Essar Energy Announced Results for Full Year Ended 31 December 2010

OREANDA-NEWS. March 22, 2011. Essar Energy announced results for the full year ended 31 December 2010.

Key Highlights

•           Completed IPO to raise net proceeds of USD 1.8 billion and entered FTSE 100

•           16 major growth projects under execution or advanced stages of development

•           Completed Convertible Bond offering to raise USD 550 million (February 2011)

•           Power

-           Solid operating performance in line with expectations - 61% EBITDA margin (2009: 54%)

-           Completed construction of 380 MW Vadinar P1, within budget

-           8,070 MW power generation projects under construction: 2,910 MW to commence operations in 2011

-           Coal blocks awaiting clearances - contingency plans in place

•           Exploration and Production

-           Signed contracts for 4 Indian coal bed methane blocks with estimated resources of over 7.6 tcf

-           Raniganj producing about 30,000 scm/day from 19 production wells

•           Refining and Marketing

-           Record throughput from Vadinar refinery at 14.7 mmtpa

-           Refinery phase 1 expansion to 18 mmtpa - mechanical completion due mid 2011

-           Refinery optimisation to 20 mmtpa by September 2012

-           Exclusivity agreement and USD 350 million offer for Stanlow refinery (February 2011) Results

•           Strong revenue growth up 42%, primarily due to 12% higher refinery sales volumes and 30% higher average refinery products prices

•           EBITDA up by USD 55.2 million primarily due to a full year of operations of the Algoma power plant, sales under an availability based tariff ('ABT') as well as increased recovery of fixed charges in Bhander

•           Current price ('CP') Gross Refinery Margin ('GRM') for our Refinery and Marketing business has increased from USD 4.2 per barrel to USD 6.6 per barrel

•           CP EBITDA (including sales tax benefit) for our Refining and Marketing business has increased by USD 140.6 million to USD 499.4 million in 2010 due to higher sales and increased underlying product prices, and the consequent additional sales tax benefit

Key Performance Indicators

	Results year ended 31 December		2010	2009	Change
	(USD  million)				%
Revenue			10,005.6	7,023.8	42
EBITDA1			718.9	663.7	8
Profit before tax			365.5	285.7	28
Profit after tax			248.3	206.8	20
CP1 GRM (including sales tax benefit) (USD /bbl)			6.6	4.2	57
CP EBITDA1 (including sales tax benefit)			703.6	506.9	39
Capex spent (excluding intangibles)			2,555.0	482.3	430
	Balance Sheet		As at 31	As at 31	Change
	(USD  million)		December 2010	December 2009	%
Net debt			3,933.9	3,037.6	30
Total equity			4,642.1	2,038.8	128
Gearing (net debt/(net debt  plus  total equity))			45.9%	59.8%

Commentary on Group Results

Naresh Nayyar, Essar Energy Chief Executive, said: "This is a strong financial result driven by record refinery throughput of 14.7 mmtpa, a pleasing uplift of over 50% in current price gross refinery margins and high availability at our power plants. Demand for energy in India is expected to continue to grow sharply and we remain focused on delivering our key projects, which in 2011 includes the first phase of our Vadinar refinery expansion and another 2,910 MW of power generation capacity. With the successful completion of our IPO and a subsequent convertible bond offering, we also have a robust financial position to fund our expansion programme."

2010 saw the creation of Essar Energy plc ('Essar Energy' or the 'Company') as the holding Company for the Essar Group's power and oil and gas interests. The Company was listed on the main market of the London Stock Exchange through an initial public offering (the 'IPO' or the 'Listing') which raised USD 1.9 billion gross proceeds (USD 1.8 billion net proceeds) and at that time was the largest primary offering in the London market since 2007.

Subsequent to the Listing, Essar Energy entered the FTSE 100 on 21 June 2010. Essar Energy also entered the MSCI UK index on 30 November 2010 and on 1 December 2010, futures and options contracts were made available for trading on LIFFE CONNECT® and within Bclear. These events have created additional interest in the shares of Essar Energy and we have seen an increase in the liquidity of the Company's shares since listing.

