Per Share on That Day and 115.4 Million Shares Outstanding, the Company Had a Total Market Capitalization of Rs.72.7 Billion (U.S.$1.8 Billion)

The information in this Preliminary Placement Document is not complete and may be changed. This Preliminary Placement Document is not an offer to sell nor is it an offer to buy securities in any jurisdiction where such offer or sale is not permitted or to any person or entity to whom it is unlawful to made an offer or sale. h aeo hsPaeetDcmn sDcme [ December is Document Placement this of date The 1956) Act, Companies [ the to under liability up limited of with company Offering public a as India of Republic the in (incorporated COMPLETION TO SUBJECT 2007 Circulation DECEMBER for 3 Not DATED DOCUMENT PLACEMENT PRELIMINARY h otx eurs tapieo Rs.[ of price a at requires) context the “ LS FIVSOSADI O NOFRO NIAINO OIIAINO NOFRT N ESNI THE IN PERSON ANY THE TO UNDER 144A OFFER OR RULE AN PERSON IN OF OTHER DEFINED SOLICITATION ANY IS OR TERM (THE TO INVITATION SUCH 1933 OR OR (AS PUBLIC ACT BUYERS OFFER THE SECURITIES INSTITUTIONAL AN TO QUALIFIED U.S. (THE NOT OFFER THAN AMENDED IS OTHER AN STATES AS AND OF UNITED SOLICITATION 2000, INVESTORS OR GUIDELINES, OF INVITATION PROTECTION) OR CLASS OFFER INVESTOR AN AND CONSTITUTE (DISCLOSURE SEBI THE GUIDELINES OF XIII-A CHAPTER EIGieie)prun oti lcmn ouet ofraino loainNt n h i u plcto om See Form. Application cum Bid the and Note Allocation of Confirmation Document, Placement this “ to pursuant Guidelines) SEBI hyaepeae otk h iko oigalo ato hi netet netr r die oread to advised India. are Investors in investment. offer their public of a part or constitute all not losing will of and risk the India take in to public prepared are the they to distributed copies prohibited. or Document. no and circulated Placement make unauthorized be to this is and not in Shares, restrictions, will to the foregoing and referred of the observe purchase documents to their any agrees to or Document, respect Document Placement with this Placement them of this advise delivery of to accepting them by QIB, by Each retained persons and QIBs “ sudprun oti lcmn ouet hsPaeetDcmn a o enrvee yteScrte and Securities the by being reviewed prospective Shares been the Each in not Issue. investment has an Document the of Placement it regarding (the to This India decision consequences Document. of particular investment Placement Board the this an Exchange about to advisors making its pursuant before consult issued to carefully advised Document is investor Placement this in “ uhrt n sitne nyfrueb QIBs. by use for only intended is and authority usatt eto ()o h euiisAto usatt nte xmto rmtergsrto eurmnso the of Securities requirements the under registration the with S the accordance Regulation in from on except reliance India) exemption of in another outside States located Act) United to investors Securities the the by pursuant the (including of outside under transferable or (b) requirements 144A not under only and Rule registration Act are described States in 144A) hereby restrictions the United Securities offered defined Rule the Shares to, is the include in The term subject may (a) Act. such of not sold (which (as and 4(2) Act transaction buyers offered institutional Securities Section a being purposes. qualified are in to record be Shares or to the for pursuant Accordingly, believed from, SEBI laws. reasonably securities the exemption persons state to to an applicable delivered to and be Act pursuant Securities also except will States, and United Exchanges JURISDICTIONS. Stock OTHER Indian IN AND RESULT the MAY INDIA with DIRECTIVE OF filed THIS THIS LAWS be OF WITH APPLICABLE will COMPLY OTHER REPRODUCTION TO OR OR FAILURE GUIDELINES UNAUTHORIZED. DISTRIBUTION SEBI IS ANY PART THE WHATSOEVER. IN OF MANNER OR VIOLATION ANY WHOLE A DOCUMENT. IN IN DOCUMENT PLACEMENT DOCUMENT PLACEMENT THIS PLACEMENT be IN SUCH not DESCRIBED should REPRODUCE SHARES opinions Exchanges THE made, Stock OF Shares. Indian statements ISSUE the not the PROPOSED any or is of THE of Company CSE any WITH the the correctness on the 30, CONNECTION of on trading the on November merits prices to Share On for the closing Existing Shares CSE. responsibility regarding per of the the Rs.629.7 information indication no of and and therefore an Admission assume NSE BSE and herein. as the the Exchanges CSE contained taken on BSE, the Stock reports Share the on Existing or Indian on liquidity per expressed The listing Rs.626.9 limited for herein. was have Shares approved Shares provided Existing Shares Existing the the The of have NSE. price to closing apply the to 2007, undertaken has Company yteSB rayohrrgltr authority. regulatory other any or SEBI the by su nrlac pnCatrXI- fteSB Dslsr n netrPoeto)Gieie,2000 Guidelines, Protection) Investor and (Disclosure SEBI the of XIII-A Chapter upon reliance in Issue BSE CSE Issue lcmn Procedure Placement ” ” ” ,teNtoa tc xhneo ni iie (the Limited India of Exchange Stock National the ), hsi nofrn f[ of offering an is This HSOFRN N H ITIUINO HSPAEETDCMN SBIGMD NRLAC UPON RELIANCE IN MADE BEING IS DOCUMENT PLACEMENT THIS OF DISTRIBUTION THE AND OFFERING THIS niain,ofr n ae fteSae hl nyb aet ulfe ntttoa ues( Buyers Institutional Qualified to made be only shall Shares the of sales and offers Invitations, netet nteSae nov ik n rsetv netr hudntivs n ud nteIseunless Issue the in funds any invest not India, should in investors Companies prospective of and Registrar risks the involve with Shares prospectus the a in as registered Investments be not will and been not has Document Placement This ti xetdta eieyo h hrst eise usatt h su ilb aeo raotDcme [ December about or on made be will Issue the to pursuant issued Company be to the Shares of the All of delivery that expected is It h hrshv o enadwl o ergsee ne h euiisAtadmyntb fee rsl ihnthe within sold or offered be not may and Act Securities the under registered be Document not Placement this will of and copy been A not Exchanges. Stock have Indian Shares the The to delivered been has Document Placement (2) this OR of IN PERSON copy OTHER A INFORMATION ANY TO PROVIDING DOCUMENT PLACEMENT FOR THIS DELIVER SOLELY (1) COMPANY TO AUTHORIZED THE NOT ARE BY AND NOT PREPARED MAY YOU BEEN HAS DOCUMENT PLACEMENT THIS n,tgte ihteBEadteNE the NSE, the and BSE the with together and, fCS iie (the Limited CESC of ) ” .TI LCMN OUETI ESNLT AHPOPCIEIVSO,ADDE NOT DOES AND INVESTOR, PROSPECTIVE EACH TO PERSONAL IS DOCUMENT PLACEMENT THIS ). ” h itiuino hsPaeetDcmn rtedslsr fiscnet oaypro te than other person any to contents its of disclosure the or Document Placement this of distribution The . ’ on lblCodntr n okRnigLa Managers Lead Running Book and Coordinators Global Joint usadn qiysae (the shares equity outstanding s “ ● rnfrRestrictions Transfer hrso s1 ah(the each Rs.10 of Shares ] ● “ Company hrs a au s1 ah ta su rc fRs.[ of Price Issue an at each, Rs.10 value par Shares, ] “ SEBI “ EUIISACT SECURITIES ● ” e hr,wihrpeet rmu fRs.[ of premium a represents which Share, per ] ,teRsreBn fIda(the India of Bank Reserve the ), ” ). ” and ” )T HC TI PROVIDED. IS IT WHICH TO )) “ eln Restrictions Selling “ Shares “ “ ninSokExchanges Stock Indian xsigShares Existing “ NSE ” uhtr oicueEitn hrs(sdfndblw where below) defined (as Shares Existing include to term such , ” ,teClut tc xhneAscainLmtd(the Limited Association Exchange Stock Calcutta the ), ● ,2007. ], ” “ ” h hrshv o enapoe rdisapproved or approved been not have Shares The . RBI r itdo h S,teNEadteCE The CSE. the and NSE the BSE, the on listed are ) ” ,teBma tc xhneLmtd(the Limited Exchange Stock Bombay the ), ● e hr grgtn Rs.[ aggregating Share per ] ” rayohrrgltr rlisting or regulatory other any or ) “ QIBs ” a eie nthe in defined (as ) “ ikFactors Risk ● ilo (the million ] ● ,2007. ], ● e Share per ] “ SEBI ” NOTICE TO INVESTORS The Company accepts full responsibility for the information contained in this Placement Document and confirms that, to the best of the Company’s knowledge and belief, having made all reasonable enquiries, this Placement Document contains all information with respect to the Company, the Company and its subsidiaries as a whole (“CESC and Subsidiaries”) and the Shares which is material in the context of this Issue. The statements contained in this Placement Document relating to the Company, the Group and the Shares are, in every material respect, true and accurate and not misleading and the opinions and intentions expressed in this Placement Document with regard to the Company, the Group and the Shares are honestly held, have been reached after considering all relevant circumstances, are based on information presently available to the Company and are based on reasonable assumptions. There are no other facts in relation to the Company, the Group and the Shares the omission of which would, in the context of the Issue, make any statement in this Placement Document misleading in any material respect. Further, all reasonable enquiries have been made by the Company to ascertain such facts and to verify the accuracy of all such information and statements. Notwithstanding any investigation that CLSA India Limited, Citigroup Global Markets India Private Limited, and Kotak Mahindra Capital Company Ltd. (together, the “Joint Global Coordinators and Book Running Lead Managers”) has conducted with respect to the information contained herein, the Joint Global Coordinators and Book Running Lead Managers make no representation, warranty or undertaking, express or implied, and do not accept any liability or responsibility in relation to the accuracy or completeness of the information contained in this Placement Document or its distribution or with regard to any other information supplied in connection with the Shares and assume no responsibility or liability for the accuracy or completeness of any information provided by or on behalf of the Company in connection with the issue of the Shares, the Shares or their distribution. Each person receiving this Placement Document acknowledges that such person has not relied on the Joint Global Coordinators and Book Running Lead Managers, nor on any person affiliated with them, in connection with its investigation of the accuracy of such information or its investment decision, and each such person must rely on its own examination of the Company, the Group and the merits and risks involved in investing in the Shares. Where information contained in this Placement Document includes extracts from summaries of information and data from various published and private sources, the Company accepts responsibility for accurately reproducing such summaries and data. No person is authorized to give any information or to make any representation not contained in this Placement Document and any information or representation not so contained must not be relied upon as having been authorized by or on behalf of the Company or the Joint Global Coordinators and Book Running Lead Managers. The delivery of this Placement Document at any time does not imply that the information contained in it is correct as at any time subsequent to its date. The Shares have not been approved, disapproved or recommended by the U.S. Securities and Exchange Commission (the “SEC”), any state securities commission in the United States or the securities commission of any non-U.S. jurisdiction or any other U.S. or non-U.S. regulatory authority. None of these authorities has passed on or endorsed the merits of the Issue or the accuracy or adequacy of this Placement Document. Any representation to the contrary is a criminal offense in the United States and may be a criminal offense in other jurisdictions. The distribution of this Placement Document and the issue of the Shares in certain jurisdictions may be restricted by law. As such, this Placement Document does not constitute, and may not be used for or in connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer or solicitation. In particular, no action has been taken by the Company or the Joint Global Coordinators and Book Running Lead Managers which would permit such issue of Shares or distribution of this Placement

— i — Document in any jurisdiction, other than India, where action for that purpose is required. Accordingly, the Shares may not be offered or sold, directly or indirectly, and neither this Placement Document nor any issue material in connection with the Shares may be distributed or published in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction. See “Transfer Restrictions”, “Selling Restrictions” and “Placement Procedure”.

In making an investment decision, investors must rely on their own examination of the Company, the Group and the terms of the Issue, including the merits and risks involved. Investors should not construe the contents of this Placement Document as legal, business, tax, accounting or investment advice. Investors should consult their own counsel and advisors as to business, legal, tax, accounting and related matters concerning this offering. In addition, neither the Company nor the Joint Global Coordinators and Book Running Lead Managers make any representation to any offeree or purchaser of the Shares regarding the legality of an investment in the Shares by such offeree or purchaser under applicable legal, investment or similar laws or regulations.

The information on the Company’s website or on the websites of the Joint Global Coordinators and Book Running Lead Managers does not constitute or form a part of this Placement Document.

This Placement Document contains summaries of certain terms of certain documents, but reference is made to the actual documents, copies of which will be made available upon request during the offer period for physical inspection at the registered office of the Company located in Kolkata, India, subject to applicable confidentiality restrictions. All such summaries are qualified in their entirety by this reference.

REPRESENTATIONS BY INVESTORS

By purchasing any Shares pursuant to the Issue, you are deemed to have acknowledged and agreed as follows:

• you are a QIB and undertake to acquire, hold, manage or dispose of any Shares that are allocated to you for the purposes of your business in accordance with the SEBI Guidelines;

• this Placement Document has not been verified or affirmed by the SEBI or the Indian Stock Exchanges and will not be filed with the Registrar of Companies. This Placement Document will be filed with the Indian Stock Exchanges and will be displayed on the websites of the Company and the Indian Stock Exchanges;

• you are entitled to subscribe for and/or purchase the Shares under the laws of all relevant jurisdictions which apply to you and you have fully observed such laws and obtained all such governmental and other guarantees and other consents in either case which may be required thereunder and complied with all necessary formalities;

• you are entitled to acquire the Shares under the laws of all relevant jurisdictions and you have all necessary capacity and have obtained all necessary consents and authorities to enable you to participate in the Issue and to perform your obligations in relation thereto (including, without limitation, in the case of any person on whose behalf you are acting, all necessary consents and authorities to agree to the terms set out or referred to in this Placement Document) and will honor such obligations;

• none of the Joint Global Coordinators and Book Running Lead Managers is making any recommendations to you, advising you regarding the suitability of any transactions you may enter into in connection with the

— ii — Issue and participation in the Issue is on the basis that you are not and will not be a client of such Joint Global Coordinator and Book Running Lead Manager and that such Joint Global Coordinator and Book Running Lead Manager has no duties or responsibilities to you for providing the protections afforded to their clients or customers or for providing advice in relation to this Issue;

• you are aware and understand that the Shares are being offered in India only to QIBs and are not being offered to the general public and the allotment of the same shall be on a discretionary basis;

• you have been provided with a serially numbered copy of this Placement Document and have read this Placement Document in its entirety;

• in making your investment decision, (i) you have relied on your own examination of the Company and the terms of the Issue, including the merits and risks involved, (ii) you have made your own assessment of the Company, the Shares and the terms of the Issue, (iii) you have consulted your own independent counsel and advisors or otherwise have satisfied yourself concerning, without limitation, the effects of local laws, and (iv) you have received all information that you believe is necessary or appropriate in order to make an investment decision in respect of the Company and the Shares;

