CONTENTS Proxy Form 65

BOARD OF DIRECTORSShashi RuiaRavi RuiaPrashant RuiaRewant RuiaVikram AminRobin BanerjeeDilip OommenV. G. RaghavanJatinder MehraS. V. VenkatesanK. V. KrishnamurthyNarottam B. VyasChairmanVice-ChairmanDirector - MarketingDirector - FinanceChief Executive OfficerCompany SecretaryBANKERSState Bank of IndiaPunjab National BankBank of IndiaAllahabad BankIDBI BankState Bank of PatialaState Bank of MysoreIndian BankState Bank of SaurashtraState Bank of IndoreState Bank of Bikaner & JaipurREGISTERED OFFICEPost : Hazira Pin: 394 270Dist : SuratGujaratTel. : 0261-668 2400Fax : 0261-668 2796CORPORATE OFFICEEssar House,11 Keshavrao Khadye Marg,Mahalaxmi,Mumbai - 400 034.Tel. : 022-66601100Fax : 022-66602748CONTENTSBoard of Directors 01Directors’ Report 02Auditors’ Report 09AUDITORSM/s. S.R. Batliboi & Co.Chartered Accountants,6th Floor, Express Towers,Nariman Point, Mumbai 400 021SOLICITORSM/s. Crawford Bayley & Co.State Bank Buildings,NGN Vaidya Marg, Fort,Mumbai - 400 023.TRANSFER AGENTSData Software Research Co. Pvt. Ltd.Sree Sovereign Complex,No. 22, IVth Cross Street,Trustpuram, Kodambakkam,Chennai - 600 024.Tel. : 044-24834487/3738Fax : 044-24834636E-mail : dsrcmd@md3.vsnl.net.inVisit us at our websitehttp://www.essar.comBalance Sheet 12Profit & Loss Account 13Schedules forming part of Accounts 14Balance Sheet Abstract 37Cash Flow Statement 38Accounts of Subsidiaries 39Proxy Form 651

Essar Steel LimitedDIRECTORS’ REPORTTo the Members of Essar Steel LimitedYour Directors have pleasure in presenting the 32 nd Annual Report ofyour Company together with the Audited Statement of Accounts for theyear ended 31 st March, 2008.FINANCIALSParticularsYear ended(Rs. in Crores)March 31, 2008 March 31, 2007Sales and other Income 11,926.87 9,019.68Profit before Finance Cost(net), Depreciation, Chargespertaining to earlier years,Exceptional Item and Taxation 2,324.30 1,955.25Less: Finance Cost (Net) 726.40 617.94Profit before Depreciation,Charges pertaining to earlieryears, Exceptional Item andTaxation 1,597.90 1,337.31Less: Depreciation 766.52 631.04Profit before charges pertainingto earlier years, ExceptionalItem and Taxation 831.38 706.27Less: Charges pertaining toearlier years and exceptionalitems — 22.81Profit before Taxation 831.38 683.46Less: Provision for Deferred tax 267.97 187.52Less: Current Tax 108.88 55.01Less: Short / (excess) tax19.83 (1.22)provisions related to earlieryears (Net)Less: Provision for FringeBenefit Tax 6.08 5.66Profit after taxation 428.62 436.49(Less)/Add: Balance broughtforward from previous year 1,444.29 1,008.30Add: Net Gain on adoption ofAS-15 (Revised) 1.87 —Add: Transfer from DebentureRedemption Reserve 15.50 7.25Less: Transfer to DebentureRedemption Reserve — 7.75Less: Transfer to CapitalRedemption Reserve 202.92 —Less: Preference Dividend(Including DDT) 13.46 —Balance carried forward tonext year 1673.90 1444.29DIVIDENDOPERATIONSManufacturing:Company has made efforts to increase its operational efficiency andquality of products at Essar Steel, Hazira during FY 2007-08The major steps taken in this regard were:• Physical and chemistry improvement in the quality ofpellets at the pelletisation plant.• All the HBI modules were run efficiently and the processwas stable.• Increase in usage of Hot DRI by 20% and saving powerin Steel Melt Shop.• Utilisation Index of HSM increased by 0.7%, from 83.7 in2006-07 to 84.4 in 2007-08.• Quality improvement programme with Kobe Steel Japanwas implemented to supply to Auto majors and the whitegoods sector.The major benefits derived from the above steps are:• HBI production has been increased by 16% over whatwas achieved in the last financial year.• Natural gas consumption in the HBI process was reducedby 5 sm3/tonne compared to what was consumed in thelast financial year.• Steel production was increased by 19% over what wasachieved in the last financial year.• Power consumption was reduced by 23 kwh/tonne comparedto what was consumed in the last financial year.• Hot Strip Mill production was increased by 15 percent overwhat was achieved in the last financial year.During the year under review the Company paid Dividend (cumulatedfor three years) on 0.01% Cumulative Redeemable Preference Sharesof Rs.10/- each alongwith redemption proceeds in terms of authorityobtained from those shareholders vide postal ballot process held inDecember, 2007. The Company also paid dividend (cumulated for twoand half years) on 10% Cumulative Redeemable Preference Sharesof Rs.10/- each. In view of the need to conserve resources, the Boarddoes not recommend any equity dividend for the year.2

Sales and Marketing Sales of flat rolled products were up 20% y-o-y to 3.36 milliontonnes Revenues were up 32% to Rs.11,911 crore and net salesrealisation per tonne was up 5% y-o-y 34% of sales were made in value added segments -- up from 27%in 2006-07. Domestic sales at 2.57 million tones grew 41% y-o-y. Domesticmarket share was 12.4% in 2007-08 -- up from 10.5% in2006-07. Essar moved into 2nd position in flats production in India from asingle-unit-single-location. Export volumes, at 0.92 million tonnes, dropped 9%, a deliberatestrategy to reduce exposure to the rising rupee. Despite a 9%rupee appreciation during the year, the realisation in flat rolledexports increased by 2%. This was achieved by rationalisation ofgeographies and a better product mix. PLATES, which is India’s fastest growing product segment inthe flat products basket in India because of the infrastructureand construction boom, registered a record 1 million tonnes ofsales, a growth of more than 50% over the previous year. Thiswas achieved through augmenting the Hazira service centre withthird-party processors. The Steel Hypermart business took off in 2007-08 and at 0.53million tonnes registered a 243% growth in volumes. Revenuesof Steel Hypermart has crossed more than Rs.1,900 crore.Consolidation of business processes through JDA (a retail ERPsoftware), real time pricing mechanisms and rationalisationof Steel Hypermart locations through express marts togethercontributed to delivering higher volumes and realisations with aleaner setup. Better planning and inventory management led to a 38% reductionin year-end closing stocks.Finance:Your Company concluded its steel making capacity enhancementprogramme of 4.6 million tonnes per annum in the previous financialyear. In the current financial year, it has focussed on de-leveraging thebalance sheet. This has resulted in an improvement in your Company’scredit profile which is evidenced in the ratings published by ICRA Ltd.(an associate of Moody’s Investors Service).ICRA Limited has assigned an ‘LA’ rating to the fund based bank facilities and to the Rs. 6,000crore Long Term Debt programme of the Company, recognising theimprovement in the credit quality of the Company’s Long Term Debt.ICRA has also assigned an ‘A1’ rating to the non fund based bank facilities of the Company,indicating highest credit quality in the short term.The above ratings reflect your Company’s established positionin the value-added segments in the steel industry, a diversifiedexport base, integrated nature of operations, healthy operatingprofitability and improving capital structure.During the year, your Company has made efforts to significantlyreduce the total debt burden with a reduction in the term debtposition by over Rs. 1,000 crore. Further, with an increase inthe Net Worth of over Rs. 300 crore, the Company has seen asignificant improvement in the gearing ratio for FY 08 over theprevious financial year. The net cash accrual to term debt ratiohas also improved from 18% to 25%. Your company has thereforebeen prudently managing its financials, thus helping it to growfrom strength to strength.In light of the growth in business and plans for setting up SteelHypermarts (75 Hypermarts/Express Marts commissionedtill date with a plan to increase the same to 100 Hypermarts/Express Marts in the near term) and steel service centresin various regions, the Company is in the process ofenhancing its working capital limits from Rs. 2,600 crore toRs. 3,150 crore.SUBSIDIARIESAs on March 31, 2008 the Company had following subsidiaries:• Essar Steel Jharkhand Ltd.• Essar Steel Orissa Ltd.• Essar Steel Trading FZE, DubaiA statement pursuant to section 212 of the Companies Act, 1956, andalso a copy of each of the audited accounts and other documentsreferred under section 212 of the Companies Act, 1956, of theabovementioned companies is attached to this report.HOLDING COMPANYEssar Steel Holdings Ltd (which in turn is a subsidiary of Essar GlobalLtd) continues to be the Holding Company of our Company. The ultimateholding company viz. Essar Global Ltd, along with its other subsidiaries,as of date holds 93.05% equity shares in the total paid up equity capitalof the Company.DELISTING OF EQUITY SHARESIn accordance with the permission obtained from shareholders videpostal ballot held in March, 2007 and in compliance with the SEBI(Delisting of Securities) Guidelines, 2003 (“the Guidelines), theCompany’s Equity Shares have been delisted from the Bombay StockExchange Ltd. and National Stock Exchange of India Ltd. with effect fromDecember 24, 2007. Further in accordance with the Guidelines, EssarSteel Holdings Ltd. (Acquirer and one of the Promoter Group Company),provided an Exit Option to the remaining equity shareholders of theCompany at the discovered price of Rs. 48 per share. This Exit Optionwas open for a period of six months and closed on 30th June, 2008.DIRECTORSShri R N Ruia, Shri S V Venkatesan and Shri J Mehra retire by rotationat the ensuing Annual General Meeting and, being eligible, offerthemselves for reappointment. Shri G D Goswami, Nominee Directorappointed by ICICI Bank Ltd. ceased to be Director of the Companyw.e.f June 20, 2008. Shri Sanjeev Shriya ceased to be Director of theCompany w.e.f July 7, 2008. The Board wish to place on record their3

Essar Steel Limitedsincere appreciation for the contribution made by Shri G D Goswami andShri Sanjeev Shriya during their tenure as Directors of the Company.The tenure of Shri Vikram Amin as wholetime director ended on 31stOctober, 2007. The Board has appointed Shri Vikram Amin as wholetimedirector for a further period of three years w.e.f November 01, 2007.Shri Dilip Oommen has been appointed as an Additional Director onwholetime basis for a period of three years on the Board w.e.f. July07, 2008 and would hold office as a Director up to the date of thisAnnual General Meeting. Necessary resolutions for their appointmentas wholetime directors of the company forms part of the notice of theannual general meeting.DIRECTORS’ RESPONSIBILITY STATEMENTPursuant to the requirements under Section 217(2AA) of the CompaniesAct, 1956, the Board of Directors of the Company hereby state andconfirm thati. In the preparation of the Annual Accounts, applicableaccounting standards have been followed along with properexplanation relating to material departures.ii.iii.iv.Directors have selected accounting policies and appliedthem consistently and made judgements and estimatesthat are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end ofthe financial year and of the profit or loss of the Companyfor the year under review.Directors have taken proper and sufficient care for themaintenance of adequate accounting records in accordancewith the provisions of the Companies Act, 1956, forsafeguarding the assets of the Company and for preventingand detecting fraud and other irregularities.Directors have arranged preparation of the accounts for theyear ended March 31, 2008, on a “going concern” basis.Krishnamurthy. The Audit Committee is Chaired by Shri S.V.Venkatesan. The terms of reference of the Audit Committee are as perSection 292A of the Companies Act, 1956.AUDITORSM/s S R Batliboi & Co., Chartered Accountants, will retire at theconclusion of the ensuing Annual General Meeting. M/s S R Batliboi& Co., Chartered Accountants have informed the Company that ifappointed, their appointment will be within the prescribed limits underSection 224(1B) of the Companies Act, 1956. Accordingly, members’approval is being sought for their re-appointment as the Auditors of theCompany at the ensuing Annual General Meeting.ENERGY, TECHNOLOGY & FOREIGN EXCHANGEDetails of energy conservation and research and development activitiesundertaken by the Company along with the information in accordancewith the provisions of Section 217(1) (e) of the Companies Act, 1956,read with the Companies (Disclosure of Particulars in the Report of theBoard of Directors) Rules, 1988, is provided in Annexure ‘A’, formingpart of this Report.PERSONNELAs per the provisions of Section 217(2A) of the Companies Act, 1956,read with Companies (Particulars of Employees) Rules, 1975, asamended the names and other particulars of the employees is seperatelyattached, as Annexure ‘B’, forming part of this Report.ACKNOWLEDGEMENTYour directors would like to express their grateful appreciation for theassistance and cooperation received from the Financial Institutions,Banks, Government Authorities and Shareholders during the yearunder review. Your Directors wish to place on record their deep senseof appreciation to all the employees for their commendable teamwork,exemplary professionalism and enthusiastic contribution made duringthe year.For and on behalf of the BoardAUDIT COMMITTEEThe Audit Committee of the Board comprises of three non-executivedirectors, viz. Shri S.V. Venkatesan, Shri J. Mehra and Shri K.V.Date: August 27, 2008Shashi RuiaChairman4

Annexure - ‘A’ to Directors’ ReportParticulars required under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988A. CONSERVATION OF ENERGY:a) Energy Conservation measures taken:1. Incremental in HOT DRI charging at SMP has resulted reductionof about 626 lacs electrical unit.2. Electronic Ballast replaced 1800 nos, saving of 3 lacs unitelectrical energy and saved Rs.12 Lacs/annum.3. Installation of LED Indication Lamp & CFL in complex, energysaved 0.7 lacs unit and saving in Rs. 3 Lacs.4. Stoppage of Idle equipments during shutdown and down time,energy saved about 5 lacs unit.5. Product mix and scheduling in process at HSM has increasedproduction of 4.5 lacs Ton which has resulted reduction in powerconsumption compare to last year.6. Installation of transparent sheet at roof to save electrical Energyof 0.7 lacs unit.7. HSM RHF Revamping has reduced NG consumption by 20Kcal/Kg and saved Rs. 372 Lacs.8. Replacement of 160 W Lamps by 70 W Lamps has reducedenergy by 0.7 lacs unit.9. Switching off SVC’s during shutdown has reduced powerconsumption by 43.2 lacs unit.10. Optimization of cooling tower in winter season & cooling waterpump at MRSS. Energy saved - 0.19 lacs unit.11. VVF drive installation at CPP-1 new cooling tower fan & Sidestream filtration unit fixed in new cooling tower CPP1. Energysaving observed 36 Lacs unit and saved Rs. 151.2 Lacs.12. Stopping of hot water pump, MR open pumps and fans, capacityoptimization at HBI. Energy saved 17.17 lacs unit and SavedRs. 72.11 lacs.13. Modification of suction lines at HBI has saved energy of 1.46lacs unit.14. Energy saving in lighting network by reducing voltage, autosensor and timer at CRM/DSC & HBI. Energy saved 8.56 lacsunit & saved Rs. 36 Lacs.15. Power Saving due to VVVF Drive Installation at various locationsof CRM/DSC. Energy saved 14.7 lacs unit and saved Rs. 61.78Lacs.16. Power Saving due to reduction of Speed (1000 RPM) of BaseFan Drive at CRM.17. Utility - Chiller # 4 : Enhanced the capacity ( by 9 TR ) byincreasing the condenser water flow from 47 to 85 m3/hr. Energysaved 2.47 Lacs unit with saving of Rs 10.37 lacs.18. Centrifugal Chillers (Capacity 300 TR – 04 nos): Evaporator andcondenser’s tube side ( water ) as well as shell side (refrigerant)were Chemically cleaned. Saving of Rs. 52.58 Lacs.19. Instead of 01 HT + 01 LT compressor at CRM compressor house,02 nos LT efficient compressors commissioned. Saved energy8.61 Lacs unit with saving of Rs. 36.16 Lacs.20. EAF 3 Primary circuit – Orifice plate removed for reduction inpressure drop. Saving of Rs. 30 Lacs per annum.21. CRM Steam System – 1,323 m3 Condensate recovered whichhas resulted in saving of Rs 11 lacs.22. Plant air and Instrument air system is separated after modificationwhich has saved 31.5 Lacs unit. Saved Rs. 132.4.23. Fan blade changed from aluminum to FRP at CRM cooling towerand one pump stopped at BAF. Energy saved 3.5 Lacs unit withsaving of Rs. 15 lacs per annum.24. CRM Pump House: Smaller diameter Impeller replaced; savedRs. 4.8 lacs per annum.25. RM Main Drive Ventilation System : Effectiveness of Heatexchanger increased by Chemical cleaning, Heat and Mass5balance, Repairing of Partition plate. Chiller 4 stopped & savedRs 21 Lacs per annum.b) Additional Investments and proposals being implementedfor reduction in consumption of energy:1. Metallic blades of eight cooling tower fans will be replacedwith FRP blades. Power saving of about 42500 units perfan per year.2. To generate 19MW power from flue gas waste heatrecovery by power plant.3. Removal of heavy hydrocarbon by PSA system to avoidcarbon deposition in catalyst tubes. This will avoid carbonburnout requirement, which consumes both naturalgas and power during each carbon burn out withoutproduction.4. Use of Corex gas and VPSA system: Corex gasconsumption saves natural gas which can be used forreformer burner.5. We had implemented Energy Scada project across theCRM and DSC complex, which is an online tool for energyaudit and monitoring deviations from norm. This canbe easily accessible across the plant Through Level-IInetwork.c) Impact of measures at (a) and (b) above for reduction ofenergy conservation and on the cost of production ofgoods:As mentioned in (a) & (b) aboveB. TECHNOLOGY ABSORPTION:The Company has fully absorbed the MIDREX technology obtainedfrom Voest Alpine, Austria for the production of HBI. It has alsoabsorbed technology supplied by METCHEM for HRC plant includingDC-Electric Arc Furnace, Continuous Casters and the Hot Strip Mill.The Company has emerged as the largest user of HBI in DC EAF anddeveloped satisfactory technology for the same.‣ For joining the coil in Electro cleaning Line we had installed State ofthe art LASER welder, which is first of its type in India and facilitatecoil buildup also.‣ We have modified our batch Tandem Mill in to Continuous Tandemline with Dynamic Shape Roll, which is also first of its kind in Indiaand gives better control of the shape in the mill then the conventionalCVC mills.‣ We have installed Electro Discharge Texturising Machine suppliedby Waldrich, Germany, for providing the roughness to the work roll.This is a modern technology mainly used for providing a fine controlof surface roughness across the surface which is the most importantrequirement of the paint-ability in Outer Auto Parts.‣ We have installed a CNC Profile grinder supplied by Waldrich,Germany, which enables us in maintaining a close control on the rollprofile which in turn results in very good shape of the strip.‣ We have installed High Convection Annealing furnaces from Ebner,which is their latest technology used for annealing and provides aclose tolerance in mechanical properties and better surface finish inreduced cycle time.C. FOREIGN EXCHANGE EARNINGS AND OUTGO:I) Activities relating to exports, initiatives to increase exports,developments of new export markets for products and services andexport plan.The year 2007 – 08 was another eventful year in the InternationalSales business of Essar Steel Limited. We achieved exports of 1.24mio Mt. (comprising of 920,848 Mt of steel exports and 313,317 Mt ofmill scale and sludge pond fines).We continued with our focus on the value added segments in discerningmarkets like EU, US, Middle East and South East.Some of the noteworthy events for the year were the approvalgranted to us by leading auto companies and OEM’s for our HR anddownstream products. We also successfully executed a trial shipmentfor armor quality slabs for the US market.

Essar Steel LimitedThe Company continued with its policy of maintaining a global presencewith supplies to markets ranging from USA, EU, Middle East, SouthEast Asia and neighboring countries and also developed supplies ofship building quality plates into new markets like Vietnam.The Company’s focus on value added segments continued with 60%share of the total sales. The company continued its focus of doingdirect business with end users and thereby entering into long termcontracts / MOUs with direct customers.During the year, the company exported close to 200,000 Tons ofGalvanized and Cold Rolled Products into various export markets.We have established ourselves as a supplier of repute in theinternational market and several customers depend on us for theirregular needs.II) Total Foreign exchange used and earned(Rs. in Crores)a) Foreign exchange directly earned through export 2,970.10b) Others 254.97Total foreign exchange earned (a + b ) 3,225.07c) Total foreign exchange usedi) For import of plant and machinery/technicalknow-how196.56ii) Others including raw materials and interest 1,108.54Total foreign exchange used (c ) 1,305.10Particulars with respect to Conservation of Energy:FORM AB. Consumption per unit of ProductionSr.No.Particulars Current year Previous year1. Electricitya) PurchasedUnit (Lakhs) 2,951.98 2,997.66Total Amount (Rs. in Crores) 127.17 142.12Rate/Unit (Rs.) 4.31 4.74b) Own generation(i) Through diesel generatorUnit (Lakhs) 47.63 59.58Units per ltr. of diesel oil 3.32 3.77Cost/Unit (Rs.) 13.30 6.33(ii) Through steam turbine /generatorUnit (Lakhs) 1003.94 1003.94Units per ltr. of Fuel oilGas/Steam Coal 1.25 1.25Cost/Unit (Rs.) 3.44 3.44(iii) Through gas turbinegeneratorUnit (Lakhs) 1,756.54 2,226.64Units / SM3 of gas 3.26 3.38Cost of fuel/Unit (Rs.) 3.67 3.04(iv) Through third party onconversion basisUnit (Lakhs) 33,562.97 28,533.41Units / Ltr of NGL/HSD/NG 4.47 4.36Cost of fuel/Unit (Rs.) 3.60 3.142. Coal (specify quality and whereused)a) Steam Coal for powergeneration by CPPQuantity (tones) 98,746 80,526Total Cost (Rs. crs) 30.61 26.00Average Rate (Rs.) 3100 3230b) Anthracite Coal consumedas fuel for indurationQuantity (tones) 85,816 66,299Total Cost (Rs. crs) 37.88 29.00Average Rate (Rs.) 4414 43743. Furnace OïlQuantity (k. ltrs) 88,706 75,784Total Cost (Rs. Crs) 173.74 141.38Average Rate (Net of Modvat) 19,586 18,6564. OthersQuantity.(NGL) – MT - 1,309.559Total Cost (Rs.Crs) - 4.05Rate/Unit (Rs. per MT) N.A 30,890Quantity.(NG) - ’000 SM3 178,849.91 162,410.71Total Cost (Rs. Crs) 189.07 143.87Rate/Unit 10.57 8.86B. Consumption per unit of ProductionParticulars Standard Current PreviousProduct: BeneficiatedConcentrate(If any) year YearUnit PerMTUnit PerMTUnit PerMTElectricity (Kwh) 40.00 35.00 39.00Others (Specify) N.A. N.A. N.A.Product: Iron Oxide PelletsUnit PerMTUnit PerMTUnit PerMTElectricity (Kwh) 40.14 41.12 43.64Furnace Oil / LSHS (Ltrs) 16.00 16.54 16.80Anthracite Coal (Kgs) 16.00 16.00 14.70Coal (Steam coal on netgeneration) (Kgs) 0.72 0.77 0.80Others (Specify) N.A. N.A. N.A.Product: Hot Briquetted IronUnit PerMTUnit PerMTUnit PerMTElectricity 125 115 117Furnace Oil --- --- ---Coal (Specify quality) --- --- ---Diesel Oil --- --- ---Others - Natural Gas ( SM3 ) 325 293 298Others – Naphtha ( Kg ) --- --- ---Product: Hot Rolled Coils &Cold Roll/GalvanizingUnit PerMTUnit PerMTUnit PerMTElectricity --- 887 877Furnace Oil --- --- ---Coal (Specify quality) --- --- ---Diesel Oil --- --- ---Others – NGL ( Ltr ) --- --- 33Other – NG (SM3) --- 53 556

FORM BRESEARCH AND DEVELOPMENT (R & D):Essar has a well equipped R&D center with latest state-of-the-art facilities anda highly qualified team of engineers and technologists who are conductingdevelopmental activities incessantly.1. Specific areas in which R & D carried by the Company and benefitsderived(a) Development of SPRC-35 / 40 CRCA steel for automobileapplication.(b) High strength IF CRCA steel as per SPRC-45 for autoapplication.(c) High strength steel plates equivalent to DOMEX 650 steel forautomobile chassis application.(d) In-house development of mathematical model for a) HSM-ROT temperature prediction and b) Micro-structure evolutionmodel.(e) Development of Dual phase steel- DP-600 (F+M) for automobileapplication.(f) Development of API 5L X-80 grade steel for Line Pipe applicationwith HTP concept.(g) Development of API 5L X-65 Line Pipe steel for sour serviceapplication.(h) Development of High strength plates as per Caterpilar spec. 1E1242 which is as import substitute.(i) Cost reduction w.r.t. Ferro-alloys consumption, the approximatesaving amounts to Rs. 22.0 Crores (without affecting the qualityparameters)(j) Coal trial taken in Modules to study the effects in reducing NaturalGas consumption.(k) LPG extraction system commissioned.(l) Commissioned the cold DRI pilot facility in Module 3.2. Future Plan of action.(a)Product DevelopmentHR PRODUCTS(1) Dual phase steel (F+M) DP-600 (thickness 3.00-5.00mm)(2) DOMEX 650 grade (thickness 4.00-7.00mm)(3) Ultra high strength steel as per S700MC (thickness3.00-5.00mm)(4) Boron steel for auto applications (thickness3.00-8.00mm)(5) DOMEX 550 grade (thickness 4.00-7.00mm)(6) SAE 1527 for precision tubes for auto sector(thickness 2.20-3.00mm)(7) API 5L X-80, Thk

