 18.3 284.5
37.0 11.1 13.2 12.1 90.4 31.6 22.4 217.8
The aged receivables include US$169.9 million (2010: US$158.5 million) in respect of amounts billed for supply of power toGUVNL. Payments on ordinary ongoing billings are received from GUVNL regularly and are offset against amounts due. Overdue amounts which are ve years or greater are in relation to amounts due for construction activities performed which the Group have been successful in securing award of payment through arbitration proceedings. The awards have since been challenged by the counterparties. The amounts have not been provided for on the basis of the arbitration award in favour of the Group. Liquidity risk Group companies monitor their risk of shortage of funds using cash ow forecasting models. These models consider the maturity of their nancial investments, committed funding and projected cash ows from operations. The Groups objective is to provide nancial resources to meet its business objectives in a timely, cost effective and reliable manner and to manage its capital structure in line with its two internal debt protection ratios. A balance between continuity of funding and exibility is maintained through the use of bank loans, debentures, preference shares and nance leases. Out of the Groups liabilities, 44.2% will mature in less than one year (2010: 27.9%). The maturity prole of the Groups recognised nancial liabilities on a gross basis is given in the table below:
Weighted average effective interest rate %
As at 31 March 2012
<1yr $ million
15 yrs $ million
>5 yrs $ million
Total $ million
Borrowings Trade and other payables Derivatives Finance lease payables Financial guarantee contracts
8.7
2,455.8 3,688.9 75.2 6.5 1.8 6,228.2
4,681.0 88.8 18.2 4,788.0
3,006.7 10,143.5 43.7 3,821.4 75.2 18.1 42.8 1.8 3,068.5 14,084.7
As at 31 December 2010
<1yr $ million
15 yrs $ million
>5 yrs $ million
Total $ million
Borrowings Trade and other payables Derivatives Finance lease payables Financial guarantee contracts
8.6
969.3 1,893.1 27.7 11.9 4.5 2,906.5
2,817.7 352.1 16.1 3,185.9
2,936.2 6,723.2 1,371.8 3,617.0 27.7 11.9 39.9 4.5 4,319.9 10,412.3
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25. Financial risk management objectives and policies continued The majority of the Groups derivative nancial instruments mature within 12 months of each reporting end. The undiscounted cash ows in respect of derivative nancial instruments are US$1,700.7 million (2010: US$1,086.1 million). Note where the amount payable or receivable is not xed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date. Commodity price risk The prices of rened petroleum products and crude oil are linked to the international prices. The Groups revenues, costs andinventories are exposed to the risk of uctuation in prices of crude oil and petroleum products in the international markets. From time to time, the Group uses commodity derivative instruments to hedge the price risk of forecasted transactions such as forecast crude oil purchases and rened product sales. These derivative instruments are considered economic hedges for which changes in their fair value are recorded in the consolidated income statement. 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 the Groups protability. To this end, the Groups risk management desk uses a range of conventional oil price-related nancial and commodity derivative instruments such as futures, swaps and options that are available in the commodity derivative markets. The derivative instruments used for hedging purposes typically do not expose the Group to market risk because the change in their market value is usually offset by an equal and opposite change in the market value of the underlying asset, liability or transaction being hedged. The Groups 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. Set out below is the impact of 10% increase or decrease in base crude and petroleum product prices on prot before tax as a result of change in value of the Groups commodity derivative instruments:
Effect of 10% increase in prices on (loss)/prot before tax Crude Oil Crack Effect of 10% decrease in prices on (loss)/prot before tax Crude Oil Crack
(84.2) (35.1) 73.6 37.3
(11.2) (0.1) 11.2 0.1
Crack refers to the difference between the per barrel price of petroleum products and related cost of crude oil used for theirproduction. Capital management The Groups objectives while managing capital are to safeguard its ability to continue as a going concern and to provide adequate returns for its shareholders and benets for other stakeholders. The Groups policy is generally to optimise borrowings at an operating company level within an acceptable level of debt. Equity funding for existing operations or new acquisitions is raised centrally, rst from excess cash and then from new borrowings while retaining on an acceptable level of debt for the consolidated Group. The Groups policy is to borrow using a mixture of long-term and short-term debts from both local and international nancial markets as well as multilateral organisations together with cash generated to meet anticipated funding requirements. The Group monitors capital using a gearing ratio, which is underlying net debt divided by total capital plus underlying net debt. This ratio is used to monitor debt levels both now and forecast for the future, to ensure an appropriate balance of debt and equity funding. Total Equity includes equity attributable to the equity holders of the Group as well as non-controlling interest. The Group includes within underlying net debt, interest bearing loans and borrowings net of short-term working capital loans less cash and cash equivalents, short-term and long-term deposits net of legally restricted funds and funds that have been identied for specic uses. The current gearing ratio of 63.2% (2010: 43.4%) reects the current stage of our business cycle where individual projects are nanced using relatively high levels of debt, but with long debt amortisation periods of up to 10 years. This is normal for large infrastructure projects in the power and oil and gas sectors and is appropriate for the current circumstances of the Group, but is expected to reduce over time as projects mature. As these projects enter operations, gearing levels are expected to reduce over time and loans are repaid and/or renanced on more attractive terms. The Directors consider funding requirement on a case by case basis with a focus on the type of project and its stage development.
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25. Financial risk management objectives and policies continued
31 March 2012 As at $ million $ million 31 December 2010 $ million $ million
Interest-bearing loans and borrowings Less: cash and cash equivalents Working capital loans Bills of exchange Related unamortised debt issue costs Short-term working capital loan Other nancial assets-bank deposits Lien/earmarked for specic uses (including restricted cash) Underlying net debt Total equity Equity and net debt Gearing ratio
Other nancial assets bank deposits $ million Lien/ earmarked for specic uses $ million
7,646.5 (674.0) 6,972.5 (879.2) (94.4) 36.7 (936.9) (464.7) 702.1 6,273.0 3,646.5 9,919.5 63.2%
(321.6) (136.2)
4,497.6 (563.7) 3,933.9
(457.8) (529.4) 618.6 3,565.3 4,642.1 8,207.4 43.4%
Movement in underlying net debt
Cash and cash equivalents $ million
Short-term working capital loan $ million
Debt due within 1 year $ million
Debt due after 1 year $ million
Total $ million
Balance as at 1 January 2010 Proceeds from borrowings Repayment of borrowings Movement in bills of exchange and other nancing Net increase in cash and cash equivalents Arrangement fees for undrawn facility Accrued interest Change in maturity Change in other nancial assets-bank deposits Change in lien/earmarked for specic uses (including restricted cash) Exchange and other differences Closing balances as at 31 December 2010 Proceeds from borrowings Repayment of borrowings Movement in bills of exchange and other nancing Net increase in cash and cash equivalents Arrangement fees for undrawn facility Accrued interest Change in maturity Change in other nancial assets-bank deposits Change in lien/earmarked for specic uses (including restricted cash) Exchange and other differences Closing balances as at 31 March 2012
71.4 453.8 38.5 563.7 128.9 (18.6) 674.0
235.6 278.7 15.1 529.4 (5.9) (58.8) 464.7
(238.8) (364.1) (15.7) (618.6) (151.5) 68.0 (702.1)
387.6 50.2 20.0 457.8 923.0 (624.8) 240.2
(918.9) (2,190.1) (2,653.2) (328.5) (1,723.1) (2,051.6) 713.3 195.8 909.1 (29.5) 20.7 453.8 (50.0) (50.0) (39.6) (39.6) (144.5) 144.5 278.7 (364.1) (41.9) (85.1) (69.1) (750.0) (3,747.6) (3,565.3) (964.8) (4,151.9) (4,193.7) 906.1 1,060.9 1,342.2 (240.2) 128.9 26.3 1.0 27.3 (425.1) (425.1) (877.6) 877.6 (5.9)
(151.5) (59.3) 64.8 574.0 570.1 936.9 (1,835.4) (5,811.1) (6,273.0)
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26. Financial instruments The accounting classication of each category of nancial instruments and their carrying amounts has been tabulated below:
Carrying amount 31 March 31 December 2012 2010 $ million $ million
As at
Financial assets At FVTPL Held for trading (derivatives) Cash and cash equivalents Loan and receivables Trade and other receivables Other nancial assets AFS investments Financial liabilities At FVTPL Held for trading (derivatives) At amortised cost Borrowings Trade and other payables Finance lease payables Financial guarantee contracts Total
33.7 674.0 2,798.1 523.8 4,029.6
2.1 563.7 1,371.9 566.3 2,504.0
75.2 7,646.5 3,715.1 33.3 1.8 11,471.9
31.0 4,497.6 2,890.5 25.7 4.5 7,449.3
The fair value of the nancial assets and liabilities are estimated at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Other than fair value of derivatives set out in Note 22, the following methods and assumptions were used to estimate the fair values: i) Cash and short-term deposits, trade and other receivables, trade and other payables, and other current liabilities approximate their carrying amounts largely due to the short-term maturities or nature of these instruments. ii) The fair value of loans from banks and other nancial indebtedness as well as other non-current nancial liabilities is estimated by discounting future cash ows using rates currently available for debt or similar terms and remaining maturities. The discounting rate ranges from 11.25% to 12.00%. The Group nancial assets and liabilities that are measured subsequent to initial recognition at fair value are derivatives (Note22) and AFS investments (Note 14). Derivative nancial assets and liabilities are classied as Level 2 fair value measurements, as dened by IFRS 7, being those derived from inputs other than quoted prices that are observable for the assets or liability, either directly (i.e. price) or indirectly (i.e. derived from prices). AFS investments are classied as Level 3 fair value measurements, as assets held are unquoted. There were no transfers between categories throughout the periods presented. The carrying value of all other nancial assets and liabilities closely approximate their fair value except for borrowings (Note 19) where fair values are estimated to be US$7,290.4 million (2010: US$4,295.7 million).
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27. Business combinations 201112 a. Acquisition of the Stanlow renery On 31 July 2011, Essar Energy plc through its subsidiary Essar Oil UK Limited purchased the Stanlow renery from Shell UK Limited (Shell) for a total consideration of US$1,174.0 million including inventory. The Stanlow renery, located on the south side of the Mersey estuary near Ellesmere Port began commercial operations in 1952, building upon a pre-existing blending and distribution terminal. It currently has a Nelson Complexity of 8.2 and accounts for around 15% of production from UK reneries. The Stanlow renery produces approximately 3.5 billion litres of petrol a year, which is one sixth of the UK total, plus it produces around 1.5billion litres of kerosene per year, used for aircraft fuel.
Name of operations acquired Principal activity Date of acquisition Percentage acquired Cost of acquisition
Stanlow renery now Essar Oil UK Ltd.
Rening of hydrocarbon product
31 July 2011
100%
US$1,174.0 million
As part of the acquisition, Essar Energy acquired, among other things, all the xed assets, the transfer of most of the land atthe Stanlow renery site (including the former Burmah renery site) and the assignment of a number of lease agreements (including the Tranmere crude terminal lease, the White Oil Docks lease and the Carrington lease), agreements to operate certain chemical assets, the road gantry and the distribution terminal, the commercial bulk fuels marketing business and the local marine marketing business as well as the transfer of staff at the Stanlow renery. The Group has accounted for the acquisition as a business combination using the purchase method. The Group has as a result recognised a bargain purchase gain in accordance with IFRS 3 Business Combinations (2008) on the Stanlow renery transaction on the basis that the fair value of net assets acquired is greater than the total consideration paid to Shell plc by US$43.9 million. The Directors believe that the Group has acquired the Stanlow renery at a competitive price when compared with other recent renery transactions. The acquired renery in the past has delivered margins above the International Energy Association Brent NWE cracking margins. The Stanlow renery is geographically very well positioned. It provides Essar Energy access to a UK energy route between London and Manchester as well as access into the North West and Central parts of the UK. The Stanlow renery has signicant distribution capabilities supported by extensive pipeline logistics, inland and coastal waterways, roads and rail. The Stanlow renery is ideally placed to process North Sea and West/North African crudes. The acquisition is aligned with Essar Energys strategy to provide options for the export of products from the Companys high value renery at Vadinar, in Gujarat state, India. This bargain purchase is recognised in the Group income statement within other gains and losses as at 31 March 2012. The gain is non-taxable.
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27. Business combinations continued The fair values of the identiable assets and liabilities acquired as part of this business combination as at the date of acquisition are:
Fair value $ million
Non-current assets Computer software Property, plant and equipment Deferred tax assets Total non-current assets Current assets Inventory Total assets Liabilities Provision for untaken leave Finance lease payables Provisions Total liabilities Net assets Cost of acquisition Net gain on bargain purchase
8.8 408.9 5.8 423.5 878.1 1,301.6 (1.4) (20.4) (61.9) (83.7) 1,217.9 1,174.0 43.9
The total consideration paid has been satised as follows:

