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Essar Oil Ltd. Notes to Accounts, Essar Oil Ltd. Company
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Notes to Accounts of Essar Oil Ltd.

Mar 31, 2015

1. CAPITAL AND OTHER COMMITMENTS

(Rs. in crore)

As at As at

Particulars March 31, 2015 March 31, 2014

Capital commitments :

Estimated amount of contracts remaining to be executed on capital account and not provided 1,268.21 710.36 for (net of advances) {including Rs. 0.11 crore (Previous year Rs. 0.11 crore) pertaining to joint ventures (refer note 38)}

Other commitments

The shareholders of the Company, on May 06, 2014, approved the acquisition of equity and participating preference shares of Vadinar Power Company Limited, for an amount not exceeding Rs. 2,100 crore from Essar Power Limited against which an advance payment of Rs. 1,400 crore has been made. The Company is in the process of completing relevant formalities for acquisition of these shares.

2. CONTINGENT LIABILITIES

(Rs.in crore)

As at As at Particulars March 31, 2015 March 31, 2014

a) Claims against the Company not acknowledged as debts

(i) In respect of income tax 68.34 64.97

(ii) In respect of sales tax / VAT 40.74 10.40

(iii) In respect of custom duty / excise duty / service tax 650.82 282.94

(iv) Others {including Rs.5.12 crore (Previous year Rs.6.29 crore) pertaining to joint 249.04 320.12 ventures (refer note 38)}

Others includes certain arbitration matters Rs.98.76 crore (Previous year Rs.192.72 crore), Alop claim Rs.102.99 crore (Previous year Rs.89.28 crore), Gujarat entry tax Rs.3.51 crore (Previous year Rs.3.51 crore), additional compensation in land acquisition matter Rs.0.74 crore (Previous year Rs.0.66 crore), E & P legal disputes / claims Rs.32.70 crore (Previous year Rs.27.44 crore), Green cess matter Rs.10.10 crore (Previous year Rs.6.08 crore) and Other miscellaneous claims of Rs.0.24 crore (Previous year Rs.0.43 crore)

b) Guarantees given by the Company on behalf of others - 63.98

Claims by parties based on management assessment and / or legal advice that the same are frivolous and not tenable, have not been considered as contingent liabilities as the possibility of outflow of resources embodying economic benefits is highly remote.

Pursuant to the opinion of the Expert Advisory Committee of the ICAI that the INR/USD currency swaps (Principal Only and Full Currency Swaps (POS / FCS)) entered into by the Company are governed by the hedge accounting principles laid out in Accounting Standard 30- Financial Instruments: Recognition and Measurement (AS 30) and are not covered under Accounting Standard 11- The Effects of Changes in Foreign Exchange Rates (AS 11), the Company has unwound the accounting under AS 11 previously adopted in respect of extant POS / FCS at the balance sheet date and followed hedge accounting under AS 30.

3. GDS PROCEEDS UTILISATION

As at balance sheet date, the unutilized balance of proceeds from issue of GDS / advance towards issue of GDS amounting to Rs. 12.37 crore (Previous year Rs. 12.25 crore) is lying in current / deposit accounts with banks.

4. EXCEPTIONAL ITEMS

Exceptional item comprises of inventory losses of Rs. 918.00 crore, consequent upon the month to month steep and unprecedented fluctuations in the global prices of crude oil during the year ended March 31, 2015.

(ii) General description of the leasing arrangements:

- Leased Assets – Residential township, Transit accommodation and supply depot.

- Future lease rental payments are determined on the basis of quarterly / monthly lease payments as provided in the agreements.

- At the expiry of the lease term, the Company has an option to extend the lease on mutual terms and conditions. In case of the supply depot, the ownership gets transferred to the Company at the end of the lease term.

- Assets are taken on lease over a period of 10 to 20 years.

b) Operating lease:

(i) The Company's major leasing arrangements are in respect of commercial /residential premises (including furniture and fittings)/ retail outlet facilities. The lease rentals are recognised under "Other Expenses" or "Expenditure during construction / pre-production activities" as applicable. These leasing arrangements are usually renewable by mutually agreed terms and conditions.

e) i) The Company uses proved and probable reserves as the basis for impairment assessment for both crude oil and coal bed methane gas blocks.

ii) India CBM pool and Indian Oil & Gas pool are considered as separate cash generating units for impairment assessment purpose.

iii) Crude oil reserves are evaluated on yearly basis by inhouse technical team, based on available geological, geophysical and production data.

CBM reserve certification exercise was carried out by an independent external agency in September 2009 and September 2011. All estimates have been prepared in accordance with the definition and guidelines set forth in the 2007 Petroleum Resource Management System (PRMS) approved by Society of Petroleum Engineers (SPE).

iv) No exploration cost has been written off during the year.

ii) Names of related parties, where the transactions during the year / balances as at March 31, 2015 with a single party are 10% or more, are disclosed under each nature of transaction / class of balances.

iii) The Company has reckoned with the carrying values of amounts due from related parties having regard to inter alia, expected realization based on agreement / understanding with the parties, guarantees / letters of support and fair values of the net assets of the parties / guarantors, on the basis of which Current / Non current classification has been made in the financial statements and the amounts due have been concluded to be good and recoverable.

iv) Previous year figures have been shown in brackets.

5. Figures of previous year have been regrouped / rearranged, wherever necessary, to conform to those of the current year.


Mar 31, 2014

CORPORATE INFORMATION:

Essar Oil Limited (the Company) is a public limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The equity shares of the Company are currently listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in India. It is primarily engaged in the business of refining and marketing of petroleum products in domestic and overseas markets. It is also engaged in the business of Exploration and Production.

BASIS OF PREPARATION:

The financial statements of the Company have been prepared in accordance with Generally Accepted Accounting Principles in India ("Indian GAAP"). The Company has prepared these financial statements to comply in all material respects with the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements of the Company have been prepared on an accrual basis and under the historical cost convention. Attention is invited to note (7)(ii)(a) and (c).

1.a) Terms / rights attached to the Equity Shares / Global depository shares (GDS) :

The company has only one class of equity shares having a par value of Rs. 10 per share. Each holder of equity share is entitled to one vote per share.