• you have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Shares and you and any accounts for which you are subscribing the Shares (i) are each able to bear the economic risk of the investment in the Shares, (ii) will not look to any of the Joint Global Coordinators and Book Running Lead Managers, the Company and/or the officers of the Company for all or part of any such loss or losses that may be suffered as a result of the investment in the Shares, (iii) are able to sustain a complete loss on the investment in the Shares, (iv) have no need for liquidity with respect to the investment in the Shares and (v) have no reason to anticipate any change in your or their circumstances, financial or otherwise, which may cause or require any sale or distribution by you or them of all or any part of the Shares;

• where you are acquiring the Shares for one or more managed accounts, you represent and warrant that you are authorized in writing by each such managed account to acquire the Shares for each managed account;

• you will have no right to withdraw your bid after the bid closing date;

• the Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the fully paid ordinary Shares of the Company with par value of Rs.10 each (the “Shares”) including the right to receive all dividends and other distributions declared, made or paid in respect of Shares after the date of issue of the Shares;

• if allotted Shares pursuant to this Issue, you shall, for a period of one year from allotment, sell the Shares so acquired only on the floor of the Indian Stock Exchanges;

• you are eligible to bid for and hold Shares so allotted together with any Existing Shares held by you prior to this Issue. You further confirm that your holding upon the issue of any of the Shares shall not exceed the level permissible as per any applicable regulations;

• the bids made by you would not result in triggering a tender offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the “Takeover Code”);

— iii — • to the best of your knowledge and belief together with other QIBs participating in the Issue that belong to the same group or are under common control as you, the allotment under the present issue shall not exceed 50 per cent. of the size of the Issue. For the purposes of this statement:

(a) the expression “belongs to the same group” shall derive meaning from the concept of “companies under the same group” as provided in sub-section (11) of Section 372 of the Companies Act, 1956 of India (as amended) (the “Companies Act”);

(b) “control” shall have the same meaning as is assigned to it by clause (c) of Regulation 2 of the Takeover Code;

• you shall not undertake any trade in the Shares credited to your depository participant account until such time that the final listing and trading approval for the Shares is issued by the Indian Stock Exchanges;

• you are aware that application has been made to the Indian Stock Exchanges for in-principle approval for listing and admission of the Shares to trading on the Indian Stock Exchanges’ market for listed securities;

• you are aware and understand that the Joint Global Coordinators and Book Running Lead Managers will have entered into an agreement with the Company whereby each of the Joint Global Coordinators and Book Running Lead Managers have, subject to the satisfaction of certain conditions set out therein, undertaken severally, and not jointly or jointly and severally, to use its reasonable endeavors as agent of the Company to seek to procure purchasers for the Shares;

• the content of this Placement Document is exclusively the responsibility of the Company and none of the Joint Global Coordinators and Book Running Lead Managers or any person acting on their behalf has or shall have any liability for any information, representation or statement contained in this Placement Document or any information previously published by or on behalf of the Company and will not be liable for your decision to participate in the Issue based on any information, representation or statement contained in this Placement Document or otherwise. By accepting a participation in the Issue, you agree to the same and confirm that you have neither received nor relied on any other information, representation, warranty, or statement made by or on behalf of any Joint Global Coordinator and Book Running Lead Manager or the Company or any other person and none of the Joint Global Coordinators and Book Running Lead Managers or the Company or any other person will be liable for your decision to participate in the Issue based on any other information, representation, warranty or statement which you may have obtained or received;

• the only information you are entitled to rely on and on which you have relied in committing yourself to acquire the Shares is contained in this Placement Document, such information being all that you deem necessary to make an investment decision in respect of the Shares and that you have neither received nor relied on any other information given or representations, warranties or statements made by any Joint Global Coordinator and Book Running Lead Manager or the Company, and neither the Joint Global Coordinators and Book Running Lead Managers nor the Company will be liable for your decision to accept an invitation to participate in this Issue based on any other information, representation, warranty or statement;

• all statements other than statements of historical fact included in this Placement Document, including, without limitation, those regarding the Company’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Company’s products), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual

— iv — results to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. You should not place undue reliance on forward-looking statements, which speak only as at the date of this Placement Document. The Company assumes no responsibility to update any of the forward-looking statements contained in this Placement Document;

• you are eligible to invest in India under applicable law, including the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (the “Regulations”), as amended from time to time, and have not been prohibited by the SEBI from buying, selling or dealing in securities;

• you agree to indemnify and hold the Company and each of the Joint Global Coordinators and Book Running Lead Managers harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of your representations and warranties as contained herein. You agree that the indemnity set forth in this paragraph shall survive the resale of the Shares including by or on behalf of the managed accounts;

• the Company and each of the Joint Global Coordinators and Book Running Lead Managers will rely upon the truth and accuracy of your foregoing representations, warranties, acknowledgements and undertakings, each of which is given to the Joint Global Coordinators and Book Running Lead Managers and the Company on your own behalf, and each of which is irrevocable; and

• following the designated allocation of Shares to you, your total interest in the paid-up share capital of the Company, whether direct or indirect, beneficial or otherwise (your “Holding”), when aggregated together with your existing Holding and/or the Holding of any “associated enterprise” (as defined under Section 92A of the Indian Income Tax Act, 1961), will not exceed 5 per cent. of the total paid-up share capital of the Company.

P-NOTES

Foreign institutional investors as defined under the SEBI Guidelines, or their sub-accounts (together referred to as “FIIs”), including FII affiliates of the Joint Global Coordinators and Book Running Lead Managers, were permitted under Regulation 15A(1) of the Securities and Exchange Board of India (Foreign Institutional Investors) Regulation, 1995, as amended, to issue, deal in or hold, off-shore derivative instruments such as participatory notes, equity linked notes or any other similar instruments against Shares allocated in the Issue (all such off-shore derivative instruments referred to herein as “P-Notes”), for which they may receive compensation from purchasers of such instruments. However, on October 16, 2007 the SEBI issued a position paper on P-Notes which was followed by a SEBI announcement dated October 25, 2007 wherein the SEBI has placed certain restrictions on the issue of P-Notes. As a result of this announcement, P-Notes can now only be issued to regulated entities. Also, FIIs and their sub accounts cannot issue any P-Notes with derivatives as underlying securities and they are required to wind up any such derivative instruments within 18 months of the date of the SEBI’s announcement. In addition, sub accounts of FII’s cannot issue any further P-Notes. Flls holding existing P-Notes (not linked to underlying derivatives) whose notional value as a percentage of their assets under custody in India (“AUC”) is less than 40 per cent. on September 30, 2007 (the “AUC Date”) are permitted to issue such instruments at the annual rate of five per cent. of their AUC. SEBI has clarified that the five per cent. rate is applicable only until the total percentage reaches 40 per cent. at which time the Fll shall comply with the regulations applicable to Flls at or above the 40 per cent. limit.

— v — Flls with existing P-Notes (not linked to underlying derivatives) whose notional value as a percentage of their AUC is more than 40 per cent. are permitted to issue such instruments only against cancellation/redemption/closing out of the existing P-Notes of at least equivalent amount.

P-Notes have not been and are not being offered or sold pursuant to this Placement Document. This Placement Document does not contain nor will it contain any information concerning P-Notes or the issuer(s) of any P-Notes, including, without limitation, any information regarding any risk factors relating thereto.

Any P-Notes that may be issued are not securities of the Company and do not constitute any obligations of, claim on, or interests in the Company. The Company has not participated in any offer of any P-Notes, or in the establishment of the terms of any P-Notes, or in the preparation of any disclosure related to any P-Notes. Any P-Notes that may be offered are issued by, and are solely the obligations of, third parties that are unrelated to the Company. The Company and its affiliates do not make any recommendation as to any investment in P-Notes and do not accept any responsibility whatsoever in connection with any P-Notes.

Any P-Notes that may be issued are not securities of the Joint Global Coordinators and Book Running Lead Managers and do not constitute any obligations of, or claim on, the Joint Global Coordinators and Book Running Lead Managers.

Prospective investors interested in purchasing any P-Notes have the responsibility to obtain adequate disclosure as to the issuer(s) of any P-Notes and the terms and conditions of any such P-Notes from the issuer(s) of such P-Notes. Neither the SEBI nor any other regulatory authority has reviewed or approved any P-Notes or any disclosure related thereto. Prospective investors are urged to consult with their own financial, legal, accounting and tax advisors regarding any contemplated investment in P-Notes, including whether P-Notes are issued in compliance with applicable laws and regulations. Affiliates of the Joint Global Coordinators and Book Running Lead Managers who are regulated as Flls may issue P-Notes and earn commission on such issuance in accordance with applicable laws.

MARKET DATA AND INDUSTRY FORECASTS

Market data and certain industry forecasts used throughout this Placement Document have been obtained from publicly available documents from various sources and materials prepared by the Central Government (as defined herein) and its various ministries. Industry publications and market research generally state that the information that they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of that information is not guaranteed. Such industry publications and market research, while believed to be reliable, have not been independently verified, and neither the Company nor the Joint Global Coordinators and Book Running Lead Managers make any representation as to the accuracy of that information.

AVAILABLE INFORMATION

For so long as the Shares remain outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, the Company will furnish, upon the request of any holder, beneficial owner or prospective purchaser of the Shares, or interest therein who is a qualified institutional buyer (as such term is defined in Rule 144A under the Securities Act), the information specified in paragraph (d)(4) of Rule 144A under the Securities Act to that holder, beneficial owner or prospective purchaser in order to permit compliance by such holder or beneficial owner with Rule 144A in connection with the resale of the Shares, or beneficial interest therein in reliance on Rule 144A unless, at the time of that request, the Company is subject to the reporting requirements of Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), or the Company is included in the list of foreign private issuers that claim exemption from the registration requirements of Section 12(g) of the Exchange Act (and therefore furnish the SEC certain information pursuant to Rule 12g3-2(b) under the Exchange Act).

— vi — NOTICE TO NEW HAMPSHIRE RESIDENTS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (“RSA 421-B”) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

DISCLAIMER CLAUSE OF THE INDIAN STOCK EXCHANGES

As required, a copy of this Placement Document has been submitted to the Indian Stock Exchanges. The Indian Stock Exchanges do not in any manner:

1. warrant, certify or endorse the correctness or completeness of any of the contents of this Placement Document;

2. warrant that the Shares will be listed or will continue to be listed on the Indian Stock Exchanges; or

3. take any responsibility for the financial or other soundness of the Company, its management or any business of the Company, and it should not for any reason be deemed or construed to mean that this Placement Document has been cleared or approved by the Indian Stock Exchanges. Each person who desires to apply for or otherwise acquires any securities of the Company may do so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the Indian Stock Exchanges whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition, whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever.

— vii — TABLE OF CONTENTS

Page PRESENTATION OF INFORMATION...... ix SUMMARY ...... 1 SUMMARY OF THE ISSUE...... 6 RISK FACTORS ...... 9 MARKET PRICE INFORMATION ...... 29 EXCHANGE RATES...... 32 USE OF PROCEEDS ...... 33 CAPITALIZATION ...... 34 DIVIDENDS AND DIVIDEND POLICY ...... 35 SELECTED FINANCIAL INFORMATION ...... 36 PRO FORMA FINANCIAL INFORMATION ...... 38 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...... 44 ELECTRICITY INDUSTRY IN INDIA ...... 65 REGULATION ...... 71 THE COMPANY’S BUSINESS ...... 79 BUSINESS CONDUCTED BY THE COMPANY’S SUBSIDIARIES ...... 98 RPG GROUP ...... 113 PRINCIPAL SHAREHOLDERS ...... 114 MANAGEMENT AND EMPLOYEES ...... 116 INDIAN SECURITIES MARKET...... 121 DESCRIPTION OF THE SHARES...... 129 TRANSFER RESTRICTIONS...... 139 SELLING RESTRICTIONS ...... 141 PLACEMENT PROCEDURE ...... 142 PLACEMENT ...... 150 INDIAN REGULATORY APPROVALS ...... 152 TAXATION ...... 153 VALIDITY OF SHARES ...... 162 INDEPENDENT ACCOUNTANTS ...... 163 ENFORCEABILITY OF CIVIL LIABILITIES...... 164 GENERAL INFORMATION ...... 165 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP, IFRS AND US GAAP ...... 167 DEFINITIONS AND GLOSSARY ...... 190 INDEX TO THE FINANCIAL STATEMENTS ...... F-1

— viii — PRESENTATION OF INFORMATION

Conventions

In this Placement Document, unless the context otherwise requires, references to “you” are to the prospective investors in the Shares. Upper case terms used but not defined herein have the meaning given to them in “Definitions and Glossary”.

The Company prepares and publishes its financial statements in Rupees. This Placement Document contains translations of certain Rupee amounts into U.S. Dollar amounts at specified rates solely for the convenience of the reader. These translations should not be construed as representations that the Rupee amounts represent such U.S. Dollar amounts or could be, or could have been, converted into U.S. Dollars at the rates indicated or at all. Unless otherwise indicated, all translations from Rupees to U.S. Dollars have been made on the basis of the noon buying rate in New York City on September 28, 2007, for cable transfers in Indian Rupees, as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”), of Rs.39.75 = U.S.$1.00.

Financial Statements Contained Herein

The Company prepared the Power Business Annual Financial Statements (as defined below) in accordance with generally accepted accounting principles of India (“Indian GAAP”). Indian GAAP differ in certain significant respects from International Financial Reporting Standards (“IFRS”) and generally accepted accounting principles of the United States of America (“US GAAP”). A summary of the significant differences between Indian GAAP, IFRS and US GAAP as they apply to the Company is included elsewhere in this Placement Document. See “Summary of Significant Differences Between Indian GAAP, IFRS and US GAAP”. In this document, where information has been presented in thousands, millions or billions of units, amounts may have been rounded to the nearest one hundred, one hundred thousand or one hundred million units, respectively. Accordingly, the totals of columns or rows may not be equal to the apparent total of the individual items and actual numbers may differ from those contained herein due to the roundings.

The Company has included elsewhere in this Placement Document the balance sheets of CESC Limited (the “Power Business”) as of March 31, 2005, 2006 and 2007, the profit and loss accounts of the Power Business for each of the years in the three year period ended March 31, 2007 and the cash flow statements of the Power Business for each of the years in the three year period ended March 31, 2007, in each case prepared in accordance with Indian GAAP (the “Power Business Annual Financial Statements”). The figures disclosed in the said financial statements are compiled from the audited statutory financial statements for the financial years 2004-05, 2005-06 and 2006-07 with adjustments for uncovered past liabilities in respect of certain post-separation benefit provided for on an actuarial valuation and certain claims made by power supplying agencies in earlier years originally disputed by the Company but subsequently provided for based on negotiation/settlement with the agencies. Consequently profits for 2004-05, 2005-06 and 2006-07 have been increased by Rs. 141.8 million, Rs. 244.5 million and Rs. 307.0 million respectively from the profit reported in the audited statutory financial statements amounting to Rs. 1,472.0 million, Rs. 1,774.7 million and Rs. 3,007.0 million respectively with corresponding adjustment against general reserve as on April 1, 2004. Accordingly there is no change in the reserves as at March 31, 2007 from what has been included in the above referred audited statutory financial statements. The audited statutory financial statements will continue to be the basis of annual reporting for the Company without these adjustments. The Power Business Annual Financial Statements were audited by Lovelock & Lewes, the statutory auditors of CESC Limited, whose qualified auditors’ report appears elsewhere in this Placement Document. Such qualification is for the year ended and as at March 31, 2005 only for non-compliance with the

— ix — provisions of certain Accounting Standards issued by the Institute of Chartered Accountants of India, which were inconsistent with the provisions of the now repealed ESA. The nature of the qualification is set out in paragraph 3 of such audit report contained elsewhere in this Placement Document.