Essar Steel LimitedSTATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANIESSRNO.PARTICULARSEssar SteelJharkhand Ltd1 The relevant financial year of the subsidiary company ended on The financial yearends on 31.3.20082 Number of Equity Shares in the subsidiary company held by EssarSteel Ltd at the above date49,940 equityshares of Rs. 10eachEssar SteelOrissa Ltd.The financial yearends on 31.3.200849,940 equityshares of Rs. 10eachEssar SteelTrading FZEThe financial yearends on 31.3.20081 share of AED3 million each3 Extent of Equity holding by Essar Steel Ltd as at the above date 99.88% 99.88% 100%4 The net aggregate of profits/(losses) of the subsidiary companyfor its financial year so far as it concerns the members of the HoldingCompany.a) Not dealt with in the Holding Company's Accounts:i) For the subsidiary's financial year ended 31st March, 2008 Rs. (125,826) Rs. (56,56,354) USD 1851197ii) For the previous financial years of the subsidiary companies Rs. (315,229) Rs. (292,270) USD 1693261since they became the Holding Company's subsidiariesb) Dealt with in the Holding Company's Accounts: nil nil nili) For the subsidiary's financial year ended 31st March, 2008ii) For the previous financial years of the subsidiary companiessince they became the Holding Company's subsidiaries5 Change of interest of Essar Steel Ltd. in the subsidiary companyNA NA NAbetween the end of the financial year of subsidiary company and thatof Essar Steel Ltd.6 Material changes between the end of the subsidiary's financialyear and the end of the financial year of Essar Steel Ltd in respect ofsubsidiary's fixed assets, investments, monies lent and borrowed. NA* NA* NA*i) Fixed assets (net additions)ii)iii)iv)InvestmentsMoney lent by the subsidiaryMoney borrowed by the subsidiary company other than formeeting current liabilities (Net)*Since the financial year of the subsidiary companies coincide with the financial year of Essar Steel LtdFor and on behalf of the Board of Directors of Essar Steel LimitedP. S. Ruia Robin BanerjeeDirectorDirector FinanceV. G. Raghavan Vikram AminDirectorDirector MarketingNarottam B VyasMumbai, August 27, 2008Company Secretary8

Auditors’ Report to the Members of Essar Steel Limited1. We have audited the attached Balance Sheet of Essar SteelLimited (‘the Company’) as at March 31, 2008 and also the Profitand Loss Account and the Cash Flow Statement for the year endedon that date annexed thereto. These financial statements are theresponsibility of the Company’s management. Our responsibilityis to express an opinion on these financial statements based onour audit.2. We conducted our audit in accordance with auditing standardsgenerally accepted in India. Those Standards require that we planand perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit providesa reasonable basis for our opinion.3. As required by the Companies (Auditor’s Report) Order, 2003 (asamended) (‘the order’) issued by the Central Government of Indiain terms of sub-section (4A) of Section 227 of the Companies Act,1956, we enclose in the Annexure a statement on the mattersspecified in paragraphs 4 and 5 of the said Order.4. Further to our comments in the Annexure referred to above, wereport that:iv. In our opinion, the balance sheet, profit and loss account andcash flow statement dealt with by this report comply with theaccounting standards referred to in sub-section (3C) of Section211 of the Companies Act, 1956.v. On the basis of the written representations received fromthe directors, as on March 31, 2008, and taken on record bythe Board of Directors, we report that none of the directors isdisqualified as on March 31, 2008 from being appointed asa director in terms of clause (g) of sub-section (1) of Section274 of the Companies Act, 1956.vi. In our opinion and to the best of our information and accordingto the explanations given to us, the said accounts give theinformation required by the Companies Act, 1956, in the mannerso required and give a true and fair view in conformity with theaccounting principles generally accepted in India;a) in the case of the balance sheet, of the state of affairs ofthe Company as at March 31, 2008;b) in the case of the profit and loss account, of the profit forthe year ended on that date; andc) in the case of cash flow statement, of the cash flows for theyear ended on that date.i. We have obtained all the information and explanations, whichto the best of our knowledge and belief were necessary for thepurposes of our audit;For S. R. BATLIBOI & CO.Chartered Accountantsii. In our opinion, proper books of account as required by lawhave been kept by the Company so far as appears from ourper Hemal Shahexamination of those books;Place: MumbaiPartneriii. The balance sheet, profit and loss account and cash flowDate: July 07, 2008 Membership No.: 42650statement dealt with by this report are in agreement with thebooks of account;9

Essar Steel LimitedAnnexure referred to in paragraph [3] of our report of even dateRe: Essar Steel Limited (‘the Company’)(i) (a) The Company has maintained proper records showing fullparticulars, including quantitative details and situation offixed assets.(b) All fixed assets have not been physically verified bythe management during the year but there is a regularprogramme of verification which, in our opinion, isreasonable having regard to the size of the Companyand the nature of its assets. As informed, no materialdiscrepancies were noticed on such verification.(c) There was no substantial disposal of fixed assets duringthe year.in register maintained u/s 301 of the Companies Act, 1956,the clauses (f) and (g) are not applicable(iv) In our opinion and according to the information and explanationsgiven to us, there is an adequate internal control systemcommensurate with the size of the Company and the nature of itsbusiness, for the purchase of inventory and fixed assets and forthe sale of goods and services. During the course of our audit, nomajor weakness has been noticed in the internal control system inrespect of these areas.(v) According to the information and explanations provided by themanagement, we are of the opinion that there are no contracts orarrangements referred to in Section 301 of the Act that need to beentered into the register maintained under that section.(ii) (a)(b)(c)(iii) (a)(b)(c)(d)The management has conducted physical verification ofinventory at reasonable intervals during the year.The procedures of physical verification of inventory followedby the management are reasonable and adequate inrelation to the size of the Company and the nature of itsbusiness.The Company is maintaining proper records of inventoryand no material discrepancies were noticed on physicalverification.As informed, the Company has not granted any loans,secured or unsecured to companies, firms or other partiescovered in the register maintained under Section 301 of theCompanies Act, 1956.As the Company has not granted any loans, secured andunsecured to companies firms or other parties covered inregister maintained u/s 301 of the Companies Act, 1956,the clauses (b) to (d) are not applicable.As informed, the Company has not taken any loans, securedor unsecured from companies, firms or other partiescovered in the register maintained under Section 301 ofthe Companies Act, 1956.As the Company has not taken any loans, secured andunsecured from companies firms or other parties covered(vi) The Company has not accepted any deposits from the public.(vii) In our opinion, the Company has an internal audit systemcommensurate with the size and nature of its business.(viii)We have broadly reviewed the books of account maintained by theCompany pursuant to the rules made by the Central Governmentfor the maintenance of cost records under Section 209(1)(d)of the Companies Act, 1956, and are of the opinion that primafacie, the prescribed accounts and records have been made andmaintained.(ix) (a) Undisputed statutory dues including provident fund, investoreducation and protection fund, or employees’ state insurance,income-tax, sales-tax, wealth-tax, service tax, customs duty,excise duty, cess have generally been regularly deposited withthe appropriate authorities.(b) According to the information and explanations given to us,no undisputed amounts payable in respect of provident fund,investor education and protection fund, employees’ stateinsurance, income-tax, wealth-tax, service tax, sales-tax,customs duty, excise duty, cess and other undisputed statutorydues were outstanding, at the year end, for a period of morethan six months from the date they became payable.(c) According to the records of the Company, the dues outstandingof income-tax, sales-tax, wealth-tax, service tax, customsduty, excise duty and cess on account of any dispute, are asfollows:10

Name of the statute Nature of dues Amountdisputed(Rs. in crores)Amountdeposited(Rs. in crores)Period to whichthe amountrelatesForum where disputeis pendingThe Custom Act, 1962 Custom duty for technical services availed 66.81 Nil 1991 Supreme CourtThe Gujarat Sales tax Act, TheOrissa Sales tax Act, The DelhiSales tax Act and The CentralSales tax ActSales tax payable as per assessment order for1994-95 & 1997-98 & 1998-995.58 0.05 1994-951997-981998-99Sales tax tribunalSales taxSales tax payable as per order of Deputycommissioner under Section 50 andrevisionary order of commissioner underSection 67119.96863.42212.00 1995 to 2004-05Commissionerof salestax – AhmedabadJoint Commissioner ofsales tax – BarodaThe Customs Act, 1962Short fall in fulfilling of export obligationsand customs valuations38.46 Nil 1998-99 Supreme CourtCentral Excise Act, 1944 Excise Duty demand on iron ore chips 0.43Nil2000 to 2002CESTAT1.09Nil2002 to 2004Commissioner(Appeals)Andhra Pradesh State Sales TaxSales tax on deemed purchase of iron orefines, interstate works contract & transfer ofDEPB licenses5.05 1.35 2000-01 Sales Tax AppellateTribunal – HyderabadAndhra Pradesh State Sales Tax VAT credit on opening stock 11.40 Nil 2005-06 Deputy CommissionerAppellateAndhra Pradesh State Sales TaxSales tax payable on provisionalassessment of 2005-06 and for the year2003-042.12 0.20 2003-04 &2005-06Appellate DeputyCommissioner(x)(xi)The Company has no accumulated losses at the end of thefinancial year and it has not incurred cash losses in the currentand immediately preceding financial year.Based on our audit procedures and as per the information andexplanations given by the management, we are of the opinionthat the Company has not defaulted in repayment of dues to afinancial institution, bank or debenture holders.(xvii) According to the information and explanations given to us and onan overall examination of the balance sheet of the Company, wereport that no funds raised on short-term basis have been usedfor long-term investment.(xviii) The Company has not made any preferential allotment of sharesto parties or companies covered in the register maintained undersection 301 of the Companies Act, 1956.(xii) According to the information and explanations given to usand based on the documents and records produced to us, theCompany has not granted loans and advances on the basisof security by way of pledge of shares, debentures and othersecurities.(xiii) In our opinion, the Company is not a chit fund or a nidhi / mutualbenefit fund / society. Therefore, the provisions of clause 4(xiii)of the order are not applicable to the Company.(xiv) In our opinion, the Company is not dealing in or trading in shares,securities, debentures and other investments. Accordingly, theprovisions of clause 4(xiv) of the order are not applicable to theCompany.(xv) According to the information and explanations given to us, theCompany has given guarantee for loans taken by others frombank or financial institutions, the terms and conditions whereofin our opinion are not prima-facie prejudicial to the interest of theCompany.(xvi) Based on information and explanations given to us by themanagement, term loans were applied for the purpose for whichthe loans were obtained.(xix) According to the information and explanations given to us, theCompany had, during the year 2005-06, issued 3,000 SecuredRedeemable Non Convertible debentures of Rs. 10,00,000 eachand these debentures were redeemed during the current year.The Company had created security in respect of debenturesissued in the year of issue.(xx)The Company has not raised money by public issue during theyear(xxi) Based upon the audit procedures performed for the purpose ofreporting the true and fair view of the financial statements and asper the information and explanations given by the management,we report that no fraud on or by the Company has been noticedor reported during the course of our audit.For S. R. BATLIBOI & CO.Chartered Accountantsper Hemal ShahPlace: MumbaiPartnerDate: July 07, 2008 Membership No.: 4265011

Essar Steel LimitedBalance Sheet as at 31st March, 2008ScheduleAs at31st March, 2008As at31st March, 2007Rs. in Crores Rs. in Crores Rs. in Crores Rs. in CroresSources of FundsShareholders' FundsShare Capital 1 1,184.08 1,387.00Reserves and Surplus 2 3,447.25 3,080.954,631.33 4,467.95Loan FundsSecured Loans 3 5,383.11 6,533.32Unsecured Loans 4 733.47 409.926,116.58 6,943.24Deferred Tax Liabilities (net) 7 29.74 —Long-term advances from customer (Refer note 24 of Schedule 23) 144.56 166.42{Amount payable within a year Rs.15.88 Crores (Previous YearRs. 8.66 Crores)}Total 10,922.21 11,577.61Application of FundsFixed Assets 5Gross Block 14,688.87 13,554.19Less: Accumulated Depreciation 5,414.98 4,664.60Net Block 9,273.89 8,889.59Capital Work-in-Progress (including Capital Advances)(Refer note 23 of schedule 23) 575.12 1,107.789,849.01 9,997.37Investments 6 515.22 433.43Deferred Tax Assets (net) 7 — 238.23Current Assets, Loans and AdvancesInterest accrued on Investments 4.51 4.51Inventories 8 2,108.11 2,328.77Sundry Debtors 9 360.40 546.85Cash and Bank Balances 10 399.49 432.86Loans and Advances 11 1,062.68 1,084.423,935.19 4,397.41Less: Current Liabilities and ProvisionsLiabilities 12 3,240.89 3,453.27Provisions 13 136.32 35.56Net Current Assets 557.98 908.58Total 10,922.21 11,577.61Notes to Accounts 23Schedules 1 to 13 and 23 referred to above form an integral part of Balance Sheet.As per our report of even dateFor and on behalf of the Board of Directors of Essar Steel LimitedFor S. R. Batliboi & Co. P. S. Ruia Robin BanerjeeChartered Accountants Director Director Financeper Hemal Shah V. G. Raghavan Vikram AminPartner Director Director MarketingMembership No. 42650Narottam B. VyasMumbai, July 07, 2008 Mumbai, July 07, 2008 Company Secretary12

Profit and Loss Account for the year ended 31st March, 2008ScheduleYear EndedYear Ended31st March, 2008 31st March, 2007Rs. in Crores Rs. in Crores Rs. in Crores Rs. in CroresIncomeIncome from Operations 11,910.66 9,000.46Less : Excise Duty 1,167.34 806.11Net Income from Operations 10,743.32 8,194.35Other Income 14 16.21 19.2210,759.53 8,213.57ExpenditureMaterials Consumed 15 6,750.84 5,747.74Decrease/(Increase) in Stocks 16 168.72 (872.66)Personnel Expenses 17 225.80 152.80Manufacturing and Asset Maintenance 18 859.39 746.04Administrative Expenses 19 215.98 146.14Selling and Distribution Expenses 20 214.50 338.268,435.23 6,258.32Profit before Finance Costs (net), Depreciation, Prior PeriodItems and Taxation2,324.30 1,955.25Finance Costs (net) 21 726.40 617.94Profit before Depreciation, Prior Period Items and Taxation 1,597.90 1,337.31Depreciation 766.52 631.04Profit before prior period items and Taxation 831.38 706.27Prior period Items 22 — 22.81Profit before Taxation 831.38 683.46Tax ExpenseCurrent Tax (MAT Payable) 108.88 55.01Short / (Excess) Provision of Earlier Years (Net) 19.83 (1.22)Deferred Tax Charge 267.97 187.52Fringe Benefit Tax 6.08 5.66Profit after Taxation 428.62 436.49Balance brought forward from Previous Year 1,444.29 1,008.30Add: Adjustment for Employee Benefits provision (Net oftaxes Rs. 0.24 Crore) 1.87 —Profit available for Appropriation 1,874.78 1,444.79AppropriationLess: Transferred to Debenture Redemption Reserves — (7.75)Add : Transferred from Debenture Redemption Reserve 15.50 7.25Less: Transferred to Capital Redemption Reserve (202.92) —Less: Preference Dividend (Including Dividend Distribution Tax of Rs. 1.96 Crores) (13.46) —Surplus Carried to Balance Sheet 1,673.90 1,444.29Earning per share (in Rupees) (Refer Note 9 of Schedule 23)Basic & Diluted [Nominal value of Shares Rs. 10 each (Previous Year Rs. 10 each)] 3.71 4.38Notes to Accounts 23Schedules 14 to 23 referred to above form an integral part of Profit and Loss AccountAs per our report of even dateFor and on behalf of the Board of Directors of Essar Steel LimitedFor S. R . Batliboi & Co. P. S. Ruia Robin BanerjeeChartered Accountants Director Director-Financeper Hemal Shah V. G. Raghavan Vikram AminPartner Director Director-MarketingMembership No. 42650Narottam B. VyasMumbai, July 07, 2008 Mumbai, July 07, 2008 Company Secretary13

Essar Steel LimitedSchedules forming part of Balance Sheet as at 31st March, 2008As at31st March, 2008As at31st March, 2007Rs. in Rs. in Crores Rs. in Crores Rs. in CroresCroresSchedule 1Share CapitalAuthorised3,52,00,00,000 Equity Shares of Rs. 10 each 3,520.00 3,520.006,00,00,000 0.01% Cumulative Convertible Preference Shares of Rs. 90 each 540.00 540.006,00,00,000 1% Cumulative Redeemable Preference Shares of Rs. 90 each 540.00 540.0010,00,00,000 10% Cumulative Redeemable Preference Shares of Rs. 10 each 100.00 100.0030,00,00,000 0.01% Cumulative Redeemable Preference Shares of Rs. 10 each 300.00 300.006,50,00,000 7% Compulsory Convertible Preference Shares of Rs. 350 each 2,275.00 2,275.007,275.00 7,275.00Issued, Subscribed and Paid-up1,13,98,10,888 (Previous year 1,13,98,10,888) Equity Shares of Rs. 10 each 1,139.81 1,139.81Add : 45,20,703 (Previous year 45,20,703) share Forfeited 0.67 0.671,140.48 1,140.48Nil (Previous year 20,29,24,832) 0.01% Cumulative Redeemable Preference shares (CRPS) ofRs.10 each (Refer Note 25(a) of Schedule 23) — 202.924,35,98,951 (Previous year 4,35,98,951) 10% Cumulative Redeemable PreferenceShares (CRPS) of Rs.10 each (Refer Note 25(b) of Schedule 23) 43.60 43.601,184.08 1,387.00Of the above:(a) 39,87,538 (Previous year 39,87,538) Equity Shares of Rs. 10 each were allotted as fully paid up Bonus Shares by capitalisation of General Reserve.(b) 1,50,000 (Previous year 1,50,000) Equity Shares of Rs. 10 each were allotted as fully paid up for consideration other than cash.(c) 71,60,49,226 (Previous Year 58,46,41,861) Equity shares of Rs. 10 each are held by Essar Steel Holding Limited, Mauritius, the holding Company.(d) 100 (Previous Year 100) Equity Shares of Rs. 10 each are held by ETHL Global Capital Limited, subsidiary of ultimate holding company.(e) 25,50,00,000 (Previous Year 25,50,00,000) Equity Shares of Rs. 10 each are held by Essar Power Limited, subsidiary of ultimate holding company.(f) 7,09,18,556 (Previous Year 7,06,65,726) Equity Shares of Rs. 10 each are held by Teletech Investments (India) Limited, subsidiary of ultimate holding company.(g) Nil (Previous Year 100) Equity Shares of Rs. 10 each are held by Essar Global Limited, Cayman Islands.(h) Nil (Previous Year 100) Equity Shares of Rs. 10 each are held by Essar Power holdings Ltd, subsidiary of ultimate holding company.Schedule 2Reserves and SurplusCapital Reserve 12.73 12.73Securities Premium AccountBalance as per last Balance Sheet 1,490.05 91.77Less: Premium on redemption of Preference Shares (50.73) —Add: Additions during the year — 1,398.281,439.32 1,490.05Debenture Redemption ReserveBalance as per last Balance Sheet 15.50 15.00Less: Transferred to Profit and Loss Account (15.50) (7.25)Add: Transferred from Profit and Loss Account — 7.75— 15.50Capital Redemption ReserveBalance as per last Balance Sheet — —Add: Transferred from Profit and Loss Account 202.92 —202.92 —General ReserveBalance as per last Balance Sheet 118.38 118.38Profit and Loss Account 1,673.90 1,444.293,447.25 3,080.95Schedule 3Secured LoansNon-convertible Debentures — 155.00Term LoansFrom BanksForeign Currency Loans 1,124.43 1,260.48Rupee Loans 2,562.44 3,190.943,686.87 4,451.42From Financial Institutions & othersForeign Currency Loans 336.90 476.07Rupee Loans 204.51 190.02541.41 666.09Working Capital Loans from Banks 843.79 1,081.89Buyers' credit for Operational use 234.72 97.09Buyers' credit for Capital Expenditure 76.32 81.835,383.11 6,533.3214

Schedules forming part of Balance Sheet as at 31st March, 2008Notes:1. Non-convertible Debentures, secured by the movable and immovable fixed assets of the company to the extent of Rs. Nil (Previous YearRs. 155 Crores) consist of the following:As at31st March2008Rs. in CroresAs at31st March2007Rs. in CroresParticulars of DebenturesNil (Previous Year 1,550) 8.92% (Previous Year 8.92%) Secured RedeemableNon Convertible Debenture of Rs. 10,00,000 each* — 155.00* Debentures have been prepaid during the the period. — 155.002. Details of securities for Term Loans are as under:From BanksForeign Currency LoansSecured by pari passu first charge on movable fixed assets, mortgage of immovableproperties and second charge on current assets of the Company. 224.17 854.97Secured by mortgage of immovable property and first charge on all the other assetsof the Company except book debts. 70.99 93.18Secured by pari passu first charge on movable fixed assets and mortgage ofimmovable properties of the Company. 762.09 153.20Priority debts, secured by pari passu first charge on movable fixed assets, mortgage ofimmovable properties and second charge on current assets of the Company. 19.41 29.65Priority debts, secured by pari passu first charge on movable fixed assets and mortgageof immovable properties of the Company. 47.77 129.481,124.43 1,260.48Rupee LoansPriority debts, secured by pari passu first charge on movable fixed assets and mortgageof immovable properties of the Company. 7.80 39.01Secured by pari passu first charge on movable fixed assets, mortgage of immovableproperties and second charge on current assets of the Company. 1,863.94 2,360.12Secured by mortgage of immovable property and first charge on all the other assets ofthe Company except book debts. 609.99 748.24Secured by first & exclusive charge on movable & immovable assets relating to ServiceCenters at Bahadurgarh, Pune and Chennai. 80.71 43.572,562.44 3,190.94From Financial Institutions & othersForeign Currency LoansSecured by pari passu first charge on movable fixed assets, mortgage of immovableproperties and second charge on current assets of the Company. 226.10 336.55Secured by mortgage of immovable property and first charge on all the other assetsof the Company except book debts. 110.80 139.52336.90 476.07Rupee LoansSecured by mortgage of immovable property and first charge on all the other assetsof the Company except book debts. 66.06 90.02Secured by first and exclusive charge on immovable properties pertaining toTownship of the Company at Hazira Village, Surat District, Gujarat. 94.85 100.00Secured by pari passu first charge on movable fixed assets, mortgage ofimmovable properties and second charge on current assets of the Company. 39.45 —Secured by first and exclusive charge on all the assets relating to 19 mw WasteHeat Recovery Power Plant other than land. 4.15 —204.51 190.023. Working Capital Loans are secured by a first charge on the current assets and second charge on fixed assets of the Company.4. Buyer’s credit - operation use amounting to Rs. 234.72 Crores (Previous Year Rs. 97.09 Crores) have been classified under the head SecuredLoans as relevant facilities are secured by first charge on the Current assets and second charge on Fixed assets of the company.5. Buyer’s credit - Capital Expenditure for capital project amounting to Rs. 76.32 Crores (Previous Year Rs. 81.83 Crores) have been classifiedunder the head Secured Loans as relevant facilities have a specific charge on the assets purchased under the said buyer’s credit.6. Buyer’s credit shown in Note no. 4 & 5 above are also secured by Term/Margin deposits of Rs. 34.84 Crores (Previous Year Rs. 114.58Crores) pledged with the banks.15

Essar Steel LimitedSchedules forming part of Balance Sheet as at 31st March, 2008As at31st March, 2008As at31st March, 2007Rs. in Crores Rs. in Crores Rs. in Crores Rs. in CroresSchedule 4Unsecured LoansShort-term loans & AdvancesLoan from Bank 189.84 —Other loans & AdvancesLoan from a Company [Due within one year Rs. Nil (Previous Year Rs. Nil)] 254.27 100.00Dollar / Rupee Notes [Due within one year Rs. 4.29 Crores (Previous Year Rs.4.29 Crores)]* 282.77 298.61Term Loan from Housing Development Finance Corporation Ltd. [Due withinone year Rs. Nil (Previous Year Rs. 0.82 Crores)] — 0.82Finance Lease obligation [Due within one year Rs. 2.82 Crores (Previous YearRs. 2.16 Crores)] 6.59 543.63 10.49 409.92733.47 409.92Note:* Rupee Notes aggregating to Rs. 156.10 Crores (Previous Year Rs. 160.39 Crores) is repayable up to March 31, 2018 carrying interest @8% p.a. payable semi-annually. Dollar Notes aggregating to Rs. 126.67 Crores (Previous Year Rs. 138.22 Crores) is repayable on March31, 2018 carrying interest @ 0.25% p.a. payable semi-annually.Schedule 5Fixed AssetsDescriptionAs at01.04.2007Rs. in CroresGross Block Depreciation Net BlockDeletions As at As at For the On As at As at As at31.03.2008 01.04.2007 Period deletions 31.03.2008 31.03.2008 31.3.2007Additions/AdjustmentTangible AssetsFreehold Land 86.81 50.19 — 137.00 — — — — 137.00 86.81Leasehold Land — 4.08 — 4.08 — — — — 4.08 —Buildings 1,173.29 105.86 1.93 1,277.22 375.47 85.65 0.95 460.17 817.05 797.82Plant and Machinery 12,153.81 942.19 20.28 13,075.72 4,211.70 661.82 3.21 4,870.31 8,205.41 7,942.11Furniture and Fixtures 27.20 17.90 8.88 36.22 19.07 2.71 8.52 13.26 22.96 8.13Office Equipment 47.26 27.36 3.93 70.69 29.52 9.45 3.44 35.53 35.16 17.74Vehicles 8.01 4.56 0.27 12.30 5.58 1.59 0.02 7.15 5.15 2.43Ships and Vessels 7.13 — — 7.13 0.63 0.65 — 1.28 5.85 6.50Railway Sidings andWagons 30.69 — — 30.69 18.30 1.50 — 19.80 10.89 12.39Aircraft 19.99 — — 19.99 4.33 2.54 — 6.87 13.12 15.66Intangible AssetsSoftwares — 17.83 — 17.83 — 0.61 — 0.61 17.22 —13,554.19 1,169.97 35.29 14,688.87 4,664.60 766.52 16.14 5,414.98 9,273.89 8,889.59Previous year 10,447.54 3,122.65 16.00 13,554.19 4,049.09 631.04 15.53 4,664.60 8,889.59Notes:1. Additions / Adjustment to fixed assets / capital work-in-progress is net off adjustments on account of foreign exchange gain of Rs. 58.75 Crores(Previous year gain of Rs. 0.80 Crore).2. Land and Buildings includes certain properties under possession of the Company in respect of which the registration formalities are beingcompleted.3. Plant and Machinery include the Company’s share in the cost of Singanpur Weir and 220 KV Power Line amounting to Rs. 23.44 Crores,which was amortised over a period of five years (Current WDV Rs. Nil, Previous Year WDV Rs. Nil).4. Railway Sidings and Wagons include railway wagons (at Cost) of Rs. 17.92 Crores given on lease to Railway Authorities under ‘Own yourWagon’ scheme (Current WDV Rs. 5.79 Crores, Previous Year WDV Rs. 6.64 Crores).5. Plant and Machinery include Jetty of Rs. 108.35 Crores (at Cost), Net book value Rs. 8.27 Crores (Previous Year Rs. 17.07 crore), theownership of which has been claimed by Gujarat Maritime Board (GMB). The Company has disputed such claims.6. Plant and Machinery include equipments at Retail outlet of Rs. 2.14 Crores (at Cost) given on lease and its accumulated depreciation is Rs. 0.36Crores (Previous Year Rs. 0.24 Crores). Depreciation debited to Profit & loss account Rs. 0.11 Crores (Previous Year Rs. 0.13 Crores)7. Aircraft includes B200 Aircraft Beech Super King Air taken on finance leaseGross Book Value Rs. 10.91 Crores (Previous Year: Rs. 10.91 Crores)Net Book Value Rs. 6.84 Crores (Previous Year: Rs. 8.16 Crores)16