In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

Holders of GDS will be entitled to receive dividends, subject to the terms of the Deposit Agreement, to the same extent as the holders of shares, less the fees and expenses payable under such Deposit Agreement and any Indian tax applicable to such dividends. Holders of GDS will not have voting rights with respect to the Deposited Shares.

2. FOREIGN CURRENCY COMPULSORY CONVERTIBLE BONDS (FCCCBs)

During the year, the company has issued and allotted 83,849,814 equity shares of Rs. 10/- each (face value) fully paid-up, to a promoter company on their exercising the option to convert the entire holding of FCCCBs aggregating to USD 262 million (Rs. 1,224.65 crore) into equity shares on December 09, 2013. The terms of issue is detailed below:

i. Issue and allotment of 38,833,443 equity shares of Rs. 10/- each at a price of Rs. 138 per share, on conversion of 1,150 FCCCBs of USD 100,000 each aggregating

3. LONG TERM BORROWINGS

to USD 115 million which were issued on June 15, 2010; and ii. Issue and allotment of 45,016,371 equity shares of Rs. 10/- each at a price of Rs. 153 per share, on conversion of 1,470 FCCCBs of USD 100,000 each aggregating to USD 147 million which were issued on July 09, 2010. Accordingly, face value of shares issued Rs. 83.85 crore is transferred to share capital account and balance amount Rs. 1,256.15 crore (including the exchange fluctuation on restatement of such FCCCBs upto the date it became compulsory convertible) is transferred to securities premium account.

The classification of loans between current and non-current is based on repayment schedule under respective agreements as no loans have been recalled due to non-compliance of conditions under any of the loan agreements. The non compliance of conditions under the loan agreements are primarily arising out of the order of the Honourable Supreme Court dated January 17, 2012. This is in accordance with the guidance issued by the Institute of Chartered Accountants of India on Revised Schedule VI to the Companies Act, 1956.

(i) Security for term loans and funded interest facilities from banks and financial institutions and debentures

a) Term loans and funded interest facilities of Rs. 5,808.28 crore (Previous year Rs. 6,996.08 crore) and debentures of Rs. 149.29 crore (Previous year Rs. 152.18 crore) are secured / to be secured by first ranking security interests (pari passu with loans for refinery expansion, refinery optimisation, HMU II ECB, ICICI refinanced ECB loan, IDBI refinanced ECB loan and Sales tax / General purpose term loan) on all present and future immovable assets of refinery division, all present and future movable assets other than current assets of refinery division, security interest on rights, title and interests, trust and retention accounts, insurance policies in relation to the refinery including refinery expansion, refinery optimisation and HMU II and second ranking security interests on current assets, pledge of certain shares of the Company held by promoter''s Company, personal guarantees of some of the promoters and other collaterals being charge on pledge of certain shares of a Group Company and charge by way of mortgage over a property of a Group Company. Term Lenders have agreed to release personal guarantees and collaterals thereto and majority of the lenders have already released the same and other are in process of releasing.

b) Corporate term loan from a bank of Rs. 1,000.00 crore (Previous year Rs. 1,000.00 crore) is secured by first charge on all present and future current assets (ranking pari passu with working capital facility), excluding that of exploration and production division, second charge by way of mortgage of land and building and plant and machinery and other assets excluding certain category of assets, personal guarantees of some of the promoters and corporate guarantee by a Group Company and other collaterals being second charge on pledge of certain shares of the Company and that of a Group Company held by promoters and second charge by way of mortgage over a property of a Group Company.

c) Sales tax / General purpose term loan from a bank of Rs. 3,250.00 crore (Previous year Rs. 3,143.00) crore is secured by first ranking security interests (pari passu with loans for refinery, refinery expansion, HMU II ECB, ICICI refinanced ECB loan, IDBI refinanced ECB loan and refinery optimisation) on all present and future fixed assets and second ranking security interests on all present and future current assets excluding debt of exploration and production division, personal guarantees of some of the promoters and certain undertakings provided from holding companies.

d) IDBI refinanced ECB loan of Rs. 1,620.94 crore (Previous year Rs. 1,466.93 crore) is secured / to be secured by first ranking security interests (pari passu with loans for refinery, refinery expansion, refinery optimisation, HMU II ECB, ICICI refinanced ECB loan and Sales tax / General purpose term loan) on all present and future immovable assets (except certian leased out assets) of refinery project, all present and future movable assets of refinery project excluding current assets, security interest on the rights, title and interest under project documents, trust and retention accounts, insurance policies all in relation to the refinery including refinery expansion, refinery optimisation and HMU II and second pari-passu charge on the current assets, pledge of certain shares of the Company held by promoter''s Company and certian undertakings provided by holding companies.

e) ICICI refinanced ECB loan of Rs. 1,442.40 crore (Previous year Rs. Nil) is secured / to be secured by first ranking security interests (pari passu with loans for refinery, refinery expansion, refinery optimisation, HMU II ECB, IDBI refinanced ECB loan and Sales tax / General purpose term loan) on all present and future immovable assets of the in relation to the refinery project, including the rights to the refinery project land and the project site (but excluding (I) all immovable property leased to or provided for use by the entities implementing the terminal utility, the power utility and township project, and (II) any land for the second train of 18 MMTPA); a first ranking charge by way of hypothecation of all moveable fixed assets in relation to the refinery project, both present and future (but excluding all upstream oil & gas, coal bed methane related assets including but not limited to Ratna & R-series oil fields, CBON-3 (Mehsana), Raniganj RJ (East), CR-0N-90/1 (Cachar), Blocks L&A2 (Myanmar) and AA-ONN (Assam) blocks and Naphtha Receivables, all intangible and tangible assets with respect to the refinery project (but excluding Current Assets in relation to the refinery project and all upstream oil & gas, coal bed methane related assets including but not limited to Ratna & R-series oil fields, CBON-3 (Mehsana), Raniganj RJ (East), CR-ON-90/1 (Cachar), Blocks L&A2 (Myanmar) and AA-ONN (Assam) blocks and Naphtha Receivables, all the bank accounts in relation to the refinery project, including without limitation the Trust and Retention Accounts, the Debt Service Reserve Account, the Escrow Account, all the rights, titles, permits, approvals, interests etc., under project documents, a second ranking charge by way of hypothecation on all current assets of the in relation to the refinery project, pledge of certain shares of the Company held by promoter''s Company and certain undertakings provided by holding companies.

