Essar Oil Limited BOARD OF DIRECTORS (As on 30th August, 2007)

Shashi Ruia Ravi Ruia Prashant Ruia Anshuman Ruia Awadhesh N. Sinha Hari L. Mundra Suresh Mathur Dilip J. Thakkar K. N. Venkatasubramanian Dr. G. Goswami N.S. Kannan Sanjeev Ghai V. K. Sinha

Chairman Vice Chairman

Dy. Managing Director & Director (Finance) Wholetime Director

Nominee of IDBI Ltd. Nominee of ICICI Bank Ltd. Nominee of IFCI Ltd. Nominee of LIC of India
Sheikh S Shaffi

COMPANY SECRETARY BANKERS

ICICI Bank Ltd. IDBI Bank Ltd. State Bank of India Punjab National Bank Indian Overseas Bank Oriental Bank of Commerce Syndicate Bank

Indian Bank State Bank of Patiala Bank of Baroda HDFC Bank Ltd. Central Bank of India Allahabad Bank State Bank of Saurashtra

AUDITORS
M/s. Deloitte Haskins & Sells, Mumbai

TRANSFER AGENTS
M/s. Sharepro Services (India) Pvt. Ltd. Unit: Essar Oil Limited Satam Estate, 3rd Floor Above Bank of Baroda Cardinal Gracious Road Chakala, Andheri (East) Mumbai - 400 099 Tel.: 022-28215168 Fax: 022-28375646 Email: sharepro@vsnl.com Website:http://www.shareproservices.com

REGISTERED OFFICE
Khambhalia Post, Post Box No. 24 Dist.: Jamnagar - 361 305, Gujarat Tel.: 02833 - 241444 Fax: 02833-241616 / 241414 E-mail : eolinvestors@essar.com

CORPORATE OFFICE
Essar House Post Box No. 7945 11, Keshavrao Khadye Marg, Mahalaxmi, Mumbai - 400 034 Tel.: 022-66601100 Fax : 022-24954281 Website : http://www.essar.com

SHARES LISTED AT
Bombay Stock Exchange Ltd. National Stock Exchange of India Ltd. 1st Floor, Rotunda Bldg., P.J. Towers Dalal Street, Mumbai - 400 023 Exchange Plaza, 5th Floor, Plot No. C/1 G Block, Bandra-Kurla Complex Bandra (E), Mumbai - 400 051

NOTICE
NOTICE is hereby given that the Seventeenth Annual General Meeting of the members of ESSAR OIL LIMITED will be held at the Registered Office of the Company at Khambhalia Post, (40 th Km. stone on Jamnagar-Okha Highway) Dist.: Jamnagar - 361305, Gujarat on Saturday, the 29th September, 2007 at 11:30 a.m. to transact, with or without modifications, as may be permissible, the following business: ORDINARY BUSINESS: 1. To receive, consider, approve and adopt the Balance Sheet as at 31st March, 2007, the Profit & Loss Account for the financial year ended on that date and the reports of the Board of Directors and Auditors thereon. 2. To appoint a Director in place of Shri Ravikant N Ruia who retires from office by rotation and being eligible, offers himself for reappointment. 3. To appoint a Director in place of Shri Awadhesh N Sinha who retires from office by rotation and being eligible offers himself for reappointment. 4. To appoint M/s. Deloitte Haskins & Sells, Chartered Accountants, Mumbai, as Auditors to hold office from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and to authorise the Board of Directors to fix their remuneration. SPECIAL BUSINESS: 5. To consider and, if thought fit, to pass the following resolution as a Special Resolution: RESOLVED THAT in accordance with the provisions of sections 81, 81(1A) and other applicable provisions, if any, of the Companies Act, 1956 and enabling provisions of the Memorandum and Articles of Association of the Company, the Listing Agreements entered into by the Company with the Stock Exchanges, where the shares of the Company are listed and in accordance with the guidelines issued by the Government of India (GOI), the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and / or any other competent authorities and clarifications thereof, issued from time to time, and subject to such approvals, permissions, consents and sanctions as may be necessary from the GOI, RBI, SEBI and/or any other competent authorities and subject to such conditions and modifications as may be prescribed or imposed by any of them while granting such approvals, permissions, consents and sanctions, which may be agreed to by the Board of Directors of the Company (hereinafter referred to as the Board which term shall include any committee constituted / to be constituted by the Board for exercising the powers conferred on the Board by this resolution), the consent of the Company be and is hereby accorded to the Board to create, offer, issue and allot, in one or more tranches, outside India, with or without premium, denominated in any foreign currency, such number of optionally/ compulsorily convertible/redeemable Foreign Currency Convertible Bonds (FCCBs) and / or Global Depository Receipts (GDRs) and / or American Depository Receipts (ADRs) and / or Fully / Partially Convertible Bonds / Loans and / or any other instruments / securities in the nature of Shares and / or warrants, naked or otherwise, convertible into Shares or otherwise, either in registered or bearer forms, and / or any such security convertible into equity shares with face value of Rs.10/- each or otherwise (hereinafter referred to as financial instruments) or any combination of the financial instruments in the International Market, aggregating to an amount not exceeding USD750,000,000/- (United States Dollars seven hundred fifty million only) to Essar Energy Holdings Limited (formerly Prime Finance Company Limited), Mauritius, the existing Promoters and/or its associates / nominees / group companies/ persons acting in concert, whether or not they are members of the Company, on preferential issue basis, to the extent and in the manner as may be decided by the Board in this behalf. RESOLVED FURTHER THAT : i. The equity shares issued upon conversion of financial instruments, so issued and allotted shall rank paripassu with the existing equity shares of the Company;

ii. For the purpose of giving effect to this resolution, the Board be and is hereby authorised to do all such acts, deeds, matters and things as the Board may, in its absolute discretion, consider necessary, proper, expedient, desirable or appropriate for making the said issue as aforesaid and to settle any question, query, doubt or difficulty that may arise in this regard including the power to allot under subscribed portion, if any, in such manner and to such persons(s) as the Board, may deem fit and proper in its absolute discretion to be most beneficial to the Company. 6. To consider and if thought fit to pass the following resolution as an Ordinary Resolution: RESOLVED THAT pursuant to the provisions of Section 293(1)(a) and all other applicable provisions, if any, of the Companies Act, 1956 and in partial modification of the earlier resolutions passed at the Extraordinary General Meeting of the Company held on 4th October, 1994, the Ninth Annual General Meeting of the Company held on 2nd July, 1998 and at the Extraordinary General Meeting of the Company held on 17th September, 2003, consent of the Company be and is hereby accorded to the Board of Directors of the Company, including any committee thereof, for creating mortgages and/or charges, hypothecation, pledge and/or any other encumbrances on such terms and conditions and at such time(s) and in such form and manner as it may think fit, on all or any of the movable or immovable properties of the Company, wheresoever situated, both present and future or the whole or substantially the whole of any one or more of
1

Essar Oil Limited

the Companys undertaking(s) in favour of all or any of the financial institutions, banks, lenders, financiers, trustees, investing agencies, bodies corporate, corporations, foreign institutional investors, any other person(s)/entities, or any combination of the above to secure rupee loans, foreign currency loans, debentures, bonds, convertible loans, fully/partly paid convertible / nonconvertible bonds, any other securities / instruments, financial assistances or any other debt instruments (by private placement basis or otherwise) of an equivalent aggregate amount not exceeding Rs.25,000 Crore (Rupees twenty five thousand crore only) in Indian Rupees and / or in Foreign Currency together with interest thereon at the respective agreed rates, compound interest, additional interest, liquidated damages, commitment charges, premia on pre-payment or on redemption, Debenture/Security trustees remuneration, costs, charges, expenses and all other monies payable by the Company to the aforesaid parties or any of them under the agreements entered into / to be entered into by the Company in respect of the said loans, debentures, bonds, financial assistances and / or other instruments. RESOLVED FURTHER THAT the mortgages and / or charges, hypothecation, pledge and/or any other encumbrances to be created by the Company as aforesaid may rank pari passu with the mortgages and/or charges, hypothecation, pledge and/or any other encumbrances already created and/or to be created in future by the Company or in such other manner and ranking as may be thought expedient by the Board of Directors and as may be agreed to between the concerned parties. RESOLVED FURTHER THAT the Board of Directors of the Company be and is hereby authorised to finalise with any or all of the aforesaid parties, the documents, agreements, undertakings, bonds and writings for creating the mortgages / charges / hypothecation / pledge and/or any other encumbrances and accepting or making any alterations, changes, variations to or in the terms and conditions, and to do all such acts, deeds, matters and things and to execute all such documents, agreements, undertakings, bonds and writings as it may consider necessary, proper, desirable, appropriate or expedient for the purpose of giving effect to this resolution and to resolve any question, query, doubt or difficulty relating thereto or otherwise considered by the Board of Directors to be in the best interest of the Company. 7. To consider and if thought fit to pass the following resolution as an Ordinary Resolution: RESOLVED THAT pursuant to the provisions of Section 293(1)(d) and other applicable provisions, if any, of the Companies Act, 1956 and Articles 96 and 99 of the Articles of Association of the Company and in partial modification of the earlier resolutions passed at the Extraordinary General Meetings of the Company held on 4th October, 1994 and 17th September, 2003, the Company hereby accords its consent to the Board of Directors for borrowing or continuing to borrow any sum or sums of money, from
2

time to time, from any one or more of the Companys bankers and/or financial or investment institutions and/or from anyone or more other persons, firms, entities, bodies corporate, companies, whether by way of cash credit, advance or deposits, loans or bill discounting or otherwise and whether unsecured or secured, and if secured by mortgage, charge, hypothecation or lien or pledge or any other encumbrances of the Companys assets and properties whether movable or stock-in-trade (including raw materials, stores, spare parts and components in stock or in transit) including uncalled capital and work-inprogress and all or any of the undertakings of the Company notwithstanding that the moneys to be borrowed together with moneys already borrowed by the Company (apart from temporary loans obtained from the Companys bankers in the ordinary course of business) will or may exceed the aggregate of the paid-up capital of the Company and its free reserves, that is to say, reserves not set apart for any specific purpose but, so however, that the total amount upto which the moneys may be borrowed by the Board of Directors and outstanding at any time shall not exceed the sum of Rs. 25,000 Crore (Rupees Twenty Five Thousand Crore only) over and above the aggregate of the paid up share capital of the Company and its free reserves. By Order of the Board of Directors Mumbai 30th August, 2007 Registered Office: Khambhalia Post, P. O. Box 24, Dist.: Jamnagar-361 305, Gujarat NOTES: 1. A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of himself and the proxy need not be a member of the Company. The proxy, in order to be effective, must be deposited at the Registered Office of the Company not less than 48 hours before the commencement of the meeting, i.e. before 11:30 a.m. of 27th September, 2007. 2. The Register of Members and Share Transfer Books of the Company will remain closed from Friday, the 28th day of September, 2007 to Saturday, the 29 th day of September, 2007 (both days inclusive). 3. All documents referred to in the accompanying Notice are open for inspection at the Registered Office of the Company on all working days, except Saturdays, Sundays and Bank holidays, between 11:00 a.m. and 1:00 p.m. upto the date of the Annual General Meeting. 4. Members / proxies should bring the attendance slip duly filled in for attending the meeting. 5. Members desiring any information with regard to Accounts/ Reports are requested to write to the Company at least SHEIKH S. SHAFFI Company Secretary

ten days before the date of the meeting, so as to enable the management to keep the information ready. 6. Directors retiring by rotation: Shri Ravikant N Ruia, Vice Chairman, belongs to the generation of industrialists who has played a significant role in strengthening Indias industrial renaissance. An engineer by training, his entrepreneurial abilities have enabled the Essar Group to be one of the leading corporate houses of India, with a current asset base of over USD10 billion. The Groups interests span the core sector industries of Steel, Energy, Power, Communications, Shipping & Logistics and Construction. He is 58 years old. The other companies in which Shri R N Ruia is a Director are: Consolidated Fabrics Ltd., Copper Canyon Holdings Ltd., Energy II, Essar Global Ltd., Essar Infrastructure Holdings Ltd., Essar Investments Ltd., Essar Power Ltd., Essar Shipping Ltd., Essar Steel Ltd., Essar Steel Caribbean Ltd., Essar Steel Caribbean Holdings Ltd., Essar Steel (Hazira) Ltd., Essar Steel Sharjah FZE, Energy Transportation Ltd., Grand Pinnacle Investments Ltd., Grand Richmond Investments Ltd., Vodafone Essar Ltd., India Securities Ltd., International Fabrics Ltd., Primus Group Invest Ltd., Zeni Group Invest Ltd., Essar Minerals St. Lucia Ltd. He does not hold any shares in the Company. Shri R N Ruia retires by rotation at the Annual General Meeting and offers himself for reappointment. Shri Awadhesh N Sinha was the Managing Director & CEO of the Company for a period of three years from 31st January, 2004 to 30th January, 2007. Since then he is on the Board as Non Executive Director. He has done MSc and MBA in Marketing. He is 69 years old and has over 47 years experience in the oil and gas industry. In his career he has been associated with IOC for over 30 years where he headed various positions and rose to the level of Executive Director and a Board member of IOBL - a subsidiary of IOC. He has also served as Chief Executive (Marketing) with Essar Oil and President (Business Development) of Reliance Petroleum. Before joining Essar Oil as Managing Director & CEO he was with ONGC. The other companies in which Shri A N Sinha is a Director are: Essar Pipelines Ltd. and Petronet India Ltd. He is a member of Banking & Finance Committee, Investors Relations Committee and Committee of Directors (Capital Issues) of the Board. He does not hold any shares in the Company. Shri A N Sinha, retires by rotation at the Annual General Meeting and offers himself for reappointment. Shri Hari L Mundra, Dy. Managing Director & Director (Finance) retires by rotation at the Annual General Meeting and does not offer himself for reappointment. 7. The Explanatory Statements pursuant to section 173(2) of the Companies Act, 1956 relating to the Special Business mentioned in Item Nos. 5 to 7 of the accompanying Notice are annexed.

ANNEXURE TO NOTICE Explanatory Statements pursuant to section 173(2) of the Companies Act, 1956 Item No. 5 The Company is implementing a 10.5 million metric tonne per annum Oil Refinery at Vadinar, District Jamnagar in State of Gujarat. Trial runs of certain units of the Refinery have commenced and the Refinery at full capacity (Base Refinery) is expected to be commissioned shortly. It is proposed to expand the refining capacity of the Refinery to 16 MMTPA. The expansion of refinery would enable the Company to process heavy and sour crudes while improving the product slate substantially. Simultaneously, the refinery is also being upgraded to meet the Euro III and Euro IV product specifications proposed to be implemented from 2010. The Gross Refining Margins of the refinery will improve significantly upon completion of the expansion and upgradation project. The proposed expansion project entails an expenditure of USD 1180 million, which is proposed to be funded through a mix of equity, internal accruals and debt. In terms of approval received from the members at the 15th Annual General Meeting held on 30th September, 2005, USD 78 million have been brought in through issue of Global Depository Shares (GDSs). Now for funding the expansion of the Refinery, meeting any shortfall in funding / escalation in the cost of the expansion and for other general corporate requirements, infusion of additional equity of upto USD 750 million is envisaged. Accordingly, the Company proposes to offer outside India such number of FCCBs and/or GDRs and/or ADRs and/or Convertible Bonds and/or any other financial instruments convertible into equity shares of face value of Rs.10/- each or otherwise in one or more tranches to Promoter Company viz; Essar Energy Holdings Limited and/or its associates/ nominees/Group companies/persons acting in concert on preferential issue/allotment basis for an amount not exceeding USD750 million (United States Dollars seven hundred fifty million only). In terms of The Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulation, 2000 [FEM(TISPRO) Regulations], the Relevant Date for the determination of applicable price for the issue of equity shares upon conversion of any financial instruments is 30th August, 2007. In terms of Section 81(1A) of the Companies Act, 1956, consent of the members is required by passing Special Resolution in General Meeting for allotment of further equity shares to any person other than the existing share holders. At the time of conversion of convertible securities into equity shares, the Company will ensure compliance with conditions of continuous listing of the listing agreement entered into with Stock Exchanges. Consent of the members is therefore sought to authorise the Board of Directors to create, offer, issue and allot FCCBs and/or ADRs and/or GDRs and/or other convertible financial
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Essar Oil Limited

instruments and upon conversion, issue and allot equity shares, in the manner setout in Item No. 5 of the Notice. The Directors accordingly recommend the resolution at Item no. 5 for your approval. Shri S N Ruia, Shri R N Ruia, Shri P S Ruia and Shri A S Ruia, Directors of the Company, may be treated as concerned or interested in the resolution 5. None of the other Directors is concerned or interested in the resolution. Item Nos. 6 and 7 Presently, the Board of Directors can borrow an amount not exceeding Rs.20,000 crore over and above the paid up capital and free reserves and create security in the form of mortgages and/or charges, hypothecation, pledge or any other encumbrances on the assets of the Company upto Rs.20,000 Crs. The amount already borrowed and the funds to be borrowed in future, is expected to exceed the above limit. To meet the various operational requirements of the Company including part financing cost of the expansion and upgradation of the Refinery, meeting various working capital requirements and Marketing and Exploration & Production activities, it is necessary to increase the limit up to Rs.25,000 crore. In terms of Section 293(1)(a) of the Companies Act, 1956, the members approval is required to create mortgages and/ or charges, hypothecation, pledge or any other encumbrances on the assets of the Company. The resolution setout at item no. 6 of the Notice will enable the Company to create mortgage in favour of one or more of the lenders and / or financiers and / or trustees to the issue of secured debt instruments in respect of borrowings for an amount not exceeding Rs.25,000 Crore. Further, section 293(1)(d) of the Companies Act, 1956 stipulates that approval of the members is required for borrowings in excess of paid-up share capital and free reserves of the Company. The Directors accordingly recommend the resolutions at item nos. 6 and 7 for your approval. None of the Directors of the Company is in any way concerned or interested in the resolutions. By Order of the Board of Directors Mumbai 30th August, 2007 Registered Office: Khambhalia Post, P. O. Box 24, Dist. Jamnagar-361 305, Gujarat SHEIKH S. SHAFFI Company Secretary

DIRECTORS REPORT
To the Members of Essar Oil Limited Your Directors have pleasure in presenting the Seventeenth Annual Report together with the audited accounts of the Company for the financial year ended March 31, 2007. FINANCIAL RESULTS (Rs. in crore) Gross Income Gross Profit / (Loss) Less: Depreciation Profit / (Loss) before Income Tax Less: Provision for Income Tax /Foreign Tax / Deferred Tax Liability / Fringe Benefit Tax Net Profit / (Loss) Add: Balance brought forward from previous year Add: Transfer from Foreign Project Reserve Total amount available for appropriations Less: Appropriations (a) Foreign Projects Reserve (b) Debenture Redemption Reserve (c) Transfer to General Reserve (d) Proposed Dividend Balance to be carried to Balance Sheet 2006-2007 484.37 (50.04) 4.51 (54.55) 12.94 (67.49) 7.71 39.51 (20.27) (20.27) 2005-2006 699.22 (87.39) 4.66 (92.05) 1.63 (93.68) 82.89 18.50 7.71 7.71 provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (iv) that the Directors have prepared the accounts for the financial year ended 31st March, 2007 on a going concern basis. CORPORATE GOVERNANCE In terms of clause 49 of Listing Agreement with the Stock Exchanges, a certificate from Auditors of the Company on compliance of conditions of Corporate Governance is annexed to the Directors Report as Annexure C. A report on Corporate Governance as provided in clause 49 of the listing agreement is included in the Annual Report. PARTICULARS OF EMPLOYEES Information as per section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, is given in the Annexure forming part of this Report. However, as per the provisions of section 219(1)(b)(iv) of the said Act, the Report and Accounts are being sent to all shareholders of the Company excluding the statement of particulars of employees u/s 217(2A) of the said Act. Any shareholder interested in obtaining a copy of this statement may write to the Company Secretary, for the same, at the Registered Office of the Company. ENERGY, TECHNOLOGY AND FOREIGN EXCHANGE The particulars as prescribed under section 217(2)(e) of the Act read with the Companies (Disclosures of Particulars in the Report of Board of Directors) Rules, 1988 are setout in Annexure A to this Report. Particulars relating to Foreign Exchange outgo and earnings appear in Note No. B(11) of Schedule XVII to the Annual Accounts. FIXED DEPOSITS Your Company has not accepted any deposits from public under section 58A of the Companies Act, 1956 during the financial year under report. SUBSIDIARY COMPANY As required under section 212 of the Companies Act, 1956, the audited statements of accounts along with the report of the Board of Directors and the Auditors Report thereon of the subsidiary company, Vadinar Power Company Limited, for the financial year ended 31st March, 2007 are included in the Annual Report. CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Financial Statements of the Company and its subsidiary, Vadinar Power Company Limited, prepared in accordance with Accounting Standard AS-21 on Consolidated Financial Statements form part of the Annual Report. AUDITORS AND AUDITORS REPORT M/s. Deloitte Haskins & Sells, Chartered Accountants, Mumbai, Auditors of the Company hold office until the conclusion of the ensuing Annual General Meeting. M/s. Deloitte Haskins & Sells, Chartered Accountants, Mumbai, have informed the Company that, if appointed, their appointment will be within the limits prescribed under section 224(1B) of the Companies Act, 1956. Accordingly, the members approval is being sought to their appointment as the Auditors of the Company at the ensuing Annual General Meeting. The observations of the Auditors in the Audit Report are explained wherever necessary in the appropriate notes to accounts and are self explanatory. ACKNOWLEDGEMENT The Board wishes to express appreciation and place on record its gratitude for the faith reposed in and co-operation extended to the Company by the Government of India, State Governments, various Government Agencies / Departments, Financial Institutions, Banks, Customers, Suppliers and Investors of the Company. Your Directors place on record their appreciation of the dedicated and sincere services rendered by the employees of the Company. For and on behalf of the Board of Directors HARI L MUNDRA Dy. Managing Director & Director (Finance) P S RUIA Director

INCREASE IN THE SHARE CAPITAL During the year, the paid up capital of the Company increased from 108,35,77,314 equity shares of Rs.10/- each to 113,95,30,638 equity shares of Rs.10/- each upon issue of 5,59,53,324 equity shares of Rs.10/- each to the overseas depository for Global Depository Shares (GDSs) on allotment of GDSs aggregating to USD78 million to Promoters on preferential issue basis pursuant to approval granted by the shareholders at the 15th Annual General Meeting held on 30th September, 2005. The issue proceeds have been utilised for the implementation of the Refinery Project. INFORMATION ON STATUS OF COMPANYS AFFAIRS Information on operational and financial performance, status of construction activities at project site, etc. is given in the Management Discussion and Analysis which is setout as Annexure B to the Directors Report and has been prepared in compliance with the terms of clause 49 of the Listing Agreement with Stock Exchanges. DIRECTORS Shri Awadesh N. Sinha was functioning as Managing Director and CEO upto 30th January, 2007 and thereafter he is continuing as Non Executive Director on the Board. During the year Shri V. K. Sinha was appointed as Nominee Director of Life Insurance Corporation of India. Shri Ravikant N Ruia and Shri A. N. Sinha retire by rotation at the ensuing Annual General Meeting and offer themselves for re-appointment. Shri Hari L. Mundra retires at the Annual General Meeting and does not offer himself for reappointment. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to the provisions of section 217(2AA) of the Companies Act, 1956, it is hereby confirmed: (i) that in the preparation of the accounts for the financial year ended 31st March, 2007, the applicable accounting standards have been followed along with proper explanation relating to material departures; (ii) that the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period; (iii) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the

Mumbai 30th August, 2007

Essar Oil Limited

Annexure A to the Directors Report
STATEMENT OF PARTICULARS UNDER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988
FORM A A) Power and Fuel Consumption: 1 Electricity (a) Purchased Unit (000 KWH) Rate /Unit Total Amount ( Rs in Lakh) (b) Own Generation (i) Through Diesel Generator Unit ( 000 KWH) KWH per litre of diesel oil Cost / Unit ( Rs./KWH) (ii) Through Steam Turbine/Generator Unit ( 000 KWH) KWH per litre of Fuel Oil/ Gas Cost / Unit ( Rs./KWH) (c) Electricity Consumed ( a+b) ( 000 KWH) 2 3 Coal (specify quality and where used) Furnace Oil/ other Liq fuels-Purchased Quantity ( MT) Amount ( Rs. In Lakhs) Average Rate ( Rs./MT) Others/From Internal Generation Fuel (i) Fuel Gas Unit ( MTs) Amount ( Rs. In Lakhs) Average Rate ( Rs./MT) (ii) Liquid Fuel-FO Unit ( MTs) Amount ( Rs. In Lakhs) Average Rate ( Rs./MT) 2006-2007 *

A. CONSERVATION OF ENERGY a) Energy Conservation measures taken: Your Company maintains its thrust on fuel conservation right from the design and commissioning stage. Including commissioning fuel, total fuel & loss during the year was 4.95%, which is an achievement. State of the art technology has been adapted for accurate measurement e.g. Radar-gauges for crude oil & heavy product storage tanks and mass flow meters for product dispatches. Dedicated energy group has been set-up at the refinery for close monitoring and improvement of energy performance. Energy conservation measures are under constant focus of the management and all efforts are being made to become a pace-setter refinery through continuous improvement. Energy conservation features have been incorporated in the design of plant itself. Some of the important features of the Refinery are: Low level heat recovery (Crude column overhead Vs. Crude) Use of compressors for crude column overhead gases & operation of crude column at low pressure. Use of low pressure steam for Vacuum column Ejectors. Use of Vacuum Hydro-circulating system in the Dryer of DHDS. b) Additional Investments and Proposals, if any, being implemented for energy conservation: Certain units of refinery have been commissioned recently. Energy conservation efforts are given high priority. Elaborate energy accounting system is in place which is reviewed periodically. Once all the facilities are commissioned, energy conservation study for bench-marking in the performance will be undertaken by a reputed international agency. c) Impact of the measures at (a) and (b) above for reduction of energy consumption and consequent Impact on the cost of production of goods: Impact will be assessed once the refinery is operated at full throughput with associated secondary processing facilities. d) Total energy consumption and energy consumption per unit of production as per Form A is attached hereto: B. TECHNOLOGY ABSORPTION The Refinery has adapted the following technologies for deriving the latest technological advances: Crude/Vacuum Distillation Unit : ABB Lummus Crest, Netherlands Visbreaker Unit Catalytic Reforming Unit Diesel Hydro-desulphurization Unit : Axens, France Stone & Webstar, USA Fluidized Catalytic Cracking Unit : : Axens, France : Axens, France

27,122.00 6.99 1,896.00 N.A.

72,326.00 1.24 4.86 99,448.00 N.A. 16,665.00 2,947.23 17,685.15

7,782.16 1,285.85 16,523.00 64,065.70 8,789.81 13,720.00

Total Liquid Fuel - Purchased+Own Generation (MT) 80,730.70 B Consumption Per Unit of Production: Unit 2006-2007 * (i) Actual Production (MTs)1,662,500.00 (ii) Consumption per MT of Production - Electricity (Purchased+Generated) KWH/MT 59.82 - Liquid Fuel (FO/LSHS/NAPHTHA) (Purchased + Internal Generation) MT/MT 0.05 - Fuel Gas MT/MT 0.00 * Note : Certain units of Refinery commissioned trial production during the year starting from November, 2006 and hence there are no corresponding figures for the previous financial year 2005-2006. FORM B TECHNOLOGY ABSORPTION The Company is making investment in Research and Development and planning to carryout the following activities in coming year: Future plan of action Studies on fuel oil blending properties evaluation for various cutter stock combinations. To establish new laboratory facilities/equipment for Visbreaker vacuum residue and Fuel oil stability testing To set up TBP testing apparatus for characterization of various crudes/ Crude blends in the Laboratory New product development like Carbon Black Feed Stocks, Rubber Processing Oils, etc. Expenditure on R & D A. Capital : Rs. 525 Lacs B. Recurring : Rs. 50 Lacs C. Total : Rs. 575 Lacs D. Total expenditure as percentage of total turnover : Negligible

Annexure B to the Directors Report

MANAGEMENT DISCUSSION AND ANALYSIS

Industry Outlook As the global demand for energy continues to grow, oil is expected to remain the main determinant of world economic growth in the foreseeable future. OPEC has indicated that based on a global economic growth rate of 3.5% per annum (purchasing power parity basis), the demand for oil is set to rise to 118 million barrels per day by 2030 from the current level of 85 million barrels per day. The transportation sector is expected to be the main demand driver as more and more developing countries are expected to grow in terms of commercial vehicle and passenger car volumes. The non transportation sector will also grow, mainly in the developing nations of Asia and Africa, as petrochemical industry takes stronger roots there. Based on the projections of demand for petroleum products, the total investment in refinery processing by the year 2020 is estimated to be around USD 450 billion including the cost of capacity expansion, new projects and ongoing maintenance and replacement. The Asia Pacific region will require the highest level of investments with China accounting for a major portion. Environmental regulations will also play a critical role in terms of technology as well as product quality specifications of end products. The search for alternative fuels, though gathering pace and usage is not expected to have a significant impact on the demand for oil and its end products. Almost the entire reserves in the world of easy oil have already been found and are being exploited. Those which are now increasingly being made available are difficult oil difficult in geographical reach stretching logistics and sour, heavy and acidic which are difficult to refine and more difficult to manage environmentally. The opportunity for your Company to increase refining capacity based on the above scenario is exciting. The need for ultra clean transport fuels to meet stringent environmental specifications for petroleum products is an opportunity that new refineries based on contemporary technology can take advantage of. These technologies offer not only product quality and specifications to the most stringent standards, but are also able to deal with heavier or highly sour crude. This enables maximum utilisation of crude input and allows for production of the most stringent end products translating into higher margins. The Indian Scenario The consumption of petroleum products in India during the year under review stood at 119.85 million metric tonnes (MMT), an increase of 5.9 % as compared to the previous year, contributed by growth in demand for transport fuels. However, many refineries, especially those in the private sector are exporting petroleum products as global demand continues to be robust. Against domestic refining capacity of close to 150 MMTPA and consumption of around 120 MMTPA, the country continues to have surplus refining capacity. With several refineries planning capacity expansion, the surplus is expected to continue. Exports of petroleum products have reached a level of 32.4 MMT during the year under review. There are some strong reasons for private refineries in India looking outside their domestic markets and exporting a fair proportion of their products to protect their margins. Although international prices have being rising, domestic prices were not allowed to be increased and this has had a substantial adverse impact on the profitability of the oil marketing companies during 2006-07, given the fact that domestic production of crude oil was only 31.5 MMT against imports of 111 MMT during this year. The sharp increases and more critically the wide fluctuations in crude oil prices in the last two years have made it virtually impossible for oil marketing companies to sustain margins. In spite of severe constraints in feeding their retail outlets with products, the private marketing organisations added over 700 outlets last year. Despite all efforts to convince Government to bring about a level playing field, these companies do not receive the kind of Governmental support that Public sector companies get in the form of Oil Bonds. The private sector oil marketing companies had made aggressive marketing efforts and in the last two years had gained a market share of close to 12% in a market dominated by the public sector. The Governments discriminatory approach in favour of public sector oil companies (by subsidising retail prices) has now resulted in the market shares of the private oil marketing companies dwindling to a mere 2%. The Rangarajan Committee, constituted by the Government to look into various aspects of pricing and taxation of petroleum products, submitted its report in February 2006. The Committee has given recommendations relating to the pricing of MS, HSD, domestic LPG and SKO for supply through the Public Distribution System. Besides, it has also recommended restructuring of excise duties to make it a pure specific levy, instead of the current Ad valorem. Some of these recommendations have already been implemented, including the change in the basis of pricing of petrol and diesel from import parity to trade parity and reduction in customs duty from 10% to 7.5% on these products. This has, however, failed to make any significant impact on the under recoveries in the domestic marketing of transportation fuels. Marketing Retail sales Your Company is faced with an extremely challenging situation in relation to expansion of its retail outlets. However, as a long-term strategy and in the hope that the anomaly in pricing has to find a correction in the near future, your Company has strengthened its retail network to 1178 (as on March 31, 2007) from 700 last year. Your Company has managed to reduce the impact of anomaly in pricing by higher prices in certain markets to contain demand coupled with a suitable compensation package for fanchisees to compensate lower thruput through their outlets. We operate on the principle of quality, optimum cost and reasonable operating returns and in the current adverse context, the low cost franchisee based model we have chosen for our retail business is considered the most appropriate. The emphasis during the year was on selective network expansion and standardization. Your Company commissioned 513 new retail outlets, representing 16% of the 3200 new retail outlets commissioned by the industry during 2006-2007. Direct sales The year 2006-2007 has been a year of diversification for the Direct Sales business as, for the first time, the Company commenced marketing of Furnace Oil, from the refinery in the domestic market. The Company also commenced sale of LPG to PSUs from the refinery. It is pertinent to note that your Company is not allowed to sell these products directly since they are subsidised and can be sold only to the public sector companies. A number of new initiatives were undertaken during the year in the area of customer service and technical support. These initiatives are expected to help retain the existing customers and facilitate tying up of new business. Intense competition and aggressive marketing by the Public Sector and private marketers will, however, continue to be the order of the day. Your Company is seeking a level playing field between the PSUs and the private sector and has made representations to the Government for further liberalization and deregulation of the industry and restoration of a market determined pricing mechanism. This will enable the industry to invest in world class refining, retailing and exploration facilities and ensure the integration of India with the global Hydrocarbon industry. In this endeavour, we are one with other oil companies in the private sector like Reliance Industries Limited and Shell. The Refinery Your Directors are proud to report that 2006-2007 will be remembered as the landmark year in which the primary units of the refinery commenced trial operations along with various utilities and offsite facilities. This was achieved in November 2006 when crude was introduced into the crude and vacuum distillation units, the refinerys primary process facility. This was followed by the trial start-up of the Vis-breaker in January and the Continuous Catalytic Reformer and the Naphtha Hydro Treator in February. Construction of the balance units of the Refinery is at an advanced stage. The major challenge facing the project team was in securing timely delivery of materials and equipment as a consequence of very strong world-wide construction activity which has resulted in delay in commissioning of the balance units. We expect the balance units to be commissioned in the next quarter. In response to changes in current and forecasted product demand patterns, the refinerys processing capability has been adjusted to maximize production of middle distillates (Aviation Turbine Fuel and diesel). This change will ensure that the refinery will be positioned at the upper end of the gross refinery margin range when full operation is achieved. To further optimize performance, the creation of additional treating capability, storage facilities and coastal despatch facilities are being expedited and construction is well underway. Construction of the GAIL pipeline for LPG from our Refinery to their existing Jamnagar-line System is also well underway providing us this most cost effective transportation mode to the high growth demand centres in North India. During the trial run till 31st March, 2007 the Refinery produced 1.32 million metric tonnes of finished petroleum products. The expenses relating to trial runs are being capitalised pending completion of the Project.