Essar Steel LimitedSchedules forming part of Balance Sheet as at 31st March, 2008As at31st March, 2008As at31st March, 2007Rs. in Crores Rs. in Crores Rs. in Crores Rs. in CroresSchedule 7Deferred Tax Assets/(Liabilities) (Net)Deferred Tax AssetsUnabsorbed depreciation and carry forward losses 799.02 1,061.95Provision for doubtful debts 1.04 1.23Provision for doubtful advance 2.72 4.07Deferred power charges 36.57 40.24Other timing differences (disallowances under Section 43 B of the Incometax Act, 1961) 54.88 87.76894.23 1,195.25Less: Deferred Tax LiabilitiesFixed Assets (excess of net book value over written down value as per theprovisions of the Income tax Act, 1961) 909.54 931.21Pre-operative expenses included in capital work in progress 1.68 10.03Effect of lease accounting 12.75 15.78923.97 957.02Deferred Tax Assets/(Liabilities) (Net) (29.74) 238.23Schedule 8Inventories (at lower of cost or net realisable value)Raw Materials [Including stock in transit Rs. 36.17 Crores (Previous Year Rs.84.02 Crores)] 295.74 528.84Production Consumables, Stores and Spares [Including stock in transit Rs.98.27 Crores (Previous Year Rs. 67.45 Crores)] 776.27 594.97Work-in-Progress 560.01 677.72Finished Goods 476.09 527.10Traded Goods — 0.142,108.11 2,328.77Schedule 9Sundry Debtors(Unsecured)Trade (Refer note 28(i) of Schedule 23)Debts outstanding for a period exceeding six monthsConsidered Good 40.30 44.71Considered Doubtful 3.02 3.13Less: Provision for Doubtful Debts 3.02 3.1340.30 44.71Other debts - Considered Good 283.20 294.52323.50 339.23Others (Refer note 28(i) of schedule 23)Debts outstanding for a period exceeding six monthsConsidered Good 29.16 187.56Considered Doubtful 0.03 0.54Less: Provision for Doubtful Debts 0.03 0.5429.16 187.56Other debts - Considered Good 7.74 20.0636.90 207.62360.40 546.8518

Schedules forming part of Balance Sheet as at 31st March, 2008As at31st March, 2008As at31st March, 2007Rs. in Crores Rs. in Crores Rs. in Crores Rs. in CroresSchedule 10Cash and Bank BalancesCash and Cheques on Hand 0.13 0.07Balances with Scheduled Banks (Refer Note 29 of Schedule 23)on Current Accounts 101.35 42.35on Margin Deposit Accounts 1.04 9.37on Term Deposit Accounts 296.03 380.26398.42 431.98Balances with other than scheduled banks-RZB Australia Singapore [Maximum Balance outstanding is Rs. 3.05 Crores(Previous Year Rs. 3.69 Crores.)]0.94 0.81399.49 432.86Schedule 11Loans and Advances(Unsecured, Considered Good unless otherwise stated)Loans & Advances to Subsidiaries & Associates 6.22 46.17Advances recoverable in cash or in kind or for value to be received (Refer note12 and 28(ii) of schedule 23)Considered Good 534.54 571.45Considered Doubtful 7.96 12.08542.50 583.53Less: Provision for Doubtful Advances 7.96 12.08534.54 571.45Intercorporate Deposits 8.00 -Export Incentive Receivable 89.73 245.96Balances with excise and customs 268.56 71.56Deposit othersConsidered Good 155.63 149.28Considered Doubtful 0.08 0.08155.71 149.36Less: Provision for Doubtful Deposits 0.08 0.08155.63 149.281,062.68 1,084.42Schedule 12LiabilitiesAcceptancesfor Capital Expenditure 335.92 359.21for Goods and Expenses 971.91 777.061,307.83 1,136.27Sundry CreditorsMSMED / Small Scale Industrial Undertakings (Refer Note 26 of Schedule 23)for Capital Expenditure — 0.67for Goods and Expenses — 3.22— 3.89Others (Refer Note 26 of Schedule 23)for Capital Expenditure 141.77 92.36for Goods and Expenses 922.53 1,470.281,064.30 1,562.641,064.30 1,566.53Advance from Subsidiary Companies 464.13 112.94Advance from Customers 131.05 282.88Interest accrued but not due 17.38 19.92Other Liabilities 256.20 334.733,240.89 3,453.27Schedule 13ProvisionsProvision for Leave Encashment and Others 11.04 7.83Provision for Gratuity (Refer Note 8 (i) of Schedule 23) 3.45 6.81Provision for Tax [Net of Tax paid / deducted at source Rs. 145.82 Crores(Previous Year Rs. 67.62 Crores)] 50.90 1.19Provision for Fringe Benefit Tax [Net of Advance Tax Paid Rs. 5.58 Crores(Previous Year Rs. 5.93 Crores)] 0.50 —Provision for Derivative Contracts 39.30 —Provision for Indirect Tax Matter (Refer Note 30 of Schedule 23) 19.73 19.73Provision for other matters (Refer Note 30 of Schedule 23) 11.40 —136.32 35.5619

Essar Steel LimitedSchedules forming part of the Profit and Loss Account for the year ended 31st March, 2008Year Ended31st March 2008Year Ended31st March 2007Rs. in Crores Rs. in Crores Rs. in Crores Rs. in CroresSchedule 14Other IncomeDividend 0.37 0.12Rent 7.33 4.07Profit on sale of Current Investments 0.07 4.07Profit on sale of Fixed Assets (net) — 0.05Liabilities/Provision no longer required written back (Net) 3.81 7.56Miscellaneous Income 4.63 3.3516.21 19.22Schedule 15Materials ConsumedOpening stock 528.84 341.78Add: Purchases 2,386.97 2,740.80Less: Closing stock 295.74 528.84Raw Material consumed 2,620.07 2,553.74Production Consumables, Stores and Spares 1,319.78 1,040.94Petroleum Products - Fuel 2,831.02 2,046.19Excise Duty* (20.03) 106.876,750.84 5,747.74* Represents differential excise duty in respect of closing stock & opening stock, excise duty on captive consumption, etc.Schedule 16Decrease/(Increase) in StockOpening StockFinished Goods 527.10 238.69Work-in-Progress 677.72 93.471,204.82 332.16Closing StockFinished Goods 476.09 527.10Work-in-Progress 560.01 677.721,036.10 1,204.82168.72 (872.66)Schedule 17Personnel ExpensesSalaries, Wages and Bonus [Including operating lease rent of Rs. 3.59 Crores(Previous Year Rs. 3.02 Crores)] 184.18 122.03Contribution to Provident and Other Funds (Refer Note 8 of Schedule 23) 14.85 11.51Staff Welfare Expenses 24.17 16.88Director’s Remuneration (Refer Note 17 of Schedule 23) 2.60 2.38225.80 152.8020

Schedules forming part of the Profit and Loss Account for the year ended 31st March, 2008Year Ended31st March 2008Year Ended31st March 2007Rs. in Crores Rs. in Crores Rs. in Crores Rs. in CroresSchedule 18Manufacturing and Asset MaintenancePower and Water Charges 568.89 503.22Repairs and MaintenancePlant and Machinery 82.21 78.54Buildings 35.22 25.78Others 25.66 4.88143.09 109.20Plant and Equipment Hire Charges 29.38 27.18Labour and Sub Contract Charges 105.44 93.70Insurance 12.59 12.74859.39 746.04Schedule 19Administrative ExpensesTraveling and Conveyance Expenses 48.89 34.38Postage, Telephone and Fax 13.77 7.14Printing and Stationery 3.18 1.93Legal and Professional Fees 56.74 34.80Operating Lease Rent 21.43 7.87Rates and Taxes [includes wealth tax provision Rs. 0.14 Crore (Previous YearRs. 0.14 Crore)] 6.24 2.85Auditors’ Remuneration (Refer note 18 of schedule 23) 1.67 1.23Directors' Sitting Fees 0.06 0.03Vehicle Hire and Maintenance Charges 21.37 16.38Service charges 2.26 1.10Loss on sale/write off of Fixed Assets (net) 1.75 —Loss / Reversal of profit on sale of long term investments (Refer note 27 ofschedule 23) — 14.73Miscellaneous Expenses 38.62 23.70215.98 146.14Schedule 20Selling and Distribution ExpensesCommission 45.00 197.05Freight Outward (net) 165.47 137.32Discount 0.42 0.65Other Selling Expenses 4.23 2.11Bad Debts written off — 22.90Provision for Doubtful Debts (net) (0.62) (0.62) (21.77) 1.13214.50 338.26Schedule 21Finance Cost (net)Plant and Equipment Lease Rentals 21.56 13.81Guarantee and Other Bank Charges 198.02 168.20Mark to Market loss on derivative contract 39.30 —Exchange Variation (net) (83.98) (50.38)Intereston Term Loans 441.45 373.86on Debentures 4.18 18.41to Banks and Others 164.26 171.35609.89 563.62784.79 695.25Less:Interest on advances, deposits, customers' balances, income-tax refund, etc.[Tax deducted at source Rs. 4.40 Crores -(Previous year Rs.2.70 Crores)] 28.82 52.29Gain on cancellation of Forward Exchange Contracts (Net of Premium paid /Amortised) 29.57 58.39 25.02 77.31726.40 617.94Schedule 22Prior Period ItemsFinance Cost — 3.59Raw Materials (Freight) — 19.22— 22.8121

Essar Steel LimitedSchedule forming part of the Accounts for the Year ended 31st March, 2008Schedule 23Notes to Accounts1. Nature of OperationsThe Company has an integrated steel manufacturing unit of flatrolled products in Hazira, District Surat. The Company also has abenefication plant at Kirandul and a pelletisation plant at Vizag.2. Statement of Significant Accounting Policies(a) Basis of preparationThe financial statements have been prepared to comply inall material respects with the notified accounting standardby Companies Accounting Standards Rules, 2006 andthe relevant provisions of the Companies Act, 1956. Thefinancial statements have been prepared under the historicalcost convention on an accrual basis. The accounting policieshave been consistently applied by the Company and exceptfor the changes in accounting policy discussed more in detailbelow, are consistent with those used in the previous year.(b) Use of EstimatesThe preparation of financial statements is in conformitywith Generally Accepted Accounting Principles requiresmanagement to make estimates and assumptions that effectthe reported amount of assets and liabilities and disclosureof contingent liabilities at the date of financial statements andresult of operations during the reported year. Although theseestimates are based upon management’s best knowledge ofcurrent events and actions, actual results could differ fromthese estimates.(c) Change in Accounting Policies(i) Till March 31, 2007, the Company was providingfor gratuity based on actuarial valuation as per LICcertificate. In current year, the Company has adoptedthe Accounting Standard 15 (Revised) which ismandatory from accounting period commencingon or after from December 7, 2006. Accordinglythe Company has provided for gratuity based onactuarial valuation done as per projected unit creditmethod. Further in accordance with the transitionalprovision in the revised accounting standard,Rs. 1.87 Crores (net of tax liability Rs. 0.24 Crore) hasbeen adjusted to opening profit and loss account.(ii) As per the ICAI Announcement, accounting forderivative contracts, other than those covered underAS-11, are marked to market on a portfolio basis, andthe net loss after considering the offsetting effect onthe underlying hedge item is charged to the incomestatement. Net gains are ignored. In the previous year,no gains / losses were recognised. Had the previousyear policy been followed the profit before tax wouldhave been higher by Rs. 39.30 Crores and currentliabilities would have been lower by Rs. 39.30 Crores.(iii) Till March 31, 2007, exchange differences relating toborrowings in foreign currency for acquisition of fixedassets in respect of fixed assets acquired from outsideIndia including those exchange differences werecapitalised as part of fixed assets. From accountingperiod commencing on or after April 01, 2007, exchangedifferences in respect of fixed assets purchased,including foreign currency liabilities relating thereto,are recognised as income or expenses in the periodin which they arise. This change is not having materialimpact on the profit for the current year or on openingliability.(d) Fixed AssetsFixed assets are stated at cost, less accumulateddepreciation and impairment losses, if any. Cost comprisesthe purchase price and any attributable cost of bringing theasset to its working condition for its intended use. Borrowingcosts relating to acquisition of fixed assets which takessubstantial period of time to get ready for its intended useare also included to the extent they relate to the period tillsuch assets are ready to be put to use.(e) Capital Work-in-ProgressAll expenditure, including advances given and interest costduring the project construction period, are accumulated anddisclosed as capital work-in-progress until the assets areready for commercial use. Assets under construction arenot depreciated. Income earned from investments of surplusborrowed funds during the construction/trial run period isreduced from capital work-in-progress. Expenditure/incomearising during trial run is added to/reduced from capital workin-progress.(f) Expenditure on substantial expansionAll direct capital expenditure on expansion are capitalised. Asregards indirect expenditure on expansion, only that portionis capitalised which represents the marginal increase in suchexpenditure involved as a result of capital expansion. Bothdirect and indirect expenditure are capitalised only if theyincrease the value of the asset beyond its original standardof performance.(g) Depreciation(i) Fixed assets are depreciated at the rates and in themanner specified in Schedule XIV of the CompaniesAct, 1956 on written down value method, except forplant and machinery and railway sidings which aredepreciated on a straight-line basis. Depreciation onadditions to / deletions from fixed assets is provided onpro-rata basis from / up to the date of such addition /deletion as the case may be. Depreciation on additionsto assets due to exchange variation, forward coverpremium charges, etc. is provided over the remaininguseful life of the assets.(ii) Costs relating to softwares, which are acquired, arecapitalized and amortized @40% on written down valuemethod. The Company estimates useful life of 5 to 6years of such softwares.(h) Impairment of Assets(i) The carrying amounts of assets are reviewed ateach balance sheet date if there is any indication ofimpairment based on internal/external factors. Animpairment loss is recognized wherever the carryingamount of an asset exceed its recoverable amount.The recoverable amount is the greater of the assets netselling price and value in use. In assessing value in use,the estimated future cash flows are discounted to theirpresent value at the weighted average cost of capital.(ii) After impairment, depreciation is provided on the revisedcarrying amount of the assets over its remaining usefullife.(i) Revenue RecognitionRevenue is recognised to the extent that it is probable thatthe economic benefits will flow to the Company and therevenue can be reliably measured.Sale of GoodsRevenue is recognised when the significant risks andrewards of ownership of the goods have passed to the buyer.Sales is disclosed net of quality claims and rebates. ExciseDuty deducted from turnover (gross) is the amount of exciseduty that is included in the amount of turnover (gross) andnot the entire amount of liability arised during the year.Export BenefitsExport benefits under duty entitlement passbook scheme isaccrued whenever ascertainable.InterestRevenue is recognised on a time proportion basis taking intoaccount the amount outstanding and the rate applicable.DividendsRevenue is recognised when the shareholders’ right toreceive payment is established by the balance sheet date.Dividend from subsidiaries, if any, is recognised even ifsame are declared after the balance sheet date but pertains22

to period on or before the date of balance sheet as per therequirement of Schedule VI of the Companies Act, 1956.(j) Taxes on IncomeTax expense comprises of current, deferred and fringe benefittax. Current income tax and fringe benefit tax is measuredat the amount expected to be paid to the tax authorities inaccordance with the Indian Income Tax Act. Deferred incometaxes reflects the impact of current year timing differencesbetween taxable income and accounting income for the yearand reversal of timing differences of earlier years.Deferred tax is measured based on the tax rates and thetax laws enacted or substantively enacted at the balancesheet date. Deferred tax assets are recognised only to theextent that there is reasonable certainty that sufficient futuretaxable income will be available against which such deferredtax assets can be realised. In situations where the Companyhas unabsorbed depreciation or carry forward tax losses,all deferred tax assets are recognised only if there is virtualcertainty supported by convincing evidence that they can berealised against future taxable profits.At each balance sheet date the Company re-assessesunrecognised deferred tax assets. It recognisesunrecognised deferred tax assets to the extent that it hasbecome reasonably certain or virtually certain, as the casemay be that sufficient future taxable income will be availableagainst which such deferred tax assets can be realised.The carrying amount of deferred tax assets are reviewedat each balance sheet date. The Company writes-down thecarrying amount of a deferred tax asset to the extent that itis no longer reasonably certain or virtually certain, as thecase may be, that sufficient future taxable income will beavailable against which deferred tax asset can be realised.Any such write-down is reversed to the extent that it becomesreasonably certain or virtually certain, as the case may be,that sufficient future taxable income will be available.(k) InventoriesRaw Materials, Production Consumables, Stores andSpares is valued at lower of cost and net realizable value.However, materials other than items held for use in theproduction of inventories are not written down below cost ifthe finished products in which they will be incorporated areexpected to be sold above cost. Cost is determined on aFirst in first out (FIFO) basis. Work-in-progress and finishedgoods is valued at lower of cost and net realisable value.Cost includes direct material and labour and a proportion ofmanufacturing overheads based on normal capacity. Valueof finished goods also include excise duty. Net realizablevalue is the estimated selling price in the ordinary course ofbusiness less estimated cost of completion and cost to makethe sale.(l) InvestmentsInvestments that are readily realisable and intended tobe held for not more than a year are classified as currentinvestments. All other investments are classified as longterminvestments. Current investments are carried atlower of cost and fair value determined on an individualinvestment basis. Long-term investments are carried at cost.However, provision for diminution in value, if any, is made torecognise a decline other than temporary in the value of theinvestments.(m) Foreign Currency Transactions(i) Initial RecognitionForeign currency transactions are recorded in thereporting currency, by applying to the foreign currencyamount the exchange rate between the reportingcurrency and the foreign currency at the date of thetransaction.(ii) ConversionForeign currency monetary items are reported usingthe closing rate. Non-monetary items which are carriedin terms of historical cost denominated in a foreigncurrency are reported using the exchange rate atthe date of the transaction; and non-monetary itemswhich are carried at fair value or other similar valuationdenominated in a foreign currency are reported usingthe exchange rates that existed when the values weredetermined.(iii) Exchange DifferenceExchange differences arising on the settlement ofmonetary items at rates different from those at whichthey were initially recorded during the year, or reportedin previous financial statements, are recognised asincome or as expenses in the year in which they arise.Exchange differences arising in respect of fixed assetsacquired from outside India on or before accountingperiod commencing after December 7, 2006 arecapitalized as a part of fixed asset.(iv) Forward Exchange Contracts not intended for trading orspeculation purposesThe premium or discount arising at the inception offorward exchange contracts is amortised as expenseor income over the life of the contract. Exchangedifferences on such contracts are recognised in thestatement of profit and loss account in the year in whichthe exchange rates change. Any profit or loss arising oncancellation or renewal of forward exchange contract isrecognised as income or as expense for the year.(n) Earnings Per ShareBasic earnings per share are calculated by dividing the netprofit or loss for the period attributable to equity shareholders(after deducting preference dividends and attributable taxes)by the weighted average number of equity shares outstandingduring the period. Partly paid equity shares are treated as afraction of an equity share to the extent that they were entitledto participate in dividends relative to a fully paid equity shareduring the reporting period. The weighted average numberof equity shares outstanding during the period are adjustedfor events of bonus issue; bonus element in a rights issueto existing shareholders; share split; and reverse share split(consolidation of shares).For the purpose of calculating diluted earnings per share,the net profit or loss for the period attributable to equityshareholders and the weighted average number of sharesoutstanding during the period are adjusted for the effects ofall dilutive potential equity shares.(o) ProvisionsA provision is recognised when an enterprise has a presentobligation as a result of past event; it is probable that anoutflow of resources will be required to settle the obligation,in respect of which a reliable estimate can be made.Provisions are not discounted to its present value and aredetermined based on best estimate required to settle theobligation at the balance sheet date. These are reviewed ateach balance sheet date and adjusted to reflect the currentbest estimates.(p) Cash and Cash equivalentsCash and cash equivalents in the balance sheet comprisecash in hand and at bank in current account. Margin depositand term deposit are considered as cash equivalent.(q) Derivative InstrumentsAs per the ICAI announcement, accounting for derivativecontract, other than those covered under AS 11, aremarked to market on a portfolio basis, and the net loss afterconsidering the offsetting effect on the underlying hedge itemis charged to the income statement. Net gains are ignored.(r) Retirement and other employee benefitsRetirement benefits in the form of Provident Fund is a definedcontribution scheme and the contributions are charged to theProfit and Loss Account of the year when the contributions tothe respective funds are due. There are no other obligationsother than the contribution payable to the respective fund.Gratuity liability are defined benefit obligations and areprovided for on the basis of an actuarial valuation onprojected unit credit method made at the end of eachfinancial year.23

Essar Steel LimitedShort term compensated absences are provided for onbased on estimates. Long term compensated absencesare provided for based on actuarial valuation. The actuarialvaluation is done as per projected unit credit method.Actuarial gains/losses are immediately taken to profit andloss account and are not deferred.(s) Central Value Added Tax (CENVAT)CENVAT claimed on capital goods is reduced from the costof plant and machinery/capital work-in-progress. CENVATclaimed on purchases of raw material and other materials isreduced from the cost of such materials.(t) Leases(i) Where the Company is the LesseeLease rentals in respect of finance lease arrangementsentered up to 31st March, 2001 are segregated intocost of the asset and interest components by applyingan implicit internal rate of return. The cost componentis amortised over the useful life of the asset and theinterest component is recognised in the Profit and LossAccount. Lease payments in excess of the charge forthe year are treated as prepaid lease rentals whereveragreement is existing and in other cases it has beenadded to the carrying cost of the fixed assets.Finance leases entered on or after 1st April, 2001,which effectively transfer to the Company substantiallyall the risks and benefits incidental to ownership of theleased item, are capitalized at the lower of the fair valueand present value of the minimum lease payments atthe inception of the lease term and disclosed as leasedassets. Lease payments are apportioned between thefinance charges and reduction of the lease liabilitybased on the implicit rate of return. Finance charges arecharged directly against income. Lease managementfees, legal charges and other initial direct costs arecapitalised.If there is no reasonable certainty that the Companywill obtain the ownership by the end of the lease term,capitalized leased assets are depreciated over theshorter of the estimated useful life of the asset or thelease term.Leases where the lessor effectively retains substantiallyall the risks and benefits of ownership of the leasedterm, are classified as operating leases. Operatinglease payments are recognized as an expense in theProfit and Loss account on a straight-line basis over thelease term.(ii) Where the Company is the LessorAssets subject to operating Lease are included in fixedassets. Lease Income is recognised in the Profit andLoss account on a straight line basis over the leaseterm. Costs including depreciation are recognised asan expense in the Profit and Loss account. Initial directcosts such as legal costs, brokerage costs, etc arerecognised immediately in the Profit and Loss account.As at31st March, 2008As at31st March, 2007(Rs. Crores)(Rs. Crores)3. Contingent Liabilities not provided for(i) (a) Bills discounted 59.66 48.69(b) Claims against the company not acknowledged as debt in respect of:– Disputed sales tax matters in respect which the Company has gone inappeal [including amount already paid Rs. 226.97 Crores (Previous yearRs. 217.48 Crores)] 502.84 664.72– Disputed Excise duty matters in respect which the Company has gone inappeal 1.52 1.52– Disputed Custom duty / export duty matters in respect which the Company hasgone in appeal 207.93 105.27– Tax of sale of electricity demanded by sales tax authorities on Essar PowerLimited 45.91 45.91– Electricity duty charged on Essar Power Limited by Gujarat Electricity Board 465.62 409.70– Wheeling Charges demanded by Gujarat Electricity Board [including amountalready paid Rs. 27.23 Crores (Previous year Rs. 14.52 Crores)] 149.96 87.72– Others [including amount already paid Rs. 0.15 crore (Previous year Rs. 0.15 Crore)]2.98 2.98Future cash outflows in respect of above matters are determinable only onreceipt of judgments / decisions pending at various forums / authorities.(c) Guarantees given to various banks, financial institutions, finance companies, etc.on behalf of others [Balance outstanding as on 31.03.2008 is Rs. 1,423.87 Crores(Previous year Rs. 1,212.62 Crores)* 1,517.05 1,340.68*Out of the total Guarantees of Rs. 1,517.05 Crores given to various banks, financial institutions, finance companies, etc. onbehalf of others, Rs. 595.00 Crores has been discharged subsequent to balance sheet date. Post this discharge, corporateguarantee balance will stand reduced by Rs. 595.00 Crores.The Company and Essar Power Limited (EPOL) has provided corporate guarantee of Rs. 1,537.00 Crores each, on behalf ofLoop Telecom Private Limited (LOOP), favouring State Bank of India (SBI) against (a) Term loan of Rs. 725.00 Crores and (b)Bank guarantee of Rs. 812.00 Crores, availed by LOOP.Of the said guarantee, LOOP has utilised guarantee of Rs. 725.00 Crores against the term loan availed from State Bank of India.As the Company and EPOL, issued the corporate guarantees simultaneously, the Company has considered Rs. 362.50 Croresbeing 50% of Rs. 725.00 Crores as its contingent liability. The bank guarantee will be utilised against the licence fees payable byLOOP, after it starts operation.Further, the Company has also received counter guarantee for the same from BPL Communications Limited for Rs. 1,537.00Crores.(ii) Arrears of fixed dividend on Cumulative Redeemable Preference Shares 2.56 10.2424