f) Term loans of Rs. 3,001.03 crore (Previous year Rs. 3,990.43 crore) for the refinery expansion are secured by first ranking security interests (pari passu with loans for refinery, refinery optimisation, HMU II ECB, IDBI refinanced ECB loan, ICICI refinanced ECB loan and Sales tax / General purpose term loan) on all present and future immovable assets of refinery, all present and future movable assets, other than current assets of refinery, all tangible and intangible assets of refinery, all the bank accounts of refinery including without limitation the cash sweep account, debt service reserve account, first charge on security interest on rights, title and interests under project documents, trust and retention accounts, insurance policies in relation to the refinery, including refinery expansion, charge over immovable properties leased to entities implementing the terminal utility, power utility and township utility (subject to prior charge in favour of the lenders financing the said utilities) and second ranking security interest on current assets of refinery and further by pledge and non-disposal undertaking of certain shares / global depository shares of the Company held by promoter''s Company, personal guarantees of promoters of the Company together with collateral securities i.e. pledge over certain shares of group company and mortgage over the certain assets of a group company and certain undertakings from holding and group companies and residual charge on the company''s participating interest and cash flows related to upstream oil and gas, coal bed methane fields and related assets subject to certain approvals.

g) Term loans of Rs. 805.53 crore (Previous year Rs. 1,013.45 crore) for the refinery optimisation are secured by first ranking security interests (pari passu with loans for refinery, refinery expansion, HMU II ECB, IDBI refinanced ECB loan, ICICI refinanced ECB loan and Sales tax / General purpose term loan) on all present and future immovable assets (except certain leased out assets) of refinery project, all present and future movable assets other than current assets of refinery project, all tangible and intangible assets of refinery project, bank accounts of optimisation project security interest on rights, title and interests under project documents, trust and retention accounts, insurance policies in relation to the refinery, refinery expansion and refinery optimisation and second ranking security interests on current assets.

h) Term loans of Rs. 567.26 crore (Previous year Rs. 534.07 crore) is secured / to be secured by first charge on immovable assets and movable assets (present and future), first charge over book debts, operational cash flows, receivables, trust and retention account, Debt Service Reserve account, participating interest under CBM contract, security interest on rights, title and interests under the project documents, insurance policies, clearances, rights under letter of credit, guarantee, performance bond, corporate guarantee and bank guarantees, all in relation a CBM Project.

i) Term loan from a Bank of Rs. Nil (Previous year Rs. 1.20 crore) is secured by hypothecation of current assets of an oilfield, bank escrow accounts for certain receivables and corporate guarantee by a Group Company.

j) ECB Loan of HMU II Rs. 579.68 crore (Previous year Rs. Nil) is secured by first ranking security interests (pari passu with loans for refinery, refinery expansion, refinery optimisation, IDBI refinance ECB loan, ICICI refinanced ECB loan and Sales tax / General purpose term loan) on all present and future immovable assets (except certain leased out assets) of refinery, security interest on rights, title and interests under project documents, all present and future movable assets of refinery, all tangible and intangible assets of refinery, all the bank accounts of HMU II project including without limitation to trust and retention accounts, debt service reserve account, project implementation account and second ranking security interests on current assets of refinery, pledge of certain shares of the Company held by promoter''s Company and certain undertakings provided by holding companies.

(ii) Repayment and other terms:

a) Outstanding debentures consists of :

13,592,050 (Previous year 13,868,050) - 12.50% Secured redeemable non - convertible debentures (NCDs) of Rs. 105/- each amounting to Rs. 142.72 crore (Previous year Rs. 145.61 crore).

700,000 (Previous year 700,000) - 12.50% Secured redeemable non - convertible debentures (NCDs) of Rs. 100 each on private placement basis partly paid up at Rs. 93.86 per debenture amounting to Rs. 6.57 crore (Previous year Rs. 6.57 crore).

As per the Common Loan Agreement (CLA) dated March 25, 2013, entered with lenders post exit from the Corporate Debt Restructuring (CDR) Scheme, the Company has agreed to pay interest on a monthly/quarterly basis, on the debentures held by the erstwhile CDR lenders at a prime lending rate / base rate of respective banks plus margin (margin ranges from 2.12 % p.a. to 3.00% p.a.). During the year, the Company sent offer letters to all the debenture holders other than lenders and Group Companies giving them, inter alia, an option for prepayment of debentures along with accumulated interest in full. The principal amount of debentures was otherwise payable from December 2014 to June 2018 and accumulated interest from December 2014 to March 2027, with an option to prepay certain portion of interest at a discounted rate. These debenture holders were also given an option to fall in line with the terms contained in the CLA. Out of the total 49 debenture holders, 43 debenture holders exercised the option for prepayment of the debenture amount along with accumulated interest and the total amount prepaid (including funded interest) during the year to such debenture holders is Rs. 9.20 crore. The balance debenture holders did not respond.

The Honourable High Court of Gujarat has, in response to the Company''s petition, ruled vide its orders dated August 04, 2006 and August 11, 2006 that the interest on various facilities of debentures should be accounted on cash basis. In accordance with the said petition / order, funded / accrued interest liabilities amounting to Rs. 304.93 crore (Previous year Rs. 417.72 crore) as at March 31, 2014 have not been accounted for. This amount carries interest rate ranging from fixed rate of 4.98% p.a. to a floating rate of 13.00% p.a. and is repayable from December 2014 to March 2027.

b) The Interest rates for the loans covered under the Common Loan Agreement ("the CLA") (earlier

Master Restructuring Agreement ("the MRA")) with Banks and Financial institutions amounting to Rs. 4,492.38 crore (Previous year Rs. 5,459.20 crore) is based on their prime lending rate / base rate / LIBOR plus margin (margin ranges from 2.12% to 3.00%) with different repayment installments starting from December 2009 to March 2026.

c) In 2012-13, the Company exited Corporate Debt Restructuring Scheme resulting in termination of the MRA dated December 17, 2004 and entered into a CLA dated March 25, 2013 with the lenders for the loan facilities which were hitherto being governed by the MRA. The MRA gave an option, subject to consent of lenders, to the Company to prepay certain funded interest loans (the FS loans) of Rs. 2,471.64 crore on or before April 24, 2012 without interest. The FS loan has not been prepaid before April 24, 2012 and is now governed by the CLA.

