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Company overview02 Group highlights03 Group key performance indicators04 Chairmans statement06 Chief Executive Officers review

Business review08 Market overview

10 Business model12 Our strategy14 Operating review28 Sustainability34 Principal risks and uncertainties40 Financial review

Governance50 Message from the Chairman51 Message from the Senior

Independent Director52 Board of Directors54 Senior Management team56 Governance framework65 Remuneration report72 Directors report77 Statement of Directors responsibilities

Financial statements78 Independent Auditors report to the

members of Essar Energy plc79 Consolidated income statement79 Consolidated statement of

comprehensive income80 Consolidated balance sheet81 Consolidated statement of

changes in equity82 Consolidated statement of cash flows83 Notes to the consolidated financial

statements130 Company balance sheet131 Company statement of changes in equity132 Company statement of cash flows133 Notes to the Company

financial statements

138 Appendix 1139 Appendix 2141 Glossary144 Shareholder information page

LinksThroughout this report there are links to pages, other sectionsand web addresses for additional information.

They are recognisable by the red underline simply click to go to the relevant

page or web URL www.essarenergy.com

Essar EnergyAnnual Report2013
http://www.essarenergy.com/http://www.essarenergy.com/http://findsearch/http://print/

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Essar Energy plcAnnual Report and accounts 2013

Meeting Indiasenergy needs
http://findsearch/http://print/

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Company overview Essar Energy plcAnnual Report and accounts 2013

Essar Energys strategy is to create a world-class,low cost integrated energy company, positionedto capitalise on Indias rapidly growing energydemand. We have US$18 billion of total assetswhich includes operations and growth projectsin the areas of petroleum refining and marketing,exploration and production and power generationand transmission.

Company overview02 Group highlights03 Group key performance indicators04 Chairmans statement06 Chief Executive Officers review

Business review08 Market overview10 Business model12 Our strategy14 Operating review28 Sustainability34 Principal risks and uncertainties40 Financial review

Governance50 Message from the Chairman51 Message from the Senior

Independent Director52 Board of Directors54 Senior Management team56 Governance framework65 Remuneration report72 Directors report77 Statement of Directors responsibilities

For more information visit:www.essarenergy.com

Financial statements78 Independent Auditors report to the

members of Essar Energy plc79 Consolidated income statement79 Consolidated statement of

comprehensive income80 Consolidated balance sheet81 Consolidated statement of

changes in equity82 Consolidated statement of cash flows83 Notes to the consolidated financial

statements130 Company balance sheet131 Company statement of changes

in equity132 Company statement of cash flows133 Notes to the Company

financial statements

138 Appendix 1139 Appendix 2141 Glossary144 Shareholder information page

Essar Energy at a glance
http://www.essarenergy.com/http://www.essarenergy.com/http://www.essarenergy.com/

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01Essar Energy plcAnnual Report and accounts 2013

3

9

2

17

5

6

2422

4

8

10

11

7

18

1416

1

13 12

15

1925

2120

23

Refining and Marketing1. Vadinar Refinery 20 mmtpa

Exploration and Production2. Raniganj CBM

3. Rajmahal CBM4. Sohagpur CBM5. Talchir CBM6. IB Valley CBM7. Mehsana Oil Block8. Ratna/R Series9. Assam Oil Blocks10. Mumbai Offshore

PowerCaptive/ROE projects11. Hazira 515 MW12. Hazira II 270 MW13. Bhander 500 MW14. Vadinar 120 MW15. Vadinar PI 380 MW16. Vadinar PII 510 MW17. Paradip 120 MW

Imported coal project18. Salaya I 1,200 MW

Domestic coal projects19. Mahan I 1,200 MW20. Tori I 1,200 MW21. Tori II 600 MW

Coal Mines22. Mahan Coal Block 73 mmt23. Amelia Coal Block 50 mmt24. Chakla Coal Block 71 mmt25. Ashok Karkata Coal Block 100 mmt

Other locations Stanlow Refinery, UK 14 mmtpa Mombasa Refinery, Kenya 2 mmtpa Block 114, Vietnam South East Tungal Block, Indonesia OPL 226 Block, Nigeria Madagascar Blocks Algoma Power Plant, Canada 85 MW Aries Coal Block, Indonesia 72 mmt Mozambique Coal Block 35 mmt Registered Office, London Head Office, Mauritius India Office, Mumbai

Indias need for energy

Indias need for energy continues togrow strongly from a low base, withdemand for power rising at around 6%per year and for oil products at around4% to 5% per year. Per capita use ofenergy has great potential for growth,with approximately one third of Indias1.2 billion population still having noaccess to electricity and the deficit ogeneration relative to demand runningat around 9%. Therefore, Essar Energysstrategy of investing in large-scale, lowcost energy assets with long life spanscontinues to be logical and sound.

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02 Company overview Essar Energy plcAnnual Report and accounts 2013

Group highlights

Sharp increase in Current Price EBITDA(CP EBITDA1) showing benefits of new projects

` Group revenue in FY2013 of US$27.3bn

(15mths F

Y2012: US$22.0bn2

), up 24%, driven byhigher refining volumes at R&M India (Vadinar) and afull 12 months contribution from R&M UK (Stanlow)

` Group CP EBITDA1in FY2013 of US$1,335.5mn(15mths FY2012: US$484.5mn), up 176% mainly dueto increased margins and throughput at the Vadinarrefinery, improved margins at the Stanlow refinery andincreased throughput at Stanlow due to a full12 months contribution

` CP profit before tax of US$367.7mn(15mths FY2012: loss of US$103.6mn) as higherCP EBITDA was offset by increased interest anddepreciation costs as projects moved into operations

` Loss before tax of US$163.2mn(15mths FY2012: loss of US$1,147.7mn), as higherOperational EBITDA was offset by higher interest anddepreciation costs as projects moved into operations

We have made very good progress during the

financial year with the majority of our capexprogramme now complete. Our focus now movesto asset optimisation and reducing net debt.Naresh Nayyar, Chief Executive Officer

Results highlights

(US$ million)

12 monthsended

31 March2013

15 monthsended

31 March2012 Change %

Operational EBITDA1 1,068.1 686.8 56%

CP EBITDA1 1,335.5 484.5 176%

CP profit/(loss) before tax 367.7 (103.6) 455%

Loss before tax (before exceptional items and sales tax benefit in 2012) (163.2) (166.1) 2%

Exceptional items (1,276.7)

Sales tax benefit 295.1

Loss before tax (163.2) (1,147.7) 86%

Loss after tax (before exceptional items and sales tax benefit in 2012) (175.0) (101.2) 73%

Loss after tax (after exceptional items and sales tax benefit in 2012) (175.0) (764.3) 77%

Capital expenditure 1,193.3 2,760.6 57%

Balance Sheet (US$ million)As at 31

March 2013As at 31

March 2012 Change %

Net debt (underlying)3 6,740.8 6,273.0 7%

Total equity 3,290.2 3,646.5 10%

Gearing (net debt (underlying)/(net debt (underlying) + total equity)) 67.2% 63.2%

NB. Essar Energys financial year changed to a March year end from 31 March 2012, from December previous ly.1 Seepages 41and42for a definition of Operational EBITDA and CP EBITDA. Note CP EBITDA presented above is on a Group-wide basis. Operational EBITDA is before other losses and excludes sales

tax benefit and exceptional items.2 Revenue before adjustment for loss of sales tax benefit.3 Seepage 46 for a definition of Net debt (underlying).

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27,258+24%

Revenue (US$m)

30,000

25,000

20,000

15,000

10,000

50000

2009 2010 2012 2013^

1,193-57%

Capital Expenditure (US$m)

3,000

2,500

2,000

1,500

1,000

5000 2009 2010 2012 2013^

3,910+144%

2009 2010 2012 2013^

Generation capacity (MU)

4,000

3,000

2,000

1,000

0

1,336+176%

CP EBITDA**(US$m)

1,500

1,200

900

600

300

0

2009 2010 2012 2013^

6,741+7%

Net debt (US$m)

8,000

6,000

4,000

2,000

0 2009 2010 2012 2013^

2013

LTIFR (HSE) (per 200k working hours)

0.070.060.050.040.030.020.010.00

0.05-16%

2011x 2012x 2013x

(163)+86%

2009 2010 2013^

Profit/(loss) before tax (US m)

400

0

-400

-800

-1,200

2012

29.7+24%

Throughput (mmt)*

30

25

20

15

10

5

0

2009 2010 2012 2013^

Group key performance indicators

12 months ended 31 December 2009 12 months ended 31 December 2010 15 months ended 31 March 2012

^ 12 months ended 31 March 2013x Fiscal year ended 31 March

* Includes Vadinar and Stanlow.** Refer to page 42for definition of CP EBITDA.

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Chairmans statement

IntroductionWelcome to Essar Energys AnnualReport for FY2013. Following achallenging FY2012, FY2013 has seensignificant positive progress on a numberof fronts, demonstrating our ability toconstruct and operate world-class assets

across the oil and gas and power sectors.