Essar Oil Limited

Quality Assurance Your company has a state-of-the-art laboratory which is well-equipped to monitor the quality of intermediate streams and certify the quality of final products before dispatch. It tests all samples from the consumer end to provide quality assurance. This Lab is well on its way to getting ISO accredition. The laboratory is staffed by a highly skilled and experienced team that provides round the clock support to operations. It has been inspected and certified by DGCA (Director General of Civil Aviation). As of 31st March, 2007, the laboratory had certified, without a single error over a Million tonnes of shipped product and over 10,000 road tanker loads of product. International Supply and Trading Oil prices were strong in the last year due to a number of reasons like robust world economic growth, supply disruptions, and geopolitical tensions. Dated Brent was stronger by over USD 6 per barrel over the last year averaging about USD 64.14 per barrel. Global oil demand growth however slowed slightly to 0.8 mbpd in 2006 from 1.2 mbpd in 2005. The premium for light products over fuel oils remained high, favouring complex refineries over less complex sites. Product quality continued to tighten worldwide; this is one of the last stages to virtual elimination of sulphur from transportation fuels. Crude price movement of the past year can be divided into two distinct time periods viz. July to January and February onwards. In the first period, prices reached an all time high of USD 78.64 in July followed by a move to a low of USD 50.75 in January. For the past three years, oil prices have regularly dropped in this period by significant amounts. In the second period, prices retraced to its highs. The first crude oil cargo for your company arrived at our SBM on 6th September, 2006. During the financial year, the Company contracted 26 mbls of crude oil on spot basis. Most of these grades were contracted from the West African and Mediterranean region. The Company exported 8 mbls of product valued around USD 517 million from the trial runs of some of the units. Our export markets are mainly in Far East Asia, Europe, Africa, Middle East and the US Gulf Coast. Your Company has also commenced risk management activity and are judiciously hedging crude imports, product exports and foreign exchange. With the commissioning of the FCCU and DHDS during 2007-2008, our crude diet and product specifications will change substantially. The Company will be able to process sour, heavy and acidic grades and will explore the possibilities of terming up crude contracts through an optimum mixture of spot and term cargoes. The Company is already exploring new export markets for product evacuation. The aim will be to term up an optimum percentage of our product cargoes to mitigate off take risks. With the inclusion of more VLCC shipments and Middle Eastern crudes our freight bills are also expected to reduce considerably. The combination of rising consumption, the continued effects of production cuts by members of the OPEC, and only modest increases in non-OPEC production is expected to pull the inventories down. Consequently, the prices are expected to remain strong. World oil consumption is projected to grow by 1.3 million bbl/d. But, slowdown in economic growth in the US may contribute towards weakening of oil prices. Upstream Activities Upstream oil and gas sector continues to be buoyed by high international crude oil and gas prices driven by astronomical growth in the emerging economies. Accordingly, market sentiment continues to be very positive for the Exploration & Production business worldwide. However, intense competition for resources has led to increased costs across all areas of manning, equipment and exploration and development services. In the Indian context, several public and private sector companies and international companies are actively pursuing opportunities in oil and gas, as the Government continues to encourage investment in exploration activity. The Government conducted bidding rounds NELP-VI and CBM-III successfully, for award of acreage for exploration. NELP-VII is expected to be announced around September 2007. Your Company has 11% participating interests in Mehsana (Gujarat) block. Commercial production has just commenced and further exploration activity in the same block continues in Phase II. A Consortium comprising your Company (with 10% Participating Interest) and other parties was awarded two new blocks in the Assam (Arakan basin) under NELP-VI round of bidding. Your Company expects to receive the long awaited final approval for the Production Sharing Contract (PSC) shortly for the Ratna and R Series Fields from the Government of India, in which the Company has a 50% share with ONGC having 40% and Premier Oil 10%. Premier Oil, the field Operator in our existing exploration Block in Cachar District, Assam is currently drilling an exploratory well (Masimpur-3) where your Company has a 16% carried interest. The Company has almost completed a program of drilling 12 core-wells in CBM Block, Raniganj East in West Bengal, where it has 10% participating interest. This has resulted in delineation of an area of about 100 sq. kms. where existence of adequate gas resources has been established. Your Company will next undertake test drilling in this area to establish commercial reserves. Your Company has a 25% carried participating interest in one onshore and one offshore exploration block in Myanmar, operated by Essar Exploration & Production South East Asia Limited (EEPSEAL). Seismic acquisition has been completed in both blocks. Data is currently under processing and interpretation to establish drilling locations in each block. EEPSEAL will next undertake drilling of wells, expected to commence by year end 2007. Planning for the future Your Company has begun the implementation of the up-gradation of base refinery by addition of the following units i.e. Delayed Coker, VGO Hydrotreater, second Diesel Hydrotreater (High Pressure), ATF Hydrotreater and three small units Amine Regeneration Unit, Sour Water Stripper Unit and ATF Merox Units. This will enable the Refinery to process very heavy and sour crudes to produce products meeting exacting current international standards. In petroleum terminology this would translate into increasing the Nelsons complexity index from 6 to 12". Simultaneously, the Company would also be de-bottlenecking the primary units (CDU/VDU) which will increase the refining capacity to 16 MMTPA. All these actions are expected to have a significant positive impact on margins. World renowned Technology providers and consultants, UOP have completed the configuration study with the objective of processing heavy, sour crudes to produce international quality petroleum products while expanding minimum energy and protecting and preserving our environment. Your Company has already executed contracts with key process licensors (UOP, Jacobs and ABB) who have made significant strides in completing the Basic Engineering work for these Units. Contracts have also been executed for Detailed Engineering, Procurement of Equipment and Construction of the Refinery, and the Contractors have received firm bids for equipment with long lead delivery periods. The cost of the proposed expansion and up-gradation is estimated at USD1.2 billion and is proposed to be funded with a debt to equity of 2.85:1. The Company has targetted to complete the expansion project by December 2009. Financial Highlights Your Company earned a total income of Rs 484.37 crore in the twelve months ended 31st March 2007 as against Rs 699.22 crore in the twelve months ended March 31, 2006. The under-recoveries in the marketing of transport fuels on account of Governments retail pricing policy forced the Company to further curtail its sales during the year, resulting in steep decline in total income. This has helped your Company to contain the loss before tax excluding nonrecurring other income to Rs. 64.94 crore in the twelve months ended 31st March, 2007 as against Rs 154.64 crore in the corresponding period last year. Internal Control System Your Company has a proper and adequate internal control system commensurate with its size and nature of operations to provide reasonable assurance that its assets are safe guarded against significant misuse or loss. This is effectively supported by SAP, a Enterprises Resources Planning software, through which the Company ensures that all material business transactions are properly authorized, recorded and reported. Further, the utilization of funds for the Refinery project and its progress continues to be monitored by an independent and reputed accounting firm and by an international engineering firm respectively on behalf of the lenders. The Company has a proper budgetary control system to monitor capital related as well as other costs, against approved budget on an ongoing basis. The significant observations made by internal auditors and other agencies on the control system and procedures are reviewed and remedial measures taken, wherever required. These are periodically brought to the notice of the Audit and Governance committee for their review and recommendations, if any. Human Resources Your Company views its employees as valuable resources and important stakeholders in the growth, prosperity and development of the organization. The Company is committed to creating an appropriate climate, opportunities and systems to facilitate identification, development and utilization of their full potential. Various talent management initiatives like motivational campaigns, Employee Assistance Programs, family bonding activities etc., have been undertaken to promote a stress-free environment to enable employees to enhance their efficiency and productivity and at the same time enjoy a better quality of life. There were 1542 employees, mostly professionally qualified, on the rolls of the Company as on 31st March, 2007. As a part of the HR planning process, your Company has developed well-established systems for identifying training

and development needs for the benefit of the individual as well as the organization. Further, a learning forum has been initiated to foster collective thinking and development. A coaching and mentoring initiative has recently been launched as part of building careers as well as tomorrows leaders. Essa Oil recently opened the Essar Learning Center at Vadinar which caters to the technical as well as behavioral training requirements at the Refinery. Safety, Health and Environment Your Company is committed to creating a work environment free of injuries and incidents. This is manifested by the considerable human and physical resources devoted to this endeavour. It is therefore with regret that we have to report that a fire occurred in the terminal project area in January 2007 in which six people died and fifteen others were hospitalized. Your Company ensured that the injured received the very best care and we are pleased that all have been discharged from hospital. A comprehensive, independent investigation into the incident was conducted and management continues to ensure the implementation of all recommendations. Safety, health, fire and environment management systems were enhanced through the year. The refinerys fire fighting systems (both fixed and mobile) were commissioned, proven and brought into service. The occupational health centre was started and is currently providing both proactive and reactive health services to all employees and contractors. It is equipped with the latest diagnostic equipments. Work place inspections and audits are being performed to a defined schedule to both monitor conformance to the refinerys procedures as well as identify improvement opportunities. Your Company has obtained all environmental clearances and compliance reports are being submitted regularly to the concerned authorities. Further, it is matter of great satisfaction to inform you that the Expert Appraisal Committee (Ministry of Environment & Forests), at its February meeting, cleared both the expansion of the base refinery and the development of a world-scale petrochemical complex, with associated increase in power generation capacity. A comprehensive green-belt has already come up well on the refinery site. During the year another 193 acres were added, bringing the total to 600. In doing so, over 100000 trees have been planted, bringing the total to date to over 280,000. The concept of an eco-park was conceived, developed and endorsed. This will be a unique feature for an industrial facility that will provide a habitat for many local animal and bird species and a focal point for school and other tours.

Corporate Social Responsibility As a part of its social obligation, your Company contributes to the development and well being of neighbouring rural communities through a variety of programmes. These range from the provision of basic necessities such as drinking water, education and health services through to aiding growth in prosperity by employment of locals and support of local businesses. Some major initiatives are outlined below: ponds were deepened in two villages to collect more of the monsoon rains for drinking purposes over 1200 tankers of potable water were supplied to villages two school buildings have been renovated over 155,000 kg of fodder have been supplied to surrounding villages Around 12,000 local villagers have been treated in our mobile clinic, 500 people attended the four eye camps that were organized during the year and 1450 school bag kits were distributed to school newcomers. In addition to above, employment opportunities have been provided to locals who have the necessary skills and experience. As a result, a large percentage of our staff are natives of Gujarat and specifically, Jamnagar. Local industry and contractors have been contracted to execute construction projects in the Refinery. We are pleased to state that your Companys contributions to social responsibility are well appreciated by the District Administration, Health Authorities and the State Government. Cautionary Statement Certain words and statements in this Management Discussion and Analysis are forward looking statements based on numerous assumptions regarding your Companys present and future business strategies and the environment in which your Company will operate in the future. The important factors that could cause actual results, performance or achievements to differ materially from such forward-looking statements include, among others, changes in demand and supply, government policies or regulations, political and economic development within and outside India and, in particular, changes relating to the administration of oil and gas industry. For and on behalf of the Board of Directors HARI L MUNDRA Dy. Managing Director & Director (Finance) P S RUIA Director

Mumbai 30th August, 2007

Annexure C to the Directors Report

AUDITORS CERTIFICATE
To The Members of Essar Oil Limited We have examined the compliance of conditions of Corporate Governance by Essar Oil Limited (the Company), for the year ended 31st March, 2007 as stipulated in clause 49 of the Listing Agreement entered into by the said company with stock exchanges in India. The compliance of conditions of Corporate Governance is the responsibility of the Management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of the Corporate Governance as stipulated in the said clause. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above-mentioned Listing Agreement. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the Management has conducted the affairs of the Company. For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Membership No. 31544 Mumbai, 30th August, 2007

Essar Oil Limited CORPORATE GOVERNANCE REPORT

1. Companys philosophy on Corporate Governance Your Company believes that adhering to global standards of Corporate Governance is essential to enhance shareholder value and achieve long term corporate goals. The Companys philosophy on Corporate Governance stresses the importance of transparency, accountability and protection of shareholder interests. The Board conducts periodic review of business plans, monitors performance and compliance to regulatory requirements. 2. Board of Directors The composition of the Board of Directors and other required details are given below:
Name Category No. of Board meetings attended Nil Nil 2 1 5 6 Whether attended last AGM No No No No Yes Yes No. of other directorships Held # 9 8 11 12 2 4 Committee Membership Member Chairman 1 1 3 4 2 3 Nil Nil Nil Nil Nil Nil

Shri R N Ruia and Shri A N Sinha retire by rotation and being eligible seek re-appointment at the ensuing Seventeenth Annual General Meeting (AGM) Shri Hari L. Mundra retires at the AGM and does not offer himself for reappointment. A brief resume of the Directors retiring by rotation along with nature of their expertise and details of other directorships, committee positions held by them and their shareholdings in the Company have been disclosed to the shareholders through Notes annexed to the Notice for the AGM. 3. Code of Conduct for Directors and Senior Management The Company has adopted a Code of Conduct (Code) for Directors and Senior Management personnel one level below the Executive Directors including all Functional Heads. The Code has been posted on the Companys website. The Directors, Senior Management and Functional Heads have affirmed compliance with the Code. A declaration to this effect signed by the Dy. Managing Director & Director (Finance) is annexed to the Annual Report. 4. Audit & Governance Committee The Audit & Governance Committee comprises 4 members viz: Shri D J Thakkar, Shri P S Ruia, Shri K N Venkatasubramanian and the nominee of ICICI Bank Limited, Shri N S Kannan. All the members of the Committee are financially literate. Shri D J Thakkar, a qualified Chartered Accountant, chairs the meetings of the Committee. The constitution and terms of reference of the Committee are set out in compliance with the requirements of section 292A of the Companies Act, 1956 and clause 49 of the Listing Agreement. During the financial year 2006-2007, the Committee met seven times. Shri D J Thakkar and Shri K N Venkatasubramanian attended all seven meetings and Shri N S Kannan attended 4 meetings. The Statutory Auditors, Internal Auditors, the Managing Director & CEO, the Dy. Managing Director & Director (Finance), Wholetime Director, the Chief Financial Officer and the Vice-Presidents (Finance & Accounts) are invited to attend the meetings of the Committee. The Company Secretary of the Company acts as the Secretary to the Committee. 5. Remuneration Committee The Remuneration Committee comprises 4 nonexecutive, Independent Directors as members viz: Shri K N Venkatasubramanian, Shri D J Thakkar, the Nominee Director of ICICI Bank Ltd., Shri N S Kannan and the Nominee Director of IDBI Ltd., Dr. G Goswami. Three meetings of the Committee were held during the financial year 20062007. All the meetings were attended by Shri K N Venkatasubramanian, Shri D J Thakkar and Dr. G Goswami. Shri K N Venkatasubramanian chaired the meetings. The terms of reference of Remuneration Committee include review, determination, increase / decrease and approval of remuneration, determination of terms of appointment, companys policy for specific remuneration packages etc. for the Executive and other Directors, etc. and sitting fee payable to Directors other than the Executive Directors. Remuneration to Directors Non- Executive Directors The Non Executive Directors do not draw any remuneration from the Company except for sitting fees. The Non Executive Directors are paid sitting fees at the rate of Rs.7,500/- for attending each meeting of the Board of Directors and Rs.5,000/- for attending each meeting of Committees thereof. The sitting fees paid to the Directors for the year ended 31st March, 2007 are as follows: Shri P S Ruia: Rs.65,000/-; Shri A S Ruia: Rs.7,500/-; Shri D J Thakkar: Rs.3,45,000/-; Shri K N Venkatasubramanian: Rs.1,20,000/-; Dr. G Goswami: Rs.70,000/-; Shri N S Kannan: Rs.42,500/- (paid to ICICI Bank Ltd.); Shri Sanjeev Ghai: Rs.30,000/- (paid to IFCI Ltd.); Shri V K Sinha: Rs.7,500/- (paid to LIC of India); Shri S N Gogate: Rs.15,000/-; and Shri K Sridhar:Rs.7,500/-. Shri K N Venkatasubramanian has been paid professional charges of Rs.25,000/- during the year being the Chairman for declaring the outcome of a resolution sent to the shareholders for seeking their

Shashikant N Ruia [Chairman] Ravikant N Ruia [Vice Chairman] Prashant S Ruia Anshuman S Ruia Awadhesh N Sinha 1 Hari L Mundra [Dy. Managing Director & Director (Finance)] Suresh Mathur [Whole time Director] Dilip J Thakkar Non-Executive K N Venkatasubramanian G Goswami N S Kannan Sanjeev Ghai Shri V K Sinha 2 K Sridhar 3 Sriram N Gogate 4

Promoter Non Executive Promoter Non Executive Promoter Non Executive Promoter Non Executive Non-Executive Executive

Executive Independent Independent Non-Executive Nominee of IDBI Ltd.* Nominee of ICICI Bank Ltd. * Nominee of IFCI Ltd.* Nominee of LIC of India * Nominee of LIC of India * Nominee of Debenture Trustees, WITECO

5 6 6 6 3 4 1 1 2

Yes Yes Yes Yes No No N.A. N.A. N.A.

2 10 9 8 3 4 Nil 3 Nil

Nil 9 3 6 1 3 Nil 2 Nil

Nil 5 1 Nil Nil Nil Nil Nil Nil

# * 1. 2. 3. 4.

Excluding directorship in Private Limited Companies and Foreign Bodies Corporate. Nominees appointed by Lenders Managing Director & CEO upto 30th January, 2007 and thereafter as Non Executive Director. Appointed as Nominee Director of LIC of India w.e.f. 30th October, 2006. Ceased to be Director w.e.f. 30th June, 2006. Ceased to beDirector w.e.f. 31st July, 2006. Six Board Meetings were held during the financial year 2006-2007 on 28th April, 2006; 30th June, 2006; 31st July, 2006; 28th August, 2006; 30th October, 2006 and 30th January, 2007. The management of the Company was conducted by the Managing Director & CEO, Shri A N Sinha upto 30th January, 2007. Subsequently, Shri Hari L Mundra, Dy. Managing Director & Director (Finance) has been handling the day to day operations of the Company. The Managing Director and thereafter the Dy. Managing Director has been assisted by the Wholetime Director and other Heads of Divisions / Departments, subject to the supervision and control of the Board of Directors.

10

approval by Postal Ballot. Executive Directors During the financial year 2006-2007 remuneration paid to the Executive Directors was as under: (Amount in Rs.)
Shri Awadhesh N Sinha, Managing Director & CEO Basic Salary Allowances & Perquisites Retirement benefits Total Service contract Notice period Severance fee 2,990,323 7,643,075 358,839 10,992,237 3 years from 31.01.2004 3 months N.A. Shri Hari L Mundra, Dy. Managing Director & Director (Finance) 3,600,000 6,097,080 972,000 10,669,080 4 years from 31.10.2003 3 months N.A. Shri Suresh Mathur Wholetime Director 1,200,000 6,007,500 7,207,500 From 04.04.2006 to 31.08.2008 3 months N.A.

ballot for seeking voluntary delisting of equity shares of the Company from Bombay Stock Exchange Limited and National Stock Exchange of India Limited in accordance with notice received from Essar Energy Holdings Limited, a Promoter company, declaring their intention to delist equity shares of the Company. The procedure adopted for the above referred postal ballot is setout below: The Board of Directors at its meeting held on 30th January, 2007 authorised the Dy. Managing Director and the Company Secretary to conduct the postal ballot process and appointed Shri Prakash Pandya, Practicing Company Secretary as scrutinizer for conducting the voting process. Posting of the Notice along with the Postal Ballot form to the members commenced on 7th February, 2007 and got completed on 9th February, 2007. The last date for receipt of postal ballot forms was 12th March, 2007. The scrutinizer submitted his report to the Chairman appointed for declaring the postal ballot outcome, Shri K N Venkatasubramanian on 15th March, 2007. Based on the scrutinizers report the results of the Postal Ballot were declared on 15th March, 2007 at the Registered Office of the Company. The resolution has been passed with a majority of 99.06% of votes cast in favour of the resolution. Presently there are no proposals to pass any resolution by postal ballot. 8. Disclosures i. The Company does not have any material related parties transactions which have potential conflict with the interest of the Company at large. Transactions with related parties are disclosed in Note no.B(34) of Schedule XVII to the Annual Accounts forming part of the Annual Report. The financial statements have been prepared in accordance with the accounting policies generally accepted in India. In compliance th with clarificatory orders dated 4th August, 2006 and 11 August, 2006 issued by Honble Gujarat High Court interest on restructured debentures has been accounted on cash basis details whereof are setout in Note no.B(13)(b) of Schedule XVII to the Annual Accounts forming part of the Annual Report. Regarding certain funded interest facilities and lease transaction to give effect to the substance of the transations, the Company has followed the principles laid down in International Accounting Standards and US GAAP, as detailed in note no.B(13)(a) and B(18) of schedule XVII to the Annual Account forming part of the Annual Report, in the absence of specifice guidance under Indian GAAP. iii. There were no instances of non-compliance on any matter related to the capital markets, during the last three years except in respect of the following: a) Trading in shares of the Company was suspended by BSE th on 13 March, 2003, for non-payment of listing fees. On payment of outstanding dues, trading resumed under Z th category with effect from 24 May, 2004. On representation from the Company, the scrip was shifted to B2 category with th effect from 19 July, 2004. b) Securities and Exchange Board of India (SEBI) had in 2003, initiated adjudication proceedings against the Company for alleged failure to resolve the complaints mainly from debenture holders about non-receipt of interest / principal amount. Schemes of Arrangement / Compromise with debenture holders have been sanctioned by the Honble Gujarat High Court and the complaints stand resolved under the sanctioned schemes. The Adjudicating Officer has by order passed on 15th December, 2006 disposed the proceedings without any adverse pronouncement against the Company. iv. The Company has implemented the mandatory requirements of Corporate Governance as set out in the Listing Agreement with Stock Exchanges. In respect of compliance with the non-mandatory requirements, the Company has constituted a Remuneration

During the financial year, the entire amount paid to the Executive Directors represents fixed component of their salaries and no amounts were paid as performance linked incentives. The resolutions appointing these directors do not provide for stock option. In terms of the applicable provisions of the Companies Act, 1956, due to inadequacy of profits during the preceding financial year ended 31st March, 2006, approvals have been obtained from the Central Government for appointment and payment of remuneration to the Executive Directors. As on 31 March, 2007, Shri D J Thakkar and Shri K N Venkatasubramanian held 300 shares and 8000 shares in the Company respectively. None of the other directors held any shares in the Company. 6. Investors Relations Committee The Investors Relations Committee comprises 4 members viz: Shri P S Ruia, Shri Awadhesh N Sinha, Shri Hari L Mundra and Shri D J Thakkar. Shri D J Thakkar generally chairs the meetings. During the financial year 2006-2007, the Committee had 36 meetings. Shri D J Thakkar was present at all meetings, Shri P S Ruia attended 9 meetings, Shri A N Sinha attended 16 meetings and Shri Hari L Mundra was present at 32 meetings. The Company Secretary, Shri Sheikh S Shaffi, is the Compliance Officer. There were 358 complaints from share / debenture holders pending at the beginning of the financial year. During the financial year, 5,184 complaints were received and 5,386 complaints were replied to / resolved. As of 31st March, 2007, 156 complaints were pending, which were replied to / resolved within a period of one month. As on 31st March, 2007, 75 requests involving transfer of 12,020 shares and 9 requests involving transfer of 650 debentures were pending to be processed. These pending requests are less than eight days old. 7. General Body Meetings (a) Annual General Meetings The date, time and venue of the last three Annual General Meetings and special resolutions passed at the meetings are given below:
Financial Year 2005-2006 2004-2005 2002-2003
th

st

ii.

Date 29 September, 2006 30th September, 2005 25th September, 2004

Time 2:30 p.m. 11:30 a.m. 3:00 p.m.

Venue Khambhalia Post, Dist. Jamnagar Khambhalia Post, Dist. Jamnagar Khambhalia Post, Dist. Jamnagar

Special resolutions passed 1 5 5

All resolutions including the Special Resolutions are generally passed by show of hands. (b) Postal ballot During the year, one special resolution was passed through postal

11

Essar Oil Limited

Committee details whereof are given under the heading: Remuneration Committee. The quarterly and half-yearly financial results are put up on the Companys website, besides being available on SEBI website www.sebiedifar.nic and being published in English and Gujarati newspapers. The auditors observations/ suggestions, if any, have been adequately explained wherever necessary in the appropriate notes to accounts and are self explanatory. v. The Company has a Risk Management Policy Framework for risk identification, assessment and control to effectively manage risks associated with the business of the Company. As stated in paragraph 7 above, a special resolution was passed through postal ballot for seeking voluntary delisting of equity shares of the Company from Bombay Stock Exchange Limited and National Stock Exchange of India Limited in accordance with Notice received from Essar Energy Holdings Limited (EEHL) a Promoter Company, declaring their intention to delist equity shares of the Company. Public announcement in terms of SEBI (Delisting of Securities) Guidelines, 2003 from EEHL is awaited. vi. Stock Codes : Trading Symbol Bombay Stock Exchange Limited National Stock Exchange of India Limited ISIN with NSDL and CDSL Equity shares 6% Non Convertible Debentures of Rs. 105/- each redeemable on 31.12.2009 (Option 3A) [Rs. 25/- per debenture redeemed during the year 9.25% Non Convertible Debentures of Rs. 105/- each redeemable on 20.04.2016 (Option 1) 500134 ESSAROIL INE011A01019

9.

Means of Communication i. Quarterly / annual financial results are regularly submitted to Stock Exchanges in accordance with the Listing agreement and published in all editions of English daily, viz. The Financial Express/ Business Standard and in a Gujarati daily, Jai Hind. The quarterly/ annual results are also made available at the website of the Company www.essar.com. Management Discussion and Analysis Report, in compliance with the requirements of Clause 49 of the Listing Agreement with Stock Exchanges, is annexed to the Directors Report which forms part of this Annual Report being sent to all the members of the Company.

INE011A07032 INE011A07065

ii.

iii. The consolidated financial statements of the Company and its subsidiary, Vadinar Power Company Limited, form part of this Annual Report. iv. The quarterly / annual financial statements along with Corporate Governance reports, Shareholding pattern, Annual Report and other documents in compliance with the requirements of Listing Agreement entered into with Stock Exchanges, are made available on the website for Electronic Data Information Filing and Retrieval System (EDIFAR) maintained by SEBI and National Informatics Centre. 10. General Shareholder Information i. AGM date, time and venue 29th September, 2007, at 11:30 a.m. at Registered Office of the Company, Khambhalia Post, Post Box No. 24, Dist. Jamnagar 361305. Approval of the results In the following month of the for the quarter ending quarter ending 30 th June, 2007; 30 th September, 2007; 31st December, 2007; and 31st March, 2008. Audited annual results Before 30th June, 2008 for the year ending 31st March, 2008 iii Date of Book closure 28th September, 2007 to 29th September, 2007 (both days inclusive) N. A.

6% Non Convertible Debentures of Rs.105/- each (Option 3B) bearing ISIN INE011A07040 were redeemed on 31st December, 2006. vii. Stock Market price data for the financial year 2006-2007 High / Low of daily closing market price of the Companys shares traded at NSE and BSE during each month in the financial year ended 31st March, 2007 are as under: Month Year NSE (in Rs. per share) High April May June July August September October November December January February March 2006 2006 2006 2006 2006 2006 2006 2006 2006 2007 2007 2007 73.25 77.40 49.95 47.35 53.25 57.15 59.15 57.25 54.70 63.40 62.00 55.90 Low 41.00 44.40 33.20 37.40 40.20 52.55 54.45 48.80 44.10 53.95 54.10 51.40 BSE (in Rs. per share) High 73.05 77.35 49.90 47.35 53.25 57.00 59.10 57.25 54.55 63.20 61.95 55.90 Low 40.95 44.35 33.20 37.40 40.20 52.50 54.35 48.85 44.30 53.85 54.15 51.50

ii.

Financial calendar

viii. Performance of share price in comparison to BSE 100 :

iv. v.

Dividend payment date

Listing of equity shares on Stock Exchanges : The equity shares of the Company are listed at Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange of India Ltd. (NSE). The shares are available for trading in the Futures and Options (F&O) segment by NSE. In compliance with the provision of SEBI (Delisting of Securities) Guidelines, 2003, the shares of the Company were delisted from Calcutta Stock Exchange Association Ltd. with effect from 25th January, 2007, as the shares were infrequently traded and trading volume was negligible at this stock exchange. The Company has paid listing fees, as applicable to the Stock Exchanges.

ix. Share Transfer Agent: M/s. Sharepro Services (India) Pvt. Ltd. is the Share Transfer Agent of the Company. The Share Transfer Agent acknowledges and executes transfers of securities and arranges for issue of dividend / interest warrants. The Share Transfer Agent also accepts, deals with and resolves complaints of shareholders and debentureholders. x. Share Transfer System: The Companys shares are traded on the Stock Exchanges compulsorily in demat mode. Physical shares, which are lodged for transfer with the Transfer Agent are processed and returned to the shareholders within a period of 1520 days.

12

xi. Distribution of shareholding as on 31st March, 2007: No. of Shares Upto 500 501 1000 1001 2000 2001 3000 3001 4000 4001 5000 5001 10000 10001 and above Total No. of Shareholders 322330 9278 2926 789 340 314 407 344 336728 95.73 2.76 0.87 0.23 0.10 0.09 0.12 0.10 100.00 % No. of Shares 45203357 7324901 4474831 2036826 1245580 1500285 3046770 1074698088 1139530638 3.97 0.65 0.39 0.18 0.11 0.13 0.26 94.31 100.00 %

xii. Dematerialisation of shares: As on 31 March, 2007, 97.58% of the Companys total shares, i.e.1,111,969,979 shares were held in dematerialized form and 2.42% comprising 27,560,659 shares were held in physical form. xiii. Outstanding GDRs/ADRs/Warrants or any Convertible instruments, conversion date and likely impact on equity: 5,126,708 Global Depository Shares (GDSs) represented by 784,386,324 equity shares were outstanding as on 31st March, 2007. Each GDS represents one hundred fifty three (153) equity shares. There were no warrants or other convertible instruments outstanding as at the year end. xiv. Plant Location: The Refinery Project of the Company has

st

Shareholding pattern as on 31st March, 2007 : Sl. Category no. I Promoters a. Promoter and Promoter Group b. Depository for GDSs Sub-total II Non-Promoters a. FIs. and Banks b. Mutual Funds and UTI c. Foreign Institutional Investors d. Private Corporate Bodies e. Indian Public f. NRIs and OCBs Sub-total TOTAL No. of shares Percentage

commenced trial production and the same is located at Khambhalia Post, Dist. Jamnagar361 305, Gujarat. The Refinery is soon going to commence commercial production at full capacity. xv. Address for communication: For any assistance, request or

21,79,81,874 78,43,86,324 100,23,68,198 55,61,256 40,84,200 4,53,70,211 1,39,30,951 6,56,31,353 25,84,469 13,71,62,440 113,95,30,638

19.13 68.83 87.96 0.49 0.36 3.98 1.22 5.76 0.23 12.04 100.00

instruction regarding transfer or transmission of shares and debentures, dematerialization of shares/debentures, change of address, non-receipt of annual report, interest warrant and any other query relating to the shares and debentures of the Company, please write to the following address: M/s Sharepro Services (India) Pvt. Ltd., Unit: Essar Oil Limited, Satam Estate, 3 Floor, Above Bank of Baroda, Cardinal Gracious Road, Chakala, Andheri (East), Mumbai 400 099. Phone: 91-22-28215168, Fax: 91-22-28375646, Email address: sharepro@vsnl.com For any assistance, share/debenture holders may write to the Company at the following e-mail ID exclusively designated for the purpose: eolinvestors@essar.com
rd

Declaration by Dy. Managing Director & Director (Finance)

I, Hari L Mundra, Dy. Managing Director & Director (Finance) of Essar Oil Limited hereby declare that all the Board members and Senior Executives one level below the Executive Directors including all Functional Heads have affirmed for the financial year ended 31st March, 2007 compliance with the Code of Conduct of the Company laid down for them.