The Company has included elsewhere in this Placement Document the Unaudited Financial Results (Provisional) of the Power Business for the six month period ended September 30, 2007, prepared in accordance with Clause 41 of the Listing Agreements (the “Power Business Interim Financial Information”). The Power Business Interim Financial Information was reviewed by Lovelock & Lewes (in accordance with the aforementioned Clause), whose limited review report appears elsewhere in this Placement Document. Unlike all other financial statements and information contained elsewhere in this Placement Document, the Power Business Interim Financial Information is expressed in terms of Rs. “crore”. Rs. one crore is equal to Rs.10,000,000.

Neither the audit report nor the limited review report issued by Lovelock & Lewes have been prepared in accordance with US generally accepted auditing standards.

The Company has included elsewhere in this Placement Document the non-consolidated balance sheet as of March 31, 2007 of Spencer’s Retail Limited, a subsidiary of the Company (“SRL”) (the “Retail Business”), the non-consolidated profit and loss account for the year ended March 31, 2007 of the Retail Business and the non-consolidated cash flow statement for the year ended March 31, 2007 of the Retail Business, in each case prepared in accordance with Indian GAAP (the “Retail Business Annual Financial Statements” and, together with the Power Business Annual Financial Statements, the “Annual Financial Statements”). The Retail Business Annual Financial Statements were audited by SR Batliboi & Co. the statutory auditors of SRL, whose qualified auditor’s report appears elsewhere in this Placement Document.

The Company has included elsewhere in this Placement Document the unaudited non- consolidated financial results of the Retail Business for the six month period ended September 30, 2007, prepared in the format prescribed by Clause 41 of the model Listing Agreements (the “Retail Business Interim Financial Information”). The Retail Business Interim Financial Information was reviewed by SR Batliboi & Co. in accordance with the Auditing and Assurance Standard (AAS) 33, “Engagement to Review Financial Statements” issued by the ICAI, whose limited review report appears elsewhere in this Placement Document.

Finally, this Placement Document contains the following pro forma financial information: (i) the unaudited balance sheet as at March 31, 2007 and unaudited profit and loss account for the year ended March 31, 2007 (the “Pro Forma Annual Financial Information”) which are based on the Annual Financial Statements, combined on a pro forma basis; and (ii) the unaudited, interim pro forma results for the six month period ended September 30, 2007 (the “Pro Forma Interim Financial Information” and, together with the Pro Forma Annual Financial Information, the “Pro Forma Financial Information”), which is based on the Power Business Interim Financial Information and Retail Business Interim Financial Information for the six month period ended September 30, 2007, combined on a pro forma basis, all as further described in “Pro Forma Financial Information”. The Pro Forma Interim Financial Information does not include financial information regarding certain subsidiaries as stated in “Pro Forma Financial Information”. The Pro Forma Financial Information has not been audited and has been prepared for illustrative purposes only, and is not intended to suggest that these are the results of operations that would have been obtained had the Retail Business been consolidated in the financial statements of the Company for the periods presented by the Pro Forma Financial Information.

FORWARD-LOOKING STATEMENTS

All statements contained in this Placement Document that are not statements of historical fact constitute “forward-looking statements”. Some of these statements can be identified by forward-looking terms, such as “anticipate,”“believe,”“can,”“could,”“estimate,”“expect,”

— x — “intend,”“may,”“plan,”“will” and “would” or similar words. However, these words are not the exclusive means of identifying forward-looking statements. All statements regarding the Company’s or CESC and Subsidiaries’ expected financial condition and results of operations, business, plans and prospects are forward-looking statements. These forward-looking statements include statements as to the Company’s and/or CESC and Subsidiaries’ business strategy, planned projects and other matters discussed in this Placement Document regarding matters that are not historical fact. These forward-looking statements and any other projections contained in this Placement Document (whether made by the Company or any third party) involve known and unknown risks, uncertainties and other factors that may cause the Company’s and/or CESC and Subsidiaries’ actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other projections.

The factors that could cause the Company’s and/or CESC and Subsidiaries’ actual results, performances and achievements to be materially different include: (i) timely changes in the Company’s tariffs and the tariff structure; (ii) the Company’s ability to increase its generation capacity; (iii) the effects of competition; (iv) availability of fuel; (v) the Company’s ability to meet prescribed efficiency norms; (vi) the effect of changes in the Company’s and/or CESC and Subsidiaries’ markets, including the regulatory environment; and (vii) the Company’s and/or CESC and Subsidiaries’ success at managing risks that arise from these factors. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed in this Placement Document under “Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “The Company’s Business” and “Business Conducted by the Company’s Subsidiaries”. These forward-looking statements speak only as of the date of this Placement Document. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any changes in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.

— xi — SUMMARY

The following summary is qualified in its entirety by the more detailed information and the financial statements that appear elsewhere in this Placement Document. For a discussion of certain matters that should be considered by prospective investors in the Shares, see “Risk Factors”.

The Company’s Business

The Company holds a license originally granted by the State Government of West Bengal to supply electricity in the cities of Kolkata and Howrah and in the adjoining areas, which expires on December 31, 2019. The Company is currently the only distributor of electricity within an area of 567 sq km. In the year ended March 31, 2007, the Company sold electricity to approximately 2.2 million consumers including domestic, industrial and commercial users. In the year ended March 31, 2007, 88 per cent. of the units the Company delivered to the Company’s distribution system was electricity from the Company’s own generating stations and 12 per cent. was electricity purchased from third parties.

The Company owns and operates four coal-based generating stations with an aggregate capacity of 975MW in the State of West Bengal. These stations are known as Budge Budge, Southern, Titagarh and New Cossipore. Currently, the Company is setting up a third 250MW generating unit at Budge Budge in addition to the existing two 250MW units. Subject to receiving all regulatory approvals, the Company intends to use part of the proceeds of this Issue to set up a 600MW coal fired generation facility in Haldia. The Company also intends to use part of the proceeds of this Issue for improving the existing transmission and distribution network. The Company owns and operates the distribution system through which it supplies electricity to consumers. This system comprises: 474 km circuit of transmission lines linking the Company’s generating and receiving stations with 85 distribution stations; 3,837 km circuit of HT lines further linking distribution stations with LT substations and large industrial consumers; and 9,867 km circuit of LT lines connecting the LT substations to LT consumers.

In the years ended March 31, 2005, 2006 and 2007, the Company’s profit after income tax (excluding SRL) was Rs.1,613.8 million, Rs.2,019.2 million and Rs.3,314.0 million, respectively. The factors that have contributed to the increase in the Company’s profits in these years include improvements in operational efficiencies, improved cost of borrowings, efficiency gains, and reduction of costs which are not recoverable under the Company’s tariffs. Most importantly, in the three successive years, the Company’s average tariff was reduced by approximately 10 per cent. from the level determined for the year ended March 31, 2004, from Rs.4.15 per kWh on March 31, 2004 to Rs.3.74 per kWh for the year ended March 31, 2007.

As of November 30 2007, the Company’s authorized share capital was Rs.1.5 billion, comprising 150 million Existing Shares of Rs.10 each of which 115.4 million Existing Shares were issued, outstanding and fully-paid. As of November 16, 2007, approximately 24.4 per cent. of the Company’s Existing Shares were held by non-resident foreign holders, 5.7 per cent. by Indian financial institutions, 56.8 per cent. by the RPG Group and 13.1 per cent. by domestic investors. All of the Company’s Shares are listed on the CSE, BSE and NSE and the Company’s existing GDRs are listed on the EuroMTF of the Luxembourg Stock Exchange. Certain of the Company’s outstanding Existing Shares are listed on the LSE.

The Company’s registered office is at CESC House, Chowringhee Square, Kolkata 700 001, India. As of November 30, 2007, based on the closing price of the Company’s Shares on the NSE of Rs.629.7 per Share on that day and 115.4 million Shares outstanding, the Company had a total market capitalization of Rs.72.7 billion (U.S.$1.8 billion).

— 1 — The Company’s Strengths and Competitive Advantages

The Company has been engaged in the generation and distribution of electricity for over 100 years and enjoys several key strengths and competitive advantages, including the following:

The Company is an integrated low cost utility with a sufficient supply of coal and electricity: The Company is an integrated power utility and is currently the sole utility operating in its license area of 567 sq km. The Company owns all of its generating units and its transmission and distribution network and therefore the Company’s operating costs do not include charges payable to other companies for the use of their networks with the exception of networks used for the exporting, and in some case importing, of electricity. In the year ended March 31, 2007, 54 per cent. of the Company’s coal requirements were supplied by ICML, an RPG Group company. It is a condition of ICML’s mining license that it must supply coal exclusively to the Company. This guaranteed supply enables the Company to reduce interruptions in coal supplies, which could adversely affect its generating capability.

In the year ended March 31, 2007, 88 per cent. of the units the Company delivered to its distribution system was from the Company’s own generating stations and the remaining 12 per cent. was from third parties. This reflects an increase in the PLF at the Company’s base load stations, reaching 94 per cent. in the year ended March 31, 2007, and a reduction in T&D Losses to 14.7 per cent. during the same period. Limited reliance on third parties for electricity enables the Company to provide consumers with a reliable supply of electricity and reduces the Company’s cost base as purchasing electricity from third parties is generally more costly than generating it ourselves. In addition, the Company’s distribution system has a largely depreciated asset base which also enables the Company to operate a cost-efficient distribution network.

The Company has a balanced portfolio of generating units: The Company operates four coal-based generating stations, three of which have been commissioned within the past 24 years and one of which has been commissioned for 58 years. The Company’s Budge Budge and Southern generating stations, with a combined generating capacity of 635 MW, have been commissioned in the past 17 years. The Company is able to operate its two units at Budge Budge, four units at Titagarh and two units at Southern as base load units, as these units generate electricity at a lower variable cost per unit than the older generating unit at New Cossipore. The Budge Budge plant was awarded the Prime Minister Award for achieving the highest PLF in India in 2005-06. The Company operates the unit at New Cossipore on an “as needed” basis during periods of peak demand, and outputs of electricity from this station are generally reduced before that of the other stations during periods of lower demand for electricity. With the Company’s three newer generating stations running as base load units and its older generating station being used to supplement any shortfalls the Company may experience during periods of peak demand, the Company is able to generate electricity in a cost efficient manner.

Almost all the electricity the Company distributes is supplied on a fully metered basis and the Company has comprehensive billing and collection systems: The Company’s billing procedure is fully computerized and handled on a decentralized basis by six regional offices. The Company operates a customized billing system using Oracle RDBMS, a database management system, which receives collection updates from point-of-sale machines based in the Company’s 37 cash offices. Customers may pay bills at the Company’s cash offices, over the internet or using a certain credit card. The Company believes that its level of bad debts is low, at approximately 0.5 per cent. of total operating income in the year ended March 31, 2007, largely due to the maintenance of security deposits of an amount equal to the cost of two to three months electricity consumption, together with monthly meter readings by the Company’s own personnel and comprehensive billing and collection systems.

— 2 — per cent. of the Company’s total sales. As a result of the Company’s licensed area covering Kolkata, Howrah and the adjoining areas, the Company generally supplies electricity to consumers in urban areas, which the Company believes are subject to lower payment defaults than consumers in non-urban areas.

Experienced management team: The Company has been engaged in the generation and distribution of electricity for over 100 years and believes that its senior management team is one of the most experienced teams in the Indian power industry with an average employment tenure of more than 30 years. The Company believes that the extensive level of experience of these employees is a significant strength of the Company’s business.

The Company’s Strategy

The Company’s overall strategy is to increase the Company’s generating capacity in order to meet demand for electricity in its licensed area and further improve the efficiency of the Company’s operations and profitability. The principal components of the Company’s strategy are as follows:

Expansion of generation capacity: The Company has experienced a steady growth in demand in the past five years and the PLF of the Company’s base load stations (comprising the Budge Budge, Southern and Titagarh facilities) increased to 94 per cent. in the year ended March 31, 2007 and 101 per cent. in the six months ended September 30, 2007. In addition, the New Cossipore generating station is 58 years old and the Company expects it to be decommissioned in three to four years. As a result, the Company’s dependence on third parties for electricity supplies, which are generally more costly than the electricity the Company generates, is likely to increase unless the Company expands its generating capacity.

On this premise, the Company set up a third 250MW generating unit at Budge Budge where work started in December 2006 and completion is targeted by late 2009. The necessary regulatory approvals have all been obtained and financing of Rs.7.7 billion arranged with four lenders. Further, in order to attain self sufficiency in generation and to meet the overall energy requirement as well as the peak demand, the Company intends to set up a 600MW generating facility in Haldia (with targeted completion in 2011), which is approximately 80 km away from the Company’s licensed area, for which the Company is in the process of obtaining all necessary regulatory approvals. The fuel linkage has been obtained and land acquisition has commenced. The Company intends to use part of the proceeds of this Issue to set up this generating facility. Total costs of the Haldia project are expected to be approximately Rs. 26 billion. The decommissioning of the older generating station at New Cossipore in combination with the developments discussed above is expected to enable the Company to reduce generating cost and improve the reliability of the Company’s supply of electricity by 2012. The expansion of generating capacity is needed not only to satisfy the growth in demand and replace costly imported electricity but also to develop an alternative source of revenue through the export of electricity during off-peak hours. In the year ended March 31, 2004, the Company commenced exporting electricity during off-peak hours to power trading agencies. In the year ended March 31, 2007, the Company exported 458MU of electricity during off-peak hours, which represents approximately 5.9 per cent. of the electricity the Company generated.

The Company believes that the current situation in India provides potential for the export of surplus power and in view of the Company’s substantial generating capacity it expects to be in the position to capitalize on this. This would enable the Company to retain a portion of the export gains (currently 40 per cent.) which would increase profit and would help the Company to keep the tariff competitive by passing through the remaining gains to the consumer.

— 3 — its transmission and distribution network is required. The construction of the 250MW third unit in Budge Budge and the 600MW generation facility in Haldia will require the strengthening of the existing network of the Company. Currently, the network to facilitate export as well as to import power is considerably reliant on the WBSEDCL network. Due to this, the Company is planning to build a 220/132 kV grid to facilitate the flow of power from various generating stations of the Company to different load centers and create the capability to receive the required power to meet the license area requirements. The Company is also planning to connect to the national grid, which would enhance the Company’s ability to export power. The Company also intends to utilize part of the proceeds of this Issue to strengthen the network and commission the connection to the national grid. The upgrade of certain network-related equipment also forms part of the Company’s strategy for further reduction of T&D Losses. The Company estimates the costs of these improvements to be approximately Rs.4.5 billion, and it is targeting completion in 2011.