In our Refining and Marketing businessin India we completed the upgradeprogramme at our flagship Vadinarrefinery and now have a world-classrefinery producing high value fuels forthe international and domestic markets.At Stanlow in the UK, projects havebeen delivered to improve GRMs by asustainable US$2.2/bbl. Stanlow hasincreased its target for sustainable marginenhancements to $4/bbl, and is thereforenow positioned to deliver GRMs of US$6/bbl above IEA European benchmark

margins by the end of FY2015. In ourExploration and Production business wehave secured the final approvals to allowus to accelerate the development of ourRaniganj coal bed methane (CBM) projectin West Bengal, a project which is key tous becoming a leader in the developmentof unconventional gas resources in India.In Power, we have delivered 2,310 MW ofnew coal-fired power generating capacity,more than doubling our capacity from justone year ago to a total of 3,910 MW.

Delivery of these projects means thatwe have seen a significant improvement

in our operating performance whichis starting to feed through to ourfinancial results.

The past year has seensignificant positive progress,clearly demonstrating our

ability to construct and operateworld-class assets across theoil and gas and power sectors.Prashant RuiaChairman

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Despite more positive results, we, andour industry as a whole, continue to facea number of challenges due to slowprogress with regulatory approvals inIndia. However, we are starting to seemore positive progress on a numberof fronts with the Government of India

seeking to reduce the fiscal deficitand move commodity prices, includingenergy prices, to more commerciallevels. We are very supportive of thesemeasures and look forward to morepositive progress in the months ahead.

StrategyWe remain firmly of the view that India willcontinue to experience high growth ratesfor many years to come as the economyprogresses with its industrialisation andurbanisation. Central to delivering thisgrowth is the need for energy; whetherfuels for transportation or electricity for

the increasingly urban population. If Indiamoves towards its targeted GDP growthrate of around 9% per year, then thisrequires energy supplies to grow atbetween 6.5% to 7% each year.

These are ambitious, but achievabletargets, and why we remain confident thatour strategy is the right one; to create aworld-class, low-cost, integrated energycompany focused on India and positionedto capitalise on Indias growing energydemand. We have not changed thisstrategy for the last three years, and haveno plans to do so, but given our current

position in the investment cycle, we arelooking to consolidate our position over thenext three years before we embark on thenext phase of growth.

In this respect, our short to medium-termpriorities will be to complete our currentcapital expenditure (capex) programme,which is already completed in our Refiningbusinesses and mostly completed inPower; to optimise the performance ofour assets to ensure that they deliver the

cash flow and earnings that were originallyenvisaged at the time of the originalinvestment decision; and then focus onour balance sheet, to reduce interestcosts, extend our repayment profile tobetter match the life of our assets andreduce our overall net debt. Underlying allof these efforts will be our continued desireto be a good corporate citizen for all of ourstakeholders. With this clear focus over thenext three years we will put ourselves in amuch stronger position both operationallyand financially and will be ready to embarkon our next phase of growth.

Board governanceFollowing the appointment of SteveLucas in March 2012, the Board nowhas a good mix with five IndependentDirectors and three Non-IndependentDirectors. However, we continue toreview the market to strengthen furtherthe experience, independence anddiversity of our Board members.

In line with the UK Corporate GovernanceCode and to ensure a continuousimprovement in our corporate governanceprofile, we undertook our first externallyfacilitated Board evaluation this year, the

results of which are outlined in theCorporate Governance Report. I ampleased to report that this independentevaluation confirmed that the Board andits Committees operate effectively andeach Director demonstrates commitmentto their role.

GUVNL transmission line to Salaya power plant.

India will continue to experience high growthrates for many years to come as the economy

progresses with its industrialisation andurbanisation. Central to delivering this growthis the need for energy.

PeopleThe quality of our assets and strongoperating performance is a testament tothe skills, dedication and commitment ofour people. Where necessary, we havebrought in new people to strengthen ourleadership teams across the businessesand this is starting to deliver improvedoperating and financial performance. Thisyear we have completed over US$4 billionof capital projects and they have all beenseamlessly moved into operation. Evenwhere we have faced disruptions, teamsacross the businesses have workedtogether to find solutions to ensure thatwe can continue to deliver supplies to ourcustomers. For all of this, I would like tothank each of our employees for theirefforts throughout the year.

They have been assisted in this

endeavour through the excellentleadership of our Chief Executive Officer,Naresh Nayyar, and his SeniorManagement team.

Prashant RuiaChairman23 June 2013

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Chief Executive Officersreview

Growth projectsFY2013 saw the completion of severalmajor projects and with this, significantgrowth in capacity. Our Vadinar refineryupgrade increased capacity by 15% to20 million metric tonnes per annum(mmtpa) and a complexity of 11.8, and

our power capacity increased by 144%with completion of the 1,200 MW Salaya Icoal-fired power plant, the 510 MW VadinarP2 coal-fired power plant and the first 600MW unit at our Mahan I coal-fired powerplant. With the completion of theseprojects, the majority of our capexprogramme is complete whichsignificantly reduces constructionrisks within the Company.

The new Vadinar refinery expansionunits were ramped up to full capacity andcomplexity within six months of completion,which is a credit to the operating team at

Vadinar. This asset has been operating atfull capacity for the last six months so ourfocus has moved to the optimisation of theindividual units to enhance volumes andmargins. This asset now stands amongstthe best in the world in terms of scale andcomplexity and, with a total cost of justUS$5.3 billion, is also amongst the mostcompetitive from a capital perspective.The Vadinar refinery is the flagship assetin Essar Energys portfolio.

In Power, we more than doubled ourcapacity from 1,600 MW a year ago to3,910 MW today. Importantly, the projects

completed this year are the first of ourcoal-fired power projects; Salaya I, whichwill primarily provide power to the localstate utility in Gujarat; Vadinar P2, whichwill provide power and steam to theVadinar refinery; and Mahan I, which willprovide power to local utilities, Essar Steeland the merchant market. Despite someinitial issues around temporary coolingwater availability at Salaya and transmissionat Mahan, I am pleased to report that theseplants are all now being stabilised and willshortly be operating as expected.

Operating performance

Following completion of a number ofprojects during the year we saw asignificant uplift in production.

In Refining, production was up by 22%from 176 million barrels (mmbbls) to215 mmbbls following the expansion of theVadinar refinery and a full year contribution

FY2013 has been a year of soliddelivery against our strategy.Naresh Nayyar

Chief Executive Officer

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from the Stanlow refinery which wasacquired in July 2011. More importantly, wesaw a strong uplift in our CP GRMs fromUS$4.45/bbl to US$7.96/bbl at Vadinarfollowing the upgrade in complexity from6.1 to 11.8 and improved market conditionsin Asia. At Stanlow, we saw CP GRMs

increase from US$3.06/bbl to US$7.38/bblwhich includes the benefits of our marginenhancement as well as improved marketconditions in Europe.

The current financial year will see us benefitfrom a full year of the upgraded complexityat Vadinar. Projects have been deliveredto improve GRMs by a sustainableUS$2.2/bbl in Stanlow. Stanlow hasincreased its target for sustainable marginenhancements to US$4/bbl, which willallow it to deliver GRMs of US$6/bbl aboveIEA European benchmark margins by theend of FY2015.

In Power, production across theportfolio was up by 26% from 7,907 millionunits (MU) to 10,017 MU as a decline inproduction across our gas-based powerplants due to high gas prices was morethan offset by increased production fromour new power plant. Despite this progress,we continue to face challenges in ourpower operations due to regulatory delays,coal availability, logistics challenges andhigh gas prices. Our operating teamscontinue to innovate to overcome thesechallenges, such as the transfer of coolingwater from our Vadinar refinery to the

Salaya power plant to ensure sufficientwater availability and our decision toconvert the Bhander and Hazira powerprojects from gas to coal, but we need tosee improvements in regulation and theavailability of coal and gas at affordableprices to deliver the full potential of ourpower assets.

Despite these challenges, as ouroperations settle down and with a full yearcontribution from our new plant, we shouldagain see an uplift in generation in thiscurrent financial year.

Improved financial resultsThe improved operating performance hasfed through to a much improved financialperformance with CP EBITDA up 176% onlast year from US$485 million to US$1,336million. The IFRS loss before tax of US$163million was impacted by items outside ofour control such as foreign exchange loss

of US$256 million, which would otherwisehave led to a profit before tax. This was stilla major improvement on last years lossbefore tax of US$1,148 million which wasimpacted by the loss of the Gujarat salestax case.

With operations now stabilising, thefocus is now firmly on optimising theperformance of our assets and I wouldexpect to see continued top lineimprovements in future periods.

Our net finance costs increased fromlast years US$384 million to US$691million due to interest on sales tax andincreased interest from projects movinginto operations as interest which waspreviously capitalised is now expensedin our profit and loss account. Lookingforward, our focus moves to reducing theimpact of financing costs on profits. We

have commenced a number of initiativesto reduce interest costs including thedollarisation of our Rupee debt in EssarOil, extending the repayment profile ofour debt to better match asset lives, andreducing overall debt levels. We willprovide updates on progress of theseinitiatives in future periods.