30th August, 2007

Hari L Mundra Dy. Managing Director & Director (Finance)

Persons constitution Group coming within the definition of group as defined in the Monopolies Restrictive Trade Practices Act, 1969 for the purpose of inter-se transfer of shares of the Company under regulation 3(1)(e)(i) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Sr. no. 1. 2. 3. 4. 5. 6. 7. 8. 9. Name of Body corporate Essar Global Limited Essar Infrastructure Holdings Limited Essar Steel Holdings Limited Essar Energy Holdings Limited Essar Logistics Holdings Limited Vadinar Oil Asia Pacific Markets Limited Asia Pacific Corporation Limited Asia Pacific Enterprises Limited Sr. no. 10. 11. 12. 13. 14. 15. 16. 17. Name of Body corporate Asia Pacific Far East Limited Essar Investments Limited Teletech Investments (India) Limited ETHL Global Capital Limited Hazira Steel 2 Essar Steel Limited Essar Shipping Limited Reclame Commercial & Securities Private Limited

13

Essar Oil Limited

AUDITORS REPORT TO THE MEMBERS OF ESSAR OIL LIMITED 1. We have audited the attached balance sheet of Essar Oil Limited (the Company) as at 31st March, 2007, and also the statement of profit and loss and the cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As required by the Companies (Auditors Report) Order, 2003, issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order. Further to our comments in the Annexure referred to above, we report that: (i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; (ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books. Attention is invited to note (iv) (b) below; (iii) The balance sheet, statement of profit and loss and cash flow statement dealt with by this report are in agreement with the books of account; (iv) In our opinion, the balance sheet, statement of profit and loss and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; (a) Attention is invited to note B (13) (a) of schedule XVII to the financial statements detailing the state of Master Restructuring Agreement and reasons for following principles laid down in International Financial Reporting Standard (IAS) 39 (Revised) - Financial Instruments - Recognition and Measurement and Statement of Financial Accounting Standard (SFAS) 15 Accounting by Debtors and Creditors for Troubled Debt Restructuring under United States Generally Accepted Accounting Principles (US GAAP) in respect of part of the funded interest facilities; (b) Attention is invited to note B (13) (b) of schedule XVII to the financial statements with regard to following cash basis of accounting pursuant to the Court Order in respect of funded / accrued interest on debentures amounting to Rs 355.45 crores as at balance sheet date, pertaining to the Refinery Project under construction and payable at various future dates as per the scheme of arrangement and compromise between the Company and its scheme lenders; and (c) Attention is also invited to note B (21) of schedule XVII to the financial statements detailing the reasons for following principle of recognizing the finance lease upon commencement of the lease in accordance with International Financial Reporting Standard (IAS 17) Leases in the absence of specific guidance in Indian Generally Accepted Accounting Principles for recognition of leases in case the assets taken on lease are under construction and fair value of Capital Workin-Progress cannot be measured reliably. (v) On the basis of written representations received from the directors and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007, from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; (vi) Further to our remarks above, in our opinion and to the best of our information and according to the explanations given to us, the said financial statements give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India and where accounting principles generally accepted in India do not provide specific guidance in a situation, in conformity with the principles laid down in related International Financial Reporting Standard (IFRS) and / or United States Generally Accepted Accounting Principles (US GAAP): (a) in the case of the balance sheet, of the state of affairs of the Company as at 31st March, 2007; (b) in the case of the statement of profit and loss, of the loss for the year ended on that date; and (c) in the case of the cash flow statement, of the cash flows for the year ended on that date. For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Membership No. 31544

2.

3.

4.

Mumbai, 30th August 2007

Annexure to the Auditors Report to the members of Essar Oil Limited [referred to in paragraph (3) thereof] In our opinion and according to the information and explanations given to us, the nature of the Companys business / activities during the year are such that clauses (xii), (xiii), (xiv), (xviii) and (xx) of the Companies (Auditors Report) Order, 2003, are not applicable to the Company. 1. In respect of its fixed assets: a. The Company has generally maintained proper records showing full particulars, including quantitative details and situation of fixed assets except that the Company is in the process of allotting identification particulars and updating the location records in respect of certain fixed assets. b. Some of the fixed assets were physically verified during the year by the management in accordance with a programme of verification, which in our opinion provides for physical verification of all the fixed assets at reasonable intervals having regard to the size of the Company and the nature of its assets. As per the information given to us by the management, no material discrepancies as compared to book records were noticed in respect of fixed assets verified during the year. c. The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company. In respect of its inventories: a. As explained to us, inventories were physically verified during the year by the management at reasonable intervals. b. In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management were generally reasonable and adequate in relation to the size of the Company and the nature of its business. c. In our opinion and according to the information and explanations given to us, the Company has maintained proper records of its inventories and no material discrepancies were noticed on physical verification. The Company had granted one interest free unsecured loan to a company covered in the register maintained u/s 301 of the Companies Act, 1956, in earlier years. The maximum amount involved in respect of the above loan during the year was Rs. 23.40 crores while the year end balance was Rs. nil. The Company has taken loans / advance for the purpose of the Refinery Project from three companies listed in the register maintained under Section 301 of the Companies Act, 1956. The amount of loans / advances taken during the year is Rs. 901.66 crores (including funded

2.

3.

14

4.

5.

6.

7.

8.

9.

interest Rs. 7.86 crores). The maximum amount involved during the year was Rs. 838.19 crores and the closing balance is Rs. 513.32 crores. The payments of principal or interest on loans taken, where applicable, are regular. In our opinion and according to the information and explanations given to us, the rates of interest and other terms and conditions of the loans granted and taken are not, prima facie, prejudicial to the interest of the Company. In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. The internal control system with regard to reconciliation and updating of records needs to be further strengthened to be commensurate with the growing size of the Company and nature of its business in respect of purchases of fixed assets and capital equipment / materials. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls. In our opinion and according to the information and explanations given to us, there are no contracts or arrangements that need to be entered into the register maintained in pursuance of Section 301 of the Companies Act, 1956. In our opinion and according to the information and explanations given to us the Company has not accepted any public deposits within the meaning of Section 58A and 58AA of the Companies Act, 1956, or any other relevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. No Order has been passed by the Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal. In our opinion, the internal audit function carried out during the year by in-house internal audit department appointed by the management is commensurate with the size of the Company and nature of its business. The Central Government has prescribed for the maintenance of cost records in respect of manufacture of petroleum products of the Company under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956. However, as the Companys Refinery Project is under construction/ trial run, in the view of the management based on an expert opinion, the requirements of Section 209 (1) (d) of the Companies Act, 1956 are not currently applicable to the Company. In respect of statutory dues: a. According to the information and explanations given to us, the Company has been generally regular in depositing undisputed statutory dues, including Provident Fund, Investor Education and Protection Fund, Income Tax, Sales tax, Wealth Tax, Custom Duty, Excise duty, Cess and any other material statutory dues, as applicable, with the appropriate authorities during the year except for certain dues in respect of Service Tax, Works Contracts Tax, Tax deducted at source under Income Tax Act, 1961, Non Agricultural Land Assessment Tax and interest thereon. Further, since the Central Government has till date not prescribed the final rate of Cess payable under Section 441A of the Companies Act 1956, we are not in a position to comment upon the regularity or otherwise of the Company in depositing the same. As explained to us, the provisions of Employees State Insurance are not applicable to the Company during the year. According to the information and explanations given to us and as per records of the Company, the extent of the arrears of the undisputed statutory dues which were outstanding, at the year end for a period of more than six months from the date they became payable are as under: Name of statute Amount Period to (Rs. in which the Crores) amount relates Income Tax Tax 0.01 July and Act, 1961. Deducted at August, Source on 2006 commission Mumbai Land Non 0.75 August Revenue Agricultural 2005 to Act, 1879. Land July 2006 Assessment Tax Nature of the dues Due Date Date of Payment

b.

According to the information and explanations given to us, details of disputed Customs Duty which has not been deposited as on 31st March, 2007 on account of any dispute are given below: Name of statute Nature of the dues Amount Period to (Rs. in crores) which the amount relates 0.17 March,2000 Forum where dispute is pending CESTAT

Customs Act,1962

Customs duty, penalty and interest thereon

0.01 January, 2001 Hon. Supreme Court

According to the information and explanations given to us, there were no disputed amounts in respect of Income Tax, Wealth Tax, Sales Tax, Service Tax, Excise Duty and Cess as on 31st March, 2007. 10. The accumulated losses in the statement of profit and loss of the Company are not more than fifty per cent of its net worth at the end of the financial year. The Company has incurred cash loss during the year and also in the immediately preceding financial year. 11. In our opinion, according to the information and explanations given to us, and taking into consideration the terms of Master Restructuring Agreement (MRA) entered into with the financial institutions and banks pursuant to Corporate Debt Restructuring package approved under RBIs Corporate Debt Restructuring scheme (CDR scheme) and the terms of the approved schemes of arrangement with the debenture-holders and the scheme lenders, the Company has not defaulted in the repayment of dues to banks, financial institution and debenture holders except that loans of Rs 306.34 crores (including interest of Rs 56.82 crores) to the banks not covered by MRA for the period May, 2002 to March, 2007 are in the process of being restructured in accordance with stipulations in the CDR scheme. 12. In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company for the loans taken by others from banks and financial institutions, are not, prima facie, prejudicial to the interests of the Company. 13. To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, term loans availed by the Company were, prima facie, applied by the Company during the year for the purposes for which the loans were obtained, other than temporary deployment pending application. 14. According to the information and explanations given to us, and on an overall examination of the balance sheet of the Company, following funds raised during the year on short term basis have been used for long term investment as bridge funding: a) short term loan of Rs. 15 crores raised (which has fully been repaid during the year); b) acceptances of bills of exchange repayable for periods up to 180 days from the date of acceptance as a temporary arrangement. The closing balance of bills payable is Rs. 54.45 crores. 15. According to the information and explanations given to us and the records examined by us, the securities have been created in respect of the debentures except the personal guarantees by some of the directors together with collateral securities. 16. To the best of our knowledge and belief and according to the information and explanation given to us, no material fraud on or by the Company was noticed or reported during the year.

7th August, 2006 and 7th September 2006 31st July, 2006

7th April, 2007 9th April 2007 Mumbai, 30th August, 2007

For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Membership No. 31544

15

Essar Oil Limited

BALANCE SHEET AS AT 31ST MARCH, 2007
As at 31st March, 2007 Rs. in crores As at 31st March, 2006 Rs. in crores

SCH. SOURCES OF FUNDS Shareholders Funds a) Capital b) Advance towards issue of global depository shares c) Reserves and surplus Loan Funds a) Secured loans b) Unsecured loans Deferred Tax Liability (Net) (Refer note B (29) of schedule XVII) TOTAL APPLICATION OF FUNDS Fixed Assets a) Gross block b) Less: Accumulated depreciation, amortisation and lease adjustment c) Net block Capital Work-in-Progress Expenditure during Construction Advances on Capital Account Investments Current Assets, Loans and Advances a) Inventories b) Sundry debtors c) Cash and bank balances d) Loans, advances and deposits Less : Current Liabilities and Provisions a) Current liabilities b) Provisions Net Current Assets TOTAL SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August, 2007 XVII XI VI VII VIII IX X V III IV II I

1,156.13 189.39 1,649.61

1,100.18 1,420.55

7,739.08 832.36 32.10 11,598.67

5,602.96 464.62 33.08 8,621.39

303.86 107.59 196.27 4,359.98 4,095.79 2,177.86 109.37 3,417.97 176.84 642.97 399.12 4,636.90 3,970.48 7.02 3,977.50 659.40 11,598.67

279.12 94.76 184.36 3,686.34 2,873.25 1,744.48 89.65 36.49 81.12 519.93 305.23 942.77 897.96 1.50 899.46 43.31 8,621.39

For and on behalf of the Board of Directors

V. Suresh Chief Financial Officer S. S. Shaffi Company Secretary Mumbai, 30th August, 2007

P. S. Ruia Director Hari L. Mundra Deputy Managing Director & Director (Finance)

16

STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31ST MARCH, 2007
PARTICULARS SCH. For Year ended 31st March, 2007 Rs. in crores For Year ended 31st March, 2006 Rs. in crores

INCOME Sale of traded petroleum products Other income EXPENDITURE Cost of traded petroleum products sold (Refer note B (33) of schedule XVII) Payments to and provisions for employees Administrative and other expenses Selling and distribution expenses Marketing infrastructure expenses Interest and other finance charges PROFIT / (LOSS) BEFORE DEPRECIATION AND TAX Less : Depreciation / Amortisation PROFIT / (LOSS) BEFORE TAX TAXES Foreign tax (Refer note B (32) (iii) of schedule XVII) Deferred tax (Net) Fringe benefit tax PROFIT / (LOSS) AFTER TAX Balance brought forward from previous year Add: Transferred from foreign projects reserve (Refer note B (25)(a) of schedule XVII) BALANCE CARRIED FORWARD Earnings / (Loss) per share (Rs.) (Refer note B (27) of schedule XVII) - Basic and diluted SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August, 2007 For and on behalf of the Board of Directors XVII (0.61) (0.89) (20.27) 7.71 13.34 (0.99) 0.59 12.94 (67.49) 7.71 39.51 0.84 0.79 1.63 (93.68) 82.89 18.50 XVI XIII XIV XV 12.32 9.95 13.47 21.94 10.65 534.41 (50.04) 4.51 (54.55) 18.32 20.01 24.31 35.37 21.14 786.61 (87.39) 4.66 (92.05) 466.08 667.46 XII 473.98 10.39 484.37 636.63 62.59 699.22

V. Suresh Chief Financial Officer S. S. Shaffi Company Secretary Mumbai, 30th August, 2007

P. S. Ruia Director Hari L. Mundra Deputy Managing Director & Director (Finance) 17

Essar Oil Limited

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2007
For the year ended 31st March, 2007 Rs. in crores A) Cash Flow from Operating Activities Net Profit before Tax Adjustments for : Depreciation Lease adjustment Income from lease rentals Fixed assets written off Inventory written off Interest receivable arising from arbitration award Interest income (on investing activities) Profit on disposal of Investments (Profit) / Loss on sale of fixed assets (Net) Interest on borrowings (other than Refinery Project) Bad debts written off / Doubtful debts / Advances provided for Old payables written back Interest on income tax refund Operating Profit / (Loss) before Working Capital Changes Adjustments for : Changes in inventories Changes in receivables and advances Changes in payables Cash generated from / (used in) Operations Income tax payment (Net of refund including interest) Net Cash generated from / (used in) Operations (A) B) Cash Flow from Investing Activities Capitalisation / Additions to fixed assets Capital work in progress / Expenditure during construction / Advances on capital account (Including interest paid / funded (net) pertaining to the refinery project) (54.55) 4.51 (0.66) 0.18 (3.10) (0.41) 3.85 0.50 (0.03) (0.07) (49.78) (96.85) (7.96) 69.85 (84.74) (8.98) (93.72) (33.02) (2,432.30) For the year ended 31st March, 2006 Rs. in crores (92.05) 4.66 (0.06) (0.80) 0.21 0.20 (4.45) (7.66) (22.70) (0.03) 1.43 0.85 (8.64) (0.73) (129.77) 97.79 28.79 (108.86) (112.05) (6.22) (118.27) (48.73) (2040.53) For the year ended 31st March, 2007 Rs. in crores (Refer note B (13) (a) and B (13) (b) of schedule XVII) (After adjustment of changes in amounts payable / receivable) Advances to the subsidiary (net of repayment during the year Rs.nil (Previous year Rs. 4.14 crores)) Amount received / (incurred / spent) towards common expenditure allocated to the port Terminal (Refer note B (16) of schedule XVII) Sale of fixed assets Purchase of investments Fixed deposit matured / (placed) - Net Interest received Lease rentals received Net Cash used in Investing Activities (B) C) Cash Flow from Financing Activities Borrowings {Including funding of interest (net)} (Refer note B 13 (a) of schedule XVII) Proceeds from issue of foreign currency convertible bonds (FCCBs) and GDS Advances against GDS received Repayment of borrowings Changes in balance of bills of exchange accepted Interest paid Unclaimed dividend / Excess debenture monies paid / Transferred to investor education and protection fund Net Cash from Financing Activities (C) Net Change in Cash and Cash equivalents (A+B+C) Cash and Cash equivalents at the beginning of the period Cash and Cash equivalents at the end of the period For the year ended 31st March, 2006 Rs. in crores

(3.41) (11.41) 0.17 (28.27) 12.00 0.19 0.06 (2,495.99) 3,638.41

(5.53)

68.85 0.08 (67.73) (13.67) 9.48 (2,097.78) 1,134.72

352.51 189.39 (1,210.47) (296.75) (1.08)

180.44 (95.80) 326.22 (1.43)

2,672.01 82.30 34.95 117.25

(0.43) 1,543.72 (672.33) 707.28 34.95

Notes : 1. Non cash financing transactions: a ) Conversion of Rs. 96 crores to unsecured loan from current liabilities. b ) Settlement of unsecured loan receivable from Essar Power Limited Rs.23.40 crores with payable of Rs 22.25 crores and balance adjusted in current liability from Essar Power Limited. During Previous Year : a) Settlement of borrowings Rs. 103.36 crores in exchange of the Companys investments of equity shares with book value of Rs. 50 crores. b) Conversion of FCCBs into equity shares Rs.178.91 crores 2. Non cash investing transaction: a ) Shares alloted by subsidiary against adjustment of payable of Rs. 8.09 crores. 3. Cash and cash equivalents included in the cash flow statement comprise of the following balance sheet amounts: As at As at 31st March, 2007 31st March, 2006 Rs. in crores Rs. in crores Cash on hand and balances with banks 0.43 0.42 Cash on hand Balance with banks 114.22 30.98 in current accounts 528.32 488.53 in deposits@ Cash and bank balances as per balance sheet 642.97 519.93 6.50 0.73 Less : Overdrawn bank balances 519.22 484.25 Less : Margin & long term fixed deposti Cash and cash equivalents as restated 117.25 @ Comprises of margin deposits mainly towards letters of credit facilities availed and term deposits As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August, 2007 34.95

For and on behalf of the Board of Directors V. Suresh Chief Financial Officer S. S. Shaffi Company Secretary Mumbai, 30th August, 2007 P. S. Ruia Director Hari L. Mundra Deputy Managing Director & Director (Finance)

18

SCHEDULES ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS AT 31ST MARCH, 2007
As at 31st March, 2007 Rs. in crores SCHEDULE - I CAPITAL AUTHORISED 5,000,000,000 equity shares of Rs.10 each (Previous year 5,000,000,000 equity shares of Rs.10 each) ISSUED AND SUBSCRIBED 1,201,456,638 equity shares of Rs.10 each (Previous year 1,145,503,314 Equity shares of Rs. 10 each) PAID UP 1,139,530,638 equity shares of Rs. 10 each fully paid up (Previous year - 1,083,577,314 equity shares of Rs. 10 each fully paid up) Add : Forfeited shares (61,926,000 equity shares forfeited during the financial year 1999-2000) TOTAL Notes: Of the above equity shares: a) 65,370,000 equity shares were allotted as fully paid-up equity shares pursuant to a contract for consideration other than cash during the financial year 1992-1993. b) 784,386,324 equity shares (Previous year 728,433,000) are represented by 5,126,708 (Previous year 4,761,000) global depository shares (GDS). GDS issued during the year 365,708 (Previous year 4,761,000) represented by 55,953,324 equity shares (Previous year 728,433,000). 1,139.53 1,083.58 1,201.46 1,145.50 5,000.00 5,000.00 As at 31st March, 2006 Rs. in crores SCHEDULE - III SECURED LOANS Debentures (Refer note B (13) (b) of schedule XVII) a) Non convertible debentures (Including 6%, 9.25% and 12.50% debentures) b) 12.5% Non convertible debentures (A) Term loans and funded interest facilities Term loans# a) From banks (Including interest accrued and due Rs. 4.74 crores (Previous year Rs. Nil)) (Refer note B (13) (a) of schedule XVII) b) From financial institutions (Including interest accrued and due Rs. 3.42 crores (Previous year Rs. Nil)) (Refer note B (13) (a) of schedule XVII) Term loans - funded interest facilities (comprising of funding of interest for the period October, 1998 to December, 2003) (Refer note B (13) (a) of schedule XVII) 1,095.69 a) From banks Less: Amount not payable if relevant funded interest is paid on or before 927.93 24th April, 2007 1,432.43 b) From financial institutions Less: Amount not payable if relevant funded interest is paid on or 1,213.12 before 24th April, 2007 (B) Short term loan from banks Demand loan from a bank 40.89 (A) Share premium account Balance as per last balance sheet Add : Premium on issuance of GDS (B) Foreign projects reserve Balance as per last balance sheet Less: Transferred to Statement of profit and loss (Refer note B (25) (a) of schedule XVII) (C) General reserve Balance as per last balance sheet Less: Debit balance in Statement of profit and loss (D) Debenture redemption reserve Balance as per last balance sheet (Refer note B (25) (b) of schedule XVII) (E) Surplus as per Statement of profit and loss (F) TOTAL ( A+B+C+D+E+F) 22.30 20.27 2.03 37.21 37.21 1,649.61 22.30 22.30 37.21 37.21 7.71 1,420.55 1,254.48 296.55 1,551.03 57.96 39.51 18.45 1,219.85 34.63 1,254.48 76.46 18.50 57.96 40.89 10.21 30.68 40.89 (C) (D) 1,095.69 167.76 2,717.53 2,083.53 453.09 6.57 459.66 3,773.79 537.79 6.57 544.36 As at 31st March, 2007 Rs. in crores As at 31st March, 2006 Rs. in crores

2,130.00

16.60

16.60

1,156.13

1,100.18

927.93 167.76 1,432.43

219.31 6,878.39 351.03 50.00

1,213.12 219.31 4,600.60 458.00 5,602.96

SCHEDULE - II RESERVES AND SURPLUS Capital reserve Balance as per last balance sheet Add : Effect of settlement of principal liability of loan / debentures

TOTAL (A+B+C+D) 7,739.08

# Term loans include interest funded for period upto September, 1998, for the period subsequent to December, 2003 and interest funded on 1st April, 2007 (Previous year 1st April, 2006). Notes : Debentures Rs. 453.09 crores (Previous year Rs. 537.79 crores) debentures are secured / to be secured by first / second ranking security interests, on all movable and immovable assets, present and future, and first ranking security interests in favour of holders of more than 2000 debentures by pledge of certain shares of the company held by the promoters / associates, security interest on rights, title and interests under project documents, trust and retention accounts / sub-accounts, insurance policies related to projects and personal guarantees by some of the promoter directors together with collateral securities. Term loans and funded interest facilities from banks and financial institutions and debentures of Rs. 6.57 crores (Previous year Rs. 6.57 crores) Rs. 9019.44 crores term loans, funded interest facilities and debentures of Rs. 6.57 crores are secured by first ranking security interests on all immovable assets (except certain leased out assets), all movable assets other than current assets and second ranking security interests on current assets, present and future, pledge of certain shares of the Company held by the promoters / associates, security interest on rights, title and interests under project documents, trust and retention accounts / sub-accounts, insurance policies related to refinery project and personal guarantees by some of the promoter directors together with collateral securities. A term loan of Rs. 104 crores is also secured by a corporate guarantee and other assets pertaining to terminal project of Vadinar Oil Terminal Limited. Rs. 0.33 crores (Previous year Rs. Nil) vehicle loans are secured by hypothecation of the vehicles financed.

19

Essar Oil Limited

Short term and demand loans from banks a) Rs. 401.04 crores (Previous year Rs.23.00 crores) short term and demand loans from banks are secured / to be secured by first ranking security interests on all the current assets, second ranking security interests on (i) all the movable assets other than current assets and immovable assets (except certain leased out assets), present and future (ii) pledge of certain shares of the Company held by the promoters / associates (iii) security interest on rights, title and interests under project documents, trust and retention accounts / sub-accounts, insurance policies related to refinery project and personal guarantees by some of the promoter directors together with collateral securities. Of the above, loan of Rs. 17.60 crores (Previous year Rs. 23.00 crores) from a bank is further secured by fixed deposits placed by the company. b) Rs. Nil crores (Previous year Rs. 435.00 crores) from a bank is secured by first ranking security interests, on all movable and immovable assets, present and future, pledge of shares of the company held by the promoters / associates, security interest on rights, title and interests under project documents, trust and retention accounts / sub-accounts, insurance policies related to projects and guarantees by promoters and Vadinar Oil Terminal Limited. As at 31st March, 2007 Rs. in crores SCHEDULE - IV UNSECURED LOANS Conditional grant from a bank (Refer note B (24) of schedule XVII) Term loan - From a bank # {Including interest accrued and due Rs. 56.82 crores (Previous year Rs. 39.01 crores)} Other loans - From a bank# - From others Overdrawn bank balances TOTAL
#

As at 31st March, 2006 Rs. in crores

6.20

6.29

275.47

263.11

30.87 513.32 6.50 832.36

31.64 162.85 0.73 464.62 (Rs. in Crores )

SCHEDULE - V FIXED ASSETS

In foreign currency

Gross Block (At Cost) (I) Description of the Assets As at 01.04.2006 Additions Deductions / write offs / adjustments 0.47 0.14 0.61 0.61 As at 31.03.2007 As at 01.04.2006

Depreciation / Amortisation (II) For the year Withdrawals (on sale) / Write backs/adjustments 0.33 0.12 0.45 0.45 As at 31.03.2007

Lease Adjustment (III) As at 31.03.2007

Net Block IV = I - ( II + III ) As at As at 31.03.2007 31.03.2006

TANGIBLE ASSETS Land Buildings Plant and machinery Furniture and fixtures Office equipment Vehicle Barge Sub - Total A ASSET GIVEN ON LEASE Plant and machinery Sub-Total B Total Tangible Assets C = (A+B) INTANGIBLE ASSETS (Other than internally generated) Software and licenses Total Intangible Assets D Total Previous Period NOTES: E = (C + D)

48.60 28.97 151.17 4.16 19.38 1.29 2.09 255.66 18.20 18.20 273.86

0.01 0.42 9.57 1.18 6.00 2.45 19.63 19.63

48.61 29.39 160.74 5.34 24.91 3.60 2.09 274.68 18.20 18.20 292.88

12.81 44.73 3.55 12.88 0.70 1.85 76.52 10.58 10.58 87.10

0.93 7.40 0.39 2.50 0.26 0.14 11.62 11.62

13.74 52.13 3.94 15.05 0.84 1.99 87.69 10.58 10.58 98.27

7.62 7.62 7.62

48.61 15.65 108.61 1.40 9.86 2.76 0.10 186.99 186.99

48.60 16.16 106.44 0.61 6.50 0.59 0.24 179.14 179.14

5.26 5.26 279.12 233.52

5.72 5.72 25.35 50.21

0.61 4.61

10.98 10.98 303.86 279.12

0.04 0.04 87.14 80.95

1.66 1.66 13.28 10.41

0.45 4.22

1.70 1.70 99.97 87.14

7.62 7.62

9.28 9.28 196.27 184.36

5.22 5.22 184.36

1.

2. 3. 4.

Total depreciation / amortisation for the period - Rs. 13.28 crores (Previous year Rs. 10.41 crores) is charged / allocated as under : (i) Rs. 4.51 crores (Previous year Rs. 4.66 crores) to statment of profit and loss; (ii) Rs. 6.17 crores (Previous year Rs. 5.05 crores) to Expenditure during Construction; (iii) Rs. 0.29 crores (Previous year Rs. 0.09 crores) to Capital Work-in-Progress (exploration activities); (iv) Rs. 2.31 crores (Previous year Rs. 0.61 crores) to port terminal project. Additions to plant and machinery include capital expenditure of Rs. 22.81 crores incurred by the company for a 220 KVA line from Paschim Gujarat Vij Company Limited (PGVCL) feeder, the ownership of which now vests with PGVCL and is amortised over a period of 20 years. Land includes Rs. 18.67 crores (Previous year Rs. 18.67 crores) representing cost of land leased to Vadinar Oil Terminal Limited and Vadinar Power Company Limited. The estimated useful life of software and licenses is 5 years from the date of acquisition. As at As at As at As at 31st March, 31st March, 31st March, 31st March, 2007 2006 2007 2006 Rs. in Crores Rs. in Crores Rs. in crores Rs. in crores {Including in transit / pending custom clearance Rs. 95.86 crores (Previous year Rs. 35.47 crores)} - Indigenous Exploration activities Expenditure on oil and gas exploration # (Refer note B (22) of schedule XVII)

SCHEDULE - VI CAPITAL WORK IN PROGRESS Refinery project a) Project management consultancy, technical advisory fees, etc. b) Equipment / materials - Imported 688.19 3,463.48 594.82 2,960.22

6.43 201.88 4,359.98

4.40 126.90 3,686.34

{The above includes gain on account of foreign exchange fluctuation of Rs. 1.03 crores during the year (Previous year loss of Rs. 0.81 crores)} # include stores/spares consumed Rs. 3.40 crores (Previous year Rs. 2.54 crores)

20

SCHEDULE - VII EXPENDITURE DURING CONSTRUCTION (Refer note B (14) of schedule XVII) Rs. in crores
Nature of Expenses Interest and finance charges Interest and other finance charges (Gain) / Loss on foreign exchange fluctuation on loans (Net) Less: Interest income (current year amount mainly includes interest on fixed deposits furnished as margin) inclusive of tax deducted at source Rs. 6.02 crores (Previous year Rs. 2.73 crores) Less: Gain on cancellation of currency swap (Refer note B 28 (b) of schedule XVII) Less : Reduction in the amount of funded interest i.e. amount not payable if relevant funded interest is paid on or before 24th April, 2007 (Refer note B (13) (a) of schedule XVII) (A) Other expenditure Raw material consumed (Refer note B (8) (i) of schedule XVII) Consumption of chemical, stores and spares Freight and material handling charges Excise duty # Terminalisation charges Salaries, wages and bonus Contribution to / provision for provident and other funds Employees welfare and other amenities Rent Rates and taxes Repairs and maintenance: - Buildings - Machinery / equipment - Others Professional and other technical advisory fees Power and fuel {Net of consumed out of own production Rs. 90.10 crores (Previous year Rs. Nil)} Insurance Depreciation / amortisation Loss on sale of assets (Net) (Gain) / Loss on foreign exchange fluctuation (Net) Commission Provision for diminution in value of investments Commodity derivative loss (net) Fringe benefit tax Miscellaneous expenditure written off Bad debts written-off Sundry expenses (B) Less : Income during construction / trial operations (Refer note B (14) of Schedule XVII) Sales of products out of trial run production of some of the units Less: Excise duty Net sales Accretion / (Deduction) in stocks of finished and semi-finished products and work-in-process (deducted) / added Opening stock Finished goods Work-in-progress (i) Closing stock Finished goods Work-in-progress (ii) Accretion in stocks (ii) - (i) Technical advisory services fees Less : Expenses incurred to earn technical advisory services fees Salaries, wages and bonus Employees welfare and other amenities Miscellaneous income Capitalised As at 31.03.2006 4,451.82 169.18 Incurred during the year 804.93 (30.99) As at 31.03.2007 5,256.75 138.19

SCHEDULE - VIII Advance on capital Account Advances - Towards indigenous supply / labour / construction (Net of amount capitalised / released to capital work-in-progress) - Towards project management, technical advisory fees, etc. - Others SCHEDULE - IX INVESTMENTS (Unquoted) - At Cost

As at 31st March, 2007 Rs. in crores

As at 31st March, 2006 Rs. in crores

2,092.53 52.39 32.94 2,177.86

1,692.80 28.13 23.55 1,744.48

107.28 0.73 4,512.99

27.88 5.50 740.56

135.16 6.23 5,253.55

2,141.05 2,371.94 71.91 6.10 8.06 21.78 2.72 11.81 14.52 4.49 51.20 6.33

740.56 3,669.54 17.78 34.87 16.40 15.16 57.29 3.40 5.17 6.11 0.73 1.58 47.22 8.07 24.23 79.21