Components of the cost of acquisition $ million
Purchase of renery assets Cash consideration for assets Deferred consideration for assets Other adjustments (Note a) Consideration for inventory Purchase of computer software Total cost of acquisition
175.0 175.0 350.0 (62.9) 878.1 8.8 1,174.0
Note a: As part of the acquisition, in order to obtain industrial approval, the Group was required to maintain the dened benet scheme for Shell employees transferring across as part of the acquisition and match the benet which was currently being provided for those existing employees. The Group has an obligation to the scheme in respect of benets for future service at the rates agreed, but because this arises on future service only, it is not provided upon acquisition. Shell provided the Group with a cash payment of US$61.5 million covering the discounted amount of the future cash ow obligation associated with the dened benet scheme over a ten year period. In addition a payment of US$1.4 million was also made in respect of untaken leave. These payments were recognised as a reduction in the purchase consideration. The resultant impact of the acquisition on the income statement (presented within other (losses)/gains) was as follows:
Income $ million
Gain on bargain purchase Costs of acquisition Net impact in income statement
43.9 (25.0) 18.9
The Stanlow renery since acquisition from August to March 2012 has been operating at 70% of capacity and in that period contributed revenue of US$6,353.9 million and has made a net loss of US$63.5 million. The GRM in the market was low in the period, with the IEA NWE Brent crack margin being US$1.19 bbl. Against this the Stanlow renery current price GRM is higher at US$3.06 bbl. The revenue and net loss contributed by the Stanlow renery business for the period ended 31 March 2012, as though the acquisition has occurred at the beginning of that period, are US$11,353.8 million and US$121.1 million respectively.
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27. Business combinations continued 2010 b. Acquisition of Navabharat Power Private Limited On 12 July 2010, Essar Energy plc, through its subsidiary EPOL, entered in to a binding agreement for the acquisition of a 100% interest in Navabharat Power Private Limited (NPPL) for a consideration of US$50.2 million. EPOL initially acquired a 76% interest for a cash consideration of US$31.2 million with the balance to be acquired upon completion of certain project milestones. After acquisition, the Group also infused further project equity of US$21.6 million. The transaction was treated as a 100% acquisition on 12 July 2010, as the most signicant condition for its completion in respect of obtaining project nancing was satised with remaining project milestones being procedural in nature. NPPL is a 2,250 MW coal-fuelled power plant under construction in Orissa, India. The project is estimated to cost a total of US$2.0 billion and is being implemented in two phases. The rst and second phases are expected to provide capacities of 1,050 MW and 1,200 MW, respectively. Prior to the acquisition, NPPL had already obtained certain key regulatory approvals for the construction project including those in respect of environmental and forest clearance from the Ministry of Environment and Forests. By virtue of the acquisition, Group has obtained a 17.39% interest in the allocation of the Rampia coal block of 112 mmt and a 4.7 mmt per annum coal linkage with Coal India Limited. The Group has accounted for the acquisition of NPPL as a business combination using the purchase method. The fair value of the identiable assets and liabilities of NPPL as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition was as follows:
Book value $ million Fair value adjustments $ million Fair value $ million
Assets Property, plant and equipment Investment in joint controlled entity Trade and other receivables Total assets acquired Liabilities Trade and other payables Deferred tax liabilities Total liabilities assumed Net assets Share in net assets Cost of acquisition
4.0 0.2 1.1 5.3 1.4 1.4 3.9
69.4 69.4 23.1 23.1 46.3
73.4 0.2 1.1 74.7 1.4 23.1 24.5 50.2 50.2 50.2
NPPL did not have any signicant trading results in 2010. c. Acquisition of PT Bara Pratama Indonesia (PTBPI) On 13 April, 2010, Essar Energy plc through its subsidiary Essar Minerals FZE acquired a 99.96% voting interest in PTBPI. PTBPI holds a 99.99% stake in PT Manoor Bulatn Lestri which own the exploitation license for a coal mine in West Kutai (East Kalimantan) Indonesia (the Aries coal mine). The mine has an area of 5,000 Ha and JORC compliant reserves of approx. 64 mmt with appropriate environmental approvals in place. The process for obtaining the necessary forest approvals is currently in progress. The Group has accounted for the above transaction as an asset acquisition. The consideration paid in cash for the acquisition of PTBPI and PTMBL was US$118.0 million was recorded as an addition in the period within property, plant and equipment. d. Acquisition of Essar Recursos Minerals Mozambique Limitada (ERMML) Essar Energy plc acquired ERMML from Essar Minerals Limited, its fellow subsidiary within the EGL group, in April 2010 for a cash consideration of US$29.9 million. ERMML holds a coal licence in the Cambulatsitsi, Mozambique and the mine is estimated to have coal resources of approximately 35 mmt. Essar Energy plc has accounted for the above transaction as an asset acquisition with the total consideration being included as an addition in 2010 within property, plant and equipment.
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28. Interest in joint controlled entities The Groups joint controlled entities are as follows:
Country of incorporation Date of joint venture relationships % Voting held by the Group 2012 2010 Economic % held by the Group 2012 2010
Name of the entity
Mahan Coal Limited (MCL) Rampia Coal Mines and Energy Private Limited (Rampia) Kenya Petroleum Renery Limited (KPRL) Western Nepal Hydropower Private Limited Eastern Nepal Hydropower Private Limited
India India Kenya Mauritius Mauritius
13/09/2006 12/07/2010 13/07/2010 07/12/2011 05/01/2012
50.0 17.4 50.0 50.0 50.0
50.0 17.4 50.0
37.0 12.4 50.0 50.0 50.0
37.0 12.4 50.0
BUSINESS REVIEW
Movement in interest in joint controlled entities is as below:

