Essar Energy PLC ESSR Half Yearly Report

  Essar Energy PLC (ESSR) - Half Yearly Report

RNS Number : 9603R
Essar Energy plc
26 November 2012


                                                              26 November 2012



· Group revenue up 97% to US$12.8bn (six months to 30 June 2011^1:
US$6.5bn), primarily due to higher refining revenues in India from higher
capacity and revenue due to the acquisition of Stanlow, UK

· Group Current Price (CP) EBITDA^2 of US$582.6 million in H1 FY13 (six
months to 30 June 2011: US$198.6m), up 193% on H1 FY12^1, driven by increased
refinery margins and throughput at Vadinar refinery and the contribution from
Stanlow refinery offset by lower operational EBITDA^2 from power

· Loss before tax and loss after tax of US$282.8 million and US$200.8
million, respectively (six months to 30 June 2011: Profit of US$278.5 million
and US$206.2 million, respectively), with increased operational EBITDA^2 being
offset by higher interest costs and depreciation due to the commissioning of
the Vadinar refinery phase 1 and optimisation projects and Salaya I, increased
foreign exchange losses and sales tax benefit not available in the current

OIL AND GAS: Strong margin uplift at Vadinar and Stanlow

· Vadinar: All refinery expansion units ramped up and stabilised: 20mmtpa
capacity, 11.8 complexity

· Vadinar: Current Price Gross Refinery Margins (CP GRM) averaged
US$6.41/bbl in H1 FY13 against US$4.75/bbl (excluding sales tax benefit) in H1
FY12, rising to nearly US$11/bbl in September 2012

· Stanlow: CP GRM averaged US$8.03/bbl in H1 FY13 against US$3.1/bbl in
first eight months of ownership. CP EBITDA^2 at US$197.2 million in H1 FY13
against US$22.2 million in first eight months of ownership. Initiatives
continue to deliver over US$3/bbl margin uplift within the next two years

POWER: Power generation capacity more than doubled since April 2012

· Coal-fired projects commissioned: Salaya I, 1,200MW and Vadinar P2 unit
1, 255MW during H1 FY13; Vadinar P2 unit 2, 255MW, commissioned post
period-end. 3,310MW is now operational

· Mahan coal block given stage 1 forest clearance, giving long term fuel
security for Mahan I, 1,200MW

SALES TAX & FUNDING: Gujarat deferred sales tax agreement secured

· Gujarat sales tax: two year repayment schedule agreed; no interest
payable pre-17 January 2012

· Essar Oil Rs50 billion (c.US$949 million) sales tax standby facility

· Exploring options to reduce interest costs for the group and extend
debt repayment profile

^1Comparative period for these results is first six months of 2011 due to
change of financial year end to 31 March, from 2012.

^2See pages 12 to 13 for a definition of operational EBITDA and CP EBITDA.
Note CP EBITDA presented above is on a Group-wide basis. Six months figures to
30 June 2011 exclude sales tax benefit.

Naresh Nayyar, Essar Energy Chief Executive Officer, said: "We have made good
progress during the half year to improve margins at both our Vadinar and
Stanlow refineries. At Vadinar we are capitalising on our new, higher
complexity units by selling large volumes of high value diesel into India and
have resolved all outstanding sales tax and related funding issues. Stanlow
delivered a very substantial increase in CP EBITDA on the back of a good
operating performance and favourable market conditions. We have several
further projects underway at Stanlow to deliver significant additional margin

In power, we made good progress with the commissioning of the Salaya I and
Vadinar P2 coal fired projects and now have 3,310MW of capacity operational,
of which 2,110MW is our captive power plant which deliver more stable returns.
At Mahan, we continue to face risks relating to short term coal supplies, but
longer term, the development of the Mahan coal block will ensure that the
Mahan Power plant is one of the lowest operational cost power plant in India.

The last six months has seen significant progress on our growth projects and
the transition to becoming an operational energy business continues with the
majority of our capex programme now complete. We are a very different company
to the one that listed two and a half years ago with many of the key risks
from that time now behind us. "

Financial Highlights

                                   6 months ended 30 6 months ended 30 Change
                                     September 2012       June 2011
(US$ million)                                                             %
Operational EBITDA^1                            382.9             324.4    18%
CP EBITDA^1                                     582.6             198.6   193%
(Loss)/profit before tax                      (282.8)             278.5  -202%
(Loss)/profit after tax                       (200.8)             206.2  -197%
Capex spent (excluding maintenance              575.6           1,041.0   -41%
capex^2 and intangibles)

Balance Sheet                         As at 30 September As at 31 March Change
                                             2012             2012
(US$ million)                                                             %
Net debt (underlying)^3                          6,686.5        6,273.0     7%
Total equity                                     3,332.9        3,646.5    -9%
Gearing (net debt (underlying)/(net                  67%            63%
debt (underlying) + total equity))

^1 See pages 12 and 13 for a definition of Operational EBITDA and CP EBITDA.
Note CP EBITDA presented above is on a Group-wide basis.

Operational EBITDA is before other gains and losses (see note 4) and excludes
sales tax benefit and exceptional items.

^2 Excludes maintenance capex of US$41.3 million for six months to 30
September 2012 (six months to 30 June 2011: US$4.0 million).
^3 See page 15 for a definition of Net debt (underlying).


                         Commentary on Group Results


Essar Energy made significant progress during the first half of 2012-13 both
operationally and in terms of resolving a number of outstanding issues which
have recently impeded progress.

An agreement was secured through the Supreme Court to repay the outstanding
sales tax liability over two years, rather than immediately as demanded by the
state Government, and following long delays, the Indian Government finally
granted stage 1 forest approval for the Mahan coal block. This block will be
the source of low cost fuel for the 1,200MW Mahan 1 power project, the first
unit of which is due to be commissioned by the end of 2012.

The process of transforming Essar Energy into an operational energy company,
and out of its construction phase, continued with the completion of the
Vadinar refinery expansion and optimisation projects as well as the
commissioning of 1,710MW of coal-fired power generation capacity. Overall, the
company continues to deliver its strategy to create a world-class, low cost
integrated energy business, positioned to capitalise on India's rapidly
growing energy demand.

The Vadinar refinery phase 1 expansion was completed at the end of March 2012,
and the Vadinar refinery optimisation project in June 2012. By September 2012,
all new refinery units had been ramped up and stabilised. Capacity at Vadinar
is now 405,000 barrels per day, up from 300,000 previously, and complexity
significantly higher at 11.8, up from 6.1, giving us the capability to produce
high value products from some of the world's toughest and heaviest crude oils.

Vadinar's Current Price Gross Refining Margins (CP GRMs) for the six month
period to the end of September averaged US$6.41 per barrel, compared with
US$4.75 in the six months to June 2011. However, within this period, CP GRMs
rose sharply as the new units were fully stabilised, with September margins at
US$10.83 per barrel.