2,141.05 3,112.50 3,669.54 17.78 34.87 16.40 15.16 129.20 9.50 13.23 27.89 3.45 13.39 61.74 12.56 75.43 85.54

Investment in subsidiary company Investment in wholly owned Subsidiary 103,000,000 (Previous year - 66,649,307) Equity shares of Rs. 10 each of Vadinar Power Company Limited (fully paid up) Trade - long term i) 13,000,000 Equity shares (previous year - 13,000,000) of Rs. 10 each of Petronet VK Limited (fully paid up) ii) 1,584,000 equity shares (previous year - 1,584,000) of Rs. 10 each of Petronet CI Limited (fully paid up) iii)10,000,000 (Previous year 10,000,000) Equity shares of Rs. 10 each of Petronet India Limited (fully paid up) Less : Provision for diminution in value of investments Total SCHEDULE - X CURRENT ASSETS, LOANS AND ADVANCES Current assets Inventories a) b) c) d) Stores and spares Raw material - crude oil Work-in-progress Traded / finished goods 8.96 2,181.46 820.68 406.87 3,417.97 3.07 33.42 36.49 13.00 13.00 103.00 66.65

1.58

1.58

10.00 127.58 18.21 109.37

10.00 91.23 1.58 89.65

51.26 39.95 2.18 11.88 1.58 1.14 42.63 158.81 508.35

6.40 6.17 (115.08) 7.53 16.62 20.75 1.97 4.72 76.80 4,012.64

57.66 46.12 2.18 (103.20) 7.53 18.20 20.75 3.11 42.63 4.72 235.61 4,520.99

2,455.74 22.77 2,432.97

2,455.74 22.77 2,432.97

Sundry debtors (unsecured) (Refer note B (17) of schedule XVII) a) Over six months - Considered good - Considered doubtful 80.61 0.56 96.23 177.40 0.56 176.84 0.43 80.26 0.56 0.86 81.68 0.56 81.12 0.42

6.46 0.58 7.04

276.60 820.68 1,097.28 1,097.28 2.24 2.13 0.10 0.01 0.40 3,530.66 1,222.54

276.60 820.68 1,097.28 1,097.28 2.24 2.13 0.10 0.01 6.86 0.58 3,537.70 4,095.79

b) Others - considered good Less : Provision for doubtful debts Cash and bank balances a) Cash on hand b) Balances with banks in (Refer note B (35) of schedule XVII) i) Current accounts ii) Deposit and escrow accounts (Deposit account comprises of margin deposits mainly placed for letters of credit facilities, guarantees and other term deposits) (A)

114.22 528.32

30.98 488.53

(C) Expenditure during Construction - pending allocation - (D = A + B-C) 2,873.25 # Pertains to closing stock as on 31st March, 2007 (Opening stock Nil)

642.97 4,237.78

519.93 637.54

21

Essar Oil Limited

As at 31st March, 2007 Rs. in crores Loans, advances and deposits (Unsecured, considered good) Advances recoverable in cash or in kind or for value to be received {Includes Rs. 3.41 crores to subsidiary (Previous year Rs. 8.02 crores)} Bills receivable {Net of interest accrued but not due Rs. Nil pertaining to period after 31st March, 2007 (Previous year Rs. 0.02 crores)} Deposits a) With government and semi government departments b) Other deposits Loans / inter corporate deposits Advance income tax {Net of provisions of Rs. 28.60 crores (Previous year Rs. 28.60 crores)} Fringe benefit tax {Net of provisions of Rs. 4.77 crores (Previous year Rs. 2.18 crores)} As at 31st March, 2006 Rs. in crores

SCHEDULES ANNEXED TO AND FORMING PART OF THE STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31ST MARCH, 2007
For Year ended 31st March, 2007 Rs. in crores For Year ended 31st March, 2006 Rs. in crores

305.78

225.39

1.67

SCHEDULE - XII OTHER INCOME Interest {Inclusive of tax deducted at source Rs. 0.08 crores (Previous year Rs. 0.39 crores)} a) On deposits b) Others {including interest arising out of arbitration award Rs. 3.10 crores (Previous year Rs. 4.91 crores)} (A) Lease rentals Add : Lease equalisation charge (B) Foreign exchange fluctuation (Net) (C) (D) (E) Miscellaneous income (Refer note B (26) of schedule XVII) Profit on disposal of long term investment 1.08 3.45 7.66 7.58

17.43 55.92 20.96

16.00 23.36 24.98 14.09

4.53 0.66 0.66 0.28 4.92 10.39

15.24 0.80 0.06 0.86 0.78 23.01 22.70 62.59

0.03

0.24

400.12 Less : Provision for doubtful advances (B) Total (A+B) SCHEDULE - XI CURRENT LIABILITIES AND PROVISIONS Current liabilities Bills payable on capital account {Net of unamortised discounting charges Rs. 0.69 crores pertaining to period after 31st March 2007 (Previous year Rs. 4.94 crores pertaining to period after 31st March, 2006)} Sundry creditors (Refer Note B (32) of Schedule XVII) a) For small scale industrial undertakings b) For others {Including Rs. 2,011.06 crores (Previous year Rs. 107.98 crores) covered under letter of credit} Advances received from customers / others (Refer note B (23) of schedule XVII) Security deposits Interest accrued but not due on loans (A) There is no amount due and outstanding to be credited to investor education and protection fund. Provisions For leave encashment For gratuity (B) Total (A+B) 6.23 0.79 7.02 3,977.50 0.07 3,677.73 54.45 1.00 399.12 4,636.90

305.73 0.50 305.23 942.77

SCHEDULE - XIII

TOTAL (A+B+C+D+E)

331.43

352.31

147.57 46.15 44.51 3,970.48

147.31 30.86 36.05 897.96

PAYMENTS TO AND PROVISIONS FOR EMPLOYEES Salaries, wages and bonus Contribution to / provision for provident and other funds Staff welfare expenses TOTAL SCHEDULE - XIV ADMINISTRATIVE AND OTHER EXPENSES Rates and taxes Electricity and water charges Insurance - others Travelling and conveyance Communication Printing and stationery Professional fees Rent Repairs and maintenance a) Buildings b) Others Advertisement Vehicle hire and maintenance charges Sitting fees to directors Sundry expenses Provision for doubtful debts and advances Inventory written off TOTAL SCHEDULE - XV SELLING AND DISTRIBUTION EXPENSES Terminalisation charges Rent for retail outlets Commission Advertisement and sales promotion expenses Others TOTAL SCHEDULE - XVI INTEREST AND OTHER FINANCE CHARGES L/C charges, guarantee commission and other charges Interest a) On fixed loans b) On others TOTAL

10.16 0.49 1.67 12.32 0.55 0.14 0.01 1.85 0.66 0.16 2.87 0.74 0.16 0.01 0.07 0.07 2.16 0.50 9.95 7.57 4.04 0.01 0.01 1.84 13.47

16.27 1.09 0.96 18.32

5.68 0.58 0.04 4.31 1.14 0.42 2.48 2.04 0.05 0.36 0.84 0.05 0.97 0.85 0.20 20.01

16.29 2.63 0.22 0.23 4.94 24.31

1.02 0.48 1.50 899.46

5.94 1.06 3.65 10.65

17.58 1.41 2.15 21.14

22

SCHEDULE ANNEXED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR YEAR ENDED 31ST MARCH, 2007 SCHEDULE XVII SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS A. SIGNIFICANT ACCOUNTING POLICIES: The financial statements have been prepared in accordance with the accounting principles generally accepted in India. A summary of the significant accounting policies is set out below: i. BASIS OF ACCOUNTING The financial statements are prepared on accrual basis. Attention is invited to Note 13(b) of part B of this schedule. ii. USE OF ESTIMATES The preparation of financial statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Differences between the actual results and estimates are recognised in the period in which the results are known / materialised. iii. REVENUE RECOGNITION Revenue on sale of goods is recognized when the property in the goods is transferred to buyer for a price, or when all significant risks and rewards of ownership have been transferred to the buyer and no effective control is retained by the Company in respect of the goods transferred to a degree usually associated with ownership and no significant uncertainty exists regarding the amount of consideration that will be derived from the sale of goods. Revenue on transactions of rendering services is recognized either under the completed service contract method or under the proportionate completion method, as appropriate. Performance is regarded as achieved when no significant uncertainty exists regarding the amount of consideration that will be derived from rendering the services. iv. GOVERNMENT GRANTS Government grants are recognized only when there is reasonable assurance that the conditions attached to the grants will be complied with, and where such benefits have been earned and it is reasonably certain that the ultimate collection will be made. Government grants in the nature of the promoters contribution are treated as capital reserve. v. FIXED ASSETS, DEPRECIATION / AMORTISATION Fixed assets are recorded at cost less accumulated depreciation and impairment loss, if any. Cost is inclusive of non-recoverable duties and taxes, and cost of construction including erection, installation, commissioning expenses and inseparable know how costs, where applicable and Expenditure during Construction including borrowing costs and results of trial runs. Depreciation on plant and machinery and barge is provided as per straight line method. All other assets are depreciated as per written down value method. Depreciation is computed at the rates based on the estimated useful lives of the assets or the rates provided under schedule XIV to the Companies Act, 1956, whichever are higher. Depreciation on additions / deductions to fixed assets made during the year is provided on a pro-rata basis from / up to the date of such additions / deductions, as the case may be. Assets purchased and /or constructed by the Company whose ownership vests with others by virtue of a contract or otherwise, are amortised over the useful lives of the assets or the contract period, whichever is shorter. vi. INTANGIBLE ASSETS AND AMORTISATION Intangible assets are recognised only when it is probable that the future economic benefits that are attributable to the asset will flow to the Company and the cost of the asset can be measured reliably. Intangible assets are stated at cost less accumulated amortisation and impairment loss, if any. Intangible assets are amortised over the best estimate of their useful lives, subject to a rebuttable presumption that such useful lives will not exceed ten years. vii. CAPITAL WORK-IN-PROGRESS, EXPENDITURE DURING CONSTRUCTION AND CAPITAL ADVANCES Direct expenditure on projects or assets under construction or development is shown under Capital Work-in-Progress. Expenditure incidental to the construction of projects or assets under construction or development that take substantial period of time to get ready for their intended use is accumulated as Expenditure during Construction, pending allocation to fixed assets and other accounts, as applicable. Advances on capital account include progress / milestone based payments made under the contracts for projects and assets under construction or development, and other capital advances until the same are allocated to fixed assets and other accounts, as applicable. viii.OIL AND GAS EXPLORATION AND DEVELOPMENT COSTS The Company follows the full cost method of accounting for its oil and gas exploration and development activities whereby, all costs associated with acquisition, exploration and development of oil and gas reserves, are capitalised under Capital Work-in-Progress, irrespective of success or failure of specific parts of the overall exploration activity within or outside a cost centre (known as cost pool).

Exploration and survey costs incurred are held outside cost pools untill the existence or otherwise of commercial reserves is determined. These costs remain un-depleted pending determination, subject to there being no evidence of impairment. Costs are released to its cost pool upon determination or otherwise of reserves. When any field in a cost pool is ready to commence commercial production, the accumulated costs in that cost pool are transferred from Capital Work-in-Progress to the gross block of assets under producing properties. Subsequent exploration expenditure in that cost pool will be added to gross block of assets either on commencement of commercial production from a field discovery or failure. In case a block is surrendered, the accumulated exploration expenditure pertaining to such block is transferred to the gross block of assets. Expenditure carried within each cost pool (including future development cost) will be depleted on a unit-of-production basis with reference to quantities, with depletion computed on the basis of the ratio that oil and gas production bears to the balance proved and probable reserves at commencement of the year. The financial statements of the Company reflects its share of assets, liabilities, income and expenditure of the joint venture operations, which are accounted on the basis of available information on line to line basis, with similar items in the Companys financial statements to the extent of the participating interest of the Company as per the various joint venture agreement(s). ix. IMPAIRMENT OF ASSETS The Company assesses on each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of Profit and Loss. If at the balance sheet date, there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount but limited to the carrying amount that would have been determined (net of depreciation / amortisation) had no impairment loss been recognised in prior accounting periods. x. VALUATION OF INVENTORIES Inventories are valued at the lower of cost or net realisable value. The cost of inventory is determined using the weighted average cost formula. Attention is invited to note B (19) of this schedule for effect of change in this policy. Finished goods and Work-in-Progress include costs of conversion and other costs incurred in bringing the inventories to their present location and condition. xi. FOREIGN CURRENCY TRANSACTIONS Foreign currency transactions are accounted at the rate normally prevailing on the transaction date. Monetary items denominated in foreign currency are translated at the rate prevailing at the balance sheet date. Gains / losses on conversion / translation / settlement of foreign currency transactions are recognised in the statement of Profit and Loss or Expenditure during Construction, as applicable, except those pertaining to liabilities in respect of fixed assets / capital equipment / materials acquired from outside India, which are capitalised to the carrying value of related fixed assets or Capital Work-in-Progress / Expenditure during Construction, as applicable. Premia or discounts arising on forward exchange contracts entered into for the purpose of hedging currency risk, are recognized in the statement of Profit and Loss or Expenditure during Construction, as applicable, over the life of the contract. The impact of exchange rate difference between the rate prevailing on the date of forward exchange contract and the rate prevailing on the balance sheet date or on the dates of settlement of forward exchange contracts whichever is earlier, is recognised in the statement of Profit and Loss or Expenditure during Construction, as applicable. xii.DERIVATIVE INSTRUMENTS (Other than forward exchange contracts) Financial derivatives and commodity hedging contracts are treated as off balance sheet transactions. Gains or losses arising there from are recognised in the statement of Profit and Loss or Expenditure during Construction, as applicable, and when settlement takes place. Attention is invited to note B (20) of this schedule for effect of change in this policy on currency swaps. xiii.OPERATING LEASE Lease expenses and lease income on operating leases are recognised on a straight line basis over the lease term in the statement of Profit and Loss or Expenditure during Construction, as applicable. xiv.FINANCE LEASES Finance leases prior to April 1, 2001 As lessee: Lease rentals are accounted for on accrual basis over the lease term so as to recognise an appropriate charge in this respect in the statement of Profit and Loss or Expenditure during Construction, as applicable, with a separate disclosure thereof. The appropriate charge is worked out with reference to the terms of the lease agreement, type of the asset, proportion of the lease period to the life of the asset as per the technical/ commercial evaluation and such other considerations. The excess of lease rentals paid over the amount accrued in respect thereof is treated as prepaid lease rental and vice versa. The leases are recognized in the books of account at the inception of the lease

23

Essar Oil Limited

term. Attention is invited to note B (21) of this schedule for treatment in accordance with (AS-19) Leases in respect of a particular case. As lessor: Lease income is recognized based on the internal rate of return over the period of lease. Against the lease income, a matching lease annual charge is made to the statement of Profit and Loss or Expenditure during Construction, as applicable. This annual lease charge represents recovery of the net investment / fair value of the leased asset over the lease term. The said charge is calculated by deducting the finance income for the period from the lease rental for that period. This annual lease charge comprises (i) depreciation and (ii) lease equalisation charge, where annual lease charge is greater than depreciation. However, where annual lease charge is less than depreciation, a lease equalisation credit arises. Finance leases after April 1, 2001 As lessee: Assets taken on lease are capitalized at fair value or net present value of the minimum lease payments, whichever is lower. Depreciation on the assets taken on lease is charged at the rate applicable to similar type of fixed assets as per accounting policy of the Company on depreciation. If the leased assets are returnable to the lessor on the expiry of the lease period, depreciation is charged over its useful life or lease period, whichever is shorter. Lease payments made are apportioned between the finance charges and reduction of the outstanding liability in respect of assets taken on lease. The leases are recognized in the books of account at the inception of the lease term. Attention is invited to note B (21) of this schedule for treatment in accordance with (AS19) Leases in respect of a particular case. As lessor: The assets given under a finance lease are recognized as a receivable in its balance sheet at an amount equal to the net investment in the lease. The recognition of finance income is based on a pattern reflecting a constant periodic rate of return on the net investment outstanding in respect of the finance lease. xv.RETIREMENT BENEFITS TO EMPLOYEES a) Contributions based on a specified percentage of the salary of eligible employees under a defined superannuation plan, are charged to the statement of Profit and Loss or Expenditure during Construction, as applicable. There are no further obligations under the plan beyond such contributions. b) Contribution to provident fund, which is a fixed percentage of the eligible employees salary, is remitted to a trust established for this purpose and charged to the statement of Profit and Loss or Expenditure during Construction, as applicable. Shortfall, if any, in the trust fund is made good by the Company. c) Provision for gratuity liability is made based on actuarial valuation and is charged to the statement of Profit and Loss or Expenditure during Construction, as applicable. d) Provision for leave encashment liability is made based on actuarial valuation and is charged to the statement of Profit and Loss or Expenditure during Construction, as applicable. xvi. VALUATION OF INVESTMENTS Investments are classified into long term and current investments. Long term investments are carried at cost. Diminution in value of long term investments is provided for when it is considered as being other than temporary in nature. Current Investments are carried at the lower of cost and net realisable value. xvii.BORROWING COSTS Borrowing costs that are attributable to the acquisition, construction or development of qualifying assets (i.e. the assets that take substantial period of time to get ready for intended use) are charged to Expenditure during Construction. Other borrowing costs are recognised in the statement of Profit and Loss. xviii.TAXES ON INCOME The provision for current taxation is computed in accordance with the relevant tax laws and regulations. Deferred tax is recognised on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or substantively enacted as on the reporting date. Deferred tax assets are recognised only when there is a reasonable certainty that sufficient future taxable income will be available against which they will be realised. Where there is a carry forward of losses or unabsorbed depreciation, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence of availability of taxable income against which such deferred tax assets can be realised in future. xix. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS Provisions are recognised when there is a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Contingent liabilities are not recognised but disclosed unless the probability of an outflow of resources is remote. Contingent assets are neither recognised nor disclosed.

B. NOTES TO FINANCIAL STATEMENTS

Year ended 31st March, 2007

Rs. in crores Year ended 31st March, 2006

1 a) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) 3,079.38 315.77 {including Rs. 18.90 crores (Previous year Rs. 19.97 crores) covered under letters of credit towards services and procurement of equipment / materials, and including Rs. 20.32 crores (Previous Year Rs. 57.07 crores) on behalf of Vadinar Oil Terminal Limited towards Port Terminal project in respect of composite contracts} The above does not include effect of amendments to be signed / signed after 31st March, 2007 with certain turnkey contractors. The letters of credits opened in favour of such contractors in excess of existing contract values (subject to amendment) have been included in b) below b) Letters of credit issued by banks in favour of the Company for Refinery 178.85 Project (not included above) 2 Committed liability for future lease rentals 950.40 950.40 in respect of assets taken on lease {This amount does not include lease rentals in respect of township and other property under construction since the fair value of the same will be ascertainable only on completion of the said township and property. (Refer note B (21) of schedule XVII)} 3 Contingent liabilities a) Income tax / sales tax and other demands of various periods against which appeals have been 33.04 69.13 filed / are being filed b) Claims against the Company not acknowledged as debts : 2.05 0.16 i) In respect of customs duty ii) In respect of encashment of 7.98 7.98 performance guarantee iii) Others - On capital account {including income tax demand of Rs. 6.20 crores 27.33 24.22 (Previous year Rs. 6.20 crores)} - On revenue account 100.44 101.21 c) In respect of custom duty, where the 20.13 17.82 Customs Department has gone in appeal Guarantees / Bonds a) Guarantees given by the Company on behalf of others (to the extent of liabilities 579.48 523.41 as at balance sheet date) b) Guarantees given by banks / others on 93.25 75.77 behalf of the Company {excluding guarantees and confirming bank guarantees given as security Rs. 1,040.25 crores (Previous year Rs. 1,027.76 crores) in respect of liabilities existing in the books of accounts} The possibility of any outflow of resources relating to the above contingent liabilities is remote. The claims by parties in respect of which the management has been legally advised that the same are frivolous and not tenable, have not been considered as contingent liabilities as the possibility of an outflow of resources embodying economic benefits is highly remote. 4 Bank balances in escrow accounts and margin / 550.33 464.59 term deposits with banks on which lien is marked 0.80 5 Loan outstanding from managing director {Maximum balance during the year Rs. 0.80 crores (Previous year Rs. 1.24 crores)}

24

Rs. in crores Year ended 31st March, 2007 Year ended 31st March, 2006 Year ended 31st March, 2007

Rs. in crores Year ended 31st March, 2006

6 CIF value of imports (on accrual basis) (including goods in transit and for trial runs included in EDC) a) Raw materials - Crude oil b) Spares and components c) Capital goods d) Others 7 a) Licensed capacity - Not applicable since delicensed b) Installed capacity - Not applicable since Refinery Project is under construction / trial runs of some of the units 8 (i) Consumption of raw materials (Crude oil for trial run production of some of the units which is part of EDC) a) Quantity consumed (MT) b) Value i) Imported ii) Indigenous c) Percentage i) Imported ii) Indigenous 8 (ii) Consumption of spares and components a) Value i) Imported ii) Indigenous b) Percentage i) Imported ii) Indigenous (In absence of separate records allocated in the ratio of purchases) 9 Quantitative and other particulars of petroleum products (refined during trial runs) Petroleum products :Opening stock (Qty. in MT) Opening stock value Production (Qty. in MT) - Finished goods - Intermediate products / W.I.P. at the year end {including goods pending certification - 276,280 MT (Previous year - nil)} Closing stock (Qty. in MT) - Finished goods - Intermediate products / W.I.P. {Including goods pending certification - 276,280 MT (Previous year - nil)} Closing stock value - Finished goods - Intermediate Products / W.I.P. {including goods pending certification Rs. 677.18 crores (Previous year Rs. nil)} Sales (Qty. in MT) Sales Value

5,796.08 11.30 456.06 -

0.94 507.38 0.11

1,752,249 3,669.54 100.00% 0.00%

5.49 15.81 25.77% 74.23%

1.32 1.22 51.80% 48.20%

11 (i) Expenditure in foreign currency (on accrual basis) (including foreign exchange fluctuation) (net of reversal of foreign currency liabilities) a) Interest 40.84 12.61 0.81 0.83 b) Travelling expenses {including Rs. 0.07 crores (Previous year Rs 0.06 crores) on behalf of Vadinar Oil Terminal Limited towards port terminal project in respect of common expenses} 0.94 0.61 c) For Professional / consultancy fees {including Rs. nil (Previous year Rs. 0.06 crores) on behalf of Vadinar Oil Terminal Limited in respect of composite contracts / common expenses} 58.21 113.39 d) For services {including Rs. 37.54 crores (Previous year Rs. 19.83 crores) on behalf of Vadinar Oil Terminal Limited in respect of composite contracts / common expenses} 23.30 e) Demurrage f) Foreign tax 13.34 24.97 g) Others (ii) Earnings in foreign exchange (on accrual basis) - including for trial runs charged to EDC 0.02 7.19 a) Interest 2,272.16 b) FOB value of exports 12 Managerial remuneration 1.94 1.46 a) Salary 0.58 0.41 b) House rent allowance / rent 0.14 0.14 c) Employers contribution to provident fund and superannuation fund 0.23 0.35 d) Others TOTAL 2.89 2.36 (exclusive of provisions for liability in respect of leave encashment, since this is based on actuarial valuation done on an overall basis for all employees)
13.(a) The construction activities at the Refinery Project site at Vadinar, Gujarat were disrupted due to a cyclonic storm, which hit the Gujarat coast in June 1998. The said disruption resulted in increase in the project cost requiring reappraisal of the funding requirements. The lenders to the Project had approved in August 2003, under RBIs corporate debt restructuring scheme, a debt restructuring package (the Package), which was further modified in December, 2003 and November, 2004. The Package provided for substantial relief in interest, restructuring of existing loans, waiver of liquidated damages, disbursement of further loans, etc. The Package was formalized and a Master Restructuring Agreement (MRA) was entered into on 17th December, 2004. The Company complied with the relevant conditions as on January 31, 2005 as required under MRA entailing disbursement of new loans and restructuring of the existing loans / interest dues. The interest for the period October, 1998 to December, 2003 in respect of the loans covered by MRA, has been converted into funded interest facilities amounting to Rs. 2,528.12 crores (Previous year Rs. 2,528.12 crores). The MRA gives an option to the Company to repay the said funded interest facilities at any point in time during their term at a reduced amount computed in accordance with the mechanism provided in the MRA or in full by one bullet payment in March, 2026. The Company has plans to discharge earlier the funded interest facilities. Under the said mechanism provided in the MRA, the funded interest facilities of Rs. 2,528.12 crores (Previous year Rs. 2,528.12 crores) would stand fully discharged if Rs. 387.07 crores (Previous year Rs. 387.07 crores), is paid on or before 24th April, 2007. Should the Company opt to discharge the funded interest facilities subsequent to 24th April, 2007 then the expected economic outflow of Rs. 387.07 crores (Previous year Rs. 387.07 crores) being the present obligation under the mechanism, would gradually increase at a rate and as per the mechanism provided in the MRA. In order to give accounting effect to reflect the substance of the transaction, the Company has followed principles laid down in International Financial Reporting Standard (IAS) 39 (Revised) - Financial Instruments Recognition and Measurement and Statement of Financial Accounting Standard (SFAS) 15 - Accounting by Debtors and Creditors for Troubled Debt Restructuring under United States Generally Accepted Accounting Principles (US-GAAP), in the absence of specific guidance available under Indian Generally Accepted Accounting Principles to cover the above-mentioned situation. In view of the above, an amount of Rs. 2,141.05 crores (Previous year Rs. 2,141.05 crores) has been shown as deduction from the funded interest facilities of the financial

1,318,496 347,905

129,350 347,905

276.60 820.68

1,189,147 2,455.74

10 Quantitative and other particulars for traded goods Petroleum products :12,492.46 Opening stock (Qty. in KL) 33.42 Opening stock value Purchases (Qty. in KL) 191,197.00 562.93 Purchases value 56,596.00 Closing stock (Qty. in KL) 130.27 Closing stock value Sales (Qty. in KL) 146,997.00 473.98 Sales value (96.00) Gain / (Loss) (Qty. in KL)

57,474.53 131.21 200,258.00 542.42 12,492.46 33.42 244,920.00 636.63 (320.07)

25

Essar Oil Limited

institutions and the banks (Refer Schedule III) to reflect in substance the present obligation under the mechanism on the balance sheet date, with consequential deduction from Expenditure during Construction (Refer Schedule VII). The loan balances (including funded interest facilities) covered by MRA (hereinafter referred to as the loan balances) have been considered in the books of account in accordance with the bilateral agreements, wherever signed. Where the same are yet to be signed, the loan balances have been considered based on the confirmation of the balances as on 31st March, 2007, wherever received and agreed by the Company, or as per MRA, where the confirmations have not been received or have not been agreed pending reconciliation with the lenders. The loan balances exclude a claim of Rs. 206.88 crores (Previous year Rs. 206.88 crores) from a lender, which is not payable as per MRA. (b)(i) Secured redeemable Non Convertible Debentures (NCDs) of Rs 105/each consists of: (1) 14,864,950 (Previous year 14,025,050) 6% NCDs amounting to Rs. 103.67 crores (Previous year Rs. 146.70 crores) with repayment started from 30th April, 2006; (2) 10,291,600 (Previous year 11,640,950) 6% NCDs amounting to Rs. 82.33 crores (Previous year - Rs. 115.16 crores) with repayment started from 31st December, 2006; (3) 33,318,050 (Previous year 33,322,300) 9.25% NCDs (including partly paid debentures) amounting to Rs. 89.45 crores (Previous year Rs. 89.47 crores) with repayment starting from 20th April, 2009; (4) 16,918,250 (Previous year 177,758,150) 12.50% NCDs amounting to Rs. 177.64 crores (Previous year Rs. 186.46 crores) with repayment starting from 24th January, 2015. Further, the Company during the year accepted request of some of the debenture-holders for expeditious payment resulting in change within the type of debentures shown above. (ii) 700,000 12.5% secured redeemable NCDs, of Rs. 100 each on private placement basis are partly paid up @ Rs. 93.86 per debenture. The redemption starts from 24th January, 2015. The Honble High Court of Gujarat has, in response to the Companys petition, ruled vide its orders dated 4th August, 2006 and 11th August, 2006 that the interest on certain debentures should be accounted on cash basis. In accordance with the said petition / order, funded / accrued interest liabilities amounting to Rs. 355.45 crores (Previous year Rs. 388.15 crores) as at 31st March, 2007 have not been accounted for. Out of the above, funded interest liabilities of Rs. 220.22 crores (Previous year Rs. 227.08 crores) are payable in March, 2026 and April, 2027 and balance on various dates ranging from October, 2008 to April, 2026.

Construction, as applicable. During the year, the Company has changed the policy to recognize the said difference only upon settlement. There is no impact of this change during the current financial year as no such transaction was outstanding on balance sheet date. 21. The Company has adopted the accounting policy of recognizing certain finance leases (as lessee) upon commencement of the lease in accordance with International Accounting Standard 17 Leases as there is no specific guidance available under Indian Accounting Standard (AS-19) Leases for recognition of leases in case the assets taken on lease are under construction (CWIP) and fair value of CWIP cannot be measured reliably. 22. a) As per the Companys policy of full cost method of accounting prescribed by the Guidance Note on Accounting for Oil and Gas Producing Activities the Company has identified following 3 cost pools: 1) India CBM (Coal Bed Methane) Pool - Mehsana Pilot Project: Outside Pool. - RG (East) 2001/1 Block undetermined as yet and held outside Pool. 2) India Oil & Gas Pool Block CB-ON/3 (existence of commercial reserves established): Inside Pool. Block RJ-ON-90/5 (unsuccessful exploration no commercial reserves): Inside Pool. Block CR-ON-90/1 - undetermined as yet and held Outside Pool. Ratna & R-Series (discovered oilfield but contract not executed) held Outside Pool.

3) Myanmar Pool Blocks L and A2 - Undetermined as yet and held outside pool. However, as per the farm-in agreement with Essar Exploration & Production SouthEast Asia Limited (EEPSEAL), EEPSEAL will bear Companys share of 25% of costs until commercial discovery. Hence, all costs incurred by the Company up to March 31, 2007 are charged to EEPSEAL. (Rs. In Crores) Cost Pool Cost in Pool Cost outside Pool Total As at As at As at As at As at As at March 31, March 31, March 31, March 31, March 31 March 31, 2007 2006 2007 2006 2007 2006 India CBM India Oil & Gas Myanmar Total nil 143.84 nil* 143.84 24.96 84.38 109.34 47.95 10.09 nil* 58.04 5.52 9.26 2.78 17.56 47.95 153.93 nil* 201.88 30.48 93.64 2.78 126.90

14.

15.

16.

17.

18.

19.

20.

During the year, the Company started trial runs of some of the units of the integrated Refinery Project while the other units continued to remain under construction. Accordingly, all expenses and income arising out of trial run production and the related marketing infrastructure and other expenses are treated as part of Expenditure during Construction for ultimate capitalization as per the guidance note on Treatment of Expenditure during Construction Period issued by the Institute of Chartered Accountants of India. Due to this, some revenue expenses may not be comparable with previous year figures. An insurance claim was filed by the Company towards damages caused to the Refinery Project site, by a cyclone in June 1998 including advance loss of profit (ALOP) claim. Since the insurers repudiated the ALOP claim, the Company filed a civil suit against the insurance Company for Rs. 1,757.83 crores (Previous year Rs. 1757.83 crores) {including interest of Rs. 871.53 crores (Previous year Rs. 871.53 crores)}. Pending decision of the court, the claim amount is not recognized in the books of account. The Port Terminal portion was hived off from the composite refinery at Vadinar to Essar Shipping Limited with effect from 1st April, 1998 which, in turn, was hived off to its 100% subsidiary, Vadinar Oil Terminal Ltd (VOTL), on 1st October, 2000. The expenses incurred in respect of the composite contracts and other common expenditure as allocable to the Port Terminal Project have been charged to VOTL. Sundry debtors include Rs. 78.90 crores (Previous year Rs. 75.88 crores) (Net of provision for doubtful debts) due from government companies / agencies in respect of the Companys erstwhile oil drilling and offshore construction activities for which the Company received favorable awards in arbitration proceedings. The awards have since been challenged by the parties. Pending the outcome of the litigations, the debts are considered as recoverable and hence not provided for. The Company has given on lease certain land (along with equipment and material erected thereon) to its subsidiary company in the course of part-financing the captive power plant being erected by the subsidiary. The said lease is outside the scope of Accounting Standard (AS 19) Leases, as (a) the Standard does not apply to lease of land; and (b) except reimbursement of nominal land cess of Rs 408 per annum, no payment or series of payments are recoverable. The Company has created an equitable mortgage in favour of the lenders to VPCL for the above assets. The Company has changed the cost formula for valuing the inventory of traded petroleum products from FIFO to Weighted Average. The impact of the change on the Statement of Profit and Loss and closing stock is insignificant. The difference in the fair value of currency swaps between contract date and balance sheet date was recognized in the Statement of Profit and Loss or Expenditure during

* All costs incurred up to March 31, 2007 amounting to Rs. 5.36 Crores for Blocks L and A2 (Myanmar) have been charged to EEPSEAL, as the Companys share of 25% of costs will be borne by EEPSEAL until commercial discovery vide MOU dated October 20, 2005. (b)Companys interest in oil and gas, and CBM joint ventures as at March 31, 2007:

# Following commercial discovery in ESU field forming part of CB-ON/3 Block, and its Sr. Name of the No. Block 1. 2. 3. 4. 5. 6. 7. CB-ON/3 (Gujarat, India) CR-ON-90/1 (Assam, India) RG (East) 2001/1 (West Bengal, India) Block L (Myanmar) Block A2 (Offshore in Myanmar) AA-ONN-2004/3 (Assam, India) AA-ONN-2004/5 (Assam, India) As at March 31, 2007 #100% 16% 100% 25% 25% 10% 10% As at March 31, 2006 100% 16% 100% 25% 25% N.A. N.A.

subsequent approval by the management committee on August 4, 2006, ONGC has exercised its back-in rights of 30% for prospect ESU in financial year 2006-07, leaving the Company with a 70% participating interest in the ESU field. The Company continues to hold 100% in the rest of the CB-ON/3 Block. Application for assignment of 84% of the Companys participating interest is pending with Ministry of Petroleum & Natural Gas, Government of India. 23.Advances received from customers / others include, an amount of Rs. 5.93 crores (Previous year Rs. 113.34 crores) received in advance for expenses to be incurred in respect of composite project contracts and common expenditure as allocable to the port terminal (Refer note 16 above), Rs. 19.10 (Previous year Rs. 19.10 crores) crores received as an advance for supply of gas to be produced from one of the exploration blocks and an amount of Rs. 93.02 (Previous year Rs. 9.92 crores) crores for transfer of participating Interest in one of the exploration blocks pending necessary regulatory approvals.