Health and safetyHealth and safety remains the numberone priority for Essar Energy. Duringthe year, despite an overall goodperformance, we had Lost Time Incidentsat our Vadinar, Stanlow, Raniganj and

Salaya assets. Sadly, we also had avehicle incident at the Vadinar refineryinvolving a contractor which led to afatality. As a result, we decided to raisethe profile of the Boards Health, Safetyand Environment (HSE) Committee at oursites and held HSE site visits at Stanlow,Vadinar and Salaya. This allowed the HSECommittee to review conditions on theground and agree a number of actionpoints with a view to improvingperformance. I am confident that all ofour operations will continue to seekimprovements in HSE performance.

We also continue to engage withthe people around our operations toensure that we are giving back to ourcommunities. Our focus is on health,education, basic services and supportingthe creation of sustainable microbusinesses. During the year, through theEssar Foundation, we contributed

US$719,660 to community activities and Iwould encourage you to review some ofthe case studies laid out in this Reportand our separately published onlineSustainability Report.

Your Company has made significantprogress against our stated strategyduring FY2013. Our major capexprogramme is now complete in ourRefinery business and nearing completionin Power. With this, our focus has movedto asset optimisation to ensure that allassets deliver to expectations, and then toreducing net debt within the Company.While challenges remain, we are very clearon what we need to do to be successfuland I am confident of delivery againstour objectives.

I am positive that Essar Energy will continueto go from strength to strength.

Naresh NayyarChief Executive Officer23 June 2013

Heat recovery steam generator andchimney at Bhander power plant.

Our major capexprogramme is nowcomplete in our refiningbusinesses and nearingcompletion in our powerbusiness. Our focus now

moves to assetoptimisation and debtreduction within theCompany.

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08 Business review Essar Energy plcAnnual Report and accounts 2013

Market overview

Indian Government acts tosupport growth

` GDP growth forecast by theIndian Government to return toabove 6% in 201314; long-

term target remains 8%` Interest rate cuts to help

stimulate economy

Power demand rises steadily

` Electricity demand growthforecast by the IndianGovernment to be c.6%per year

` Peak time power generation

shortfall remains high at c.9%in 201213, according toMinistry of Power

Oil and gas consumptionstays strong

` Petroleum product demandforecast to rise 4% to 5% peryear through to 2017

` Indian Government acts to

remove diesel subsidy, helpingprivate sector retailers

6% to 7%Annual increase in demandfor diesel in India

4% to 5%Annual increase in demand forgasoline in India

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Business outlookThe long-term outlook remains positivefor energy demand in India. Essar

Energys strategy to capitalise on Indiasgrowing requirements for energy remainsintact and unchanged.

The market for refined petroleumproducts in India is expected to remainstrong, with demand for diesel rising ata rate of about 6% to 7% per year andgasoline 4% to 5%. Meanwhile, Indiasper capita usage of oil products is easilythe lowest of the BRIC economies andstands at less than half that of China and11% than that of the EU.

Given Asias high demand growth

coupled with delays to new refiningcapacity, we believe the outlook formargins at Vadinar is positive given itssuperior scale and complexity.

In the UK, the ongoing marginenhancement projects underway at theStanlow refinery are widening the gap withrival refiners, leaving Stanlow increasinglyadvantaged in a tough European refiningenvironment. Stanlow has built-inadvantages from its higher complexity, itsbias towards production of middle distillatesand its location close to the demandcentres of Manchester and Liverpool.

In Power, the market fundamentals remainencouraging. There is a considerableshortage of power generation in Indiarelative to demand, with peak deficits ofaround 9% of demand in FY2013. Theseshortages are expected to increase overthe next three to five years as supplycontinues to lag demand.

Many power companies in India areexperiencing ongoing difficulties inobtaining the necessary consents andregulatory clearances to build generationprojects and to source adequateeconomic supplies of coal. Therefore,over time a clear advantage will exist forthose such as Essar Energy who alreadyhave assets in place with access toeconomic coal through captive mines.

Given the importance of electricity toachieving Indias targeted economicgrowth, there remains a clear need forthe Indian Government to ensure a moretransparent and efficient regulatoryframework covering project consentsand clearances. In particular, the lowavailability of domestic Indian coal is aproblem that needs attention.

The recent steps taken by theGovernment of India to reduce theheavy subsidy of retail diesel prices areencouraging. This will not only alleviate amajor burden on state funding but willalso encourage investment and facilitate

much greater competition among retailfuel suppliers. As current subsidies areremoved, and retail sales become

profitable, there will be an opportunity forEssar Oil to expand its franchise networkof around 1,400 retail fuel outlets.

In January 2013, a committee chairedby Dr C Rangarajan, Chairman of theEconomic Advisory Council to the PrimeMinister of India, published a report onthe Production Sharing ContractMechanism in the Petroleum Industry inIndia. This report recommended achange in pricing of gas produced inIndia to one based on a basket ofinternational hub prices and averagenetback prices for LNG imports into

India. The intention is to stimulate furtherinvestment in Indian gas production,which fell 9% in 201112 according toIndias annual economic survey in 2013. Ifthe pricing proposal is implemented, webelieve this would significantly enhancethe appetite of investors to becomeinvolved in the Indian upstream gassector, thus delivering greater growth. Achange in the gas pricing structure wouldbe potentially positive for Essar EnergysCBM block at Raniganj in West Bengal,and for future prospects at its four otherCBM blocks in India.

Essar Energys long-term strategy is tocontinue to grow the Company andcapitalise on Indias long-term need forenergy. However, given our currentposition in the investment cycle we arelooking to consolidate our currentposition before we embark on the nextphase of growth. In this respect, ourshort to medium-term priorities will be tocomplete our current capital expenditureprogramme, optimise the performance ofour assets to ensure they deliver the cashflow and earnings as originally envisaged,and to focus on our balance sheet toreduce interest costs, extend repaymentprofiles and reduce net debt.

Economic outlookIndias potential for long-term economicgrowth is clear and, with a generalelection due in 2014, the Governmenthas started to implement some of thestructural changes which will benecessary if that potential is to be fulfilled.The need for change was illustrated by aGDP growth rate of just 4.8% in thefourth quarter of FY2013, marginally upfrom 4.7% in the third quarter, and just5% for the year as a whole, comparedwith 9.3% in FY2011.

The Indian Ministry of Finance, alongsideother external economic forecasters, ispredicting a modest recovery in FY2014,with GDP growth rising to above 6%. TheReserve Bank of Indias quarterly survey ofprofessional forecasters in May 2013

showed expectations for real GDP growthin FY2014 at 6.0% down from 6.5% intheir previous survey in January 2013.

As stated in Indias annual EconomicSurvey, published at the end of February,the Government needs to pursue reforms

to stimulate more corporate andinfrastructure investment and to continueto reduce the subsidy burden, particularlyin petroleum products, through bettertargeting towards those in real need.

This is critical if Indias fiscal deficit, whichrose to 5.7% of GDP in FY2012 andstood at 4.9% in FY2013 (or c.US$90billion), is to be brought down to a newtarget level of 4.8% of GDP for FY2014and 3% in FY2017.

However, the rate of inflation has fallenmore recently, with the wholesale price

index running 5.96% higher in Marchthan a year earlier, against a 6.84% rise inFebruary. The consumer price index hasbeen running at a much higher rate,10.39% in March against a year earlier,but this was also down on Februarys10.91%. This slowing inflation allowed theReserve Bank of India to cut its repolending rate by a quarter point to 7.25%in May 2013, the third such reductionsince January.

Over the 12 month period, the Rupeeremained relatively weak against the USdollar, starting the period at Rs.51.16,falling as low as Rs.57.33 and closingthe period down 6.3% at Rs.54.39. Thisfollowed a decline during the previous15 month period to 31 March 2012, whenit weakened from Rs.45.39 to Rs.51.16against the dollar. The Rupee hasrecently traded at around Rs.59.

One of Essar Oils fuel retail stations nearHazira, in Gujarat.

The recent stepstaken by the Indian

Government to reducethe heavy subsidy ofretail diesel prices areencouraging.

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Large-scale,high complexityrefining capacity

Low cost powergeneration withfuel security

Business model

Essar Energy is focused on delivering profits andgrowth by meeting Indias energy needs across

its Oil and Gas and Power business.

Our aim is to:

Indias need for energyremains robust. Petroleumproduct demand growth inIndia is forecast to remain

buoyant at around 4% to5% per year. Gas demandgrowth is continuing tooutpace domestic Indianproduction with theincreasing deficit met fromimports. Meanwhile, thepeak power deficit continuedat around 9% in FY2013

Essar Energy aims to buildstructurally large, scalableand low cost assets usingproven technology. We usea modular approach in thedesign, engineering andconstruction of our powerplants to help in minimisingfront end design time,accelerate project schedulesand give better negotiating

Essar Energy aims to secureinput fuels by owning theunderlying commodity,securing long-term purchaseagreements or placingfuel risks with the productpurchaser. The results arereduced fuel price and

with huge demand for morelow-cost power in India toserve the estimated 33%of the population who still

have no electricity supply.With significant assets andprojects across the Oil andGas and Power sectors,Essar Energy aims to focuson building and operatingthe energy assets that arecritical to the economicdevelopment of India.

power with suppliers. In turnthis unifi s operating andmaintenance practices andreduces the average perunit cost of production. Inour refinery businesses, weoperate world-class assetsbenefiting from economiesof scale and high systemcomplexity.

delivery risks. We also seekto contract the majority ofoursales under mediumor long-term contracts toreduce risks and providemore secure and stablerevenues for the businesses.