In the UK, work at our Stanlow refinery continues on various projects aimed at
increasing margins by over US$3/bbl within the next two years. Stanlow is
operating in a tough European refining market, but is well positioned given
its scale and complexity. CP GRMs averaged US$8.03 per barrel for the six
month period, including US$10 per barrel in September. While we do not believe
current European margins are sustainable, given that Europe continues to have
a large surplus of uneconomic refining capacity, we do expect refining margins
to remain above the levels seen in H2 CY2011. 

In the Power business, during the six month period commercial operations
commenced at the 1,200MW Salaya I project and the 255MW Vadinar P2 unit 1.
Following the period end, in November, Vadinar P2 unit 2, also 255MW, was
commissioned. Overall, we have added 1,710MW of installed capacity since April
2012, taking our total to 3,310MW.

The increase in net debt is in line with the funding requirements of our
various growth projects. As we reach the end of our current capital
expenditure programme and our expansion projects are fully ramped up and
stabilised, we would expect to see increased Operational EBITDA across our
businesses and net debt levels to peak in FY2014 before decreasing as debt is
repaid or refinanced.

Power sector regulatory climate

Regulatory and coal supply issues continue to impact the power industry in
India. The long delays in securing forest clearance consent for our Mahan coal
block, which was originally allocated to us in 2006, and our Ashok Karkata and
Chakla blocks, allocated in 2007, are symptomatic of this. Essar Energy is
committed to continuing a dialogue with the Government on these issues - we
believe changes are necessary if the Government is to deliver on its
objectives for the wider Indian energy sector, where it is targeting 85,000MW
of new generation capacity 2012-17. The rationale for continuing to invest in
the Indian power sector remains, given on-going large deficits of generation
relative to demand.

Sales Tax update

Essar Oil, the 87% owned subsidiary of Essar Energy which owns the Vadinar
refinery, made excellent progress during the half year in resolving the
Gujarat deferred sales tax case. This case arose from a decision on 17 January
2012 whereby the Honourable Supreme Court reversed the judgment of the Gujarat
High Court granting an extension of time to Essar Oil for starting the
commercial production of the Vadinar refinery to 2 April 2007. Following this
judgment, Essar Oil became liable to pay back to the Government of Gujaratthe
amount of tax aggregating c.US$1,171 million (Rs.61.69 billion) collected and
retained by it after the judgment of the Gujarat High Court in April 2008.

Of the total principal sum owing, of approximately US$1,171 million (Rs.61.69
billion), Essar Oil repaid c.US$190 million (Rs.10.04 billion) to the Gujarat
Government in July 2012 as per the direction of the Honourable Supreme Court.
The Honourable Supreme Court on 13 September 2012 heard the matter and
directed Essar Oil to repay the remaining c.US$980 million (Rs.51.65 billion)
sales tax balance owed in eight quarterly instalments along with interest
beginning on 2 January 2013.

A demand by the Gujarat Government for approximately c.US$329 million
(Rs.18.02 billion) in respect of interest for the period up to 17 January
2012, was dismissed by the Supreme Court. Essar Oil was directed to pay
interest from 17 January 2012 at the rate of 10% per annum on the outstanding
amount due.

This Supreme Court judgement ends the deferred sales tax repayment issue.
Separately, Essar Oil has secured a loan facility from Indian lenders of
approximately US$949 million (Rs.50 billion) which can be drawn on as required
to meet the sales tax liability.

Oil and Gas:

The oil and gas business comprises three segments; Refining and Marketing
India, Refining and Marketing UK and Exploration and Production.

Refining and Marketing - India (R&M India)

In the Refining and Marketing India business, good progress was made during
the six month period, both operationally and in respect of project

The Vadinar refinery phase 1 expansion project was completed towards the end
of March 2012, increasing capacity to 18 million metric tonnes a year, or
375,000 barrels per day, and complexity to 11.8 from 6.1 previously. The
further optimisation project at Vadinar, to lift capacity to 20 million metric
tonnes a year, or 405,000 barrels per day, was completed in June 2012, four
months ahead of schedule. Capital expenditure at the Vadinar refinery complex
up to completion of the refinery optimisation project totals US$5.162 billion,
or US$12,746 per barrel, putting this refining complex amongst the lowest cost
in the world. Completion of the Vadinar refinery optimisation project brings
to an end the current capital expenditure programme in the R&M India business.

These two projects significantly improve gross refinery margins by allowing
the percentage of lower cost ultra heavy crudes processed to rise to around
70% of the total throughput, with heavy crudes at about 20%. At the same time
Vadinar's product slate now consists of around 80% high value middle and light
distillate products, with middle distillates, diesel and jet fuel, becoming
the principal products.

The benefits of this started to be reflected in the gross refinery margins
achieved during the six month period with Vadinar's CP GRMs for the six month
period to the end of September averaging US$6.41 per barrel. In September,
after all new units were fully ramped up and stabilised, CP GRMs rose sharply
to US$10.83 per barrel.

R&M India delivered CP EBITDA of US$311.1 million for the six months to 30
September 30 2012, compared with CP EBITDA of US$107.7 million in the six
months to 30 June 2011 (excluding sales tax benefit). The increase was driven
primarily by higher CP GRMs, up US$1.6/bbl, and increased production, up 2.18

We continue to expect GRMs at Vadinar to stand at a premium of c.US$7-$8 per
barrel above the Singapore benchmark in the second half of the year. This
includes approximately 80 cents per barrel of benefit from the commissioning
of the captive Vadinar P2 coal-fired power project, due to a lower cost of
coal compared to gas or fuel oil fired generation.

Throughput at Vadinar during the six months stood at 69.3 million barrels, or
approximately 9.55 million tonnes. In the three months to 30 September, the
Vadinar refinery reached its target capacity of 20 million tonnes (c.150
million barrels) a year.

Refining and Marketing - UK (R&M UK)

During the six month period R&M UKs CP GRMs averaged US$8.03 per barrel.
These half year CP GRMs represented a sharp increase on the CP GRMs at Stanlow
during the first eight months of ownership to 31 March 2012 of US$3.06 per

During the six month period to 30 September 2012, Stanlow had a throughput of
39.2 million barrels, or approximately 5.2 million tonnes, of crude oil.

R&M UK delivered a CP EBITDA of US$197.2 million for the six months to 30
September 2012, compared with a CP EBITDA of US$22.2 million in the first
eight months of ownership to 31 March 2012, driven by increased benchmark
margins, margin enhancements delivered from the 100 day plan and a solid
operating performance. 

Progress continued with implementation of the 100 day plan devised following
the acquisition, with the objective of sustainably increasing refinery margins
and profitability.

The installation of a natural gas supply to the refinery, to provide fuel for
the six boilers, is now complete, with the three kilometre, 12 inch, pipeline
installed and refurbishment of the six boilers almost finished. This project
will be fully completed in the near future, allowing the benefits of lower
emissions and more flexibility in choice of crude oils to feed through to

We continue to broaden the range of crudes processed at Stanlow. During the
half year, we introduced three further lower cost opportunity crudes, taking
the total number of additional crudes introduced since acquisition to 11.