26

24.The pilot project for Coal Bed Methane Gas was partially financed by a conditional grant of USD 0.89 million (Previous year USD 0.89 million) and Rs. 2.31 crores (Previous year Rs. 2.31 crores) received from a bank. The conditional grant, in terms of the agreement, will be repayable in the event the Company puts the project to commercial use, and repayments to the bank will be based on gross annual sales derived from the commercial exploitation of the project, subject to a maximum repayment of 200% of the conditional grant. 25. (a) During the year, the Company transferred Rs. 39.51 crores (Previous year Rs. 18.50 crores) from foreign project reserve created in the year upto 2000-2001 (Previous year 1999-2000) to Statement of Profit and Loss upon fulfillment of conditions prescribed u/s 80HHB of Income Tax Act, 1961. (b) Appropriation towards debenture redemption reserve has not been made in the absence of profits during the year. 26.Miscellaneous income includes duty free credit entitlement Rs. Nil (Previous year Rs. 12.64 crores), write-back of old balances not payable Rs. 0.03 crores (Previous year Rs. 8.64 crores), write back of non refundable deposits Rs. 2.20 crores (Previous year Rs. Nil) received from franchisees and commission received for sale of nozzles Rs 1.79 crores (Previous year Rs. Nil).
27.Earnings Per Share: Particulars Year ended 31st March, 2007 Rs. in Crores Profit / (Loss) after Tax Profit / (Loss) attributable to ordinary shareholders (67.49) Nos. Ordinary shares at the beginning of the year for Basic EPS Add: Weighted average number of ordinary shares issued on 28th November 2006 (for previous year on 17th June, 2005) Weighted average number of ordinary shares for Basic EPS Weighted average number of ordinary shares for Diluted EPS Nominal value of ordinary shares Basic and diluted loss per share (Rs.) 28.The year end foreign currencies exposures are given below: (a)The following Forward Exchange Contracts are not for trading or speculative purposes, but for hedging purposes: Currency US Dollar US Dollar Amount USD 20,000,000 USD 15,900,000 Buy/Sell Buy Buy Cross Currency Rupees Rupees 1,102,586,114 Rs. 10/(0.61) 1,053,140,374 Rs. 10/(0.89) 1,102,586,114 1,053,140,374 19,008,800 113,842,060 1,083,577,314 939,298,314 (93.68) Nos. (67.49) Year ended 31st March, 2006 Rs. in Crores (93.68)

Sr. No. 1. 2.

Nature of instrument

Crude Oil purchases Qty in Barrels (000) 650 150

Petroleum product sales Qty in Barrels (000) 75 550

Net options Net forward swaps

(c) The foreign currencies exposures as at 31st March, 2007 that have not been hedged by a derivative instrument or otherwise are given below:
i) Currency Payable INR (Crores) USD AUD DEM GBP JPY OMR SGD EURO Total 3,025.49 (89.96) 0.02 (-) 0.01 (0.02) 1.08 (0.72) (-) 13.34 (-) (0.01) 33.78 (36.03) 3,073.72 (126.74) (in Millions) 691.22 (20.02) 0.01 (-) 0.01 (0.01) 0.13 (0.10) (-) 1.18 (-) (-) 5.77 (6.58) Receivable INR (Crores) 74.29 (-) (-) (-) (-) (-) (-) (-) (-) 74.29 (-) Loan Liabilities (including interest) LC Outstanding (in Millions) 22.49 (19.34) (-) (-) 0.01 (-) 32.13 (-) (-) (-) 1.59 (13.11)

(in INR Millions) (Crores) 17.21 1,065.85 (-) (428.53) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) 1,065.85 (428.53)

(in INR Millions) (Crores) 243.55 (95.54) (-) (-) (-) (-) (-) (-) (-) 98.46 (86.77) (-) (-) 0.11 (-) 1.20 (-) (-) (-) 9.34 (71.77) 109.11 (158.54)

Previous year figures have been shown in brackets. ii) Bank balance in foreign currency as at 31st March, 2007 Rs. 21.96 crores (USD 5.09 Millions) Previous year Rs 0.02 crores (USD 0.004 Millions). 29. The deferred tax liability comprises of the following: As at As at 31st March, 2007 31st March, 2006 (Rs. in Crores) (Rs. in Crores) Deferred tax liability Depreciation 10.56 11.34 Expenditure on oil & gas exploration 21.71 21.74 (A) 32.27 33.08 Deferred tax assets Provision for doubtful debts 0.17 (B) 0.17 Net deferred tax Liabilities (A) (B) 32.10 33.08 30. In accordance with Accounting Standard on Segment Reporting (AS-17) issued by the Institute of Chartered Accountants of India, information relating to segments is furnished in the consolidated financial statements. 31. Professional fees include fees to auditors as auditor Rs. 0.80 crores (Previous year Rs. 1.05 crores), and for certification and other work Rs.0.06 crores (Previous year Rs. 0.32 crores). 32. Sundry creditors include: (i) Rs. 29.90 crores (Previous year Rs. nil) payable to the Subsidiary company; (ii) Rs. 3,516.18 crores (Previous year Rs. 236.74 crores) payable towards purchase of crude oil and other capital/trial runs expenditure; (iii) Rs.13.34 crores (Previous year Rs. nil) payable towards foreign tax pursuant to settlement reached subsequent to balance sheet date with the foreign tax authorities regarding certain disputed tax demands pertaining to the years 1998 to 2003; (iv) Outstanding for more than 30 days to the small scale undertakings viz. Heliflex Hydraulics & Engineering Co (Previous year - Aradhana Gases Private Ltd.). Other than that disclosed in point (iv) above, the Company has not received any intimation from suppliers regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid / payable as required under the said Act have not been given. 33. Purchase cost of traded petroleum includes transit insurance of Rs. 0.35 crores (Previous year Rs. 0.75 crores).

(b)Derivative Instruments The following derivative instruments remaining outstanding as of 31st March, 2007 have been entered into by the Company for hedging purposes and not for trading or speculative purposes: Currency swaps to hedge against fluctuations in interest rate: As at 31st March, 2007 No. of contracts: Principal - Loan taken (notional) - Loan given (notional) Nil Nil Rs.75.00 crores JPY 192.13 crores As at 31st March, 2006 1 (One)

Category wise break up of derivative contracts entered into by the Company and outstanding as on 31st March, 2007:

27

Essar Oil Limited

34. Related Party Disclosure : (Rs. In crores) Nature of Transaction Subsidiary Associates and Joint Ventures Key Management Personnel Individuals having significant influence on the company Companies in which Promoters have significant influence 56.69 (59.78) 188.35 Total (for the year ended 31st March, 2007) 56.69 (59.78) 219.03

A. Transaction with Related Parties : Rendering of services (including allocation of expenses) (VOTL - Rs. 52.22 crores) (Previous year - VOTL - Rs. 48.45 crores)) Receiving of services (including allocation of expenses) (VPCL - Rs. 30.68 crores, VOTL - Rs.56.86 crores, ESLL -Rs. 54.46 crores, (Previous year ESL - Rs. 15.22 crores ,EPL - Rs. 21.30 crores, ELL - Rs. 12.86 crores, ECL - Rs. 8.18 crores , FTL - Rs. 7.70 crores) Sale of goods (including sales tax) (ECL - Rs. 3.90 crores and EStL - Rs. 3.74 crores) (Previous year - ECL - Rs. 4.94 crores and EPL - Rs. 9.20 crores) Purchase of goods (EPL - Rs. 204.03 crores) (Previous year - ECL - Rs. 27.07 crores and EPL - Rs. 4.03 crores) Lease income (Including lease tax) (EStL - Rs. 0.63 crores, VOTL - Rs. 0.25 crores) (Previous year - EStL - Rs. 0.83 crores) Outstanding Guarantees given by the company (VPCL - Rs. 32.06 crores) (Previous year - VPCL - Rs. 298 crores) Global Depository Shares ( GDS) Issued (EEHL-RS. 352.51 crores) (Previous year - Rs. Nil) Advances given on capital account (EPL - Rs. 396.61crores) (Previous year - EPL - Rs. 417.62 crores) Loan / Advances taken / Recovered (EIL - Rs. 492.73 crores , VOTL - Rs. 103.86 crores net repayment of Rs. 301.10 Crores ) (Previous year - EIL - Rs. 225.10 crores ) Advances received on capital account (EEHL - Rs. 83.10 crores) (Previous year VOTL - Rs.116.74 crores net of repayment of Rs. 86.97 crores) Loan / Advances given / assigned / repaid (VPCL - Rs. 31.66 crores ,EIL - Rs. 227.84 croes) ( Previous year VPCL - Rs. 9.90 crores, EIL - Rs. 84.18 crores, ECL - Rs. 3.04 crores) Interest income (ECL - Rs.0.08 crores)( Previous year - Rs. Nil) Cenvat / Vat Payable (VOTL - RS.19.39 crores, EPL - Rs. 50.92 crores ) ( Previous year - Rs. Nil) Investment in Equity Shares (VPCL- Rs.36.35 crores) (Previous year -VPCL - Rs. 66.60 crores) Deposits-given (VPL - Rs. 5 crores) (Previous year - Rs. Nil) Deposits-Received (ESL - Rs. 12.00 crores) (Previous year VOTL - Rs. 10.00 crores) Advance Written Off (EPLL - Rs. 4.66 crores , Previous year - Rs. Nil) Purchase of fixed assets (Previous year - EPL - Rs. 0.02 crores) Remuneration 30.68 -

(0.23) 0.00 (0.00) 32.06 (298.00) (4.14) 31.66 (9.90) 36.35 (66.60) -

2.89

(53.57) 8.25 (16.72) 216.22 (31.10) 0.88 (0.90) 352.51 401.61 (417.62) 921.85 (258.67) 83.10 (116.74) 244.75 (87.22) 0.08 70.31 5.00 12.00 (10.00) 4.66 (0.02) -

(53.80) 8.25 (16.72) 216.22 (31.10) 0.88 (0.90) 32.06 (298.00) 352.51 401.61 (417.62) 921.85 (262.81) 83.10 (116.74) 276.41 (97.12) 0.08 70.31 36.35 (66.60) 5.00 12.00 (10.00) 4.66 (0.02) 2.89

(Shri A. N. Sinha - Rs. 1.10 crores, Shri Hari L. Mundra - Rs. 1.07 crores, Shri Suresh Mathur - Rs. 0.72 crores) (Previous year - Shri A. N. Sinha - Rs. 1.30 crores, Shri Hari L. Mundra - Rs. 1.06 crores) Directors sitting fees (Mr. Anshuman Ruia Rs. 7,500 and Mr. Prashant Ruia Rs. 65,000) (Previous year Mr. Anshuman Ruia - Rs. 7,500, Mr. Prashant Ruia - Rs. 75,500, Mr. Shashi Ruia - Rs. 7,500) Margin deposits placed by group company in respect of Letters of credit facilities / Term Loan availed by the company (VOTL - Rs. 22.25 crores) (Previous year VOTL - Rs. 168.59 crores, EWtL - Rs. 23.00 crores) Advances received ( Including Global Depository Shares advances from Essar Energy Holding Ltd.) (EEHL - Rs. 189.39 crores) , ( Previous year - Rs. Nil) B. Balance with related parties : Debit balances as on 31.03.07 Deposits (EHL - Rs. 20.20 crores , VPL - Rs. 5 crores) (Previous year - EHL - Rs. 20.20 crores ) 103.00 Investments

(2.36) -

0.01 (0.01) -

22.25 (191.59) 189.39 27.29 (22.29) -

(2.36) 0.01 (0.01) 22.25 (191.59) 189.39 -

27.29 (22.29) 103.00

28

34. Related Party Disclosure : Subsidiary Associates and Joint Ventures Key Management Personnel Individuals having significant influence on the company Companies in which Promoters have significant influence (Rs. In crores) Total (for the year ended 31st March, 2007) (66.65) -

(VPCL - Rs. 103 crores ) (Previous year -Equity shares of VPCL- Rs. 66.65 crores) (66.65) Loans ( {Previous year - EPoL - Rs. 23.40 crores (maximum balance Rs. 23.40 crores), Shri A N Sinha Rs. 0.80 crores EWTL - Rs. 1.58 crores (maximum balance Rs. 1.86 crores)} Debtors (EStL - Rs. 3.67 crores, ECL - Rs. 0.90 crores) (Previous year - EStL - Rs. 3.03 crores and ECL - Rs. 0.76 crores) Advances 3.41 {(EPL - Rs. 295.47 crores, VPCL - Rs. 3.41 crores ( Maximum Balance Rs. 40.42 crores) (Previous year - VPCL - Rs. 8.02 crores, ( Maximum Balance Rs. 74.04 crores, EStL - Rs. 18.29 crores, EPL - Rs. 14.60 crores )} (8.02) Credit Balance as on 31.03.07 Deposits (EPL - Rs. 5.00 crores, ESL - Rs. 12.00 crores and VOTL - Rs. 10.00 crores) (Previous year - EPL - Rs. 5.00 crores, EStL - Rs. 1.82 crores and VOTL - Rs. 10.00 crores) Loans and advances (EIL - Rs. 409.46 crores, VOTL - Rs. 103.86 crores) (Previous year EIL - Rs. 140.59 crores and EPoL - Rs. 22.25 crores) Creditors and other liabilities 29.88 (VOTL - Rs. 41.80 crores , EEXPL - Rs. 84.27 crores , VPCL - Rs. 29.88 crores , ESLL - Rs. 26.73 crores , EPL - Rs. 36.29 crores) (Previous year -ECL - Rs. 32.19 crores, ESL - Rs. 14.58 crores and EHL - Rs. 6.41 crores ) Advances received ( Including Global Depository Shares advacnes from Essar Energy Holding Ltd.) (EEHL - Rs.189.40 crores ) (Previous year - VOTL - Rs. 113.34 crores and EStL - Rs. 19.10 crores) Outstanding Guarantees given on behalf of the company. 20.41 (VPCL - Rs. 20.41 crores, EIL - Rs. 1103.00 crores, EStL - Rs. 382.55 crores, VOTL - Rs. 104 crores) (20.41) (Previous year - EIL - Rs. 1,103.00 crores, EStL - Rs. 382.55 crores, VOTL - Rs. 117.21 crores) Outstanding Guarantees given by the company 330.07 (VOTL - Rs. 249.41 crores, VPCL - Rs. 330.06 crores) (Previous year Rs. VOTL - Rs. 225.40 crores , VPCL - Rs. 298.00 crores) (298.00) Retention Money Received (ECL - Rs. 4.11 crores) (Previous - Rs. Nil) Margin deposits placed by group company in respect of Letter of credit facilities / Term Loan availed by the company (VOTL - Rs. 22.25 crores) (Previous year VOTL - Rs. 168.59 crores , EWTL - Rs. 23.00 crores) (1) Names of related parties and description of relationship: Subsidiary Company Vadinar Power Company Ltd (VPCL). Key Management Shri A.N.Sinha, Managing Director & CEO (Upto 30th January, 2007) Personnel Shri Hari L. Mundra, Deputy Managing Director & Director (Finance) Shri Suresh Mathur , Whole time Director w.e.f 4th April, 2006 Individuals having Shri S. N. Ruia, Chairman significant influence Shri R. N. Ruia, Vice Chairman on the company Shri P. S. Ruia, Director (Promoters) Shri A. S. Ruia, Director Companies in which Ajitesh Estates Pvt Ltd (AEPL), Arkay Holdings Pvt Ltd (AHPL), Bhander promoters have Power Ltd (BPL), Essar Agrotech Ltd (EAL), Essar Construction (India) Ltd (ECIL), Essar House Ltd (EHL), Essar Information Technology significant influence Ltd (EITL), Essar International Ltd (EINL), Essar Investments Ltd (EIL), Essar Oil Vadinar Ltd.(EOVL),Essar Power Ltd (EPoL), Essar Projects Ltd (EPL), Essar Properties Ltd (EPrL), Essar Shipping Ltd (ESL), Essar Steel Ltd (EStL), Essar World Trade Ltd (EWtL), Essar pipelines Ltd(EPLL), Essar Oil Holding Ltd(EOHL),Essar Energy (Jamnagar) Pvt Ltd (EEJPL), Essar Logistics Ltd (ELPL), Futura Travels Ltd (FTL), Golsil Exim Pvt Ltd (GEPL), Hill Properties Ltd (HPL), HY-Grade Pellets Ltd (HGPL), India Securities Ltd (ISL), Kanak Communications Ltd (KCL), New Ambi Trading & Investments Pvt Ltd (NATIPL), Nilkamal Traders Ltd (NTL), Pratik Estates Pvt Ltd (PEPL), S G Chemicals Ltd (SGCL), Sea Pride Agencies Pvt Ltd (SPAPL), Trikaya Investments Ltd (TIL), UEM Essar JV, Vadinar Oil Terminal Ltd (VOTL),Vadinar Properties Ltd (VPL) 2) Names of related parties, where the transaction during the Period with single party is 10% or more, are disclosed under each nature of transaction. 3) Previous year figures have been shown in brackets.

(0.80) -

(24.98) 7.85 (4.06) 313.94

(25.78) 7.85 (4.06) 317.35

(40.17) 28.82

(48.19) 28.82

(16.82) 513.32 (162.84) 259.17

(16.82) 513.32 (162.84) 289.05

(58.54) 189.39 (147.31) 1,615.25 (1,602.76) 249.41 (225.40) 4.11 22.50 (191.59)

(58.54) 189.39 (147.31) 1,635.66 (1,623.17) 579.48 (523.40) 4.11 22.50 (191.59) (Rs. in Crores)

35. Balances with non-scheduled banks:

Name of Nature of As at the Bank Account 31st March, 2007 Oman International Bank Current Account 0.00 (less than Rs.one lakh) Fortis Bank, Rotterdam Current Account Rs. Nil (Escrow)

Maximum during the year 0.00 (less than Rs. one lakh) 0.00 (less than Rs. one lakh)

36.Foreign tax expense represents the settlement of certain disputed tax demands of a foreign tax authority, pertaining to the years 1997 2003. 37.A special resolution was passed by the shareholders of the company through postal ballot on March 15th, 2007 for delisting of equity shares from Indian stock exchanges as per request received from a promoter company. 38.Figures of previous year have been regrouped / rearranged, wherever necessary, to conform to those of the current year. As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors Khurshed Pastakia Partner Mumbai, 30th August, 2007 V. Suresh Chief Financial Officer S. S. Shaffi Company Secretary P. S. Ruia Director Hari L. Mundra Deputy Managing Director & Director (Finance) Mumbai, 30th August, 2007

29

Essar Oil Limited

INFORMATION PURSUANT TO PART IV OF SCHEDULE VI OF THE COMPANIES ACT, 1956 BALANCE SHEET ABSTRACT AND COMPANYS GENERAL BUSINESS PROFILE.
I. REGISTRATION DETAILS REGISTRATION No. BALANCE SHEET DATE CAPITAL RAISED DURING THE YEAR 32116 31ST MARCH, 2007 STATE CODE :

Rs. in crores
4

II.

III.

PUBLIC ISSUE NIL BONUS ISSUE NIL POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS TOTAL LIABILITIES 11,598.67 SOURCES OF FUNDS PAID UP CAPITAL* 1,156.13

RIGHTS ISSUE NIL PRIVATE PLACEMENT 55.95 TOTAL ASSETS 11,598.67 RESERVES & SURPLUS 1,649.61 UNSECURED LOANS 832.36

* (Excluding Rs. 189.39 crores advance towards issue of global depository shares SECURED LOANS 7,739.08 DEFERRED TAX LIABILITY 32.10

APPLICATION OF FUNDS

NET FIXED ASSETS 10,829.90 NET CURRENT ASSETS 659.40 ACCUMULATED LOSSES NIL

INVESTMENTS 109.37 MISC. EXPENDITURE NIL

IV.

PERFORMANCE OF COMPANY TURNOVER (Including Other Income) 484.37 PROFIT/LOSS BEFORE TAX (54.55) EARNING PER SHARE IN Rs. (0.61) GENERIC NAMES OF THREE PRINCIPAL PRODUCTS/SERVICES OF COMPANY (As per monetary terms) PRODUCT DESCRIPTION i ) PETROLEUM PRODUCTS ITEM CODE No. 2710 TOTAL EXPENDITURE 538.92 PROFIT/LOSS AFTER TAX (67.49) DIVIDEND RATE % NIL

V.

For and on behalf of the Board of Directors V. Suresh Chief Financial Officer S. S. Shaffi Company Secretary Mumbai, 30th August, 2007 Statement pursuant to Section 212 of the Companies Act, 1956, relating to Companys interest in a subsidiary Company. Name of the Subsidiary 1 The Financial year of the subsidiary company ended on 2 Date from which it became a subsidiary company 3 a. Number of shares held by Essar Oil Limited with its nominees in the subsidiary at the end of the financial year of the subsidiary company. b. Extent of interest of holding company at the end of the financial year of the subsidiary company 4 The net aggregate amount of the subsidiary companys profit/(loss) so far as it concerns the members of the holding company : a. Not dealt with the holding companys account : i) For the financial year ended 31st March,2007 ii) For the previous financial years of the subsidiary company since it became the holding companys subsidiary. b. Dealt with the holding companys accounts: i) For the financial year ended 31st March,2007. ii) For the previous financial years of the subsidiary company since they became holding companys subsidiary. For and on behalf of the Board of Directors V. Suresh Chief Financial Officer S. S. Shaffi Company Secretary Mumbai, 30th August, 2007 P. S. Ruia Director Hari L. Mundra Deputy Managing Director & Director (Finance) Vadinar Power Company Limited 31st March, 2007 15th March, 2000 103,000,000 ( Ten crores thirty lacs) 100% The power plant of the subsidiary was under construction / trial runs as of 31st March, 2007. Not applicable P. S. Ruia Director Hari L. Mundra Deputy Managing Director & Director (Finance)

Not applicable

30

AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF ESSAR OIL LIMITED GROUP To the Board of Directors Essar Oil Limited 1. We have audited the attached consolidated balance sheet of Essar Oil Limited Group as at 31 st March, 2007, and also the consolidated statement of profit and loss and the consolidated cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of Essar Oil Limiteds management and have been prepared by the management on the basis of separate financial statements and other financial information regarding component. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We report that the consolidated financial statements have been prepared by the Essar Oil Limiteds management in accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements issued by the Institute of Chartered Accountants of India. 4. a) Attention is invited to note B (5)(a) of Schedule XVII to the consolidated financial statements detailing the state of Master Restructuring Agreement and reasons for following principles laid down in International Financial Reporting Standard (IAS) 39 (Revised) Financial Instruments - Recognition and Measurement and Statement of Financial Accounting Standard (SFAS) 15 - Accounting by Debtors and Creditors for Troubled Debt Restructuring under United States Generally Accepted Accounting Principles (US GAAP) in respect of part of the funded interest facilities; and

b) Attention is invited to note B (5)(b) of Schedule XVII to the consolidated financial statements with regard to following cash basis of accounting pursuant to the Court Order in respect of funded / accrued interest on debentures amounting to Rs 355.45 crores as at balance sheet date, pertaining to the Refinery Project under construction and payable at various future dates as per the scheme of arrangement and compromise between the Group and its scheme lenders; c) Attention is also invited to note B (12) of Schedule XVII to the consolidated financial statements detailing the reasons for following principle of recognizing the finance lease upon commencement of the lease in accordance with International Financial Reporting Standard (IAS 17) Leases in the absence of specific guidance in Indian Generally Accepted Accounting Principles for recognition of leases in case the assets taken on lease are under construction and fair value of Capital Work-in-Progress cannot be measured reliably. 5. Further to our remarks above, in our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India and where accounting principles generally accepted in India do not provide specific guidance in a situation, in conformity with the principles laid down in related International Financial Reporting Standard (IFRS) and / or United States Generally Accepted Accounting Principles (US GAAP): (a) in the case of the consolidated balance sheet, of the state of affairs of Essar Oil Limited group as at 31st March, 2007; (b) in the case of the consolidated statement of profit and loss, of the loss for the year ended on that date; and (c) in the case of the consolidated cash flow statement, of the cash flows for the year ended on that date. For Deloitte Haskins & Sells Chartered Accountants

Khurshed Pastakia Partner Mumbai, 30th August, 2007 Membership. No. 31544

31

Essar Oil Limited

CONSOLIDATED BALANCE SHEET AS AT 31ST MARCH, 2007 As at As at SCH. 31st March, 2007 31st March, 2006 Rs. in crores Rs. in crores STATEMENT OF CONSOLIDATED PROFIT AND LOSS FOR THE YEAR ENDED 31ST MARCH, 2007 PARTICULARS For For year ended year ended SCH. 31st March, 2007 31st March, 2006 Rs. in crores Rs. in crores

SOURCES OF FUNDS Shareholders Funds a) Capital b) Advance towards issue of global depository shares c) Reserves and surplus Loan Funds a) Secured loans b) Unsecured loans Deferred Tax Liability (Net) (Refer note B (19) of schedule XVII) TOTAL APPLICATION OF FUNDS Fixed Assets a) Gross block b) Less: Accumulated depreciation, amortisation and lease adjustment c) Net block Capital Work-in-Progress Expenditure during Construction Advances on Capital Account Investments Current Assets, Loans and Advances a) Inventories b) Sundry debtors c) Cash and bank balances d) Loans, advances and deposits Less : Current Liabilities and Provisions a) Current liabilities b) Provisions

INCOME I 1,156.13 189.39 1,649.61 8,062.41 832.36 32.10 11,922.00 V 303.92 107.60 196.32 4,629.35 4,211.79 2,197.06 6.37 3,417.97 176.84 646.94 399.83 4,641.58 XI 3,953.27 7.20 3,960.47 681.11 11,922.00 905.56 1.50 907.06 35.10 8,913.39 279.12 94.76 184.36 3,951.74 2,974.19 1,745.00 23.00 36.49 81.12 526.72 297.83 942.16 PROFIT / (LOSS) BEFORE DEPRECIATION AND TAX Less : Depreciation / Amortisation PROFIT / (LOSS) BEFORE TAX TAXES Foreign tax (Refer note B (22) of schedule XVII) Deferred tax (Net) Fringe benefit tax (0.99) 0.59 12.94 PROFIT / (LOSS) AFTER TAX Balance brought forward from previous year Add: Transferred from foreign projects reserve BALANCE CARRIED FORWARD Earnings per share (Rs.) (Refer note B (17) of schedule XVII) - Basic and diluted SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS XVII (0.61) (0.89) (67.49) 7.71 39.51 (20.27) 0.83 0.80 1.63 (93.68) 82.89 18.50 7.71 13.34 (50.04) 4.51 (54.55) (87.39) 4.66 (92.05) Sale of traded petroleum products 1,100.18 1,420.55 5,894.96 464.62 33.08 8,913.39 Other income EXPENDITURE Cost of traded petroleum products sold III IV Payments to and provisions for employees Administrative and other expenses Selling and distribution expenses Marketing infrastructure expenses Interest and other finance charges XVI XIII XIV XV 466.08 12.32 9.95 13.47 21.94 10.65 534.41 667.46 18.32 20.01 24.31 35.37 21.14 786.61 XII 473.98 10.39 484.37 636.63 62.59 699.22

II

VI VII VIII IX X

Net Current Assets TOTAL SIGNIFICANT ACCOUNTING POLICIES XVII AND NOTES TO FINANCIAL STATEMENTS

As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August, 2007 For and on behalf of the Board of Directors V. Suresh Chief Financial Officer P. S. Ruia Director

As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August, 2007 For and on behalf of the Board of Directors V. Suresh Chief Financial Officer P. S. Ruia Director

S. S. Shaffi Company Secretary

Hari L. Mundra Deputy Managing Director & Director (Finance)

S. S. Shaffi Company Secretary

Hari L. Mundra Deputy Managing Director & Director (Finance)

Mumbai, 30th August, 2007

Mumbai, 30th August, 2007

32

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2007
For the year ended 31st March, 2007 Rs. in crores A) Cash Flow from Operating Activities Net Profit before Tax (54.55) Adjustments for : 4.51 Depreciation Lease adjustment Income from lease rentals (0.66) 0.18 Fixed Assets written off Inventory written off (3.10) Interest receivable arising from arbitration award Interest income (on investing activities) (0.41) Profit on disposal of Investments (Profit) / Loss on sale of fixed assets (Net) 3.85 Interest on borrowings (other than Refinery Project) Bad debts written off / doubtful debts advances provided for 0.50 (0.03) Old payables written back (0.07) Interest on income tax refund Operating Profit / (Loss) before Working Capital Changes (49.78) Adjustments for : (96.85) Changes in inventories (7.96) Changes in receivables and advances 69.85 Changes in payables Cash generated from / (used in) Operations (84.74) (8.98) Income tax payment (Net of refund including interest) Net Cash generated from / (used in) Operations (A) (93.72) B) Cash Flow from Investing Activities Capitalisation / Additions to fixed assets (33.08) Capital Work-in-Progress / Expenditure during (2,498.07) construction / Advances on Capital Account For the Year ended 31st March, 2006 Rs. in crores For the year ended 31st March, 2007 Rs. in crores (Including interest paid / funded (Net) pertaining to the Refinery Project) (Refer note B (5) (a) and B (5) (b) of Schedule XVII) (After adjustment of changes in amounts payable / receivable) Advances received / (incurred / spent) towards common expenditure allocated to be Port Terminal (Refer note B (8) of schedule XVII) (11.41) 0.17 Sale of fixed assets Purchase of investments Fixed deposits matured / (placed) - Net 12.00 0.19 Interest received 0.06 Lease rentals received Net Cash used in Investing Activities (B) (2,530.14) C) Cash Flow from Financing Activities Borrowings {Including funding of interest (net)} 3,669.76 (Refer note 5 (a) of Schedule XVII) Proceeds from issue of foreign currency 352.51 convertible bonds (FCCBs) & GDS 189.39 Advances against GDS received (1,210.49) Repayment of borrowings (296.75) Changes in balance of bills of exchange accepted (1.08) Interest paid Unclaimed dividend / Excess debenture monies paid / Transferred to Investor Education and Protection Fund Net Cash from Financing Activities (C) 2,703.34 Net Change in Cash and Cash equivalents (A+B+C) 79.48 Cash and Cash equivalents at the beginning of the period 41.74 Cash and Cash equivalents at the end of the period 121.22 For the Year ended 31st March, 2006 Rs. in crores

(92.05) 4.66 (0.06) (0.80) 0.21 0.20 (4.45) (7.66) (22.70) (0.03) 1.43 0.85 (8.64) (0.73) (129.77) 97.79 28.79 (108.86) (112.05) (6.22) (118.27) (48.73) (2,397.88)

68.85 0.08 (1.13) (13.68) 9.48 (2,383.01) 1,426.73

180.44 (95.80) 326.22 (1.43)