GOVERNANCE
Opening balance Further investment Share in (loss)/prot from joint controlled entities Exchange difference Closing balance
32.3 18.1 (2.3) (0.7) 47.4
29.0 2.9 1.7 (1.3) 32.3
During the period, the Group has invested US$15.5 million in Western Nepal Hydropower Private Limited and Eastern Nepal Hydropower Private Limited with the objective of pursuing power generation opportunities in Nepal. The share of revenue, prot, assets and liabilities of the joint controlled entities are as follows:
Share of joint controlled entities results $ million
15 months ended 31 March 2012
Revenue Losses
21.0 (2.3)
Share of joint controlled entities results $ million
12 months ended 31 December 2010
Revenue Prots
17.0 1.7
As at
Current assets Non-current assets Current liabilities Non-current liabilities
22.4 48.3 (16.0) (7.3) 47.4
22.5 24.7 (11.6) (3.3) 32.3
Further Groups share in contingent liabilities and capital commitment of joint controlled entities are as follows:
Groups share in contingent liabilities Groups share in capital commitments
20.7 9.3 30.0
13.4 0.4 13.8
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29. Contingencies, commitments and guarantees 29a. Contingencies Contingent liabilities Contingent liabilities at the balance sheet date, not otherwise provided for in the consolidated nancial statements are categorised as follows:
Sales tax benet Claim by customer Interest payable Claims Bank guarantees Disputed custom duty Disputed income and sales tax Others Total
396.0 113.5 105.2 20.3 14.0 19.3 668.3
129.6 119.0 33.0 169.8 16.0 16.1 13.7 497.2
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 these consolidated nancial statements. The amounts relate to a number of actions against the Group, none of which are individually signicant. Key contingent liabilities have been discussed below. Interest payable Under the terms of the MRA the Group had an option to repay a facility at advantageous terms, with lenders approval, before 24 April 2012 and thereby avoid various interest charges. The amount disclosed as a contingent liability at 31 December 2010 represents the potential interest payable from the date of the inception of the facility to 31 December 2010 under the terms of the facility. As the option has now lapsed, a charge has been recognised based on revised estimates of amounts payable into the future under these agreements (see Note 8b). Sales tax benet As discussed in Note 8a, the Government of Gujarat has claimed interest on the sales tax amounting to US$396.0 million (Rs.20.25 billion). Based on legal advice obtained by the Group, the Directors do not consider it likely that material interest is payable on the outstanding sales tax liability as the Group collected the sales tax and deferred its payment in accordance withajudgment by the High Court of Gujarat in favour of EOL. As a claim has been made this has been disclosed as a contingent liability. Claim by customer On 14 September 2005, GUVNL, an entity controlled by the State of Gujarat, led a petition against EPOL with the Gujarat Electricity Regulatory Commission (the GERC) alleging that EPOL diverted electricity generated by its Hazira power plant toEssar Steel, a related party, in violation of its power purchase agreement (PPA) with the Gujarat Electricity Board, whose assets and liabilities were transferred to GUVNL in 2003 and incorrectly claimed certain fuel generation credits from GUVNL between 1996 and 2006. GUVNL claimed a total of approximately US$309.9 million (31 December 2010: US$353.3 million) from the Group. On 18 February 2009, the GERC ruled in favour of GUVNL for the diversion of electricity by EPOL. The GERC also awarded GUVNL a refund for generation incentives incorrectly claimed from 14 September 2002 to 29 May 2006. The GERC, however, ruled that recovery of the incorrectly claimed generation incentives and of compensation for the electricity supplied to Essar Steel Limited in breach of the PPA prior to September 2002 was barred by the applicable statute of limitation. The revised amount claimed by GUVNL as per GERC order was US$113.5 million. Both EPOL and GUVNL appealed the GERCs ruling to the Appellate Tribunal for Electricity, New Delhi. The Appellate Tribunal held on 22 February 2010 that EPOL was not liable to pay compensation for alleged wrongful diversion of power to Essar Steel or for the reimbursement of the annual xed charges. The Appellate Tribunal further held that EPOL was liable to refund to GUVNL the deemed generation incentive paid on and after 14 September 2002 which the Group had already provided for. On 29 January 2010, EPOL led a petition before the GERC against GUVNL claiming certain payments due to it under the PPA. EPOL has made a claim for an aggregate amount of US$77.0 million (December 2010: US$87.8 million) comprising delayed payment charges, depreciation, foreign exchange variation, interest on debentures, bill discounting charges, interest on working capital and alleged wrongful deduction of rebate by GUVNL. On 7 March 2012, the Group has led Amended Applications for updated amount of US$123.8 million. The matter is pending before the GERC. The amount of receivables under this claim at 31 March 2012 is US$137.4 million.
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29. Contingencies, commitments and guarantees continued In respect of the outstanding claims, the Group does not expect to incur costs or loss in excess of amounts provided in defending its position and recovering its dues (see Note 21). In April 2010, GUVNL led two separate appeals before the Supreme Court against the common judgment of the Appellate Tribunal for stay of the implementation of the order of the Appellate Tribunal. The Group has led caveats against the stay to oppose admission of the appeals as well as the grants of stay. Honourable Supreme Court vide order dated 2 September 2011 dismissed the GUVNL appeal for claim for the period up to 14 September 2002 and admitted the other appeal for hearing. No stay has been granted. Other claims There are a number of other claims in connection with the Group. However, management believes that 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 periods presented. Contingent assets In June 1998, a cyclone hit the west coast of India which caused extensive damage to the renery site leading to delays in the construction and completion of the renery. The insurance company and the Company have since decided to settle the claim by arbitration. During the year, the Company received the arbitration award upholding the material damage claim but rejecting the advance loss of prot claim. No contingent asset had previously been recorded; hence the award has no impact on the nancial statements. 29b. Commitments Operating lease the Group as lessee Future minimum rentals payable under non-cancellable operating leases:
Payable less than 1 year Payable later than 1 year and not later than 5 years Payable later than 5 years Total
3.2 14.6 90.2 108.0
Finance lease the Group as lessee The Group has nance leases in respect of certain buildings as well as plant and machinery. Such leases have terms of renewal without any purchase options or escalation clauses. Renewals are at the option of the specic entity that holds the lease. Future minimum lease payments under nance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows:
Minimum lease payments 31 March 31 December 2012 2010 $ million $ million Present value of minimum lease payments 31 March 31 December 2012 2010 $ million $ million
As at
Payable less than 1 year Payable later than 1 year and not later than 5 years Payable later than 5 years Total Less: Future nance charges Present value of minimum lease payments
6.8 20.6 45.3 72.7 (39.4) 33.3
11.9 16.1 11.9 39.9 (14.2) 25.7
6.3 14.3 12.7 33.3
10.8 11.6 3.3 25.7
Capital commitments The Group has capital commitments of US$5,175.2 million (2010: US$6,489.7 million) in respect of contracts entered into for which works are ongoing. Of the outstanding capital commitments at 31 March 2012 US$1,286.2 million (2010: US$2,484.2 million) are expected to crystallise within one year.
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29. Contingencies, commitments and guarantees continued Export obligations The Group imports capital goods under the Export Promotion Capital Goods Scheme and raw materials under the Advance Licence Scheme to utilise the benet of a zero or concessional customs duty rate. These benets are subject to future incremental exports by the Group within the stipulated period. The Group has following outstanding export obligations:
Export obligations
990.7
1,334.4
Based on past performance, market conditions and business plans, the management expects to full the incremental export obligation within the stipulated period. The expiry of export obligations is as follows:
Later than 1 year less than 5 years More than 5 years
879.0 111.7 990.7
553.2 781.2 1,334.4
29c. Corporate guarantees The Group has provided a number of guarantees in respect of companies outside of the Group to third party lenders that were entered into prior to IPO and amount to US$31.5 million (2010: US$151.0 million). Any potential losses incurred in the future by the Group in respect of these guarantees are indemnied by EGL. The majority of guarantees provided have been treated as insurance contracts in line with the Groups accounting policies. 30. Related parties The Group, as discussed in Note 1, is part of the wider group of companies controlled by EGL and its controlling shareholders and as a result has entered into a number of transactions with other wider Essar group entities (the Essar Group). The Group shares many functions and services that are performed by various members of the Essar Group for which costs are allocated across the relevant beneting entities which have beneted. The costs have been historically allocated on a basis which the Essar Group believes is a reasonable reection of the utilisation of each service provided or the benet 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. The Company and EGL entered into a Relationship Agreement, the principal purpose of which was to ensure that following listing, the Group was 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. 30a. Transactions with parent company EGL, incorporated in Cayman Islands, is the ultimate parent company of the Group throughout the nancial period. The nancial statements of EGL are available at its registered ofce at Clifton House, 75, Fort Street, PO Box 1350 GT, George Town, Grand Cayman. Kettle River Holdings Limited and Copper Canyon Holdings Limited have signicant inuence overEGL. EGL has also provided guarantees to third party lenders in respect of the Group amounting to US$3,060.3 million (2010: US$3,173.4 million). No signicant transactions have occurred with EGL during the periods presented, except those which formed the Group as described in Note 1 and those set out above.
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30. Related parties continued 30b. Transactions with entities in the Essar Group The Group has undertaken transactions and has outstanding balances with Essar Group afliates as follows:
Transactions with Essar Group companies
Sale of goods and services Purchases of goods and services Interest income Interest expense Purchases of property, plant and equipment Sale of investment
As at Balances with Essar Group companies
284.3 284.6 33.2 19.0 1,968.4
193.9 224.5 18.9 15.6 1,967.7 33.2
Trade and other receivables Current Non-current Other nancial assets Current Non-current Advances given for capital work in progress Trade and other payables Current Non-current Loans payable Non-current Finance lease payable
609.3 11.4 2.5 43.9 497.1 187.0 41.7 230.9 11.4
182.6 293.2 534.7 184.4 136.0 213.9 14.5
Certain related parties have provided guarantees to third party lenders in respect of the Group amounting to US$2,606.1 million (2010: US$2,747.6 million). The Group has also provided guarantees in respect of borrowings of certain related parties amounting to US$34.8 million (2010: US$65.5 million). Any potential losses incurred in the future by the Group in respect of guarantees given on behalf of related parties are indemnied by EGL. 30c. Transactions with joint controlled entities The Group has 50% joint control of KPRL (Note 28). During the year, the Group sold goods of US$2.9 million (2010: US$1.7 million) to KPRL and balances of US$0.7 million (2010: nil) are outstanding. During the period, the Group has not invested further (2010: US$2.0 million) in KPRL. During the period, the Group has invested US$2.4 million in Mahan Coal, US$0.2 million in Rampia Coal, US$13.2 million in Western Nepal Hydropower Pvt Limited and US$2.3 million in Eastern Nepal Hydropower Pvt Limited. 30d. 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 9.5% 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 nancial year through examining the nancial position of the related party and the market in which the related party operates.
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30. Related parties continued 30e. Related party contracts Essar Global Limited and companies in the Essar Group are party to a signicant number of arrangements with the Group. The Group is 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 for the period 1 January 2011 to 31 March 2012 are summarised below: Shared services The Group leases ofce and other space from certain companies in the Essar Group. In addition, the Group receives certain services from the Essar Group relating to accommodation, ofce support services, 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 renery, technical storage facilities, business centre facilities, managerial support and corporate functions including nancial 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 180days notice. 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 amount payable by the Company under the licence agreement is approximately 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%. The Licensor waived fees of US$2.1 million payable under the licence agreements for period 1 April 2010 to 31 March 2011; however, from 1 April 2011 fees of US$4.2 million have been payable in accordance with the terms of the licence agreements described above. Power business Construction projects The Power business has a number of contracts with companies in the Essar Group in relation to onshore and offshore engineering, construction, procurement, transportation and project management services. 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: t A PPA expiring in 2026 with Essar Steel for the supply of power from the Essar Power-Hazira power plant to Essar Steel; t PPAs expiring in 2030 with a number of companies in the Essar Group for the supply of power from Bhander Power-Hazira power plant; and t PPAs expiring in 2029 with Essar Steel Algoma for the supply of all the power produced by the Essar Power Canada powerplant. Key contracts in connection with power plant projects not yet operational include a number of PPAs for the supply of power toEssar Steel and other companies in the Essar Group. These contracts are each for a period of 25 years from the date ofcommencement 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 the Vadinar Power expansion projects. 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.