Cost control: During last four years, the Company’s improved profitability in spite of the decrease in tariff and inflation has been due to the Company’s sustained efforts to reduce operating and financing costs, which has kept its tariff competitive. The Company is aware of the competitive issues which may arise from open access and multiple licensing and has been exploiting various revenue streams in addition to sale of electricity to help the Company contain overall cost and improve profitability.

The Company’s two 250MW units at Budge Budge power plant have been registered with the UNFCCC for the Carbon Credit Project under which Carbon Emission Reduction (“CER”) certificates are issued. CER certificates can be sold to earn revenue. The Company has since started earning revenue on this account and expect this to increase. The Company’s cost management measures are also aimed at ensuring that there is no disallowance of the associated cost by the WBERC.

Enhancing Productivity: As a result of increase in employee productivity, the Company’s workforce is 20 per cent. smaller than four years ago in spite of substantial increases in the number of consumers as well as vertical growth in the license area.

Increase coal supply from ICML: In the year ended March 31, 2007, 54 per cent. of the Company’s coal requirements were supplied by ICML, an RPG Group company in which the Company has a 33 per cent. interest, and it is a condition of their mining license that they must supply all of their coal to the Company. ICML is in the process of expanding its operations to increase coal production capacity. In order to reduce the risk of interruption in coal supply, the Company will seek to renegotiate the Company’s coal supply agreement with ICML so that a greater portion of the Company’s coal requirement is supplied from their existing captive mine. ICML has further initiated steps to increase its annual production from the existing level of 2.6 MT to 3.1 MT once the 250MW third unit at Budge Budge is commissioned.

Emerging opportunities

The Electricity Act established opportunities for establishing merchant power plants, conducting electricity transmission businesses and participating in the privatization of distribution circles of SEBs. Subject to availability of resources after having met the demand for electricity in the Company’s licensed area, the Company is exploring options to make best use of these opportunities within the regulatory framework. The Company has entered into MOUs with the State Governments of Jharkhand and Orissa in relation to setting up 1,000MW merchant power plants in each of these states as pit-head stations. Obtaining coal block allocation and setting up the required infrastructure are pre-requisites to commencing work in respect of these projects. Recently, the Screening Committee for the allotment of coal block recommended the Company for allocation of coal block in respect of the proposed project at Jharkhand. The Company is in

— 4 — discussions with the relevant authorities for the acquisition of land in both States and have instructed agencies to carry out various studies necessary to initiate work in respect of this project. The funding and structuring of the projects will be decided by the Company in due course.

The Company has initiated steps to set up a 1,000MW-1,300MW coal fired generating facility in Haldia as Phase II for merchant market operations, where Phase I is currently underway in relation to a 600MW plant for the Company’s licensed area. The land acquisition process has been initiated with the State Government for the entire 1,600MW-1,900MW plant at Haldia and a pre-feasibility study for both phases has begun.

— 5 — SUMMARY OF THE ISSUE

The following is a general summary of the Issue of the Shares. This summary is derived from and should be read in conjunction with the full text of the description of the Shares. See “Description of the Shares”, “Placement” and “Placement Procedure”. The information contained in Description of the Shares shall prevail in the event of any inconsistency with the terms set out in this section.

Issuer ...... CESC Limited, a public company incorporated in the Republic of India with limited liability.

TheIssue ...... [●] Shares of the Company of Rs.10 each.

IssuePrice ...... Rs.[●] per Share.

ClosingDate ...... Theallotment of the Shares offered pursuant to the Issue is expected to be made on or about December [●], 2007 (the “Closing Date”).

EligibleInvestors ...... QIBs.

Total Shares issued and As of November 30, 2007, there were 115,375,925 outstanding prior to and Existing Shares issued and outstanding. Immediately after aftertheIssue ...... this offering there will be an aggregate of [●] Shares issued and outstanding.

Dividends ...... Shareholders will be entitled to receive dividends, as per the provisions of the Indian Companies Act, 1956 (the “Companies Act”). The declaration and payment of dividends, if any, on the Company’s issued and outstanding Shares and the amounts thereof, will depend upon, among other things, the amount of the Company’s distributable profits and reserves calculated on an unconsolidated basis, its earnings, financial condition and cash requirements, applicable restrictions under Indian law and other relevant factors the Board of Directors of the Company may deem relevant. Cash dividends on the Shares, if any, will be paid in Rupees and subject to any restrictions imposed by Indian law. For more information, see “Dividends and Dividend Policy” and “Taxation”.

Ranking of the Shares ...... TheShares being issued shall be subject to the provisions of the Company’s Memorandum and Articles of Association and shall rank pari passu in all respects with the Existing Shares including rights in respect of dividends. The Shareholders will be entitled to participate in dividends or any other corporate benefits, if any, declared by the Company after the date of the Issue.

IndianTaxation ...... TheIndianIncome Tax Act, 1961 (the “Income Tax Act”)is the law relating to taxes on income in India. The Income Tax Act provides for the taxation of persons resident in India on global income and persons not resident in India on income received, accruing or arising in India or deemed to have been received, been accrued or to have arisen in India. For more information, see “Taxation”.

— 6 — Voting Rights of Holders of Shareholders may attend and vote at shareholders’ Shares ...... meetings on the basis of one vote for each Share held. See “Description of the Shares”.

Restrictions on the Shares ... Offers and sales of the Shares will be subject to certain restrictions. See “Placement”, “Placement Procedures”, “Transfer Restrictions” and “Selling Restrictions”.

Pursuant to the SEBI Guidelines, for a period of 12 months from the date of the issue of the Shares in the offering, QIBs purchasing shares in the offering may only sell their shares across the Indian Stock Exchanges and may not enter into any off-market trading in respect of the Shares. The Company cannot be certain that these restrictions will not have an impact on the price of the Shares.

Governing Law ...... The Memorandum of Understanding (as defined herein) will be governed by Indian law.

Listings and Trading Markets for The only trading markets for all of the Shares are the BSE, the Shares ...... the NSE and the CSE. The Existing Shares have been listed on the CSE since April 23, 1979, the BSE since February 17, 1994 and the NSE since February 8, 1995. As of November 16, 2007, the latest record date for which such information is available, there were 27,918 holders of record of the Existing Shares. Certain of the Company’s outstanding Existing Shares are listed on the London Stock Exchange plc (the “LSE”). Global depositary receipts representing the Company’s Shares (“GDRs”) are listed on the EuroMTF market of the Luxembourg Stock Exchange.

Use of Proceeds ...... Thenetproceeds from this Issue of Shares, after deduction of management and placement fees, discounts and commissions but before deduction of other expenses relating to this offering, are expected to be approximately Rs.[●], which the Company intends to use: (i) subject to obtaining all regulatory approvals, to finance, in part, a new 600MW generating facility in Haldia; (ii) to strengthen the Company’s transmission and distribution network; and (iii) for general corporate purposes. Proceeds from the Issue have not been earmarked or allocated for investment in either of the Company’s subsidiaries, SRL or CPL.

Lock-up Agreement ...... Each of the Company and the members of the RPG Group that are shareholders of the Company has agreed not to: (1) directly or indirectly, offer, pledge, sell, contract to sell, purchase any option or contract to sell, grant or sell any option, right, contract or warrant to purchase, lend, make any short sale or otherwise transfer or dispose of any Shares or any other securities of the Company substantially similar to the Shares, including, but not limited to options,

— 7 — warrants or other securities that are convertible into, exercisable or exchangeable for, or that represent the right to receive, Shares or any such substantially similar securities, whether now owned or hereinafter acquired; (2) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the Shares or any such substantially similar securities, whether now owned or hereinafter acquired (whether any such transaction described in (1) or (2) above is to be settled by delivery of Shares or such other securities, in cash or otherwise); or (3) publicly announce its intention to enter into the transactions referred to in (1) or (2) above for a period of 180 days after the Closing Date without the prior written consent of the Joint Global Coordinators and Book Running Lead Managers, provided that the members of the RPG Group specified above may transfer Shares and other securities substantially similar to Shares to other members of the RPG Group which have agreed to be bound by the terms of the lock-up agreement.

Placement Procedure ...... TheIssue is being made to QIBs only, in reliance on Chapter XIII-A of the SEBI Guidelines. Accordingly, the Company will circulate serially numbered copies of this Placement Document either in electronic form or physical form to not more than 49 QIBs. Each QIB will also receive an Bid cum Application Form which, in order to be considered for an allotment of Shares, such QIB will be required to complete and return to the Joint Global Coordinators and Book Running Lead Managers. See “Placement Procedure”.

Risk Factors ...... Prior to making an investment decision, prospective investors should consider carefully the matters discussed under the section entitled “Risk Factors”.

Security Codes:

ISIN ...... INE486A 01013

BSE Code ...... 500084

NSE Code ...... CESC

CSE Code ...... 10000034

— 8 — RISK FACTORS

Prospective investors should carefully consider the risks described below, in addition to the other information contained in this Placement Document, before making any investment decision relating to the Shares. The occurrence of any of the following events and any additional risks and uncertainties not presently known to the Company could have a material adverse effect on the Company’s business, results of operations, financial condition and future prospects and cause the market price of the Shares to fall significantly.

Risks Associated with the Company’s Power Business

The Company’s business could be adversely affected by the revision of the Company’s tariffs by the regulatory authorities.

The Company’s tariff is determined by the WBERC under the provisions of the Electricity Act and the associated regulations. This currently provides for a multi-year tariff framework whereby tariffs are determined on a normative basis with reference to efficiency parameters determined by WBERC. The Company’s inability to meet the prescribed efficiency norms may lead to the disallowance of costs incurred and the imposition of penalties. Although the Company’s performance levels currently exceed those required, there can be no assurance that the Company will continue to meet such standards or that such standards will not be made more stringent. There can also be no assurance that tariffs will increase at an adequate rate to cover the Company’s costs. All of the foregoing could have material adverse effect on the Company’s business, results of operations and financial condition.

In the past the Company’s inability to recover costs has caused it to incur losses. This failure was mainly attributable to the lack of clarity in the tariff setting mechanism then in force and delays in adjusting tariffs on a year to year basis. There can be no assurance that the Company will be able to recover its costs in the future.

The Company’s cashflow is affected by the tariff setting mechanism.

Under the multi-year tariff framework, the WBERC will determine the tariff for a number of years. At the end of each year within the period covered by the tariff then in force, the Company will submit an annual performance review to the WBERC in response to which the WBERC may adjust the tariff to reflect certain unforeseeable items of expenditure and/or lower than expected income. The Company may experience liquidity constraints, as it is unable to adjust its tariff during the year at the time of the incurrence of the unforeseeable expense and, accordingly, the funds received from sales may be inadequate to pay expenses during the period from the time of incurrence of the unforeseeable expense until the time the tariffs are adjusted. Although the Company may be entitled to tariff adjustments in subsequent periods to compensate for lower sales or increased costs, the billing of such adjusted tariffs and the collection of the related funds will take place in subsequent periods. The delay of cash inflows from operations could have a material adverse effect on the Company’s operations and could limit the Company’s ability to service its indebtedness in a timely fashion. The Company’s capital expenditure program may exceed that which is approved by the WBERC. A refusal by the WBERC to adjust the tariff to cover the total cost of such capital expenditure program could have a material adverse effect on the permitted return and liquidity position of the Company with a consequential material adverse effect on the Company’s ability to service its indebtedness in a timely fashion.

— 9 — The Tariff Regulations encourage the Company to continue the Company’s investment in capital and to fund such capital by increased indebtedness.

Due to regulatory provisions, the Company generally funds its capital expenditure with a debt to equity ratio of 70:30 as up to 30 per cent. of approved capital expenditure is allowed towards earning the permitted return. The Company’s substantial expansion plan can render its capital structure highly leveraged, which may increase the debt servicing obligations of the Company. Although the Company believes that “advance drawal of depreciation” allowed under the Tariff Regulations (which allows the Company to claim advance against depreciation under certain circumstances) would enable it to service any higher debt repayment obligations, it may also lead to the tariff being set at a higher level, which may adversely affect the Company’s competitiveness and therefore its profitability.

The Company is dependent on its electricity supply license.

The Company has a license, originally granted by the State Government of West Bengal, to supply electricity in Kolkata and Howrah and in the adjoining areas, which expires on December 31, 2019. Pursuant to the Electricity Act, the license may be extended for subsequent periods at the discretion of the WBERC. The license is not exclusive, the terms may be amended or the license may be revoked on not less than three months’ written notice by the WBERC in certain circumstances, including a willful and prolonged default under the Electricity Act or if, in the opinion of the WBERC, the Company’s financial position is such that the Company is unable to discharge fully and efficiently the duties imposed on it by the license. In such circumstances, the WBERC may require the Company to sell its assets to a purchaser whose application has been accepted by the WBERC in accordance with the provisions of the Electricity Act. In the event such sale does not occur, the Company may be required to pay for the removal of its assets from public land.

The State Government of West Bengal, which was the licensing authority prior to the enactment of the Electricity Act, has renewed the Company’s license whenever it has been due for renewal in the past and the Company has no reason to believe that the WBERC, the licensing authority under the Electricity Act, will not continue to renew its license in the future. However, there can be no assurance that WBERC will not revoke the Company’s license or that it will extend the license beyond December 31, 2019 or any subsequent license period.

Past results will not necessarily be indicative of future results due to the changing regulatory environment in the Indian electricity industry.

The Company’s current profitability includes the impact of its operational efficiency in relation to the norms set by the WBERC. There is no assurance that more stringent norms will not be set by the WBERC in the future or that future operations and new plants and equipment commissioned by the Company will be able to comply with those norms. Therefore, the Company’s future results will be more significantly influenced by the Company’s operating performance than its past results. In addition, to the extent that the Company enters into non-tariff-regulated businesses, such as setting up merchant power plants and making investments, the revenues and profits from these businesses will not be as predictable as the revenues and profits from the Company’s tariff-regulated business. Moreover, the Company is subject to the general risk that the regulations to which it is subject may be changed from time to time in a manner that is adverse to the Company.

— 10 — The Company’s plans to create additional generating capacity and to extend the transmission network involve substantial capital expenditure and other risks associated with major projects which may adversely affect the Company’s business; part of the proceeds of this offering will be used to finance, in part, the new generating unit at Haldia and for transmission and distribution network related projects.

In order to expand the Company’s business, the Company plans to increase its generating capacity by constructing additional generating units. The Company intends to use the proceeds of this offering to finance, in part, a new 600MW generating unit at Haldia and for other transmission and distribution network related projects. The remaining financing for the project will be provided through internal cash flow and the Company intends to obtain borrowings under term loans or secured debt facilities in due course.

The construction and expansion of power plants and the setting up of transmission lines involve substantial capital expenditure and other risks associated with major projects, such as cost overruns, delays in or failure of implementation, technical and economic viability, changes in market conditions, difficulty or delays in acquiring land required and the obtaining of necessary approvals (including rights of way) any of which may have a material adverse effect on the Company’s business, results of operations and financial condition.