(0.43) 1,835.73 (665.55) 707.29 41.74

Notes : 1. Non cash financing transactions: a) Conversion of Rs. 96 crores to unsecured loan from current liabilities. b) Settlement of unsecured loan receivable from Essar Power Limited Rs. 23.40 crores with payable of Rs. 22.25 crores and balance adjusted in current liability from Essar Power Limited. During Previous Year: a ) Settlement of borrowings Rs. 103.36 crores in exchange of the Companys investments of equity shares with book value of Rs. 50 crores. b ) Conversion of FCCBs into equity shares Rs.178.91 crores. 2. Cash and cash equivalents included in the cash flow statement comprise of the following balance sheet amounts: As at As at 31st March, 2007 31st March, 2006 Rs. in crores Rs. in crores Cash on hand and balances with banks 0.43 0.42 Cash in hand Balance with banks 118.19 31.32 in current accounts in Deposits @ 528.32 494.98 646.94 526.72 Cash and bank balances as per balance sheet 6.50 0.73 Less : Overdrawn bank balances Less : Margin & Long Term FDs 519.22 484.25 Add : Effect of exchange rate changes Cash and cash equivalents as restated 121.22 41.74 @ Comprises of margin deposits mainly towards letters of credit facilities availed and term deposits.
As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August, 2007 For and on behalf of the Board of Directors V. Suresh Chief Financial Officer S. S. Shaffi Company Secretary Mumbai, 30th August, 2007 P. S. Ruia Director Hari L. Mundra Deputy Managing Director & Director (Finance)

33

Essar Oil Limited

SCHEDULE ANNEXED TO AND FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT 31ST MARCH, 2007
As at 31st March, 2007 Rs. in crores SCHEDULE - I CAPITAL Authorised 5,000,000,000 equity shares of Rs. 10 each (Previous year 5,000,000,000 equity shares of Rs. 10 each) Issued and subscribed 1,201,456,638 equity shares of Rs.10 each (Previous year 1,145,503,314 equity shares of Rs. 10 each) Paid up 1,139,530,638 equity shares of Rs. 10 each fully paid up (Previous year - 1,083,577,314 equity shares of Rs. 10 each fully paid up) Add : Forfeited shares (61,926,000 equity shares forfeited during the financial year 1999-2000) TOTAL Notes: Of the above equity shares: a) 65,370,000 equity shares were allotted as fully paid-up equity shares pursuant to a contract for consideration other than cash during the financial year 1992-1993. b) 784,386,324 equity shares (Previous year 728,433,000) are represented by 5,126,708 (Previous year 4,761,000) global depository shares (GDS). GDS issued during the year 365,708 (Previous year 4,761,000) represented by 55,953,324 equity shares (Previous year 728,433,000). Debenture redemption reserve Balance as per last balance sheet (E) Surplus as per Statement of profit and loss (F) TOTAL ( A+B+C+D+E+F) As at 31st March, 2007 Rs. in crores 37.21 37.21 1,649.61 37.21 37.21 7.71 1,420.55 As at 31st March, 2006 Rs. in crores 16.60 16.60 General reserve Balance as per last balance sheet 1,156.13 1,100.18 Less: Debit balance in Statement of profit and loss (D) 22.30 20.27 2.03 22.30 22.30 1,139.53 1,083.58 Foreign projects reserve Balance as per last balance sheet Less: Transferred to Statement of profit and loss (C) 57.96 39.51 18.45 76.46 18.50 57.96 1,201.46 1,145.50 5,000.00 5,000.00 As at 31st March, 2006 Rs. in crores SCHEDULE - II RESERVES AND SURPLUS Capital reserve Balance as per last balance sheet Add : Effect of settlement of principal liability of loan / debentures (A) Share premium account Balance as per last balance sheet Add : Premium on issuance of GDS (B) 1,254.48 296.55 1,551.03 1,219.85 34.63 1,254.48 40.89 30.68 40.89 40.89 10.21 As at 31st March, 2007 Rs. in crores As at 31st March, 2006 Rs. in crores

Rs. in crores SCHEDULE - III SECURED LOANS Debentures (Refer note B (5) (b) of schedule XVII) a) Non convertible debentures (Including 6%, 9.25% and 12.50% debentures) b) 12.5% Non convertible debentures (A) Term loans and funded interest facilities Term loans# a) From banks {Including interest accrued and due Rs. 4.74 crores (Previous year Rs. nil)} (Refer note B (5) (a) of schedule XVII) b) From financial institutions {(Including interest accrued and due Rs. 3.42 crores (Previous year Rs. nil)} (Refer note B (5) (a) of schedule XVII) Term loans - funded interest facilities (Comprising of funding of interest for the period October, 1998 to December, 2003) (Refer note B (5) (a) of schedule XVII) a) From banks Less: Amount not payable if relevant funded interest is paid on or before 24th April, 2007 b) From financial institutions Less: Amount not payable if relevant funded interest is paid on or before 24th April, 2007 (B) Short term loans from banks Demand loan from a bank (C) (D) TOTAL (A+B+C+D) 1,095.69 927.93 1,432.43 1,213.12

Rs. in crores

453.09 6.57 459.66

537.79 6.57 544.36

3,773.79 3,040.86

2,130.00 2,375.53

1,095.69 167.76 219.31 7,201.72 351.03 50.00 8,062.41 927.93 1,432.43 1,213.12 219.31 4,892.60 458.00 5,894.96 167.76

# Term loans include interest funded for period upto September, 1998, for the period subsequent to December, 2003 and interest funded on 1st April, 2007 (Previous year - on 1st April, 2006).

34

As at 31st March, 2007 Rs. in crores

As at 31st March, 2006 Rs. in crores

As at 31st March, 2007 Rs. in crores

As at 31st March, 2006 Rs. in crores

Notes : Debentures Rs. 453.09 crores (Previous year Rs. 537.79 crores) debentures are secured / to be secured by first / second ranking security interests, on all movable and immovable assets, present and future, and first ranking security interests in favour of holders of more than 2000 debentures by pledge of certain shares of Essar Oil Limited (EOL) held by its promoters / associates, security interest on rights, title and interests under project documents, trust and retention accounts / sub-accounts, insurance policies related to projects and personal guarantees by some of the promoter directors of EOL together with collateral securities. Term loans and funded interest facilities from banks and financial institutions and debentures of Rs. 6.57 crores (Previous year Rs. 6.57 crores) a) Rs. 9,019.44 crores (Previous year Rs. 6,741.65 crores) of term loans, funded interest facilities and debentures of Rs. 6.57 crores are secured by first ranking security interests on all immovable assets (except certain leased out assets), all movable assets other than current assets and second ranking security interests on current assets, present and future, pledge of certain shares of EOL held by its promoters / associates, security interest on rights, title and interests under project documents, trust and retention accounts / sub-accounts, insurance policies related to refinery project and personal guarantees by some of the promoter directors of EOL together with collateral securities. A term loan of Rs. 104 crores is also secured by a corporate guarantee and other assets pertaining to terminal project of Vadinar Oil Terminal Limited. b) Rs. 323.33 crores (Previous year Rs. 292.00 crores) term Loans from Financial Institutions are secured / to be secured by first mortgage and charge on Vadinar Power Company Limiteds (VPCL) all immovable and movable properties including lease hold rights, first mortgage and charge by EOL on the land (along with certain equipment and materials erected thereon) and pending the creation of such security, an undertaking from EOL for prepayments of its certain debts in specified eventualities and a corporate guarantee from sister concern, to the extent of Rs. 700,000,000, a first charge on the book debts, operating cash flows, receivables, commissions, revenues and Companies intangibles including goodwill, uncalled capital; present and future, ranking pari passu with all the lenders of VPCL; pledge of at least 51% of the total paid up share capital of VPCL held by EOL; security interest on rights, title and interest in the project related contracts and contractor guarantees, trust and retention and other bank accounts and assignment of all insurance policies. c) Rs. 0.33 crores (Previous year Rs. nil) vehicle loans are secured by hypothecation of the vehicles financed.

Short term and demand loans from banks a) Rs. 401.03 crores (Previous year Rs. 23.00 crores) short term and demand loans from banks are secured / to be secured by first ranking security interests on all the current assets, second ranking security interests on (i) all the movable assets other than current assets and immovable assets (except certain leased out assets), present and future (ii) pledge of certain shares of EOL held by its promoters / associates (iii) security interest on rights, title and interests under project documents, trust and retention accounts / sub-accounts, insurance policies related to refinery project and personal guarantees by some of the promoter directors of EOL together with collateral securities. Of the above, loan of Rs. 17.60 crores (Previous year Rs. 23.00 crores) from a bank is further secured by fixed deposits placed by EOL. b) Rs. nil crores (Previous year Rs. 435.00 crores) from a bank is secured by first ranking security interests, on all movable and immovable assets, present and future, pledge of certain shares of EOL held by its promoters / associates, security interest on rights, title and interests under project documents, trust and retention accounts / sub-accounts, insurance policies related to projects and guarantees by promoters of EOL and Vadinar Oil Terminal Limited. SCHEDULE - IV UNSECURED LOANS Conditional grant from a bank (Refer note B (15) of schedule XVII) Term loan - From a bank # {Including interest accrued and due Rs. 56.82 crores (Previous year Rs. 39.01 crores)} Other loans - From a bank# - From others Overdrawn bank balances TOTAL
#

6.20

6.29

275.47

263.11

30.87 513.32 6.50 832.36

31.64 162.85 0.73 464.62

In foreign currency

SCHEDULE - V FIXED ASSETS

(Rs. in crores) Gross Block (At Cost) (I)

Description of the Assets As at 01.04.2006 Additions Deductions / write offs / adjustments As at 31.03.2007

Depreciation / Amortisation (II)

As at 01.04.2006 For the year Withdrawals (on sale) / Write backs / adjustments As at 31.03.2007

Lease Adjustment (III)

As at 31.03.2007

Net Block IV = I - (II + III)

As at 31.03.2007 As at 31.3.2006

TANGIBLE ASSETS Land Buildings Plant and machinery Furniture and fixture Office equipment Vehicles Barge Sub - Total A ASSET GIVEN ON LEASE Plant and machinery Sub - Total B Total tangible assets C = (A + B) INTANGIBLE ASSETS (other than internally generated) Softwares and licenses Total intangible assets D Total E = (C + D) Previous period

48.60 28.97 151.17 4.16 19.38 1.29 2.09 255.66 18.20 18.20 273.86

0.01 0.42 9.62 1.18 6.00 2.45 19.68 19.68

0.47 0.14 0.61 0.61

48.61 29.39 160.79 5.34 24.91 3.60 2.09 274.73 18.20 18.20 292.93

12.81 44.73 3.55 12.88 0.70 1.85 76.52 10.58 10.58 87.10

0.93 7.41 0.39 2.50 0.26 0.14 11.63 11.63

0.33 0.12 0.45 0.45

13.74 52.14 3.94 15.05 0.84 1.99 87.70 10.58 10.58 98.28

7.62 7.62 7.62

48.61 15.65 108.65 1.40 9.86 2.76 0.10 187.03 187.03

48.60 16.16 106.44 0.61 6.50 0.59 0.24 179.14 179.14

5.26 5.26 279.12 233.52

5.73 5.73 25.41 50.21

0.61 4.61

10.99 10.99 303.92 279.12

0.04 0.04 87.14 80.95

1.66 1.66 13.29 10.41

0.45 4.22

1.70 1.70 99.98 87.14

7.62 7.62

9.29 9.29 196.32 184.36

5.22 5.22 184.36

NOTES: 1 Total depreciation / amortisation for the period - Rs. 13.28 crores (Previous year Rs. 10.41 crores) is charged / allocated as under : (i) Rs. 4.51 crores (Previous year Rs. 4.66 crores) to Statement of Profit and Loss; (ii) Rs. 6.18 crores (Previous year Rs. 5.05 crores) to Expenditure during Construction; (iii) Rs. 0.29 crores (Previous year Rs. 0.09 crores) to Capital Work-in-Progress (exploration activities); (iv) Rs. 2.31 crores (Previous year Rs. 0.61 crores) to Port Terminal project. 2 Additions to plant and machinery include capital expenditure of Rs. 22.81 crores incurred by the company for a 220 KVA line from Paschim Gujarat Vij Company Limited (PGVCL) feeder, the ownership of which now vests with PGVCL and is amortised over a period of 20 years. 3 Land includes Rs. 18.67 crores (Previous year Rs. 18.67 crores) representing cost of land leased to Vadinar Oil Terminal Limited and Vadinar Power Company Limited. 4 The estimated useful life of softwares and licenses is 5 years from the date of acquisition.

35

Essar Oil Limited

As at 31st March, 2007 Rs. in crores As at 31st March, 2006 Rs. in crores
Less : Income during construction / trial operations (Refer note B (6) of Schedule XVII) Sales of products out of trial run production of some of the units Less: Excise Duty Net Sales Accretion / (Deduction) in stocks of finished and semi-finished products and work-in-progress (deducted) / added Opening Stock Finished goods Work-in-progress {a} Closing Stock Finished goods Work-in-progress {b} Accretion in stocks {b} - {a} Technical advisory services fees Less : Expenses incurred to earn technical advisory services fees Salaries, wages and bonus Employees welfare and other amenities Miscellaneous income Capitalised (C) Expenditure during construction pending allocation (D = A + B - C) As at 31.03.2006 Incurred during the year As at 31.03.2007

SCHEDULE - VI CAPITAL WORK-IN-PROGRESS Refinery project a) Project management consultancy, technical advisory fees, etc. b) Equipment / materials - Imported {Including in-transit / pending custom clearance Rs. 95.86 crores (Previous year Rs. 35.47 crores)} - Indigenous Exploration activities Expenditure on oil and gas exploration # (Refer note B (13) of schedule XVII)

691.91 3,727.15 8.41 201.88 4,629.35

595.54 3,223.90

2,455.74 22.77 2,432.97

2,455.74 22.77 2,432.97

5.40 126.90 3,951.74

{The above includes gain on account of foreign exchange fluctuation of Rs. 1.03 crores during the year (Previous year loss Rs. 0.81 crores)} # includes stores / spares consumed Rs. 3.40 crores (Previous year Rs. 2.54 crores)
SCHEDULE VII EXPENDITURE DURING CONSTRUCTION Rs. In Crores
As at 31.03.2006 EXPENDITURE DURING CONSTRUCTION (Refer note B (14) of schedule XVII) Interest and finance charges Interest and other finance charges (Gain) / Loss on foreign exchange fluctuation on loans (Net) Less: Interest income (current year amount mainly includes interest on fixed deposits furnished as margin) inclusive of tax deducted at source Rs. 6.04 crores (Previous year Rs. 2.89 crores) {Net of provision for income tax Rs. 0.27 crores (Previous year Rs. 0.27 crores)}. Less: Gain on cancellation of currency swap (Refer note B (18) (b) of schedule XVII) Less : Reduction in the amount of funded interest i.e. amount not payable if relevant funded interest is paid on or before 24th April,2007 (Refer note B (5) (a) of schedule XVII) (A) Other expenditure Raw material consumed Consumption of chemical, stores and spares Freight and material handling charges Excise Duty # Terminalisation charges Salaries, wages and bonus Contribution to / provision for provident & other funds Employees welfare and other amenities Rent Rates and taxes Repairs and maintenance: Buildings Machinery / equipments Others Professional and other technical advisory fees Power and fuel {Net of consumed out of own production Rs. 90.10 crores (Previous year Rs. nil)} Insurance Depreciation / amortisation Loss on sale of assets (Net) (Gain) / Loss on foreign exchange fluctuation (Net) Commission Provision for diminution in value of Investments Commodity derivatives loss (net) Fringe benefit tax Miscellaneous expenditure written off Bad debts written-off Sundry expenses (B) Incurred during the year As at 31.03.2007

276.60 820.68 1,097.28 1,097.28 2.24

276.60 820.68 1,097.28 1,097.28 2.24

6.47 0.58 7.05 2,974.19

2.13 0.10 0.01 0.40 3,530.66 1,237.60

2.13 0.10 0.01 6.87 0.58 3,537.71 4,211.79

# Pertains to closing stock as on 31s March, 2007 (Opening stock Rs. nil) 4,541.85 169.18 838.76 (30.99) 5,380.61 138.19

As at 31st March, 2007 Rs. in crores

SCHEDULE - VIII ADVANCES ON CAPITAL ACCOUNT Advances - Towards indigenous supply / labour / construction (Net of amount capitalised / released to Capital Work-in-Progress) Towards project management technical advisory fees, etc. Others

As at 31st March, 2006 Rs. in crores

107.81 0.73 4,602.49

27.93 5.50 774.34

135.74 6.23 5,376.83

2,106.28 56.06 34.72 2,197.06

1,692.80 28.13 24.07 1,745.00

2,141.05 2,461.44 71.91 6.10 8.06 21.78 2.72 11.82 16.33 4.49 52.70 6.33

774.34 3,669.54 17.78 34.84 16.40 15.16 59.36 3.85 5.33 6.11 0.73 1.63 53.28 9.90 22.28 51.34

2,141.05 3,235.78 3,669.54 17.78 34.84 16.40 15.16 131.27 9.95 13.39 27.89 3.45 13.45 69.61 14.39 74.98 57.67

SCHEDULE - IX INVESTMENTS (Unquoted) - At Cost Trade - long term i) 13,000,000 equity shares (Previous year - 13,000,000) of Rs. 10 each of each of Petronet VK Limited (fully paid up) ii) 1,584,000 equity shares (Previous year - 1,584,000) of Rs. 10 each of of Petronet CI Limited (fully paid up) iii) 10,000,000 (Previous year 10,000,000) equity shares of Rs. 10 each of each of Petronet India Limited (fully paid up) Less : Provision for diminution in value of investments Total SCHEDULE - X CURRENT ASSETS, LOANS AND ADVANCES Current assets Inventories a) Stores and spares b) Raw material - crude oil c) Work-in-Progress d) Traded / finished goods Sundry debtors (unsecured) (Refer note B (9) of schedule XVII) a) Over six months - Considered good - Considered doubtful b) Others - considered good Less : Provision for doubtful debts Cash and bank balances

13.00 1.58 10.00 24.58 18.21 6.37

13.00

1.58

10.00 24.58 1.58 23.00

51.26 39.95 2.18 19.51 1.58 1.15 42.63 159.30 519.80

6.80 6.17 (115.13) 7.53 16.62 20.75 1.97 4.72 76.96 3,993.92

58.06 46.12 2.18 (95.62) 7.53 18.20 20.75 3.12 42.63 4.72 236.26 4,513.72

8.96 2,181.46 820.68 406.87 3,417.97 80.61 0.56 96.23 177.40 0.56 176.84

3.07 33.42 36.49

80.26 0.56 0.86 81.68 0.56 81.12

36

As at 31st March, 2007 Rs. in crores

a) Cash on hand b) Balances with banks in: i) Current accounts ii) Deposit and escrow accounts (Deposit account comprises of margin deposits mainly placed for letters of credit facilities, guarantees and other term deposits) (A) Loans, advances and deposits (Unsecured, considered good) Advances recoverable in cash or in kind or for value to be received Bills receivable {Net of interest accrued but not due Rs. nil pertaining to period after 31st March, 2007 (Previous year Rs. 0.02 crores)} Deposits a) With government and semi government departments b) Other deposits Loans / inter corporate deposits Advance income tax {Net of provisions of Rs. 28.87 crores (Previous year Rs. 28.87 crores)} Fringe benefit tax {Net of provisions of Rs. 4.77 crores (Previous year Rs. 2.18 crores)} Less : Provision for doubtful advances (B) Total (A+B) SCHEDULE - XI CURRENT LIABILITIES AND PROVISIONS Current liabilities Bills payable on capital account {Net of unamortised discounting charges Rs. 0.69 crores pertaining to period after 31st March, 2007 (Previous year Rs. 4.94 crores pertaining to period after 31st March, 2006)} Sundry creditors (Refer Note B (22) of schedule XVII) a) For small scale industrial undertakings b) For others {Including Rs. 2,011.06 crores (Previous year Rs. 107.98 crores) covered under letters of credit} Advances received from customers / others (Refer note B (14) of schedule XVII) Security deposits Interest accrued but not due on loans (A) There is no amount due and outstanding to be credited to investor education and protection fund. Provisions For leave encashment For gratuity (B) Total (A+B) 6.38 0.82 7.20 3,960.47 46.15 51.24 3,953.27 147.57 0.07 3,653.79 54.45 400.83 1.00 399.83 4,641.58 0.03 17.43 55.92 21.77 305.68 646.94 4,241.75 0.43 118.19 528.32

As at 31st March, 2006 Rs. in crores

0.42 31.32 494.98

For Year ended 31st March, 2007 Rs. in crores

For Year ended 31st March, 2006 Rs. in crores

526.72 644.33

218.10 1.67

SCHEDULE - XII OTHER INCOME Interest {Inclusive of tax deducted at source Rs. 0.08 crores (Previous year Rs. 0.39 crores)} a) On deposits b) Others {including interest arising out of arbitration award Rs. 3.10 crores (Previous year Rs. 4.91 crores)} (A) Lease rentals Add : Lease equalisation charge (B) (C) Foreign exchange fluctuation (Net) (D) Miscellaneous income (Refer note B (16) of schedule XVII) Profit on disposal of long term investment (E) TOTAL (A+B+C+D+E) SCHEDULE - XIII PAYMENTS TO AND PROVISIONS FOR EMPLOYEES Salaries, wages and bonus Contribution to / provision for provident and other funds Staff welfare expenses TOTAL

1.08 3.45 4.53 0.66 0.66 0.28 4.92 10.39

7.66 7.58

15.24 0.80 0.06 0.86 0.78 23.01 22.70 62.59

16.00 23.36 24.98 13.98

10.16 0.49 1.67 12.32

16.27 1.09 0.96 18.32

0.24

SCHEDULE - XIV ADMINISTRATIVE AND OTHER EXPENSES Rates and taxes Electricity and water charges Insurance - others Travelling and conveyance Communication Printing and stationery Professional fees Rent Repairs and maintenance a) Buildings b) Others Advertisement Vehicle hire and maintenance charges Sitting fees to directors Sundry expenses Provision for doubtful debts and advances Inventory written off TOTAL SCHEDULE - XV SELLING AND DISTRIBUTION EXPENSES Terminalisation charges Rent for retail outlets Commission Advertisement and sales promotion expenses Others TOTAL SCHEDULE - XVI INTEREST AND OTHER FINANCE CHARGES L/C charges, guarantee commission and other charges Interest a) On fixed loans 1.06 3.65 TOTAL 10.65 1.41 2.15 21.14 b) On others 5.94 17.58 0.55 0.14 0.01 1.85 0.66 0.16 2.87 0.74 0.16 0.01 0.07 0.07 2.16 0.50 9.95 5.68 0.58 0.04 4.31 1.14 0.42 2.48 2.04 0.05 0.36 0.84 0.05 0.97 0.85 0.20 20.01

298.33 0.50 297.83 942.16

331.45

353.84

147.33

7.57 4.04 0.01 0.01 1.84 13.47

16.29 2.63 0.22 0.23 4.94 24.31

30.86 42.08 905.56

1.02 0.48 1.50 907.06

37

Essar Oil Limited

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE XVII A. SIGNIFICANT ACCOUNTING POLICIES: The financial statements have been prepared in accordance with the accounting principles generally accepted in India. A summary of the significant accounting policies is set out below: i. BASIS OF ACCOUNTING (a) The Consolidated financial statements are prepared in accordance with Accounting Standard 21 on Consolidated Financial Statements issued by the Institute of Chartered Accountants of India. (b) Principles of consolidation: The consolidated financial statements present the accounts of Essar Oil Limited and its wholly owned subsidiary viz. Vadinar Power Company Limited (Country of origin - India), together herein defined as the Group. The financial statements of Essar Oil Limited and its subsidiary have been combined on a line by line basis by adding together the book values of like items of assets, liabilities, income and expenses, after duly eliminating intra-group balances and intra group transactions, if any, resulting in unrealized profits or losses. The financial statements are prepared on accrual basis. Attention is invited to Note 5(b) of part B of this schedule. ii. USE OF ESTIMATES The preparation of financial statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Differences between the actual results and estimates are recognised in the period in which the results materialised / are known. iii. REVENUE RECOGNITION Revenue on sale of goods is recognized when property in the goods is transferred to the buyer for a price, or when all significant risks and rewards of ownership have been transferred to the buyer and no effective control is retained by the Group in respect of the goods transferred to a degree usually associated with ownership and no significant uncertainty exists regarding the amount of consideration that will be derived from the sale of goods. Revenue on transactions of rendering services is recognized either under the completed service contract method or under the proportionate completion method, as appropriate. Performance is regarded as achieved when no significant uncertainty exists regarding the amount of consideration that will be derived from rendering the services. iv. GOVERNMENT GRANTS Government grants are recognized only when there is reasonable assurance that the conditions attached to the grants will be complied with, and where such benefits have been earned and it is reasonably certain that the ultimate collection will be made. Government grants in the nature of the promoters contribution are treated as capital reserve. v. FIXED ASSETS, DEPRECIATION / AMORTISATION Fixed assets are recorded at cost less accumulated depreciation and impairment loss, if any. Cost is inclusive of non-recoverable duties and taxes, and cost of construction including erection, installation, commissioning expenses and inseparable know how costs, where applicable and Expenditure during Construction including borrowing costs and results of trial runs. Depreciation on plant and machinery and barge is provided as per straight line method. All other assets are depreciated as per written down value method. Depreciation is computed at the rates based on the estimated useful lives of the assets or the rates provided under schedule XIV to the Companies Act, 1956, whichever are higher. Depreciation on additions / deductions to fixed assets made during the year is provided on a prorata basis from / upto the date of such additions / deductions, as the case may be. Assets purchased and / or constructed by the Group whose ownership vests with others by virtue of a contract or otherwise, are amortised over the useful lives of the assets or the contract period, whichever is shorter. vi. INTANGIBLE ASSETS AND AMORTISATION Intangible assets are recognised only when it is probable that the future economic benefits that are attributable to the assets will flow to the Group and the cost of the assets can be measured reliably. Intangible assets are stated at cost less accumulated amortisation and impairment loss, if any. Intangible assets are amortised over the best estimate of their useful lives, subject to a rebuttable presumption that such useful lives will not exceed ten years. vii. CAPITAL WORK-IN-PROGRESS, EXPENDITURE DURING CONSTRUCTION AND ADVANCES ON CAPITAL ACCOUNT Direct expenditure on projects or assets under construction or development is shown under capital work-in-progress. Expenditure incidental to the construction of projects or assets under construction or development that take substantial period of time to get ready for their intended use is accumulated as expenditure during construction, pending allocation to fixed assets and other accounts, as applicable. Advances on capital account include progress / milestone based payments made under the contracts for projects and assets under construction or development, and other capital advances until the same are allocated to fixed assets and other accounts, as applicable. viii. OIL AND GAS EXPLORATION AND DEVELOPMENT COSTS The Group follows the full cost method of accounting for its oil and gas exploration and development activities whereby, all costs associated with acquisition, exploration and development of oil and gas reserves, are capitalised under capital work-in-progress, irrespective of success or failure of specific parts of the overall exploration activity within or outside a cost centre (known as cost pool). Exploration and survey costs incurred are held outside the cost pools until the existence or otherwise of commercial reserves is determined. These costs remain un-depleted pending determination, subject to there being no evidence of impairment. Costs are released to its related cost pool upon determination or otherwise of reserves. When any field in a cost pool is ready to commence commercial production, the accumulated costs in that cost pool are transferred from capital work-in-progress to the gross block of assets under producing properties. Subsequent exploration expenditure in that cost pool is added to the gross block of assets either on commencement of commercial production from a field discovery or failure. In case a block is surrendered, the accumulated exploration expenditure pertaining to such block is transferred to the gross block of assets. Expenditure carried within each cost pool (including future development cost) is depleted on a unit-of-production basis with reference to quantities, with depletion computed on the basis of the ratio that oil and gas production bears to the balance proved and probable reserves at commencement of the year. The financial statements of the Group reflect its share of assets, liabilities, income and expenditure of its joint venture operations, which are accounted on the basis of available information on a line by line basis with similar items in the Groups financial statements to the extent of the participating interest of the Group as per the various joint venture agreement(s). ix. IMPAIRMENT OF ASSETS The Group assesses on each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. If such recoverable amount of the asset is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the Statement of Profit and Loss. If at the balance sheet date, there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount but limited to the carrying amount that would have been determined (net of depreciation / amortisation) had no impairment loss been recognised in prior accounting periods. x. VALUATION OF INVENTORIES Inventories are valued at the lower of cost or net realisable value. The cost of inventory is determined using the weighted average cost formula. Attention is invited to note B (10) of this schedule for effect of change in this policy. Finished goods and Work-in-Progress include costs of conversion and other costs incurred in bringing the inventories to their present location and condition. xi. FOREIGN CURRENCY TRANSACTIONS Foreign currency transactions are accounted at the rate normally prevailing on the transaction date. Monetary items denominated in foreign currency are translated at the rate prevailing at the balance sheet date. Gains / losses on conversion / translation / settlement of foreign currency transactions are recognised in the Statement of Profit and Loss or expenditure during construction, as applicable, except those pertaining to liabilities in respect of fixed assets / capital equipment / materials acquired from outside India, which are capitalised to the carrying value of related fixed assets or capital work-in-progress / expenditure during construction, as applicable. Premia or discounts arising on forward exchange contracts entered into for the purpose of hedging currency risk, are recognized in the Statement of Profit and Loss or expenditure during construction, as applicable, over the life of the contract. The impact of exchange rate differences between the rates prevailing on the date of forward exchange contracts and the rate prevailing on the balance sheet date or on the dates of settlement of forward exchange contracts whichever is earlier, is recognised in the Statement of Profit and Loss or expenditure during construction, as applicable. xii. DERIVATIVE INSTRUMENTS (Other than forward exchange contracts) Financial derivatives and commodity hedging contracts are treated as off balance sheet transactions. Gains or losses arising there from are recognised in the Statement of Profit and Loss or expenditure during construction, as applicable, as and when settlement takes place. Attention is invited to note B (11) of this schedule for effect of change in this policy on currency swaps. xiii. OPERATING LEASE Lease expenses and lease income on operating leases are recognised on a straight line basis over the lease term in the Statement of Profit and Loss or expenditure during construction, as applicable. xiv. FINANCE LEASES Finance leases prior to April 1, 2001 As lessee: Lease rentals are accounted for on accrual basis over the lease term so as to recognise an appropriate charge in this respect in the Statement of Profit and Loss or expenditure during construction, as applicable, with a separate disclosure thereof. The appropriate charge is worked out with reference to the terms of the lease agreement, type of the asset, proportion of the lease period to the life of the asset as per technical / commercial evaluation and such other considerations. The excess of lease rentals paid over the amount accrued in respect thereof is treated as prepaid lease rental and vice versa. The leases are recognized in the books of account at the inception of the lease term. Attention is invited to note B (12) of this schedule for treatment in accordance with (AS 19) Leases in respect of a particular case. As lessor: Lease income is recognized based on the internal rate of return over the period of lease. Against the lease income, a matching lease annual charge is made to the Statement of Profit and Loss or expenditure during construction, as applicable. This annual lease charge represents recovery of the net investment / fair value of the leased asset over the lease term. The said charge is calculated by deducting the finance income for the period from the lease rental for that period. This annual lease charge comprises (i) depreciation and (ii) lease equalisation charge, where annual lease charge is greater than depreciation. However, where annual lease charge is less than depreciation, a lease equalisation credit arises.