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30. Related parties continued 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: t the Group has a water and fuel management agreement with Essar Steel (to run concurrently with the Groups PPA with Essar Steel) for the procurement and supply of fuel needed to generate the power that Essar Steel has committed to take from the Essar Power-Hazira power plant pursuant to its PPA; t the Group has contracts with Essar Steel 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 t the Group is party to a contract with Essar Steel Algoma (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 Essar Steel Algoma to the Group in return for power and steam for use at Essar Steel Algomas steelworks. Key contracts in connection with power plant projects not yet fully operational include: t the Group has 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 Gujarat-Salaya power plant; t the Group has a 25 year water supply agreement and a 15 year fuel supply agreement with Essar Steel Hazira for the Vadinar power plant expansion project; t under certain agreements the Essar Group has an obligation to provide fuel and water for the power plants and projects at Orissa and Hazira; t the Group has a long-term agreement for coal handling in respect of the Essar Power Vadinar Power expansion project; and t a company within the Group entered into a memorandum of understanding dated 17 October 2011 (up to 31 March 2015) for the supply of coal for some of the Indian power plants, with a company in the Essar Group. Pursuant to the agreed arrangements between the parties and in anticipation of entry into the said agreement, an advance of US$33 million has been paid in relation to this transaction to date. Other arrangements Operations and maintenance agreement with Essar Steel The Power business has agreed to provide operations and maintenance services to Essar Steel for the 25 MW power plant of Essar Steel located at Visakhapatnam for a term of 15 years from 1 July 2006 at cost plus prot margin of 15% which will increase by a growth rate of 6% on an annual basis. Service agreement The Group entered into an agreement with an Essar Group company (Essar Minerals Resources Ltd) for mining consultancy services from 1 January 2012 for a period of one year. Leases A company within the Group has agreed to lease the site of the Essar Orissa-Paradip power plant from the Essar Group. Thelease is 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. Essar Power MP has entered into a lease agreement with a company in the Essar Group for the lease of township facilities at Mahan for its employees for a duration of nine years. Essar Power Jharkhand has also entered into a MOU for the lease of township facilities in Tori, Jharkhand. Essar Power Hazira, Essar Power Transco and Essar Power Canada have agreed to lease the site for their projects from the Essar Group. Guarantees Essar Power Gujarat, Essar Power M.P., Essar Power Hazira and Essar Power (Orissa) have also availed corporate guarantees from Essar Steel Ltd in relation to the Export Promotion Capital Goods scheme for amounts up to 15% of the amount of duty saved on import of the capital goods. 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, accommodation and other services at its various exploration blocks. The expiry dates of these agreements range from 2013 to 2019.
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30. Related parties continued The Group has also contracted with certain Essar Group companies for laying gas pipelines and for certain engineering, design and procurement and construction services. Renery Expansion and Optimisation and HMU (Hydrogen Manufacturing Unit) 2 Projects In connection with certain renery expansion, optimisation and HMU-2 projects, the Group has contracted with various Essar Group companies for engineering services, project management services, project construction, equipment transport and handling services, customs clearance, petroleum 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 renery with logistical services for transporting rened petroleum products by road from the renery 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 petroleum handling agreements with two Essar Group companies expiring on 31 March 2016, under which the Essar Group provides services for the receipt, handling, storage and dispatch of the Groups crude oil and intermediate and rened petroleum products. Further, under the terms of the agreements, the Group supplies all utilities to the Essar Group company, including power, water and steam, at no additional cost. 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. Other arrangements The Group has also contracted with certain Essar Group companies in relation to SAP and other licence implementation and maintenance, shared services, bidding for the purchase of power for Essar Oil, facilitation of procurement of petroleum products and lubricants and providing retail outlet operational services. Leases The Group leases the site of the Vadinar port terminal operations from certain Essar Group companies under a 30 year lease (renewable by the Essar Group) at an annual rent of approximately Rs. 13.1 million (US$0.3 million). The residential township and transit accommodation, used by employees and visitors of the Petroleum Renery, were leased by the Group for a period of 20 years at an annual rent of approximately Rs. 152.7 million (US$2.9 million) from a related party of the Essar Group. On expiry of the lease, the Group has an option to extend the lease under mutually agreed terms andconditions. Essar Oil has also entered into an agreement with Vadinar Properties for the construction of township facilities to house its employees. Essar Oil has paid an advance deposit of approximately Rs. 630 million (US$12.3 million) as of March 2012. Vadinar Properties is required to transfer the premises contracted pursuant to the agreement with Essar Oil on completion byway of either a sale or a lease as may be agreed between the parties. Sales tax liability assignment Prior to a ruling by the Supreme Court of India on 17 January 2012, the Group believed it was entitled to receive certain sales tax incentives under the Capital Investment Incentive Premier/Prestigious Unit Scheme 19952000. In connection with such incentives, the Group assigned its liability for the sales tax collected from commercial production (i.e. 1 May 2008) up to the period ended 17 January 2012 to a related party of the Essar Group and paid the present value in relation to such liability to that entity up to November 2011. The Group has received a guarantee from an Essar Group company for the assigned amount. Inter Corporate Deposits The Group has entered into Inter Corporate Deposits contracts with an Essar Group company for Rs. 11,089.9 million (US$216.8 million) and the amount outstanding against these contracts including interest as of 31 March 2012 is Rs. 12,827.1 million (US$250.7 million).
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30. Related parties continued Guarantees Essar Global Limited has provided the following guarantees/undertakings in favour of a third party lending bank for the benet of a Group company: t Guarantee in relation to the optimisation of the Vadinar renery which expires on nancial closure of the optimisation project; t Undertaking in relation to making the CDR non priority loan to priority loan until the repayment of such loan; t Undertaking in relation to cost overrun, scheduled principal repayment and interest payment until project completion of phase 1 renery expansion project. On completion of phase 1 renery expansion project, Essar Global Limited will approach the relevant lenders for a release of the undertaking. t Performance guarantee on behalf of contractors to phase 1 renery expansion project until obligations of the contractors are discharged. t Guarantee to meet any liability towards repayment or refund of sales tax deferral amounts and any interest or other amounts due in relation thereto, to the extent disallowed nally by a court of competent jurisdiction, as reduced by any amounts used to pre-pay the lenders to the extent required by the lenders. Other Essar Group companies have provided the following guarantees in favour of a third party lending bank for the benet of a Group company: t Guarantee in relation to a working capital term loan which expires in March 2016. However, only Rs. 5,000 million (US$97.73 million) has been drawn under this facility as on 31 March 2012. t Guarantee in relation to repayment of certain CDR loans which expires on the last repayment date of such loans. t Guarantee in relation to a working capital facility which expires/renews on the renewal of such working capital facility. t Guarantee on behalf of the contractors in relation to payment of liquidated damages under the contracts of phase 1 renery expansion project until obligations of the contractors are discharged. A Group company has also provided a guarantee in favour of a third party lending bank for the benet of an Essar Group company in relation to repayment of a certain CDR loan. Such guarantee expires on the repayment of such loan. Ravikant Ruia and Prashant Ruia, Directors of the Company, together with Mr Shashikant Ruia, have also provided personal guarantees for working capital and term loans taken by Essar Oil. Essar Power share purchase agreement Essar Power Holding Limited (EPH) entered into a share purchase agreement, governed by Indian law, dated 6 April 2010 with Essar Steel India Limited, a related party, pursuant to which Essar Steel India Limited agreed to transfer its shareholding of 217,000,000 equity shares, representing 26% of the issued equity share capital of Essar Power Limited, to EPH for a consideration of US$99.0 million (Rs. 4.4 billion). This share purchase agreement came to an end on 30 September 2011 withno shares being transferred. A new agreement was entered into on 4 November 2011 with similar pre-conditions but requires, notwithstanding any pre-conditions, both the buyer and seller to consent to the transaction. Whilst it remains the intention of the Group to acquire this shareholding, as there is no commitment the transaction cannot be recognised as a sale and the previously recognised liability of US$99.0 million, and the corresponding change in retained earnings, has been reversed. EOL call option agreement Under a call option agreement dated 6 April 2010 and related addendum agreements signed on 30 December 2010 and 11November 2011, Essar Energy Holding (EEH), a subsidiary of the Company, had an option to acquire the shares held byEssar Investments Limited in EOL. In April 2012, the Investments and Finance Division of Essar Investments Limited was demerged into a new entity, Imperial Consultants and Securities Private Limited (Imperial), pursuant to a scheme of demerger approved by the High Court of Bombay and the High Court of Madras. This demerger transferred the call option arrangements and the shares in EOL previously held by Essar Investments Limited are now held by Imperial. The call option arrangements provide EEHL with an option to acquire the shares held by Imperial in EOL in the period between 1 May 2010 and 31 March 2013 at the higher of: (a) INR 153 and (b) the minimum price required to be paid under applicable law, which is currently the closing price of the shares of EOL on the relevant stock exchange on the date preceding the date of the transfer of the shares. In the event of the option lapsing, the holding cost payable is measured as 10% of the higher of (a) the average weekly high and low of the closing prices of the share of EOL during the 26 weeks period prior to 1April 2013; and (b) the average of the daily high and low of the prices of the shares of EOL during the two week period prior to 1April 2013.
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30. Related parties continued The shares held by Imperial are presently pledged in favour of various Indian banks and the actual transfer of the shares pursuant to the exercise of the call option by EEH will be subject to the release of these pledges by the relevant banks. In light of the shares being pledged, the addendum agreement extended the vesting period of the option by a further 12 months. Essar Investment Limited previously waived the holding costs payable as the shares could not be delivered as they were encumbered. Following the demerger, the shares remain pledged, Imperial has waived the holding costs payable by EEHL asat 31 March 2012. No liability is accounted for in these nancial statements. 30f. Remuneration of Directors and key management personnel Remunerations paid to Directors and key management personnel were primarily in the form of short-term employee benets amounting to US$9.3 million (2010: US$4.0 million). 31. Subsidiaries
% Voting held by the Group As at As at 31 March 31 December 2012 2010 Economic % held by the Group As at As at 31 March 31 December 2012 2010
S.No.
Company
Country of incorporation
Principal activities
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Essar Energy Holdings Limited Essar Oil & Gas Ltd (Formerly known as Vadinar Oil) Essar Oil Limited Essar Energy Overseas Limited Essar Petroleum (East Africa) Limited Essar Oil (UK) Limited
Mauritius Mauritius India Mauritius Kenya United Kingdom
Investment Holding Investment Holding Renery and marketing Investment Holding Trading Renery and marketing Investment Holding Investment Holding Investment Holding Investment Holding Investment Holding Petrochemical Investment Holding Investment Holding Exploration and Production Exploration and Production Exploration and Production Exploration and Production Investment Holding Investment Holding Investment Holding Trading Investment Holding
100.0 100.0 87.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
100.0 100.0 87.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
100.0 100.0 87.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
100.0 100.0 87.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Essar Oil Germany GmbH Germany Essar Oil Stanlow Limited United Kingdom Essar Syngas Limited1 Mauritius Essar Infrastructure Africa Limited2 Nigeria Essar Chemicals Limited Mauritius Essar Gujarat Petrochemicals Limited India Essar Arkema Chemicals Holdings Mauritius Limited1 Mauritius Essar Eastman Chemicals Holdings Limited1 Essar Exploration and Production Limited Mauritius Essar Exploration & Production Limited Essar Exploration and Production India Limited Essar Exploration and Production Madagascar Limited1 Essar Oil Holdings Limited Essar Oil Cyprus Limited (Formerly known as Star Sapphire Enterprises Limited) Essar Oil International AG Essar Oil Mauritius Limited (Formerly known as Pitney Mauritius Holdings Limited) Essar Power Holdings Limited Nigeria India Madagascar Mauritius Cyprus Switzerland Mauritius Mauritius
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31. Subsidiaries continued