Meet Indias growing energy needs

Build large, scalable and low-costassets using proven technology

Fuel security and long-term purchase

agreements

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Explorationnd Production

with a focus onnconventional gas

As Essar Energy comes tothe end of its major capitalexpenditure programme ourfocus moves to business

optimisation. Businessoptimisation looks to improveall aspects of the businessto maximise throughput,lower costs, improve

Essar Energy continuesto explore a number ofoptions to optimise itsbalance sheet, to reduceinterest costs, reduce debt,enhance free cash fl w andensure adequate liquiditythroughout the businesses.Key priorities in this areainclude refinancing high costRupee debt in Refining and

Essar Energy has an overridingcommitment to health,safety and the environmentand the communitiesaround its operations. Itcontinues to engage withlocal communities near itsassets by focusing on health,education, welfare andinfrastructure improvements.Investments include schools,adult education initiatives,

margins and provide moreoperating and financialflexibility. The delivery ofthese programmes will

ensure that the businessis robust in bottom of thecycle conditions and ableto maximise cash flow andearnings at all other times.

Marketing- India with lowercost US dollar loans, giventhat Essar Oil India hasenhanced dollar earningsfrom its expanded facilities,and in Power, raisingdomestic Rupee bonds tolower the cost and extendthe maturity of our loanfacilities.

medical facilities, and basicfacilities such as waterprovision for the generalwelfare and development ofthe local communities. Wehave produced a separateSustainability Report tohighlight our progress inthis area which can beaccessed on our websiteat www.essarenergy.com/sustainability.aspx.

Focus on business optimisation

Balance sheet optimisation

Commitment to health, safety and

theenvironment
http://www.essarenergy.com/sustainability.aspxhttp://www.essarenergy.com/sustainability.aspxhttp://www.essarenergy.com/sustainability.aspxhttp://www.essarenergy.com/sustainability.aspxhttp://findsearch/http://print/

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Our strategy

Within this, our priorities over the next three years areas follows:

01 Complete the current capex programmeWe are approaching the end of a major capital investmentprogramme. We have completed our investments in ourRefining businesses and are approaching the final stagesof our investments in Power and Exploration and Production.

As a result, construction risks are significantly reduced andour capital expenditure will fall over the next three years.

02 Optimise the performance of our operating assetsAs Essar Energy comes to the end of its major capitalexpenditure programme our focus moves to businessoptimisation. Business optimisation looks to improve allaspects of the business: to maximise throughput, lower costs,improve margins and provide more operating and financialflexibility. The delivery of these programmes will ensure that thebusiness is robust in bottom of the cycle conditions and able tomaximise cash flow and earnings at all other times.

03 Focus on cash generation and net debt reductionWith the optimisation of our operating assets we will producethe cash flows which will allow us to reduce net debt andincrease earnings. We will seek to refinance debt, wherepossible, to reduce interest costs, eliminate currencymismatches and extend the maturity of our debt profileto bring it more in line with the life of our assets.

04 Be a good corporate citizenWe will achieve the above while continuing to act as a goodcorporate citizen with respect to the health and safety of ouremployees and the communities in which we operate. Our aimis to be recognised in India as a leader in the areas of health,

safety and the environment.

Refining andMarketing India

Essar Energys strategy remains clear; tocreate a world-class, low-cost integratedenergy company, positioned to capitaliseon Indias rapidly growing energy demand.

PAGE 14

Mr Lalit Kumar GuptaManaging Director andChief Executive Officeof Essar Oil

Progress

` At our fla ship Vadinar refinery, wehave had a successful nine monthsof operations following completion ofthe expansion project in March 2012and the further optimisation projectin June 2012, totalling over US$2billion of investment. With this, wehave come to the end of the currentmajor capex cycle.

` We are now able to process agreater percentage of lower costheavy and ultra heavy crudes, but

also increase production of highvalue middle distillate fuels, suchas d iesel and jet fuel.

` In September 2012, we resolved theGujarat sales tax repayment demand.The Supreme Court ruled that we canrepay the amount owed over twoyears, starting in January 2013, andwe have a bank facility with Indianlenders to make repayments,as required.

` We continue to reduce financingcosts and, in April 2013, refinancedUS$481 million of Rupee loans into

lower cost US dollars.` Essar Energy has made extensive

efforts to make sustainabledevelopment an integral element ofour refining business. (Refer to theSustainability Report on our websitewww.essarenergy.comfor ourprogress in this area).

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Refining andMarketing UK

Exploration andProduction

Power

PAGE 18 PAGE 22 PAGE 24

Mr Volker SchultzChief Executive Officeof Essar Oil UK

Mr Iftikhar NasirChief Executive OfficeExploration andProduction

Mr KVB ReddyExecutive Directorof Essar Power

Progress

` We have optimised our crude oilintake by introducing more than 15opportunity crudes for blending withexisting crudes, lowering our costs.

` We completed the installation ofnatural gas into our Stanlow refinery tofuel the boilers which were previouslyusing fuel oil. This is improvingenvironmental performance, reducingcosts and improving margins.

` We have ceased the production oflubricants, which were only 2% ofrefinery output, but which dictated25% of our crude intake, thus allowingfurther optimisation.

` Essar Oil UK completed an innovativeinventory monetisation transactionunder which legal title for our crudeand product inventories are passedto Barclays Bank PLC. This allowedus to repay our working capital facility,and reduce capital employed andinterest costs.

` US$2.2/bbl of margin enhancementbenefits delivered at Stanlow refinery US$1.9/bbl average over FY2013.

` Essar Oil UK is focused on buildingsustainable relationships with all itsstakeholders, notably the communitiesaround Stanlow. (Refer to theSustainability Report on our websitewww.essarenergy.comfor ourprogress in this area.)

Progress

` We have expedited our drillingprocess at Raniganj, our first CBMblock under development. We haddrilled 143 wells as at the end ofMarch 2013 and received approvals todrill up to 650 wells over the life of thefield. Currently we are producing100,000 standard cubic metres perday (scmd) of gas, up from 25,000scmd last year.

` The Raniganj CBM block covers awide area near to Durgapur in West

Bengal, and sustainable engagementwith the local communities across thisregion has been a key element of thebusiness strategy. Activities haveincluded healthcare, entrepreneurshipand education.

` Given the widespread nature of CBMdrilling and gas gathering activity atRaniganj, a sustainable approach tomanaging any environmental impactis of great importance. There hasbeen a s trong focus, in particular, onmanaging the large volume of waterextracted from wells to allow it to be

used for CBM processes.` Across the portfolio, we continue to

evaluate ways of managing risk bybringing in strategic partners whereappropriate. In February 2013, we sold50% of our stake in Block 114 inVietnam to ENI International B.V.

Progress

` We have added 2,310 MW of newcoal-fired generation capacity,comprising 1,200 MW at Salaya I,510 MW at Vadinar P2 and 600 MWat Mahan I. This takes our totalcapacity to 3,910 MW from 1,600MW in March 2012.

` We continue to mitigate fuel priceand delivery risk by either owningthe fuel source or by being able topass through fuel cost changes tocustomers under our power

purchase agreements.` At the end of October 2012, the

Indian Government granted usStage 1 forest clearance for ourMahan coal block. Once allapprovals are received, this coalblock will provide long-term, lowcost coal for our nearby 1,200 MWMahan power project.

` In April 2013, we submitted a petitionto the Gujarat authorities seekingrelief under our power purchaseagreement with the Gujarat statepower utility at our Salaya I power

project for a change in law inIndonesia which has impacted thecost of coal to the plant. If successful,this will improve the cash flow andprofitability of the Salaya I project.
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Essar Energy plcAnnual Report and accounts 2013Business review14

16,568+9%

Revenue (US m)

20,000

15,000

10,000

5,000

02009 2010 2012 2013^

7.96+79%

CP GRM (US$/bbl)

8

6

4

2

02009 2010 2012 2013^

19.8+16%

Throughput (mmt)

20

15

10

5

02009 2010 2012 2013^

824+252%

CP EBITDA1(US$m)

1,000

800

600

400

200

02009 2010 2012 2013^

1 Refer to page 42for definition of CP EBITDA.

Operating review

Highlights

` Vadinars CP GRMs for FY2013 averagedUS$7.96/bbl, compared with US$4.45/bblinFY2012.

` Following the expansion and optimisationprojects, completed in June 2012, Vadinar is nowamongst the most complex refineries in the world.

` Post expansion, the proportion of lower costheavy and ultra heavy crudes processed hasrisen to 86% in FY2013 from 70% in FY2012.

` Post expansion, the proportion of high valuemiddle distillates has increased to 59% in FY2013

from 44% in FY2012.` Having completed the refinery upgrade, the

near-term focus moves to cash generationand debt reduction.

Divisional performance indicators

Strategically located on thewest coast of India, the Vadinarrefinery is the second largestsingle-location refinery in Indiawith an annual capacity of20 mmtpa, or 405,000 bpd,and 11.8 complexity.