38

Finance leases after April 1, 2001 As lessee: Assets taken on lease are capitalized at fair value or net present value of the minimum lease payments, whichever is lower. Depreciation on the assets taken on lease is charged at the rate applicable to similar type of fixed assets as per accounting policy of the Group on depreciation. If the leased assets are returnable to the lessor on the expiry of the lease period, depreciation is charged over its useful life or lease period, whichever is shorter. Lease payments made are apportioned between the finance charges and reduction of the outstanding liability in respect of assets taken on lease. The leases are recognized in the books of account at the inception of the lease term. Attention is invited to note B (12) of this schedule for treatment in accordance with (AS 19) Leases in respect of a particular case. As lessor: The assets given under a finance lease are recognised as a receivable in the balance sheet at an amount equal to the net investment in the lease. The recognition of finance income is based on a pattern reflecting a constant periodic rate of return on the net investment outstanding in respect of the finance lease. xv. RETIREMENT BENEFITS TO EMPLOYEES a) Contributions based on a specified percentage of the salary of eligible employees under a defined superannuation plan, are charged to the Statement of Profit and Loss or expenditure during construction, as applicable. There are no further obligations under the plan beyond such contributions. b) Contribution to provident fund, which is a fixed percentage of the eligible employees salary, is remitted to a trust established for this purpose and charged to the Statement of Profit and Loss or expenditure during construction, as applicable. Shortfall, if any, in the trust fund is made good by the Group. c) Provision for gratuity liability is made based on actuarial valuation and is charged to the Statement of Profit and Loss or expenditure during construction, as applicable. d) Provision for leave encashment liability is made based on actuarial valuation and is charged to the Statement of Profit and Loss or expenditure during construction, as applicable. xvi. VALUATION OF INVESTMENTS Investments are classified into long term and current investments. Long term investments are carried at cost. Diminution in value of long term investments is provided for when it is considered as being other than temporary in nature. Current Investments are carried at the lower of cost and net realisable value. xvii. BORROWING COSTS Borrowing costs that are attributable to the acquisition, construction or development of qualifying assets (i.e. the assets that take substantial period of time to get ready for intended use) are charged to expenditure during construction. Other borrowing costs are recognised in the Statement of Profit and Loss. xviii.TAXES ON INCOME The provision for current taxation is computed in accordance with the relevant tax laws and regulations. Deferred tax is recognised on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or substantively enacted as on the reporting date. Deferred tax assets are recognised only when there is a reasonable certainty that sufficient future taxable income will be available against which they will be realised. Where there is a carry forward of losses or unabsorbed depreciation, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence of availability of taxable income against which such deferred tax assets can be realised in future. xix.PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS A provision is recognised when there is a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Contingent liabilities are not recognised but disclosed unless the probability of an outflow of resources is remote. Contingent assets are neither recognised nor disclosed. B. NOTES TO FINANCIAL STATEMENTS Rs. in Crores Year ended 31st March, 2007 1 a) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) {including Rs. 18.90 crores (Previous year Rs. 19.97 crores) covered under letters of credit towards services and procurement of equipment / materials, and including Rs. 20.32 crores (Previous Year Rs. 57.07 crores) on behalf of Vadinar Oil Terminal Limited towards Port Terminal project in respect of composite contracts} The above does not include effect of amendments to be signed / signed after 31st March, 2007 with certain turnkey contractors. The letters of credits opened in favour of such contractors in excess of existing contract values (subject to amendment) have been included in b) below b) Letters of credit issued by banks in favour of the Group for Refinery Project (not included above) 2 Committed liability for future lease rentals in respect of assets taken on lease 3,140.02 Year ended 31st March, 2006 Year ended 31st March, 2007 {This amount does not include lease rentals in respect of township and other property under construction since the fair value of the same will be ascertainable only on completion of the said township and property. (Refer note B (12) of schedule XVII)} 3 Contingent liabilities a) Income tax / sales tax and other demands of various periods against which appeals have been filed / are being filed b) Claims against the Company not acknowledged as debts : i) In respect of customs duty ii) In respect of encashment of performance guarantee iii) Others - On capital account {including income tax demand of Rs. 6.20 crores (Previous year Rs. 6.20 crores)} - On revenue account c) In respect of custom duty, where the Customs Department has gone in appeal Guarantees / Bonds a) Guarantees given by the Group on behalf of others (to the extent of liabilities as at balance sheet date) b) Guarantees given by banks / others on behalf of the Group {excluding guarantees and confirming bank guarantees given as security Rs. 1,040.25 crores (Previous year Rs. 1,027.76 crores) in respect of liabilities existing in the books of accounts} The possibility of any outflow of resources relating to the above contingent liabilities is remote. The claims by parties in respect of which the management has been legally advised that the same are frivolous and not tenable, have not been considered as contingent liabilities as the possibility of an outflow of resources embodying economic benefits is highly remote. 4 Bank balances in escrow accounts and margin / term deposits with banks on which lien is marked

Rs. in crores Year ended 31st March, 2006

33.04 2.05 7.98

69.13 0.16 7.98

27.33 100.44 20.13 249.41 93.25

24.22 101.21 17.82

225.40 75.77

550.33

464.59

5. (a) The construction activities at the Refinery Project site at Vadinar, Gujarat were disrupted due to a cyclonic storm, which hit the Gujarat coast in June 1998. The said disruption resulted in increase in the project cost requiring reappraisal of the funding requirements. The lenders to the Project had approved in August 2003, under RBIs corporate debt restructuring scheme, a debt restructuring package (the Package), which was further modified in December, 2003 and November, 2004. The Package provided for substantial relief in interest, restructuring of existing loans, waiver of liquidated damages, disbursement of further loans, etc. The Package was formalized and a Master Restructuring Agreement (MRA) was entered into on 17th December, 2004. The Group complied with the relevant conditions as on January 31, 2005 as required under MRA entailing disbursement of new loans and restructuring of the existing loans / interest dues. The interest for the period October, 1998 to December, 2003 in respect of the loans covered by MRA, has been converted into funded interest facilities amounting to Rs. 2,528.12 crores (Previous year Rs. 2,528.12 crores). The MRA gives an option to the Group to repay the said funded interest facilities at any point in time during their term at a reduced amount computed in accordance with the mechanism provided in the MRA or in full by one bullet payment in March, 2026. The Group has plans to discharge earlier the funded interest facilities. Under the said mechanism provided in the MRA, the funded interest facilities of Rs. 2,528.12 crores (Previous year Rs. 2,528.12 crores) would stand fully discharged if Rs. 387.07 crores (Previous year Rs. 387.07 crores), is paid on or before 24th April, 2007. Should the Group opt to discharge the funded interest facilities subsequent to 24th April, 2007 then the expected economic outflow of Rs. 387.07 crores (Previous year Rs. 387.07 crores) being the present obligation under the mechanism, would gradually increase at a rate and as per the mechanism provided in the MRA. In order to give accounting effect to reflect the substance of the transaction, the Group has followed principles laid down in International Financial Reporting Standard (IAS) 39 (Revised) Financial Instruments Recognition and Measurement and Statement of Financial Accounting Standard (SFAS) 15 - Accounting by Debtors and Creditors for Troubled Debt Restructuring under United States Generally Accepted Accounting Principles (US-GAAP), in the absence of specific guidance available under Indian Generally Accepted Accounting Principles to cover the above-mentioned situation. In view of the above, an amount of Rs. 2,141.05 crores (Previous year Rs. 2,141.05 crores) has been shown as deduction from the funded interest facilities of the financial institutions and the banks (Refer Schedule III) to reflect in substance the present obligation under the mechanism on the balance sheet date, with consequential deduction from Expenditure during Construction (Refer Schedule VII). The loan balances (including funded interest facilities) covered by MRA (hereinafter referred to as the loan balances) have been considered in the books of account in accordance with the

364.29

950.40

178.85 950.40

39

Essar Oil Limited

bilateral agreements, wherever signed. Where the same are yet to be signed, the loan balances have been considered based on the confirmation of the balances as on 31st March, 2007, wherever received and agreed by the Group, or as per MRA, where the confirmations have not been received or have not been agreed pending reconciliation with the lenders. The loan balances exclude a claim of Rs. 206.88 crores (Previous year Rs. 206.88 crores) from a lender, which is not payable as per MRA. (b) (i) Secured redeemable Non Convertible Debentures (NCDs) of Rs 105/- each consists of: (1) 14,864,950 (Previous year 14,025,050) 6% NCDs amounting to Rs 103.67 crores (Previous year Rs. 146.70 crores) with repayment started from 30th April, 2006; (2) 10,291,600 (Previous year 11,640,950) 6% NCDs amounting to Rs. 82.33 crores (Rs. 115.16 crores) with repayment started from 31st December, 2006; (3) 33,318,050 (Previous year 33,322,300) 9.25% NCDs (including partly paid debentures) amounting to Rs 89.45 crores (Previous year Rs. 89.47 crores) with repayment starting from 20th April, 2009; (4) 16,918,250 (Previous year 177,758,150) 12.50% NCDs amounting to Rs. 177.64 crores (Previous year Rs. 186.46 crores) with repayment starting from 24th January, 2015. Further, the Group during the year accepted request of some of the debenture-holders for expeditious payment resulting in change within the type of debentures shown above. (ii) 700,000 12.5% secured redeemable NCDs, of Rs. 100 each on private placement basis are partly paid up @ Rs. 93.86 per debenture. The redemption starts from 24th January, 2015. The Honble High Court of Gujarat has, in response to the Companys petition, ruled vide its orders dated 4th August, 2006 and 11th August, 2006 that the interest on certain debentures should be accounted on cash basis. In accordance with the said petition / order, funded / accrued interest liabilities amounting to Rs. 355.45 crores (Previous year Rs. 388.15 crores) as at 31st March, 2007 have not been accounted for. Out of the above, funded interest liabilities of Rs. 220.22 crores (Previous year Rs. 227.08 crores) are payable in March, 2026 and April, 2027 and balance on various dates ranging from October, 2008 to April, 2026. 6. During the year, the Group started trial runs of some of the units of the integrated Refinery Project (including the Power Plant) while the other units continued to remain under construction. Accordingly, all expenses and income arising out of trial run production and the related marketing infrastructure and other expenses are treated as part of Expenditure during Construction for ultimate capitalization as per the guidance note on Treatment of Expenditure during Construction Period issued by the Institute of Chartered Accountants of India. Due to this, some revenue expenses may not be comparable with previous year figures. 7. An insurance claim was filed by the Group towards damages caused to the Refinery Project site, by a cyclone in June 1998 including advance loss of profit (ALOP) claim, the Group filed a civil suit against the insurance company for Rs. 1,757.83 crores (Previous year Rs. 1,757.83 crores) {including interest of Rs. 871.53 crores (Previous year Rs. 871.53 crores)}. Pending decision of the court, the claim amount is not recognized in the books of account. 8. The Port Terminal portion was hived off from the composite refinery at Vadinar to Essar Shipping Limited with effect from 1st April, 1998 which, in turn, was hived off to its 100% subsidiary, Vadinar Oil Terminal Ltd (VOTL), on 1st October, 2000. The expenses incurred in respect of the composite contracts and other common expenditure as allocable to the Port Terminal Project have been charged to VOTL. 9. Sundry debtors include Rs. 78.90 crores (Previous year Rs. 75.88 crores) (Net of provision for doubtful debts) due from government companies / agencies in respect of the Groups erstwhile oil drilling and offshore construction activities for which the Group received favorable awards in arbitration proceedings. The awards have since been challenged by the parties. Pending the outcome of the litigations, the debts are considered as recoverable and hence not provided for. 10. The Group has changed the cost formula for valuing the inventory of traded petroleum products from FIFO to Weighted Average. The impact of the change on the Statement of Profit and Loss and closing stock is insignificant. 11 The difference in the fair value of currency swaps between contract date and balance sheet date was recognized in the Statement of Profit and Loss or Expenditure during Construction, as applicable. During the year, the Group has changed the policy to recognize the said difference only upon settlement. There is no impact of this change during the current financial year as no such transaction was outstanding on balance sheet date. 12. The Group has adopted the accounting policy of recognizing certain finance leases (as lessee) upon commencement of the lease in accordance with International Accounting Standard 17 Leases as there is no specific guidance available under Indian Accounting Standard (AS-19) Leases for recognition of leases in case the assets taken on lease are under construction (CWIP) and fair value of CWIP cannot be measured reliably. 13. a) As per the Groups policy of full cost method of accounting prescribed by the Guidance Note on Accounting for Oil and Gas Producing Activities the Group has identified following 3 cost pools: 1) India CBM (Coal Bed Methane) Pool - Mehsana Pilot Project: Outside Pool. - RG (East) 2001/1 Block undetermined as yet and held outside Pool. 2) India Oil & Gas Pool - Block CB-ON/3 (existence of commercial reserves established): Inside Pool. - Block RJ-ON-90/5 (unsuccessful exploration no commercial reserves): Inside Pool. - Block CR-ON-90/1 - undetermined as yet and held Outside Pool. - Ratna & R-Series (discovered oilfield but contract not executed) held Outside Pool. 3) Myanmar Pool Blocks L and A2 - Undetermined as yet and held outside pool. However, as per the farm-in agreement with Essar Exploration & Production South-East Asia Limited (EEPSEAL), EEPSEAL will bear Groups share of 25% of costs until commercial discovery. Hence, all costs incurred by the Group up to March 31, 2007 are charged to EEPSEAL. (Rs. in Crores) Cost Pool Cost in Pool Cost outside Pool Total As at As at As at As at As at As at March 31, 2007 March 31, 2006 March 31, 2007March 31, 2006 March 31, 2007 March 31, 2006 India CBM India Oil & Gas Myanmar Total nil 143.84 nil* 143.84 24.96 84.38 109.34 47.95 10.09 nil* 58.04 5.52 9.26 2.78 17.56 47.95 153.93 nil* 201.88 30.48 93.64 2.78 126.90 * All costs incurred up to March 31, 2007 amounting to Rs. 5.36 Crores for Blocks L and A2 (Myanmar) have been charged to EEPSEAL, as the Groups share of 25% of costs will be borne by EEPSEAL until commercial discovery vide MOU dated 20th October, 2005. (b) Groups interest in oil and gas, and CBM joint ventures as at March 31, 2007: Sr. No. 1. 2. 3. 4. 5. 6. 7. Name of the Block CB-ON/3 (Gujarat, India) CR-ON-90/1 (Assam, India) RG (East) 2001/1 (West Bengal, India) Block L (Myanmar) Block A2 (Offshore in Myanmar) AA-ONN-2004/3 (Assam, India) AA-ONN-2004/5 (Assam, India) As at March 31st, 2007 #100% 16% 100% 25% 25% 10% 10% As at March 31st, 2006 100% 16% 100% 25% 25% N.A. N.A.

# Following commercial discovery in ESU field forming part of CB-ON/3 Block, and its subsequent approval by the management committee on 4th August, 2006, ONGC has exercised its back-in rights of 30% for prospect ESU in financial year 2006-07, leaving the Group with a 70% participating interest in the ESU field. The Group continues to hold 100% in the rest of the CB-ON/3 Block. Application for assignment of 84% of the Groups participating interest is pending with Ministry of Petroleum & Natural Gas, Government of India. 14. Advances received from customers / others include, an amount of Rs. 5.93 crores (Previous year Rs. 113.34 crores) received in advance for expenses to be incurred in respect of composite project contracts and common expenditure as allocable to the port terminal (Refer note 8 above), Rs. 19.10 crores (Previous year Rs.19.10 crores) received as an advance for supply of gas to be produced from one of the exploration blocks and an amount of Rs. 93.02 crores (Previous year Rs. 9.92 crores) for transfer of participating interest in one of the exploration blocks pending necessary regulatory approvals. 15. The pilot project for coal bed methane gas was partially financed by a conditional grant of USD 0.89 million (Previous year USD 0.89 million) and Rs. 2.31 crores (Previous year Rs. 2.31 crores) received from a bank. The conditional grant, in terms of the agreement, will be repayable in the event the Group puts the project to commercial use, and repayments to the bank will be based on gross annual sales derived from the commercial exploitation of the project, subject to a maximum repayment of 200% of the conditional grant. 16. Miscellaneous income includes duty free credit entitlement Rs. nil (Previous year Rs. 12.64 crores), write-back of old balances not payable Rs. 0.03 crores (Previous year Rs. 8.64 crores), write back of non refundable deposits Rs. 2.20 crores (Previous year Rs. nil) received from franchisees and commission received for sale of nozzles Rs 1.79 crores (Previous year Rs. nil).

17.Earnings Per Share:

Particulars Year ended 31st March, 2007 Rs. in Crores (67.49) (67.49) Nos. 1,083,577,314 19,008,800 1,102,586,114 1,102,586,114 Rs. 10/(0.61) Year ended 31st March, 2006 Rs. in Crores (93.68) (93.68) Nos. 939,298,314

Profit / (Loss) after Tax Profit / (Loss) attributable to ordinary shareholders Ordinary shares at the beginning of the year for Basic EPS Add: Weighted average number of ordinary shares issued on 28th November 2006 (Previous year on 17th June, 2005) Weighted average number of ordinary shares for Basic EPS Weighted average number of ordinary shares for Diluted EPS Nominal value of ordinary shares Basic and diluted earnings per share (Rs.)

113,842,060 1,053,140,374 1,053,140,374 Rs. 10/(0.89)

18.The year-end foreign currency exposures are given below: (a) The following forward exchange contracts are not for trading or speculative purposes, but for hedging purposes: Currency US Dollar US Dollar Amount USD 20,000,000 USD 15,900,000 Buy/Sell Buy Buy Cross Currency Rupees Rupees

(b) Derivative Instruments The following derivative instruments remaining outstanding as at 31st March, 2007 have been entered into by the Group for hedging purposes and not for trading or speculative purposes: Currency swaps to hedge against fluctuations in interest rate: As at As at 31st March, 2006 31st March, 2007 No. of contracts: 1 (One) Principal - Loan taken (notional) Rs. nil Rs. 75.00 crores - Loan given (notional) Rs. nil JPY 192.13 crores Category wise break-up of commodity derivative contracts entered into by the Group and outstanding as on 31st March, 2007: Sr. Nature of Crude Oil Petroleum product No. instrument purchases sales Qty in Barrels (000) Qty in Barrels (000) 1. 2. Net options Net forward swaps 650 150 75 550

40

(c) The foreign currencies exposures as at 31st March, 2007 that have not been hedged by a derivative instrument or otherwise are given below:
i) Currency Payable INR (Crores) (in Millions) Receivable INR (Crores) Loan Liabilities (including interest) LC Outstanding (in Millions)

As at 31st March, 2007 (Rs. in Crores) Add : duty free credit entitlement Add : Arbitrartion income (Drilling operations and others) Add : Profit on sale of investment Add : Write back of old liabilities Profit / (Loss) before tax Less : Taxes Profit / (Loss) after tax Segment assets Marketing of Petroleum Products Refinery including Captive Power Plant (under trial runs / constrution) (including Expenditure during Construction) (net of amount not payable if relevant funded interest is paid on or before 24th April ,2007) ( Refer Note B (5) (a) of schedule XVII ) Exploration and Production activities Others Unallocated Total group assets Segment liabilities Marketing of Petroleum Products Refinery including captive power plant (under trial runs / constrution) Exploration and Production activities Others Unallocated Total Add : Loan funds Less : Amount not payable if relevant funded interest is paid on or before 24th April ,2007 (Refer Note B (5) (a) of schedule XVII ) Total group liabilities Additions to Fixed Assets Marketing of Petroleum Products Refinery including captive power plant (under trial runs / constrution) Exploration and Production activities Unallocated Total Depreciation / Amortisation Marketing of Petroleum Products Refinery including captive power plant (under trial runs / constrution) Exploration and Production activities Others Unallocated Total Significant non-cash expenses other than depreciation Marketing of Petroleum Products Exploration and Production activities Unallocated Total 0.03 (55.14) 12.35 (67.49) 201.08

As at 31st March, 2006 (Rs. in Crores) 12.64 0.27 22.70 8.64 (92.05) 1.63 (93.68) 89.83

(in INR Millions) (Crores)

(in INR Millions) (Crores)

USD AUD DEM GBP JPY OMR SGD EURO Total

3,025.49 (89.96) 0.02 (-) 0.01 (0.02) 1.10 (0.72) (-) 13.34 (-) (0.01) 34.13 (36.03) 3,074.09 (126.74)

691.22 (20.02) 0.01 (-) 0.01 (0.01) 0.13 (0.10) (-) 1.18 (-) (-) 5.83 (6.58)

74.29 (-) (-) (-) (-) (-) (-) (-) (-) 74.29 (-)

17.21 1,065.85 (-) (428.53) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) 1,065.85 (428.53)

243.55 98.46 (95.54) (86.77) (-) (-) (-) (-) 0.11 (-) (-) 1.20 (-) (-) (-) (-) (-) (-) 9.34 (-) (71.77) 109.11 (158.54)

22.49 (19.34) (-) (-) 0.01 (-) 32.13 (-) (-) (-) 1.59 (13.11)

15,197.97 245.07 3.67 268.32 15,916.11 244.64 3,940.95 155.35 101.29 4,442.23 10,619.80

9,401.81 129.85 3.15 248.40 9,873.04 91.15 794.00 54.61 92.72 1,032.48 8,460.88

Previous year figures have been shown in brackets. ii) Bank balance in foreign currency as at 31st March, 2007 Rs. 21.96 crores (USD 5.09 Millions) Previous year Rs 0.02 crores (USD 0.004 Millions). 19. The deferred tax liability comprises of the following: As at As at 31st March, 2007 31st March, 2006 (Rs. in crores) (Rs. in crores) Deferred tax liability Depreciation 10.56 11.34 Expenditure on oil and gas exploration 21.71 21.74 (A) 32.27 33.08 Deferred tax assets Provision for doubtful debts 0.17 (B) 0.17 Net deferred tax Liabilities (A) (B) 32.10 33.08 20 Segment Reporting : (Rs. in crores) Particulars Information about Primary Segment - Business:1 Segment revenue Marketing of Petroleum Products - External - Internal Others Unallocated Total Less : Inter-segment sales Total segment revenue Add : Interest income (including interest arising from arbitration award) Add : Duty free credit entitlement Add : Arbitrartion income Add : Profit on disposal of Investment Add : Write back of old liabilities Total group revenue 2 Segment result before interest, extra ordinary items and tax Marketing of Petroleum Products Exploration and Production activities Others Unallocated Total Less : Interest expense Less : Bad debts written off Add : Interest income 6 479.23 0.78 0.60 0.16 480.77 (0.78) 479.99 4.35 0.03 484.37 638.72 3.07 0.86 0.15 642.80 (3.07) 639.73 15.24 12.64 0.27 22.70 8.64 699.22 Year ended 31st March, 2007 Year ended 31st March, 2006 5

2,141.05 12,920.98 0.30 22.88 0.73 1.50 25.41 4.00 6.18 0.29 0.51 10.98 0.19 0.50 0.69

2,141.05 7,352.31 1.14 48.31 0.52 0.24 50.21 3.85 5.05 0.09 0.48 0.33 9.80 0.37 0.20 0.69 1.26

Notes: 1) As per Accounting Standard on Segment Reporting (AS-17), issued by the Institute of Chartered Accountants of India, the Group has reported segment information on consolidated basis including information about its subsidiary. 2) The Group has disclosed Business Segment as the primary segment. Segments have been identified taking into account the organisational structure, nature of services, differing risks and internal reporting system. The Groups operation predominantly relates to Marketing of Petroleum Products, Oil & Gas exploration and Crude Petroleum Refinery (Under trial runs / constrution). 3) Additions to fixed assets shown above is including foreign exchange fluctuation and excluding Capital Work in Progress and Expenditure During Construction. 4) The Group significantly operates in one geographical segment i.e. within India. Hence, no separate information for geographical segment is required to be disclosed.

(48.73) (0.84) 0.60 (5.34) (54.31) 4.71 0.50 4.35

(138.39) (0.20) 0.37 (3.87) (142.09) 8.60 0.85 15.24

41

Essar Oil Limited

21. Related Party Disclosure : (Rs. In crores) Nature of Transaction Associates and Joint Ventures Key Management Personnel Individuals having significant influence on the company Companies in which Promoters have significant influence 56.69 (59.78) 190.18 Total (for the year ended 31st March, 2007) 56.69 (59.78) 190.18

A - Transactions with related parties Rendering of services (including allocation of expenses) (VOTL - Rs. 52.22 crores) (Previous year - VOTL - Rs. 48.45 crores) Receiving of services (including allocation of expenses) (VOTL - Rs.56.86 crores, ESLL -Rs. 54.46 crores, FTL- Rs. 19.19 crores) (Previous year ESL - 15.22 crores, EPL - 21.30 crores, ELL - Rs. 12.86 crores, ECL - Rs. 8.18 crores , FTL - 7.70 crores) Sale of goods (including sales tax) (ECL - Rs. 3.90 crores and ESTL - Rs. 3.74 crores) (Previous year - ECL - Rs. 4.94 crores and EPL - 9.20 crores) Purchase of goods (EPL - Rs. 204.03 crores) (Previous year - ECL - Rs.27.07 crores , EPL - Rs. 4.03 crores) Lease income (Including lease tax) (EStL - Rs. 0.63 crores, VOTL - Rs. 0.25 crores) (Previous year - EStL - Rs. 0.83 crores ) Global Depository Shares ( GDS) Issued (EEHL-Rs. 352.51 crores) (Previous year - Rs. Nil) Advances given on capital account (EPL - Rs. 410.35 crores) (Previous year - EPL - Rs. 417.62 crores) Loan / Advances taken / Recovered (EIL - Rs. 492.73 crores , VOTL - Rs. 103.86 crores net of repayment of Rs. 301.10 crores) (Previous year - EIL - Rs. 225.10 crores ) Advances received on capital account (EEHL - Rs. 83.10 crores) (Previous year VOTL - Rs.116.74 crores net of repayment of Rs. 86.97 crores) Loan / Advances given / assigned / repaid (EIL- Rs. 227.84 crores) ( Previous year - EIL Rs. 84.18 crores , ECL - 3.04 crores) Interest income (ECL - Rs. 0.08 crores)( Previous year - Rs. Nil) Cenvat / Vat Payable (VOTL - Rs.19.38 crores, EPL - 53.56 crores ) ( Previous year Rs. Nil) Deposits-given (VPL - Rs. 5 crores) (Previous year - Rs. Nil) Deposits-Received (ESL - Rs. 12.00 crores) (Previous year VOTL - Rs.10.00 crores) Advance Written off (EPLL - Rs. 4.66 crores) (Previous year Rs. Nil) Purchase of fixed assets (Previous year - EPL - Rs. 0.02 crores) Outstanding Guarantees given on behalf of the company (EIL - Rs. 70 crores) (Previous year - Rs. Nil) Remuneration (Shri A. N. Sinha - Rs. 1.10 crores, Shri Hari L. Mundra - Rs. 1.07 crores, Shri Suresh Mathur - Rs. 0.72 crores) (Previous year - Shri A. N. Sinha - Rs. 1.30 crores, Shri Hari L. Mundra - Rs. 1.06 crores,) Directors sitting fees (Mr. Anshuman Ruia Rs. 7,500 and Mr. Prashant Ruia Rs. 65,000) (Previous year - Mr. Anshuman Ruia - Rs. 7,500, Mr. Prashant Ruia - Rs. 75,500 and Mr. Shashi Ruia - Rs. 7,500) Margin deposits placed by group companies in respect of Letter of credit facilities / Term Loan availed by the group (VOTL - Rs. 22.25 crores) (Previous year VOTL - Rs. 168.59 crores , EWTL - Rs. 23.00 crores) Advances received ( Including Global Depository Shares advances from Essar Energy Holding Ltd.) (EEHL - Rs. 189.39 crores) ( Previous year Rs. Nil) B - Balances with related parties Debit balances as on 31.03.07 Deposits (EHL - Rs. 20.20 crores , VPL - Rs. 5 crores) (Previous year - EHL - Rs. 20.20 crores ) Loans (Previous year {EPoL - Rs. 23.40 crores(maximum balance Rs. 23.40 crores), Shri A N Sinha Rs. 0.80 crores EWTL - Rs. 1.58 crores (maximum balance Rs. 1.86 crores)} Debtors (EStL - Rs. 3.67 crores, ECL - Rs. 0.90 crores) (Previous year - EStL - Rs. 3.03 crores , ECL - Rs. 0.76) Advances

2.89

(75.20) 8.25 (16.72) 216.22 (31.10 0.88 (0.90) 352.51 415.35 (417.62) 921.85 (258.67) 83.10 (116.74) 244.58 (87.22) 0.08 70.31 5.00 12.00 (10.00) 4.66 (0.02) -

(75.20) 8.25 (16.72) 216.22 (31.10) 0.88 (0.90) 352.51 415.35 (417.62) 921.85 (258.67) 83.10 (116.74) 244.58 (87.22) 0.08 70.31 5.00 12.00 (10.00) 4.66 (0.02) 70.00 2.89

(2.36) -

0.01

(2.36) 0.01

(0.80) -

(0.01) -

22.25 (191.59) 189.39 27.29 (22.29) (24.98) 7.85 (4.06) 313.94

(0.01) 22.25 (191.59) 189.39 27.29 (22.29) (25.78) 7.85 (4.06) 313.94

(EPL - Rs. 295.47 crores ) (Previous year - ESTL - Rs. 18.29 crores ,EPL - Rs. 14.60 crores)

(40.17)

(40.17)

42

(Rs. In crores) Nature of Transaction Associates and Joint Ventures Key Management Personnel Individuals having significant influence on the company Companies in which Promoters have significant influence Total (for the year ended 31st March, 2007)

Credit Balance as on 31.03.07 Deposits (EPL - Rs. 5.00 crores, ESL - Rs. 12.00 crores, VOTL - Rs. 10.00 crores) (Previous year - EPL - Rs. 5.00 crores, ESTL - Rs.1.82 crores, VOTL - Rs. 10 crores) Loans and advances (EIL - Rs. 409.46 crores, VOTL - 103.86 crores) (Previous year EIL - Rs. 140.59 crores,EPOL - Rs.22.25 crores) Creditors and other liabilities (VOTL - Rs. 41.80 crores , EEXPL - Rs. 84.27 crores ,ESLL - Rs. 26.73 crores, EPL - Rs. 36.29 crores) (Previous year - ECL - Rs. 32.19 crores, EPL - Rs. 21.30 crores, ESL - Rs. 14.58 crores, EHL - Rs. 6.41 crores) Advances received ( Including Global Depository Shares advances from Essar Energy Holding Ltd.) (EEHL - Rs.189.40 crores) (Previous year - VOTL - Rs. 113.34 crores, ESTL - Rs. 19.10 crores) Outstanding Guarantees given on behalf of the group (EIL - Rs. 1173.00 crores, EStL - Rs. 382.55 crores, VOTL - Rs. 104.00 crores) (Previous year - EIL - Rs. 1103.00 crores, EStL - Rs. 382.55 crores, VOTL - Rs. 117.21 crores) Outstanding Guarantees given by the group (VOTL - Rs. 249.41 crores) (Previous year VOTL - Rs. 225.40 crores) Retention Money Received (ECL - Rs. 4.11 crores) (Previous year - Rs. Nil) Margin deposits placed by group company in respect of Letter of credit facilities / Term Loan availed by the group (VOTL - Rs. 22.25 crores) (Previous year VOTL - Rs. 168.59 crores , EWTL - Rs. 23. 00 crores)
NOTES:

28.82 (16.82) 513.32 (162.84) 261.38

28.82 (16.82) 513.32 (162.84) 261.38

(80.19) 189.39 (147.31) 1,685.25

(80.19) 189.39 (147.31) 1,685.25

(1,602.76) 249.41 (225.40) 4.11 22.50 (191.59)

(1,602.76) 249.41 (225.40) 4.11 22.50 (191.59)

other capital / trial runs expenditure; (ii) Rs. 13.34 crores (Previous year Rs. nil) payable towards foreign tax pursuant to a settlement reached subsequent to balance sheet date with a foreign tax authority regarding certain disputed tax demands pertaining to the years 1998 to 2003; (iii) Outstanding for more than 30 days to small scale industrial undertakings viz. Heliflex Hydraulics & Engineering Co (Previous year - Aradhana Gases Private Ltd.). Other than that disclosed in point (iv) above, the Group has not received any intimation from suppliers regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid / payable as required under the said Act have not been given. 23. Figures of previous year have been regrouped / rearranged, wherever necessary, to conform to those of the current year. As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August, 2007 For and on behalf of the Board of Directors V. Suresh Chief Financial Officer S. S. Shaffi Company Secretary Mumbai, 30th August, 2007 P. S. Ruia Director Hari L. Mundra Deputy Managing Director & Director (Finance)

(1) Names of related parties and description of relationship: Key Management Personnel Individuals having significant influence on the company (Promoters) Companies in which promoters have significant influence Shri A.N.Sinha, Managing Director & CEO (Upto 30th January, 2007) Shri Hari L. Mundra, Deputy Managing Director & Director (Finance) Shri Suresh Mathur , Whole time Director w.e.f 4th April, 2006 Shri S. N. Ruia, Chairman Shri R. N. Ruia, Vice Chairman Shri P. S. Ruia, Director Shri A. S. Ruia, Director Ajitesh Estates Pvt Ltd (AEPL), Arkay Holdings Pvt Ltd (AHPL), Bhander Power Ltd (BPL), Essar Agrotech Ltd (EAL), Essar Construction (India) Ltd (ECIL), Essar House Ltd (EHL), Essar Information Technology Ltd (EITL), Essar International Ltd (EINL), Essar Investments Ltd (EIL), Essar Oil Vadinar Ltd.(EOVL),Essar Power Ltd (EPoL), Essar Projects Ltd (EPL), Essar Properties Ltd (EPrL), Essar Shipping Ltd (ESL), Essar Steel Ltd (EStL), Essar World Trade Ltd (EWtL), Essar pipelines Ltd(EPLL), Essar Oil Holding Ltd(EOHL),Essar Energy (Jamnagar) Pvt Ltd (EEJPL), Essar Logistics Ltd (ELPL), Futura Travels Ltd (FTL), Golsil Exim Pvt Ltd (GEPL), Hill Properties Ltd (HPL), HY-Grade Pellets Ltd (HGPL), India Securities Ltd (ISL), Kanak Communications Ltd (KCL), New Ambi Trading & Investments Pvt Ltd (NATIPL), Nilkamal Traders Ltd (NTL), Pratik Estates Pvt Ltd (PEPL), S G Chemicals Ltd (SGCL), Sea Pride Agencies Pvt Ltd (SPAPL), Trikaya Investments Ltd (TIL), UEM Essar JV, Vadinar Oil Terminal Ltd (VOTL),Vadinar Properties Ltd. (VPL)

2) Names of related parties, where the transaction during the period with single party is 10% or more, are disclosed under each nature of transaction. 3) Previous year figures have been shown in brackets. 22. Sundry creditors include: (i) Rs. 3,522.13 crores (Previous year Rs. 238.27 crores) payable towards purchase of crude oil and

43

Vadinar Power Company Limited

AUDITORS REPORT TO THE MEMBERS OF VADINAR POWER COMPANY LIMITED 1. We have audited the attached Balance Sheet of Vadinar Power Company Limited (the Company), as at 31st March, 2007 and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order. Further to our comments in the Annexure referred to above, we report that: (i) (ii) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; Mumbai, 30th August, 2007 (vii) In respect of statutory dues: a. According to the information and explanations given to us, the Company is generally regular in depositing with appropriate authorities undisputed statutory dues of provident fund, income tax, custom duty and service tax. As explained to us, the Company does not have any dues on account of investor education and protection fund, Employees state insurance, sales tax, wealth tax, excise duty and cess. Since the Central Government has till date not prescribed the final rate of Cess payable under Section 441A of the Companies Act 1956, we are not in a position to comment upon the regularity or otherwise of the company in depositing the same. There are no arrears of any material undisputed statutory dues as at 31st March, 2007 outstanding for a period of more than six months from the date they became payable. b. According to information and explanations given to us, there are no dues of income tax, sales tax, wealth tax, service tax, custom duty, excise duty and cess which have not been deposited on account of dispute. (iii) The balance sheet and cash flow statement dealt with by this report are in agreement with the books of account; (iv) In our opinion, the balance sheet and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; (v) On the basis of written representations received from directors and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;

2.