% Voting held by the Group As at As at 31 March 31 December 2012 2010 Economic % held by the Group As at As at 31 March 31 December 2012 2010
S.No.
Company
Country of Incorporation
Principal activities
24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57
1. 2. 3. 4. 5.
Essar Power Hazira Holdings Limited Essar Minerals FZE Algoma Power Cooperatief U.A. Algoma Power B.V. Essar Power Canada Limited Essar Power Limited5 Essar Power Overseas Limited Essar Power Transmission Company Limited Essar Power (Jharkhand) Limited Essar Power Chhattisgarh Limited4 Essar Power Hazira Limited3 Essar Power MP Limited Essar Power Gujarat Limited Essar Wind Power Private Limited Essar Power (Orissa) Limited3 Essar Power Tamil Nadu Limited4 Essar Electric Power Development Corporation Limited Bhander Power Limited Vadinar Power Company Limited3 Essar Power Salaya Limited Main Street 736 (Proprietary) Limited4 Essar Power (Nepal) Holdings Limited Essar Power (East Africa) Limited Navabharat Power Private Limited Essar Power & Minerals S.A. Limited Essar Recursos Minerals de Mozambique Limitada PT Essar Minerals Indonesia PT Bara Pratama Indonesia PT Manoor Bulatn Lestari Indonesia Essar Power Distribution Co Ltd Essar Power Solar Limited4 Essar Energy Services (UK) Limited Essar Energy Investments Limited Essar Energy Services Mauritius Limited
Mauritius UAE Netherlands Netherlands Canada India BVI India India India India India India India India India India India India India South Africa Mauritius Kenya India Mauritius Mozambique Indonesia Indonesia Indonesia India India United Kingdom Jersey Mauritius
Investment Holding Investment Holding Investment Holding Investment Holding Power Plant Power Plant Investment Holding Power Transmission Power Plant Power Plant Power Plant Power Plant Power Plant Wind Turbine Manufacturer Power Plant Power Plant Power Trading Power Plant Power Plant Power Plant Investment Holding Investment Holding Project Management Services Power Plant Investment Holding Coal Mine Investment Holding Investment Holding Coal Mine Power Distribution Power Plant Service Provider Investment Holding Service Provider
100.0 100.0 100.0 100.0 100.0 74.0 100.0 100.0 100.0 100.0 100.0 99.6 100.0 100.0 74.0 100.0 100.0 73.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
100.0 100.0 100.0 100.0 100.0 74.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 74.0 100.0 100.0 74.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
100.0 74.0 100.0 100.0 100.0 74.0 74.0 74.0 74.0 74.0 74.0 73.7 74.0 100.0 73.3 74.0 74.0 54.5 75.7 74.0 100.0 100.0 100.0 74.0 74.0 74.0 74.0 74.0 74.0 74.0 74.0 100.0 100.0 100.0
100.0 74.0 100.0 100.0 100.0 74.0 74.0 74.0 74.0 74.0 74.0 74.0 74.0 100.0 54.8 74.0 74.0 54.8 77.4 74.0 100.0 100.0 100.0 74.0 74.0 74.0 74.0 74.0 74.0 100.0 100.0 100.0
Liquidated. Disposed of during the year. Holding reected economic interest including Participating Preference Shares issued by the entity to Essar Power Limited, its direct parent. Under liquidation. Essar Power Limited has issued compulsory convertible preference shares (CCPS) to Essar Power Holdings Limited and Essar Power Hazira Holdings Limited. Effective holdings will be 98.2% upon conversion of CCPS to equity shares and impact on its subsidiaries.
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32. Subsequent events On 4 April 2012, Essar Energy announced that it had commenced commercial operations at unit 1 (600 MW) of the Salaya I power plant. On 15 June 2012, Essar Energy announced that it had commenced commercial operations at unit 2 (600 MW) of the Salaya I power plant, meaning that the full 1,200 MW of Salaya I is now operational. On 26 April 2012, Essar Oil announced that it had renewed a major product sale and purchase agreement with Bharat Petroleum Corporation Limited (BPCL). The renewed four year agreement, running up to 2016, is for supply of diesel, petrol, kerosene and aviation turbine fuel to BPCL from Essar Oils Vadinar renery. It also entitles Essar Oil to purchase products from BPCL and gives the two companies the option of sharing each others distribution infrastructure. On 8 May 2012, Essar Oil led a writ petition in the Gujarat High Court to seek direction on repayment instalments and interest payments in relations to its sales tax deferral liability to the Government of Gujarat. The petition was subsequently admitted by the Gujarat High Court on 11 May 2012. On 10 May 2012, Essar Energy announced that it had signed a power purchase agreement with Noida Power Company Ltd for 240 MW of contracted capacity from Essar Energys 600 MW coal-red Tori II power station which is under construction inJharkhand state, India. Under the terms of the PPA, Essar Energy will supply power at a levelised tariff, net of transmission costs, of Rs. 3.27 per kWh (approximately 6.2 US cents per kWh). On 15 May 2012, Essar Energy announced that it had renanced its US$450 million bridge loan which was due December 2012 with a new US$300 million three year secured loan facility and US$150 million of internal cash resources. Separately, Essar Energy also signed a US$250 million 3.5 year subordinated unsecured loan facility with Essar Global Limited for general corporate purposes. The US$250 million subordinated unsecured loan facility is being provided on normal commercial terms. The facility is currently undrawn, but can be drawn in full or in part at any time during the 3.5 year life of the facility. On 6 June 2012, Essar Energy announced that it had completed the Vadinar renery optimisation project four months ahead of schedule. This project increased the capacity of the Vadinar renery from 18 mmtpa to 20 mmtpa by converting a redundant Visbreaker Unit into a new Crude Distillation Unit of 2 mmtpa capacity. On 8 June 2012, Essar Energy plc announced that it has received nal Pinjam Pakai forest approval for its Aries coal mine in Indonesia. This was the nal approval needed ahead of the commencement of mine development activities.
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Company balance sheet