In order to give accounting effect to reflect the substance of the transaction, the FS loan was, since inception, measured by the Company in accordance with the principles of IAS 39, Financial Instruments, Recognition and Measurement, in absence of specific guidance in Indian GAAP to cover the specific situation.

Applying the principle of Accounting Standard 30, Financial Instruments, Recognition and Measurement, the FS loan has been re-measured in continuance of the above principle, considering present value of cash flow inclusive of future interest. Accordingly, the grossliability of Rs. 3,166.34 crore of the FS loans and funded interest thereon as at March 31, 2014 (comprising of Rs. 2,126.83 crore to the banks and Rs. 1,039.51 crore to the financial institutions) have been measured at Rs. 2,057.32 crore (comprising of Rs. 1,430.49 crore to the banks and Rs. 626.83 crore to the financial institutions).

The changes in the present obligation of the said loans Rs. 223.49 crore has been treated as finance cost in the statement of Profit and Loss or capitalised as part of cost of fixed assets, as applicable.

The FS Loans of Rs. 2,471.64 crore is repayable in various installments from March 2021 to March 2026 and the Funded Interest thereon as at March 31, 2014 amounting to Rs. 694.70 crore is repayable in 40 equal quarterly installments beginning June 30, 2015.

A funded interest loan of Rs. 206.88 crore (Previous year Rs. 206.88 crore) is payable in a single bullet payment in 2031 and is continued to be measured in accordance with the aforementioned principles at Rs. 38.59 crore (Previous year Rs. 34.95 crore).

d) Term Loans amounting to Rs. 3,410.22 crore (Previous year Rs. 4,563.97 crore) carry interest rate linked with respective banks'' prime lending rate / base rate / liquidity premium and are repayable in installments starting from December 2012 ending in March 2020. Buyers'' Credit outstanding in the previous year amounting to Rs. 948.45 crore has been settled in line with the term loan agreements.

e) Term loans amounting to Rs. 567.26 crore (Previous year Rs. 534.07 crore) carry interest rate linked with respective banks prime lending rate/base rate/ LIBOR plus margin and are repayable in installments starting from March 2014 and ending in December 2021. Out of above Rs. 38.41 crore (Previous year Rs. 67.62 crore) pertains to Buyers'' credit which will be ultimately converted into term loan.

f) Term loans amounting to Rs. Nil (Previous year Rs. 1.20 crore) carry 12.80% interest rate.

g) ECB Loan amounting to Rs. 396.34 crore (Previous year Rs. 439.90 crore) carry interest rate of LIBOR 2.75% are repayable in installments starting from January 2012 and ending in October 2018.

h) ECB Loan amounting to Rs. 3,063.34 crore (Previous year Rs. 1,466.93 crore) carry interest rate of 3/6 months LIBOR margin ranging from 4.704% to 5.00% are repayable in installments starting from March 2015 and ending in March 2024.

i) Corporate term loan amounting to Rs. 1,000.00 crore (Previous year Rs. 1,000.00 crore) carry interest rate at banks'' prime lending rate / base rate plus 3.75% (margin / liquidity premium) and is repayable in installments from June 2014 to March 2017.

j) General purpose term loan amounting to Rs. 3,250.00 crore (Previous year Rs. 3,143.00 crore) carry interest rate at banks'' prime lending rate / base rate plus 3.00% (margin / liquidity premium) and is repayable in installments from December 2012 to September 2018.

k) ECB Loan amounting to Rs. 579.68 crore (Previous year Rs. Nil) carry interest of 3 months LIBOR 4.96% and is repayable in installments starting from June 2015 and ending in March 2021.

l) The pilot project for coal bed methane gas was partially financed by a conditional grant of USD 0.89 million (Previous year USD 0.89 million) and Rs. 2.31 crore (Previous year Rs. 2.31 crore) received from a bank.

The conditional grant, in terms of the agreement, will be repayable in the event the Company puts the project to commercial use, and repayments to the bank will be based on gross annual sales derived from the commercial exploitation of the project, subject to a maximum repayment of 200% of the conditional grant. Commercial exploitation of the project is dependent upon getting necessary approvals from the Government of India.

m) Rupee loan from a related party amounting to Rs. 13.81 crore (Previous year Rs. 45.75 crore) carrying interest rate of 10.25% repayable by April 25, 2014 in various installments.

The Company has not recognised Deferred Tax Assets (net) of Rs. 1,919.61 crore as on March 31, 2014 on unabsorbed depreciation / loss in view of the concept of "Virtual Certainty Supported by Convincing Evidence" as required under Accounting Standard (AS) 22 - Accounting for Taxes on Income.

* Represents Bills payable for capital creditors as at March 31, 2013, with or without roll over, ultimately convertible into long term loans in line with the term loan agreements.

** There is no amount due and outstanding to be credited to Investor Education and Protection Fund as at balance sheet date.

*** Represents temporary overdrawn bank balances as per books of Accounts, consequent to issue of cheques at year end.

Represents current cost of restoring the Exploration and Production sites on abandonment or decommissioning of oil and gas wells and facilities at the end of their economic life.

4.Security for short term borrowing:

(i) Buyers'' credits, bills discounting, advance against LCs and Working capital demand loan:

a) Rs. 5,857.42 crore (Previous year Rs. 6,491.93 crore) secured by first charge on all current assets (ranking pari passu with Corporate term loan) excluding that of Exploration and Production division, second charge by way of mortgage of land and building and plant and machinery and other movable assets, present and future excluding certain category of assets, personal guarantees of promoters, corporate guarantee by Group Companies, other collaterals being second charge on pledge of certain shares of the Company and that of a Group Company held by other Group Companies and second charge by way of mortgage over a property of Group Company.

b) Rs. 769.86 crore (Previous year Rs. 1,196.46 crore) secured by charge over receivables.

c) Rs. 129.05 crore (Previous year Rs. 59.29 crore) secured by fixed deposits maintained with a bank.