The 80 km evacuation line across the Hooghly River (which runs through the Company’sarea of operations) will require a right of way. The Company will initiate the process following the completion of the route survey by the Power Grid Corporation of India. The construction of the Haldia plant can only commence once approvals from the WBERC, certain of the Company’s lenders and certain other authorities including the Ministry of Environment and Forests of the Government of India have been received. These approval processes have been initiated but there can be no assurance that all approvals will be obtained in time or at all.

The Company has substantial borrowings from various agencies and lenders and is obliged to comply with certain loan covenants.

The Company is obliged to comply with certain covenants under loan agreements with various agencies and lenders, including a requirement to obtain permission for dividend payments as well as financial covenants. The Company is currently in compliance with these covenants but there is no assurance that the Company will continue to be in compliance with these covenants. If the Company is not able to comply with its financial covenants, it may have to apply for amendments to the covenants or seek waivers in respect of any events of default, including cross defaults arising from the breach of the covenants. The Company cannot assure you that it will be able to obtain such amendments or waivers on satisfactory terms, or at all. If the Company’s debt obligations are accelerated as described above, it will face significant liquidity constraints, and may be unable to comply with all of its repayment obligations. In addition, the Company’s borrowings are secured by certain of its assets, and the acceleration of loan repayments could result in foreclosure on the mortgages or security interests held by lenders over such assets.

The Company’s ability to incur additional debt in the future (which it intends to do) is subject to a variety of uncertainties including the amount of capital that other Indian entities may seek to raise in the domestic and foreign capital markets, economic and other conditions in India that may affect investor demand for the Company’s securities and those of other Indian entities, the liquidity of Indian capital markets and the Company’s financial condition and results of operations.

— 11 — Changes in the regulatory environment of the Indian electricity industry may increase competition.

The Electricity Act removed licensing requirements for thermal generators, provided for multiple licensing and open access to transmission and distribution networks, and removed restrictions on the right to build captive generation plants. In addition, the Electricity Act promoted electricity trading and established the trading of electricity as a separate licensed activity. Accordingly, other utilities may seek open access or obtain licenses to distribute electricity in the Company’s license area, which may adversely affect the Company’s business, results of operations and financial condition. Although the Company believes that its present tariff is competitive and continually tries to keep it so, there is no assurance that the Company would be able to maintain a sufficiently competitive tariff.

The Company’s operations and the Company’s expansion plans have significant coal requirements and the Company may be unable to obtain a continuous supply of coal at competitive prices.

In the year ended March 31, 2007 54 per cent. of the Company’s coal requirement was obtained from the coal mine owned by ICML, an RPG Group company, 38 per cent. of the Company’s coal requirement was obtained from subsidiaries of CIL, a Central Government-owned company, and 8 per cent. of the Company’s coal requirement was obtained through imports (which is typically more costly). Despite shortages of coal in India, the Company’s generation level has not been materially adversely affected. However, if such shortages occur in the future, there can be no assurance that the Company will be able to obtain a continuous supply of coal at competitive prices and, if the Company is unable to do so, this may have a material adverse effect on the Company’s business, financial condition and results of operations. Moreover, if the Company cannot procure a sufficient and continuous supply of coal, it may be unable to undertake certain of its expansion plans, which would require a substantial supply of coal.

The Company depends on the WBSEB for 12 per cent. of its electricity supply.

In the year ended March 31, 2007, 12 per cent. of the electricity the Company delivered to the system was purchased from the WBSEB pursuant to a power purchase agreement which provides that WBSEB is required to make up to 560,000 KVA of electricity available to the Company at any time. There can be no assurance that WBSEB will supply electricity at the time and in the quantities the Company requires, and if the Company is unable to improve the Company’s own generating capacity or procure electricity from other sources, this will adversely affect the Company’s ability to supply electricity to consumers. The contract for the supply of electricity between the Company and WBSEB is entered into on a yearly basis and there can be no guarantee that prices will not increase or that recovery will not be delayed, which may have a material adverse effect on the Company’s business, results of operations and financial condition.

The Company suffers losses relating to the transmission and distribution of the Company’s electricity.

T&D Losses refers to the electricity distributed through a network which is not billed by the distributor. These losses are generally caused by technical effects such as energy losses in the form of transformer loss, heat given off by cables, faulty metering and theft. The Company’s T&D Losses amounted to 14.7 per cent. of total electricity delivered to the system in the year ended March 31, 2007. There can be no assurance that the Company will be able to reduce T&D Losses or that they will not increase in the future.

— 12 — Failure to deliver electricity to the Company’s customers may adversely affect the Company’s revenues and results of operations.

Unplanned outages at generating stations and in distribution networks generally occur in the Company’s industry. However, in the event of prolonged unplanned outages at any of the Company’s generating stations or continued failures in the Company’s distribution network, the Company may be unable to supply electricity to consumers. This could have a material adverse effect on the Company’s business, results of operations and financial condition.

A considerable amount of the Company’s payables and receivables are due to or from municipalities.

Settlement of electricity dues by certain municipalities takes place after significant delays. As of September 30, 2007 outstanding amounts payable by such municipalities amounted to approximately Rs.359 million. Given the nature of activities of these entities, the Company does not generally consider the disconnection of supply. Final settlement usually takes place through the State Government. In the past, several settlement packages have been entered into to the satisfaction of the Company. There is no assurance that the State Government will enter into settlement packages in the future, which may have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s operations are subject to environmental regulations.

The Company’s power stations are subject to environmental regulations promulgated by the MOEF and the WBPCB. In the event that one of the Company’s power stations deviates from the statutory limits prescribed in any environmental regulation applicable to the Company’s operations, the State Government of West Bengal and other third parties subject the Company to substantial penalties. Compliance with such environmental regulations could restrict the Company’s operations or result in a material increase in the Company’s operating costs. It is also possible that increasingly strict environmental regulations in relation to power plants in India may be imposed in the future, compliance with which could require capital expenditure, which may have a material adverse effect on the Company’s financial condition and results of operations. Moreover, the Company would require environmental consents and approvals for certain of its potential expansion projects, and its inability to procure such consents or approvals (or a delay in obtaining them) could materially impact its ability to develop such projects which could adversely affect its business, results of operations and financial condition.

The Company is involved in a number of legal proceedings which, if determined against the Company, could adversely affect its financial condition and results of operations.

The Company is party to various legal proceedings which arise in the ordinary course of the Company’s operations. Such proceedings could divert management time and attention. If, in aggregate, these claims were determined against the Company, it could have an adverse effect on the Company’s business, results of operations and financial condition.

The Company is under the control of the RPG Group.

The Company is part of the RPG Group, which is controlled by the Goenka family. See “RPG Group”. Business transactions with other members of the RPG Group are carried out on an arm’s length basis. The RPG Group may consider undertaking power and energy projects outside of the Company’s license area although not necessarily through the Company. There can be no assurance that these potential power and energy projects will not directly or indirectly compete

— 13 — with the Company’s business or limit future opportunities for the Company to grow its business. It is possible that the RPG Group may undertake additional projects or ventures that could compete directly or indirectly with businesses in which the Company and its subsidiaries are engaged.

As of the date of this Placement Document, the RPG Group beneficially owns 56.84 per cent. of the Company’s Existing Shares. Following the Issue, the RPG Group’s interest will be diluted to approximately [●] per cent. but the RPG Group will still control the Company. Accordingly, it has, and will continue to have, the ability to influence the Company’s business. There can be no assurance that the RPG Group will not take positions with which the Company or the holders of the Shares do not agree and such positions could have an adverse effect on the Company or the holders of the Shares. Moreover, the RPG Group may exercise its control to approve actions and to reject certain corporate opportunities which may not be in the best interests of the holders of the Shares.

The Company’s operations may be adversely affected if relations with employees were to deteriorate.

The Company’s operations rely heavily on employees. Relations with employees could deteriorate due to disputes related to, among other things, wage or benefit levels. Shortages of skilled labor or stoppages caused by disagreements with employees could adversely affect the Company’s operations. The Company’s employees are represented by trade unions which are politically affiliated. Political instability or changes in West Bengal could have a material impact on the trade unions of the Company’s employees and consequently on the industrial relations prevailing in the Company’s establishments.

The Company’s operations may be adversely affected if there is a failure in its critical IT systems or control systems.

The Company has a number of critical IT applications and control systems both in its operational areas as well as in its support functions. These include generation control, system control, distribution of electricity including fault location and remote operations, payroll applications, billing, procurement to pay and accounting functions. Although there are fall-back mechanisms in place, a failure in these systems may adversely affect the operations of the Company.

The Company may not have adequate insurance to cover all losses incurred in the Company’s business operations.

The Company’s business operations have the potential to cause personal injury and loss of life, damage to or destruction of property, plant and equipment and the environment and are subject to risks such as fire, theft, flood, earthquakes and terrorism. Although the Company implements safety measures to reduce the risk of these occurrences, the Company cannot eliminate these risks completely. The Company maintains insurance coverage in such amounts and against such risks which the Company believes are in accordance with industry practice and the requirements of the Company’s loan agreements. However, such insurance may not be adequate to cover all losses or liabilities that may arise from the Company’s operations, and in the future, the Company may be unable to maintain insurance of the types or at levels which the Company deems necessary or adequate or at rates which the Company considers reasonable.

— 14 — The Company’s results of operations could be adversely affected by strikes, work stoppages or increased wage demands by the Company’s employees or any other kind of disputes with the Company’s employees. In addition, the Company’s business could be harmed if key management personnel with significant experience and expertise in the electricity industry terminate their employment with the Company.

As of March 31, 2007, the Company had a total of 10,579 employees. In addition to the Company’s internal work force the Company also employs laborers for offsite projects.

There can be no assurance that the Company will not experience disruptions to its operations due to disputes or other problems with the Company’s work force, which may adversely affect the Company’s business, results of operations and financial condition. Further, efforts by labor unions to organise the Company’s employees may divert management’s attention and increase operating expenses and the Company may be unable to negotiate acceptable collective bargaining agreements with those who have chosen to be represented by unions, which could lead to union-initiated work stoppages, including strikes, which could adversely affect the Company’s business, results of operations and financial condition.

The Company has a team of professionals to oversee the operations and growth of the Company’s business. The Company’s performance and success depends largely on the Company’s management team and skilled personnel and the Company’s ability to attract and retain such persons. In order to sustain the Company’s business, the Company needs to attract and retain such key managerial and other skilled personnel. The Company faces a continuing challenge to recruit and retain a sufficient number of suitably skilled personnel, particularly as the Company continues to grow. There is significant competition for management and other skilled personnel in the Company’s industry, and it may be difficult to attract and retain the personnel the Company needs in the future. The loss of services of one or more members of the Company’s key management team could adversely affect the Company’s business, results of operations and financial condition.

Risks Associated with the Retail Business conducted by Spencer’s Retail Limited (“SRL”)

SRL faces significant competition in the retail industry.

The Indian retail industry is highly competitive. Competition is characterized by many factors, including assortment, advertising, price, quality, service, location, reputation and credit availability and availability of retail space. SRL also faces competition from other forms of retail other than through stores, including market stall vendors and other sole traders.

Certain large domestic industrial and business groups have shown an interest in this sector and may be in the process of establishing retail chains in India. Such prospective competitors may be larger and better placed to take advantage of efficiencies created by size, may have better financial resources and/or greater access to capital at lower costs and may be better known nationally.

Additionally, SRL may face competition from international competitors if foreign participation in the retail sector is further liberalized. Moreover, as the industry is highly fragmented, SRL also faces competition from local stores, who may, for a variety of reasons (such as easier customer access and pre-existing personal relationships between store owner and customer), be able to cater to local demands better than SRL.

SRL’s inability to compete successfully in its industry would materially affect SRL’s, and therefore the Company’s, business, results of operations, financial condition and prospects.

— 15 — If SRL is unable to manage its rapid growth effectively, the Company’s business and financial results could be adversely affected.

SRL’s business has grown rapidly in recent years. SRL’s stores under operation have increased from 58 stores as on March 31, 2006 to 282 stores as on September 30, 2007. SRL’s rapid growth has been due to the evolution in the retail sector in India, caused by higher disposable incomes in certain sectors of Indian society, the growth in urban populations and changing shopping habits among customers, among other things. SRL also intends to continue to grow its business substantially and rapidly, targeting approximately 700 stores by year end 2008. SRL’s expansion plans make it dependent on economic conditions and several other factors.

The growth plans for SRL are considerable and will put significant demands on SRL’s and the Company’s management team and other resources. The successful implementation of this growth strategy depends on SRL’s ability to locate and acquire appropriate sites on commercially reasonable terms, opening new stores in a timely manner, employ, train and retain additional store and supervisory personnel and integrate the new stores in SRL’s existing operations on a profitable basis. There can be no assurance that SRL will achieve the planned growth or that new stores will operate satisfactorily. Furthermore, any delay by landlords in handing over the possession of store sites to SRL may lead to delays in the opening of stores and impact SRL’s time schedules and cause cost and time overruns. Rising real estate costs and acquisition, construction and development costs could also inhibit SRL’s ability to grow. In addition, SRL’s expansion in new and existing markets in India may present distribution and merchandising challenges that differ from those in SRL’s current operations. To ensure operating efficiency throughout such growth will require, among other things, continued development of financial, operational and management systems and increased marketing activities. These factors could cause diversion of management attention from the expansion plans leading to delays and cost overruns and may adversely impact SRL’s, and therefore the Company’s business, results of operations and financial condition.

In addition, SRL may face public opposition to new store openings, especially from small and medium-sized shopkeepers who, as well as political groups, may seek to exert political pressure to prevent stores from opening in their region. Indeed, certain retail competitors of SRL have been prevented from opening new stores on schedule and even closed some stores as a result of demonstrations organized by such shopkeepers. In addition, SRL was required by the local authority to close several of its stores in Uttar Pradesh, although these have been subsequently re-opened.

SRL has been loss-making since it initiated its store expansion plan, and it may continue to incur losses for an indefinite period of time as it further expands the number of its stores.

SRL has pursued a rapid store expansion strategy, with the number of its stores growing from 58 in March 2006 to 124 in March 2007. SRL’s store roll-out programme affected its results of operations, given the start-up costs involved with new stores and the time lag before new stores typically achieve profitability, which can take between six and 24 months (depending on the size of the store). This is one of the primary reasons that SRL has been loss-making since it initiated its store expansion plan, and it may continue to incur losses as it further expands the number of its stores. Such losses could have a material adverse effect on the business, results of operations, financial condition and prospects of CESC and Subsidiaries for an indefinite period of time. CESC and Subsidiaries cannot predict with any certainty when or even whether SRL will begin to generate profit.

— 16 — SRL’s revenue stream is subject to seasonal and cyclical trends that are largely beyond SRL’s control and an inability to address such trends could adversely affect SRL’s business, results of operations and financial condition.

SRL’s business is subject to seasonal peaks (for example, during the run-up to religious festivals), and seasonality of market demand for various products could cause significant changes in SRL’s performance throughout the year. Poor trading performance during slower seasons could adversely affect SRL’s full-year results.