Note
Non-current assets Investment in subsidiaries Property, plant and equipment Total non-current assets Current assets Amounts receivable from subsidiaries Cash and cash equivalents Total current assets Total assets Non-current liabilities Borrowings Current liabilities Borrowings Other payables Total current liabilities Total liabilities Net assets Equity Share capital Share premium account General reserve Convertible bond reserve Other reserve Retained earnings Total equity
35 36
4,441.6 1.0 4,442.6 736.1 267.9 1,004.0 5,446.6 458.3 446.7 20.6 467.3 925.6 4,521.0 99.0 2,043.8 1,160.6 85.5 1,160.7 (28.6) 4,521.0
3,868.9 3,868.9 225.3 408.9 634.2 4,503.1 14.0 14.0 14.0 4,489.1 99.0 2,043.8 1,160.6 1,160.7 25.0 4,489.1
37 38
BUSINESS REVIEW
39 39 40
24
39
The nancial statements of Essar Energy plc (registered number 7108619) for the period from 1 January 2011 to 31 March 2012 were approved by the Board of Directors and authorised for issue on 22 June 2012. They were signed on its behalf by: Naresh Nayyar Chief Executive Ofcer
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Company statement of changes in equity

Share capital (Note 24) $ million Share premium $ million General reserve $ million Convertible bond reserve $ million Other reserve $ million Retained earnings/ (decit) $ million Total equity $ million
18 December 2009 Issues of shares to Parent Issues of shares on IPO IPO related expenses Transfer Gift of interest in subsidiaries from Parent Comprehensive income for the period 31 December 2010 Reserve recognised on issuance of convertible bonds (Note 39) Transfer (Note 39) Comprehensive loss for the period 31 March 2012
76.5 22.5 99.0 99.0
1,414.6 1,864.1 (74.3) (1,160.6) 2,043.8 2,043.8
1,160.6 1,160.6 1,160.6
107.0 (21.5) 85.5
1,160.7 1,160.7 1,160.7
25.0 25.0 21.5 (75.1) (28.6)
1,491.1 1,886.6 (74.3) 1,160.7 25.0 4,489.1 107.0 (75.1) 4,521.0
General reserve In 2010, following a Board resolution, amounts previously held within share premium of US$1,160.6 million relating to Essar Global Limiteds investment in the Company were transferred to the General Reserve. Other reserve As part of the reorganisation of the Group prior to IPO in 2010, Essar Global Limited, gifted its interest of US$1,160.7 million in Essar Power Holdings Limited and Essar Oil and Gas Limited (through its direct subsidiary Essar Energy Holdings Limited) to the Company. The gift of this interest was transferred to Other Reserves.
137
Company statement of cash ows

Cash ow from operating activities (Loss)/prot before tax Adjustments to reconcile (loss)/prot before tax to net cash used in operating activities: Interest income Foreign exchange gains IPO costs charged to income statement Interest cost Changes in liabilities: Increase in trade and other receivables (Decrease)/Increase in other payables Net cash used in operating activities Cash ow from investing activities Purchase of property, plant and equipment Investment in subsidiaries Trade advances provided to subsidiaries Loans given to subsidiaries Repayment of loan by subsidiaries Interest received Net cash used in investing activities Cash ow from nancing activities Proceeds from issuance of shares IPO costs charged to income statement Proceeds from borrowings Finance cost paid Net cash generated from nancing activities Net (decrease)/increase 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 the end of the period
(75.1) (8.9) 63.2 (15.9) (7.6) (44.3)
29.6 (2.9) (41.3) 2.2 9.5 (2.9)
(1.0) (572.7) (1,217.2) (225.0) (1,215.9) 723.0 6.9 2.6 (1,059.7) (1,439.6) 993.7 (30.7) 963.0 (141.0) 408.9 267.9 1,812.3 (2.2) 1,810.1 367.6 41.3 408.9
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Notes to the company nancial statements

33. Signicant accounting policies The separate nancial statements of the Company, Essar Energy plc, from 1 January 2011 to 31 March 2012 are presented asrequired by the Companies Act 2006 and prepared in accordance with EU Endorsed IFRSs and the relevant Group accounting policies as set out in Note 1 and Note 2 of the consolidated nancial statements. Change in accounting year The Indian Income Tax Act requires Indian companies to le their annual accounts and returns based on the year ended 31March. All Indian companies within the Essar Energy Group prepare their accounts on this basis. To ensure that all accounting periods are aligned within the Essar Energy Group, the Company announced in August 2011 that it had decidedto also change its year end to 31 March. This change in year end means that Essar Energy plc is publishing nancial statements for the 15 months ended 31 March 2012. Comparative gures are for the 12 months ended 31December 2010 and hence are not directly comparable. Investment Investments represent equity holdings in subsidiaries held at cost less provision for impairment. The Directors have taken the exemption offered by Section 408 of the Companies Act 2006 not to present a separate income statement for the parent company. The loss after tax for the period of the Company amounted to US$75.1 million (2010: Prot of US$25 million). The Companys nancial statements have been prepared on the historical cost basis. Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. 34. Auditors remuneration The auditors remuneration for audit and other services is disclosed in Note 9 to the consolidated nancial statements. 35. Investment in subsidiaries
As at Opening balance Gifted investments by parent company Share application money invested by parent company Additional investments in the period Closing balance
3,868.9 572.7 4,441.6
1,160.6 1,491.1 1,217.2 3,868.9
36. Property, plant and equipment Capital work in progress of US$1.0 million relates to refurbishment of the Companys Mauritius ofce. 37. Amounts receivable from subsidiaries
Amount due from subsidiaries Interest from subsidiaries Closing balance
733.8 2.3 736.1
225 0.3 225.3
Amount due from subsidiaries represents interest bearing loans given to subsidiaries carrying interest between 1% to 4.25%.
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38. Cash and cash equivalents

Cash at bank Bank deposit Liquid investments Closing balance
60.2 100.0 107.7 267.9
1.6 62.3 345.0 408.9
BUSINESS REVIEW
Bank deposits have a maturity period of less than 90 days. Liquid investments represent cash deposited in mutual funds which are fully liquid and can be realised without notice and without signicant risk of loss of value. 39. Borrowings
GOVERNANCE
Borrowings from subsidiaries Banks and nancial Institutions Total borrowings Less: unamortised debt issue cost Net borrowings Current borrowing Non-current borrowing
463.2 450.0 913.2 (8.2) 905.0 446.7 458.3
Borrowings from subsidiaries A convertible bond was issued by Essar Energy Investments Limited, a subsidiary of Essar Energy plc. Essar Energy Investments Limited advanced the net proceeds of the bond to Essar Energy plc and hence the liability element of the bond is shown within borrowings from subsidiaries. Essar Energy Investments Limited issued 4.25% US$550.0 million guaranteed unsecured convertible bonds on 1 February 2011. The bonds are convertible into fully paid ordinary shares of Essar Energy plc. The bondholders have the option to convert at any time from 14 March 2011 to 24 January 2016. The loan notes are convertible at US$11.0861 per share at a xed exchange rate of GBP1: US$1.5955. Amount of coupon interest paid or accrued is US$31.7 million. Amounts charged tonance cost at the effective interest rate is US$53.3 million. If the bonds have not been converted they can be redeemed at the option of Essar Energy Investments Limited at any time on or after 15 March 2014 subject to certain conditions or if not converted or previously redeemed will be redeemed at par on 1February 2016. The net proceeds of the convertible issues have been split between the liability element and equity and accounted US$107.0 million in equity as a convertible bond reserve. The interest charged for the period is calculated by applying an effective interest rate of 9.5% to the liability component. Banks and nancial institutions The Company has borrowings under a loan agreement with a number of banks and nancial institutions. The interest rate on these borrowings is LIBOR plus 3%. These borrowings are secured with a rst charge on certain equity shares in subsidiaries of the Company and loans given to subsidiaries.
140
Notes to the company nancial statements continued