The Company's strategy is clear; to create a world-class, low cost Indian energy company, positioned to capitalise on India's rapidly growing energy demand. While the focus is on India, Essar Energy will also pursue opportunities overseas which support our strategy and deliver value to its shareholders.

Power

Operationally, all plants performed well with availability between 94% and 99%. Overall generation was 8.5% higher than 2009, but lower than planned due to heavy rains during the monsoon season in India, which affected domestic and agricultural power demand, as well as the impact of higher gas prices.

In October 2010, the first unit of the 380 MW Vadinar P1 gas fired power station was synchronised with the grid. The second unit's synchronisation was delayed to January 2011 due to a faulty starter motor that had to be sent back to the manufacturers for repair. Dispatch from this plant is expected to remain low until the Vadinar phase 1 refinery expansion is complete when demand for power and steam should increase.

In addition to completing the Vadinar P1 power station, the Company continued to make significant progress with its other power projects and in November 2010 moved four power plants with a combined capacity of 3,570 MW in to the construction phase. We now have 8,070 MW of capacity under construction with 2,910 MW due to enter commercial operations during 2011. Whilst there are some delays to the projects scheduled to come in to operation in 2011, primarily due to heavy rains during the monsoon season in India, subject to securing fuel for the projects under development, we remain on track to have 11,470 MW of operating power capacity by the end of 2014.

In India, we are still awaiting forest clearance for our Mahan, Chakla and Ashok Karkata coal blocks which will provide fuel for the Mahan I and Tori power stations. This clearance is delaying the development of a number of coal blocks in India and as a result, an Empowered Group of Ministers was formed by the Prime Minister's Office to resolve all cases where significant progress has been made on construction of the power plant. Despite a visit to our sites in July 2010 and a favourable recommendation, we have not yet received forest clearance. While we are optimistic of a favourable outcome, we will not be in a position to supply coal from our own mines ahead of the commissioning of the 1,200 MW Mahan I coal fired power project. The first unit of this power plant will commence commissioning in September 2011. We have therefore applied to Coal India Limited for tapering coal linkage until our own mines are operating at full capacity. We expect to receive this clearance shortly.

In July 2010, Essar Power Limited entered in to an agreement for the acquisition of a 100% interest in Navabharat Power Pvt. Limited ('Navabharat Power') for a consideration of USD 50.2 million. Navabharat Power is a 2,250 MW coal-fuelled power plant being set up in Orissa, India and is being implemented in two phases; phase one of 1,050 MW and phase two of 1,200 MW. The total estimated capital cost is USD 2 billion. The project includes the allocation of the Rampia coal block of 112 million tonnes and a 4.7 million tonnes per annum coal linkage with Coal India Limited. Phase I of the project progressed to the construction phase in November 2010.

The acquisition of the Aries coal mine in Indonesia, comprising 64 million tonnes of mineable reserves, was completed in April 2010. The mine will provide fuel for the Salaya I power station and is currently progressing through its approval process ahead of the commencement of mining. First production is expected in the fourth quarter of 2011. In the interim, the Salaya I power project will have the benefit of its contract with Essar Shipping to source coal at a landed price of USD 55/tonne. Commissioning of the first unit of the Salaya I plant is due to commence in May 2011. During the period Essar Power also purchased a coal resource of approximately 35 million tonnes in Mozambique from an Essar affiliated company. Total consideration for both mines was USD 148 million.

The oil and gas business comprises two segments; Exploration and Production, and Refining and Marketing. Exploration and Production

Essar Energy has one producing oil field, the CB-ON/3, Mehsana field in Gujarat. Total production for the year was 9,616 barrels, up from 2,974 barrels in the prior year.

During 2010, the Company was awarded four exploration blocks under the Government of India's CBM-IV bid round. The four blocks comprise 2,233 sq.km of exploration acreage with in-place prospective resources of over 7.6 tcf of Coal Bed Methane ('CBM') gas, according to documents issued by the Directorate General of Hydrocarbons at the time of bidding. These blocks, together with existing CBM block at Raniganj, West Bengal, make Essar Energy the company with the largest CBM acreage in India and over 10 tcf of reserves and resources. The Company has signed the CBM contracts for these blocks and is in the process of obtaining appropriate licences, including the Petroleum Exploration Licences. The Company is also planning the initial work programme for these blocks.