View of Vacuum Gas Oil Hydrotreater(VGOHT) at the Vadinar refiner


^ 12 months ended 31 March 2013

During FY2013, the proportionof lower cost ultra-heavycrudes processed at Vadinarrose to 61% from 19% theprevious year.

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Our Refining and Marketing business inIndia comprises the Vadinar refinery anda retail franchise network of around 1,400

fuel stations.

At Vadinar, excellent progress was madeduring the year, following the completionin Q1 FY2013 of the projects to increasecomplexity to 11.8 from 6.1 and capacityto 20 mmtpa, or 405,000 bpd from300,000 bpd. Vadinar is the secondlargest private sector refinery in India

and amongst the most complex in theworld for a refinery of this scale.

Current Price Gross Refining Margins(CP GRMs) for FY2013 averagedUS$7.96/bbl, compared with US$4.45/bbl in 15 months FY2012. CP GRMs rosesharply from June 2012 onwards oncethe optimisation project was completedand all the new units were fully rampedup and stabilised.

Refining and

Marketing India

Mr Lalit Kumar GuptaManaging Director and ChiefExecutive Officer of Essa r Oil

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Operating review

Refining and

Marketing India

At the same time, annual productionincreased to 19.77 mmtpa/140.3mmbbls, from 17.1 mmtpa/125 mmbbls inthe 15 month period to March 2012. Weexpect throughput from now to run ataround 20 mmtpa, or 143 mmbblsper year.

Vadinar is now a state-of-the-art refinery,accounting for around 10% of Indias totalrefining capacity. It is well placed tocapitalise on rising demand in India andinternationally for the high value fuels it iscapable of producing, particularly middledistillates gasoil and jet fuel wherethere is the greatest domestic andinternational growth in demand. 59% of

Vadinars production consisted of middledistillate products during FY2013, against43% in FY2012. Of the middle distillates,around 80% was gasoil.

At the same time, the higher complexitymeans Vadinar can process a muchgreater proportion of lower cost, ultra-heavy crudes. During FY2013, theproportion of ultra-heavy crudesprocessed increased to about 61%of the total from 19% in FY2012.

Vadinar is advantaged in the long-termby the low cost of construction, with totalcapital costs totalling c.US$5.3 billion,or c.US$13,000 per bbl of throughput,making it amongst the lowest costrefineries globally.

A further significant advantage is beinggained through the replacement of powerand steam production from gas andrefinery fuels to coal. This was achievedthrough the commissioning of the VadinarP2 power project in December 2012,giving the Vadinar refinery a significantcost advantage given current low coalprices compared to gas or oil. At currentprices, this is adding over US$1/bbl torefinery margins.

R&M India delivered CP EBITDA ofUS$823.8 million for FY2013, comparedwith CP EBITDA of US$234.2 million in

FY2012. The increase was drivenprimarily by higher CP GRMs andincreased production.

Case study

Vadinar refinery benefiting fromthe newly commissioned coal-firedpower plantIn December 2012, Essar Powercompleted the commissioning of itsVadinar Phase 2 power plant, whichis a captive 510 MW station, situatedadjacent to the refinery and capableof providing all of the refineryspower and steam requirements.By delivering power and steam

using coal as the generation fuel,rather than much more expensivegas or fuel oil, Essar Power hasbeen able to lift gross refinerymargins by more than US$1/bbl,which is a great competitiveadvantage.

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Our expectation is that GRMs at Vadinarwill run at a level of approximatelyUS$7-8/bbl above the InternationalEnergy Agencys (IEA) Singaporebenchmark, including the benefit fromcoal-fired power and steam generation.

Of Vadinars sales, around 69% by value

was sold in the Indian domestic marketduring the year, where our principalcustomers, comprising 61% of sales, arethe public sector oil marketing companies,and around 31% was sold for export.

Our Indian fuel retail business, consistingof 1,400 operational franchise retail sites,with another 195 under construction, isbeginning to benefit from the incrementalsteps announced by the IndianGovernment in January 2013 to reducediesel subsidies. This involves monthlypermissible increases by state fuelretailers of up to Rs.0.50 per month until

the retail pump subsidy, currently aroundRs.4.87 per litre, is eliminated. Subsidiesfor bulk sales of diesel were removedcompletely. This follows on from thederegulation in June 2010 of petrolprices, which has benefited R&M India,with retail sales of gasoline rising by 6%in FY2013 compared with the previous12 months.

Sales taxOn 17 January 2012, the HonourableSupreme Court of India determinedthat R&M India could no longer enjoya deferred sales tax benefit which was

originally granted to R&M India by theGujarat Government to incentivise theconstruction of the Vadinar refinery inthe state of Gujarat. Following this

judgment, R&M India became liableto pay back to the Government ofGujarat the amount of deferred sales tax

collected aggregating c.US$1,134 million(Rs.61.69 billion).

Of the total principal sum owing, ofapproximately US$1,134 million (Rs.61.69billion), R&M India repaid c.US$185 million(Rs.10.04 billion) in July 2012 as directedby the Honourable Supreme Court.

The Honourable Supreme Court on13 September 2012 directed R&M Indiato repay the remaining c.US$950 million(Rs.51.65 billion) sales tax balance owedin eight quarterly instalments along withinterest at the rate of 10% pa on theoutstanding amount due with repaymentsbeginning in January 2013.

R&M India has made two repaymentswhich were due on 2 January 2013 and 2

April 2013. The remaining principal balanceis c.US$712 million (Rs.38.74 billion).

CDR exit and debt dollarisation

In March 2013, R&M India completed theprocess for exiting the CDR mechanismwhich was implemented in December2004 to help cover the construction of its

Vadinar refinery in Gujarat. The CDR loanfacility was replaced with a new debtfacility of about c.US$1.65 billion (Rs.91.00billion) on revised commercial terms from asimilar group of lenders. A US$83 milliongain has been recognised in net financecosts on the exit of the CDR loan facility.

The CDR exit now allows Essar Oil torefinance its expensive Rupee debt withlower cost US dollar loans to lower interest

costs and improve cash flows andprofitability. Essar Oil has alreadyrefinanced Rs.26.11 billion of Rupee loansinto equivalent foreign currency debt ofc.US$481 million through the use ofexternal commercial borrowings and byswapping Rupee loans into US dollars.

Pipelines at Vadinar refiner .

Our fuel retailbusiness is benefitingfrom Government stepsto gradually eliminatediesel price subsidies.

6%Increase in retail sales of gasolinein FY2013

US$481mFirst tranche of Essar Oil Rupee debtrefinanced into US dollars

R&M India (US$ million)

12 monthsended

31 March2013

15 monthsended


Revenue 16,568.0 15,245.0 9%

Operational EBITDA 688.0 466.3 48%

CP EBITDA 823.8 234.2 252%

Depreciation and amortisation (158.1) (129.0) 23%

Net finance costs (372.2) (221.8) 68%

CP profit/(loss) before tax (before exceptionalitems in 2012 and other losses) 293.5 (116.6) 352%

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Operating review

Highlights

` CP GRMs in FY2013 were US$7.38/bbl, comparedwith US$3.06/bbl in the first eight months ofownership to March 2012.

` Post acquisition of Stanlow in July 2011,we identified projects to deliver US$3/bbl ofsustainable margin enhancements. We have so fardelivered U$2.2/bbl of this, ahead of schedule, andhave increased the target to U$4/bbl by FY2015.

` A landmark transaction was concluded to sellStanlows crude oil and petroleum productsinventories to Barclays Bank PLC (Barclays) andpurchase crude from Barclays on a daily basis thus reducing costs, capital employed and riskwhile maintaining operational flexibility.

The Stanlow refinery is locatedin the industrial heartland ofnorth west England. It is thesecond largest refinery in theUK with a nameplate capacityof 14 mmtpa, or 296,000 bpd,and 8.2 complexity.

Refining and Marketing UK

Overview of the Stanlow refiner .

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10,240+61%

Revenue (US m)

12,000

10,000

8,000

6,000

4,000

2,0000

2012 2013^

9.9+46%

Throughput (mmt)

10

8

6

4

2

02012 2013^

7.38+141%

CP GRM (US /bbl)

8

6

4

2

02012 2013^

317.2+2,378%

CP EBITDA2(US m)

400

200

100

300

02012 2013^


Stanlow, the second largest refinery inthe UK, was purchased by Essar Energyin July 2011 for US$350 million.

Significant progress was made duringFY2013 with a series of projects designedto improve gross refinery margins andincrease profitability. Projects have beendelivered to improve GRMs by asustainable US$2.2/bbl compared withthe level when Essar acquired Stanlow inAugust 2011. Stanlow has now increasedits target for sustainable marginenhancements from U$3/bbl to U$4/bblabove the level at acquisition, which whencompleted will mean Stanlow is deliveringGRMs of US$6/bbl above IEA North WestEuropean benchmark margins by the endof FY2015.

The projects delivered include optimisationof the crude slate to lower crude purchasecosts, including the introduction of over 15lower cost crudes, including some heavyand ultra heavy, and a sharp reduction independence on North Sea crudes, fromover 90% in 2011 to around one thirdrecently. Other initiatives includeintroducing natural gas to the refinery toreplace fuel oil in our burners which lowerscosts, improves efficiency and improvesenvironmental performance; and closureof our lubricants production units whichhas allowed for further optimisation of ourcrude slate. Stanlow will continue to seekways to optimise the performance of therefinery to deliver cost and margin benefitsand ensure that Stanlow moves to the topof the catalytic cracking refinery fraternityin Europe.