40. Other payables (current)
Tax payable Other payables and accrued expenses Amounts due to subsidiaries Amounts due to parent company Closing balance
3.8 5.4 10.2 1.2 20.6
4.5 3.3 3.7 2.5 14.0
Other payables and accrued expenses principally comprise amounts outstanding for Company related purchases and ongoing costs. The average credit period available for such purchases is approximately 30 days. Amounts due to subsidiaries are in respect of services provided to the Company by its subsidiaries and are payable on issue of invoice. Amounts payable to related parties relate to IPO related costs paid by the parent company on behalf of the Group which have been subsequently recharged to the Company. 41. Financial instruments Financial assets and liabilities in the Companys balance sheet comprise of trade and receivables, amounts due from subsidiaries, cash and cash equivalents, borrowings from subsidiaries, borrowings, and other payables. The fair value of nancial assets and liabilities at 31 March 2012 approximate their carrying amount. Financial risks are managed and monitored on a Group basis in accordance with the policies set out in Note 25 in the consolidated nancial statements. Interest rate risk The Companys exposure to the risk of changes in market interest rates relates primarily to the Companys debt obligations with oating interest rates. The Companys policy is to manage its interest cost using a mix of xed and oating rate debts. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variable held constant, of the Companys prot before tax due to the impact on oating rate borrowings.
Effect on prot before tax: LIBOR decrease by 50 bps
2.2
The impact of a 50 bps increase in interest on PBT and equity will be the same as disclosed above except that income would be converted to a charge. Foreign currency risk The Companys signicant investments and other asset and liabilities including borrowings are denominated in US dollars and thus the Company is not exposed to any risk of changes in exchange rate. Credit risk The Company is exposed to credit risk from its operating activities (primarily for loans and receivables) and from its nancing activities including deposits with banks and other nancial instruments. Cash, term deposits and liquid investments are held in banks with high credit ratings. The Company does not consider there to be any signicant credit risk in respect of receivables from related parties. The Company has no receivables which are past due or impaired.
141
41. Financial instruments continued Liquidity risk The Company monitors its risk of shortage of funds using cash ow forecasting models. These models consider the maturity of their nancial investments, committed funding and projected cash ows from operations. The maturity prole of the Companys recognised nancial liabilities on a gross basis is given in the table below:
As at 31 March 2012
<1yr $ million
15 yrs $ million
>5 yrs $ million
Total $ million
Borrowings Trade and other payables
6.20%
450.0 16.8 466.8
550.0 550.0
1,000.0 16.8 1,016.8
GOVERNANCE
As at 31 December 2010
<1yr $ million
15 yrs $ million
>5 yrs $ million
Total $ million
Trade and other payables
9.5 9.5
9.5 9.5
Capital Management The management reviews the Capital Management at a Group level basis (refer Note 25). 42. Subsidiaries Details of the Companys subsidiaries at 31 March 2012 are given in Note 31 of the consolidated nancial statements. 43. Corporate guarantees The Company has provided guarantees of US$2,291.4 million (2010: US$434.4 million) to lenders in respect of its subsidiariesat 31 March 2012. All guarantees provided have been treated as insurance contracts in line with the Groups accounting policies. 44. Related parties The Company has undertaken transactions with its ultimate parent company, EGL, and its subsidiaries during the period. Theoutstanding balances with subsidiaries and the parent company are set out in the previous notes. The Company receives services from Essar Energy Services UK Limited and Essar Energy Services (Mauritius) Limited (the Service Companies), two of its subsidiaries, as part of a series of shared services agreements signed in April 2010. The Service Companies provide services to Essar Energy plc which are in turn sourced from other Essar afliated companies as discussed in Note 30e of the consolidated nancial statements. The Company has received a loan from Essar Energy Investments Limited from the funds generated by issue of convertible bond. The Company has in turn provided a guarantee on behalf of Essar Energy Investments Limited. The Company has paid interest of US$53.3 million on this loan and received guarantee commission income of US$4.8 million. Remunerations paid to Directors and key management personnel during the period were primarily in the form of short-term employee benets amounting to US$4.1 million (2010: US$3.3 million). 45. Subsequent events note On 15 May 2012, Essar Energy announced that it had renanced its US$450.0 million bridge loan which was due December 2012 with a new US$300.0 million three year secured loan facility and US$150.0 million of internal cash resources. Separately, Essar Energy also signed a US$250.0 million 3.5 year subordinated unsecured loan facility with Essar Global Limited for general corporate purposes. The US$250.0 million subordinated unsecured loan facility is being provided on normal commercial terms. The facility is currently undrawn, but can be drawn in full or in part at any time during the 3.5 year life of the facility.
142
Appendix 1
Denition and comparability of CP GRM GRM is calculated as actual sales net of crude costs derived from the accounts. Inventory gains and losses, hedging gains and losses and sales tax benet for the period also form part of the GRM. Based on this method of calculation, Essar Energys reported GRMs are not directly comparable to the performance of other reners, other rening benchmarks and industry reports due to following reasons: t The Vadinar oil renery operates in the state of Gujarat and until 17 January 2012, the Group beneted from a government sales tax incentive, which, following the judgment of the Supreme Court of India on 17 January 2012, the Group is no longer entitled to. All such amounts previously recognised in respect of this benet have been adjusted in the 15 month period ended 31 March 2012 (see Note 8a to the nancial statements). t In India, domestic products are sold based on Government decided formulae known as Renery Transfer Price, (RTP). RTP of LPG and Kerosene are based on the average market price of the previous month, while for other products including Gasoil and Gasoline it is based on the average price of the previous fortnight. As a result the revenues may not match the prevailing product prices for the period. t The Company adopts the rst in, rst out FIFO methodology for crude inventory valuation. As a consequence the cost of crude consumed can be crude purchased in earlier periods which may not reect current prevailing crude prices. For crudes with a long voyage time these differences can be more signicant. t Sales quantity does not directly match actual production during the period as there may be inventory movement compared to a previous period. t Commodity derivative instruments are used to act as an economic hedge against the price risk of forecast crude oil purchases, future rened product sales and future product crack margins. These derivative instruments are required to berecorded at fair value with gains and losses recognised in income because hedge accounting is not applied. The following adjustments are made to the GRM to provide a CP GRM that reects underlying operational performance and better communicates industry comparable performance of the renery. These adjustments are as follows: t The sales quantity is taken as actual production during the period. This eliminates the effect of inventory gains and losses in the GRM. This sales quantity is allocated into export and domestic sales based on the actual ratio of export and domestic sales for the period. t The cost of crude is taken at the current prices of crude grades actually consumed, net of premium or discounts as applicable. Prevailing custom duty is applied on the cost of crude. t In India, to calculate the revenue from the sales quantity the domestic sales price is valued based on the RTP of the same period rather than any other period. Export prices are based on actual realised export prices, as they do not have timing differences. Revenue is adjusted for premiums or discounts achieved by the Company. For domestic sales custom duty recovery is built up in RTP itself whilst Duty Benet for exports is added separately. t In the UK, as there is no equivalent RTP, both domestic and export revenues are based on average prices for the month. t The impact of economic hedging gains or losses is excluded. t The impact of the Gujarat government sales tax benet is separately identied.
143
Appendix 2
Relationship Agreement Key Terms (referred to in the Directors report on page 52 above) (i) Essar Global will exercise its powers as shareholder to ensure that the Company is capable, at all times, of carrying on its business independently of Essar Global and its Associates (as dened in the Relationship Agreement); (ii) the Company and Essar Global agree that transactions and relationships between the Group and Essar Global and its Associates will be at arms length and on a normal commercial basis, except in the case where the size of such transaction or arrangement is such that (a) each of the applicable percentage ratios (as dened in the Listing Rules) for such transaction or arrangement, when aggregated with other such transactions or arrangements in any 12 month period, is equal to or less than 0.25% or (b) the Listing Rules in force at the relevant time would not apply, whichever is the smaller;
(iii) Essar Global shall not and shall procure (so far as it is legally able) that its Associates shall not take any action (or omit to take any action) to prejudice Essar Energys status as a listed company or its suitability for listing under the Listing Rules after Admission has occurred or Essar Energys ongoing compliance with the Listing Rules and the Disclosure Rules and Transparency Rules, provided this does not prevent Essar Global or its Associates from accepting an offer for Essar Energy made under the City Code on Takeovers and Mergers or making such an offer for Essar Energy; (iv) Essar Global has agreed that except as may be required by law, as contemplated by the Relationship Agreement or asunanimously agreed by the independent Non-Executive Directors, it will exercise the rights attaching to its Ordinary Shares to ensure that, so far at it is legally able, Essar Energy is managed in accordance with the Companies Act, the Listing Rules, the Disclosure Rules and Transparency Rules and that the principles of good governance set out in the Combined Code are complied with by Essar Energy; (v) Essar Energy shall use its reasonable endeavours to procure and Essar Global shall exercise its powers as shareholder toprocure, so far as it is reasonably able, that at all material times: at least half of the Board (including the Chairman) willbe independent Non-Executive Directors, the audit and remuneration committees will consist only of Independent Non-Executive Directors and the nominations and governance committee will consist of a majority of independent Non-Executive Directors; (vi) Essar Global is entitled to nominate such number of Directors for appointment so the Board to as to ensure that at least half the Board (including the Chairman) will be independent Non-Executive Directors; (vii) Directors of Essar Energy nominated by Essar Global shall not be permitted, unless the Independent Directors agree otherwise, to vote on any resolutions of the Board to approve any aspect of the Companys involvement in or enforcement of any arrangements, agreements or transactions with any member of the Essar Group; (viii) Essar Global shall procure that the Directors nominated by Essar do not vote on any resolution at meetings of the Board relating to the entry, variation, amendment, novation, termination, abrogation or enforcement of any contract, arrangement or transaction between the Company and the Essar Group; (ix) Essar Global agrees that in the event that any member of the Essar Group is proposing to enter any arrangements with another member of the Essar Group or with the Company in connection with substantially similar products, goods or services, no member of the Essar Group will be offered such arrangement on more favourable terms or be given preference over the Company; (x) Essar Global shall notify Essar Energy of all dealings between the Essar Group and the Company that are not of a revenue nature in the ordinary course of business and are of a revenue nature in the ordinary course of business; (xi) The parties agree to use commercially reasonable efforts to put in place a process in relation to dealings between the Essar Group and the Company following the date of admission to ensure, inter alia, that dealings where the size of the dealing is such that (a) any percentage ratio (as dened in the Listing Rules) in relation to the relevant transaction exceeds 0.25% when aggregated with other such transactions in any 12 month period or (b) any smaller percentage ratio applicable to dealings between related parties under the Listing Rules in force at the relevant time would apply to such transaction, are on arms length terms; to agree the standard terms and conditions on which ordinary course arrangements between the Essar Group and the Company following admission are entered into and to take all reasonable steps to ensure such terms and conditions apply to such arrangements in place as at admission; (xii) Essar Global shall not cause or permit any amendment to the Articles which would be inconsistent with the Relationship Agreement or affect the listing of Essar Energy; (xiii) Essar Global and its Associates have agreed not to misuse and maintain condential any condential information received by them and are only entitled to disclose such information in the circumstances set out in the Relationship Agreement; and
144
Appendix 2 continued
Relationship Agreement Key Terms (referred to in the Directors report on page 52 above) continued (xiv) Essar Global represents and warrants that neither it, nor, to the best of its knowledge, any of its Associates, currently ownor have any interest in any company or business the principal business of which is crude oil rening, oil and gas exploration and production, gas or power generation worldwide (each a Competing Business) other than: through the Company or the Group; in respect of the 30 MW thermal captive power plant at Hazira and the 35 MW thermal captive power plant at Vizag; and in respect of the Myanmar exploration blocks. Essar Global undertakes that for the duration of the Relationship Agreement and one year following, it shall not, and shall procure (to the extent it is reasonably able) that its Associates shall not, acquire or have any interests in or carry on or be involved with any Competing Business except: where any acquisition, investment, carrying on or involvement in a Competing Business has been approved by a majority of the independent Non-Executive Directors; the acquisition or ownership of a Competing Business, the opportunity to acquire or invest in which has been offered or made available to the Company and which the independent Non-Executive Directors have determined (such determination being recorded in writing) is not an opportunity which the Company is able or willing to pursue, where (except where the independent Non-Executive Directors determined that the opportunity was of a nature which it was not appropriate for the Company to pursue on any terms, such determination being recorded in writing) Essar Global or its Associates participates in such opportunity on terms which are not more favourable overall than those which were available to the Company; the acquisition or ownership of not more than 15% ofany Competing Business that is listed or traded on a public stock exchange, where Essar Global has not appointed or does not have the right to appoint representatives to the Board or senior management of such business, it does not have the right to exercise material inuence over such business and such acquisition or ownership would not result in the Company being obliged to acquire an increased ownership of such business; a passive investment only is held in a fund or similar entity where Essar Global has no control or inuence over or involvement in the management of the relevant business held by the fund or similar entity and, so far as Essar Global is aware to the best of its knowledge having made reasonable enquiry, no more than 15% of the fund or similar entitys investments by value are in Competing Businesses; in relation to the exploration, extraction and processing of minerals (which excludes natural gases and hydrocarbons); captive power plants where such interest, carrying on of business or involvement is for tax efciency and/or regulatory purposes and is approved in advance by the independent Non-Executive Directors in writing; where an interest in, carrying on of, or involvement in a Competing Business is for a regulatory purpose and is approved in advance by the independent Non-Executive Directors in writing; any interest in, carrying on of business or involvement in respect of the Myanmar exploration blocks.
Appendix 3
Directors share dealings update No Director had any dealing in the shares of the Company between the signing of the Directors report on 22 June 2012 and 25 June 2012, being a date not more than one month prior to the date of the notice convening the AGM, other than Mr Philip Aiken whopurchased a further 10,000 shares in the Company, increasing his interest in the Company to a total holding of 24,285 shares.
145
Glossary
2C 2P ADR AGM bcf Board or Directors bpd BS IV standard CDP CDR CDU Coal Bed Methane or CBM Coal Linkage CNG CP CP EBITDA CP GRM CSR DGH EBITDA EPC EPS Essar Afliated Company Essar Energy or the Company Essar Global Essar Group Essar Oil Essar Oil UK Essar Power Essar Projects ESOP EU FRC FSA FTSE 100 GDP GHG Governance Code GRM Group GW GWh contingent resources where 50% of the possible outcomes are greater than the 2C value proven plus probable reserves American depositary receipt Annual General Meeting billion cubic feet the Board of Directors of Essar Energy plc barrels of crude oil (159 litres by volume) per day Bharat Stage emission standard IV carbon disclosure project corporate debt restructuring crude distillation unit coal bed methane refers to the gas (principally methane) which is found in coal seams the allocation of coal in India on a short-term or long-term basis through the governments Standing Linkage Committee Compressed natural gas current price current price EBITDA, as dened further on page 41 current price GRM as dened further on page 142 Corporate Social Responsibility Director General of Hydrocarbons earnings before interest, tax, depreciation and amortisation engineering, procurement and construction earnings per share members of the Essar Group and any other companies which are not part of the Group Essar Energy plc Essar Global Limited Essar Global and its subsidiaries that are not part of the Group Essar Oil Limited Essar Oil (UK) Limited Essar Power Limited Essar Projects (India) Limited, formerly Essar Construction (India) Limited, an Essar Afliated Company Employee Stock Option Plan European Union the Financial Reporting Council the Financial Services Authority in the UK share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange gross domestic product, the total value of goods and services produced by a country greenhouse gas the UK Corporate Governance Code issued by the FRC in June 2010 Gross Rening Margin Essar Energy and its subsidiaries gigawatt (one gigawatt equals 1,000 megawatts) gigawatt hours
146
Glossary continued
GUVNL HMU HSE HSEMS IAS IFRS IPO IRR kcal/scm KT LIBOR Listing LPG LSE LTI MAT mmboe mmbbl mmbtu mmscm mmt mmtpa mmscm/d MRA MT MU MW MWh Non-Executive Directors Ofcial List OPL 226 Operational EBITDA Ordinary Shares pa PPA PRM Prospective resources Gujarat Urja Vikas Nigam Limited, the State Electricity Board of Gujarat Hydrogen Manufacturing Unit health, safety and environment health, safety and environmental management systems International Accounting Standards International Financial Reporting Standards initial public offering of shares in Essar Energy plc Internal Rate of Return Kilocalorie/standard cubic meter kilo tonnes London Inter-Bank Offer Rate the admission of the Ordinary Shares to the premium listing segment of the Ofcial List and to trading on the London Stock Exchanges main market for listed securities Liqueed petroleum gas London Stock Exchange lost time injury minimum alternative tax million barrels of oil equivalent million barrels million metric British thermal units million metric standard cubic metres million metric tonnes million metric tonnes per annum million standard cubic metres per day a master restructuring agreement entered into by Essar Oil with certain lenders on 17 December 2004 million tonnes million units megawatt megawatt per hour the Non-Executive Directors of Essar Energy plc the ofcial list of the FSA offshore oil and gas block in Nigeria full analysis set out on pages 40 and 41 ordinary shares of 5 pence each in the capital of the Company per annum power purchase agreement Project Review Meeting prospective resources are undiscovered and potentially recoverable
147
Ratna/R Series RBI Relationship Agreement Rs. scm/d Senior Management SID Sponsor State Electricity Boards tcf Underwriting Agreement Unrisked in-place resources UI
an oil and gas block offshore Mumbai, India Reserve Bank of India a relationship agreement dated 30 April 2010, between the Company and Essar Global, as dened in more detail on page 52 Indian Rupees standard cubic metres per day members of the Companys management team, details of whom are set out on pages 50 and 51 Senior Independent Non-Executive Director J.P Morgan Cazenove a state owned electricity utility operating in one of the states in India trillion cubic feet the underwriting agreement entered into on 30 April 2010 between Essar Energy plc, the Directors and certain underwriters at the time of the IPO as described on page 53 undiscovered resources estimated to be contained in accumulations yet to be discovered unscheduled interchange
148
Shareholder Information Page