Raniganj in West Bengal, our first CBM block under development, has made significant progress during the year. Currently 19 wells are producing about 30,000 scm/d of gas and an additional 30 production wells have been drilled. To accelerate our work programme we have ten drilling rigs of various capacities operating at site and one hydrofracturing unit. To date, 201 bcf of gas has been classified in the 2C, contingent resource category with another 792 bcf classified as a best estimate prospective resource. 14 wells have been drilled with a view to migrate more resources to the 2C, contingent resource category during the second half of 2011.

In December 2010, the Company signed an agreement to farm out a 37% participating interest in the OPL 226 oil and gas block offshore Nigeria to Agamore Energy Limited, a local Nigerian Company. This block was awarded to Essar in the 2007 Nigerian bid round and a Production Sharing Contract was subsequently signed in March 2010.

Refining and Marketing

Operationally, the Vadinar refinery in Gujarat continues to operate well above its nameplate capacity of 10.5 mmtpa, processing a record 14.7 million tonnes of crude oil (107.2 million barrels) during 2010, 11.3% higher than the 13.2 million tonnes of crude oil (96.3 million barrels) processed during 2009. This produced a CP GRM1, inclusive of sales tax benefit, of USD 6.6 per barrel for the period, which was a 57% improvement compared with a CP GRM in 2009 of USD 4.2 per barrel. In June 2010, the refinery received its first Mangala crude through a dedicated heated and insulated pipeline from the oil fields in Rajasthan. This low sulphur, heavy and high pour crude is an important new source of crude for Essar Energy as it improves crude oil supply security and benefits from lower logistics costs and taxes. Exports from the Vadinar refinery increased to 31% in 2010 compared to 23% in 2009. This was primarily due to an increase in export sales of fuel oil caused by increasing displacement of fuel oil in India with gas.

Essar Energy operates, through a franchise model, 1,385 retail fuel outlets across India selling gasoline and gasoil under the Essar brand with a further 250 under construction. In June 2010, the Government of India announced plans to fully deregulate gasoline prices and to gradually deregulate gasoil prices over time. This decision supported our plans to increase our retail fuel outlets to 1,700 by April 2011, which remains on track. However, an increasing oil price has put pressure on the market price of gasoil, which in turn has caused the uncertainty regarding Government of India's plans to deregulate retail prices of gasoil. As a result, Essar Energy intends to slow down its plans to increase retail outlets beyond this number until there is further clarity on

See page 10 for an explanation of CP GRM

gasoil deregulation. Additionally, the Company is increasing non-fuel retailing activities in its current portfolio of retail outlets to provide an additional source of revenue.

The phase 1 refinery expansion is scheduled to reach mechanical completion mid 2011. This will be preceded by a 35 day shut down during May/June 2011 to allow for the tie-in of the new units and for routine maintenance. Ramp up of the new units will commence in Q3 2011 with the majority of the increased production expected from mid Q4 2011. Completion of the phase 1 refinery expansion will increase production to 375,000 barrels per stream day from 300,000 barrels per stream day and more importantly, increase complexity from 6.1 to 11.8. The increased complexity means that the refinery can increase the proportion of heavy and ultra-heavy crude that it processes through the refinery and produce a higher proportion of middle and light distillates. We expect this to result in a positive improvement in GRMs. While the construction costs of the Phase I refinery Project are within the overall budget including the contingency utilisation relating to change of scope, costs are estimated to increase by approximately USD 111.6 million, 6.6% of the original project cost. This increase is mainly due to expected delay in commissioning and related interest costs and pre- operative expenditures.

In November 2010, the Company announced plans to further increase the capacity of the refinery to 20 mmtpa, or 405,000 barrels per stream day. This will be achieved through optimisation of some of the refinery units at an estimated cost of Rs 17 billion (c. USD 379 million); the project will be completed by September 2012. The move follows a detailed project review that identified several opportunities to de-bottleneck the refinery and revamp some of the units at an extremely competitive capital cost.