Management continue to implement a number of other margin enhancement
projects. The objective is to add over US$3/bbl to margins within the next two
years. These improvements are aimed at ensuring that the refinery is net cash
positive even when market conditions are at the bottom of the cycle and will
provide attractive returns through the market cycle.

To date, Management have delivered approaching US$1 per barrel of the
identified benefits with current progress being ahead of planned delivery.

Throughput is expected to continue at around 75 million barrels per year,
excluding turnaround periods.

Exploration and Production

In the exploration and production business, Essar Energy continues to evaluate
ways of managing risk across its portfolio of oil and gas blocks, with the
intention of maintaining a stronger focus on India, where a priority is to
develop its coal bed methane (CBM) gas blocks.

At the Raniganj CBM block in West Bengal production is expected to reach c.3
million standard cubic metres (scm) per day once all clearances have been
received, currently expected in the second half of CY2013. Here, the state
government gave a Grant Order for the Mining Lease, allowing commercial sales
to proceed, on 29 June 2012. The Government of India continues with the
process of deciding on the full commercial gas sales price for Raniganj and
otherCBM developers in India.

Essar Energy is awaiting ECIII environmental approval to allow the number of
wells drilled to be increased up to 500. Currently, consent is in place to
allow drilling of up to 256 wells (consisting of main vertical and directional
support wells), of which over 100 have now been drilled and 75 hydrofractured.
The full field development plan has already been approved by the Director
General of Hydrocarbons (DGH).

Pending receipt of the commercial sales price decision from the Government,
production at the Raniganj block is currently running at around 40,000
standard cubic metres of gas per day (scm/d), reduced to minimise flaring,
while test sales through a pipeline to the Durgapur industrial estate are
continuing. A provisional gas price for test sales of US$5.25/mmbtu plus
US$1.00/mmbtu for transportation charges has been approved by the Government
of India for incidental gas produced during phase II.

Raniganj total proven and probable reserves (2P), evaluated in September 2011
by NSAI, are 113 billion cubic feet (bcf) gross, or 18.8 million barrels of
oil equivalent (mmboe), while best estimate contingent resources (2C) are 445
bcf gross, or 74.1mmboe. There is also 297bcf gross, or 49mmboe, of best
estimate prospective resources of gas at Raniganj, according to the NSAI
evaluation, which also put the calorific value of the gas at 9660 kcal/scm.

Overall, Essar Energy has the largest acreage of coal bed methane blocks in
India, with approximately 10 trillion cubic feet of gas resources across five
CBM blocks.

Essar Energy continues to evaluate options to introduce strategic partners in
certain blocks to help manage risk and to allow it to focus on its core
assets. As part of this initiative, on 2 July 2012, Essar Energy announced
that it had agreed to sell a 50 per cent stake in Vietnam's offshore gas
exploration block 114 to ENI International B.V.

Oil and Gas - Health and Safety

There is a strong focus on health and safety in the oil and gas business. At
30 September 2012, the Vadinar refinery had recorded over 1,642 days of
operations without a Lost Time Injury and the Stanlow refinery had recorded 52
days without a Lost Time Injury, having lost its previous record of 932 days
during August. Refinery management have consistently delivered high production
rates without compromising safety standards.


Essar Energy made significant progress during the half year with the
commissioning of Salaya I, comprising 1,200 megawatts of coal fired capacity,
and unit 1 of Vadinar Phase 2 project, comprising 255MW of coal fired
capacity. The second unit at Vadinar P2, also of 255MW, was commissioned after
the period end in November, taking Essar Energy's total installed generation
capacity to 3,310MW.

The Mahan I project, also 1,200MW, is nearing completion. Unit 1 at Mahan is
expected to be commissioned before the end of 2012, while the commissioning of
unit 2, as we have previously indicated, will depend on coal availability.

During the six month period to 30 September 2012, availability from the
captive gas-fired plants remained high at between 95% and 100%. However, plant
load factors remained low due to high gas prices at Hazira and Bhander.
Availability at the coal based Salaya I plant was low at 74% as the plant was
commissioned during the six months ended September 2012 and the plant load
factor was low due to low water availability. Overall operational EBITDA from
the Essar Power business was US$93 million for the six months to 30 September
2012, including a US$19.5 million impact from the translation of Rupee income
to US dollars, compared to US$106.8 million in the six months to 30 June 2011.

Essar Energy segments its power generation portfolio into different groupings.
The captive, or Return on Equity (ROE) plants, and the other, non-captive,
plants, which are grouped according to their fuel sources, which are either
international or domestic coal.

Captive power projects

Essar Energy has six captive power projects operational, with a further two in
construction. These captive projects deliver secure revenues and EBITDA with
the majority of payments based on availability, rather than on power
generated. Fuel price and delivery risk lies with the power purchaser.

Operational, total 2,110MW: Hazira (515MW, gas-fired) and Bhander (500MW,
gas-fired) are primarily captive to the Essar Steel plant at Hazira, while
Vadinar (120MW, refinery residue, multi-fuel), Vadinar P1 (380MW, gas-fired)
and Vadinar P2 (510MW, coal-fired) are captive to the Essar Oil refinery at
Vadinar. The other, Algoma (85MW, gas-fired), is captive to the Essar Steel
plant at Algoma, Canada.

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

During the six month period, generation of the gas based captive projects was
impacted by high gas prices, which despite falling during the period, still
stood at an average of around US$15.3 per million British thermal units
(mmbtu) for imported LNG, while gas supplies and availability from India's
KG-D6 field remained low. This has made gas-fired power prices less economic
for customers who are often able to source alternative lower cost electricity
from the local merchant market.

The operational captive plants saw the key measure of plant availability
between 95% and 100% during the six months. Generation during the period from
Essar's captive portfolio was 2,879 million units (MU) compared with 3,270 MU
in the six months to June 2011.

Imported coal projects:

Salaya I -1,200MW

Unit 1 of 600MW was fully commissioned in early April 2012 and unit 2, also of
600MW, was commissioned in June 2012. During the six months, plant load
factors remained low, averaging 25%, due to issues with water availability
pending the receipt of regulatory approvals from the Indian Government to
construct a dedicated sea water pipeline to meet the plant's water
requirements. Water is being obtained in the meantime partly from the Narmada
River and partly from the desalinated water plant at the Vadinar refinery.
However, the delayed monsoon meant that the volume of water available from the
Narmada River was lower than required for a significant proportion of the six
month period.

Various actions have been taken to ensure sufficient water availability at the
Salaya plant ahead of construction of the dedicated sea water pipeline.