(ii) Bank overdraft / cash credit from bank of Rs. 0.65 crore (Previous year Rs. 92.53 crore) is secured by fixed deposits maintained with a bank.

*Amount less than Rs. 0.01 crore

**On March 11, 2014, the Company acquired Essar Oil Trading Mauritius Limited, Mauritius (EOTML) (formerly known as Steel Trading Mauritius Limited) as a wholly owned subsidiary.

***All the shares are pledged with a lender against a loan disbursed to the Company.

* Other receivables include Rs. 76.21 crore (Previous year Rs. 167.67 crore) due from government companies / agencies in respect of the Company''s erstwhile oil drilling and offshore construction activities for which the Company received favourable awards in arbitration proceedings. The awards have since been challenged by the parties. Pending outcome of the litigations, the receivables are considered as recoverable based on the arbitration awards and assessment of the management.

Revenue from operations (gross) includes sale of goods net of trade discount, duty draw back income, recoverable sales tax / Value added tax (VAT) from customers, hedging loss/gain on product / cracks and excise duty.

* includes net gain of Rs. 183.81 crore (Previous year net loss Rs. 175.76 crore) on the instruments for hedging of risk of movement in prices of finished goods and margins.

The above amounts include net loss of Rs. 579.20 crore (Previous year net loss Rs. 238.23 crore) on the instruments for hedge of risk of movement in prices of crude oil.

5. CONTINGENT LIABILITIES

(Rs. in crore) As at As at Particulars March 31, 2014 March 31, 2013

a) Claims against the Company not acknowledged as debts

(i) In respect of income tax 64.97 67.49

(ii) In respect of sales tax / VAT* 10.40 670.04

(iii) In respect of custom duty / excise duty / service tax 282.94 258.87

(iv) Others" {including Rs. 6.29 crore (Previous year Rs. Nil) pertaining to 320.12 508.01 joint ventures (refer note 40)}

The above others include certain Arbitration matters under litigation at various High Courts Rs. 192.72 crore (Previous year Rs. 183.61 crore), Alop matter claim Rs. 89.28 crore (Previous year Rs. 52.00 crore), Stamp duty on import of crude Rs. Nil (Previous year Rs. 246.24 crore), Demand of road tax on certain heavy equipment Rs. Nil (Previous year Rs. 0.94 crore), Gujarat entry tax Rs. 3.51 crore (Previous year Rs. 3.28 crore), Litigation for additional compensation in land acquisition matter Rs. 0.66 crore (Previous year Rs. 0.64 crore), E & P legal disputes / claims Rs. 27.44 crore (Previous year Rs. 20.15 crore), Green cess matter Rs. 6.08 crore (Previous year Rs. Nil) and Other miscellaneous claims of Rs. 0.43 crore (Previous year Rs. 1.15 crore).

b) Guarantees given by the Company on behalf of others 63.98 125.67

* For the Assessment year 2008-09 the Sales tax department served a demand notice of Rs. 659.90 crore disallowing the contention of the Company that the sale of Kerosene to PSU through public distribution system and LPG in bulk to PSU for domestic use by the Company falls within the ambit of Exemption Notifications issued by Government of Gujarat. Pending litigation, the Company had disclosed this as a contingent liability for the year ended March 31, 2013. During the year, considering the clarification issued by the MOP&NG, decision of Honourable Tribunal of Gujarat in a similar matter for other industry players and the sales tax department allowing the exemption in the assessment of subsequent year, the Company does not consider this amount as a contingent liability as at the balance sheet date.

**In 2006, the State of Gujarat imposed stamp duty on all imports made through the ports in Gujarat. This was disputed by the Company. The Company had shown a contingent liability of Rs. 246.24 crore as on March 31, 2013 for the stamp duty amount based on an appeal filed by the State Government in the Supreme Court against an order of a Division Bench of Gujarat High Court which was in favour of the Company. During the year, Company obtained an external legal opinion wherein it has been opined that such stamp duty cannot be levied on imported goods. Considering the fact that the High Court order was in favour of the Company and based on legal opinion, the Company had reassessed its position during the year and does not consider it as a contingent liability as at the balance sheet date.

The claims by parties in respect of which the management has been legally advised that the same are frivolous and not tenable, have not been considered as contingent liabilities as the possibility of an outflow of resources embodying economic benefits is highly remote.

6. HEDGE ACCOUNTING

a) During the year, the company extended hedge accounting principles of Accounting Standard (AS) - 30 "Financial Instruments: Recognition and Measurement" for accounting to certain forward foreign exchange contracts to hedge the exchange risk pertaining to highly forecasted transactions and to Interest rate swaps entered for hedging interest rate risks of foreign currency loans. Accordingly, Rs. 12.74 crore loss has been carried over to cash flow hedge reserve as of March 31, 2014 for interest rate swaps hedging.

7. GDSs PROCEEDS UTILISATION

As at balance sheet date, the unutilized balance of proceeds from issue of global depository shares amounting to Rs. 12.25 crore (Previous year Rs. 14.75 crore) is lying in deposit accounts with banks.

8. ADVANCES / RECEIVABLES

At the Extraordinary General Meeting of the company held on May 06, 2014, the shareholders have approved the acquisition of:

(a) 10.25% cumulative redeemable preference shares of Essar Power Limited having an aggregate face value of Rs. 1,025.00 crore held by Essar House Limited (EHL) at par value in part settlement of the dues from EHL; and

(b) the balance 73.99% equity shares and entire participating preference shares in an associate company, Vadinar Power Company Limited (VPCL), from a fellow subsidiary - Essar Power Limited, for an amount not exceeding Rs. 2,100.00 crore, so as to make it a wholly owned subsidiary of the Company. VPCL supplies utilities (power/steam) for the Company''s refinery.