Mr Volker SchultzChief Executive Officer of Essar Oil U

Stanlow has projectsunder way to increasemargins and differentiateitself from the widerEuropean refining sectorwhich generally remainsunder pressure.

15 months ended 31 March 20121


1 Represents the first eight months of Essar Energysownership of Stanlow, beginning 1 August 2011.

2 Refer to page 42for definition of CP EBITDA.

R&M UK (US$ million)

12 monthsended

31 March2013

15 monthsended


Revenue 10,240.4 6,353.9 61%

Operational EBITDA 185.0 (17.0) 1,188%

CP EBITDA 317.2 12.8 2,378% Depreciation and amortisation (41.3) (18.8) 120%


CP profit/(loss) before tax (before other losses) 202.3 (58.3) 447%1 Represents the first eight months of Essar Energys ownership of Stanlow, beginning 1 August 2011.

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Operating review

Refining and

Marketing UK

Stanlow has improved margins at atime when the European refining sectorgenerally remains under pressure througha surplus of gasoline products and ashortfall of the higher value middledistillates, particularly diesel and jet fuel.

During FY2013, R&M UK achieved CPGRMs averaging US$7.38/bbl, up 141%compared with US$3.06/bbl achievedduring the first eight months of EssarEnergys ownership in FY2012. This

reflected a general improvement inmarket margins and a FY2013 averageuplift of US$2.2/bbl due to the marginenhancement programme. Throughputwas 9.9 million tonnes of crude, or 74.72million barrels, which is in line withexpectations.

Throughput in FY2014 is expected tobe around 1015% lower than the normalthroughput of around 75 million barrelsper year, due to a major maintenanceturnaround to be completed duringthe year.

R&M UK achieved a CP EBITDA ofUS$317.2 million for FY2013, comparedwith a CP EBITDA of US$12.8 million inthe first eight months of ownership inFY2012. This increase was due to a fullyear of operations, delivery of our marginenhancement initiatives and improvedindustry margins offset by the impact ofa fire in a convection bank of a furnace atone of our secondary processing units inJanuary 2013.

Case study

Stanlow crudes diversification andlubricants unit closure

An important element of the drive byEssar Oil UK to sustainably improveGRMs at Stanlow has been adiversification of the range of crudeoils processed to very significantlyreduce reliance on higher cost UKNorth Sea variants. Compared with

the time of acquisition, more than 15new opportunity crudes have beenintroduced to the Stanlow refinery,including certain ultra-heavy crudeswith an API below 25, and the moveto halt production of engine oillubricants in March 2013 hasallowed this process to beaccelerated. Lubricants productionrepresented around 2% of therefinerys total product output, butdictated 25% of the crude intakebecause of the specific types

required for that product. Bystopping the production oflubricants, the Stanlow refinery hasremoved a restriction on crudeselection and now has completefreedom to optimise its choices. ByMarch 2013, only around a quarter

of the crude slate was coming fromthe North Sea against over 90% in2011. New crudes are now beingsourced from places such as northand west Africa, of fshore Canadaand residue from Russian crudes.The termination of lubricantsproduction required agreementfrom customers and involved alengthy set of negotiations byStanlow management.

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Top Image:Essar Oil UKs first branded fuel delivery tanke .

Bottom Image:The new head unit for Stanlows residue catalyticcracking unit being delivered in March 2013.

Case study

Stanlow inventory monetisation

Essar Oil UK has been working toimprove efficiency across all areas,not just operationally but also infinancial terms. As part of this, theCompany completed an agreementin July 2012 with Barclays Bank PLCunder which Barclays now holds theinventories of crude oil andpetroleum products at Stanlow andwill supply crude to the refinery in linewith its requirements on a dailybasis. This transaction allowed EssarOil UK to repay its previous US$1.5

billion working capital revolvingcredit facility, and achieve asubstantial reduction in coststogether with greater operationalflexibility. The customer relationshipsand product sale processes remainwith Essar Oil UK, which also retainsfull flexibility to choose the crudesfor processing at the refinery. Thearrangement with Barclays is for aninitial three year period andcontinues to work well.

141%Increase in Stanlow GRM upto US$7.38/bbl

US$2.2/bblUplift in GRM due to marginenhancement initiatives

In March 2013, a new head unit forStanlows residue catalytic cracking

unit, the largest of its kind in Europe,was delivered to site, requiring closureof the M53 motorway.

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Operating review

Highlights

` Raniganj CBM block granted Phase IIIenvironmental clearance by the IndianGovernment, allowing up to 650 wells to bedrilled, against 143 wells at the end of March2013, with 75 in production.

` On track to reach targeted peak production ofc.3 million standard cubic metres per day(mmscmd) from Raniganj.

` Completed the sale of a 50% share in offshoregas exploration block 114 in Vietnam to ENIInternational B.V. in February 2013.

Essar Energys Exploration andProduction business has 15 oil and gasblocks in India and internationally. Itscurrent focus is on unconventional gas inIndia where it has a portfolio of five CBMgas blocks with a total of 10 trillion cubicfeet (tcf) of reserves and prospectiveresources, making it the largest CBMplayer in the country.

The business took a considerable stepforward in February 2013 when the firstof its CBM blocks being developed, theRaniganj block in West Bengal, wasgranted Phase III environmental clearanceby the Indian Government. This will allowthe full field to be developed. As at 31March 2013, 143 wells had been drilled,of which around 75 were in production.In order to reach the targeted peakproduction of c.3 million standard cubicmetres per day (mmscmd) of gas, theimmediate intention is to increase the

number of wells to around 350. Theremainder will be drilled over the lifetimeof the field in order to maintain production.Raniganj is currently producing around100,000 scmd of gas.

The Indian Government of India is inthe process of amending the current gassales pricing regime for indigenous gasin India. A report was completed inJanuary 2013 recommending thatprices be increased in line with a basketof international hub prices to incentiviseinvestment in domestic Indian resources.If implemented, this could have a significant

positive impact on Essar Energys coalbed methane business.

In the interim, Essar is continuing tosell gas from Raniganj to a number ofindustrial customers in small quantitiesthrough pipelines and cascades.The experience obtained from thedevelopment of our Raniganj block willbe used to support the development ofour other, CBM blocks where we have,

in total, 10 tcf of prospective resources.Work continues on these blocks toobtain environmental approvals and thePetroleum Exploration Licences (PELs)required to allow us to complete theminimum work programmes.

Across our conventional oil and gasblocks, Essar Energy continues toevaluate ways of managing risk bybringing in strategic partners whereappropriate. During the year wecompleted the sale of a 50% share inour offshore gas exploration block 114in Vietnam to ENI International B.V.

There was no gain or loss arising onthis transaction.

Essar Energy has atotal of 10 tcf of coal bedmethane reserves andprospective resourcesin India, making it thelargest coal bed methaneplayer in the country.

Essar Energys Exploration andProduction business has 15 oiland gas blocks in India andoverseas. It is currently focusedon unconventional gas in India.

Mr Iftikhar NasirChief Executive OfficeExploration and Production

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Operating review

Highlights

` During FY2013 generation capacity was morethan doubled by commissioning 2,310 MW ofnew coal-fired power generation, taking totalcapacity to 3,910 MW.

` Increased generation of 10,017 MU, up 27%on the 7,907 MU generated in FY2012.

` Stage 1 forest clearance obtained from theIndian Government for Mahan coal block.

Essar Energy is one ofIndias fastest-growingelectricity generationcompanies, with eightpower projects currentlyoperational.

Power


Steam turbine generator at Salaya Ipower plant.

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3,910+144%

Generation capacity (MW)

4,000

3,000

2,000

1,000

02009 2010 2012 2013^

225-16%

Operational EBITDA (US m)1

300

250

200

150

100

500

2009 2010 2012 2013^

10,017+27%

Generation (MU)

12,000

10,000

8,000

6,000

4,000

2,0000

2009 2010 2012 2013^

449+26%

Revenue (US$m)

500

400

300

200

1000

2009 2010 2012 2013^


During FY2013, the Company morethan doubled its generation capacity bycompleting 2,310 MW of new coal-firedpower generation, taking the totalgeneration capacity to 3,910 MW (including600 MW unit 1 of Mahan which wassynchronised during the year) up 144%compared with 1,600 MW at the start ofthe financial year. This led to increasedgeneration of 10,017 MU, up 27% on the7,907 MU generated in 15 months FY2012

as increased generation from our newcoal-fired plant more than offset lowergeneration at our gas-fired plant as highergas prices impacted demand.

Overall Operational EBITDA from the EssarPower business was US$224.7 million forFY2013, compared to US$266.3 millionFY2012, a 5% increase when adjustedfor the 15 months in FY2012.