4. (a) Estimated amount of contracts remaining to be executed on capital account and notprovidedAs at31st March, 2008As at31st March, 2007(Rs. Crores)(Rs. Crores)587.93 457.35(b) Custom duty on pending export obligation under EPCG scheme 141.89 337.075. Segment InformationPrimary Business SegmentThe Company is primarily engaged in a single business segment of manufacture and sale of steel, and accordingly, this is the only primaryreportable segment.Geographical SegmentsSecondary segmental reporting is based on the geographical location of customers. The geographical segments have been disclosed basedon revenues within India (sales to customers within India) and revenues outside India (sales to customers located outside India). Secondarysegment assets and liabilities are based on the location of such asset/liability.Information about Secondary Geographical SegmentsRs. in CroresSegment information Year Ended 31st March, 2008 Year Ended 31st March, 2007India Outside India Total India Outside India TotalRevenue (Income from operation) 8,769.01 3,141.65 11,910.66 6,012.38 2,988.08 9,000.46Carrying amount of segment assets 14,140.85 158.57 14,299.42 14,889.92 176.52 15,066.44Carrying amount of segment liabilities 6,943.42 2,724.67 9,668.09 8,003.53 2,594.96 10,598.49Additions to fixed assets 1,169.97 – 1,169.97 3,122.65 – 3,122.656. LeasesFinance leaseAircraft is obtained on finance lease. The lease term is for 5 years and renewable for further period after which the legal title is passed tothe lessee. There is no escalation clause in the lease agreement. There are no restrictions imposed by lease arrangements. There are nosubleases.Operating leaseResidential Houses for staff accommodation and offices are obtained on operating lease. Lease rent is payable as per the lease term. Thelease term is generally for 11 months and renewable for a further period at the option of the Company. There is no escalation clause in thelease agreement. There are no restrictions imposed by lease arrangements. There are no subleases.(i) Assets taken on finance lease on or after 01.04.2001Year Ended31st March, 2008Rs. CroresFinance Operatinglease leaseYear Ended31st March, 2007Rs. CroresFinance Operatinglease leaseTotal minimum lease payments at the year end 7.18 – 9.54 –Less: amount representing finance charges 0.96 – 1.43 –Present value of minimum lease payments (Rate of interest:9.50% p.a.) 6.21 – 8.11 –Lease payments for the year 3.07 30.35 2.86 11.99Contingent rent recognised in Profit and Loss Account – – – –Minimum Lease Payments :Not later than one year [For finance lease: Present value Rs. 2.82Crores as on 31.03.2008] 3.08 5.37 2.86 –Later than one year but not later than five years [For finance lease:Present value Rs. 3.77 Crores as on 31.03.2008] 4.10 21.47 6.68 –Later than five years [For finance lease: Present value Rs. Nil as on31.03.2008] – 63.95 – –(ii) Future lease obligation for Assets taken on finance leases prior to01.04.2001 9.66 – 8.51 –7. Disclosure of related party transactions as required by Accounting Standard - 18 Related Party Disclosures:(a) Holding Company1 Essar Steel Holdings Limited, Mauritius2 Essar Global Limited, Cayman – Holding Company of Essar Steel Holdings Limited(b) Subsidiary1 Essar Steel (Jharkhand) Limited (ESJL)2 Essar Steel (Orissa) Limited (ESOL)3 Essar Steel Trading FZE, Dubai (Essar FZE)(c) Fellow Subsidiary1 Essar Steel (Chattisgarh) Limited (ESCL)2 Hazira Plate Limited (HPLT)3 Essar Telecom Infrastructure Private Limited25

Essar Steel Limited4 Essar Steel (Hazira) Limited (ESHL)5 Hazira Pipe Mill Limited (HPML)6 Essar Construction India Limited (ECL)7 ETHL Global Capital Limited (ETHL)8 Essar SEZ Hazira Limited (Essar SEZ)9 Essar Shipping & Logistics Limited (ESLL)(d) Associates1 Essar Power Limited (EPOL)2 Bhander Power Limited (BPOL)3 Essar Bulk Terminal Limited (EBTL)(e) Key Management Personnel1 Mr. Vikram Amin, Director (Marketing) (VA)2 Mr. Robin Banerjee, Director (Finance) (RB)(f) Individuals owning, directly or indirectly, an interest in the voting power that gives them control or significant influence1 Mr. Shashi Ruia, Chairman2 Mr. Ravi Ruia, Vice Chairman3 Mr. Prashant S Ruia, Director4 Mr. Anshuman S. Ruia5 Mr Rewant Ruia, Director(g) Enterprises commonly controlled or influenced by major shareholders/directors/Key management personnels of the Company1. Click For Steel Services Limited (CFS) 11 Essar Logistics Limited (ELL)2. Essar Agrotech Limited (EAL) 12 Essar Shipping Port and Logistics Limited (ESL)3. Essar House Limited (EHL) 13 Aegis BPO Service Limited (AEGIS)4. Essar Information Technology Limited (EITL) 14 PT Essar Indonesia (PTEI)5. Essar Investment Limited (EIL) 15 S.G. Chemicals & Dyes Trading Limited6. Essar Projects Limited (EPL) 16 Imperial Consultants Private Limited (ICPL)7. Essar Properties Limited (EPRL) 17 Essar House Services Limited (EHSL) formerly known as EssarWorld Trade Limited8. Futura Travels Limited (FTL) 18 Essar USA9. India Securities Limited (ISL) 19 Teletech Investments (India) Limited (Teletech)10 Essar Oil Limited (EOL)During the period, following transactions were carried out with some of the related parties in the ordinary course of business:(excluding reimbursement)HoldingSubsidiaryFellowSubsidiaryAssociatesEnterprisescommonlycontrolled orinfluencedby majorshareholders/directors/KeyManagementPersonnel ofthe CompanyKeyManagementPersonnelIndividualsowning,directly orindirectly,an interestin thevotingpower thatgives themcontrol orsignificantinfluenceRs. Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores(a) Sale of Goods - 291.68 148.40 1.15 11.00 - -- - (121.82) (2.80) (387.15) - -(b) Income-Lease Rentals/Rent building - - 4.27 - 3.48 - -(Essar SEZ) - - (2.28) - - - -(c) Interest Income-Others - - - - - - -- - (9.11) - - - -(d) Miscellaneous Income - - 0.34 - - - -- - (2.61) - - - -(e) Profit on sale of Investment/fixed assets (PTEI) - - - - 0.09 - -- - - - - - -(f) Conversion charges/Raw Materials and Freight- - 2.85 - 475.66 - -(including resale)- - (446.78) - (1.87) - -(g) Purchases of Stores and Spares and Freight - - 1.75 6.58 2.65 - -- - (25.79) (47.23) - - -(h) Purchase of Petroleum Products (Fuel)(EOL) - - - - 19.60 - -- - - - - - -(i) Power Processing Charges - - - 337.55 - - -- - - (309.51) - - -(j) Water Charges (EPOL) - - - -4.49 - - -- - - (-3.05) - - -(k) Repairs and Maintenance - - 5.86 2.02 22.33 - -- - (0.42) (2.02) (18.00) - -(l) Plant and Equipment Hire Charges - - 23.50 - 0.75 - -- - (16.95) - (0.86) - -(m) Labour Sub Contract Charges - - 30.15 - 25.01 - -- - (34.46) - - - -(n) Traveling and Conveyance - - - - 29.88 - -- - (0.29) - (23.02) - -(o) Professional Fees - - - - 11.84 - -- - (1.77) - (16.24) - -26

HoldingSubsidiaryFellowSubsidiaryAssociatesEnterprisescommonlycontrolled orinfluencedby majorshareholders/directors/KeyManagementPersonnel ofthe CompanyKeyManagementPersonnelIndividualsowning,directly orindirectly,an interestin thevotingpower thatgives themcontrol orsignificantinfluenceRs. Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores(p) Freight Outwards paid - - - - 621.56 - -- - (506.49) - - - -(q) Interest to Banks & Others (EIL) - - - - 5.83 - -- - (30.14) (0.37) (0.25) - -(r ) Lease Rentals - Plant and Equipments - - - - 5.68 - -- - (2.87) - (7.36) - -(s) Directors Remuneration (including perquisites) - - - - - 2.73 -- - - - - (2.52) -(t) Directors Sitting Fees * Rs. 55,000.00 - - - - - - *** Rs. 52,500.00 - - - - - - (**)(u) Capital Contract - - 338.51 - 0.22 - -- - (355.06) - (0.64) - -(v) Sales of Fixed assets (ECL and PTEI) - - 2.68 - 1.11 - -- - - - - - -(w) Loans given (Essar FZE) - 6.85 - - - - -- - - - - - -(x) Loans repaid (Essar FZE) - 6.85 - - - - -(ESHL) - - - (50.00) - - -(y) Loan Taken - - - - - - -(ESHL & EIL) - - - (50.00) (58.35) - -(z) Office Rent - - 0.36 - 6.68 - -- - - - (4.82) - -(aa) Miscellaneous Expenses - - 6.84 - 4.61 - -(EHL) - - - - (0.83) - -(ab) Sales Commission (Essar Steel Holdings Limited) 1.77 - - - - - -- - (0.26) - (0.94) - -(ac) ICD Given (EOL) - - - - 65.00 - -- - - - - - -(ad) Repayment of ICD given (EOL) - - - - 65.00 - -- - - - - - -(ae) ICD taken (EIL) - - - - 254.27 - -- - - - (100.00) - -(af) Repayment of ICD taken (EIL) - - - - 100.00 - -- - - - - - -(ag) Purchase of Investment - - 81.67 - - - -- (3.77) (76.12) (122.25) (0.05) - -(ah) Purchase of Fixed assets - - - - - - -(ECL) - - (2.58) - - - -(ai) Sale of Investment - - - - - - -(Essar Steel Holdings Limited & Teletech) (0.05) - - - (17.14) - -(aj) Sale of Investment Reversal - - - - - - -(ETHL) - - (76.12) - - - -(ak) Security Deposit given - - - - - - -(EPRL) - - - - (0.27) - -(al) Security Deposit Received (Essar SEZ) - - 54.00 - - - -(EOL) - - (2.00) - - - -(am) Deposit Refund (FTL) - - - - - - -- - - - (9.00) - -(an) Sale of Stores and Spares (EPOL) - - - 23.87 - - -(Essar SEZ & EPOL) - - (8.64) (28.10) - - -(ao) Miscellaneous balances written off (CFS) - - - - 0.95 - -- - - - - - -Long Term Investments - 3.87 146.95 350.09 13.78 - -- (3.87) (13.78) (415.37) - - -Sundry Debtors - - 77.16 0.32 9.35 - -- - (217.69) (2.64) (40.97) - -Loan & Advances -Deposit - - - - 87.59 - -- - (1.86) - (80.92) - -Other Advance (Including Advance towards Equity) - 6.22 6.46 - 14.36 0.26 -*** Rs. 50,000 - (20.41) (53.89) (25.76) (20.65) (***) --Capital Advances (Capital Work in Progress) - 40.58 - - - -- - (153.11) - (10.00) - -Sundry Creditors (Including Acceptances) 1.77 - 315.08 60.28 108.00 - -- - (390.75) (126.30) (9.79) - -Advance from Customers - 464.13 25.73 - 0.61 - -- (112.94) (4.36) - - - -Interest accrued on Investment - - - - 4.49 - -- - (4.49) - - - --Guarantees Given to various bank, financialinstitutions, finance companies, etc. on behalf ofothers [Facilities outstanding Rs.1,061.37 Crores(Previous Year 1,212.62 Crores)] - - 595.00 177.00 382.55 - -- - (382.55) (958.13) - - -27

Essar Steel LimitedRs. CroresThe Associates, Fellow Subsidiaries and Enterprises Commonly controlled or influenced by major shareholders/directors/Key Management Personnel of the company having the following material related party transactions:Nature of Transaction Name of Related PartyECL ESL EHL ISL EITL EOL FTL PTEI BPOL EPOL EBTL CFS ELL AEGIS ICPL VA VGR * RB EHSL EPL EPRL Essar FZE HPLT Essar SEZ ETHL ESHL Essar USA ESLL(a) Sale of Goods 54.78 - - - - 6.01 - - - 0.49 0.65 - 4.99 - - - - - - - - 291.68 3.05 - - 90.57 - -(120.19) - - - - - - (116.50) - - - (213.29) - - - - - - - - - - - - - - (48.01) -(b) Income - Lease Rentals/Rent building 0.25 3.30 - - - - - - - - - - 0.18 - - - - - - - - - - 4.02 - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - -(c) Interest Income-Others - - - - - 0.32 - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - (9.11) - - - - - - - - - - - - - - -(d) Miscellaneous Income - - - - - - - - - - - - - - - - - - - - - - - - - 0.34 - -- - - - - (2.55) - - - - - - - - - - - - - - - - - - - - - -(f) Conversion charges/Raw Materials andFreight- 338.78 - - - - - - - - - - 136.88 - - - - - - - - - - - - 2.85 - -- (333.09) - - - - - - - - - - (113.69) - - - - - - - - - - - - - - -(g) Purchases of Stores and Spares and Freight 1.75 - - - - - - - - 6.58 - - 2.65 - - - - - - - - - - - - - - -(25.56) - - - - - - - - (47.23) - - - - - - - - - - - - - - - - - -(i) Power Processing Charges - - - - - - - - 138.64 198.91 - - - - - - - - - - - - - - - - - -- - - - - - - - (99.75) (209.76) - - - - - - - - - - - - - - - - - -(k) Repairs and Maintenance 5.86 - - - - - 0.13 - - 2.02 - - - - - - - - 22.20 - - - - - - - - -- - - - - - - - - (2.02) - - - - - - - - (18.00) - - - - - - - - -(l) Plant and Equipment Hire Charges 23.50 - - - - - - - - - - - 0.75 - - - - - - - - - - - - - - -(16.61) - - - - - (0.86) - - - - - - - - - - - - - - - - - - - - -(m) Labour Sub Contract Charges 30.15 - - - - - - - - - - - 25.01 - - - - - - - - - - - - - - -(31.59) - - - - - - - - - - - - - - - - - - - - - - - - - - -(n) Traveling and Conveyance - - - - - - 29.75 - - - - - - - - - - - 0.14 - - - - - - - - -- - - - - (0.29) (23.02) - - - - - - - - - - - - - - - - - - - - -(o) Professional Fees - - - 0.56 1.68 - - - - - - - - 9.60 - - - - - - - - - - - - - -(1.77) - - (8.09) - - - - - - - - - (7.18) - - - - - - - - - - - - - -(p) Freight Outwards paid - 47.58 - - - - - - - - - - 573.97 - - - - - - - - - - - - - - -- (131.01) - - - - - - - - - - (375.48) - - - - - - - - - - - - - - -(q) Interest to bank & others - - - - - - - - - - - - - - - - - - - - - - - - - - - -(28.11) - - - - - - - - (0.33) - - (2.03) - - - - - - - - - - - - - - -(r ) Lease Rentals - Plant and Equipments - 0.19 - - - 0.62 0.22 - - - - - - - 0.73 - - - - 3.37 0.54 - - - - - - -- - - - - (2.60) (3.10) - - - - - - - - - - - - (2.32) (1.58) - - - - - - -(s) Directors Remuneration (including perquisites) - - - - - - - - - - - - - - - 1.07 - 1.66 - - - - - - - - - -- - - - - - - - - - - - - - - (0.91) (1.01) (0.60) - - - - - - - - - -(u) Capital Contract 338.51 - - - - - - - - - - - - 0.22 - - - - - - - - - - - - - -(355.06) - - - - - - - - - - - - (0.64) - - - - - - - - - - - - - -(z) Office Rent - - 4.80 - - - - - - - - - - - - - - - 1.16 - 0.72 - - 0.36 - - - -- - (4.82) - - - - - - - - - - - - - - - - - - - - - - - - -(aa) Miscellaneous Expenses 6.84 - 0.40 - 1.47 - - - - - - - - 2.74 - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - -(ab) Sales Commission - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - (0.26) - - - - - (0.94) - - - - - - - - - - - - - - - -(ag) Purchase of Investment - - - - - - - - - - - - - - - - - - - - - - - - - 48.77 - 32.90- - - - - - - - (122.25) - - - - - - - - - - - - (3.77) - - (76.12) - - -* V.G.Raghavan (VGR) -Key management Personnel in Previous YearNote : Previous year’s figures are mentioned in the brackets below the current years figures.28

8. Employee Benefit(i) Defined benefit planThe Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity ondeparture at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with an insurance companyin the form of a qualifying insurance policy.The following tables summarise the components of net benefit expense recognised in the profit and loss account and the funded statusand amounts recognised in the balance sheet for the respective plans.Year Ended31st March, 2008Rs. CroresProfit and Loss accountNet employee benefit expense (recognised in Employee Cost)Current Service Cost 2.64Interest Cost 0.76Expected Return on Plan Assets (0.63)Net Actuarial (gain)/loss recognised in the year 2.14Expenses Recognised in the Income Statement 4.91Actual return on Plan Assets 0.54Balance SheetDetails of provision for GratuityPresent Value of Obligation (A) 14.23Fair value of Plan Assets (B) (10.78)Liability Recognised in Balance Sheet 3.45(A) Changes in the present value of the defined benefit obligation are as follows:Projected Benefit Obligations (PBO) at the beginning of the year 10.21Interest Cost 0.76Service Cost 2.64Benefits paid (1.42)Actuarial (gain)/loss on obligations 2.04PBO at the end of the year 14.23(B) Changes in the fair value of plan assets are as follows:Fair Value of Plan Assets at the beginning of the year 5.51Expected Return on Plan Assets 0.63Contributions/Transfers 6.16Benefits paid (1.42)Gain / (loss) on Plan Assets (0.10)Fair Value of Plan Assets at the end of the year 10.78Investment details of plan assets100% of the plan assets are with Insurance company.AssumptionsDiscount Rate 8.00%Rate of Return on Plan 8.00%Mortality LIC (1994-96)UltimateThe estimates of future salary increases, considered in actuarial valuation, take into account inflation, seniority, promotion and otherrelevant factors such as supply and demand factors in the employment market.This being first year in which the Company has adopted Accounting Standard 15 (Revised) on Employee Benefit, figures for theprevious year are not available and hence not disclosed above.(ii) Salaries, wages and bonus in Schedule 17 includes Leave encashment of Rs. 2.97 Crores (Previous Year Rs. 2.72 Crores)The Company has made provision of Rs. 0.14 crore for long term service award on the basis of average expense incurred in the pastyears.29

Essar Steel Limited9. Earnings per share has been calculated as under:Year Ended31st March, 2008Year Ended31st March, 2007Net Profit as per Profit & Loss Account Rs. Crores 428.62 Rs. Crores 436.49Less: Dividend on preference shares for the year (includingdividend distribution tax) Rs. Crores 5.34 Rs. Crores 5.34Net Earning for the purpose of basic and diluted earning pershares Rs. Crores 423.28 Rs. Crores 431.15Number of shares outstanding at the beginning of the year 1,139,810,888 580,497,248Number of shares issued during the Year – 559,313,640Number of shares at the end of the Year 1,139,810,888 1,139,810,888Weighted average number of shares for the purpose ofcalculating earning per share 1,139,810,888 985,041,908Earning per shareBasic earning per Equity share of Rs. 10 each (in Rupees) 3.71 4.38Diluted earning per Equity share of Rs. 10 each (in Rupees) 3.71 4.3810. Derivative Instruments and Unhedged Foreign Currency Exposure(A) Derivative InstrumentsSI No Type of Transaction AmountAmount Currency Purpose31st March 2008 31st March 20071 Coupon Only Swaps (USD/ INR) – 375,000,000 USD To reduce the interest cost onLong Term Rupee Term loan2 Rupee Indexed Interest Rate 2,000,000,000 10,000,000,000 INR To reduce the interest cost onSwaps (Overnight Index Swap)Long Term Rupee Term loan3 Cross Currency Swaps (USD/CHF)30,000,000 20,000,000 USD To reduce the interest cost onForeign Currency Loans.4 Cross Currency Swaps (USD/JPY)10,000,000 – USD To reduce the interest cost onForeign Currency Loans.5 Currency Swap (INR/JPY) – 1,255,160,551 JPY To reduce the interest cost onForeign Currency Loans.6 Interest Rate Swap 85,000,000 120,000,000 USD To reduce the interest cost onForeign Currency Loans.7 Currency Options (USD/INR) 188,000,000 20,000,000 USD To hedge exports8 Foreign Currency Options 272,120,000 49,540,000 USD To hedge exports9 USD Forward sale contracts 68,679,311 – USD To hedge exports10 EURO Forward sale contracts 61,647,138 – EURO To hedge exports11 USD Forward purchase contracts 64,021,638 – USD To hedge loans12 Foreign Currency Options 153,000,000 – USD To hedge Imports(B) Unhedged Foreign Currency ExposureSI No Particulars AmountAmount Currency31st March 2008 31st March 20071 Sundry Creditors 6,030 24,673 CHF10,594,850 12,204,566 EURO483,414 147,727 GBP9,145,350 11,523,088 JPY3,400,000 3,406,913 SEK20,230,290 15,967,420 USD1,251,571 – NOK87,056 – AED89,850 – AUD2,996 – CAD2 Buyer’s Credit 460,461 – CHF12,349,796 – EURO803,934 – GBP8,457,385 – USD3 Foreign Currency Loans 10,200,000 – USD23,723,200 31,666,873 EURO280,970,453 388,858,628 USD4 Sundry Debtors 14,208,945 10,339,230 USD12,500,680 7,352,862 EURO– 960 AED30

11. (a) Investments (Others - Quoted) include 2,10,400 Equity Shares of Rs. 10 each of Essar Oil Limited (EOL) amounting to Rs. 0.90 Crores,pledged with ICICI Bank Limited as collateral to various loans granted by ICICI Bank Limited to EOL.(b) Investment (Trade – Unquoted) include 21,70,00,000 fully paid Equity Shares of Rs. 10 each of Essar Power Limited (EPOL) amountingto Rs. 217.00 Crores, in respect of which the Company has executed a Non-Disposal Undertaking in favour of IDBI TrusteeshipServices Limited, as trustee, for various financial facilities availed by Essar Steel Holding Limited (ESHL) and Essar Global Limited(EGL) from ICICI Bank Limited pursuant to the respective facility agreements.Also, the Company has entered into a shareholder’s agreement with Essar Power Holdings Limited (EPHL) pursuant to which theCompany has agreed to sell all or some of the shares held by it in EPOL to a third party buyer, such number of shares held by it, as maybe specified by EPHL to such third party buyer (the “Drag Along Right”).(c) Investment (Trade – Unquoted) include 9,65,00,000 fully paid Equity Shares of Rs. 10 each of Bhander Power Limited amounting toRs. 100.19 Crores and 49,940 fully paid Equity Shares of Rs. 10 each of Essar Steel (Orissa) Limited amounting to Rs. 0.05 Crores, inrespect of which the Company has executed negative lien undertakings, for various financial facilities availed by ESHL and EGL fromICICI Bank Limited pursuant to the respective facility agreements.12. Loans and Advances include due from directors / officers Rs. 25,80,188 (Previous year Rs. 50,000). Maximum amount due from directors /officers during the year Rs. 39,08,813 (Previous year Rs. 849,779).UnitYear Ended31st March 2008Year Ended31st March 200713. Capacity and Production Quantity Quantity(a) CapacityLicensed Capacity * *Installed Capacity (as certified by the management) per annumIron Ore Pellet MT 8,000,000 8,000,000Hot Briquette Iron Plant MT 5,000,000 5,000,000Hot Rolled Coils Plant MT 3,600,000 3,600,000Cold Rolled Coils Plant MT 1,400,000 1,200,000(b) ProductionIron Ore Pellet MT 5,363,395 4,509,745Hot Briquette Iron MT 4,179,304 3,590,302Hot Rolled Coils MT 3,368,764 2,951,578(c) Captive ConsumptionIron Ore Pellet MT 4,818,914 3,401,007Change in WIP Iron Ore Pellet-Increase/(Decrease) MT (175,631) 934,752Hot Briquette Iron MT 4,010,108 3,483,546Hot Rolled Coils MT 48,118 41,894Change in WIP Coils-Increase/(Decrease) MT (8,728) 22,496* Not applicable in terms of Government of India’s Notification No. S.O.477(E) dated 25th July, 1991.14. Sales, Opening Stock and Closing StockUnitYear Ended31st March 2008Year Ended31st March 2007Quantity Rs. Crores Quantity Rs. Crores(a) SalesIron Ore pellet MT 720,112 324.83 224,624 86.82Hot Briquette Iron MT 75,193 59.38 88,842 43.66Coils/Sheets/Cold Rolled Coil# MT 3,365,980 10,966.98 2,802,126 8,589.82Others # 559.47 280.1611,910.66 9,000.46# Includes export benefits 128.11 72.91(b) Opening StockIron Ore pellet MT – – 50,638 13.04Hot Briquette Iron MT 52,330 45.04 34,416 23.84Coils/Sheet/Cold Rolled Coil MT 178,262 481.00 93,200 201.80Other MT 6,030 1.06 – –(c) Closing Stock527.10 238.69Iron Ore pellet MT – – – –Hot Briquette Iron MT 146,333 62.38 52,330 45.04Coils/Sheet/Cold Rolled Coil MT 141,656 412.60 178,262 481.00Other MT 6,309 1.11 6,030 1.06476.09 527.1031

Essar Steel Limited15. Consumption of Raw MaterialsUnitYear Ended31st March 2008Year Ended31st March 2007Quantity Rs. Crores Quantity Rs. CroresFines/pellet MT 7,278,216 1,747.46 6,063,128 1,314.67Iron Ore MT 1,164,876 556.54 1,365,007 560.17Cast Slabs MT 78 1.49 118,595 244.61Zinc MT 6,365 97.34 10,251 192.22Cost of fines sold – 89.36Others 217.24 152.712,620.07 2,553.74Year Ended31st March 2008Year Ended31st March 2007% of total Rs. Crores % of total Rs. CroresImported (including purchased from canalising agency) 12 312.94 17 445.12Indigenous 88 2,307.13 83 2,108.62100 2,620.07 100 2,553.7416 Consumption of Production Consumables, Stores and SparesImported 27 360.76 51 527.01Indigenous 73 959.02 49 513.93100 1,319.78 100 1,040.9417. Directors’ RemunerationYear Ended31st March 2008Rs. CroresYear Ended31st March 2007Rs. CroresSalary and Allowances 2.46 2.21Contribution to Provident Fund 0.14 0.17Other Perquisites* 0.13 0.142.73 2.52* The perquisites value is calculated based on the provisions of the Income Tax Act, 1961.Note: As the future liability for gratuity and leave encashment is provided on an actuarial basis for the Company as a whole, the amountpertaining to the directors is not ascertainable and, therefore, not included above.18. Auditors’ Remuneration (excluding service tax)Audit Fees 1.02 1.15Other Services 0.59 0.02Reimbursement of Expenses 0.06 0.061.67 1.2332

19. Value of Imports calculated on CIF basis(including purchases from canalising agency)Year Ended31st March 2008Rs. CroresYear Ended31st March 2007Rs. CroresRaw Materials 145.36 332.78Production Consumables, Stores and Spares 706.72 512.77Capital Goods 196.56 258.3020. Net dividend remitted in foreign currency0.01% Cumulative Redeemable Preference sharesPeriod to which it relates From 1st April, 2005 to30th September, 2007 –Number of non-resident shareholders 270 –Number of preference shares on which dividendremitted 119,499,243 –Amount remitted (USD) 91,171 –21. Expenditure in Foreign Currency (on accrual basis)Interest 162.93 209.63Commission 38.46 188.41Professional Fees 17.91 16.20Others 37.16 41.1622. Earning in Foreign Currency(a) FOB Value of ExportsDirect Export 2,970.10 2,915.45(b) OthersFreight recovered 252.72 190.38Others 2.25 2.60As at31st March 2008Rs. CroresAs at31st March 2007Rs. Crores23 Capital Work-in-Progress including expenditure during construction period(a) Buildings 75.64 59.82(b) Plant and Machinery including technical know-how, supervision and othercapital expenditure 310.78 728.31(c) Advances to suppliers for capital expenditure 155.84 217.13(d) Expenditure during construction period*Personnel ExpensesSalaries, Wages and Bonus 1.25 16.61Contribution to Provident Fund and Other Funds 0.13 2.16Staff Welfare Expenses 0.21 2.92Manufacturing and Asset MaintenancePower Charges — 29.45Repair & Maintenance — 4.13Administrative ExpensesTraveling and Conveyance Expenses 1.10 7.1833