Other receivables include an amount of Rs. 1,942.58 crore (Previous year Rs. 2,177.82 crore) receivable from EHL against the amount paid in earlier years under the Sales tax defeasance agreement. During 2012-13, the Company agreed to recover these dues in eight equal quarterly installments along with interest, coinciding with the installment facility made available by the Honourable Supreme Court to the company for repayment of the Gujarat Sales tax dues. Amount of instalments and interest so due and recoverable upto March 31, 2014 is Rs. 1,016.10 crore against which shares as aforesaid are being acquired. Accordingly, the amount is classified under ''non-current assets''. The Company expects that EHL will settle the balance amount of Rs. 917.58 crore as of March 31, 2014 together with interest, during the financial year 2014-2015. This amount has been guaranteed by the parent Company of EHL.

Advances recoverable in cash or kind or value to be

received from related parties include an amount of Rs. 1,828.29 crores outstanding (maximum outstanding during the year Rs. 2,022.82 crores) from VPCL. Similarly, security deposit includes an amount of Rs. 590.00 crores placed with VPCL. Both these amounts attract interest @ 13% p.a. till settlement. Subject to completion of relevant formalities involved in acquisition of the balance shares of VPCL as explained above, the company expects to recover before next financial year end such advance and security deposit and hence has classified the amounts as ''current assets'' in its financial statements.

9. FOREIGN CURRENCY MONETARY ITEM TRANSLATION DIFFERENCE ACCOUNT (FCMITDA)

The Company had entered into INR/USD Currency Swaps i.e. Principal Only Swaps/Cross Currency Swaps (POS / CCS) to reduce the volatility in the Company''s cash flows/profitability since its revenues and costs are incurred predominantly in USD or USD linked rupees.

The Company treats the USD Swap notional payable as a monetary item in its books of accounts which is revalued at every closing date and the forex fluctuation on same is taken to Foreign Currency Monetary Item Translation Difference Account (FCMITDA) and amortised in accordance with para 46A of Accounting Standard (AS) 11 - ''The Effects of Changes in Foreign Exchange Rates''. This accounting treatment has been followed by the company consistently.

The Expert Advisory Committee (EAC) of the Institute of Chartered Accountants of India (ICAI) whose opinion was published in February 2014 Chartered Accountants Journal, has excluded the currency swaps from the scope of Accounting Standard (AS) 11. The company has made a representation to the EAC explaining the economic environment in which it operates and considering the aspect of substance over form, to confirm that the accounting treatment currently followed by the Company is appropriate. Pending receipt of a decision from EAC, the Company has continued to follow the existing accounting treatment as per the relevant accounting policy.

(ii) General description of the leasing arrangements:

* Leased Assets - Residential township, Transit accommodation and supply depot.

* Future lease rental payments are determined on the basis of quarterly / monthly lease payments as provided in the agreements.

* At the expiry of the lease term, the Company has an option to extend the lease on mutual terms and conditions. In case of the supply depot, the ownership gets transferred to the Company at the end of the lease term.

* Assets are taken on lease over a period of 10 to 20 years.

(iii) The above disclosures pertain to lease arrangements where leases have commenced upon assets becoming ready to use.

b) Operating lease:- Current year - Nil, Previous year details shown below

* Leased Assets (cancellable) - Power plants

* Leased period - from January 01, 2013 to March 31, 2013

* The lease payments are recognised as "Other operating expenses" in the statement of profit and loss under note

10 - Other expenses.

# ONGC has exercised its back-in rights of 30% in ESU field, excluding well ESU#4, leaving the Company with a 70% participating interest. However, the Company holds 100% interest in rest of CB-ON/3 Block.

## Balance 40% interest held by ONGC and 10% by Premier Oil.

### Balance 90% interest in block AA-ONN-2004/3 and AA-ONN-2004/5 are held by Essar Energy Holdings Limited (EEHL).

e) i) The Company uses proved and probable reserves as the basis for impairment assessment for both crude oil and coal bed methane gas blocks.

ii) India CBM pool and Indian Oil & Gas pool are considered as separate cash generating units for impairment assessment purpose.

iii) Crude oil reserves are evaluated on yearly basis by inhouse technical team, based on available geological, geophysical and production data.

CBM reserve certification exercise was carried out by an independent external agency in September 2009 and September 2011. All estimates have been prepared in accordance with the definition and guidelines set forth in the 2007 Petroleum Resource Management System (PRMS) approved by Society of Petroleum Engineers (SPE).

iv) No exploration cost has been written off during the year.

(iii) Bank balance in foreign currency as at March 31, 2014 Rs. 366.64 crore (USD 61.00 million) {Previous year Rs. 0.03 crore (USD 0.00* million) & Rs. 0.00** crore (EUR 0.00* million)}

# Other than in respect of recognised liability

* Amount less than 0.01 million in FC ** Amount less than Rs. 0.01 crore

***excludes Rs. 2,670.27 crore (Previous year Rs. 1,952.05 crore) has been fixed to USD liabilities of 478.99 million (Previous year USD 378.19 million) using currency swaps Previous year figures have been shown in brackets.

Notes:

1) The Company has disclosed Business Segment as the primary segment. Segments have been identified taking into account the organizational structure, nature of services, differing risks and internal reporting system. The Company''s operation predominantly relates to Refining and marketing of petroleum products and Oil & Gas exploration.

2) The sales tax liability payable in eight quarterly installments w.e.f. January 02, 2013 with interest is not considered as segment liability considering the substance of the terms.

3) Additions to fixed assets shown above are including exchange difference and excluding capital work in progress and expenditure during construction.

4) The Company operates in two geographical segments namely "within India" and "outside India".

11. DEFINED BENEFIT PLANS / LONG TERM COMPENSATED ABSENCES (CONTD.)

(a) Defined benefit plans / long term compensated absences - as per actuarial valuations as at March 31, 2014:

Notes:

(i) The expected rate of return on plan assets is based on market expectation, at the beginning of the year, for returns over entire life of the related obligation.

(ii) The assumption of future salary increases, considered in actuarial valuation, takes account of inflation, seniority, promotion, supply and demand and other relevant factors.

(iii) The employees'' gratuity fund scheme managed by Life Insurance Corporation of India / SBI Life Insurance is a defined benefit plan. The present value of obligation is determined based on actuarial valuation using the Projected Unit Credit Method.

(iv) The employer managed provident fund is considered as defined benefit plan.