Longer term, the coal for Salaya I will come from the Aries coal mine in
Indonesia, which was acquired in April 2010 and for which Essar Energy
received final Pinjam Pakai forest clearance approval in June 2012. First coal
is expected by mid-2013 and construction of supporting road and port
infrastructure in Indonesia is continuing. Until coal can be supplied from the
Aries mine, Salaya I will be supplied with fuel under a contract with Essar
Shipping and Logistics Limited, Cyprus.

Essar Energy continues to await regulatory approvals from the Indian
Government for the dedicated Salaya coal import jetty, near to the power
project. Alternative temporary arrangements have been made to import coal from
other nearby ports.

Essar Energy, is seeking to mitigate the impact of a change in Indonesian coal
pricing laws last year which has added to the cost of coal imported from
Indonesia. To reflect this cost increase, Essar Energy is seeking to increase
the tariff charged to the state electricity utility. Being an industry-wide
issue, other power companies in India have also made representations to their
respective local utilities and electricity regulators for increases in
tariffs. The Group believes an increase in tariff will help it achieve an
acceptable long term rate of return on its investment in Salaya I. If an
increased tariff is not secured, there may be a risk to the long term
realisation of this investment.

Domestic coal projects:

Mahan I - 1,200MW

The key issue at Mahan I, in Madhya Pradesh, is coal availability, due to the
long delays experienced in securing clearances from the Indian Government to
begin mining at the Mahan coal block 5km from the power project and the
general lack of short term coal supplies. The Mahan coal block was originally
allocated to Essar in 2006. Delays in granting coal mine clearances have held
up the development of a number of coal blocks and power projects in India.

Unit 1 of 600MW at Mahan is now expected to begin commercial operations by the
end of 2012, while unit 2 commissioning will depend on availability of coal.

On 30 October 2012, we received stage 1 forest clearance for the Mahan coal
block. We now estimate that it will take 15-18 months to produce first coal
and between two to three years to ramp up to the full capacity of 8.5 mmtpa.
In the meantime, the alternative coal procurement strategy for the Mahan I
plant is to source the majority of the required fuel through Coal India's
e-auction process, supplemented by imported coal for blending. We currently
have around 250,000 tonnes of domestic e-auction coal at the site and we are
also in the process of ordering imported coal.

We expect to secure sufficient coal from these sources to run unit 1 at
relatively high load factors.

In addition to e-auction and imported coal, Essar Energy has applied for
medium term allocations of coal under Coal India's tapering coal linkage
system. Receipt of a tapering coal linkage allocation will improve the
economics of Mahan I and together with e-auction and imported coal should
allow Mahan I to operate at high load factors (>65%). Operation of unit 2 will
depend on securing tapering linkage coal and we are continuing to pursue this

To ensure that we can transport sufficient coal to the Mahan site until the
captive coal mine is fully operational, we continue with work on
infrastructure investments, primarily road strengthening, to facilitate
movement of coal to Mahan from the railway terminal delivery points at
Singrauli and Mahdeiya.

Tori I, 1,200MW, and Tori II, 600MW

As at the end of September 2012, Tori I was 41% complete and Tori II 16%
complete. Coal for these projects will be supplied from the nearby captive
coal blocks at Chakla and Ashok Karkata. Essar Energy is currently awaiting
forest and environmental clearances in order that mining operations can begin
at the Chakla coal block. These delays in securing approvals will require
alternative sources of coal to be obtained in the 1-2 years post
commissioning. As required, e-auction coal will be purchased to provide fuel
for this project and an application has also been made for coal under the
tapering coal linkage system.

The Tori projects currently have approvals to draw processing and cooling
water from the Amanat and Damodar Rivers. However, to mitigate any risk to
future water availability, we are looking to implement an air cooled
condensing system. This will impact project costs, however, there will be a
lowering of operating costs as we will need to purchase significantly lower
amounts of water. The economic impact is currently under evaluation.

Environmental clearances for Tori phase I, unit 2 and Tori phase II have been
linked to the forest and environment clearances of the Chakla coal mine. With
the mine clearances process proceeding we expect the power plant approvals to
be expedited. However, any delays to receiving the coal mine clearances could
impact the project delivery schedule. At this time, work is continuing on Tori
I, unit 1 and all common facilities.

As announced in February 2012, due to regulatory delays in the Indian power
sector, and to ensure efficient deployment of 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. The total investment cost of the three projects is
estimated to be c.US$3.1 billion.

Power - Health and Safety:

At 30 September 2012, the Power business operations had recorded 3,766 days of
operations without a Lost Time Injury. Power operations personnel have
consistently delivered high production rates without compromising safety


  Economic Outlook

Although India's potential to return to its targeted gross domestic product
(GDP) growth rates of 8-9% is clear, the economy is currently going through a
difficult period generally, reflective of the issues which continue to impact
the wider global economy.

Following a period of relative inaction, in September the Indian Government
announced a number of economic reforms, including allowing foreign investors
to have majority ownership of supermarkets and a reduction - although not
elimination - of the subsidy for diesel prices.

These reforms came after GDP growth slowed to 5.5% in the first quarter of the
2012-13 fiscal year, compared with 8.3% growth a year earlier, and as the
parliamentary elections due in 2014 draw nearer. The Index of Industrial
Production saw growth decelerating sharply during the April to August period,
with growth in the eight core infrastructure industries at 2.8%, against 5.5%
in the same period the previous year.

Many observers feel that still more reforms are required to get India back to
a higher growth path.

The Reserve Bank of India's quarterly survey of professional forecasters in
July 2012, covering Q1 2012-13, showed a downwards revision of expectations
for real GDP growth for the current fiscal year 2012-13 to 6.5% from 7.2% in
their previous survey. Forecasts for agriculture remained unchanged at 3.0%,
but those for industrial growth fell sharply to 4% from 6% in the previous
quarter and services fell to 8% from 8.8%.

There are several constraints on growth, including inflation, high interest
rates, and the fiscal and current account deficits.

Of these, controlling inflation is the Reserve Bank's key objective, with
wholesale prices running 7.81% higher year on year in September against 7.55%
in August, partly due to the diesel price increase. Although the trend is
clearly downwards, high inflation limits the RBIs ability to cut interest
rates, which have remained at 8% since a 0.5% reduction in April 2012.

Meanwhile, India continues to run a large trade deficit, with September
showing an 11 month high excess of imports over exports of about US$18.1
billion, following a total deficit of US$185 billion during the fiscal year
2011-12. Foreign direct investment into India fell sharply to US$10.7 billion
during April - August 2012 compared with US$19.6 billion in the same period in

The fiscal deficit is also high, with the Government now expecting the
difference between government revenue and total expenditure to be around 5.3%
of GDP in the current fiscal year, or over US$100 billion, and higher than its
previous target of 5.1%. The high level of fuel subsidies continue to
contribute to this.

Over the six month period to 30 September 2012, the rupee remained relatively
weak against the US dollar, moving in a range between Rs.51.16 and Rs.57.12.
This followed a decline during the previous 15 month period to 31 March 2012,
when it weakened from Rs.45.39 to Rs.51.16 against the dollar. The rupee has
recently traded at around Rs.54.60.