Essar Steel LimitedAs at31st March 2008Rs. CroresAs at31st March 2007Rs. CroresPrinting and Stationery 0.09 0.76Professional Fees 0.93 21.38Operating Lease Rent 0.15 0.91Rates and Taxes 0.25 1.12Vehicle Hire and Maintenance Charges 0.24 2.53Miscellaneous Expenses 0.62 4.05Service charges — 0.01Finance CostTerm Loan Interest 25.79 141.75Debentures — 7.98Capex LC Charges — 1.94Bank Guarantee and Other Charges — 19.29Forward cover cancellation (gain)/loss — 17.8831.14 284.54Add: Balance brought forward from previous Year 102.52 157.99133.66 442.53Less: Allocated/transferred during the Year 100.80 340.01Balance carried forward to next year 32.86 102.52Total Capital Work-in-Progress [(a)+(b)+(c)+(d)] 575.12 1,107.78* The expenditure debited to Profit and Loss Account are net of above expenditure during construction period.24. Long term advances from customer are secured by a guarantee from financial Institutions which has a charge on the company’s assets.25. (a) The Company has redeemed 20,29,24,832 0.01% Cumulative Redeemable Preference Shares (CRPS) of Rs. 10 each at a premiumof Rs. 2.50 each, during the year.(b) The Company has issued 4,35,98,951 10% CRPS of Rs. 10 each. Each CRPS will be redeemable at par in 12 equal monthlyinstallments commencing from October 01, 2017 to September 01, 2018. The Company shall have option to redeem the CRPS at parin one or more trenches from any or all of the existing holders, anytime after the date of allotment together with arrears of dividend ifany and the Board shall give one month’s notice for any such redemption to the registered holders of the CRPS.26. The Company has initiated the process of identification of suppliers registered under the Micro, Small and Medium Enterprises DevelopmentAct, 2006, by circulating confirmation to all the suppliers. The Company has not received any confirmation from suppliers regarding theirstatus under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, relating to amounts unpaid, if any,as at the year end together with interest paid / payable as required under the said Act have not been given.27. Administrative expenditure for the previous year includes Rs. 14.73 Crores towards reversal of profit on sale of long term investmentrecorded during the year ended 31st March, 2006. The reversal was on account of non completion of the transaction.28. (i) Details of amount due from Sundry Debtors under the same management within the meaning of Section 370(1B):Rs. CroresSr No PartiesAs at31st March, 2008As at31st March, 20071 Essar Construction Limited – 12.432 Essar Logistics Limited – 194.363 Essar Sez Hazira Limited – 10.904 Essar Steel Hazira Limited 21.52 –5 Hazira Plate Limited 3.16 –6 Essar Projects Limited 4.25 –34

(ii)Details of loans and advances given to companies under the same management within the meaning of section 370(1B)Rs. CroresSr. No. PartiesAs at31st March, 2008MaximumAmountoutstandingduring2007-2008As at31st March, 2007MaximumAmountoutstandingduring2006-20071 Hazira Plate Limited 4.41 14.08 11.34 14.082 Essar Steel (Chhattisgarh) Limited 1.91 1.91 0.96 0.963 Essar Oil Limited* — — 42.82 42.824 Essar Shipping Limited* — — 0.61 12.135 Essar Logistics Limited* — — 0.02 0.036 Essar Steel (Hazira) Limited 0.14 21.18 — —7 Essar Projects Limited 4.08 6.05 6.05 9.91* During the financial year 2007-08 the parties are not covered within the meaning of Section 370(1B)29. Margin and term deposits have been pledged with banks as a security for opening Letters of Credit Rs. 131.84 Crores (Previous yearRs. 182.37 Crores) and Buyers Credit Rs. 34.84 Crores (Previous year Rs. 114.58 Crores).30. Provisions Rs. CroresIndirect Tax Matter Other MattersBalance as at 31st March, 2007 19.73 –Additions during the year – 11.40Balance as at 31st March, 2008 19.73 11.40(i)Provision for Indirect Tax MatterEssar SEZ Hazira Limited applied for setting up a Special Economic Zone (SEZ) on 3rd December 2005 and the Zone was notified forsetting up in Hazira on 28th September 2006. Subsequently, Essar Steel Limited ( “the Company”) submitted a Letter of Approval (LOA)for setting up a SEZ Unit (“the Unit”) to manufacture Hot Briquetted Iron (HBI) and Directly Reduced Iron (DRI) to the DevelopmentCommissioner – Kandla on 3rd October 2006. While such application was pending, the said HBI/DRI facility commenced operationson 27th October 2006. The production was used for captive consumption and the said facility was treated as normal domestic tariffarea production, and was subjected to applicable Central Excise regime. The HBI/DRI Unit was approved on 11th January 2007subject to fulfilment of certain conditions. Such conditions were fulfilled on 21st March, 2007. The Unit commenced operating as SEZUnit from this date onwards. The Directorate General of Central Excise Intelligence (DGCEI), Ahmedabad Zonal Unit conductedinvestigations in the matter and has issued a show cause notice dated 7th April, 2008. The Company is in the process of replying tothe show cause notice. The notice states -(a) customs duties to the tune of Rs. 189.93 Crores is payable on clearances by the unit from 27th October 2006 to 11th April 2007(b) cenvat credit availed on capital goods, inputs and input services used in the unit is not available and requires to be reversed bythe Company.The Company had subsequent to 31st March, 2007, paid the applicable customs duty of Rs. 180.73 Crores on clearances upto 11thApril 2007, as if it was a SEZ Unit, though the matter was under discussion with the appropriate Authorities.However, during the year ended on 31st March, 2007 the management ,on its own volition as a matter of abundant caution madea provision of Rs. 19.73 Crores being non cenvatable portion of customs duty paid for the period after the grant of LOA i.e., 11thJanuary 2007 to 20th March 2007.The Company is of the view, based on legal advise, that entire amount paid as above, is refundable and/or cenvatable.35

Essar Steel Limited(ii)Provision for Other MattersProvision for Other Matters represents, expected cost of shifting tails generated during the year at its beneficiation plant at Kirandulfrom its current location to another location. The Provision is recognised based on estimated quantity of tails lying as at balance sheetdate and the estimated cost of shifting tails. The Company expects that this cost will be incurred within two years from balance sheetdate.31 Previous year’s figures have been regrouped where necessary to conform to current year’s classification.As per our report of even dateFor and on behalf of the Board of Directors of Essar Steel LimitedFor S. R. Batliboi & Co. P. S. Ruia Robin BanerjeeChartered Accountants Director Director Financeper Hemal Shah V. G. Raghavan Vikram AminPartner Director Director MarketingMembership No. 42650Narottam B. VyasMumbai, July 7, 2008 Mumbai July 7, 2008 Company Sectretary36

Balance Sheet Abstract and Company’s General Business ProfileI. Registration DetailsRegistration No. 1 3 7 8 7 State Code 0 4Balance Sheet Date 3 1 0 3 0 8Date Month YearII.III.Capital raised during the year (Amount in Rs.Crores)Public IssueRights IssueN I L N I LBonus IssuePrivate Placement (Preferential Allotment)N I L N I LPosition of Mobilisation and Deployment of Funds (Amount in Rs.Crores)Total Liabilities*Total Assets1 0 9 2 2 . 2 1 1 0 9 2 2 . 2 1Sources of FundsPaid-up CapitalReserves & Surplus1 1 8 4 . 0 8 3 4 4 7 . 2 5Secured LoansUnsecured Loans5 3 8 3 . 1 1 7 3 3 . 4 7* Total liabilities includes Long term advance from customer Rs. 144.56 Crores & Deffered tax liabilities Rs. 29.74 Crores.Application of FundsNet Fixed AssetsInvestments9 8 4 9 . 0 1 5 1 5 . 2 2Net Current AssetsMisc. Expenditure5 5 7 . 9 8 N I LAccumulated LossesN I LIV.Performance of Company (Amount in Rs. Crores)TurnoverTotal Expenditure1 0 7 5 9 . 5 3 9 9 2 8 . 1 5+ - Profit/Loss before tax + - Profit/Loss after taxü 8 3 1 . 3 8 ü 4 2 8 . 6 2(Please tick Appropriate box + for Profit, - for Loss)Earning per Share in Rs. Dividend rate %3 . 7 1 -Item Code No. (ITC Code)2 6 0 1Product DescriptionI R O N O R E S A N D C O N C E N TR A T E S , O T H E R T H A NR O A S T E D I R O N P Y R I T E SItem Code No. (ITC Code)7 2 0 3Product DescriptionF E R R O U S P R O D U C T SO B T A I N E D B Y D I R E C TR E D U C T I O N O F I R O NO R E A N D O T H E R S P O N G YF E R R O U S P R O D U C T S , I NL U M P S , P E L L E T S O RS I M I L A R F O R M SItem Code No. (ITC Code)7 2 0 8Product DescriptionF L A T R O L L E D P R O D U C T SO F I R O N O R N O N A L L O YS T E E L O F A W I D T H O F6 0 0 M M O R M O R E H O TItem Code No. (ITC Code)7 2 1 0Product DescriptionF L A T R O L L E D P R O D U C T SO F I R O N O R N O N A L L O YS T E E L O F A W I D T H O FL E S S T H A N 6 0 0 M M C L A DP L A T E D O R C O A T E D W I T HZ I N CItem Code No. (ITC Code)7 2 1 1Product DescriptionF L A T R O L L E D P R O D U C T SO F I R O N O R N O N A L L O YS T E E L O F A W I D T H O FL E S S T H A N 6 0 0 M M H O TR O L L E D , N O T C L A D ,P L A T E D O R C O A T E DSignatures to Schedules 1 to 23For and on behalf of the BoardP. S. Ruia Robin BanerjeeDirectorDirector FinanceV.G.RaghavanDirectorVikram AminDirector MarketingR O L L E D , N O T C L A D ,P L A T E D O R C O A T E DMumbai, July 7, 2008Narottam B VyasCompany Secretary37

Essar Steel LimitedCash Flow Statement for the year 1st April, 2007 to 31st March, 2008Particulars Year ended31st March, 200838Year ended31st March, 2007Rs. in Crores Rs. in Crores Rs. in Crores Rs. in CroresA. Cash flow from operating activitiesNet Profit before taxation 831.38 683.46Adjustments for -Depreciation 766.52 631.04(Profit)/Loss on sale/write off of fixed assets (net) 1.75 (0.05)(Profit)/Loss on sale/reversal of sale of long term investment including write-off (0.07) 10.66Dividend income (0.37) (0.12)Finance Cost (net) 726.40 617.94Liabilities / Provision no longer required written back (net) (3.81) (7.56)Provision & write off for bad & doubtful debts (net) (0.62) 1.13Prior Period Items - 22.811,489.80 1,275.85Operating profit before working capital changes 2,321.18 1,959.31Movements in working capital:Decrease/(Increase) in sundry debtors 172.55 (144.62)Decrease/(Increase) in inventories 220.66 (843.43)Decrease/(Increase) in loans & advances (3.29) 14.51(Decrease)/Increase in current liabilities (226.22) 1,050.66163.70 77.12Cash generated from operations 2,484.88 2,036.43Direct taxes paid (net of refund) (83.40) (26.34)Net cash from operating activities 2,401.48 2,010.09B. Cash flow from investing activitiesPurchase of fixed assets (629.44) (1,321.25)Proceeds from sale of fixed assets 4.02 0.52Sale of investments of Subsidiaries (100% Equity) - 0.05Sale of investments 425.07 317.26Purchase of investments of Subsidiaries (100% Equity) - (3.82)Purchase of investments (473.82) (474.30)Interest and gain (Loss) on cancellation Forward Exchange Contract 62.44 58.52Dividend income 0.37 -Net cash from/(used for) investing activities (611.36) (1,423.02)C. Cash flow from financing activitiesRedemption of preference share capital (253.65) -Preference Dividend paid (Including Dividend Distribution Tax of Rs. 1.96 crores) (13.46) -Proceeds from borrowings 1,521.34 2,019.47Repayment of borrowings (2,283.65) (1,988.76)Finance cost paid (756.13) (889.35)Repayment of Long Term advances from customer (21.86) (13.02)Repayment of Finance Lease liabilities (16.08) (8.34)Net cash used in financing activities (1,823.49) (880.00)Net increase in cash and cash equivalents (33.37) (292.93)Cash and cash equivalents at the beginning of the year (see Note 3 below) 432.86 725.79Cash and cash equivalents at the end of the year (see Note 3 below) 399.49 432.86Net increase in cash and cash equivalents (33.37) (292.93)Notes:1 The above cash flow statement has been prepared under the ‘Indirect Method’ as set out in the Accounting Standard – 3 on Cash Flow Statements, issued bythe Institute of Chartered Accountants of India.2 Previous year’s figures have been regrouped where necessary to conform to this year’s classification.3 Cash and cash equivalentsCash and cash equivalents consist of cash on hand & balances with banks. Cash and cash equivalents included in the cash flow statementcomprise the following:(Rs in Crores)(Rs in Crores)As atAs at31st March, 2008 31st March, 2007Cash and Cheques on Hand 0.13 0.07Balances with Scheduled Bankson Current Accounts 102.29 43.16on Margin Deposit Accounts 1.04 9.37on Term Deposit Accounts 296.03 380.26399.49 432.86Margin and term deposits aggregating to Rs.166.68 Crores (Previous year - 296.95 crores) have been pledged with banks as a security for opening Letters of Creditand Buyers Credit.As per our report of even dateFor and on behalf of the Board of Directors of Essar Steel LimitedFor S.R. BATLIBOI & CO. P. S. Ruia Robin BanerjeeChartered Accountants Director Director Financeper Hemal Shah V. G. Raghavan Vikram AminPartner Director Director MarketingMembership No. 42650Narottam B VyasMumbai, July 07, 2008 Mumbai, July 07, 2008 Company Secretary

Essar Steel Jharkhand LimitedFormerly known as Essar Steel (Jharkhand) LimitedToThe Members of Essar Steel Jharkhand Limited,Your Directors have pleasure in presenting the Third Annual Report onthe working of the Company together with the Audited Accounts for thefinancial year ended 31st March, 2008.1. OPERATIONSDuring the year under review, the Company has initiated action forsetting up the Steel Plant at Chaibasa in the state of Jharkhand.2. DIRECTORSShri Jatinder Mehra retires by rotation at the ensuing Annual GeneralMeeting and being eligible offer himself for reappointment. The Boardrecommends his reappointment.3. AUDITORSM/s. S.R. Batliboi & Co., Chartered Accountants, Auditors of theCompany retires at the conclusion of Annual General Meeting andbeing eligible offer themselves for re-appointment.4. PERSONNELThere are no employees working on the roll of the Company as requiredby the provisions of section 217(2A) of the Companies Act, 1956 readwith the Company’s (Particulars of Employees) Rules, 1975.5. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION ANDFOREIGN EXCHANGE EARNINGS/OUTGOAs the Company has not undertaken any manufacturing activity duringthe year, additional information on conservation of energy, technologyabsorption and foreign exchange as required to be disclosed in terms ofSection 217(1)(e) of the Companies Act, 1956, read with the Companies(Disclosure of Particulars in the report of the Board of Directors) Rules,1988 is not applicable.6. AUDITORS’ REPORTThere are no qualifications/adverse observations in the Auditors’ Reportrequiring information and explanations u/s 217(3) of the CompaniesAct, 1956. However with regard to delay in payment of tax deducted atToThe Members of Essar Steel Jharkhand Limited1. We have audited the attached Balance Sheet of Essar SteelJharkhand Limited (‘the Company’) as at March 31, 2008 andalso the Profit and Loss account and the cash flow statementfor the year ended on that date annexed thereto. These financialstatements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financialstatements based on our audit.2. We conducted our audit in accordance with auditing standardsgenerally accepted in India. Those Standards require that weplan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.3. As required by the Companies (Auditor’s Report) Order, 2003 (asamended) (‘the order’) issued by the Central Government of Indiain terms of sub-section (4A) of Section 227 of the Companies Act,1956, we enclose in the Annexure a statement on the mattersspecified in paragraphs 4 and 5 of the said Order.4. Further to our comments in the Annexure referred to above, wereport that:i. We have obtained all the information and explanations, whichto the best of our knowledge and belief were necessary forthe purposes of our audit;ii. In our opinion, proper books of account as required by lawhave been kept by the Company so far as appears from ourDIRECTORS’ REPORTAuditors’ Reportsource, Company has taken necessary steps by formulating suitablecontrol / reporting system to ensure timely deposit of statutory dues.7. DIRECTORS’ RESPONSIBILITY STATEMENTPursuant to the requirement under section 217(2AA) of the CompaniesAct, 1956, with respect to Directors’ Responsibility Statement, it ishereby confirmed;(i) that in the preparation of the accounts for the financial year ended31st March, 2008 the applicable accounting standards havebeen followed along with proper explanation relating to materialdepartures;(ii) that the Directors have selected such accounting policies andapplied them consistently and made judgments and estimates thatwere reasonable and prudent so as to give a true and fair view ofthe state of affairs of the Company as at 31st March, 2008 underreview;(iii) that the Directors have taken proper and sufficient care for themaintenance of adequate accounting records in accordance withthe provisions of the Companies Act, 1956, for safeguarding theassets of the Company and for preventing and detecting fraudand other irregularities; and(iv) that the Directors have prepared the accounts for the financialyear ended 31st March, 2008 on a ‘going concern’ basis.8. SUBSIDIARY COMPANYDuring the year under review your Company continues to be thesubsidiary of Essar Steel Limited.9. ACKNOWLEDGEMENTYour directors wish to place on record their appreciation for the variousdepartments of Central and State Governments and its bankers for theircooperation and support.For and on behalf of the Board of Directors(V.G. Raghavan) (N. B. Vyas)DirectorDirectorPlace MumbaiDate : August 27, 2008examination of those books;iii. The balance sheet, profit and loss account and cash flowstatement dealt with by this report are in agreement with thebooks of account;iv. In our opinion, the balance sheet, profit and loss accountand cash flow statement dealt with by this report comply withthe accounting standards referred to in sub-section (3C) ofSection 211 of the Companies Act, 1956.v. On the basis of the written representations received fromthe directors, as on March 31, 2008, and taken on record bythe Board of Directors, we report that none of the directors isdisqualified as on March 31, 2008 from being appointed asa director in terms of clause (g) of sub-section (1) of Section274 of the Companies Act, 1956.vi. In our opinion and to the best of our information andaccording to the explanations given to us, the said accountsgive the information required by the Companies Act, 1956,in the manner so required and give a true and fair view inconformity with the accounting principles generally acceptedin India;a) in the case of the balance sheet, of the state of affairsof the Company as at March 31, 2008;b) in the case of the profit and loss account, of the lossfor the year ended on that date; andc) in the case of cash flow statement, of the cash flowsfor the year ended on that date.S. R. Batliboi & Co.Chartered AccountantsPartnerPlace: Mumbaiper Hemal ShahDate: August 27, 2008 Membership No.: 4265039

Essar Steel Jharkhand LimitedFormerly known as Essar Steel (Jharkhand) LimitedAnnexure referred to in paragraph 3 of our report of even dateRe.: Essar Steel Jharkhand Limited(i)(ii)The Company does not have any fixed assets, therefore provisionof clause 4(i) are not applicable to the Company.The Company does not have any inventories, therefore theprovisions of clause 4(ii) of the order are not applicable to theCompany.(iii) (a) As informed, the Company has not granted any loans,secured or unsecured to companies, firms or other partiescovered in the register maintained under Section 301 of theCompanies Act, 1956.(iv)(v)(vi)(b)As informed, the Company has not taken any loans,secured or unsecured from companies, firms or other partiescovered in the register maintained under Section 301 of theCompanies Act, 1956.According to the information and explanation given to us, noactivites have been undertaken during the year which pertainsto purchase of fixed assets, inventories and sale of goods orservices, therefore provision of clause 4 (iv) is not applicable tothe Company.According to the information and explanations provided by themanagement, there are no contracts or arrangements referred toin Section 301 of the Companies Act, 1956 that need to be enteredin the register required to be maintained under that section.The Company has not accepted any deposits from the public.(vii) The provisions relating to internal audit are not applicable to theCompany.(viii) According to the information and explanations given to us, theCompany’s project is at start up stage of construction and theCompany has not commenced commercial production. Hencemaintenance of cost records is not applicable during the yearunder audit.(ix) (a) Undisputed statutory dues including income-tax and cesshave not been regularly deposited with the appropriateauthorities and there have been considerable delay in largenumber of cases in case of payment of tax deducted atsource and cess.(x)(b)(c)According to the information and explanations given to us,no undisputed amounts payable in respect of income tax andcess and other undisputed statutory dues were outstanding,at the year end, for a period of more than six months fromthe date they became payable.According to the information and explanation given to us,there are no dues of income tax and cess which have notbeen deposited on account of any dispute.The Company has been registered for a period of less than fiveyears and hence we are not required to comment on whether or(xi)not the accumulated losses at the end of the financial year is fiftyper cent or more of its net worth and whether it has incurred cashlosses during the financial year and in the immediately precedingfinancial year.The Company has no outstanding dues in respect of a financialinstitution, bank or debenture holders.(xii) According to the information and explanations given to us andbased on the documents and records produced to us, theCompany has not granted loans and advances on the basisof security by way of pledge of shares, debentures and othersecurities.(xiii) In our opinion, the Company is not a chit fund or a nidhi / mutualbenefit fund / society. Therefore, the provisions of clause 4(xiii)of the order are not applicable to the Company.(xiv) In our opinion, the Company is not dealing in or trading in shares,securities, debentures and other investments. Accordingly, theprovisions of clause 4(xiv) of the order are not applicable to theCompany.(xv) According to the information and explanations given to us, theCompany has not given any guarantee for loans taken by othersfrom bank or financial institutions.(xvi) The Company did not have any term loans outstanding duringthe year.(xvii) According to the information and explanations given to us and onan overall examination of the balance sheet of the Company, wereport that no funds raised on short-term basis have been usedfor long-term investment.(xviii) The Company has not made any preferential allotment of sharesto parties or companies covered in the register maintained underSection 301 of the Companies Act, 1956.(xix) The Company did not have any outstanding debentures duringthe year.(xx) The Company has not raised money by way of public issues.(xxi) Based upon the audit procedures performed for the purpose ofreporting the true and fair view of the financial statements and asper the information and explanations given by the management,we report that no fraud on or by the Company has been noticedor reported during the course of our audit.S. R. Batliboi & Co.Chartered Accountantsper Hemal ShahPlace: MumbaiPartnerDate: August 27, 2008 Membership No.: 4265040

Balance Sheet as at 31st March, 2008As at31st March, 2008As at31st March, 2007ScheduleIn Rs.In Rs.SOURCES OF FUNDSShareholders’ FundsShare Capital 1 500,000 500,000Share Application Money 3,400,000 3,400,000Total 3,900,000 3,900,000APPLICATION OF FUNDSCapital Work in Progress 2 14,464,491 10,515,697(Including Capital Advance)Current Assets, Loans and AdvancesCash and bank balances 3 547,178 639,466Loans and advances 4 231,705 36,574Sub-Total (a) 778,883 676,040Less: Current Liabilities and ProvisionsCurrent liabilities 5 11,784,429 7,606,966Sub-Total (b) 11,784,429 7,606,966Net Current Assets (a - b) (11,005,546) (6,930,926)Profit and Loss Account 441,055 315,229Total 3,900,000 3,900,000Notes to Accounts 6The Schedules referred to above and notes to accounts form an integral part of the Balance Sheet.As per our report of even dateS.R. Batliboi & Co.For and on behalf of Board of DirectorsChartered AccountantsEssar Steel Jharkhand Limitedper Hemal Shah V. G. Raghavan N. B. VyasPartner Director DirectorMembership No. 42650Place:MumbaiPlace: MumbaiDate: August 27, 2008 Date: August 27, 2008Profit and Loss Account for the year ended 31st March, 2008ScheduleYear ended31st March, 2008Year ended31st March, 2007In Rs.In Rs.INCOMEIncome - -Total - -EXPENDITUREBank Charges 5,604 4,993Legal and Professional Charges (Refer Note H of Schedule 6) 120,222 114,240Total 125,826 119,233NET LOSS FOR THE YEAR 125,826 119,233Balance as per last Balance Sheet brought forward 315,229 195,996BALANCE LOSS CARRIED FORWARD TO BALANCE SHEET 441,055 315,229Earnings Per Share (Basic and Diluted ) Nominal Value of Rs. 10/- each (2.52) (2.38)(Refer Note G of Schedule 6)Notes to Accounts 6The Schedule referred to above and notes to accounts form an integral part of the Profit & Loss Account.As per our report of even dateS.R. Batliboi & Co.For and on behalf of Board of DirectorsChartered AccountantsEssar Steel Jharkhand Limitedper Hemal Shah V. G. Raghavan N. B. VyasPartner Director DirectorMembership No. 42650Place:MumbaiPlace:MumbaiDate: August 27, 2008 Date: August 27, 200841