(v) Liability on account of long term absences has been actuarially valued as per Projected Unit Credit Method.

(vi) Short term compensated absences have been provided on actual basis.

(vii) The Company is unable to obtain the details of plan assets from the Insurance Company (LIC of India / SBI Life Insurance) and hence the disclosure thereof is not made.


Mar 31, 2013

1. CORPORATE INFORMATION:

Essar Oil Limited (The Company) is a public limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The equity shares of the Company are currently listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in India. It is primarily engaged in the business of refining and marketing of petroleum products in domestic and overseas markets. It is also engaged in the business of Exploration and Production.

2. BASIS OF PREPARATION:

The financial statements of the Company have been prepared in accordance with Generally Accepted Accounting Principles in India ("Indian GAAP"). The Company has prepared these financial statements to comply in all material respects with the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements of the Company have been prepared on an accrual basis and under the historical cost convention. Attention is invited to note (7)(ii)(a) and (c).

3. HEDGE ACCOUNTING

During the year, the Company adopted hedge accounting principles of AS - 30 - Financial Instruments and Derivatives for accounting of certain commodity hedges. Accordingly, Rs. 104.90 crore (gain) has been carried over to cash flow hedge reserve as of March 31, 2013 pertaining to highly probable forecast of sales proceeds. If hedge accounting principles of AS 30 had not been adopted for the year ended March 31, 2013, sales would have been higher by Rs. 18.48 crore, consumption of raw materials would have been lower by Rs. 5.69 crore, profit after tax would have been higher by Rs. 24.17 crore and receivables would have been lower by Rs. 80.73 crore.

4. GDSs PROCEEDS UTILISATION

As at balance sheet date, the unutilized balance of proceeds from issue of global depository shares amounting to Rs. 14.75 crore (Previous year Rs. 14.75 crore from advance towards issue of global depository shares proceeds) is lying in bank deposit accounts.

5. ExPLORATION AND PRODuCTION ACTIvITIES

a) As per the Company''s policy of Full Cost method of accounting prescribed in the Guidance Note on "Accounting for Oil and Gas Producing Activities" issued by the "Institute of Chartered Accountants of India", the Company has identified the following 2 Cost Pools:

(i) India CBM (Coal Bed Methane) Pool:

a) Mehsana Pilot Project held outside Pool.

b) RG (East) 2001/1 Block - Commercial Production not yet started and held outside Pool.

c) RM-(E)-CBM-2008/IV (Rajmahal, Jharkhand, India)- in exploration phase, held outside pool

d) TL-CBM-2008/IV (Talcher, Orissa, India)- in exploration phase, held outside pool

e) IB-CBM-2008/IV (IB Valley, Orissa, India)- in exploration phase, held outside pool

f) SP(NE)-CBM-2008/4 (Sohagpur, Madhya Pradesh, India)- in exploration phase, held outside pool

(ii) India Oil & Gas Pool :

a) Block CB-ON/3 - existence of commercial reserves established in ESU field, held inside Pool.

b) Ratna & R-Series - discovered oilfield but contract not executed and hence held outside Pool.

c) AA-ONN-2004/3 - In exploration phase, held outside pool

d) AA-ONN-2004/5 - In exploration phase, held outside pool

On commencement of commercial production from ESU field forming part of CB-ON/3 block, the Pool has been transferred to "Producing Properties". Depletion on "Producing Properties" is being charged on a "Unit of Production" basis.

6. Figures of previous year have been regrouped / rearranged, wherever necessary, to conform to those of the current year.


Mar 31, 2012

- Revenue from operations (gross) includes sale of goods net of trade discount, duty draw back income, recoverable sales tax / Value added tax (VAT) from customers, hedging loss/gain on product / cracks and excise duty.

* includes net gain of Rs. 176.11 crore (Previous year net loss Rs. 219.63 crore) on the instruments for hedging of risk of movement in prices of finished goods and margins.

- During the year, the Company deferred payment of sales tax /VAT liability amounting to Rs. 1,507.01 crore for the period April 01, 2011 to December 31, 2011 (Previous year Rs. 1,811.41 crore April 01, 2010 to March 31, 2011) and defeased the same to a related party at its present value amounting to Rs. 528.42 crore (Previous year Rs. 591.41 crore). Sales tax/VAT amounting to Rs. 1,387.36 crore (Previous year Rs. 917.12 crore) shown above as deduction from "Revenue from operations (net)" includes the defeased value of sales tax/VAT liability of Rs. 528.42 crore (Previous year Rs. 591.48 crore) as per the defeasance agreement pursuant to which the assignee has undertaken to discharge the sales tax/VAT liability on the due dates. Pursuant to the Supreme Court Order dated January 17, 2012, the Company subsequently reversed the entire amount of income recognized in the current year as an exceptional item {refer note (37) & 38(i)}.

1.[35] DEFERRAL / CAPITALISATION OF EXCHANGE DIFFERENCES

In the view of notification dated December 29, 2011 issued by the Ministry of Corporate Affairs extending the option upto March 31, 2020 to capitalise / amortise the foreign exchange differences on long term foreign currency monetary items under para 46 and 46A of the Accounting Standard 11, The Effect of Changes in Foreign Exchange Rates, the Company has continued to exercise the said option and has added to the cost of fixed assets exchange loss of Rs. 113.92 crore during the year (Previous year deduction due to gain Rs. 1.47 crore) and has accumulated exchange difference loss of Rs. 65.51 crore (Previous year Rs. Nil), pending to be amortized, in the Foreign Currency Monetary Item Translation difference account (FCMTD) as of March 31, 2012. On account of this, the loss for the year is lower by Rs. 179.43 crore (Previous year profit is lower by Rs. 1.47 crore) and fixed assets and FCMTD as at March 31, 2012 are higher by Rs. 113.92 crore and Rs. 65.51 crore respectively (Previous year fixed assets was lower by Rs. 1.47 crore and FCMTD Rs. Nil)