  Business Outlook

Essar Energy continues to position itself to capitalise on India's growing
energy demand .

Given demand growth for refined fuels, India is expected to have a shortfall
of refining capacity by around FY2015-16, particularly in diesel, where we
expect demand growth to continue at around 7-8% annually. Across Asia and
Africa, demand for diesel is expected to continue to grow strongly. We believe
that this, together with some delays to project execution and the closure of
older, lower complexity and smaller refineries, implies a positive outlook for
margins at the Vadinar refinery, given its scale and configuration
post-expansion, with around 80% of output now comprising higher value middle
and light distillates, principally diesel and jet fuel.

In the UK, we expect the Stanlow refinery to be increasingly advantaged as
initiatives to improve margins begin to be delivered. These initiatives are in
addition to Stanlow's existing advantages from its higher complexity and bias
towards production of middle distillates such as diesel and jet fuel, both of
which are structurally short in the UK and Europe. We continue to expect the
closure of a number of smaller, less complex refineries in the region.

In power there remains a major shortage of power generation in India relative
to demand, with peak deficits running at more than 10% of demand, according to
India's Economic Survey, published in March 2012. These shortages are expected
to increase over the next 3-5 years as supply continues to lag demand. Around
one third of the Indian population still has no access to electricity,
according to the 2011 national census. India is now targeting 85,000MW of new
generation capacity to be built during its 12^th Economic Plan running from
2012-17, with the objective of delivering GDP growth rates of around 9% per
annum over the plan period.

Given the difficulty in obtaining the necessary consents and regulatory
clearances to build power projects, develop sources of coal to fuel them and
put in place the necessary funding, a clear advantage will exist for those
such as Essar Energy who already have significant assets in place.

Electricity is clearly a prerequisite for the economic growth which India
badly needs. Now is a good time for the Government to ensure that the
regulatory framework for project consents and clearances becomes more
transparent and efficient, not least to address the low availability of coal,
which is a serious problem. We believe that the Government should consider
establishing a single "one stop shop" regulatory body, encompassing all
central and state relevant ministries, with clear delegated powers to run the
screening and approval processes for appropriate coal blocks to fuel critical
energy, industrial and other projects.

There remain other distortions in the energy sector in India, particularly the
continued heavy Government subsidy of energy and fuel prices for consumers.
This applies equally to fuels such as diesel as to electricity where
generation costs are being pushed up sharply because of higher prices for
imported coal. These prices are not currently reflected in the prices set by
state regulators for the customers of state electricity utilities.

The Indian government has made progress during the last six months to reduce
heavy diesel price subsidies, increasing diesel prices by 14% in September.
However, even after this, the Government said that at the public sector oil
companies there was an under-recovery of diesel sale prices relative to cost
of about Rs.9.82/litre as at mid October.

In our upstream exploration and production business, we continue to see slow
progress in receiving approvals for our oil and gas blocks, including our
Raniganj coal bed methane block in West Bengal, where we are still awaiting
final ECIII environmental approval and gas sales price approval from the
Indian Government. This is despite the high level of imports of oil and gas
needed to meet demand in India.

Growth Projects

During the 6 month period to 30 September 2012 we commissioned the Vadinar
refinery optimisation project and in power, the 1,200 MW Salaya I power
project and unit 1 of the 510MW Vadinar P2 power project (255MW), all in

Since 1 October 2012, we have commissioned unit 2 of the Vadinar P2 power
project (255MW).

There are currently seven growth projects under active construction as follow:

Business Segment Project            Location       Capacity
Power            Mahan Transmission Madhya Pradesh 415 km length^1
                 Mahan I            Madhya Pradesh 1,200 MW domestic coal
                Paradip            Orissa         120 MW domestic /imported
                 Hazira II          Gujarat        270 MW captive fuel
                 Tori I             Jharkhand      1,200 MW domestic coal
                 Tori II            Jharkhand      600 MW domestic coal
Exploration and  Raniganj           West Bengal    3.0 mmscm/d^2 CBM

1 Line-In Line-Out ('LILO') line was completed in Q1 2011 to ensure power
evacuation from Mahan^
2 Peak production based on 2P, 2C and best estimate prospective resources

Financial Review

The following section provides an overview of our financial performance for
the six month period ended September 2012, highlighting the key financial
drivers and performance indicators for Essar Energy plc and its subsidiaries
(together referred to as the 'Group').

                             The Income Statement

                        6 months ended 30 September  6 months ended 30
                                     2012                 June 2011       %
(US$ million)
Revenue                                      12,845.1           6,531.2    97%
Operational EBITDA^1                            382.9             324.4    18%
CP EBITDA^1                                     582.6             198.6   193%
(Loss)/profit before tax                      (282.8)             278.5  -202%
(Loss)/profit after tax                       (200.8)             206.2  -197%

1 See pages 12 and 13 for analysis

                   Segmental revenue and Operational EBITDA

                         Revenue^1                 Operational EBITDA^2
                                           Change                      Change

                 6 months ended  6 months    %     6 months  6 months    %
                   30 September   ended 30          ended 30  ended 30
                      2012       June 2011        September  June 2011
(US$ millions)
Refining and              7,630.6   6,383.5    20%      176.2   233.5     -25%
Refining and              5,039.7         -             132.4       -
Exploration and               0.4       0.4     0%        0.3     0.8     -63%
Power                       174.4     147.3    18%       93.0   106.8     -13%
Corporate                       -         -            (19.0)  (16.7)      14%
Total                    12,845.1   6,531.2    97%      382.9   324.4      18%

^1Revenue stated after deducting inter-segmental consolidation adjustments of
US$23.6 million (2011: US$20.5 million). ^
2 See page 12 for analysis.

                               Revenues -Group

Essar Energy increased revenue by US$6.3 billion in the six month period ended
September 2012, compared to the six month period ended June 2011. Of this
amount, US$5.0 billion reflected the revenue increase due to acquisition of
the Stanlow refinery and US$1.2 billion was the increase in revenue from
Vadinar refinery due to higher volumes.

                  Revenues - Refining and Marketing - India

R&M India revenues increased by US$1,247.1 million from US$6,383.5 million in
the six month period to June 2011 to US$7,630.6 million in the 6 months to
September 2012. This was primarily as a result of an increase in the quantity
of the refinery products sold partially offset by lower product prices. In
more detail:

· US$1,728 million increase due to an increase in the quantity of
refinery products sold by 1,936 KT. During H1 FY2013, 8,772 KT of refinery
products was sold against 6,836 KT in H1 FY2012

· US$390 million decrease due to a decrease in the average selling price
by US$44/MT. The average selling price of refinery products during H1 FY2013
was US$848/MT against US$892/MT during H1 FY2012

· US$200 million decrease in sales tax benefit due to Honourable Supreme
Court decision for non-eligibility to participate in Sales Tax Incentive

· Increase in Hedging Loss by US$10 million.

