Essar Ports Ltd

To the Members of Essar Ports Limited Your Directors take pleasure in presenting theThirty-fifth Annual Report of your Company together with Audited Accounts for the yearended March 31, 2011. Pursuant to the provisions of Section 219 of the Companies Act, 1956and as permitted by the Securities and Exchange Board of India (SEBI), the abridged annualaccounts of the Company are enclosed. Any member interested in obtaining a copy of theunabridged accounts may write to the Company Secretary at the Registered Office.

1. FINANCIAL RESULTS:

The summary of the standalone and consolidated financial results of your Company forthe year ended March 31, 2011 are furnished below:

The consolidated and standalone financial results for the year ended March 31, 2011 arepresented after giving effect to the demerger of the shipping & logistics andoilfields drilling business effective October 1, 2010, hence previous year figures are notcomparable.

(Rs. crore)

2. SCHEME OF ARRANGEMENT

Your Company has successfully implemented the Scheme of Arrangement whereby Essar Ports& Terminals Limited and Essar International Limited got amalgamated with your Companyand the Shipping & Logistics and Oilfields Drilling businesses were demerged into aseparate company viz. Essar Shipping Limited.

The Demerger will enable your Company to focus on the Ports and Terminals Businesswhich has tremendous growth and profitability potential and which requires focusedleadership and management attention. The Scheme has resulted in focused businessoperations of the Company and will give the Company Increased flexibility In takingadvantage of the huge growth opportunities in the business segments it operates in. Withthe amalgamation, all the port and terminal operating companies have become directsubsidiaries of your Company.

Pursuant to the Scheme and in order to reflect the activities carried on by yourCompany In its name, the name of your Company was changed to Essar Ports Limited effectiveMay 13, 2011.

The authorised share capital of the Company stands reduced by an amount of t500,00,00,000/- to Rs. 1050,00,00,000/-.

The issued, subscribed and paid up share capital of the Company stands reduced by anamount of Rs. 205,22,77,680/- to Rs. 410,58,60,771/- (includes Rs. 13,05,251/- towardsforfeited shares).

Every member holding shares in the Company as on the record date has been issued sharesin the Company and Essar Shipping Limited (the Resulting Company).

3. DIVIDEND

Your Company operates in the ports & terminals sector which is highly capitalintensive in nature. Your Company is implementing various port projects through itssubsidiaries at Hazira and Salaya in Gujarat and Paradip in Orissa which necessitates thatthe resources be ploughed back into these projects. With a view to conserving resourcesfor these requirements, your Directors have not recommended any dividend for the yearended March 31, 2011.

Indian Economy and Infrastructure Sector

The Indian economy has emerged remarkably from the economic crisis of 2007-2009registering a growth rate of 8% per annum and 8.6% per annum for FY 2009-10 and FY 2010-11respectively. Inspite of surge in Inflation In recent times and preventive steps taken byRBI to control It in terms of hike in interest rate, medium to long run outlook of theeconomic growth Is highly encouraging. During 11th 5 year plan period (2007-12) 8.2% perannum growth rate Is expected to be achieved inspite of economic recession of 2007-2009and during the 12th 5 year plan growth rate of 9-10% per annum is expected to be achieved.

Infrastructure sector is a major focus area for growth in India. Huge investment in thesector is required to cater to the fast industrialisation of the country and growth inmanufacturing sector. Role of transport infrastructure like rail, road and ports will becrucial for providing enabling facilities to the industry for growth and reduction inoverall logistics cost of the companies.

Port Sector in India

The Ministry of Shipping has formulated a Maritime Agenda 2020 in January 2011 as aperspective plan for the coming years. As per Maritime Agenda 2020 port capacity isrequired to be increased from 963 million metric tons (MMT) in FY 2009-10 to 3130 MMT in2020 in anticipation of traffic growth from 850 MMT in FY 2009-10 to 2495 MMT in 2020.Capacity of Major Ports will be required to be increased to 1460 MMT from 617 MMT atpresent with an estimated investment of Rs. 127,942 crore. On the other hand capacity ofminor ports will be required to be increased to 1670 MMT from 346 MMT at present with anestimated investment of Rs. 167,931 crore. So overall the port sector will require aninvestment of Rs. 295,873 crore in the next 10 years.

Private sector has to play an important role in required capacity addition in the portsector. 1324 MMT addition at non Major Ports is expected to be carried out by privateplayers and most of the capacity addition at non Major Ports will be carried out by BOTmodel where private sector will invest in port infrastructure and operate the terminal forfixed period sharing revenue with Major Ports. As a step towards meeting this capacityaddition, your Company will increase its capacity from 88 MMT to 158 MMT by March 2014.

Addition of more than 2000 million tons of port capacity in 10 years or more than 200million tons per annum will be a huge challenge. The port sector faces challenges in termsof environment and forest clearance, connectivity of ports with good quality rail and roadnetwork, availability of rolling stocks for the cargo movement through rail and furtherdeepening of channel as cargo is being shipped in larger ships requiring higher draft atthe berth and the channel.