SRL’s business depends on SRL’s ability to obtain and retain appropriate retail spaces.

SRL’s success in its business depends on SRL’s ability to identify and lease appropriate retail space on commercially reasonable terms and conditions. SRL competes with other large retailers for leasing such retail spaces. Furthermore, SRL’s ability to lease appropriate retail space in sufficient quantities will be affected by the prevailing performance of the real estate markets (including real estate prices) in the regions in which SRL operates. If SRL fails to lease targeted properties or renew existing leases, SRL would face delays in the execution of its strategies, which may result in cost overruns, may restrict SRL’s expansion plans or otherwise adversely affect SRL’s, and therefore the Company’s, business, results of operations and financial condition.

SRL’s stores are predominantly operated on properties which are taken on a lease or license basis or under certain franchisee arrangements, which may or may not be renewed. The termination of SRL’s leases or licenses or franchise arrangements, or disputes that may arise with owners of such properties, or SRL’s inability to negotiate new leases on acceptable terms, may result in the closure of SRL’s stores, thus affecting SRL’s, and therefore the Company’s, business and profitability.

SRL may be unable to gauge trends or react to consumer preferences in a timely manner.

SRL derives its revenue, in part, from the sale of products which are subject to volatile and changing customer tastes. SRL’s success depends, in part, on its ability to effectively predict and respond to quickly changing consumer demands and preferences, and to translate market trends into appropriate, saleable merchandise offerings. If SRL is unable to successfully predict or respond to consumer demand or to changing styles or trends, it may be forced to rely on additional markdowns or promotional sales to dispose of excess or slow-moving inventory or it may experience inventory shortfalls on popular merchandise, any of which could have a material adverse effect on SRL’s, and therefore the Company’s, business, financial condition and results of operations.

The success of SRL’s business is highly dependent on the Indian economy and consumer spending in particular, and a downturn may adversely affect SRL’s sales.

Factors such as the regional economy, weather conditions, natural disasters, social unrest as well as government regulations specific to the states in which SRL operates may affect the customers coming to SRL’s stores. The disposable income available to customers also affects their spending power on consumer products that SRL sells in its stores. A change in economic conditions in the country may affect the disposable income available to customers, which may in turn affect the results of SRL’s, and therefore the Company’s, business, results of operations and financial condition.

— 17 — SRL’s business depends on its ability to maintain consistency in customer service and other operations.

Competition for personnel, particularly for employees with retail expertise, is intense. Moreover, SRL’s ability to maintain consistency in the quality of customer service in SRL’sstoresis critical to its success, and this will depend on SRL’s ability to hire the right personnel and also train the new personnel in the implementation of SRL’s processes effectively. In addition, the attrition rate of employees is high in the retail industry and in the event SRL loses employees at a high rate or it cannot recruit fresh talent, SRL may have an insufficient number of employees to adequately operate the business of certain stores. For these reasons, any shortfall in personnel numbers may adversely affect SRL’s, and therefore the Company’s, business, results of operations and financial condition.

SRL’s business could be harmed if key management personnel with significant experience and expertise in the retail industry terminate their employment with SRL.

SRL has a team of managers with experience of the retail industry to oversee the operations and growth of SRL’s business. SRL’s performance and success depends largely on its management team and skilled personnel and SRL’s ability to attract and retain such persons. In order to sustain SRL’s business, it needs to attract and retain such key managerial personnel. SRL faces a continuing challenge to recruit and retain a sufficient number of suitably skilled personnel, particularly as SRL continues to grow. There is significant competition for management and other skilled personnel in the retail industry, and it may be difficult to attract and retain the personnel SRL needs in the future. The loss of services of one or more members of SRL’s key management team could adversely affect SRL’s business, results of operations and financial condition.

The success of SRL’s business is dependent on supply chain management.

A strong supply chain system is essential to ensure the availability of goods at the stores. Ensuring shelf availability for SRL’s products requires quick turnaround times and high levels of coordination with suppliers. Food and grocery items require efficient supply chain management as such items are perishable or have limited shelf life. SRL relies on its supply chain and adopts operational processes to optimize its inventory position and reduce cost. SRL tries to maintain optimal inventory levels at its stores and distribution centers to control its working capital requirements. Inefficient supply chain management and supply bottlenecks could adversely affect SRL’s, and therefore the Company’s, business, results of operations and financial condition.

Past store sales may not be comparable to and indicative of future store sales.

Various factors affect sales at SRL’s stores, including competition, SRL’s ability to source and buy food products, its supply chain, its store location and its systems and processes. These factors will have an influence on existing and future stores and thus past figures of sales may not be a true indication of future sales.

SRL’s brand names and other intellectual property are critical to its business.

As SRL’s success depends to a significant extent upon brand recognition and the goodwill associated with it, the SRL brand name and trademark are key assets of SRL’s business. Maintaining the reputation of SRL’s brand name and trademark is critical to SRL’s success. Substantial erosion in the value of SRL’s brand name due to product recalls, customer complaints, adverse publicity, legal action or other factors could have a material adverse effect on SRL’s, and therefore the Company’s, business, operating results and financial condition. There can be no assurance that SRL’s strategy and its implementation will maintain the value of these brands. See also “— Risks Associated with the Company’s Retail Business — The sale of food products exposes SRL to the risk of product liability claims and adverse publicity”.

— 18 — India generally offers a lower level of intellectual property rights enforcement than countries in Europe and North America. The Company believes it and SRL have taken appropriate steps to protect SRL’s trademark and other intellectual property rights but cannot be certain that such steps will be sufficient or that third parties will not infringe or challenge such rights. If SRL is unable to protect such intellectual rights against infringement, it could have a material adverse effect on its, and therefore the Company’s, business, operating results and financial condition.

The sale of food products exposes SRL to the risk of product liability claims and adverse publicity.

The packaging, marketing, distribution and sale of food products entail an inherent risk of contamination or deterioration, which could potentially lead to product liability, product recall and resultant adverse publicity. Such products may contain contaminants that could, in certain cases, cause illness, injury or death to consumers. Even an inadvertent shipment of contaminated products may lead to an increased risk of exposure to product liability claims. There can be no assurance that product liability claims will not be asserted against SRL or the Company in the future or that SRL or the Company will not be obligated to undertake significant product recalls. If a material product liability claim is successful, SRL’s insurance may not be adequate to cover all liabilities it may incur, and SRL and the Company may not be able to continue to maintain such insurance, or obtain comparable insurance at a reasonable cost, if at all. If SRL does not have adequate insurance or contractual indemnification available, product liability claims relating to defective products could have a material adverse effect on SRL’s ability to market successfully its products and on its, and therefore the Company’s, business, operating results and financial condition.

Even if a product liability claim is not successful or is not fully pursued, the publicity surrounding any alleged contamination or deterioration of the products sold by SRL could have a material adverse effect on SRL’s goodwill, brand, image and profitability.

SRL’s growth requires additional capital, which may not be available on terms acceptable to it.

The retail industry is capital intensive and requires significant expenditures for store establishment, sourcing of products and raw materials. SRL intends to pursue a strategy of continued investment in additional retail stores. SRL anticipates that it will need to obtain additional financing as it expands its operations. SRL may not be successful in obtaining additional funds in a timely manner, on favorable or acceptable terms or at all. In addition, restrictions on foreign direct investment in the retail sector in India are likely to limit SRL’s funding options. Moreover, certain of SRL’s loan documentation contain provisions that limit SRL’s ability to incur future debt. In addition, the availability of borrowed funds for SRL’s business may be greatly reduced, and the lenders may require it to invest increased amounts of equity in a project in connection with both new loans and the extension of facilities under existing loans.

If SRL does not have access to sufficient additional capital, it may be required to delay, scale back or abandon some or all of its plans or growth strategies or reduce capital expenditures and the size of its operations, any of which could have a material adverse effect on SRL’s development.

SRL relies extensively on its information technology systems and any failures in SRL’s systems could adversely impact its business.

SRL relies extensively on its information technology systems to provide SRL with connectivity across its business functions through its software, hardware and connectivity systems. SRL is in the process of substantially overhauling its information technology systems. Any delay in the implementation of, or problems in the transition to, the new system or any disruptions in its functioning may adversely impact SRL’s business, results of operations and financial condition.

— 19 — Regulatory changes in India may adversely affect SRL’s business and, therefore, the price of the Shares.

SRL is subject to a wide variety of central, state and local laws and regulations and a large number of regulatory and enforcement authorities in each of the jurisdictions in which SRL operates. The laws and regulations or the regulatory or enforcement environment in any of those jurisdictions may change at any time and may have an adverse effect on SRL’s, and therefore the Company’s, business, results of operations and financial condition.

Risks Associated with the Company’s Real Estate Business

The Company’s real estate subsidiary, CESC Properties Ltd. (“CPL”), is a newly established company with no operating history, and the Company does not have prior experience in the real estate sector.

CPL is a newly established company with no operating history, and the Company does not have prior experience in the real estate sector. The Company will encounter numerous challenges in attempting to establish and grow its real estate business, and there can be no assurance that it will succeed. Because of its lack of operating history and the absence of historic financial information relating to CPL, it may be difficult for you to evaluate its business or financial prospects.

The Company’s real estate business is heavily dependent on the performance of the real estate market and the availability of real estate financing in India.

The Company’s real estate business is heavily dependent on the performance of the real estate market in India, particularly in the regions in which the Company will operate, and could be adversely affected if market conditions deteriorate. Real estate projects take a substantial amount of time to develop, and the Company could incur losses if it has to sell or lease its developed projects during weaker economic periods. Further, the real estate market both for land and developed properties is relatively illiquid, in that there may be high transaction costs as well as little or insufficient demand for land or developed properties at the expected rental or sale price, as the case may be, which may limit the CPL’s ability to respond promptly to market events.

The real estate market for commercial property is significantly affected by changes in government policies, economic conditions, demographic trends, employment and income levels and interest rates, among other factors. These factors can negatively affect the demand for and the valuation of the Company’s projects under development and its planned projects.

CPL is subject to general construction and contracting risks which may increase costs and/or delay or prevent the construction of its projects.

CPL’s most significant real estate development costs will be its construction and development costs. CPL is subject to additional risks which could result in additional costs or the delay or cancellation of its projects, including: increased raw material costs which could cause costs to exceed budgeted amounts; increased material, labor, safety or other costs, which may make completion of the project uneconomical; acts of nature, such as harsh climate conditions, earthquakes and floods, that may damage or delay construction of properties; industrial accidents; use of the wrong construction technology, which may result in delays or cost overruns; defective building methods or materials by its contractors; adverse ground conditions, and insolvency of one or more contractors, which could lead to delays and increased costs.

— 20 — The successful development of CPL’s projects will depend on its ability to hire general contractors and construction workers to build them to international standards of quality and safety on commercially reasonable terms. If CPL is unable to enter into contracting arrangements with quality general contractors or subcontractors on commercially reasonable terms, or their performance is substandard or they become financially unstable, CPL may be subject to increased costs or its projects may be delayed or cancelled, which could have a material adverse effect on its business, results of operations and financial condition.

Moreover, CPL must obtain construction permits and zoning approvals for each of its projects, or apply for certain classifications in instances where existing planning consents are not suitable or have not yet been determined. If it cannot obtain the required permits, zoning approvals or other approvals required to conduct its business in a timely manner or at all, its projects could be delayed or cancelled, which could have a material adverse effect on its business, results of operations and financial condition.

CPL is subject to general development risks which may increase costs and/or delay or prevent the development of its projects.

CPL’s development projects will require significant capital expenditures during their implementation. As a result, the development of its projects will involve exposure to a large number of variable risks over a long period of time. These risks include: adverse changes in existing legislation; potential liabilities relating to acquired land, properties or entities owning properties for which CPL may have limited or no recourse; additional obligations for the development of adjacent properties; and additional obligations relating to the preservation and protection of the environment. Certain of these factors, including factors over which CPL has little or no control, may increase costs, give rise to liabilities or otherwise create difficulties or obstacles to the development of its projects. CPL’s inability to complete the construction of a property on schedule, or at all, for any of the above reasons may result in increased costs or cause the projects to be delayed or cancelled, which could have a material adverse effect on its business, results of operations and financial condition.

The properties of the real estate business may be subject to increases in operating and other expenses.

CPL’s business, results of operations, financial condition and prospects could be materially adversely affected if operating and other expenses increase without a corresponding increase in revenues.

Factors which could increase operating and other costs include, among others:

• changes in statutory laws, regulations or government policies (including increases in property taxes and other statutory charges), which increase the cost of compliance with such laws, regulations or policies;

• increases in insurance premiums; and

• defects affecting the properties which need to be rectified, leading to unforeseen capital expenditure.

— 21 — Insurance may not cover all losses relating to the properties of the real estate business and CPL may suffer material losses in excess of insurance proceeds.

Properties may suffer physical damage by fire or other causes, or CPL may suffer public liability claims, resulting in losses (including loss of rent) which may not be fully compensated by insurance proceeds. In addition, certain types of risk (such as war risk, acts of terrorism and losses caused by the outbreak of contagious diseases, contamination or other environmental breaches) may be uninsurable or the cost of insurance may be prohibitive when compared to the related risk. Should an uninsured loss or a loss in excess of insured limits occur, CPL could be required to pay compensation and/or lose capital invested in the affected property. It would also remain liable for any debt or other financial obligation related to that property.

No assurance can be given that material losses in excess of insurance proceeds will not occur in the future. Any such uninsured loss or a loss in excess of insured limits, may have a material adverse effect on CPL’s business, results of operations and financial condition.

CPL may be unable to compete effectively with real estate companies and developers.

There are a number of property developers in West Bengal. These developers compete for material resources, human resources, purchasers and, where relevant, tenants. Such competition may affect CPL’s ability to expand its business through the development of properties, which could have a material adverse effect on its business, results of operations and financial condition.

Risks Associated with India and Indian Companies

Under current Indian regulations, the approval of the RBI is required for the sale of shares by a non-resident shareholder to a resident of India, unless the sale is made through a stock exchange in India.

Under current Indian regulations and practice, the approval of the RBI is required for the sale of equity shares by a non-resident investor to a resident of India and for repatriation of the proceeds thereof, unless the sale is made through a stock exchange in India. Under currency exchange controls that are in effect in India, any approval granted by the RBI for a transfer of shares by a NRI to a resident of India will require the equity shares to be transferred at a price based on a specified formula, and a higher price per share may not be permitted. Further, prior to the repatriation of sale proceeds, a no objection/tax clearance certificate from the income tax authority or the provision of an undertaking in the prescribed format along with a certificate from a chartered accountant would be required. There can be no assurance that any required approval from the RBI or any other Government agency can be obtained on any particular terms or at all.

A slowdown in economic growth in India could cause the Company’s business to suffer.

The Company’s performance and growth is necessarily dependent on the health of the overall Indian economy. The Indian economy has shown sustained growth over the last few years. Any slowdown in the Indian economy in the future could adversely affect the Company’s business, results of operations and financial condition.

— 22 — A decline in India’s foreign exchange reserves may affect liquidity and interest rates in the Indian economy, which could adversely affect the Company. A rapid decrease in reserves would also create a risk of higher interest rates and a consequent slowdown of growth.