In October 2012, the Essar Powerbusiness was assigned a credit ratingof A+ by ratings agency Credit Analysisand Research Ltd (CARE) of Mumbai,in respect of a proposed Rs.50 billion(c.US$909 million) bond issue tobe raised in a number of tranches.In May 2013 it has successfully raisedRs.6.29 billion (c.US$114 million) of bondsand had received sanction letters for thefull Rs.50 billion (c.US$909 million). The

proceeds from these bonds will be usedprimarily to make repayments on existingloan facilities within the power business,including those for our new coal firedpower projects and will allow our powerbusiness to benefit from longer debtmaturity profiles and lower interest ratescompared to our existing debt facilities.

Mr KVB ReddyExecutive Director of Essar Power




1 Refer to page 41 for definition of Operational EBITDA.

(US$ million)

12 monthsended

31 March2013

15 monthsended


Revenue 448.6 356.5 26%

Operational EBITDA 224.7 266.3 16%

Depreciation and amortisation (77.4) (55.7) 39%


(Loss)/profit before tax (before other losses) (28.5) 144.6 120%

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Operating review

Power

shutdown in November 2012. However,plant load factors at Hazira and Bhanderremained low due to high gas prices.

As a result, generation for FY2013 fromPowers captive portfolio was 5,869 MU,down 6% on a comparative 12 month

basis. Generation for the 15 month periodended March 2012 was 7,794 MU.

Ongoing high gas prices, with littleprospect of this situation changing for theforeseeable future, has led to a review ofour current gas fired generation portfolio.The result is that we have agreed with ourcustomers to convert the Hazira I (515 MW)and Bhander (500 MW) power stations tocoal fired boilers based on imported coal.Any additional costs associated with thisconversion will be compensated by anadjustment to current tariff levels. Anyconversion will be subject to the receipt of

all necessary approvals. The existing gasturbines will be sold or relocated to regionswhere there is ample supply of economicnatural gas.

Due primarily to an increase in projectscope at Hazira II and Paradip, costs haveincreased to US$308 million and US$165million, respectively from US$261 millionand US$124 million. These increasedcosts have been offset by an increase inthe tariffs charged to customers to ensurethat the project economics remain intact.

Imported coal project:

Salaya I 1,200 MWUnit 1 of 600 MW was fully commissionedin April 2012 and unit 2, also of 600 MW,was commissioned in June 2012.

Plant load factors at the coal-fired Salaya Iplant improved during the year, averaging44% but standing at 65% in Q4 FY2013.This uplift was due to improved watersupply from January as a temporarysolution was put in place to bringdesalinated water from the Vadinarrefinery to Salaya. The water from theVadinar refinery is supplementing waterbeing procured from the nearby Narmada

River. This temporary solution is requiredpending the receipt of regulatoryapprovals from the Indian Government toconstruct a dedicated permanent seawater pipeline and coal import jetty andconveyor belt to the power plant.

Technical plant availability has averaged86% since commissioning and 96% inQ4 FY2013.

Longer term, the coal for Salaya I will comefrom the Aries coal mine in Indonesia. Thismine is wholly owned by Essar Energy and

was acquired in April 2010. Final PinjamPakai forest clearance was received inJune 2012 and first coal is expected by Q4FY2014. In the interim, alternative suppliesof coal continue to be imported via othernearby ports.

Essar Energy, together with other Indianpower companies, continues to seekrelief under Power Purchase Agreementsto mitigate the impact of a change inIndonesian coal pricing laws in 2011 whichhas added to the cost of coal importedfrom Indonesia. Being an industry-wideissue, other power companies in India

have made representations to theirrespective local utilities and electricityregulators for increases in tariffs. EssarPower filed a tariff revision plea withGUVNL, the Gujarat State utility thatpurchases the majority of the power fromSalaya I, in April 2013. The Group believesan increase in tariff will help it achieve anacceptable long-term rate of return on itsinvestment in Salaya I. If an increased tariffis not secured, there may be a risk to thelong-term realisation of this investmentunder IFRS. However, managementview the Salaya I power plant and theAries mine as a combined asset for

performance evaluation and internalbusiness reviews and believe stronglythat when viewed on a combined basis,there is significant value in the project.

Domestic coal projects:Mahan I 1,200 MWThe synchronisation of the 600 MW unit 1at Mahan I in the second half of FY2013,together with the grant of stage 1 forestclearance by the Government of India forthe nearby Mahan coal block, representedtwo positive steps forward for the projectfollowing a number of frustrating delays.

Pending the commencement of coalmining at the Mahan coal block, fivekilometres from the power project, coal isbeing sourced from Coal Indias e-auctionprocess. The use of imported coal is alsobeing considered. In March 2013, Essar

Essar Energy divides its power generationportfolio into different groupings. Thecaptive, or Return on Equity (ROE) plantsare in one division, and the other, non-captive, plants, are grouped accordingto their fuel sources, which are eitherinternational or domestic coal.

Captive power projectsPower has six captive power projectsoperational, with a further two due tocomplete in FY2014. These captiveprojects deliver more secure revenues andOperational EBITDA as the majority ofpayments are based on availability, ratherthan on power generated. Fuel price anddelivery risk lies with the power purchaser.

Operational, total 2,110 MW:Hazira (515 MW, gas-fired) and Bhander(500 MW, gas-fired) are primarily captive tothe Essar Steel plant at Hazira, with the

Hazira 515 MW plant also supplying theGujarat state electricity utility GUVNL.Meanwhile, Vadinar (120 MW, refineryresidue, multi-fuel), Vadinar P1 (380 MW,gas-fired) and Vadinar P2 (510 MW,coal-fired) are captive to the Essar Oilrefinery at Vadinar. The other, Algoma (85MW, gas-fired), is captive to the Essar Steelplant at Algoma, Canada.

Under construction, total 390 MW:Hazira II (270 MW, gas/corex fines), captiveto Essar Steel at Hazira; Paradip (120 MW,coal-fired), captive to Essar Steels facility atParadip, Orissa state.

Operationally, during FY2013, availabilityfrom the captive gas-fired plantsremained high at between 97% and100%, with the exception of Algomawhich had availability of 91% due to a

Checking instrumentation at Salaya Ipower plant

144%Year on year increase ingenerationcapacity

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Power executed a bi-lateral contract withthe Power Company of Karnataka Ltd. tosupply 210 MW of firm power for a twoyear period from August 2013 at a fixedtariff of Rs.4.3/unit and in April 2013, EssarPower executed a bilateral contract withEssar Steel to supply 300 MW of firm

power for a nine month period, fromJuly 2013 at a fixed tariff of Rs.3.89/unit(July 2013) and Rs.3.75/unit (August 2013to March 2014). Essar Power is seekingto sign similar contracts withother companies.

However, in Q4 FY2013 the Mahan plantdid not generate due to ongoing work toallow commissioning and stabilisation oncoal. The 600 MW unit 1 wascommissioned in April 2013.

Operation of the 600 MW Unit 2 at Mahan Iwill be subject to signing suitable bilateral

contracts and coal availability.

The Mahan coal block was originallyallocated to Essar in 2006. Delays ingranting coal mine clearances have heldup the development of a number of coalblocks and power projects in India.However, on 30 October 2012, wereceived Stage 1 forest clearance for theMahan coal block. The Stage 2 clearanceis progressing well and is expected in thenext few months and, once secured, weestimate it will take 9 to 12 months toproduce first coal and it will then takebetween two to three years to ramp up

to the full capacity of 8.5 mmtpa.

In addition to e-auction and imported coal,Essar Energy has applied for medium-term allocations of coal under Coal Indiastapering coal linkage system. Receipt of atapering coal linkage allocation willimprove the economics of Mahan I.

Tori I-1,200 MW, and Tori II- 600 MWAs at the end of March 2013, theconstruction programmes for Tori I(1,200MW, comprising two units of600MW each) and Tori II (600MW)were respectively 42% complete and

17% complete.

Essar Energys six operational captivepower projects revenues are based

on availability, rather than on powergenerated, while fuel price anddelivery risk lies with the customer.

Case study

Salaya workaround for cooling water

Among Essar Energys most valuableassets is its ability to innovate and itsflexibility of approach. This has beenclearly demonstrated at its Salaya Ipower project, where there have beenlong delays in progressing theenvironmental clearances required tocomplete the dedicated coal importterminal and sea water pipeline for thepower stations cooling system. Inorder to get enough cooling water tothe site, Essar Energys engineerscame up with an innovative temporarysolution. First, they re-routeddesalinated water from the nearby

Vadinar refinery to the Salaya powerplant by adding an additional pipeline,instead of routing it back to the sea.Second, they switched the intakeseawater pipeline to the refinery withits larger return pipeline and addednew pumping capacity to increasewater volumes to 8,700 cubic metresan hour. This has allowed Salaya I tooperate at load factors of around 65%during Q4 of FY2013 and will reliablysupply around 50% of Salayas waterneeds until the dedicated facilities arecompleted.

Essar Energy is continuing to progressforest and environmental clearances for thetwo nearby coal blocks, Chakla and AshokKarkata, which will supply fuel to the Toriplant and environmental approvals for Tori I,unit 2 and Tori II. Completion of the Toriprojects is dependent on timely receipt ofthese approvals.

As announced in February 2012, due toregulatory delays in the Indian powersector, and to ensure efficient deploymentof capital, Essar Energy has decided to

progress the construction of three of its

later stage power projects at Salaya II,Salaya III and Navabharat I, totalling 2,970MW only against certain milestones. Thetotal investment cost of the three projectsis estimated to be c.US$3.1 billion.