2.[38] SALES TAX

The Company was granted a provisional registration for its Refinery at Vadinar, Gujarat under the Capital Investment Incentive to Premier / Prestigious Unit Scheme 1995-2000 of Gujarat State ("the Scheme"). As the commercial operations of the Refinery could not be commenced before the timeline under the Scheme due to reasons beyond the control of the Company viz. a severe cyclone which hit the Refinery Project site in June 1998 and a stay imposed by the Hon'ble Gujarat High Court on August 20, 1999 based on a Public Interest Litigation which was lifted in January 2004 when the Hon'ble Supreme Court of India gave a ruling in favor of the Company, representations were made by the Company to the State Government for extension of the period beyond August 15, 2003 for commencement of commercial operations of the Refinery to be eligible under the Scheme. As the State Government did not grant extension of the period as requested, the Company filed a writ petition in Hon'ble Gujarat High Court which vide its order dated April 22, 2008, directed the State Government to consider the Company's application for granting benefits under the Scheme by excluding the period from July 13, 2000 to February 27, 2004 for determining the timeline of commencement of commercial production. Based on the order of the Hon'ble High Court, the Company started availing the benefits under the deferral option in the Scheme from May 2008 onwards and simultaneously defeased the sales tax liability covered by the Scheme to a related party. An amount of Rs. 6,308.94 crores was collected on account of sales tax covered by the Scheme and defeased at an agreed present value of Rs. 1,892.82 crores resulting in a net defeasement income of Rs. 4,416.12 crores which was recognised during the period May 01, 2008 to December 31, 2011. The Company also recognised a cumulative liability of Rs. 189.27 crores towards contribution to a Government Welfare Scheme which was payable being one of the conditions to be eligible under the Scheme.

The State Government had filed a petition on July 14, 2008 in the Hon'ble Supreme Court of India against the order dated April 22, 2008 of the Hon'ble Gujarat High Court. The Honorable Supreme Court of India has vide its order dated January 17, 2012, set aside the order of the Honorable High Court of Gujarat dated April 22, 2008 which had earlier confirmed the Company's eligibility to the Scheme, making the Company liable to pay Rs. 6,168.97 crores (net of payment of Rs. 236.82 crores) being the sales tax collected till January 16, 2012 under the Scheme ("the sales tax dues"). Consequently, the Company had reversed the income of Rs. 4,416.12 crores recognised during May 01, 2008 to December 31, 2011, reversed the cumulative liability of Rs. 189.27crores towards contribution to a Government Welfare Scheme and recognised income of Rs. 264.57crores (net of break up charges of Rs. 32.09 crores) on account of interest receivable from the assignee of the defeased sales tax liability, and had presented the same under 'Exceptional Items' in the Statement of Profit and Loss forming part of the financial statements for the year ended March 31, 2012 which were approved by the Board of Directors in its meeting held on May 12, 2012. These financial statements are hereinafter referred to as 'the original financial statements'.

The Company has deposited Rs. 1,000 crores on account of the sales tax as per the directive of the Honorable Supreme Court of India on July 26, 2012. In response to a Special Leave Petition filed by the Company with the Honorable Supreme Court of India seeking payment of the sales tax dues in installments and without interest, the Honorable Supreme Court has, on September 13, 2012, passed an order allowing the payment of the balance sales tax dues in eight equal quarterly installments beginning January 2, 2013 with interest of 10% p.a. with effect from January 17, 2012.

The Company has since reopened its books of account for the financial years 2008-09 to 2010-11 ("the prior years") in accordance with approval of the Ministry of Corporate Affairs ("the MCA") obtained during the financial year 2012-2013 subsequent to the approval of the original financial statements by the Board of Directors of the Company, for the limited purpose of reflecting true and fair view of the sales tax incentives / liabilities, etc. consequent to the order dated January 17, 2012 of the Hon'ble Supreme Court of India. Accordingly, the income aggregating to Rs. 3,437.53 crores recognised during May 01, 2008 to March 31, 2011 by defeasance of the sales tax liability and the cumulative liability of Rs. 144.06 crores pertaining to the prior years towards contribution to a Government Welfare Scheme were reversed, and interest of Rs. 109.44 crores (net of break up charges of Rs. 21.52 crores) recoverable from the assignee of the defeased sales tax liability was recognised and the net effect was presented as 'Exceptional Items' in the Revised Statement of Profit and Loss for the respective prior years. The effects of the revisions have been explained in detail in the revised financial statements for the prior years.

In view of the above, the original financial statements for the year ended March 31, 2012 have now been revised. Consequent to the said revision and having regard to the revision of the financial statements for the prior years described above, the Company has reversed income of Rs. 978.59 Crores recognised during April 1, 2011 to December 31, 2011 by defeasance of the deferred sales tax liability under the Scheme, reversed liability of Rs. 45.21 Crores recognised during the said period towards contribution to a Government Welfare Scheme for being eligible under the Scheme, recognised interest income of Rs. 155.13 Crores (net of break up charges of Rs. 10.57 Crore) receivable from the assignee of the sales tax liability and recognised interest of Rs. 83.39 Crores (net of Rs. 43.33 Crores capitalized as cost of qualifying fixed assets) on the sales tax dues; and presented the same under 'Exceptional Items' in the Revised Statement of Profit and Loss.

The revised financial statements also consider the effect of subsequent events after the approval of the original financial statements in accordance with Accounting Standard 4, (AS 4), Contingencies and Events Occurring After the Balance Sheet Date

Based on past performance, market conditions and business plans, the Company expects to fully meet the EPCG export obligation in the near future, and accordingly has not recognised the customs duty obligation amounting to Rs. 50.75 crore (Previous year Rs. 189.20 crore includes duty obligation on advance license scheme also) on the capital equipment as at balance sheet date. Export obligation of Rs. 406.00 crore (Previous year Rs. 1,555.17 crore) includes export obligation of Rs. 406.00 crore (Previous year Rs. 1,487.54 crore) against imports made by Vadinar Power Company Limited, an associate of the Company.

Notes:

1) The Company has disclosed Business Segment as the primary segment. Segments have been identified taking into account the organizational structure, nature of services, differing risks and internal reporting system. The Company's operation predominantly relates to Refining including expansion and marketing of petroleum products, Oil & Gas exploration.

2) Additions to fixed assets shown above are including exchange difference and excluding capital work in progress and expenditure during construction.

3) The Company operates in two geographical segments namely "within India" and "outside India".

 
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