Although India’s foreign exchange reserves have been increasing recently, a decline in these reserves could result in reduced liquidity and higher interest rates in the Indian economy, which in turn could adversely affect the Company’s business and future financial performance and the market price of the Shares. On the other hand, continuing high levels of foreign funds inflows could add excess liquidity to the system, leading to policy interventions, which would also slow down economic growth. Either way, an increase in interest rates in the economy following a decline in foreign exchange reserves could adversely affect the Company’s business, its future financial performance and the market price of the Shares.

Trade deficits could have a negative affect on the Company’s business and on the market price of the Shares.

India’s trade relationships with other countries can influence Indian economic conditions. In the fiscal year 2007, the merchandise trade deficit was U.S.$63 billion. If India’s trade deficits increase or become unmanageable, the Indian economy, and therefore the Company’s business, future financial performance and the market price of the Shares could be adversely affected.

Continuing high prices of crude oil could adversely affect the Indian economy, which could adversely affect the Company’s business.

India imports approximately 75 per cent. of its crude oil requirements. The sharp increase in global crude oil prices since 2001, which are at historic highs, may adversely affect the Indian economy in terms of volatile interest and exchange rates. This price increase has adversely affected the overall state of liquidity in the banking system leading to intervention by the RBI. Since 2004, crude oil prices have been extremely volatile due to increased global demand, continued tension in the Middle East where most of the world’s oil production facilities are located and certain negative events in other major oil producing countries. Continuing or further tensions or hostilities could lead to further increases in oil prices or greater volatility in oil prices. Continued high oil prices or further increases in oil prices could adversely affect the Indian economy and the Indian banking and financial system. This could adversely affect the Company’s business, including its ability to grow, the quality of its assets, its financial performance and the market price of the Shares.

Financial instability in other countries, particularly emerging market countries, could disrupt the Company’s business and cause the market price of the Shares to decrease.

The Indian market and the Indian economy are influenced by economic and market conditions in other countries, particularly emerging markets in Asia. Financial turmoil in Asia, Latin America, Russia and elsewhere in the world in the past years has had a limited impact on the Indian economy and India was relatively unaffected by financial and liquidity crises experienced elsewhere.

Although economic conditions are different in each country, investors’ reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of other emerging markets may cause volatility in Indian financial markets and indirectly, in the Indian economy in general. Any worldwide financial instability could also have a negative impact on the Indian

— 23 — economy, including the movement of exchange rates and interest rates in India. Any significant financial disruption could have an adverse effect on the Company’s business, future financial performance and the market price of the Shares.

Political instability or changes in the Government could impact the liberalization of the Indian economy and adversely affect economic conditions in India generally.

The Company is incorporated in India and a substantial majority of its facilities and assets are located in India. The Company derives a major portion of its revenues from its business in India. Consequently, the Company’s performance and the market price and liquidity of the Shares may be affected by changes in exchange rates and controls, interest rates, government policies, taxation, social and ethnic instability and other political and economic developments in and affecting India. India has a mixed economy with a large public sector and an extensively regulated Private Sector. The Central and State Governments have in the past, among other things, imposed controls on the prices of a broad range of goods and services, restricted the ability of businesses to expand existing capacity or reduce the number of their employees, and determined the allocation to businesses of raw materials and foreign exchange. Since 1991, successive Governments have pursued policies of economic liberalisation, including significantly relaxing restrictions in the Private Sector. Nevertheless, the role of the Central and State Governments in the Indian economy as producers, consumers and regulators remains significant. The present Central Government, formed after the Indian parliamentary elections in April and May 2004, may follow policies that are different from the economic liberalization policies of previous governments, which could directly and adversely affect the Company’s business and the Company’s industry. The Company cannot be sure that liberalization policies will continue in the future. Elimination of or a substantial change in such policies or the introduction of policies that negatively affect power transmission and distribution could have an adverse effect on the Company.

There may be less company information available in the Indian securities markets than securities markets in developed countries.

There may be differences between the level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants and that of the markets in the United States and other more developed countries. The SEBI is responsible for approving and improving disclosure and other regulatory standards for the Indian securities markets. The SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in more developed countries.

Any downgrading of India’s debt rating by an international rating agency could negatively impact the Company’s business.

Any downward revisions to India’s credit ratings for domestic and international debt by international credit rating agencies may adversely impact the Company’s ability to raise additional financing. Such revisions could also affect the interest rates and other commercial terms on which such additional financing is available. This could have an adverse effect on the Company’s business and future financial performance, the Company’s ability to obtain financing for capital expenditures and the trading price of the Company’s Shares.

— 24 — Terrorist attacks, civil unrest and other acts of violence or war involving India and other countries could adversely affect the financial markets and the Company’s business.

Terrorist attacks and other acts of violence or war may negatively affect the Indian markets on which the Shares trade and also adversely affect the worldwide financial markets. These acts may also result in a loss of business confidence, make travel and other services more difficult and ultimately adversely affect the Company’s business. In addition, any deterioration in relations between India and its neighboring states might result in investor concern about stability in the region, which could adversely affect the price of the Shares. India has also witnessed civil disturbances in recent years and it is possible that future civil unrest as well as other adverse social, economic and political events in India could have a negative impact on the Company. Such incidents could also create a greater perception that investment in Indian companies involves a higher degree of risk and could have an adverse impact on the Company’s business and the price of the Shares.

Natural calamities could have a negative impact on the Indian economy and cause the Company’s business to suffer.

India has experienced natural calamities such as earthquakes, tsunami, floods and drought in the past few years. The extent and severity of these natural disasters determines their impact on the Indian economy. For example, as a result of drought conditions in the country during the fiscal year 2003, the agricultural and allied sector recorded a negative growth of 6.9 per cent. The erratic progress of the monsoon in 2004 affected sowing operations for certain crops. Further prolonged spells of below normal rainfall or other natural calamities could have a negative impact on the Indian economy, adversely affecting the Company’s business and the price of the Shares.

Risks Associated with the Shares and the Issue

There may not be an active or liquid market for the Company’s Shares, which may cause the price of the Shares to fall and may limit your ability to sell the Shares.

The offer price of the Shares for the Issue will be determined by the Company in consultation with the Joint Global Coordinators and Book Running Lead Managers based on the Bids received in compliance with Chapter XIII-A of the SEBI Guidelines, as amended from time to time, including instructions and clarifications issued by the SEBI from time to time, and it may not necessarily be indicative of the market price of the Shares after this Issue is complete. Investors may be unable to resell their Shares at or above the offer price and, as a result, may lose all or part of their investment. The price at which the Shares will trade after this Issue will be determined by the marketplace and may be influenced by many factors, including:

• the Company’s financial results and the financial results of the companies in the businesses the Company operates in;

• the history of, and the prospects for, the Company’s business and the sectors and industries in which the Company competes;

• an assessment of the Company’s management, the Company’s past and present operations, and the prospects for, and timing of, the Company’s future revenues and cost structures;

• the present state of the Company’s development; and

• the valuation of publicly traded companies that are engaged in business activities similar to that of the Company.

— 25 — In addition, the Indian stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the securities of Indian companies. As a result, investors in the Shares may experience a decrease in the value of the Shares regardless of the Company’s operating performance or prospects.

The market price of the Shares may fluctuate due to the volatility of the Indian securities market.

The Indian securities markets may be more volatile than the securities markets in other countries. Stock exchanges in India have, in the past, experienced substantial fluctuations in the prices of listed securities. Stock exchanges in India have experienced problems, including broker defaults and settlement delays, which, if they were to continue or recur, could affect the market price and liquidity of the securities of Indian companies, including the Shares. In addition, the governing bodies of the various Indian stock exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Furthermore, from time to time disputes have occurred between listed companies and stock exchanges and other regulatory bodies, which in some cases may have had a negative effect on market sentiment.

Future issues or sales of the Shares may significantly affect the trading price of the Shares and the interests of the holders of Shares will be diluted to the extent of any future issues of Shares.

The future issue of Shares or the disposal of Shares by any of the Company’s major shareholders or the perception that such issues or sales may occur may significantly affect the trading price of the Shares. Except for lock-up agreements by the Company and the RPG Group which will remain in effect for 180 days after the Closing Date there is no restriction on the Company’s ability to issue Shares or the shareholders’ ability to dispose of their Shares, and there can be no assurance that the Company will not issue Shares or that any shareholder will not dispose of, encumber, or pledge, its Shares.

There are restrictions on daily movements in the price of the Shares, which may adversely affect a shareholder’s ability to sell, or the price at which it can sell, the Shares at a particular point in time.

The Company is subject to a daily “circuit breaker” imposed by all stock exchanges in India, which does not allow transactions beyond specified increases or decreases in the price of the Shares. This circuit breaker operates independently of the index-based market-wide circuit breakers generally imposed by the SEBI on Indian stock exchanges. The maximum movement allowed in the price of the Company’s shares before the circuit breaker is triggered is determined by the stock exchanges based on the historical volatility in the price and trading volume of the Shares. The stock exchanges do not inform the Company of the triggering point of the circuit breaker in effect from time to time, and may change it without the Company’s knowledge. This circuit breaker limits the upward and downward movements in the price of the Shares. As a result of this circuit breaker, no assurance may be given regarding the ability of investors to sell their Shares or the price at which investors may be able to sell their Shares at any particular time.

There is no guarantee that the Shares will be listed on the BSE and the NSE in a timely manner or at all, and any trading closures at the BSE and the NSE may adversely affect the trading price of the Company’s Shares.

In accordance with Indian law and practice, permission for listing of the Shares will not be granted until after those Shares have been issued and allotted. Approval will require all other relevant documents authorizing the issuing of Shares to be submitted. There could be a failure or delay in listing the Shares on the BSE or the NSE. Any failure or delay in obtaining the approval would restrict an investor’s ability to dispose of the Shares. The regulation and monitoring of Indian securities markets and the activities of investors, brokers and other participants differ, in some cases significantly, from those in Europe and the United States. The BSE and the NSE have in the past experienced problems, including temporary exchange closures, broker defaults,

— 26 — settlements, delays and strikes by brokerage firm employees, which, if continuing or recurring, could affect the market price and liquidity of the securities of Indian companies, including the Shares, in both domestic and international markets. A closure of, or trading stoppage on, either of the BSE and the NSE could adversely affect the trading price of the Shares. Historical trading prices, therefore, may not be indicative of the prices at which the Shares will trade in the future.

Investors may not be able to enforce a judgment of a foreign court against the Company.

The Company is a limited liability company incorporated under the laws of India. It may not be possible for investors in the Shares to effect service of process outside of India on the Company or the Company’s directors and executive officers and experts named in the Placement Document who are residents of India, or to enforce judgments obtained against the Company or these persons in foreign courts predicated upon the liability provisions of foreign countries. Moreover, it is unlikely that a court in India would award damages on the same basis as a foreign court if an action was brought in India or that an Indian court would enforce foreign judgments if it viewed the amount of damages as excessive or inconsistent with Indian practice.

Because the Shares are quoted in Indian Rupees in India, investors may be subject to potential losses arising out of exchange rate risk on the Indian Rupee and risks associated with the conversion of Indian rupee proceeds into foreign currency.

Investors are subject to currency fluctuation risk and convertibility risk since the Shares are quoted in Indian Rupees on the Indian Stock Exchanges on which they are listed. Dividends on the Shares will also be paid in Indian Rupees. Investors that seek to convert the Indian Rupee proceeds of a sale of Shares into foreign currency and export the foreign currency will need to obtain the approval of the RBI for each such transaction. In addition, investors that seek to sell the Shares will have to obtain approval from the RBI, unless the sale is made on a stock exchange or in connection with an offer made under regulations regarding takeovers.

Significant differences exist between Indian GAAP and other accounting principles with which investors may be more familiar.

The Annual Financial statements included in this Placement Document are prepared in conformity with Indian GAAP. Indian GAAP differ in certain significant respects from International Financial Reporting Standards, U.S. GAAP and other accounting principles with which prospective investors may be familiar in other countries. The Company has not quantified or identified the impact of the differences between Indian GAAP and IFRS or between Indian GAAP and U.S. GAAP as applied to these financial statements. As there are significant differences between Indian GAAP and IFRS and between Indian GAAP and U.S. GAAP, there may be substantial differences in the results of operations, cash flows and financial positions discussed in this Placement Document, if the relevant financial statements were prepared in accordance with IFRS or U.S. GAAP instead of Indian GAAP. The significant accounting policies applied in the preparation of these financial statements are as set forth in notes to the audited financial statements included in this Placement Document. Prospective investors should review the accounting policies applied in the preparation of these financial statements, and consult their own professional advisors for an understanding of the differences between Indian GAAP and IFRS and between Indian GAAP and U.S. GAAP and how they might affect the financial information contained in this Placement Document. See “Summary of Significant Differences Between Indian GAAP, IFRS and U.S. GAAP”.

The mechanism of a QIP under Chapter XIII-A of the SEBI Guidelines has been recently introduced and hence the process is new.

The SEBI has introduced the mechanism of QIP by an amendment to the SEBI Guidelines dated May 8, 2006 to provide for quick and effective institutional placements by listed Indian companies. However, this mechanism and its efficiency have not yet been established. QIBs are thus advised to make their own judgment about investment through this mechanism.

— 27 — MARKET PRICE INFORMATION

As of November 30, 2007, 115,375,925 of the Company’s Existing Shares were issued and outstanding. An aggregate of [●] Shares will be issued and outstanding immediately after the Issue.

The Company’s Existing Shares are listed on the BSE, the NSE and the CSE. As the Company’s Existing Shares are actively traded on the BSE and the NSE, the Company’s stock market data has been given separately for each of these stock exchanges. The Company’s Existing Shares have limited liquidity on the CSE and therefore information regarding closing prices on the CSE are not provided herein.

The high and low prices recorded on the BSE, and the NSE and the number of Existing Shares traded on the days such high and low prices were recorded, for calendar years 2004, 2005 and 2006, as stated below:

Average Volume Volume of on Date on Date Closing of High of Low Price for High (No. of Low (No. of the Year BSE Year (Rs.) Date of High Shares) (Rs.) Date of Low Shares) (Rs.)

2004 . . 175.8 December 29, 2004 107,576 75.1 May 18, 2004 220,748 114.7 2005 . . 248.8 September 16, 2005 133,551 139.0 January 13, 2005 209,801 202.2 2006 . . 369.5 April 7, 2006 98,302 198.1 June 13, 2006 5,247 295.7

Source: BSE

Average Volume Volume of on Date on Date Closing of High of Low Price for High (No. of Low (No. of the Year NSE Year (Rs.) Date of High Shares) (Rs.) Date of Low Shares) (Rs.)