                    Revenues - Refining and Marketing - UK

Stanlow refinery has contributed revenues of US$5.0 billion in the six months
 ended September 2012. There was no revenue in the comparative period as the
            acquisition of Stanlow was completed on 31 July 2011.

                Refining and Marketing operational information

Throughput and production from the Company's refining assets compared to the
prior period was as follows:

                       Throughput (MMT)                  Production (MMT)
              6 months ended 30 September   6 months  6 months ended 6 months
Operational              2012               ended 30   30 September  ended 30
Assets                                      June 2011      2012      June 2011
Vadinar                                9.55      7.27           9.09      6.91
Stanlow                                5.20         -           4.74         -
Mombasa                                0.69      0.82           0.43      0.79

The significant change period on period was the acquisition of the Stanlow
refinery in July 2011 and the completion of the Vadinar phase 1 and
optimisation expansion projects.

                               Revenues - Power

Power revenues increased in the six month period ended 30 September 2012 by
US$27.1 million to US$174.4 million from US$147.3 million in six month period
ended 30 June 2011 (after eliminating inter-segmental revenues for the current
period of US$23.6 million (2011: US$20.5 million)). The increase in revenue is
mainly due to the commissioning of Salaya I in 2012, which contributed US$
43.3 million, and power trading revenue of US$18 million offset by rupee
depreciation US$19.5 million and lower revenue from Hazira I due to lower PLF,
compared to the six month period ended 30 June 2011.

Production and availability from the Company's main operating power plants
compared to the prior period was as follows:

                    Generation MU        Availability %   Plant Load Factor %

                               6 months 6 months     6     6 months  6 months
                6 months ended  ended 30 ended 30  months   ended 30  ended 30
                30 September     June   September  ended  September    June
                     2012         2011     2012    30 June    2012      2011
Asset                                               2011
Hazira I (515               711    1,258       98%     97%        31%      56%
Bhander (500                764    1,260      100%    100%        35%      58%
Vadinar^1,4                 319      274       99%     93%        61%      53%
(120 MW)
Vadinar P1^1,4              605      218      100%    100%        36%      13%
(380 MW)
Vadinar                     211       NA      100%      NA        77%       NA
(510 MW)
Algoma (85 MW)              269      260       95%     95%        82%      80%
Salaya I^5,6              1,032       NA       74%      NA        25%       NA
(1200 MW)
Total                     3,911    3,270

1 Vadinar, Vadinar P1 and Vadinar P2 results include steam supply converted
into equivalent units of power generation

2 Vadinar P2, in September 2012 includes trial generation of 207 MU
(including steam generation)
3 Vadinar P2 (510 MW), only 1 unit of 255 MW commissioned by end September

4 Vadinar and Vadinar P1, the method of computing Equivalent units of Power
and PLF have been revised. Previous period figures (H1 FY 2012) have been
revised accordingly

5 Vadinar P2 and Salaya I commissioned in 2012, hence previous year (H1
FY2012) availability and PLF not applicable

6. Availability and PLF for Salaya I and Vadinar P2 considered from
commissioning date

Operationally, with the exception of Salaya I which was commissioned during
the period, all plants performed well in six months ended 30 September 2012,
with the key measure of plant availability between 95% and 100%. Given the
issues of high gas prices and low gas availability from India's KG-D6 field,
overall generation from Essar Power's portfolio in the six month period was
lower than expected at 3,911 MU. This compares with 3,270 MU generated in the
six months to 30 June 2011. The increase in generation was primarily due to
generation from Salaya I and Vadinar P2 offset by a reduction in generation
from the Bhander and Hazira I gas-fired stations in Gujarat due to higher gas

The 85MW gas-fired plant at Algoma, Canada, providing power for Essar Steel's
plant, again performed well with an 82% PLF.

Operational EBITDA

Operational EBITDA represents earnings before interest, tax, depreciation and
amortisation, sales tax benefit, exceptional items and any non-operational
items. Non-operational items represent other losses, as shown in note 4 to the
condensed interim financial statements. This represents a change in definition
of Operational EBITDA; in prior periods only some elements of other gains and
losses were excluded from Operational EBITDA. For the sake of simplicity and
clarity all such items are now excluded. The comparative figures have been
restated accordingly.

The reconciliation of (loss)/profit after tax to operational EBITDA is shown
in the table below:

                    Group         Power        and        R&M India      R&M UK      Corporate

                                 6M    6M    6M    6M                    6M    6M     6M     6M
                 6M      6M    ended ended ended ended   6M      6M    ended ended ended  ended
                 ended   ended   30    30    30    30    ended   ended   30    30     30     30
               30 Sept 30 June Sept  June  Sept  June  30 Sept 30 June Sept  June   Sept   June
                 2012    2011   2012  2011  2012  2011   2012    2011   2012  2011   2012   2011
(US$ million)
(Loss)/Profit   (200.8)   206.2   2.0  37.5   1.0   0.5 (196.3)   199.9  45.5     - (53.0) (31.7)
after tax
Depreciation      129.6    66.1  33.8  22.9   0.4   0.2    78.3    43.0  17.1     -      -      -
Net finance       400.3   132.7  63.8  30.3 (1.1)   0.2   247.4    87.5  56.2     -   34.0   14.7
Tax              (82.0)    72.3 (3.4)  17.4     -     -  (94.3)    54.7  15.7     -      -    0.2
Non-operational   135.8    39.0 (3.2) (1.3)     - (0.1)   141.1    40.3 (2.1)     -      -    0.1
Sales tax             - (191.9)     -     -     -     -       - (191.9)     -     -      -      -
benefit (net of
provision for
welfare scheme)
Operational       382.9   324.4  93.0 106.8   0.3   0.8   176.2   233.5 132.4     - (19.0) (16.7)

The Group's Operational EBITDA increased by US$58.5million, or 18%, in 6
months ended 30 September 2012 compared to 6 months ended 30 June 2011.

Operational EBITDA - Power

Power's Operational EBITDA in the 6 months ended 30 September 2012 was lower
by US$13.8 million at US$93.0 million compared to the US$106.8 million in the
6 months ended 30 June 2011. This represented a decrease of 13 per cent and
was mainly due to the depreciation of the Rupee, negative EBIDTA from Salaya
plant due to operating at a low PLF and lower EBITDA from Hazira I due to
lower generation for GUVNL compared to the period ended 30 June 2011,
partially offset by higher EBITDA from Vadinar P1 due to 6 months of
operations in H1 FY13 against 3 months of operations in H1 FY12.

Operational EBITDA - Refining and Marketing - India

R&M India operational EBITDA decreased to US$176.2 million during the 6 month
period ended 30 September 2012 from US$233.5 million in the 6 months ended 30
June 2011. Operational EBITDA is lower due to decrease in GRMs of US$55
million, increase in hedging loss by US$21 million and an increase in expenses
by US$14.7 million due to commissioning of new units, partially offset by
higher volumes.