(vi) Further to our remarks above, in our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the notes thereon give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) (b) in the case of the balance sheet, of the state of affairs of the Company as at 31st March, 2007; and in the case of the cash flow statement, of the cash flows for the year ended on that date. For DELOITTE HASKINS & SELLS Chartered Accountants Khurshed Pastakia Partner Membership No. 31544

3.

4.

ANNEXURE TO THE AUDITORS REPORT (Referred to in paragraph 3 of our report of even date) In our opinion and according to the information and explanations given to us, the nature of the Companys business/activities/state of affairs during the year are such that clauses (ii), (vi), (xii), (xiii), (xiv), (xv), (xvii), (xviii), (xix) and (xx) of para 4 of the Order are not applicable to the Company. (i) In respect of its fixed assets: a. b. c. (ii) The Company has maintained proper records showing full particulars, including quantitative details and situation of its fixed assets. The assets have been physically verified by the management during the year. No discrepancies were noticed in respect of the assets physically verified during the year. The Company has not disposed of any substantial part of its fixed assets so as to affect its going concern status.

In our opinion and according to the information and explanations given to us, the Company has neither granted nor taken any loans, secured or unsecured to/ from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956.

(viii) The Company does not have accumulated losses as at 31st March, 2007 and has not incurred cash losses during the current and the immediately preceding financial year. (ix) In our opinion, on the basis of audit procedures and according to the information and explanations given to us, the Company has not defaulted as on 31st March, 2007 in repayment of dues to financial institutions. The Company has not borrowed any sums from banks and through debentures. (x) To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, term loans availed by the Company were, prima facie, applied by the Company during the year for the purposes for which the loans were obtained, other than temporary deployment pending application.

(iii) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and nature of its business with regard to purchases of Fixed Assets and rendering of services. The nature of Companys activities is such that purchase of inventory and sale of goods are not applicable. During the course of our audit, no major weakness has been noticed in the internal control system. (iv) In our opinion and according to the information and explanations given to us, there are no contracts or arrangements that need to be entered into the register maintained under Section 301 of the Companies Act, 1956. (v) The internal audit system is generally commensurate with the size of the Company and nature of its activity.

(xi) To the best of our knowledge and belief and according to the information and explanations given to us, no material fraud on or by the Company was noticed or reported during the period. For DELOITTE HASKINS & SELLS Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August, 2007 Membership No. 31544

(vi) The Central Government has prescribed for the maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956. However, as the Companys power plant project is under trial run/ construction, in view of the management based on an expert opinion, the requirements of Section 209(1) (d) of the Companies Act, 1956 are not currently applicable to the company.

44

Vadinar Power Company Limited

BALANCE SHEET AS AT 31ST MARCH, 2007
Schedule No. SOURCES OF FUNDS SHAREHOLDERS FUNDS Share Capital LOAN FUNDS Secured Loans II 3,233,335,635 34,050,639 4,297,386,274 APPLICATION OF FUNDS FIXED ASSETS a) b) c) Gross Block Less: Accumulated Depreciation Net Block IV V VI VII 298,950,683 39,695,203 41,138,618 379,784,504 LESS: CURRENT LIABILITIES AND PROVISIONS Current Liabilities Provisions Net Current Assets / ( Liabilities ) SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS IX VIII 126,892,788 1,920,079 128,812,867 250,971,637 4,297,386,274 75,320,376 1,059,236 76,379,612 (1,190,854) 3,667,321,932 Cash on hand and balances with banks Balance with banks In current accounts In Term deposits Cash and bank balances as per balance sheet As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August, 2007 For and on behalf of the Board of Directors Mayank Bhargava Company Secretary A. K. Srivastava Director S. R. Agrawal Director 39,695,203 39,695,203 3,410,189 64,500,000 67,910,189 67,910,189 7,278,569 75,188,758 III 706,654 31,710 674,944 2,693,742,425 1,160,121,549 191,875,719 84,497 11,273 73,224 2,653,887,753 1,009,363,954 5,187,855 2,920,000,000 80,828,862 3,667,321,932 Unsecured advances from holding company I As at As at 31st March, 2007 31st March,2006 (Rs.) (Rs.)

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2007
PARTICULARS A) Cash Flow from Operating Activities 1,030,000,000 666,493,070 Net cash generated from operations B) Cash Flow from Investing Activities Additions to fixed assets Capital work in progress / Advances on capital account / Expenditure during construction {including interest paid (net)} Net cash used in investing activities C) Cash Flow from Financing Activities Proceeds against issue of Share Capital Advances received from holding company (net) Proceeds from term loans Net cash from financing activities Cash and Cash equivalents at the beginning of the year Cash and Cash equivalents at the end of the year Non cash financing transactions Conversation of payables on account of advances and others from holding company to equity 80,828,862 282,678,068 34,050,639 313,335,635 630,064,342 665,993,000 55,845,684 2,920,000,000 3,641,838,684 67,812,821 97,368 67,910,189 (622,157) (70,848) For the year ended 31st March, 2007 (Rs.) For the year ended 31st March, 2006 (Rs.) -

(657,657,171) (658,279,328)

(3,573,955,015) (3,574,025,863)

CAPITAL WORK-IN-PROGRESS EXPENDITURE DURING CONSTRUCTION ADVANCES ON CAPITAL ACCOUNT CURRENT ASSETS , LOANS AND ADVANCES Sundry Debtors Cash & Bank Balances Loans, Advances and Deposits

Net Change in Cash and Cash equivalents (A+B+C) (28,214,986) 67,910,189 39,695,203

Note: Cash and cash equivalents included in the cash flow statement comprise of the following balance sheet amounts. As at 31st March, 2007 As at 31st March,2006

As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30 August, 2007
th

For and on behalf of the Board of Directors A. K. Srivastava S. R. Agrawal Director Director Mumbai, 30 August, 2007
th

Mayank Bhargava Company Secretary

Mumbai, 30 th August, 2007

SCHEDULE ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS AT 31ST MARCH, 2007 As at As at As at As at 31st March, 2007 31st March,2006 31st March, 2007 31st March,2006 (Rs.) (Rs.) (Rs.) (Rs.) SCHEDULE II SCHEDULE I SECURED LOANS SHARE CAPITAL From Financial Institutions AUTHORISED Term Loans 3,233,335,635 2,920,000,000 105,000,000 equity Shares of Rs.10 each 1,050,000,000 1,050,000,000 3,233,335,635 2,920,000,000 (Previous year 105,000,000 equity Shares of Rs.10 each) Note: Term Loans from Financial Institutions are secured / to be secured by first mortgage and charge on all immovable ISSUED, SUBSCRIBED AND PAID UP and movable properties including lease hold rights, first mortgage and charge by the holding company on the land (along 103,000,000 equity shares of Rs.10 each with certain equipment and materials erected thereon) and pending the creation of such security, an undertaking from the fully paid up (Previous year - 66,649,307 equity holding company for prepayments of its certain debts in specified eventualities and a corporate guarantee from sister 1,030,000,000 666,493,070 shares of Rs.10 each fully paid up) concern , to the extent of Rs. 700,000,000, a first charge on the book debts, operating cash flows, receivables, commissions, (All the shares are held by Essar Oil Limited, revenues and intangibles including goodwill, uncalled capital; present and future, ranking pari passu with all the lenders; the holding company and its nominees) pledge of at least 51% of the total paid up share capital of the Company held by the holding company; security interest on rights, title and interest in the project related contracts and contractor guarantees, trust and retention and other bank TOTAL 1,030,000,000 666,493,070
accounts and assignment of all insurance policies.

SCHEDULE III - FIXED ASSETS Gross Block (At Cost) (A) Description of the Assets As at 01.04.2006 Additions Deductions/ write offs/ adjustments As at 31.03.2007 66,771 500,774 30,000 109,109 706,654 84,497 As at 01.04.2006 7,841 3,432 11,273 6,896 Depreciation / Amortisation (B) For the year 10,541 8,973 744 179 20,437 4,377 Withdrawals (on sale) / write backs/ Adjustments As at 31.03.2007 18,382 12,405 744 179 31,710 11,273

(Amount in Rs.) Net Block (C)=(A-B) As at 31.03.2007 48,389 488,369 29,256 108,930 674,944 73,224 As at 31.03.2006 44,024 29,200 73,224 -

TANGIBLE ASSETS Office Equipment 51,865 14,906 Plant and Machinery 32,632 468,142 Furniture and fixtures 30,000 INTANGIBLE ASSETS Softwares 109,109 Total 84,497 622,157 Previous Year 13,649 70,848 Note:- The estimated useful life of software is 5 years from the date of acquisition.

45

Vadinar Power Company Limited

SCHEDULE ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS AT 31ST MARCH, 2007 SCHEDULE- IV CAPITAL WORK IN PROGRESS As at As at 31st March, 2007 31st March, 2006 (Rs.) (Rs.) a) Project management consultancy, 37,207,991 7,160,319 technical advisory fees, etc. b) Power plant equipment / materials 2,636,727,344 2,636,727,344 - Imported - Indigenous 19,807,090 10,000,090 2,656,534,434 2,646,727,434 TOTAL 2,693,742,425 2,653,887,753 {The above includes gain / (loss) on account of foreign exchange Rs. nil during the year (Previous year gain Rs. 24,736,359)} SCHEDULE - V EXPENDITURE DURING CONSTRUCTION Nature of Expenses As at 31.03.2006 (Rs.) I. INTEREST AND OTHER FINANCE CHARGES (NET) Interest on Loans Other financing charges Less: Interest income {Inclusive of TDS Rs. 192,948 for the year, (Previous year Rs.1,613,127)} Sub Total (A) For the year (01.04.2006 to 31.03.2007) (Rs.) At at 31.03.2007 (Rs.) SCHEDULE ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS AT 31ST MARCH, 2007 SCHEDULE - VI ADVANCES ON CAPITAL ACCOUNT As at As at 31st March, 2007 31st March, 2006 (Rs.) (Rs.) - Towards indigenous supply / labour / construction 137,441,037 - Towards technical and engineering services 36,775,514 17,659,168 5,187,855 - Others TOTAL 191,875,719 5,187,855 SCHEDULE - VII CURRENT ASSETS, LOANS AND ADVANCES CURRENT ASSETS Sundry debtors (Unsecured, considered good) a) Over six months b) Others Cash and bank balances Balance with Banks a) Current accounts b) Deposit accounts LOANS, ADVANCES AND DEPOSITS (Unsecured, considered good) Advances recoverable in cash or in kind or for value to be received Advance income tax (Net of Provision Rs.2,672,363 Previous year Rs. nil) TOTAL SCHEDULE - VIII CURRENT LIABILITIES & PROVISIONS CURRENT LIABILITIES Sundry creditors* The Company has not received any intimation from Suppliers regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, relating to amounts unpaid as at the year end together with interest paid / payable as required under the said Act has not been furnished and provision for Interest if any on delayed payments is not ascertainable at this stage. *Note : There is no amount due and outstanding to be credited to Investor Education and Protection Fund. Interest accrued but not due (A) Provisions For Leave encashment For Income tax (net of advance tax Current year Rs. Nil, Previous year Rs. 1,613,125) For Gratuity For Fringe benefit tax (Net of advance tax Rs. 250,000, Previous year Rs. nil) (B) TOTAL SCHEDULE IX SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS A. SIGNIFICANT ACCOUNTING POLICIES : The financial statements have been prepared in accordance with the accounting principles generally accepted in India. A summary of the significant accounting policies is set out below: i. BASIS OF ACCOUNTING The financial statements are prepared on accrual basis. ii. USE OF ESTIMATES The preparation of financial statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Differences between the actual results and estimates are recognised in the period in which the results are known / materialised. iii. REVENUE RECOGNITION Revenue is recognized in accordance with power processing agreement over the period of the agreement as and when services are rendered. Services are regarded as rendered when no significant uncertainty exits regarding the amount of consideration that will be derived from rendering services. iv. FIXED ASSETS, DEPRECIATION / AMORTISATION Fixed assets are recorded at cost less accumulated depreciation and impairment loss, if any. Cost is inclusive of non-recoverable duties and taxes, and cost of construction including erection, installation and commissioning expenses, borrowing costs, expenditure during construction, inseparable know how costs profits or losses earned / incurred during the trial run and other incidental costs, where applicable. 67,353,903 126,892,788 1,517,029 373,180 29,870 1,920,079 128,812,867 60,048,745 75,320,376 1,059,236 1,059,236 76,379,612

298,950,683 298,950,683

39,695,203 39,695,203

3,410,189 64,500,000 67,910,189

117,986,608 782,278,365 900,264,973

337,262,917 933,425 338,196,342

455,249,525 783,211,790 1,238,461,315

33,089,787 8,048,831 41,138,618

7,278,569 7,278,569

7,939,285 892,325,688

549,060 337,647,282 496,198 1,566,542 240,215 57,971 79,483 15,095 5,012,256 408 492,816 60,149,045 18,334,043 3,972,642 20,437 (485,094) 473,211 1,132,395 279,870 91,837,533

8,488,345 1,229,972,970 496,198 1,566,542 240,215 2,198,843 237,302 27,615 14,330,066 627 2,400 532,913 78,262,717 18,334,043 3,978,642 31,710 75,811,051 6,152,711 3,719,971 2,672,363 279,870 208,875,799

59,538,885

15,271,631

II. OTHER EXPENDITURE / (INCOME)-(NET) Salaries, wages and bonus Employees welfare and other amenities Contribution to / provision for provident and other funds Traveling and conveyance 2,140,872 Communication 157,819 Printing and stationery 12,520 Professional fees 9,317,810 Rent 219 Rates and taxes 2,400 Repairs and Maintenance - Buildings 40,097 - Plant and machinery 18,113,672 Operation and maintenance charges Insurance 6,000 Depreciation 11,273 Foreign exchange fluctuation - others (Net) 76,296,145 ROC fees and stamp duty 5,679,500 Sundry expenses 2,587,576 Income tax 2,672,363 Fringe benefit tax (i) 117,038,266 Less : Income during construction / trial operations (Refer note B (1) of Schedule IX) Power processing charges (ii) Technical advisory services (iii) Less : Expenses incurred to earn technical advisory services Salaries, wages and bonus (iv)(a) Employees Welfare and other amenities (iv)(b) Contribution to / provision for provident and other funds (iv)(c) (v) = (iii) - {(iv)(a)+(iv)(b)+(iv)(c)} Sub Total (B) = (i)-(ii)-(v) Expenditure during construction- pending allocation (Net) (A+B)

278,727,220 24,992,703

278,727,220 24,992,703

20,742,796 2,832,492 1,417,415 (186,889,687)

20,742,796 2,832,492 1,417,415 (69,851,421)

117,038,266

1,009,363,954

150,757,595

1,160,121,549

46

Depreciation on plant and machinery is provided as per straight line method. All other assets are depreciated as per written down value method. Depreciation is computed at the rates based on the estimated useful lives of the assets or the rates provided under Schedule XIV to the Companies Act, 1956, whichever are higher (Refer Note B (6) of this Schedule). Depreciation on additions / deductions to fixed assets made during the year is provided on a prorata basis from / up to the date of such additions / deductions, as the case may be. Assets created by the company whose ownership vests with others by virtue of a contract or otherwise, are amortised over the useful lives of the assets or the contract period, whichever is shorter. v. INTANGIBLE ASSETS AND AMORTISATION Intangible assets are recognised only when it is probable that the future economic benefits that are attributable to the asset will flow to the Company and the cost of the asset can be measured reliably. Intangible assets are stated at cost less accumulated amortisation and impairment loss, if any. The intangible assets are amortised over the best estimate of their useful lives, subject to a rebuttable presumption that such useful lives will not exceed ten years. vi. CAPITAL WORK-IN-PROGRESS, EXPENDITURE DURING CONSTRUCTION AND CAPITAL ADVANCES Direct expenditure on project or assets under construction or development is shown under Capital Work in Progress. Expenditure incidental to the construction of project that take substantial period of time to get ready for their intended use is accumulated as expenditure during construction, pending allocation to fixed assets and other accounts, as applicable, on completion of the project. Advances on capital account include progress / milestone based payments made under the contracts for project or assets under construction and other capital advances until the same are allocated to fixed assets and other accounts, as applicable. vii.IMPAIRMENT OF ASSETS The Company assesses on each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company es timates the recoverable amount of the asset. If such recoverable amount of the asset is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the Statement of profit and loss. If at the balance sheet date, there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount but limited to the carrying amount that would have been determined (net of depreciation / amortisation) had no impairment loss been recogised in prior accounting periods. viii.FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currency are accounted at the rate prevailing on the transaction date. Monetary items denominated in foreign currency are translated at the rate prevailing at the balance sheet date. Gains/losses on conversion / translation / settlement of foreign currency transactions are recognized in Statement of Profit and Loss or Expenditure During Construction, as applicable, except those pertaining to liabilities in respect of fixed assets / capital equipment / material acquired from outside India, which are capitalised to the carrying value of related fixed assets or Capital work in progress, as applicable. ix. RETIREMENT BENEFITS TO EMPLOYEES a) The contributions to Life Insurance Corporation of India based on a specified percentage of the salary of eligible employees under a defined superannuation Plan, is charged to the Statement of Profit and Loss or Expenditure During Construction, as applicable. There are no further obligations under the plan beyond such contributions. b) The contribution to provident fund, which is a fixed percentage of the eligible employees salary, is charged to Statement of Profit and Loss or Expenditure During Construction, as applicable. Any shortfall in the fund is reimbursed by the Company. c) Gratuity as actuarially determined and funded by payments to Life Insurance Corporation of India, is charged to the Statement of Profit and Loss or Expenditure During Construction, as applicable. d) Provision for Leave Encashment liability is made on the basis of actuarial valuation as at the balance sheet date. x. BORROWING COSTS Borrowing costs that are attributable to the acquisition, construction / development of qualifying assets (i.e. the assets that take substantial period of time to get ready for intended use) are shown as Expenditure During Construction. Other borrowing costs are recognized in the Statement of Profit and Loss. xi. TAXES ON INCOME The provision for current taxation is computed in accordance with the relevant tax regulations. Deferred tax is recognised on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or substantively enacted as on reporting date. Deferred tax assets are recognised when there is a reasonable certainty that they will be realised. Where there is carry forward of losses or depreciation, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence of availability of taxable income against which such deferred tax assets can be realized in future. xii.PROVISIONS AND CONTINGENT LIABILITIES Provisions are recognised when there is a present obligation as a result of past event and it is probable that an outflow of recourses embodying economic benefits will be required to settle the obligation. Contingent liabilities are not recognised but disclosed unless the probability of an outflow of recourses is remote. Contingent assets are neither recognised nor disclosed.

B Notes to financial statements 1 The power plant under construction / trial runs is a captive power plant designed for maintaining reliable power and steam supply to the Refinery Project of Essar Oil Limited. It is under construction / trial runs awaiting installation of the separate ESD system and Flue Gas Desulphurization Unit and/ or the establishment of its operational reliability at full capacity usage. As the power plant is not ready for its intended use as at the balance sheet date, all the costs incurred and revenue earned during construction and trial run operations are treated as part of capital work in progress and expenditure during construction, as applicable. The processing charges, technical advisory fees and interest and other miscellaneous income earned during construction / trial runs have been credited to the expenditure during construction account. 2 Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances): Rs. 606,406,330 (Previous year Rs. 485,187,833). 3 Committed liability for future lease rental charges in respect of land taken on lease Rs. 7,533 (Previous year Rs. 7,941). Year ended Year ended 31st March. 2007 31st March. 2006 (Rs.) (Rs.) 4 CIF Value of Imports 5,790,492 414,729 (including goods in transit) of capital goods 5 Expenditure in Foreign Currency (On Accrual Basis) (including foreign exchange fluctuation) a) Technical and engineering services 12,527,370 5,915,264 b) Compensation for delayed payment 683,185,449 12,527,370 689,100,713 6 During the year, the Company revised its accounting policy of providing depreciation on Plant and Machinery from written down value (WDV) method to straight-line method (SLM). This change has been done with retrospective effect and the same does not have any significant impact on the financials of the company. 7 The company is constructing the power project on the land owned by Essar Oil Limited which is leased to the company. 8 Professional fees include fees to auditors Rs. 1,400,000 (Previous year Rs. 165,000), certification and other work Rs. 30,000 (Previous year Rs. 80,000). 9 The Company has taken on lease a piece of land (along with certain equipment and materials erected thereon) from its holding company in the course of part-financing the captive power plant being erected by it.The said lease is outside the scope of Accounting Standard - 19 on Leases as (a) the Standard does not apply to lease of land; and (b) except reimbursement of nominal land cess of Rs. 408 per annum no payment or series of payments are to be made. Further, the holding company has created an equitable mortgage in favour of the lendors of the company for the above assets.

10 Related party transactions:A - Transactions with related parties

Nature of Transactions Operation and maintenance charges and re-imbursement of Expenses to EPoL Advance on capital account to EPL Rendering of services Income on account of processing charges Lease charges on land Issue of equity shares Advances received during the year (net) Guarantee given by EOL - Rs. 320,640,792 and EIL - Rs. 700,000,000 (Previous year - EOL Rs. 2,980,048,745, EIL - NIL) Holding Company (-) (-) 28,051,809 (-) 278,727,220 (-) 408 (218) 363,506,930 (665,993,000) 318,416,786 (55,845,457) Other Related parties 18,334,043 (3,348,382) 137,441,037 (-) (-) (-) (-) (-) (-)

(Amount In Rs.) Total

18,334,043 (3,348,382) 137,441,037 (-) 28,051,809 (-) 278,727,220 (-) 408 (218) 363,506,930 (665,993,000) 318,416,786 (55,845,457)

Refer note 3 below (-) Holding Company 298,950,683 (-) (-) 34,050,639 (80,828,862) 204,063,681 (204,063,681)

700,000,000 (-)

700,000,000 (-)

B - Balance with related parties

Nature of Transactions Debit Balance Debtors Credit Balance EPoL Rs. 22,292,507 (Previous Year EPoL - Rs. 3,348,382) Unsecured advances from Holding Company Outstanding Guarantees (Refer note 3 below) / Letter of Undertaking given by EIL Rs. 700,000,000 (Previous year Rs. Nil)

(Amount In Rs.) Other Related Total parties (-) 22,292,507 (3,459,612) (-) 700,000,000 298,950,683 (-) 22,292,507 (3,459,612) 34,050,639 (80,828,862) 904,063,681 (204,063,681)

47

Vadinar Power Company Limited

NOTES :1) Names of related parties and description of relationship: (a) (b) Holding Company Essar Oil Limited (EOL) INFORMATION PURSUANT TO PART IV OF SCHEDULE OF THE COMPANIES ACT, 1956

Individuals owning directly or indirectly Shri S. N. Ruia an interest in the voting power of the Shri R. N. Ruia holding company that gives them Shri P. S. Ruia control or significant influence Shri A. S. Ruia (c) Other related parties where there have Essar Projects Limited (EPL), been transactions ( Companies Essar Power Ltd (EPoL), controlled or influenced by individuals Futura Travels Limited (FTL), owning directly or indirectly an interest Essar Investments Limited (EIL). in the voting power of the holding company) 2) Names of related parties, where the transactions during the year with single party is 10% or more, are disclosed under each transaction. 3) The holding company has given guarantee in respect of loans taken by the Company to the lenders. The amount of the loan and interest accrued and not due as at March 31, 2007 is Rs. 3,300,689,538 (Previous year Rs. 2,980,048,745) 4) Previous year figures have been shown in brackets. 11 The year end foreign currencies exposures that have not been hedged by a derivative instrument or otherwise are given below:As at 31st March, 2007 Particulars Payable on Account of Import of equipment, materials and services Amount in Rs. Amount in Foreign Currency As at 31st March, 2006 Amount in Rs. Amount in Foreign Currency

193,126 3,506,804

2,243 GBP 59,904 Euro

12 The company has only one segment of Power Project, which is under construction and only one geographical segment i.e. India. 13 In absense of any timing differences, no deferred tax asset/liability has been recognised in the accounts. 14 Figures of previous years have been regrouped / rearranged, wherever necessary, to conform to those of current year.

As per our Report of even date attached For Deloitte Haskins & Sells Chartered Accountants Khurshed Pastakia Partner Mumbai, 30th August,2007 For and on behalf of the Board of Directors

For and on behalf of the Board of Directors Mayank Bhargava Company Secretary Mumbai, 30th August, 2007. A. K. Srivastava Director S. R. Agrawal Director

Mayank Bhargava A. K. Srivastava S. R. Agrawal Company Secretary Director Director Mumbai, 30th August,2007

48

DIRECTORS REPORT To the Members of Vadinar Power Company Ltd., The Directors are pleased to present the Ninth Annual Report of the Company together with audited Balance Sheet as at 31st March, 2007. INCREASE IN THE SHARE CAPITAL During the financial year, paid up capital of the Company increased from 6,66,49,307 equity shares of Rs.10/- each to 10,30,00,000 equity shares of Rs.10/- each, consequent to the issue of 3,63,50,693 equity shares of Rs.10/- each to Essar Oil Limited on private placement basis. 77 MW CO-GENERATION POWER PLANT We are happy to inform you that trial runs for 77 MW co-generation power plant, being setup at Vadinar, District Jamnagar for captive use by the holding company, Essar Oil Limited for its 10.5 MMTPA Refinery commissioning activities were started in the third quarter of 2006. However, full load continuous tests could not be conducted as the refinery is not fully commissioned and hence, power plant load was limited to the requirement of the trial runs of the commissioned units of the refinery. FINANCIAL HIGHLIGHTS The Company has yet to commence its commercial operation. However, it has put the plant (except Flue Gas Desulphurisation unit) under trial run during the year. Hence for the period under review, no Profit and Loss account has been made. We are happy to inform you that the holding company, Essar Oil Limited has brought in its committed equity contribution of Rs.103.00 crore towards equity and capital equipment worth Rs.65.01 crore as planned. Further, during the year the lenders have disbursed an amount for Rs. 31.33 Crore as per financial arrangement. In addition to the above, the company has earned the processing charges, interest and other miscellaneous income (under trial run) during construction period which have been credited as capital expenditure under the head Expenditure during Construction/ Trial Run. CONSERVATION OF ENERGY Some of the energy conservation activities taken up by the Company are as follows: The boiler fuel air controller has been fine tuned to ensure consistent control of air/fuel ratio to maintain optimum usage of flue gas which results into better boiler efficiency. The plant operation philosophy has been modified to run motor driven FD fans in place of steam driven drives to optimise overall plant efficiency. Preventive maintenance were taken on all steam traps to reduce steam wastage. TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE The Company has taken various initiatives to implement latest technology such as: Development of Auto import controller to regulate power import and maximum consumption of CPP generation; New Auto power factor controller logics is being developed with help of in-house expertise to improve overall power factor to 0.95. There were no Foreign Exchange earnings during the year. Particulars relating to Foreign Exchange outgo appear in Note No.B(5) of Schedule IX to the Balance Sheet. DIRECTORS Shri S R Agrawal retires by rotation and being eligible offers himself for re-appointment. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956, it is hereby confirmed:

(i) that in the preparation of the accounts for the financial year ended 31st March, 2007 the applicable accounting standards have been followed along with proper explanation relating to material departures; (ii) that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year; (iii) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (iv) that the Directors have prepared the accounts for the financial year ended 31st March, 2007 on a going concern basis. AUDIT COMMITTEE An Audit Committee of directors was constituted during the financial year with Shri A S Ruia, Shri A K Srivastava and Shri S R Agrawal as its members. The constitution and terms of reference of the Committee are set out in compliance with the requirements of section 292A of the Companies Act, 1956. SAFETY The Company lays stress on compliance of safety standards in line with the refinery standards as per the safety manual. The safety manual prescribes all the policies, procedures, good engineering practices and legal framework. Each and every employee strives for the best safety practices. To further strengthen safety, the Company is implementing the total safety culture through behavior based safety and regular fortnight audit by refinery team based on prescribed process in which score obtained is more than 99%. This gives employees one more tool to actively participate in safety management. PARTICULARS OF EMPLOYEES The provisions of section 217(2A) of the Companies Act, 1956 are not applicable as during the financial year ended 31st March, 2007 none of the employees drew remuneration in excess of the limits prescribed under the Companies (Particulars of Employees) Rules, 1975. AUDITORS M/s. Deloitte Haskins & Sells, Chartered Accountants, Mumbai, Auditors of the Company hold office until the conclusion of the ensuing Annual General Meeting. M/s. Deloitte Haskins & Sells, Chartered Accountants, Mumbai, have informed the Company that, if appointed, their appointment will be within the limits prescribed under section 224(1B) of the Companies Act, 1956. Accordingly, the members approval is being sought to their appointment as the Auditors of the Company at the ensuing Annual General Meeting. The observations of the Auditors in the Audit Report are explained wherever necessary in the appropriate notes to accounts and are self explanatory. ACKNOWLEDGEMENT The Board would like to take this opportunity to express its appreciation and place on record its gratitude for the faith reposed in and valuable support extended to the Company by the Government of Gujarat, Gujarat Electricity Board, Ministry of Power, Financial Institutions and Suppliers of the Company. For and on behalf of the Board of Directors Place : Mumbai Dated : 30th August, 2007 A K SRIVASTAVA CHAIRMAN

49

Vadinar Power Company Limited

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50

Essar Oil Limited

Registered office : Khambhalia Post, Post Box No. 24, Dist. Jamnagar - 361 305, Gujarat

ATTENDANCE SLIP
TO BE HANDED OVER AT THE ENTRANCE OF THE MEETING HALL Regd. Folio No. : No. of Shares held : DP Id* Client Id*

Full Name of the Member (in Block Letters)........................................................................................................................................ Name of the Proxy.................................................................................................................................................................................... (To be filled-in if the Proxy Form has been duly deposited with the Company) I hereby record my presence at the SEVENTEENTH ANNUAL GENERAL MEETING of the Company at the Registered Office at Khambhalia Post, (40th Km. on Jamnagar-Okha Highway) Dist. Jamnagar - 361305, Gujarat on Saturday, the 29th September, 2007 at 11:30 a.m.

........................................................................................ Members/Proxys Signature (To be Signed at the time of handing over this slip) * Applicable for members holding shares in electronic form. Note : Please fill up this attendance slip and hand it over at the entrance of the meeting hall. Members are requested to bring their copies of the Annual Report to the meeting.

Essar Oil Limited

Registered office : Khambhalia Post, Post Box No. 24, Dist. Jamnagar - 361 305, Gujarat

PROXY FORM
Regd. Folio No. : No. of Shares held : DP Id* Client Id*

I/We............................................................................................................................................................................................................. of.......................................................................................................in the district of................................................................................... being a member/members of the above-named Company hereby appoint Shri................................................................................. of .......................................................................................................in district of....................................................................................... ....................................................................................................or failing him Shri.................................................................................... as my/our proxy to vote for me/us on my/our behalf at the SEVENTEENTH ANNUAL GENERAL MEETING of the Company to be held on Saturday, 29th September, 2007 at 11:30 a.m. at the Registered Office of the Company at Khambhalia Post, (40th Km. on Jamnagar-Okha Highway) Dist. Jamnagar - 361305, Gujarat and at any adjournment thereof.

Signed this .........................................day of ........................2007 * Applicable for members holding shares in electronic form.

Signature ...................................

Affix 30 paise Revenue Stamp

Note : This form, in order to be effective, should be duly stamped, completed and signed and must be deposited at the Registered Office of the Company, not less than 48 hours before the meeting.
3