Performance highlights of the Company

A 30 million metric tons per annum (MMTPA) all weather deep draft berth wascommissioned in Hazira in May 2010 under Essar Bulk Terminal Limited (EBTL) and in its 1styear of operation, EBTL has handled 9.5 MMT of dry bulk and break bulk cargo. The 12 MMTPAliquid terminal expansion project got commissioned at Vadinar (Gujarat) on 1st of April2011 under Vadinar Ports & Terminals Limited (VPTL) increasing the capacity at Vadinarfrom 46 to 58 MMTPA and that of the Company from 76 to 88 MMTPA. During FY 2011, yourCompany has handled 39.55 MMT of cargo which was 35% higher than FY 2010 when it handled29.4 MMT of cargo. Average realisation has increased by 25% from Rs. 145 per ton in FY2010 to Rs. 185 per ton in FY 2011.

During FY 2011 the ports business saw a strong growth of revenue and EBITDA on accountof commissioning of deep draft coal berth at Hazira which has shown strong performance inits very first year of operations. Revenue and EBITDA has witnessed a healthy increase inwet bulk operations as well. During the year VOTL saw a revenue increase of 18% on year onyear basis and EBITDA increase of 12% year on year on account of higher throughput. Duringthe year EBTL was commissioned and it generated revenues of Rs. 245 crore and EBITDA ofRs. 147 crore in the first year of operations.

A 16 MMTPA mechanised bulk cargo handling facility at Paradip Port is underconstruction under Essar Bulk Terminal Paradip Limited. A 4500 tons/hr ship loader hasalready been installed and the work on conveyor gallery and yard development is underprogress. On commissioning, the berth will handle iron ore pellets.

Another 14 MMTPA deep draft coal berth at Paradip Port is under development throughEssar Paradip Terminals Limited. Engineering is under progress and construction will startonce site is handed over by Paradip Port Trust which is awaiting forest clearance for theproject.

A 20 MMTPA bulk cargo handling port at Salaya under Essar Bulk Terminal (Salaya)Limited is under construction at Salaya in Gujarat. 2 ship unloaders and 1 ship loaderhave already been delivered and stacker cum reclaimers are being erected. Work on jettyand conveyor system is under progress and the project is expected to be commissioned byMarch 2014.

Your Company has entered into a MoU with Port of Antwerp for strategic collaboration inareas of Consultancy, Investment, Training and enhancing Commercial relations. YourCompany is in the process of entering into similar arrangement with other importantinternational players in the port business.

Risk and Concern

Implementation and operation of port and terminal facilities are dependent on variousstatutory and regulatory approvals and government policies. Changes in macro economicfactors like inflation, interest rate, world trade, natural catastrophes, etc. also playan important role in the movement of goods and cargoes thereby affecting the operations ofports. Any adverse change in the above may affect the performance of your Company.

Your Company periodically reviews the risk associated with the business and takes stepsto mitigate and minimise the impact of risk.

5. QUALITY, SAFETY AND ENVIRONMENT

Your Company, in order to ensure highest standard of safety, has implemented andinitiated various measures with respect to Quality, Safety and Environment ManagementSystems. The initiatives by your Company have been rewarded with several recognitions.Some of the noticeable ones amongst the many are as follows:

- The Marine Terminal has been awarded ISO 28001 certification by American Bureau ofShipping;

- The Marine Terminal has also been awarded the Integrated Management System (IMS)along with Essar Oil Limited Refinery by Det Norske Veritas (DNV);

- The Marine Terminal was awarded 5 Star rating by British Safety Council forEnvironment Management System; and

- Oil Companies International Marine Forum base line criteria audit was conducted byABS for the Marine Terminal.

6. INTERNAL CONTROL FRAMEWORK

Your Company conducts its business with integrity and high standards of ethicalbehavior and in compliance with the laws and regulations that govern its business. YourCompany has a well established framework of internal controls in operation, includingsuitable monitoring procedures. In addition to the external audit, the financial andoperating controls of your Company at various locations are reviewed by Internal Auditors,who report their observations to the Audit Committee of the Board.

7. HUMAN RESOURCE

Human Resources have always been the key to success of the Ports Business. With thedemerger, the segregation of resources was successfully carried out by carefullysplitting, in particular, the common functions such that the activities of businesscontinued uninterrupted and career aspirations of employees were taken care of. New teamswere constituted to steer projects at Salaya near Jamnagar and Paradip in Orissa. Abalance of internal and external talent was maintained to ensure right skills areavailable to initiate project activities. A large number of fresh talent comprising ofengineers and management graduates was deployed to nurture future Essar Portscapabilities.

At existing ports of Hazira and Vadinar, special emphasis was laid on training ofemployees with a combination of on the job and Off the job training. The Company hasintroduced Technology enabled HR practices in Performance Management and Training tostreamline and strengthen these practices.