Operational EBITDA - Refining and Marketing - UK

The refinery's performance in the six months ended 30 September 2012 was an
operational EBITDA of US$132.4 million. This result was a significant
improvement over the first eight months of ownership primarily driven by
improved margins in the European region as a result of a number of refinery
shutdowns for maintenance across the Atlantic Basin, coupled with the absence
of the Amuay refinery in Venezuela following a fire and refinery closures in
the US at the time of Hurricane Isaac. The results also benefited from an
enhanced crude basket and other profitability enhancement measures initiated
by the company under its 100 day plan.

Refining and Marketing CP EBITDA and CP GRM

For further understanding of our Refining and Marketing operations we also
present its operational EBITDA on an adjusted internal measure using the CP
GRM, as defined below. CP GRM is not calculated under IFRS, but management
believes that this information should be provided as it enables investors to
better understand the underlying performance of our refineries.

The differences between CP EBITDA and operational EBITDA for the Refining and
Marketing operations are set out in the table below:

(US$ million unless specified)             6 months ended 30 6 months ended 30
R&M India                                   September 2012       June 2011
CP GRM- India (US$ per barrel) (excluding               6.4               4.8
sales tax benefit)
CP EBITDA (including sales tax benefit)                311.1             299.6
Less: sales tax benefit (B)                                -           (191.9)
CP EBITDA (excluding sales tax benefit)                311.1             107.7
 Impact of:
 Timing differences in pricing domestic                39.7            (37.2)
 Time lag in crude prices                            (77.2)             106.5
 Impact of inventory movement                        (40.5)              92.3
 Hedging losses                                      (56.9)            (35.8)
Operational EBITDA - Refining and                      176.2             233.5
Marketing - India

(US$ million unless specified)

R&M UK                                        6 months ended 30 September 2012
CP GRM- UK (US$ per barrel)                                               8.03
CP EBITDA                                                                197.2
Impact of:
Timing differences in pricing domestic                                   (2.1)
Time lag in pricing                                                      (1.7)
Impact of inventory movement                                            (25.8)
Hedging losses                                                          (35.2)
Operational EBITDA - Refinery and Marketing                            132.4
- UK


   (US$        Group        Power    Exploration   R&M India     R&M UK      Corporate
 million)                                and
            6M     6M     6M    6M    6M    6M    6M     6M     6M    6M     6M     6M
           ended  ended  ended ended ended ended ended  ended  ended ended ended  ended
            30   30 June  30    30    30    30    30   30 June  30    30     30   30 Jun
           Sept   2011   Sept  June  Sept  June  Sept   2011   Sept  June   Sept   2011
           2012          2012  2011  2012  2011  2012          2012  2011   2012
CP EBITDA  582.6   390.5  93.0 106.8   0.3   0.8 311.1   299.6 197.2     - (19.0) (16.7)
sales tax
Sales tax      - (191.9)                               (191.9)
(net of
CP EBITDA  582.6   198.6  93.0 106.8   0.3   0.8 311.1   107.7 197.2     - (19.0) (16.7)

See Appendix 1 of the 2012 Annual Report for details of how CP GRM is

Net Finance Costs

(US$ million)               6 months ended 30 September 6 months ended 30 June
                                       2012                      2011
Total finance costs              (568.5)     (308.5)
Less: borrowing costs             125.5      137.5
Unwinding of discount         -    (14.4)
Finance cost charged to the      (443.0)     (185.4)
income statement
Total finance income             48.3     55.5
Less: interest income          (5.6)   (2.8)
Finance income recognised        42.7     52.7
in the income statement
Net finance costs                (400.3)     (132.7)

The total finance cost has increased by US$260.0 million primarily due to
increases in loans taken for power projects, expansion of the Vadinar
refinery, bridge loan for the Stanlow refinery acquisition, the write off of
the unamortised cost of the working capital loan of Stanlow refinery and
interest payable on the sales tax liability as per the Honourable Supreme
Court Order.

Net finance costs increased due to the increased interest cost of loans
mentioned above and there is also a decrease in interest income from the short
term deployment of surplus funds of US$7.2 million together with an increase
in interest income capitalised of US$2.8 million in respect of costs directly
attributed to assets under construction.


The Group's H1 FY2013 effective tax rate was 29.0% compared with an H1 FY2012
rate of 26.0%. The tax credit of US$82.0 million for the period ended 30
September 2012 (six months to 30 June 2011: tax charge of US$72.3 million)
comprises a current tax credit of US$20.0 million (six months to 30 June 2011:
charge US$43.6 million) and a deferred tax credit of US$62.0 million (six
months to 30 June 2011: charge of US$28.7 million). The current tax generally
represents Minimum Alternative Tax ('MAT') payable in India. There is a
current tax credit as a result of the reversal of MAT liability in respect of
previous periods for Essar Oil Limited, India. The majority of profits derived
from operations in India are subject to MAT. MAT is charged on book profits in
India at a rate of 20.01%, but is available as a credit against corporate
income tax in the following 10 years. Deferred tax credit generally represents
an asset created on tax losses or timing differences which are carried forward
and are available to be offset against future taxable profits. The deferred
tax credit of US$82.9 million created on tax losses or timing difference,
available to be offset against future taxable profits in R&M India and Power
during the period is partially offset by deferred tax charge in R&M UK.

Other losses

Other losses include foreign exchange losses due to the depreciation of the
Rupee against the US dollar of US$134.0 million (six months to 30 June 2011:
US$ 38.5 million).

                                Loss after tax

The loss after tax is US$200.8 million in H1 FY2013 compared to a profit after
tax of US$206.2 million in H1 FY2012.

Basic earnings per shareshow a loss of 13.8 cents for the 6 months ended 30
September 2012, compared to a positive earnings per share of 13.5 cents per
share in the six months ended 30 June 2011.

                                Balance Sheet

(US$ million)                               As at 30 September As at 31 March
                                                   2012             2012
Property, plant and equipment (net of                 10,433.9       10,202.1
Other non-current assets                                 939.9          673.0
Current assets                                         6,205.9        6,532.5
Total Assets                                          17,579.7       17,407.6
Current liabilities                                    7,115.8        7,603.5
Non-current liabilities                                7,131.0        6,157.6
Total Liabilities                                     14,246.8       13,761.1
Total equity including non-controlling                 3,332.9        3,646.5
Interest-bearing loans and borrowings                  8,449.6        7,646.5
Less: Short term working capital loan                (1,526.3)        (936.9)
Gross Debt (underlying)(A)                             6,923.3        6,709.6
Cash and cash equivalents and bank deposits              989.7        1,138.7
Less: Lien/earmarked for specific use                  (752.9)        (702.1)
including restricted cash
Cash available for operations(B)                         236.8          436.6
Net debt (underlying)(A-B)^1                           6,686.5        6,273.0
Total equity                                           3,332.9        3,646.5
Gearing % (net debt(underlying)/(net                     66.7%          63.2%
debt(underlying) + total equity))

1 Net debt adjusted for bank deposits, restricted cash, amounts earmarked for
specific use and short term working capital loans. See note 10 of the
condensed interim financial statements.