Essar Steel Jharkhand LimitedFormerly known as Essar Steel (Jharkhand) LimitedSchedules forming part of the Balance SheetAs at31st March, 2008As at31st March, 2007In Rs.In Rs.Schedule 1 : Share capitalAuthorised10,00,000 (Previous period : 10,00,000) equity shares of Rs.10/- each 10,000,000 10,000,000Issued, Subscribed and Paid Up50,000 (Previous period : 50,000) equity shares of Rs. 10/- each fully paid 500,000 500,000Entire share capital is held by M/s Essar Steel Limited,the holding company together with its nominees.Schedule 2: Capital Work in ProgressCapital Advance for Land Acquisition [A] 2,120,650 2,120,650Pre-Operative Expenditure (Pending Allocation) :-Rent (net) (Refer note F of Schedule 6) 702,000 680,670Power and Fuel 219,746 154,952Communication Expenses 170,666 103,810Project Promotion Expenses 633,844 350,913Travelling and Conveyance 621,699 408,747Postage and Telegram 14,506 7,671Printing and Stationary 83,224 68,083Legal and Professional Expenses 584,668 6,089,675Office Expenses 690,707 502,048Fringe Benefit Tax 74,051 23,461Miscellaneous Expenses 153,683 5,0173,948,794 8,395,047Add: Balance brought forward from previous year 8,395,047 -[B] 12,343,841 8,395,047Total Capital Work in Progress [A]+[B] 14,464,491 10,515,697Schedule 3: Cash and Bank BalancesCash on hand 7,172 14,508Balances with scheduled banks:On current accounts 540,006 624,958547,178 639,466Schedule 4: Loans and Advances(Unsecured, considered good unless otherwise stated)Advace Tax (TDS) 164,701 22,889Prepaid Expenses 5,375 -Amount due from Essar Oil Limited [Maximum amount outstanding duringthe year of Rs. 50,851/- (Previous year Rs. 13,685/-] 50,851 13,685Amount due from Essar Steel Chhattisgarh Limited [Maximum amountoutstanding during the year of Rs. 10,778/- (Previous year Rs. Nil] 10,778 -231,705 36,574Schedule 5: Current LiabilitiesSundry CreditorsDues to Micro, Small & Medium enterprises (Refer note D of Schedule 6) - -Due to Others 5,257,552 5,474,146Advance from Customers 6,200,000 2,000,000Other Liabilities 326,877 132,82011,784,429 7,606,96642

SCHEDULE 6 - NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2008A. Background and Nature of OperationsThe Company was incorporated on June 17, 2005 as Essar Steel(Jharkhand) Limited. On July 26, 2006 the Company’s name has beenchanged to Essar Steel Jharkhand Limited. The Company is in processof setting a steel plant in the Chaibasa district of Jharkhand.B. Significant Accounting Policiesa. Basis of preparationThe financial statements have been prepared to comply inall material respects with the notified Accounting Standardsby the Companies Accounting Standard Rules, 2006 andthe relevant provisions of the Companies Act, 1956. Thefinancial statements have been prepared under the historicalcost convention on an accrual basis except in case of assetsfor which provision for impairment is made and revaluation iscarried out. The accounting policies have been consistentlyapplied by the Company and are consistent with those usedin the previous year.b. Use of EstimatesThe preparation of financial statements in conformitywith generally accepted accounting principles requiresmanagement to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosureof contingent liabilities at the date of the financial statementsand the results of operations during the reporting period end.Although these estimates are based upon management’sbest knowledge of current events and actions, actual resultscould differ from these estimates.c. Expenditure during Construction PeriodAll Cost including finance cost till commencement ofcommercial production is capitalized. Indirect expenditureincurred during construction period is capitalized as partof the indirect construction cost to the extent to which theexpenditure is indirectly related to construction or is incidentalthereto. Other indirect expenditure incurred during theconstruction period which are not related to the constructionactivity nor is incidental thereto is charged to the Profit andLoss Account. Income earned from deposits earmarkedagainst financing facilities during construction period isdeducted from the total of the indirect expenditure.All indirect expenses relating to project incurred uptocommencement of commercial production are classified asPre operative Expenditure and disclosed under Schedule2 – Pre-operative expenditure (net of income earned duringproject development stage).d. Operating LeaseLeases where the lessor effectively retains substantially allthe risks and benefits of ownership of the leased term, areclassified as operating leases. Operating lease payments arerecognized on a straight-line basis over the lease term.e. Earning Per ShareBasic earning per share is calculated by dividing the net profitor loss for the period attributable to equity shareholders bythe weighted average numbers of equity shares outstandingduring the period.For the purpose of calculating diluted earnings per share,the net profit or loss for the period attributable to equityshareholders and the weighted average number of sharesoutstanding during the period are adjusted for the effectsof all dilutive potential equity shares.f. Income taxesTax expense comprises of fringe benefit tax. Fringe benefittax is measured at the amount expected to be paid to the taxauthorities in accordance with the Indian Income Tax Act.Deferred tax is measured based on the tax rates and thetax laws enacted or substantively enacted at the balancesheet date. Deferred tax assets are recognised only to theextent that there is reasonable certainty that sufficient futuretaxable income will be available against which such deferredtax assets can be realized. In situations where the Companyhas unabsorbed depreciation or carry forward tax losses,all deferred tax assets are recognised only if there is virtualcertainty supported by convincing evidence that they canbe realized against future taxable profits.g. ProvisionsA provision is recognized when an enterprise has a presentobligation as a result of past event; it is probable that anoutflow of resources will be required to settle the obligation,in respect of which a reliable estimate can be made.Provisions are not discounted to its present value and aredetermined based on best estimate required to settle theobligation at the balance sheet date. These are reviewed ateach balance sheet date and adjusted to reflect the currentbest estimates.h. Segment ReportingThe Company’s activities during the year revolve aroundsetting up of the project (Refer Note C below). Consideringthe nature of Company’s business and operations, there areno reportable segments (business and/or geographical) inaccordance with the requirements of Accounting Standard17 – ‘Segment Reporting’, issued by the Institute ofChartered Accountants of India (ICAI).Other NotesC. The Company is in the process of setting up steel plant (project)in the state of Jharkhand. The project is at start up stage ofconstruction and the Company has not commenced revenueoperations. The expenditure incurred directly or indirectly isclassified as Expenditure during Construction Period pendingcapitalization and will be apportioned to the Assets on thecompletion of project.Necessary details as per part II of Schedule VI to the CompaniesAct, 1956 have been disclosed in Schedule 2.Expenditure not directly or indirectly related to the constructionof the project has been charged off to Profit & Loss Account.D. Related Parties:a) Related Party where the control existsa. Holding Company:• Essar Steel Limited (ESTL)• Essar Steel Holdings Ltd. Mauritius the UltimateHolding Companyb. Ultimate Holding Company:• Essar Global Ltd. - Holding Company of Essar SteelHoldings Ltd. (EGL)b) Fellow Subsidiaries:• Essar Steel (Hazira) Limited (ESHL)• Essar Constructions (India) Limited (ECIL)• ETHL Global Capital Limited (EGCL)• Essar Steel Orissa Limited (ESOL)• Essar Steel Chhattisgarh Limited (ESCL)• Essar Steel Trading FZE, Dubai (ESTF)• Hazira Plate Limited (HPLT)• Essar Shipping & Logistics Limited (ESLL)• Essar SEZ Hazira Limited (Essar SEZ)• Essar Telecom Infrastructure Private Limited (ETIPL)• Hazira Pipe Mill Limited (HPML)c) Key Management Personnel:• Mr. J. Mehra, Directord) Individuals Owning, directly or indirectly, an interest in votingpower that gives them control or significant influence –• Mr. Shashi Ruia• Mr. Ravi Ruia• Mr. Prashant Ruia• Mr. Anshuman Ruia• Mr. Rewant Ruia43

Essar Steel Jharkhand LimitedFormerly known as Essar Steel (Jharkhand) Limitede) Enterprises commonly controlled or influenced by major shareholders/directors/ key managerial personnel of the company (to the extentof transactions entered)• Essar Power (Jharkhand) Limited (EPJL)• Essar Investments Limited (EIL)• Essar Oil Limited (EOL)During the year following transactions were carried out with the related party in the ordinary course of business:Nature of TransactionsNameofPartyHoldingCompanyFellowSubsidiaries(In Rs.)Enterprises commonly controlled orinfluenced by major shareholders/directors/ key managerialpersonnel of the companyRecovery of Rent on property sublet and share in common expenses EOL - - 352,138EOL - - (105,000)EPJL - - 346,844EPJL - - (-)Professional Services ECIL - - -ECIL - (1,683,600) -Expenses incurred by Company on their behalf (recoverable) ESCL - 10,778 -ESCL - - -Short Term Advances received ESCL - - -ESCL - (1,000,000) -Advance towards supply of materials ESTL 4,200,000 - -ESTL (1,950,000) - -Share Application Money received EIL - - -EIL - - (3,400,000)Expenses incurred or advances made on behalf of the Company. ESTL - - -ESTL (5,117,601) - -EIL - - -EIL - - (3,183)Figures in brackets represents previous period(In Rs.)Closing Balance of the Party As at 31st March, 2008 As at 31st March, 2007EIL (1,89,951) (1,89,951)ESTL (1,12,67,601) (70,67,601)EOL 50,851 13,685ESCL 10,778 -Figures in brackets represent amount payable.E. The Company has initiated the process of identification of suppliersregistered under the Micro, Small and Medium EnterprisesDevelopment Act, 2006, by obtaining confirmation from all thesuppliers. Based on current information/confirmations availablewith the company, there are no suppliers who are registered underthe relevant act as at March 31, 2008.F. Lease Rentals:Operating leaseOffice premises are obtained on operating lease. Lease rent ispayable as per the lease term. The company has entered into twolease agreements during the current year:a) Office premises at Ranchi with a lease term of 60 monthsrenewable for a further period of 60 months at the optionof the company. The lease rent has an escalation of 15%in the fourth year and an additional 5% in the fifth year.The company can sublease the property only to its sisterconcerns. The Office has been sub-let to Essar Oil Limitedand Essar Power (Jharkhand) Limited on an operating leasebasis. This sub-lease is agreed as per the terms of agreemententered with lessor. During the year the company has paidlease rent of Rs.13,20,000 and recovered Rs. 6,60,000 inequal proportion from Essar Oil Limited and Essar Power(Jharkhand) Limited. This lease rent expense is capitalizedas expenditure incurred during the construction period.b) Office-cum-Guest House at Chaibasa for a period of 36months with no escalation in the rent during the term oflease. This property can neither be sublet nor improvedupon by the company. During the year the company haspaid lease rent of Rs.42,000 to the lessor.G. Earnings Per shareParticularsNet Loss as per Profit & Loss Account for thepurpose of calculating basic & diluted earningsper shareYear Ended Year Ended31st March, 2008 31st March, 2007Rs. 125,826 119,233Number of equity shares outstanding at the Nos. 50,000 50,000beginning of the year / periodNumber of equity shares issued during the Nos. - -year / periodNumber of Equity shares at the end of the Nos. 50,000 50,000year / periodWeighted Average Number of shares outstanding at the Nos. 50,000 50,000end of the year / periodEarnings Per Share of Rs. 10 each - Basic Rs. (2.52) (2.38)& DilutedH. Legal and Professional Fees:Legal and Professional fees comprises of Auditors Remuneration whichconsist of the Statutory Audit fees(In Rs.)Particulars Year Ended 31st March, 2008 Year Ended 31st March, 2008Statutory Audit Fees * 100,000 100,000Out of Pocket Expenses 6,862 -Total 106,862 100,000* exclusive of service tax.I. Previous year’s figures have been regrouped whereever necessaryto conform to this year’s clas sification.As per our report of even dateS.R. Batliboi & Co.For and on behalf of Board of DirectorsChartered AccountantsEssar Steel Jharkhand Limitedper Hemal Shah V. G. Raghavan N. B. VyasPartner Director DirectorMembership No. 42650Place:MumbaiPlace:MumbaiDate: August 27, 2008 Date: August 27, 200844

Additional Information as required under Part-IV of Schedule 6 to the Companies Act, 1956Balance Sheet Abstract and Company’s General Business Profile:1. Registration Details:Registration No. U 2 7 1 0 0 G J 2 0 0 5 P L C 0 4 6 2 7 2State Code 0 4Balance Sheet Date 3 1 . 0 3 . 2 0 0 8II. Capital Raised during the Year: (Amount in ‘000 Rs.)Public Issue - Private Placement -Right Issue - Share Application Money -III. Position of Mobilization and Deployment of Funds (Amount in ‘000 Rs.)Total Liabilities 3 9 0 0 . 0 0 Total Assets 3 9 0 0 . 0 0Sources of Funds:Paid-up Capital 5 0 0 . 0 0 Advance Share Application 3 4 0 0 . 0 0Reserves & Surplus - Secured Loans -Unsecured Loans -Application of Funds:Net Fixed Assets - Investments -Net Current Assets ( 1 1 0 0 5 . 5 5 ) Expenditure during constructionperiod-pending allocation1 4 4 6 4 . 4 9Profit and Loss Account 4 4 1 . 0 6IV. Performance of Company (Amount in ‘000 Rs.)Turnover N I L Profit Before Tax ( 1 2 5 . 8 3 )Profit After Tax ( 1 2 5 . 8 3 ) Earning Per ShareBasic (Rs.) ( 2 . 5 2 )Diluted (Rs.) -V. Generic Names of Three Principal Products / Services of Company (as per Monetary terms)Product descriptionItem Code No.Billets and Slabs 3 3 0 1Pellets 3 3 0 9For and on behalf of the Board of DirectorsV.G. Raghavan N. B. VyasDirectorDirectorPlace: MumbaiDated: August 27, 200845

Essar Steel Jharkhand LimitedFormerly known as Essar Steel (Jharkhand) LimitedCash Flow Statement for the year ended 31st March, 2008AYear Ended31st March,2008Amount in Rs.Year Ended31st March,2007Amount in Rs.Cash Flow from operating activitiesNet Loss before Tax (125,826) (119,233)Bank Charges 5,604 4,993Operating Cash Loss before working capital changes (120,222) (114,240)Increase in Current Liabilities 120,222 114,240Net Cash Flow from Operating Activities - -BCash Flow from Investing ActivitiesExpenditure during construction period (86,684) (3,266,925)Net Cash Flow from Investing Activities (86,684) (3,266,925)CCash Flow from Financing ActivitiesProceeds from issue of Shares - -Proceeds from Share Application Money - 3,400,000Bank Charges (5,604) (4,993)Net Cash Flow from Financing Activities (5,604) 3,395,007Net increase in Cash and Cash Equivalents (A+B+C) (92,288) 128,082Cash and Cash Equivalents at the begining of the year 639,466 511,384Cash and Cash Equivalents at the closing of the year 547,178 639,466Components of cash and cash equivalents As at31st March,2008As at31st March,2007Cash on Hand 7,172 14,508Balances with scheduled banks:On current accounts 540,006 624,958Notes:1. The above cash flow statement has been prepared under the 'Indirect Method' as setout in the Accouting Standard- 3 on Cash Flow Statements, issued by the Institute ofChartered Accountants of India.2. Previous year's figures have been regrouped / reclassified wherever necessary.547,178 639,466As per our report of even dateS.R. Batliboi & Co. For and on behalf of Board of DirectorsChartered AccountantsPer Hemal Shah V.G. Raghavan N. B. VyasPartner Director DirectorMembership No. 42650Place: Mumbai Place: MumbaiDate: August 27, 2008 Date: August 27, 200846

STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANIESSRNO.PARTICULARSEssar SteelJharkhand Ltd1 The relevant financial year of the subsidiary company ended on The financial yearends on 31.3.20082 Number of Equity Shares in the subsi diary company held by EssarSteel Ltd at the above date49,940 equityshares of Rs. 10eachEssar SteelOrissa Ltd.The financial yearends on 31.3.200849,940 equityshares of Rs. 10each(Amount in Rs.)Essar SteelTrading FZEThe financial yearends on 31.3.2008"1 share of AED3 million each3 Extent of Equity holding by Essar Steel Ltd as at the above date 99.88% 99.88% 100%4 The net aggregate of profits/(losses) of the subsidiary companyfor its financial year so far as it concerns the members of the HoldingCompany.a) Not dealt with in the Holding Company's Accounts:i) For the subsidiary's financial year ended 31st March, 2008 (125,826) (56,56,354) USD 1851197ii) For the previous financial years of the subsidiary companies(315,229) (282,270) USD 1693261since they became the Holding Company's subsidiariesb) Dealt with in the Holding Company's Accounts: nil nil nili) For the subsidiary's financial year ended 31st March, 2008ii) For the previous financial years of the subsidiary companiessince they became the Holding Company's subsidiaries5 Change of interest of Essar Steel Ltd. in the subsidiary companynil nil nilbetween the end of the financial year of subsidiary company and thatof Essar Steel Ltd.6 Material changes between the end of the subsidiary's financialyear and the end of the financial year of Essar Steel Ltd in respect ofsubsidiary's fixed assets, investments, monies lent and borrowed. NA* NA*i) Fixed assets (net additions)ii) Investmentsiii) Money lent by the subsidiaryiv) Money borrowed by the subsidiary company other than formeeting current liabilities (Net)*Since the financial year of the subsidiary companies coincide with the financial year of Essar Steel LtdFor and on behalf of the Board of Directors of Essar Steel LimitedP. S. Ruia Robin BanerjeeDirectorDirector FinanceV. G. Raghavan Vikram AminDirectorDirector MarketingNarottam B VyasMumbai, August 27, 2008Company Secretary45

Essar Steel Orissa LimitedToThe Members of Essar Steel Orissa Limited,Your Directors have pleasure in presenting the Second Annual Reporton the working of the Company together with the Audited Accounts forthe financial year ended 31st March, 2008.1. OPERATIONSDuring the year under review, the Company has commenced theimplemention of the Project in Orissa and the progress was satisfactory.2. DIRECTORSShri V. G. Raghavan retires by rotation at the ensuing Annual GeneralMeeting and being eligible offers himself for re-appointment. The Boardrecommends his reappointment.3. AUDITORSM/s. S.R. Batliboi & Co., Chartered Accountants, Auditors of theCompany retires at the conclusion of Annual General Meeting andbeing eligible offer themselves for re-appointment.4. PERSONNELAs required by the provisions of Section 217(2A) of the CompaniesAct, 1956 read with the Company’s (Particulars of Employees) Rules,1975 as amended the names and other particulars of the employeesare set out in the Annexure to the Directors’ Report. However, as perthe provisions of the Section 217(1) (b)(iv) of the Companies Act, 1956the Report and Accounts are being sent to all shareholders of theCompany exluding the above infomation. Any shareholder interestedin obtaining a copy of the particulars may write to the Company at itsRegistered Office.5. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION ANDFOREIGN EXCHANGE EARNINGS/OUTGOAs the Company has not undertaken any manufacturing activity duringthe period, additional information on conservation of energy, technologyabsorption and foreign exchange as required to be disclosed in terms ofSection 217(1)(e) of the Companies Act, 1956, read with the Companies(Disclosure of Particulars in the report of the Board of Directors) Rules,1988 is not applicable.To,The Members of Essar Steel Orissa Limited1. We have audited the attached Balance Sheet of Essar Steel OrissaLimited (‘the Company’) as at March 31, 2008 and also the Profit andLoss account and the Cash Flow statement for the year ended on thatdate annexed thereto. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.2. We conducted our audit in accordance with auditing standardsgenerally accepted in India. Those Standards require that weplan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.3. As required by the Companies (Auditor’s Report) Order, 2003 (asamended) (‘the order’) issued by the Central Government of Indiain terms of sub-section (4A) of Section 227 of the Companies Act,1956, we enclose in the Annexure a statement on the mattersspecified in paragraphs 4 and 5 of the said Order.4. Further to our comments in the Annexure referred to above, wereport that:i. We have obtained all the information and explanations, whichto the best of our knowledge and belief were necessary forthe purposes of our audit;ii. In our opinion, proper books of account as required by lawhave been kept by the Company so far as appears from ourDIRECTORS’ REPORTAuditors’ Report476. AUDITOR’S REPORTThere are no qualifications/adverse observations in the Auditors’ Reportrequiring information and explanations u/s 217(3) of the CompaniesAct, 1956. However with regard to delay in payment of tax deducted atsource, Company has taken necessary steps by formulating suitablecontrol / reporting system to ensure timely deposit of statutory dues.7. DIRECTORS’ RESPONSIBILITY STATEMENTPursuant to the requirement under Section 217(2AA) of the CompaniesAct, 1956, with respect to Directors’ Responsibility Statement, it ishereby confirmed;(i) that in the preparation of the accounts for the financial year ended 31stMarch, 2008 the applicable accounting standards have been followedalong with proper explanation relating to material departures;(ii) that the Directors have selected such accounting policies and appliedthem consistently and made judgments and estimates that werereasonable and prudent so as to give a true and fair view of the stateof affairs of the Company as at 31st March, 2008 under review;(iii) that the Directors have taken proper and sufficient care for themaintenance of adequate accounting records in accordance withthe provisions of the Companies Act, 1956, for safeguarding theassets of the Company and for preventing and detecting fraud(iv)and other irregularities; andthat the Directors have prepared the accounts for the financialyear ended 31st March, 2008 on a ‘going concern’ basis.8. SUBSIDIARY COMPANYDuring the year under review your Company continues to be thesubsidiary of Essar Steel Limited.9. ACKNOWLEDGEMENTYour Directors wish to place on record their appreciation for the variousdepartments of Central and State Governments and its bankers for theircooperation and support.For and on behalf of the Board of Directors(V.G. Raghavan)DirectorPlace MumbaiDate : August 27, 2008(Manish Kedia)Directorexamination of those books;iii. The balance sheet, profit and loss account and cash flowstatement dealt with by this report are in agreement with thebooks of account;iv. In our opinion, the balance sheet, profit and loss accountand cash flow statement dealt with by this report comply withthe accounting standards referred to in sub-section (3C) ofSection 211 of the Companies Act, 1956.v. On the basis of the written representations received fromthe directors, as on March 31, 2008, and taken on record bythe Board of Directors, we report that none of the directors isdisqualified as on March 31, 2008 from being appointed asa director in terms of clause (g) of sub-section (1) of Section274 of the Companies Act, 1956.vi. In our opinion and to the best of our information and accordingto the explanations given to us, the said accounts give theinformation required by the Companies Act, 1956, in themanner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India;a) in the case of the balance sheet, of the state of affairsof the Company as at March 31, 2008;b) in the case of the profit and loss account, of the lossfor the year ended on that date; andc) in the case of cash flow statement, of the cash flowsfor the year ended on that date.S. R. Batliboi & Co.Chartered Accountantsper Hemal ShahPlace: MumbaiPartnerDate : August 27, 2008 Membership No.: 42650

Essar Steel Orissa LimitedAnnexure referred to in paragraph 3 of our report of even dateRe: Essar Steel Orissa Limited(i) (a) The Company has maintained proper records showing fullparticulars, including quantitative details and situation offixed assets.(ii)(b)(c)Fixed assets have been physically verified by themanagement during the year and no material discrepancieswere identified on such verification.There was no substantial disposal of fixed assets during theyear.The Company does not have any inventories. Therefore theprovisions of clause 4 (ii) of the order are not applicable to theCompany.(iii) (a) As informed, the Company has not granted any loans,secured or unsecured to companies, firms or other partiescovered in the register maintained under Section 301 of theCompanies Act, 1956.(iv)(v)(vi)(b)As informed, the Company has not taken any loans,secured or unsecured from companies, firms or other partiescovered in the register maintained under Section 301 of theCompanies Act, 1956.In our opinion and according to the information and explanationsgiven to us, there is an adequate internal control systemcommensurate with the size of the Company and the nature of itsbusiness, for the purchase of fixed assets. During the course of ouraudit, no major weakness has been noticed in the internal controlsystem in respect of this area. During the year, the Company didnot undertake any activity of purchase of inventory and sale ofgoods.According to the information and explanations provided by themanagement, there are no contracts or arrangements referred toin Section 301 of the Companies Act, 1956 that need to be enteredin the register required to be maintained under that section.The Company has not accepted any deposits from the public.(vii) The provisions relating to internal audit are not applicable to theCompany.(viii) According to the information and explanations given to us, theCompany’s project is at start up stage of construction and theCompany has not commenced commercial production. Hencemaintenance of cost records is not applicable during the yearunder audit.(ix) (a) Undisputed Statutory dues including provident fund, incometax and cess have not been regularly deposited with theappropriate authorities and there have been considerabledelay in large number of cases in payment of tax deductedat source, cess and provident fund.(b)(c)According to the information and explanations given to us,no undisputed amounts payable in respect of provident fund,income-tax, profession tax and cess and other undisputedstatutory dues were outstanding, at the year end, for aperiod of more than six months from the date they becamepayable.According to the information and explanation given to us,there are no dues of income tax and cess which have notbeen deposited on account of any dispute.(x)(xi)(xii)(xiii)(xiv)(xv)(xvi)(xvii)(xviii)(xix)(xx)The Company has been registered for a period of less thanfive years and hence we are not required to comment onwhether or not the accumulated losses at the end of thefinancial year is fifty per cent or more of its net worth andwhether it has incurred cash losses in such financial yearand in the immediately preceding financial year.Based on our audit procedures and as per the informationand explanations given by the management, we are of theopinion that the Company has not defaulted in repaymentof dues to a bank. The Company has no outstanding duesin respect of a financial institution or debentureholders.According to the information and explanations given to usand based on the documents and records produced to us,the Company has not granted loans and advances on thebasis of security by way of pledge of shares, debenturesand other securities.In our opinion, the Company is not a chit fund or a nidhi/ mutual benefit fund / society. Therefore, the provisionsof clause 4(xiii) of the order are not applicable to theCompany.In our opinion, the Company is not dealing in or tradingin shares, securities, debentures and other investments.Accordingly, the provisions of clause 4(xiv) of the order arenot applicable to the Company.According to the information and explanations given to us,the Company has not given any guarantee for loans takenby others from bank or financial institutions.Based on information and explanations given to us by themanagement, term loans were applied for the purpose forwhich the loans were obtained.According to the information and explanations given to usand on an overall examination of the balance sheet of theCompany, we report that no funds raised on short-term basishave been used for long-term investment.The Company has not made any preferential allotmentof shares to parties or companies covered in the registermaintained under Section 301 of the Companies Act,1956.The Company did not have any outstanding debenturesduring the year.The Company has not raised money by way of publicissues.(xxi) Based upon the audit procedures performed for the purposeof reporting the true and fair view of the financial statementsand as per the information and explanations given by themanagement, we report that no fraud on or by the Companyhas been noticed or reported during the course of ouraudit.S. R. Batliboi & Co.Chartered Accountantsper Hemal ShahPlace: MumbaiPartnerDate : August 27, 2008 Membership No.: 4265048