Outlook

Economic Outlook

India has seen a swift and solid economic recovery over the last year, contrasting positively with many developed economies. GDP growth is on track to be 8.6% for the fiscal year 2010-11, one of the highest rates among the world's major economies. With nominal GDP forecast at USD 1.73 trillion, India will make the transition from a low income country to a middle income country as per capita income crosses USD 1,200. High inflation, double-digit for food, remains a concern as it erodes real income. This risk to growth remains a priority for the government as can be seen from the RBI's continued monetary tightening through increases in interest rates.

High rates of growth however, are improving the fiscal position of the economy and it is anticipated that the fiscal deficit target of 5.5% for this year will be exceeded. This will give the government more scope to spend, with an expected focus on welfare and infrastructure. In the most recent budget, infrastructure spending was increased by 23% in 2011-12 to USD 48 billion. This should offset any dampening of investment from higher interest rates.

Increasing economic growth is positively impacting India's energy demand growth. Energy usage is both broadening in the economy and deepening as income levels rise. This will result in increased levels of energy intensity.

It is estimated that India's total primary energy consumption will grow by 39% in the 10 year period from 1995 to 2015 and increase a further 55% by 20352. This increasing trend of energy consumption supports our strategy to focus on the energy demand growth in India.

Business Outlook

The second half of 2010 saw heavy rains during the monsoon season in India reducing peak power requirements in the country. November 2010 saw a reduction in demand and merchant power prices fell as State Electricity Boards reduced their power requirements to avoid paying high prices in the merchant market. January 2011 saw a sharp rebound in merchant prices due to an increase in demand as a result of state elections and an increase in the penalties payable by the State Electricity Boards for reducing system frequency.

Despite this short term volatility, the fundamental drivers of power demand remain robust; increased economic activity across both the retail and industrial sectors. The supply of new capacity has been unable to

2 International Energy Outlook, 2010 - US Energy Information Authority

keep up with demand meaning that India continues to experience large and consistent power deficits which are set to continue for the foreseeable future. This lack of reliable power supply, particularly to industry, will have a negative impact on growth.

High raw material and energy costs, particularly gas and coal, will continue to put upward pressure on long term power prices. This is of particular concern given India's reliance on imported coal and gas for power. The use of domestic resources has the potential to reduce these risks, but progress on the development of domestic resources remains slow.

The Government of India has put in place a regulatory environment to encourage private sector participation in the power generation sector, but still the process of receiving regulatory approvals and delays to the access of fuel supplies means that progress is slower than expected. The current five year plan has forecast growth in generation capacity of 150 GW over the plan period, but this target looks challenging.

Petroleum product demand in India continues to demonstrate strong growth supported by growth in the Indian economy, increases in per capita income, growth in vehicle ownership and the focus on infrastructure spending. India will remain the anchor market for Essar Energy's expanded refinery capacity albeit that export sales in the medium term are likely to increase to around 40% of sales due to new capacity additions by the public sector refiners. The planned acquisition of the Stanlow refinery in the UK will increase the sales options available for the export of high value products produced from Vadinar.

Deregulation of gasoline prices in India in June 2010 increased the competiveness of our retail fuel outlets. However, increasing oil prices with a resultant impact on gasoil prices has adversely impacted the Government of India's roadmap toward gasoil deregulation.

A rebound in global demand in 2010 had a clear impact on oil prices. Current events in the middle east and north Africa have the potential to impact oil supplies putting further pressure on prices. This is of particular concern for India which imports around 80 - 85% of its crude oil needs. This situation is expected to continue despite significant discoveries of both oil and gas in India in recent years. The Company has 11 of its seventeen oil and gas and CBM blocks located in India and given the domestic demand scenario, commercialisation of these assets represents a significant opportunity for Essar Energy.

Growth Projects

During the year we completed the construction of one major project.

Business Segment	Project	Location	Capacity	Date Completed
Power	Vadinar P1	Gujarat	380 MW gas fired	Unit #1 sync Q4 2010 Unit #2 sync Q1 2011

Unit #1 of the 380 MW Vadinar P1 power plant was synchronised with the grid in October 2010 against a target completion date of Q3 2010. The project was completed within its original budget of Rs 7.25 billion (c. USD 160 million).

There are 14 growth projects under construction.