      Capital Expenditure(excluding maintenance capex and intangibles)

(US$ million)             6 months ended 30 September 6 months ended 30 June
                                      2012                      2011
R&M India                        121.9    492.5 
R&M UK                          16.1  -
Exploration and Production       108.3     53.0
Power                            329.1      495.5
Corporate                      0.2      -
Total (excluding                 575.6       1,041.0
maintenance capex* and

* Excludes maintenance capex of US$41.3 million for six months to 30 September
              2012 (six months to 30 June 2011: US$4.0 million).

                        Property, plant and equipment

                  As at 30 September 2012               As at 31 March 2012

Net book
value                    Assets under                        Assets under
            Operational construction^1  Total   Operational construction^1  Total
R&M India       4,413.0          225.0  4,638.0     4,577.1          143.0  4,720.1
R&M UK            413.2           72.2    485.4       377.0           75.6    452.6
Exploration        48.0          367.7    415.7        50.8          261.2    312.0
Power           2,048.8        2,844.4  4,893.2       841.8        3,874.3  4,716.1
Corporate             -            1.6      1.6           -            1.3      1.3
Total           6,923.0        3,510.9 10,433.9     5,846.7        4,355.4 10,202.1

1. Assets under construction include mining properties and exploration and
evaluation assets.

Property, plant and  equipment has  increased by  2% against  March 2012.  The 
increases by  segment, including  assets under  construction after  impact  of 
exchange difference, are as follows:

· Refinery and marketing-UK - US$32.8 million

· Exploration and production - US$103.7 million

· Power - US$177.1 million

The operational assets in R&M India decreased mainly due to deprecation
charged during the period. Assets under construction have increased mainly due
to expansion related activities and advances for township under construction.

In the Power segment, operational assets increased mainly due to the
commissioning of Vadinar P2 unit 1 and Salaya I with the transfer of the
related assets from assets under construction to operational offset by
exchange rate variations.

The 3% depreciation of the Rupee from March 2012 caused a reduction in
property, plant and equipment of US$137.9 million, US$9.1 million and US$138.0
million in the Power, Exploration and Production and Refinery and
Marketing-India segments respectively.

                           Other non-current assets

Other non-current assets have increased by US$266.9 million over March 2012,
primarily as a result of US$214 million of receivables towards sales tax
assignment being shown as non-current following final determination of the
sales tax matter, whereas in the prior period such amounts were shown as
current. There is also an increase in deferred tax assets created on business

                                Current assets

Current assets have decreased by US$326.6 million to US$6,205.9 million over
March 2012 primarily as result of the following:

· There is a reduction in inventory held at Stanlow of US$442 million
mainly due to an agreement with Barclays to buy crude oil on a real time
basis. R&M UK entered into an inventory monetisation agreement with Barclays
in July 2012 to sell both its existing crude and also its finished goods
inventory and to buy crude on an ongoing basis. Under the agreement, the legal
title of a significant proportion of its crude oil and finished goods
inventory was transferred to Barclays. For accounting purposes, the finished
goods inventory continues to be recognised on Essar Energy's balance sheet on
the basis that Essar Energy continues to be exposed to the risks and rewards
of ownership. A liability has been recognised equivalent to the cash received
from Barclays for the finished inventory.

· The reduction in crude inventory of US$442 million at Stanlow is partly
offset by a US$ 44 million increase in inventory due to increased quantity at

· US$177 million net increase in inventory at Essar Oil as a result of
the net change in price ofcrude, petroleum products and spares which is
partially set off by a decrease in amount as a result of quantity change.

· A decrease in cash and cash equivalents mainly in Essar Energy plc as
US$150 million was repaid to the lenders on the refinancing of a US$450
million loan.

· Receivables of US$214 million in relation to assigned liabilities in
respect of sales tax now shown as non-current following final determination of
the sales tax matter, whereas previously they were shown as current.

· An increase in trade receivables by US$98million in R&M UK and US$44
million in R&M India due to usual collection cycle of various customers.

                             Current liabilities

Current liabilities decreased by 6% to US$7,115.8 million from 31 March 2012,
primarily due to:

· US$612 million of sales tax liability shown as non-current following
the order of the Supreme Court confirming the payment of the liability in
eight equal instalments from 2 January 2013, whereas the liability was shown
as current at 31 March 2012.

· Repayment of sales tax liability of US$190 million.

· An increase in sales tax liability of US$79 million due to interest on
sales tax liability.

· Increase in VAT and excise duty payable by US$89 million in R&M India
due to different payment dates for March and September.

· Net increase in derivative financial liabilities by US$57 million.
Mainly increase in derivative liabilities towards currency forward contracts
by US$77 million partially offset by decrease in liabilities towards commodity

· A decrease of US$303 million in payables in R&M UK. The reduction is
mainly due to the impact of the inventory monetisation arrangement wherein R&M
UK trade payables for crude represent only 3-5 days against 30 days previously
and payment of the second acquisition cost instalment of US$ 175 million plus
interest to Shell partially offset by a liability recognised for the cash
received from Barclays for finished inventory under the inventory monetisation

· Net increase in short term borrowings by US$440 million mainly due to
increase in working capital loans and bills of exchange. 

Non-current liabilities

Non-current liabilities have increased by US$973.4 million, representing a 16%
increase, from US$6,157.6 million at 31 March 2012 primarily due to the

· Increase of US$612million due to the sales tax liability now being
payable in eight quarterly instalment from 2 January 2013

· Increase in long term borrowing (net of amounts transferred to
current) including project buyer's credit of US$ 340 million


(US$ million unless           6 months ended 30 September 12 months ended 31
specified)                                2012                 March 2012
Rupee debt (Rs in billion)           270.2              231.7
Rupee debt                            5,127.1            4,523.0
US Dollar debt                        1,796.2            2,179.6
Gross debt (underlying)                            6,923.3            6,709.6
Cash available for operations        236.8              436.6
Net debt (underlying)^*                            6,686.5            6,273.0
USD/INR Rates at the end of                          52.70              51.16
each period

* See note 10 of the condensed interim financial statements

The increase in borrowings is in line with funding requirements in respect  of 
expansion projects  in  Power, Exploration  and  Production and  Refinery  and 
Marketing-India segment.  The 3%  depreciation of  the rupee  from March  2012 
resulted in a reduction in net debt of US$153.6 million.

                                  Cash Flows

              6 months ended 30 6 months ended
                September 2012    30 June 2011
(US$ million)
Cash flow from             450.8          582.5 The story has been truncated,
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