Balance Sheet as at 31st March, 2008ScheduleAs at31st March, 2008As at31st March, 2007In Rs.In Rs.SOURCES OF FUNDSShareholders’ FundsShare Capital 1 847,976,210 500,000Share Application Money 1,213,160,007 203,410,000Loan FundsSecured Loans 2 1,145,624,276 -Total 3,206,760,493 203,910,000APPLICATION OF FUNDSFixed Assets 3Gross Block 127,660,255 72,449,897Less : Accumulated Depreciation 1,221,320 134,178Net Block 126,438,935 72,315,719Capital work in Progress (including Capital Advances) 4 1,683,811,694 285,254,376Current Assets, Loans and AdvancesCash and Bank Balances 5 1,411,538,729 46,155,591Other Current Assets 6 11,013,716 66,021Loans and Advances 7 31,323,175 396,338Sub-Total (a) 1,453,875,620 46,617,950Less: Current Liabilities and ProvisionsCurrent Liabilities 8 62,981,314 199,927,507Provisions 9 333,066 642,808Sub-Total (b) 63,314,380 200,570,315Net Current Assets (a - b) 1,390,561,240 (153,952,366)Profit and Loss Account 5,948,624 292,270Total3,206,760,493 203,910,000Notes to Accounts 10The Schedules referred to above and notes to accounts form an integral part of the Balance Sheet.As per our report of even dateS.R. Batliboi & Co.Chartered AccountantsFor and on behalf of Board of DirectorsEssar Steel Orissa Limitedper Hemal Shah V.G. Raghavan Manish KediaPartner Director DirectorMembership No. 42650Place : MumbaiPlace : MumbaiDate: August 27, 2008 Date: August 27, 2008Profit and Loss Account for the year ended 31st March, 2008ScheduleYear Ended31st March, 200814th June, 2006 to31st March, 2007In Rs.In Rs.INCOMEInterest on Term Deposit with Banks (including interest income of the previous year amounting toRs. 1,501,228) 5,317,333 -Foreign Exchange Gain / (Loss) 1,813,428 -Rent Income 7,675,010 -Total 14,805,771 -EXPENDITURELegal & Professional Charges (Refer Note L of Schedule 10) 136,032 112,240Expenses for increase in Share Capital 15,952,871 -Preliminary Expenses written-off - 180,030Total 16,088,903 292,270LOSS BEFORE TAXATION (1,283,132) (292,270)Less:Provision for Current Tax (including provision for tax of the previous year amounting to Rs. 505,313) 4,373,222 -LOSS AFTER TAXATION (5,656,354) (292,270)Loss Carried Forward from the last year (292,270) -LOSS CARRIED TO BALANCE SHEET (5,948,624) (292,270)Earnings Per Share (Basic and Diluted) Nominal Value of Rs. 10/- eachBasic [nominal value of shares Rs. 10 each (Previous year Rs. 10 each)] (113.13) (5.85)Diluted [nominal value of shares Rs. 10 each (Previous year: Rs.10 each)] (0.62) (5.85)(Refer Note I of Schedule 10)Notes to Accounts 10The details referred to above and notes to accounts form an integral part of the Profit & Loss Account.As per our report of even dateS.R. Batliboi & Co.Chartered AccountantsFor and on behalf of Board of DirectorsEssar Steel Orissa Limitedper Hemal Shah V.G. Raghavan Manish KediaPartner Director DirectorMembership No. 42650Place : MumbaiPlace : MumbaiDate: August 27, 2008 Date: August 27, 200849

Essar Steel Orissa LimitedSchedules forming part of the Balance Sheet as at 31st March, 2008As at31st March, 2008As at31st March, 2007In Rs.In Rs.Schedule 1 : Share capitalAuthorised113,000,000 (Previous period: 1,000,000) equity shares of Rs.10/- each 1,130,000,000 10,000,000100,000,000 (Previous period: Nil) 10% cumulative convertible Preference Shares of Rs. 10/- each 1,000,000,000 -2,130,000,000 10,000,000Issued, Subscribed and Paid-Up50,000 equity shares of Rs. 10/- each fully paid (Previous period: 50,000) 500,000 500,000Entire share capital is held by M/s Essar Steel Limited,the holding company together with its nominees84,747,621 (Previous period: Nil) 10% Cumulative Convertible Preference Shares (CCPS) of Rs. 10/-each fully paid-up issued to Essar Steel Holdings Limited, Mauritius 847,476,210 -(The above 10% CCPS are fully convertible to Equity Shares at par on or after 20th August 2008together with arrears of Dividend, if any)847,976,210 500,000Schedule 2: Secured LoansLetters of Credit 1,145,624,276 -(Secured by Margin Money Deposits and hypothecation of assets)1,145,624,276 -Schedule 3 : Fixed AssetsDescriptionAs at31-Mar-2007Additionsmade duringthe yearGross Block Depreciation / Amortisation Net BlockDeletionsAs at31-Mar-2008As at31-Mar-2007For theyearOnDeletionsAs at31-Mar-2008As at31-Mar-2008(In Rs.)As at31-Mar-2007Land Leasehold -Paradeep29,826,395 15,630,824 - 45,457,219 - 354,595 - 354,595 45,102,624 29,826,395Land Freehold- Joda 42,134,049 11,271,485 - 53,405,534 - - - - 53,405,534 42,134,049Land Freehold-Paradeep- 2,268,081 - 2,268,081 - - - - 2,268,081 -Office Leasehold-Bhubaneswar- 23,208,510 - 23,208,510 - 295,416 - 295,416 22,913,094 -Office Equipments 84,682 584,610 - 669,292 14,107 39,807 - 53,914 615,378 70,575Furniture & Fixtures 326,515 559,065 - 885,580 109,509 80,383 - 189,892 695,688 217,006Motor Vehicles - 1,080,923 - 1,080,923 - 225,513 - 225,513 855,410 -Computers 78,256 606,860 - 685,116 10,562 91,428 - 101,990 583,126 67,694Total 72,449,897 55,210,358 - 127,660,255 134,178 1,087,142 - 1,221,320 126,438,935 72,315,719Previous Year - 72,449,897 - 72,449,897 - 134,178 - 134,178 72,315,719 -As at31st March, 2008As at31st March, 2007In Rs.In Rs.Schedule 4: Capital Work in Progress (including Capital Advances)Capital Work in ProgressPlant & Machinery including Technical know-how & other capital expenditure [A] 274,697,826 -Capital AdvancesAdvance for Land Acquisition 209,357,970 216,098,494Advance for Office Premises - 21,602,264Advance for EPC Contracts 867,899,034 8,500,000[B] 1,077,257,004 246,200,758Pre-operative Expenditure - Pending allocationPersonnel Expenses:Salaries, Wages and Bonus 14,701,158 6,592,547Contribution to provident and other funds 535,352 32,976Gratuity and Leave encashment 457,605 243,587Staff Welfare Expenses 974,484 -16,668,599 6,869,110Project Promotion Expenses 1,889,525 1,178,88850

As at31st March, 2008As at31st March, 2007In Rs.In Rs.Travelling and Conveyance 5,231,268 3,317,049Testing Expenses 1,305,400 2,380,077Freight Charges on testing of Iron Ores 1,061,294 6,037,749Legal, Professional & Consultancy Charges 31,103,227 16,418,631Power and Fuel 327,487 446,901Commuincation Expenses 803,776 444,734Printing and Stationary 657,599 98,912Bank Charges 126,931 98,179Depreciation 1,087,142 134,178Rent 2,018,334 394,600Office Expenses 2,823,588 1,808,898Finance Cost:Interest on Loan 125,417 -Discounting Charges 24,692,741 -Capex L.C. Charges 33,749,780 -Bank Charges, Commission, management fees & others 83,200,243 -141,768,181 -Dredging expenses 95,506,974 -Guest House Expenses 683,527 -Miscellaneous Expenses 1,274,298 421,627304,337,150 40,049,533Add: Transfer Previous year Income to P&L 1,501,228 -Less: Transfer of Provision for Current Tax to P&L (505,313) -Less: Interest received from Scheduled Banks [Gross] (12,529,819) (1,501,228)Add : Provision for Current Tax - 505,313292,803,246 39,053,618Add: Balance brought forward from previous year 39,053,618 -[C] 331,856,864 39,053,618Total Capital Work In Progress [A]+[B]+[C] 1,683,811,694 285,254,376Schedule 5 : Cash and Bank BalancesCash on hand 4,366 115,337Balances with scheduled banks:On current accounts 467,031,463 1,740,254On Term deposit accounts 510,750,000 44,300,000On Margin Money deposit accounts 433,752,900 -1,411,538,729 46,155,591Schedule 6 : Other Current AssetsInterest Accrued on Bank Deposits 11,013,716 66,02111,013,716 66,021Schedule 7 : Loans and Advances(Unsecured, considered good unless otherwise stated)Advances recoverable in cash or in kind or for value to be received 20,429,229 396,338Amount due from Essar Project Management Consultants Limited[Maximum amount outstanding during the year of Rs. 9,700,000 /-(Previous year Nil)] 9,700,000 -Advance Tax - TDS (Net of Provision for Tax) 1,193,946 -31,323,175 396,338Schedule 8 : Current LiabilitiesSundry Creditors:Dues to Micro, Small and Medium Enterprises (Refer Note F of Schedule 10) - -Due to Others 27,440,611 194,253,438Advances from Customers 4,000,000 4,000,000Interest accrued but not due on acceptances and Buyer’s Credit 24,818,158 -Other Liabilities 6,722,545 1,674,06962,981,314 199,927,507Schedule 9 : ProvisionsProvision for Income Tax (Net of Advance Tax Rs.5,061,855) - 399,221Provision for Gratuity (Refer Note K of Schedule 10) 179,734 114,911Provision for Leave Encashment 153,332 128,676333,066 642,80851

Essar Steel Orissa LimitedSCHEDULE 10 - NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2008A. Background and Nature of OperationsThe Company was incorporated on June 14, 2006 as EssarSteel Orissa Limited with Registrar of Companies, Mumbai,Maharashtra. The Company is in process of setting up a SteelPlant in the state of Orissa.B. Significant Accounting Policiesa. Basis for PreparationThe financial statements have been prepared to comply inall material respects with the notified Accounting Standardsby the Companies Accounting Standard Rules, 2006 andthe relevant provisions of the Companies Act, 1956. Thefinancial statements have been prepared under the historicalcost convention on an accrual basis except in case of assetsfor which provision for impairment is made and revaluationis carried out.b. Use of EstimatesThe preparation of financial statements in conformitywith generally accepted accounting principles requiresmanagement to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosureof contingent liabilities at the date of the financial statementsand the results of operations during the reporting period end.Although these estimates are based upon management’sbest knowledge of current events and actions, actual resultscould differ from these estimates.c. Fixed AssetsFixed assets are stated at cost less accumulateddepreciation and impairment losses if any. Cost comprisesof the purchase price and any attributable cost of bringingthe assets to its working condition for its intended use.Borrowing costs relating to acquisition of fixed assets whichtakes substantial period of time to get ready for its intendeduse are also included to the extent they relate to the periodtill such assets are ready to be put to use.d. DepreciationFixed Assets are depreciated at the rates and in the mannerspecified in Schedule XIV of the Companies Act, 1956 onwritten down value method. Depreciation on additions to /deletions from fixed assets is provided on pro-rata basis from/ up to the date of such addition / deletion as the case maybe. Fixed Assets individually costing less than Rs. 5,000are fully depreciated in the year of acquisition.e. Expenditure during Construction PeriodAll Costs including finance cost till commencement ofcommercial production is capitalized. Indirect expenditureincurred during construction period is capitalized as partof the indirect construction cost to the extent to whichthe expenditure is indirectly related to construction or isincidental thereto. Other indirect expenditures incurredduring the construction period which are not related to theconstruction activity nor is incidental thereto is chargedto the Profit and Loss Account. Income earned fromdeposits earmarked against financing facilities duringconstruction period is deducted from the total of the indirectexpenditure.All indirect expenses relating to project incurred uptocommencement of commercial production are classified asPre operative Expenditure and disclosed under Schedule2 – Pre-operative expenditure (net of income earned duringproject development stage).52f. Revenue Recognition on Bank DepositsInterest Income is recognized on a time proportion basis takinginto account the amount outstanding and the rate applicable.g. Foreign Currency Transaction(i) Initial RecognitionForeign currency transactions are recorded in the reportingcurrency, by applying to the foreign currency amount theexchange rate between the reporting currency and theforeign currency at the date of the transaction.(ii) ConversionForeign currency monetary items are reported using theclosing rate. Non-monetary items which are carried interms of historical cost denominated in a foreign currencyare reported using the exchange rate at the date of thetransaction; and non-monetary items which are carried atfair value or other similar valuation denominated in a foreigncurrency are reported using the exchange rates that existedwhen the values were determined.(iii) Exchange DifferencesExchange differences arising on the settlement of monetaryitems or on reporting Company’s monetary items at ratesdifferent from those at which they were initially recordedduring the year, or reported in previous financial statements,are recognized as ‘Preoperative Expenditure’ in the yearin which they arise except those arising from investmentsin non-integral operations. Exchange differences arisingin respect of fixed assets acquired from outside India arecapitalized as a part of fixed asset.h. Earning Per ShareBasic earning per shares are calculated by dividing the net profitor loss for the period attributable to equity shareholders by theweighted average numbers of equity shares outstanding duringthe year.For the purpose of calculating diluted earnings per share, thenet profit or loss for the period attributable to equity shareholdersand the weighted average number of shares outstanding duringthe year are adjusted for the effects of all dilutive potential equityshares.i. Retirement and other employee benefits.(i) Employee Benefits(a) Defined Contribution PlansRetirement benefit in the form of Provident Fund isdefined contribution scheme and the contributionsare charged to the pre operative expenses of theyear when the contributions to the respective fundsare due. There are no other obligations other than thecontribution payable to the respective trusts.(b) Defined Benefit PlansThe Company has for all employees Defined BenefitPlans for post employment benefits in the form ofGratuity. Liability for Defined Benefit Plans is providedon the basis of valuations, as at the balance sheet date,carried out by an independent actuary. The actuarialvaluation method used by independent actuary formeasuring the liability is the Projected Unit Creditmethod. Obligation is measured at the present valueof estimated future cash flows using discounted ratethat is determined by reference to market yields at theBalance Sheet date on Government Securities wherethe currency and terms of the Government Securities

are consistent with the currency and estimated termsof the defined benefit obligation.(c) Other Long-term Employee BenefitAll employees of the company are entitled to otherlong-term benefit in the form of Leave encashmentas per the policy of the Company. Liability for suchbenefit is provided on the basis of valuation, as at thebalance sheet date, carried out by an independentactuary. The actuarial valuation method used by anindependent actuary for measuring the liability is theProjected Unit Credit method(ii) Actuarial gains and losses comprise experience adjustmentsand the effects of changes in actuarial assumptions arerecognised immediately in the Preoperative Expenses/Income as project is in construction phase.j. Income taxesTax expense comprises of current and fringe benefit tax.Current and Fringe benefit tax is measured at the amountexpected to be paid to the tax authorities in accordance withthe Indian Income Tax Act, 1961.Deferred tax is measured based on the tax rates and thetax laws enacted or substantively enacted at the balancesheet date. Deferred tax assets are recognised only to theextent that there is reasonable certainty that sufficient futuretaxable income will be available against which such deferredtax assets can be realised. In situations where the Companyhas unabsorbed depreciation or carry forward tax losses,all deferred tax assets are recognised only if there is virtualcertainty supported by convincing evidence that they canbe realised against future taxable profits.k. ProvisionsA provision is recognized when an enterprise has a presentobligation as a result of past event; it is probable that anoutflow of resources will be required to settle the obligation,in respect of which a reliable estimate can be made.Provisions are not discounted to its present value and aredetermined based on best estimate required to settle theobligation at the balance sheet date. These are reviewed ateach balance sheet date and adjusted to reflect the currentbest estimates.l. Segment ReportingThe Company’s activities during the year revolve aroundsetting up of the project (Refer Note C below). Consideringthe nature of business and operations, there are noreportable segments (business and/or geographical) inaccordance with the requirements of Accounting Standard17 – ‘Segment Reporting’, issued by the Institute ofChartered Accountants of India (ICAI).Other NotesC. I. The Company is in process of setting up steel plant (project)at Paradeep district of Orissa. The project is at start upstage of construction and the Company has not commencedrevenue operations. The expenditure incurred directly orindirectly is classified as Pre-Operative Expenditure pendingcapitalization and will be apportioned to the Assets on thecompletion of project.Necessary details as per Part II of Schedule VI to theCompanies Act, 1956 have been disclosed in Schedule 3.Expenditure which is not directly or indirectly related to theconstruction of the project have been charged to Profit &Loss Account.II. During the current year the company has obtained sanctionfor Term Loan / LC amounting to Rs. 1,431 crores fromvarious banks / financial institutions towards funding of theabove project.D. Contingent Liability and Pending Capital CommitmentsI. Contingent Liability:II.Proposed dividend liability on Cumulative Preference Sharesof Rs. 0.90 Crore (Previous period :-Nil)Pending Capital Commitment:Estimated amount of Contracts remaining to be executedon capital account and not provided for (net of advance) asat 31st March, 2008 amounting to Rs.1,232.15 Crores andUS$ 103.70 millions (previous period:- Nil).E. Related Parties:a) Related Party where the control existsa)Holding Company :• Essar Steel Limited (ESTL) – From July 10,2006• Essar Steel Holdings Ltd. Mauritius- HoldingCompany of Essar Steel Limited (ESHL)b) Ultimate Holding Company:• Essar Global Ltd. - Holding Company of EssarSteel Holdings Ltd. (EGL)b) Fellow Subsidiaries• Essar Steel (Hazira) Limited (ES(H)L)• Essar Constructions (India) Limited (ECIL)• ETHL Global Capital Limited (EGCL)• Essar Steel Chhattisgarh Limited (ESCL)• Essar Steel Jharkhand Limited (ESJL)• Essar Steel Trading FZE, Dubai (ESTF)• Hazira Plate Limited (HPLT)• Essar Shipping & Logistics Limited (ESLL)• Essar SEZ Hazira Limited (Essar SEZ)• Essar Telecom Infrastructure Private Limited(ETIPL)• Hazira Pipe Mill Limited (HPML)c) Key Management Personnel• Mr. Jatinder Mehra, Director• Mr. H. S. Sethi, Director-Projectsd) Individuals owing, directly or indirectly, an interest in votingpower that gives them control or significant influence-• Mr. Shashi Ruia• Mr. Ravi Ruia• Mr. Anshuman Ruia• Mr. Rewant Ruiae) Enterprises commonly controlled or influenced by majorshareholders/directors/key managerial personnel of theCompany (to the extent transactions entered)–• Essar Power Limited (EPL)• Essar Investments Limited (EIL)• Vodafone Essar Spacetel Limited (VESL)• Essar Projects Management Consultants Limited(EPMCL)• Essar Oil Limited (EOL)53

Essar Steel Orissa LimitedDuring the year following transactions were carried out with some ofthe related parties in the ordinary course of business:Nature ofTransactionsName ofPartyHoldingCompaniesFellowSubsidiaries(In Rs.)Enterprisescommonlycontrolled orinfluencedby majorshareholders/directors/keymanagerialpersonnel of theCompanyAdvance forProfessionalServices /Supplies ECIL - 587,161,279 -ECIL - (8,500,000) -EPMCL - - 9,700,000EPMCL - - -ProfessionalServices ECIL - - -ECIL - (1,683,600) -Purchase ofAsset ECIL - 242,999,444 -ECIL - - -Recovery ofRent & CommonExpenses ECIL - 427,490 -ECIL - - -EOL - - 96,551EOL - - -VESL - - 7,003,194VESL - - -Subscription tothe Share Capital EIL - - -EIL - - (499,940)Subscriptionto CumulativeConvertiblePreferenceshares ESHL 847,476,210 - -ESHL - - -Share ApplicationMoney received ESHL 1,009,750,007 - -ESHL - - -EIL - - -EIL - - (203,410,000)Short termAdvancesreceived ESCL - 30,500,000 -ESCL - (10,000) -ES(H)L - - -ES(H)L - - (10,000)EPL - - -EPL - - (50,000)Advance Receivedtowards supply ofmaterials ESTL 5,025,000 - -ESTL (3,950,000) - -Reimbursementmade on behalf ofthe Company ESTL 16,003,959 - -ESTL (193,114,026) - -EIL - - -EIL - - (180,030)Guaranteesprovided to bankson behalf of theCompany ESHL 9,500,000,000 - -ESHL - - -Guaranteesprovided to CustomAuthority on behalfof the Company ESTL 73,700,000 - -ESTL - - -Figures in brackets represents for the previous period.Closing Balance ofthe PartyAs at31st March, 2008As at31st March, 2007ECIL 532,899,214 8,500,000EIL (180,030) (180,030)EPL - 50,000EPMCL 9,700,000 -ESTL (13,550,100) (197,057,754)Figures in bracket represents amounts payable.F. The Company has initiated the process of identification of suppliersregistered under the Micro, Small and Medium EnterprisesDevelopment Act, 2006, by obtaining confirmation from all thesuppliers. Based on current information/confirmations availablewith the Company, there are no suppliers who are registeredunder the relevant Act as at March 31, 2008.G. Unhedged Foreign Currency Disclosure as at Balance Sheet Dateas on March 31, 2008ParticularsForeign Currency AmountAs at March 31, 2008Capital Advances Rs. 334,999,820(US$ 8,522,000 @ 1 US$ =Rs. 39.31) (Previous Year:Nil)Secured Loan Rs. 241,186,016(US$ 6,044,762.30 @ 1 US$= Rs. 39.90)(Previous Year: Nil)H. Lease RentalOperating LeaseOffice premises are obtained on operating lease. Lease rent ispayable as per the lease term. The Company has entered intotwo lease agreements during the current year:a) Office premises at Bhubaneswar with a lease term of 36months renewable for a further period of 36 months at theoption of the Company. The lease rent has an escalation of15% in the base rent for each block of 36 months. During theyear the Company has paid lease rent of Rs.13,49,134. Thislease rent expense is capitalized as expenditure incurredduring the construction period.b) Three Office-cum-Guest House at Paradeep and Joda hasbeen taken at with a lease term of 12 months (each of them)renewable for a further period at the option of the Company.There is no escalation clause in the agreement. During theyear the Company has paid lease rent of Rs. 583,000. Thislease rent expenses is capitalized as expenditure incurredduring the construction period.I. Earnings Per shareParticularsYear Ended31st March, 2008Period Ended31st March, 2007Net Loss as per Profit& Loss Account for thepurpose of calculatingbasic and dilutedearnings per share Rs. (5,656,354) (292,270)Number of CumulativeConvertiblepreference sharesissued during the year Nos. 84,746,621 50,000Number of EquityShares at beginningof the year Nos. 50,000 50,00054

ParticularsYear Ended31st March, 2008Period Ended31st March, 2007Number of Equityshares at the end ofthe year Nos. 50,000 50,000Weighted AverageNumber of equityshares for thepurpose of calculatingbasic earnings perequity share Nos. 50,000 50,000Weighted AverageNumber of equityshares for thepurpose of calculatingdiluted earnings perequity share Nos. 9,080,378 -Earnings Per EquityShare of Rs. 10each – Basic Rs. (113.13) (5.85)Earnings Per EquityShare of Rs. 10each –Diluted Rs. (0.62) (5.85)J. Supplementary statutory information:-(a)(b)Expenditure in Foreign Currency (Accrual basis):-ParticularsYear Ended31st March,2008(In Rs.)Period Ended31st March,2007(In Rs.)Expenditure in foreign currency (Accrual Basis)Testing Expenses - 1,086,690Foreign Bank Charges 4,070,575 -Discounting Charges 3,336,968 -Interest 125,417 -Total 7,532,960 1,086,690Value of Imports calculated on C&F basis:-ParticularsAmountCapital Work in Progress 274,697,826Total 274,697,826K. Disclosure pursuant to Accounting Standard – 15 (Revised) –‘Employee Benefits’:a) Effective January 1, 2007, the Company adopted AccountingStandard – 15 (Revised 2005) on “Employee Benefits”issued by ICAI.b) The Company has classified various employee benefits asunderA) Defined Contribution PlansThe Company has recognised Rs. 375,566 inthe Preoperative Expenses for the year towardscontribution to Employees’ Provident Fund.B) Defined Benefit PlanThe Company operates Gratuity Plans wherein everyemployee is entitled to the benefit equivalent to fifteendays salary, last drawn for each completed year ofservice depending on the date of joining and eligibilityterms upto maximum limit of Rs. 350,000.The same is payable on the termination of service orretirement whichever is earlier. The benefit vests afterfive years of continuous service. However, this doesn’tapply in the case of death of an individual.The following table summaries the components ofnet benefit expenses recognised in the Pre Operativeexpenses and amounts recognized in the BalanceSheet for the Gratuity.Valuation in respect of Gratuity have been carried outby an independent actuary, as at the Balance Sheetdate, based on the following assumptions:-1. Actuarial assumptions for the year:Discount Rate 8.00%Rate of Increase in Compensation Levels 7.50%Rate of Return on Plan AssetsN.A.Mortality LIC (1994-96)The estimates of future salary increases, considered inactuarial valuation, take account of inflation, seniority,promotion and other relevant factors, such as supply anddemand in the employment market.The current year being the first year of adoption of AS 15(revised) by the Company, the previous year comparativeinformation is not available and hence not furnished2. Change in Benefit Obligation:(In Rs.)Liability at the beginning of the period 117,787Interest Cost 9,449Service Cost 166,888Benefits paid NilActuarial (gain) loss on obligations (114,390)Liability at the end of the year 179,7343. The Amounts to be recognized in the Balance Sheet:Present Value of Obligation 179,734Fair value of Plan AssetsNilFunded Status (179,734)Unrecognised Actuarial gains (losses) NilLiability Recognised in Balance Sheet (179,734)4. Net Periodic Cost (included in Pre-operative expenses ReferSchedule III):Current Service Cost 166,888Interest Cost 9,449Expected Return on Plan AssetsNilNet Actuarial (gain) loss recognised in (114,390)the yearExpenses Recognised in the Income 61,947StatementL. Legal & Professional Fees:-Legal & Professional fees comprises of Auditor’s Remunerationwhich consist off the Statutory Audit fees*ParticularsYear ended31st March, 2008(Rs.)Period ended31st March, 2007(Rs.)Statutory Audit Fees* 100,000 100,000Out of PocketExpenses12,672 -Total 112,672 100,000*exclusive of service tax.M. Previous year’s figures have been regrouped where necessaryto conform to this year’s classification.As per our report of even dateS.R. Batliboi & Co.For and on behalf of Board of DirectorsChartered Accountants Essar Steel Orissa Limitedper Hemal Shah V.G. Raghavan Manish KediaPartner Director DirectorMembership No. 42650Place : MumbaiPlace : MumbaiDate: August 27, 2008 Date: August 27, 200855