Shareholder interests as at 31 March 2012 Number of shareholders 1,256 Number of shares in issue 1,303,437,293
By size of holding Shareholders % Shares %
500 and under 501 to 1,000 1,001 to 10,000 10,000 to 100,000 10,001 to 1,000,000 Over 1,000,000
15.37 14.01 36.54 18.95 10.99 4.14 100%
0 0.01 0.14 0.7 3.2 95.95 100%
Investor Relations For investor enquiries, please contact: Mark Lidiard Director of Investor Relations & Communications Essar Energy plc 3rd Floor, Lansdowne House 57 Berkeley Square London, W1J 6ER Telephone: +44 (0)207 408 7660 Email: ir@essar.com Registered Ofce Essar Energy plc 3rd Floor, Lansdowne House 57 Berkeley Square London, W1J 6ER Registered Number 07108619 Head Ofce 6th Floor, DCDM Building 10 Frere Felix de Valois Street Port Louis Mauritius Telephone: +230 202 3136 Joint Company Secretaries: Elaine Richardson Essar Energy plc 6th Floor, DCDM Building 10 Frere Felix de Valois Street Port Louis, Mauritius Sinews Global Services Limited 2nd Floor, Les Jamalacs Building Vieux Conseil Street Port Louis, Mauritius Auditors Deloitte LLP 2 New Street Square London, EC4A 3BZ
Annual General Meeting The AGM will be held on 4 September 2012. The Notice of Meeting and the Form of Proxy are enclosed with this Annual Report and will be available on Essar Energys website at www.essarenergy.com Company Website This Annual Report, previous Annual Reports and results announcements are available on Essar Energys website at www.essarenergy.com. The website can also be used by shareholders to access the latest information about the Company and press announcements as they are released together with details of future events and who to contact for further information. Registrars For information about the AGM, shareholdings and to report changes in personal details, shareholders should contact: Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ United Kingdom Telephone: +44 (0)870 707 1834 Fax: +44 (0)870 703 6116 Email: web.queries@computershare.co.uk
Certain statements included in this Annual Report and Accounts contain forward-looking information concerning the Groups strategy, operations, nancial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which the Group operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Groups control or can be predicted by the Group. Although the Group believes that the expectations reected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. For a detailed analysis of the factors that may affect our business, nancial performance or results of operations, we urge you to look at the Principal Risks and Uncertainties included in this Annual Report and Accounts. No part of these results constitutes, orshall be taken to constitute, an invitation or inducement to invest in the Group or any other entity, and must not be relied upon in any way in connection with any investment decision. The Group undertakes no obligation to update any forwardlooking statements.
Registered of ce: Essar Energy plc 3rd Floor East Wing Lansdowne House 57 Berkeley Square London W1J 6ER T: +44 (0) 20 7408 8760
Head of ce: Essar Energy plc 6th Floor DCDM Building 10 Frere Felix de Valois Street Port Louis Mauritius T: +230 202 3136
www.essarenergy.com

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Essar Energy Annual Report 2012

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Essar Energy plc Annual Report and accounts 2012

Essar Energy plc Annual Report and accounts 2012

BUSINESS REVIEW GOVERNANCE FINANCIAL S TAT E M E N T S

Appendix 1 Appendix 2 Appendix 3 Glossary Shareholder information page

Essar Energy plc Annual Report and accounts 2012

Essar Energy at a glance

515 MW 500 MW 120 MW 380 MW 510 MW 270 MW 120 MW

+ Rening and Marketing

1. Vadinar renery 20 mmtpa

+ Exploration and Production

Essar Energy plc Annual Report and accounts 2012

Oil and Gas Rening and Marketing India

BUSINESS REVIEW GOVERNANCE

Oil and Gas Rening and Marketing UK

Oil and Gas Exploration and Production

Power Generation and Transmission

Essar Energy plc Annual Report and accounts 2012

Essar Energy plc Annual Report and accounts 2012

C O M PA N Y OVERVIEW BUSINESS REVIEW GOVERNANCE FINANCIAL S TAT E M E N T S

Essar Energy plc Annual Report and accounts 2012

Chief Executive Ofcers review

Essar Energy plc Annual Report and accounts 2012

C O M PA N Y OVERVIEW BUSINESS REVIEW GOVERNANCE FINANCIAL S TAT E M E N T S

Indian energy demand growth remains high

Indian Government continuing growthagenda

Essar Energy plc Annual Report and accounts 2012

A tough year, but growth outlook remains positive.

C O M PA N Y OVERVIEW BUSINESS REVIEW GOVERNANCE FINANCIAL S TAT E M E N T S

Our strategy and business model

Optimise performance of allexisting assets

Low capital costs

Essar Energy plc Annual Report and accounts 2012

Low operating costs

Long-term purchase agreements

GOVERNANCE FINANCIAL S TAT E M E N T S

Meeting Indias growing energy needs

Essar Energy plc Annual Report and accounts 2012

Our strategy in action

Exploration and Production

India Rening and Marketing

India Rening and Marketing

UK Rening and Marketing

Essar Oils non-fuel retail offering

Essar Energy plc Annual Report and accounts 2012

Key performance indicators

C O M PA N Y OVERVIEW BUSINESS REVIEW

Operational EBITDA (US$m) -3%

15 Months 2012 400

(Loss)/Prot before Tax (US$m) 414%

Essar Energy plc Annual Report and accounts 2012

Oil and Gas

Rening and Marketing India

Divisional performance indicators

15 months 2012 12 months 2010

Operational EBITDA Capex spent (US$m) +1% (US$m) +27%

15 months 2012 12 months 2010 12 months 2009*

12 months 2009* 0 100 200 300 400 500 600

Essar Energy plc Annual Report and accounts 2012