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Sustainability

Achievements

` Essar Energy has signed up to the United NationsGlobal Compact principles, thus setting out aclear framework for all our businesses to follow.

` Expanded activities in communities around oursites, with a clear focus on education, healthcareand encouraging entrepreneurship.

Essar Energy believes that tocreate a successful long-termbusiness, a strong focus onsustainability is vital, with aparticular emphasis on thecommunities around ouroperating sites.

Essar Energy is building and operating oiland gas, power and exploration andproduction assets which will have lifespansof several decades. Therefore, it is criticalthat these assets can operate sustainablyfor a very long period, taking into accountthe needs of all stakeholders, particularlythe people and communities in theneighbouring areas.

One of the key elements of the Companys

strategy is therefore a strong commitmentto being a good corporate citizen.

Indeed, to demonstrate this commitmentto sustainability, Essar Energy became asignatory to the United Nations GlobalCompact principles on 2 April 2013,requiring us to follow a clearly defined wayof operating across all our businesses, witha focus on environment, labour, anti-corruption and human rights. We believethis is the best way for us to create valuein a sustainable, long-term way.

Despite global and national challenges

being faced by the Energy sector, we wereable to make considerable progress in oureconomic, environmental and socialperformance last year. This section of theAnnual Report gives a brief overview ofEssar Energys sustainability performancein FY2013. For more detailed information,please refer to Essar Energys secondSustainability Report Building asustainable energy business-which isavailable at www.essarenergy.com.

Sustainability performancehighlightsOperational and economic` Vadinar refinery completed optimisation

project four months early, takingcapacity to 405,000 barrels per day.

` Power generation capacity increased to3,910 MW in FY2013 from 1,600 MW.

` 1,517 employees trained in the UKBribery Act.

Social` 13% increase in employee traininghours achieved by Power BusinessGroup.

` Increase in number of employeestrained in health and safety by 124%at Vadinar refinery and 123% at CBMproject, Raniganj.

` Zero LTI frequency rate achieved bypower plants at Hazira and Vadinar.

` 326% increase in number ofcontractors trained in health andsafety at CBM project, Raniganj.

` Zero occupational disease rateachieved at all sites.

` Over 96,000 beneficiaries of ourhealthcare initiatives undertaken atvarious sites.

` Over 89,000 beneficiaries of ourcommunity care initiatives undertakenat various sites.

` Over 17,900 beneficiaries of oureducational initiatives undertaken atvarious sites.

Environment` For the second successive year, Essar

Oil was ranked the highest scorer inthe energy sector by the CarbonDisclosure Project, India.

` 189% increase in energy saved atVadinar refinery.

` Low energy intensity of 0.446 tCO2e

per MWh maintained by EssarPower, Hazira.

` 15% reduction in hazardous waste

generation at Vadinar refinery.

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Committed to sustainability

Extensive efforts have been made todevelop and maintain greenbelt in andaround Vadinar refinery site

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Sustainability

Case study

Towards achieving excellence inenergy conservationOur sites are committed to conservingenergy to deliver benefits such as lowerfuel consumption, better profitability,environment protection, and a lowercarbon footprint.

Our power plants at Hazira together

implemented 23 energy saving projectsranging from equipment modificationsand optimisation to technologyupgrade resulting in an estimatedsaving of over 12 million units ofelectricity, or 3,204 million tonnes of oilequivalent, which equates to a savingof over Rs.94 million (US$1.7 million).The emissions reduction as a result isestimated to be 12,800 tonnes ofcarbon dioxide equivalent.

Comparing the results for the monthswhere the generation was similar, wesee a downward trend of auxiliary

consumption.One energy conservation initiativeinvolved the energy team at the CBMproject at Raniganj, who found a much

more efficient way of running the largenumber of pumps required to pushgas around the network on site. Thisresulted in an increase in powerefficiency of nearly 10%. An estimatedreduction of 79.56 metric tonnes ofcarbon dioxide was achieved with this

initiative during the few months ofFY2013 post-installation.

Amongst various energy initiativesimplemented at the Vadinar refinery,one was to recover desalinatedcondensate heat to be then used toheat demineralised water and reducecooling tower heat load. Here, 2.9gigacalories per hour of energy weresaved. The project cost US$1,800, butsavings amounted to aroundUS$182,000 pa.

For more energy case studies and

the Groups performance by site,please refer to the SustainabilityReport FY2013 available atwww.essarenergy.com.

For the secondsuccessive year, EssarOil was ranked thehighest scorer in the

Energy sector by theCarbon DisclosureProject, India.

Our peopleOur employees are our biggest assetswithout whom we cannot achieve ourbusiness objectives. Our priorities last yearincluded employee retention, successionplanning and nurturing and growing internaltalent. Various employee engagementinitiatives, coupled with an enhanced focus

on individual training needs in alignmentwith the business objectives, helped usto meet our objectives.

We continued to focus on effectivemanagement of people performancesthrough a clear linkage with businessresults and motivation through appropriaterewards. The Short-term Incentive Planwhich was introduced in FY2011 for themiddle management of Essar Energy Indiaemployees was paid out at the end ofFY2013 to consistent performers.

Health and safety

Managing the health and safety of thepeople who work for us, both directly andindirectly, continued to be our top prioritylast year. The focus at most of our sites wasto enhance safety culture, contractor safetymanagement, risk assessment and training.Although our overall safety performancewas good and various sites won externalrecognition for their safety efforts, therewere also key learnings from the incidentsthat occurred at our sites which we will useto further improve our safety processes.

Unfortunately, a road accident outside theprocess plant at the Vadinar refinery led to

a contractor fatality in June 2012. Followingthe recommendations of the investigatingteam, the entire refinery was inspectedand areas with any potential for similaraccidents were identified and action takento prevent future incidents.

There is a strong focus on helping stimulateentrepreneurship, including among women.

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EnvironmentAs a respected and responsible globalenergy company, Essar Energy recognisesits obligations with regard to climatechange mitigation and adaptation.Our approach towards climate changemitigation and adaptation continues toaim at providing clean solutions to our

customers and reducing our carbonfootprint by adopting the latest technologyand energy conservation measures.

We continue to report our carbonperformance at Carbon Disclosure Project(CDP) level. For the second successiveyear, Essar Oil was ranked the highestscorer in the energy sector by the CarbonDisclosure Project, India. In terms of theCarbon Disclosure Leadership Index(CDLI), Essar Oil achieved a score of72 out of 100, and was the only energycompany in India to be featured in the list.Overall, Essar Oil is positioned sixth in the

CDLI List, cutting across all sectors. Thisscore is achieved in spite of the refineryscapacity addition and Nelson complexityindex enhancement as well as theinclusion of emissions being generatedon account of the Exploration andProduction divisions coal bed methaneproduction operations, for the first time,which contributed to Essar Oils totalemission count. Our power plants inHazira collectively reported to CDP,India under the Other RespondingCompanies category.

72/100Essar Oils score in the CarbonDisclosure Leadership Index, theonly energy company in India tofeature in the list.

Case study

Vadinar: Shishu Mangalam Projectcombats malnourishmentThe World Bank estimates that India isranked 2ndin the world of the numberof children suffering from malnutrition.The prevalence of underweightchildren in India is among the highestin the world, with severeconsequences for mobility, mortality,

productivity and economic growth.Gujarat has a particularly highproportion of children in this category,with 44.7% of children underweight,22.3% of the population isundernourished and 6.1% of childrenwho die under the age of five do sofrom hunger.

The Essar Foundation, in collaborationwith the District Panchayat, Jamnagar,started the Shishu Mangalam Projectduring June 2012 to December 2012in Khambhaliya, Jamnagar. This areahas the highest percentage in India of

malnutrition (38%) among childrenunder the age of five years. Theproject strategy was to leverage the

existing Integrated Child DevelopmentServices (ICDS) structure and focusexclusively on raising the health andnutritional level of malnourishedchildren below six years old andreducing the number of highlymalnourished children.

A physical assessment wasconducted to identify and gradethe nutritional status of children. Healthcheck-ups of children in yellow zoneswere carried out by medical officersof the primary health centre andthose in red zones were carried outby paediatricians. Medical causeswere identified and basic treatment,as well as referral, was ensured.Additionally, a high protein nutritionsupplement was provided along withnutrition education.

A third party assessment showedsignificant improvement in thenutritional status of children.

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Sustainability

Case study

Raniganj: sight restored

Healthcare is often the most neglectedissue in rural communities, a situationworsened by high levels of povertyand illiteracy. Paira Khatoon, picturedcentre, an eight year old girl in Class IIIat Labnapara Free Primary School,who had previously been a regularattendee at the school, beganstruggling with her studies and

attendance due to an eye infectionwhich had been ignored by herparents, who assumed it was a minorproblem. However, during one of theregular child health check-up campsconducted by Essar in government

primary schools to cover those left outduring similar checks in villages, thedoctor diagnosed the girl with a severeeye infection. Her right eye wasswollen, making it impossible to see,and was also very painful. Her parentswere called immediately, medicine wasprescribed, and her teachers wererequested to ensure she was checked

regularly by the mobile m

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Essar Ar 2013