Essar Steel Orissa LimitedAdditional Information as required under Part-IV of Schedule 6 to the Companies Act, 1956Balance Sheet Abstract and Company’s General Business Profile:1. Registration Details:Registration No. U 2 7 1 0 4 M H 2 0 0 6 P T C 1 6 2 6 0 9State Code 1 1Balance Sheet Date 3 1 . 0 3 . 2 0 0 8II. Capital Raised during the Year: (Amount in ‘000 Rs.)Public Issue - Private Placement 8 4 7 4 7 6 . 2 1Right Issue - Share Application Money 1 0 0 9 7 5 0 . 0 1III. Position of Mobilization and Deployment of Funds (Amount in ‘000 Rs.)Total Liabilities 3 2 0 6 7 6 0 . 4 9 Total Assets 3 2 0 6 7 6 0 . 4 9Sources of Funds:Paid-up Capital 8 4 7 9 7 6 . 2 1 Advance Share Application 1 2 1 3 1 6 0 . 0 1Reserves & Surplus - Secured Loans 1 1 4 5 6 2 4 . 2 8Unsecured Loans -Application of Funds:Net Fixed Assets 1 2 6 4 3 8 . 9 4 Investments -Net Current Assets 1 3 9 0 5 6 1 . 2 4 Expenditure during constructionperiod-pending allocation1 6 8 3 8 1 1 . 6 9Profit and Loss Account 5 9 4 8 . 6 2IV. Performance of Company (Amount in ‘000 Rs.)Turnover N I L Profit Before Tax ( 1 2 8 3 . 1 3 )Profit After Tax ( 5 6 5 6 . 3 5 ) Earning Per ShareBasic (Rs.) ( 1 1 3 . 1 3 )Diluted (Rs.) ( 0 . 6 2 )V. Generic Names of Three Principal Products / Services of Company (as per Monetary terms)Product descriptionItem Code No.Pellets 3 3 0 9Slabs 3 3 0 1For and on behalf of the Board of DirectorsEssar Steel Orissa LimitedV. G. Raghavan Manish KediaDirectorDirectorPlace: MumbaiDate : August 27, 200856

Cash Flow Statement for the period ended 31st March, 2008ABCCash Flow from operating activitiesYear Ended31st March, 2008In Rs.14th June 2006 to31st March, 2007Loss before Tax (5,656,354) (292,270)Operating Cash Loss before working capital changes (5,656,354) (292,270)Increase in Current Liabilities 5,656,354 292,270Net Cash Flow from Operating Activities - -Cash Flow from Investing ActivitiesPurchase of Fixed Assets (55,210,358) (72,449,897)Expenditure during construction period (including Capital Advance) (431,131,717) (85,089,159)Direct Taxes Paid (5,501,004) (215,353)Net Cash Flow from Investing Activities (491,843,079) (157,754,409)Cash Flow from Financing ActivitiesProceeds from Issue of Shares 847,476,210 500,000Proceeds Share Application Money 1,009,750,007 203,410,000Net Cash Flow from Financing Activities 1,857,226,217 203,910,000Net increase in Cash and Cash Equivalents (A+B+C) 1,365,383,138 46,155,591Cash and Cash Equivalents at the begining of the year 46,155,591 -Cash and Cash Equivalents at the closing of the year 1,411,538,729 46,155,591In Rs.Components of cash and cash equivalents As at31st March 2008As at31st March 2007Cash on Hand 4,366 115,337Balances with scheduled banks:On current accounts 467,031,463 1,740,254On deposit accounts 944,502,900 44,300,000Note:1,411,538,729 46,155,5911. The above cash flow statement has been prepared under the ‘Indirect Method’ as set out in the Accouting Standard-3 on Cash FlowStatements, issued by the Institute of Chartered Accountants of India.2. Previous period’s figures have been regrouped / reclassified wherever necessary.As per our report of even dateS.R. Batliboi & Co.Chartered AccountantsFor and on behalf of the Board of DirectorsEssar Steel Orissa Limitedper Hemal Shah V.G. Raghavan Manish KediaPartner Director DirectorMembership No. 42650Place: MumbaiPlace: MumbaiDate: August 27, 2008 Date : August 27, 200857

Essar Steel Trading FZEDIRECTORS’ REPORTToThe Shareholders of Essar Steel Trading FZEThe Directors present before you the second annual report together withthe Audited Financial Statements of the Company for the period ended on31st March, 2008.INCORPORATION OF THE COMPANYThe Establishment was incorporated on 14th June, 2006 in the name ofEssar Steel Trading FZE, registered under Dubai Airport Free Zone Authority(DAFZA) and issued Trade License No. 1054.PARENT COMPANYEssar Steel Limited a Company registered under the laws of India havingits registered office at 27 KM Surat Hazira Road, Surat, Gujarat, India isholding 100% share capital of the Company.PRINCIPAL ACTIVITYThe Principal activity of the Company is primarily trading in steel &construction materials.RESULTSDuring the year under review, the Company has achieved a turnover of USD81.90 Million (Previous Year: Nil). There was substantial increase in thetrading activity of the Company and therefore your Company could achievea profit of USD 1.85 Million in current year compared to the loss of USD 0.15million during the previous period ended on 31st March 2007.The finance cost of the Company has increased substaitially due to thevarious loans availed by the Company for its operation during the currentyear. The Management is of the view that the Company can maintain similargrowth in the next year.DIVIDENDThe Directors do not recommend payment of dividend during the periodunder review.STATEMENT OF DIRECTORS ‘RESPONSIBILITIES IN RESPECT OF THEFINANCIAL STATEMENTSThe Directors are required to prepare financial statements for each financialyear, which give a true and fair view of the state of affairs and of the profit orloss of the Company. In preparing those financial statements, the directorsare required to1. Select suitable accounting policies and then apply themconsistently;2. Make judgements and estimates that are reasonable and prudent;3. State whether applicable accounting standards have been followed,subject to any material departures disclosed disclosed and explainedin the financial statements, and4. Prepare the financial statements on the going concern basis unlessit is inappropriate to presume that the Company will continue inbusiness. The Directors confirm that they have complied with the aboverequirements in preparing the financial statements. The directors areresponsible for keeping proper accounting records, which disclose withreasonable accuracy at any time the financial position of the Companyand to enable them to ensure that the financial statements comply withthe international Financial Reporting Standards (IFRS). They are alsoresponsible for safeguarding the assets of the Company and hencefor taking reasonable steps for the prevention and detection of fraudother irregularities.AUDITORSThe auditors of the Company Ernst & Young, Dubai has expressed their desireto continue as the auditors of the Company during the forth coming year.B. SIVAKUMARDirectorDate: June 30, 2008INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF ESSAR STEEL TRADING FZEReport on the Financial StatementsWe have audited the accompanying financial statements of Essar SteelTrading FZE (the “Establishment”), which comprise the balance sheet as at31 March 2008 and the income statement, cash flow statement and statementof changes in equity for the period then ended, and a summary of significantaccounting policies and other explanatory notes.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation ofthese financial statements in accordance with International FinancialReporting Standards and the applicable provisions of the ImplementingRules and Regulations issued pursuant to Law No. (2) of 1996 andits amendment No. (2) of 2000 concerning the formation of legalestablishments at the Dubai Airport Free Zone. This responsibility includes:designing, implementing and maintaining internal control relevant to thepreparation and fair presentation of financial statements that are free frommaterial misstatement, whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accounting estimates that arereasonable in the circumstances.Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statementsbased on our audit. We conducted our audit in accordance with InternationalStandards on Auditing. Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonableassurance whether the financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence aboutthe amounts and disclosures in the financial statements. The proceduresselected depend on the auditors’ judgement, including the assessment ofthe risks of material misstatement of the financial statements, whether dueto fraud or error. In making those risk assessments, the auditor considersinternal control relevant to the entity’s preparation and fair presenta tionof the financial statements in order to design audit procedures that areappropriate for the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity’s internal control. An audit alsoincludes evaluating the appropriateness of accounting policies used and thereasonableness of accountin estimates made by management, as well asevaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion.OpinionIn our opinion, the financial statements present fairly, in all material respects,the financial position of the Establishment as of 31 March 2008, and itsfinancial performance and its cash flows for the period then ended inaccordance with International Financial Reporting Standards.Report on Other Legal and Regulatory RequirementsWe also confirm that, in our opinion, the financial statements include inall material respects, the applicable requirements of the provisions ofImplementing Rules and Regulations issued pursuant to Law No. (2) of1996 and its amendment No. (2) of 2000 concerning the formation of legalestablishments at the Dubai Airport Free Zone and proper books of accounthave been kept by the Establishment. We have obtained all the informationand explanations which we required for the purpose of our audit and, to thebest of our knowledge and belief, no violations of the Implementing Rules andRegulations have occurred during the year which would have had a materialeffect on the business of the Establishment or on its financial position.June 30, 2008Ernst & Young,Dubai58

Income Statement for the year ended 31st March, 2008 1 April 2007 14 June 2006toto31 March 2008 31 March 2007Notes USD USDSales of goods 81,901,435 -Cost of sales (76,975,444) -GROSS PROFIT 4,925,991 -Other income 3 801,265 450,284Administrative expenses (499,665) (265,225)Finance costs 4 (3,376,394) (342,995)PROFIT (LOSS) FOR THE YEAR/PERIOD 5 1,851,197 (157,936)Balance Sheet as at 31 March, 2008 1 April 2007 14 June 2006toto31 March 2008 31 March 2007USDUSDCurrent assetsAccounts receivable and prepayments 6 50,360,856 465,130Due from a related party 10 106,306,349 25,518,836Bank balances and cash 7 3,124,402 20,405TOTAL ASSETS 159,791,607 26,004,371EQUITY AND LIABILITIESEquityShare capital 8 816,727 816,727Proposed increase in share capital 8 1,000,000 -Retained earnings/(accumulated losses) 1,693,261 (157,936)Total equity 3,509,988 658,791Non-current liabilitiesTerm loans 9 15,000,000 20,000,000Current liabilitiesAccounts payable and accruals 11 1,281,619 345,580Current portion of term loans 9 140,000,000 5,000,000141,281,619 5,345,580Total liabilities 156,281,619 25,345,580TOTAL EQUITY AND LIABILITIES 159,791,607 26,004,371The attached notes 1 to 14 form part of these Financial Statements.The financial statements were authorised for issue in accordance with a resolution of the directors on 30 June 2008.B. SIVAKUMARDirector30 June 200859

Essar Steel Trading FZECash Flow Statement for the year ended 31 March, 2008 1 April 2007 14 June 2006toto31 March 2008 31 March 2007OPERATING ACTIVITIES Notes USD USDProfit (Loss) for the year/period 1,851,197 (157,936)Adjustments for:Interest expense 4 2,946,394 342,155Interest income 3 (1,265) (284)4,796,326 183,935Working capital changesAccounts receivable and prepayments (49,895,726) (465,130)Due from a related party (80,787,513) (25,518,836)Accounts payable and accruals 936,039 345,580Cash used in operations (124,950,874) (25,454,451)Interest paid 4 (2,946,394) (342,155)Net cash used in operating activities (127,897,268) (25,796,606)INVESTING ACTIVITYInterest received 1,265 284Net cash from investing activity 3 1,265 284FINANCING ACTIVITIESProposed increase in share capital 8 1,000,000 816,727Term loans 130,000,000 25,000,000Net cash from financing activities 131,000,000 25,816,727INCREASE IN CASH AND CASH EQUIVALENTS 3,103,997 —Cash and cash equivalents at 1 April 20,405 —CASH AND CASH EQUIVALENTS AT 31 MARCH 7 3,124,402 20,405Statement of Changes In EquityRetained earnings/Year ended 31 March, 2008 Share (accumulatedcapital losses) TotalNote USD USD USDIssued during the period 816,727 — 816,727Loss for the period — (157,936) (157,936)Balance at 31 March 2007 816,727 (157,936) 658,791Proposed increase in share capital 8 1,000,000 — 1,000,000Profit for the year — 1,851,197 1,851,197Balance at 31 March 2008 1,816,727 1,693,261 3,509,988The attached notes 1 to 14 form part of these Financial Statements.60

NOTES TO THE FINANCIAL STATEMENTSAt 31st March 20081 ACTIVITIESEssar Steel Trading FZE (the “Establishment”) was incorporated asa Free Zone Establishment with limited liability on 14 June 2006 inthe Dubai Airport Free Zone pursuant to Law No. (2) of 1996 andits amendment No. (2) of 2000 issued by Dubai Airport Free ZoneAuthority. The business address of the Establishment is P O Box61078, Dubai, United Arab Emirates.The Establishment is engaged in the activity of trading in steel andconstruction materials.The Establishment is a wholly owned subsidiary of EssarSteel Limited, a company registered in India, which exercisesmanagement control over the operating and financing decisions ofthe Establishment.2 SIGNIFICANT ACCOUNTING POLICIESBasis of preparationThe financial statements have been prepared in accordancewith International Financial Reporting Standards and applicablerequirements of United Arab Emirates law.The financial statements have been prepared in United StatesDollars, being the functional currency of the Establishment.The financial statements have been prepared under the historicalcost convention.Changes in accounting policiesThe accounting policies are consistent with those used in theprevious year except as follows:The Establishment has adopted the following new and amendedIFRS and IFRIC interpretations during the year. Adoption of theserevised standards and interpretation did not have any effect on thefinancial performance or position of the Establishment. They didhowever give rise to additional disclosures:• IFRS 7 Financial Instruments: Disclosures• IAS 1 Amendment - Presentation of financial statementsIFRS 7 Financial Instruments DisclosuresThis standard requires disclosures that enable users of the financialstatements to evaluate the significance of the Establishment’sfinancial instruments and the nature and extent of risks arising outof those financial instruments. The new disclosures are includedthroughout the financial statements.IAS 1 – Amendment - Presentation of financial statementsThis amendment requires the Establishment to make newdisclosures to enable users of the financial statements to evaluatethe Establishment’s objectives, policies and processes for managingcapital. These new disclosures are shown in Note 12.IASB Standards and Interpretation issued but not adoptedThe Establishment has not adopted the new accounting standardsor interpretations that have been issued but are not yet effective.These standards and interpretations, except for revised IAS 1 arenot likely to have any significant impact on the financial statementsof the Establishment in the period of their initial application.The Establishment has not adopted the revised IAS 1 “Presentationof Financial Statements” which will be effective for the year ending31st March 2009. The application of this standard will result inamendments to the presentation of the financial statements.Revenue recognitionRevenue from sales of goods is recognised when the significantrisks and rewards of ownership of the goods have passed to thebuyer and the amount of revenue can be measured reliably.Interest revenue is recognised as the interest accrues usingthe effective interest method, under which the rate used exactlydiscounts estimated future cash receipts through the expected lifeof the financial asset to the net carrying amount of the financialasset.Commission income is accounted for on an accruals basis.Impairments of financial assetsAn assessment is made at each balance sheet date to determinewhether there is objective evidence that a specific financial assetmay be impaired. If such evidence exists, any impairment loss isrecognised in the income statement. Impairment is determined asfollows:(a) For assets carried at fair value, impairment is the differencebetween cost and fair value, less any impairment loss previouslyrecognised in the income statement;(b) For assets carried at cost, impairment is the difference betweencarrying value and the present value of future cash flowsdiscounted at the current market rate of return for a similarfinancial asset;(c) For assets carried at amortised cost, impairment is thedifference between carrying amount and the present value offuture cash flows discounted at the original effective interestrate.Accounts receivableTrade receivables are stated at original invoice amount less aprovision for any uncollectible amounts. An estimate for doubtfulaccounts is made when collection of the full amount is no longerprobable. Bad debts are written off when there is no possibility ofrecovery.Cash and cash equivalentsFor the purpose of the Statement of Cash Flows, cash and cashequivalents consist of cash in hand, bank balances, and short-termdeposits with an original maturity of three months or less, net ofoutstanding bank overdrafts.Accounts payable and accrualsLiabilities are recognised for amounts to be paid in the future forgoods or services received, whether billed by the supplier or not.ProvisionsProvisions are recognised when the Establishment has an obligation(legal or constructive) arising from a past event, and the coststo settle the obligation are both probable and able to be reliablymeasured.Term loansTerm loans are recognised at the fair value of the proceeds received,net of transaction costs incurred. Term loans are subsequentlystated at amortised cost using the effective yield method. Thedifference between proceeds (net of transaction costs) and theredemption value is recognised in the income statement over theperiod of the loan.61

Essar Steel Trading FZEForeign currenciesTransactions in foreign currencies are accounted for at the exchangerates prevailing at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies are retranslated at therate of exchange ruling at the balance sheet date. All differencesare taken to the income statement.3 OTHER INCOME1 April 14 June2007 to 2006 to31March 31 March2008 2007USDUSDCommission income 800,000 450,000Interest income 1,265 4844 FINANCE COSTS801,265 450,2841 April 14 June2007 to 2006 to31March 31 March2008 2007USDUSDArrangement fees 430,000 250,000Interest on term loans 2,946,394 342,1555 PROFIT (LOSS) FOR THE YEAR/PERIOD3,376,394 592,155The profit (loss) for the year / period is stated after charging1 April 14 June2007 to 2006 to31March 31 March2008 2007USDUSDStaff costs 55,834 -6 ACCOUNTS RECEIVABLE AND PREPAYMENTS2008 2007USDUSDTrade receivables 50,267,481 -Prepaid expenses 93,375 552Other receivables - 464,57850,360,856 465,130During the year the Establishment has not impaired tradereceivables.As at 31 March, the ageing of unimpaired trade receivables is asfollows:Neitherpast duenorTotal impairedUSDUSD2008 50,266,947 50,266,9472007 - -Unimpaired receivables are expected, on the basis of past experience, tobe fully recoverable. It is not the practice of the Establishment to obtaincollateral over receivables and they are therefore unsecured.7 CASH AND CASH EQUIVALENTS2008 2007USDUSDBank balances and cash 3,124,402 20,405Included in bank balances and cash are bank deposits amounting toUSD Nil (2007: USD 10,284) with Commercial banks in the United ArabEmirates. These are denominated in UAE Dirhams, short term in nature,with effective interest rates of Nil% (2007: 3.6% to 3.85% p.a.).8 SHARE CAPITAL2008 2007USDUSDAuthorised, issued and fully paid1 share of AED 3,000,000 816,727 816,727During the year the directors’ proposed to increased theEstablishment’s share capital from USD 816,727 to USD 1,816,727.The legal procedures to register the increase are in progress.9 TERM LOANS2008 2007USDUSDTotal owing 155,000,000 25,000,000Current portion transferred tocurrent liabilities (140,000,000) (5,000,000)15,000,000 20,000,000The Establishment has obtained term loans including advancepayment facilities of USD 155 million (2007: USD 25 million) fromvarious commercial bank to finance trading requirements whichincludes any advance payments made for the purchase of steelproducts.These comprise:- a medium term loan of USD 25 million was obtained during the 2007financial year from the Bank of India, London branch. The mediumterm loan is repayable in six successive semi-annual installmentscommencing six months after the date of the disbursement ofthe loan. Forty percent of the loan is repayable in the first fourinstallments and sixty percent of the loan is repayable in the lasttwo installments. Interest is charged at 6 months LIBOR plus 1.75% (2007: 6 months LIBOR plus 1.75%).- an advance payment facility of USD 45 million was obtained duringthe 2008 financial year from the Bank of Tokyo - Mitsubishi UFJ inorder to finance trading requirements. The facility is repayable inone bullet payment on maturity date which is 12 Months from thedate of the first draw down. Interest is charged at 6 months LIBORplus 0.72% (2007: Nil).- a trade advance facility of USD 25 million was obtained duringthe 2008 financial year from the Banco Bilbao Vizazya ArgentariaS.A. (BBVA) in order to finance trading requirements. The facilityis repayable in two installments. The first installment is payable12 months from the date of the first draw down and the secondinstallment is payable 6 months from the date of the second drawdown. Interest is charged at 6 months LIBOR plus 0.75% (2007:Nil).- a facility of USD 50 million was obtained during the 2008 financialyear from the Calyon Credit Agricole CIB, in order to finance trading62

equirements. The facility is repayable in three equal installmentspayable on the 8th, 10th and 12th month from the date of therespective draw down. Interest is charged at LIBOR plus 0.75%(2007: Nil).- a trade advance facility of USD 15 million was obtained during the2008 financial year from the Bank of India, Singapore branch. Thefacility is repayable in one bullet payment on maturity date which is12 months from the date of the first draw down. Interest is chargedat LIBOR plus 0.75% p.a. (2007: Nil).The security provided for these loans comprises:• Corporate guarantee issued by Essar Steel Limited, India.• Pledge over collection account.• Assignment of Purchase and sale contract (PSC) by Stemcor(S.E.A) Pte Ltd, Singapore to Bank of Tokyo- Mitsubishi UFJ.• Assignment of Advance payment and supply agreement (APSA)by Essar Steel Trading FZE, Dubai to Bank of Tokyo - MitsubishiUFJ.• Assignment of Advance payment and supply agreement by EssarSteel Trading FZE, Dubai to BBVA.• Assignment and pledge over proceeds account.• Bank of India (Mumbai branch) corporate guarantee towards theprincipal amount of the export advance as well as the interest portionthere on.Further the above bank facilities are subject to certain restrictivecovenants relating to maintenance of minimum debt-equity and currentratios, and routing of minimum amount of cash flow through the lendingbanks of the holding company.10 RELATED PARTY TRANSACTIONSRelated parties represent the shareholder, directors and keymanagement personnel of the Establishment, and entitiescontrolled, jointly controlled or significantly influenced by suchparties. Pricing policies and terms of these transactions areapproved by the Establishment’s management.Transactions with related parties included in the income statementare as follows:Major shareholder:1 April 2007to 31 March 2008SalesUSDPurchasesUSDEssar Steel Limited Nil 76,975,44414 June 2006to 31 March 2007Balances with a related party included in the balance sheet are asfollows:Major shareholder:2008 2007Receivables Payables Receivables PayablesUSD USD USD USDEssar Steel Limited 106,306,349 12,324 25,518,836 -11 ACCOUNTS PAYABLE AND ACCRUALS2008 2007USDUSDAccrued expenses 1,269,295 345,580Due to a related party (note 10) 12,324 -1,281,619 345,580Interest rate riskThe Establishment is exposed to interest rate risk on its interestbearing liabilities (term loans).The following table demonstrates the sensitivity of the incomestatement to reasonably possible changes in interest rates, withall other variables held constant.The sensitivity of the income statement is the effect of the assumedchanges in interest rates on the Establishment’s profit for one year,based on the floating rate financial assets and financial liabilitiesheld at 31 March 2008.There is no impact on the Establishment’s equity.Increase/ Effect ondecrease profit for thein basisyearpointsUSD2008USD +15 (232,500)USD - 10 155,0002007USD +15 (37,500)USD - 10 25,000Liquidity riskThe Establishment limits its liquidity risk by ensuring bank facilitiesare available.The Establishment’s terms of sales require amounts to be paidwithin 30 days of the date of sale.The table below summarises the maturities of the Establishment’sundiscounted financial liabilities at 31 March 2008, based oncontractual payment dates and current market interest rates.At 31 March 2008Less than 3 to 12 1 to 53 months months years >5 years TotalUSD USD USD USD USDSalesUSDPurchasesUSDDue to a related party - 12,324 - - 12,324Term loans 28,921,518 113,973,030 15,983,607 - 158,878,155Total 28,921,518 113,985,354 15,983,607 - 158,890,479Major shareholder:Essar Steel Limited - -At 31 March 2007Less than 3 to 12 1 to 53 months months years >5 years TotalUSD USD USD USD USDThe Establishment is in the process of issuing additional shares tothe major shareholder.Term loans - 740,058 7,878,616 20,573,770 - 29,192,444Total 740,058 7,878,616 20,573,770 - 29,192,44463

Essar Steel Trading FZECredit riskThe Establishment’s 5 largest customers account for 70% ofoutstanding accounts receivable at 31 March 2008 (2007: 99%).With respect to credit risk arising from the other financial assetsof the Establishment, including cash and cash equivalents, theEstablishment’s exposure to credit risk arises from default of thecounterparty, with a maximum exposure equal to the carryingamount of these instruments.Currency riskThe Establishment is not exposed to any significant currencyrisk.The table below indicates the Establishment’s foreign currencyexposure at 31 March, as a result of its monetary assets andliabilities. The analysis calculates the effect of a reasonably possiblemovement of the USD currency rate against the Euro, with all othervariables held constant, on the income statement (due to the fairvalue of currency sensitive monetary assets and liabilities).Increase/decreaseEffect onin Euro rateprofitto the USD before tax2008 +5% 446,257- 5% (446,257)2007 +5% Nil- 5% NilCapital managementThe primary objective of the Establishment’s capital management isto ensure that it maintains healthy capital ratios in order to supportits business and maximise shareholders value.The Establishment manages its capital structure and makesadjustments to it in light of changes in business conditions. Tomaintain or adjust the capital structure, the Establishment mayadjust the dividend payment to the shareholder, return capital tothe shareholder or issue new shares. No changes were made inthe objectives, policies or processes during the year/period ended31 March 2008 and 31 March 2007. Capital comprises sharecapital, proposed increase in share capital, and retained earnings/accumulated losses and is measured at USD 3,509,988 as at 31March 2008 (2007: USD 658,791).13 FAIR VALUES OF FINANCIAL INSTRUMENTSFinancial instruments comprise financial assets and financialliabilities.Financial assets consist of cash and bank balances and receivables.Financial liabilities consist of the term loans and payables.The fair values of financial instruments are not materially differentfrom their carrying values.14 COMPARATIVE INFORMATIONCertain reclassifications were made to the comparative informationto conform to the presentation made in the current year. This has notresulted in any change in reported profit for the previous year.64

ESSAR STEEL LIMITEDRegd. Office: Post: Hazira, Pin 394 270, Dist : SuratENTRANCE PASS(to be presented at the entrance)Client IDDP ID32 nd Annual General Meeting of the Company to be held on 29th September, 2008 at 2.30 p.m. at the RegisteredOffice of the Company, Post : Hazira, Pin: 394 270, Dist : SuratName No. of Shares heldLedger Folio No. SignatureMembers/ Proxies are allowed to attend the meeting.Tear HereESSAR STEEL LIMITEDRegd. Office: Post: Hazira, Pin 394 270, Dist. : SuratPROXY FORMClient IDDP IDI/We of in the district of beinga member(s) of the above named Company, hereby appoint Shriof in the district of or failinghim Shri of in the district of asmy / our proxy to attend and vote for me/us and on my / our behalf at the 32 nd Annual General Meeting ofthe Company to be held on 29th September, 2008 at 2.30 p.m. at the Registered Office of the Company, PostHazira, Pin.: 394 270, Dist : SuratSigned this date of 2008** Applicable only in case of Investors holding Shares in electronic form.OneRupeeRevenueStampRegd. Folio No.:No. of Shares held:THE COMPANIES ACT, 1956 LAYS DOWN THAT AN INSTRUMENT APPOINTING A PROXY SHALLBE DEPOSITED AT THE REGISTERED OFFICE OF THE COMPANY NOT LESS THAN 48 HOURSBEFORE THE TIME OF HOLDING THE MEETING.