8. INFORMATION TECHNOLOGY

Your Company has successfully implemented SAP in its financial and related systems. ForBulk as well as Oil Terminals, system has been implemented to capture end-to-end workflowcovering all activities from pre-arrival intimations to actual departure of vessels.Expected berth occupancy is being plotted thereby optimising the berth utilisation andincreasing berth efficiency. Various dashboard reports will be implemented in the systemfor Berth performance and resource monitoring.

9. SUBSIDIARIES:

Post the Scheme of Arrangement, following are the subsidiaries of your Company:

1. Vadinar Oil Terminal Limited (VOTL)

2. Vadinar Ports & Terminals Limited (VPTL) (a subsidiary of VOTL)

3. Essar Bulk Terminal Limited (EBTL)

4. Essar Bulk Terminal (Salaya) Limited (EBTSL)

5. Essar Paradip Terminals Limited (EPTL)

6. Essar Bulk Terminal Paradip Limited (EBTPL)

In accordance with the general circular issued by the Ministry of Corporate Affairs,Government of India, the Balance Sheet, Profit & Loss Account and other documents ofthe subsidiary companies are not being attached with the Balance Sheet of the Company. TheCompany will make available the Annual Accounts of the subsidiary companies and therelated information to any member of the Company who may be interested in obtaining thesame. The annual accounts of the subsidiary companies will also be kept for inspection atthe Registered Office of the Company and that of the respective subsidiary companies. TheConsolidated Financial Statements presented by the Company include the financial resultsof the subsidiary companies.

10. DIRECTORS

In accordance with the provisions of the Companies Act, 1956 and the Articles ofAssociation of the Company, Mr. Dilip J. Thakkar, Mr. R. N. Bansal and Mr. Anshuman Ruiaretire at the ensuing Annual General Meeting of the Company and being eligible, offerthemselves for re-appointment.

Mr. N. Srinivasan, Mr. A. R. Ramakrishnan, Mr. V. Ashok and Mr. S. V. Venkatesan haveresigned from the directorship of your Company during the year. Your Board places onrecord their appreciation for the valuable contribution made by these Directors in theprogress of the Company.

Mr. Shailesh Sawa and Mr. K. K. Sinha have been appointed as Additional Directors inthe wholetime employment of the Company designated as Director Finance and Chief ExecutiveOfficer respectively. Mr. T. S. Narayanasami, has been appointed as an AdditionalIndependent Director. The Company has received notices from members proposing theappointment of Mr. Sawa, Mr. Sinha and Mr. Narayanasami as Directors of the Company.

11. AUDITORS

Your Company's Auditors, Messrs. Deloltte Haskins & Sells, Chartered Accountants,Mumbai retire at the ensuing Annual General Meeting and have expressed their inability tobe appointed as Statutory Auditors. It is proposed to appoint Messrs. Deloltte Haskins& Sells, Chartered Accountants, Ahmedabad as the Auditors of the Company from theconclusion of this Annual General Meeting until the conclusion of the next Annual GeneralMeeting. The Company has received a notice from a member proposing the name of Messrs.Deloltte Haskins & Sells, Ahmedabad as Statutory Auditors.

12. CORPORATE GOVERNANCE

The Company has complied with the requirements under the Corporate Governance reportingsystem. The disclosures as required therein have been furnished in the Annexure to theDirectors' Report under the head "Corporate Governance".

13. PARTICULARS REQUIRED UNDER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORTOF THE BOARD OF DIRECTORS) RULES, 1988

This does not apply to your Company as the Ports & Terminals Industry Is notincluded in the Schedule to the relevant rules.

Foreign exchange earnings and outgo are summarised below:

Total Foreign Exchange:

Your Company has obtained exemption from the Central Government under Section 211(4) ofthe Companies Act, 1956 from giving Information required under clauses (a), (b), (c) and(e) of Paragraph 4-D of Part II of Schedule VI to the Companies Act, 1956 vide Order no.46/60/2011-CL-III dated February 15, 2011.

Information as per Section 217(2A) of the Companies

Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended,is given in the Annexure forming part of this Report. However, as per the provisions ofSection 219(1)(b)(iv) of the said Act, the Report and Accounts are being sent to all theshareholders of the Company excluding the statement of particulars of employees u/s 217(2A) of the said Act. Any shareholder interested in obtaining a copy of this statement maywrite to the Company Secretary for the same at the Registered Office of the Company.

15. STATEMENT OF DIRECTORS RESPONSIBILITIES

Pursuant to the requirement of Section 217(2AA) of the Companies Act, 1956 the Board ofDirectors hereby state that:

a) in the preparation of the annual accounts, the applicable accounting standards havebeen followed and there have been no material departures;

b) the Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe profit or loss of the Company for that period;

c) the Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other Irregularities; and

d) the Directors have prepared the annual accounts on e going concern basis.

16. APPRECIATION AND ACKNOWLEDGEMENTS

Your Directors express their sincere thanks and appreciation to all the employees fortheir commendable teamwork and contribution to the growth of the Company.

Your Directors also thank its bankers and other business associates for their continuedsupport and co-operation during the year.

For and on behalf of the Board