2004 . . 177.0 December 29, 2004 310,987 75.1 May 18, 2004 354,513 114.7 2005 . . 248.8 September 8, 2005 394,588 137.7 January 13, 2005 73,216 202.2 2006 . . 369.8 April 7, 2006 335,778 192.0 June 9, 2006 262,032 296.0

Source: NSE

— 28 — The high and low prices recorded on the BSE and the NSE, and the number of Existing Shares traded on the days such high and low prices were recorded, during the last six months, as stated below:

Average of Closing Total Volume Volume Prices Volume of on Date on Date for the Securities of High of Low Month/ for the BSE Month, High (No. of Low (No. of Period Month/ Year (Rs.) Date of High Shares) (Rs.) Date of Low Shares) (Rs.) Period

January 2007 . . 367.0 January 29, 2007 90,738 295.2 January 10, 2007 7,759 328.1 553,688 February 2007 . . 382.2 February 6, 2007 46,763 316.0 February 13, 2007 42,101 355.1 1,123,078 March 2007 386.9 March 30, 2007 220,337 291.1 March 7, 2007 67,153 341.2 1,637,436 April 2007 . 410.0 April 16, 2007 138,543 363.0 April 2, 2007 237,188 383.9 7,376,357 May 2007 . 399.7 May 3, 2007 131,062 355.1 May 31, 2007 104,192 370.8 1,618,855 June 2007 . 376.3 June 29, 2007 55,756 340.3 June 19, 2007 23,323 355.0 1,761,636 July 2007 . 523.2 July 17, 2007 408,138 361.0 July 4, 2007 61,486 452.7 4,823,752 August 480.0 August 9, 2007 64,660 411.1 August 17, 2007 109,677 449.0 1,196,702 2007 . . September 522.0 September 24, 2007 158,402 440.0 September 10, 2007 440,338 480.7 2,478,301 2007 . . October 613.0 October 16, 2007 419,399 488.3 October 1, 2007 82,542 553.9 4,731,590 2007 . . November 672.0 November 16, 2007 204,360 523.0 November 22, 2007 77,413 595.3 2,543,394 2007 ..

Source: BSE

Average of Closing Total Volume Volume Prices Volume of on Date on Date for the Securities of High of Low Month/ for the NSE Month, High (No. of Low (No. of Period Month/ Year (Rs.) Date of High Shares) (Rs.) Date of Low Shares) (Rs.) Period

January 367.0 January 29, 2007 344,031 309.0 January 10, 2007 102,241 328.4 2,059,529 2007 . . February 382.0 February 6, 2007 570,229 318.0 February 13, 2007 156,962 355.3 3,713,520 2007 . . March 2007 386.5 March 30, 2007 930,095 291.0 March 7, 2007 249,016 341.1 6,381,317 April 2007 . 409.9 April 16, 2007 402,943 362.2 April 2, 2007 546,045 384.0 9,937,628 May 2007 . 404.7 May 3, 2007 481,623 353.3 May 31, 2007 494,328 371.1 4,411,999 June 2007 . 387.8 June 29, 2007 275,473 340.1 June 19, 2007 176,532 355.3 4,980,789 July 2007 . 523.7 July 17, 2007 1,490,285 339.8 July 11, 2007 232,857 452.9 13,355,281 August 489.0 August 9, 2007 143,397 415.6 August 17, 2007 496,846 449.3 3,945,816 2007 . . September 521.0 September 24, 2007 306,543 421.3 September 7, 2007 375,318 481.0 5,435,475 2007 . . October 612.0 October 16, 2007 1,735,689 484.7 October 17, 2007 742,595 553.3 12,077,539 2007 . . November 676.0 November 15, 2007 1,347,996 521.0 November 22, 2007 337,773 594.0 7,320,566 2007 ..

Source: NSE

— 29 — Volume of Business Transacted for Respective Periods

Volume Volume Traded at Traded at Month, Year the NSE the BSE

(Rs. in millions)

January 2007 ...... 699.6 188.5 February 2007 ...... 1,338.7 404.1 March 2007 ...... 2,254.2 572.1 April 2007 ...... 3,848.0 2,908.4 May 2007 ...... 1,645.2 602.2 June 2007 ...... 1,776.7 628.4 July 2007 ...... 6,230.6 2,252.0 August 2007 ...... 1,785.1 539.4 September 2007 ...... 2,623.0 1,184.0 October 2007 ...... 6,746.9 2,662.6 November 2007 ...... 4,460.8 1,573.8

Source: BSE, NSE

The closing price of the Existing Shares on October 17, 2007, the trading day immediately following the day on which the meeting of the committee constituted by the Board was held to approve this Issue, was Rs.577.0 and Rs.574.3 per Existing Share of par value Rs.10 each on the BSE and on the NSE, respectively. The closing price of the Company’s Existing Shares on the NSE on October 17, 2007, the trading day immediately following the day on which the Board meeting was held to approve the Issue, was Rs.574.3 per Existing Share of par value Rs.10 each.

The closing price of the Company’s Existing Shares on the BSE and the NSE on November 30, 2007, the latest practicable date prior to publication of this Placement Document, was, respectively, Rs.626.9 and Rs.629.7 per Existing Share of par value Rs.10 each.

— 30 — EXCHANGE RATES

Fluctuations in the exchange rate between the Rupee and the U.S. Dollar will affect the U.S. Dollar equivalent of the Rupee price of the Existing Shares on the Indian Stock Exchanges and, as a result, are likely to affect the market price of the Existing Shares.

The following table sets forth, for the periods indicated, certain information with respect to the exchange rate between the Rupee and the U.S. Dollar (in Rupees per U.S. Dollar) for the periods indicated based on the Noon Buying Rate. No representation is made that the Rupee amounts actually represent such U.S. Dollar amounts or could have been or could be converted into U.S. Dollars at the rates indicated, at any other rate or at all. Unless otherwise indicated, all translations from Rupees to U.S. Dollars have been made on the basis of the Noon Buying Rate on September 28, 2007 of Rs.39.75 = U.S.$1.00.

Exchange Rate — Rs. per U.S.$

Period End Average High Low

Year ended March 31, 2004 ...... 43.40 45.96 47.46 43.40 Year ended March 31, 2005 ...... 43.62 44.86 46.45 43.27 Year ended March 31, 2006 ...... 44.48 44.17 46.26 43.05 Year ended March 31, 2007 ...... 43.10 45.12 46.83 42.78 April 2007 ...... 41.04 42.02 43.05 40.56 May 2007 ...... 40.36 40.57 41.04 40.14 June 2007 ...... 40.58 40.59 40.90 40.27 July 2007 ...... 40.18 40.27 40.42 40.12 August 2007 ...... 40.63 40.68 41.15 40.25 September 2007 ...... 39.75 40.15 40.81 39.50 October 2007 ...... 39.26 39.21 39.72 38.48 November 2007 ...... 39.52 39.33 39.68 39.11

Source: Federal Reserve Bank of New York

— 31 — USE OF PROCEEDS

The net proceeds from this Issue of Shares, after deduction of management and placement fees, discounts and commissions, but before deduction of other expenses associated with this offering, are estimated to be approximately Rs.[●], which the Company intends to use: (i) subject to obtaining all regulatory approvals, to finance, in part, a new 600MW generating facility in Haldia; (ii) to strengthen the Company’s transmission and distribution network; and (iii) for general corporate purposes. The proceeds of the Issue have not been earmarked or allocated for investment in either of the Company’s subsidiaries, SRL or CPL.

— 32 — CAPITALIZATION

The following table sets forth the Company’s capitalization and total indebtedness as of March 31, 2007 and as adjusted to give effect to the issuance of the Shares. This table should be read in conjunction with the Company’s Power Business Annual Financial Statements as of and for the year ended March 31, 2007, the related notes and the other financial information contained elsewhere in this Placement Document. This table does not include indebtedness of the Company’s subsidiaries given that the Company did not have any subsidiaries on March 31, 2007.

As of March 31, 2007

Actual As Adjusted

Rs. million U.S.$ million Rs. million U.S.$ million (Audited) (Unaudited) (Unaudited) (Unaudited)

Indebtedness Short-term debt (excluding current portion of long-term debt) ...... 2,582.3 65.0 2,582.3 65.0 Current portion of long-term debt . . 3,604.7 90.7 3,604.7 90.7 Long-term debt ...... 11,795.5 296.7 11,795.5 296.7

Total Indebtedness ...... 17,982.5 452.4 17,982.5 452.4

Shareholders’ Funds Issued and subscribed share capital . 849.8 21.4 —— Share premium ...... 6,736.0 169.5 —— Other reserves (excluding revaluation reserve) ...... 12,348.2 310.6 12,348.2 310.6 Revaluation reserve ...... 18,217.6 458.3 18,217.6 458.3

Total shareholders’ funds ...... 38,151.6 959.8 ——

Total capitalization ...... 56,134.1 1,412.2 ——

Notes:

(1) The translations from Rupee to U.S. Dollar, or the U.S. Dollar to Rupee, as the case may be, have been made on the basis of the Noon Buying Rate in New York City on September 28, 2007, for cable transfers in Indian rupees, as certified for customs purposes by the Federal Reserve Bank of New York of Rs. 39.75 = U.S.$1.00.

(2) As at the date of this Placement Document, the Company had an authorized share capital of 150,000,000 Shares with a par value of Rs.10 each. As of November 20, 2007 121,675,897 Shares were issued and 115,375,925 Shares subscribed and paid up.

(3) As of March 31, 2007 the Company’s contingent liabilities amounted to Rs.16.3 million.

(4) Since March 31, 2007 the Company has repaid a sum of Rs.2.7 billion of long-term indebtedness out of the total outstanding borrowings as on March 31, 2007. The Company has borrowed long-term debt of Rs.1.7 billion from various lenders since March 31, 2007.

(5) Save as disclosed above, there has been no material change to the Company’s capitalization, contingent liabilities or guarantees since March 31, 2007.

— 33 — DIVIDENDS AND DIVIDEND POLICY

Under the Companies Act, unless the Company’s Board recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. The shareholders at a general meeting may declare a lower, but not higher, dividend than that recommended by the Board. Dividends are generally declared as a percentage of the par value of the Shares. The dividend recommended by the Board and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid-up value of their Shares as on the record date for which such dividend is payable. In addition, as is permitted by the Company’s Articles of Association, the Board may announce and pay interim dividends. Under the Companies Act, dividends can only be paid in cash to shareholders listed on the register of shareholders on the date which is specified as the “record date” or “book closure date” or to those shareholders keeping their shares in dematerialized form, a list of which is provided by NSDL and CDSL. No shareholder is entitled to a dividend while any lien in respect of unpaid calls on any of his Shares is outstanding. The following table sets out, for the periods indicated, the dividends paid by the Company.

Dividend Per Share Total Amount of Dividend(note)

Fiscal Year Rs. U.S.¢ (cents) Rs. U.S.$

(in millions)

2005 ...... 2.5 6.3 185.9 4.7 2006 ...... 2.5 6.3 205.8 5.2 2007 ...... 3.5 8.8 295.1 7.4

Note: Dividends exclude dividend distribution tax.

The Company can pay dividends on the Company’s Shares if no event of default subsists under any of the Company’s loan agreements and the prior consent of a majority of lenders is obtained. The Company is also required to set aside a cash amount equal to the amount to be paid as dividends for the purpose of repurchasing the Restructured Loans.

— 34 — SELECTED FINANCIAL INFORMATION

Power Business

The selected financial data as of and for each of the years in the three year period ended March 31, 2007 set forth below has been derived from the Power Business Annual Financial Statements included elsewhere in this Placement Document. The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Power Business Annual Financial Statements.

Profit and Loss Account

For the year ended March 31,

2005 2006 2007 2007

(U.S.$ (Rs. Millions) Millions) (unaudited)

Income Earnings from sale of electricity ...... 23,207.3 25,140.7 24,843.2 625.0 Other income ...... 618.6 731.9 926.6 23.3

Total income ...... 23,825.9 25,872.6 25,769.8 648.3

Expenditure Cost of electrical energy purchased ..... 2,066.1 2,268.4 2,678.9 67.4 Generation, Distribution, Administration & Other expenses ...... 14,421.4 16,653.9 16,118.8 405.5 Interest...... 2,646.3 2,123.6 1,678.7 42.3 Depreciation ...... 2,915.3 2,538.5 1,579.4 39.7 Special Appropriation for Deferred Payments ...... 34.5 69.0 ——

Total Expenditure (incl. above special appropriation) ...... 22,083.6 23,653.4 22,055.8 554.9

Profit before income tax ...... 1,742.3 2,219.2 3,714.0 93.4 Provision for income tax ...... (128.5) (200.0) (400.0) (10.1) Profit after income tax ...... 1,613.8 2,019.2 3,314.0 83.3

— 35 — Balance Sheet As at March 31, 2005 2006 2007 2007 (U.S.$ (Rs. Millions) Millions) (unaudited)

SOURCES OF FUNDS Shareholders’ Funds Share Capital ...... 750.4 829.8 849.8 21.4 Equity Warrants issued and subscribed . . — 43.3 —— Reserves and Surplus ...... 14,089.8 35,751.7 37,301.8 938.4

14,840.2 36,624.8 38,151.6 959.8

Loan Funds Secured Loans ...... 17,261.0 16,644.0 15,466.7 389.1 Unsecured Loans ...... 4,410.8 2,455.5 2,515.8 63.3 21,671.8 19,099.5 17,982.5 452.4

Consumers’ Security Deposits 4,409.5 5,595.5 6,521.0 164.0 Deferred Tax Liability ...... ——1,130.3 28.4 Less: Recoverable ...... ——(1,130.3) (28.4) Advance against Depreciation ...... ——1,004.8 25.3

40,921.5 61,319.8 63,659.9 1,601.5

APPLICATION OF FUNDS Fixed Assets GrossBlock...... 62,054.2 82,610.0 84,695.8 2,130.7 Less: Depreciation ...... 24,597.4 28,266.5 31,794.9 799.9

NetBlock ...... 37,456.8 54,343.5 52,900.9 1,330.8 CapitalWork-in-progress ...... 969.8 1,314.4 2,656.8 66.8

38,426.6 55,657.9 55,557.7 1,397.6

Investments 314.4 313.7 2,413.7 60.7 DeferredTaxAsset ...... — 164.3 —— Less: Payable ...... — (164.3) ——

Current Assets, Loans and Advances Inventories ...... 1,423.1 1,713.0 1,673.2 42.1 Sundry Debtors ...... 5,692.0 5,224.1 4,151.4 104.5 Cash and Bank Balances ...... 1,651.4 3,959.3 7,314.4 184.0 Loans and Advances ...... 1,380.2 1,398.4 1,770.0 44.6 Deferred Payments ...... 69.2 749.8 515.0 13.0

10,215.9 13,044.6 15,424.0 388.2

Less: Current Liabilities and Provisions Current Liabilities ...... 7,264.2 6,988.5 8,966.8 225.6 Provisions ...... 878.5 808.0 861.7 21.7

8,142.7 7,796.5 9,828.5 247.3

Net Current Assets 2,073.2 5,248.1 5,595.5 140.9

Miscellaneous Expenditure to the extent not written off or adjusted ...... 107.3 100.1 93.0 2.3 40,921.5 61,319.8 63,659.9 1,601.5

— 36 — PRO FORMA FINANCIAL INFORMATION

Unaudited Pro Forma Combined Financial Information

The unaudited Pro Forma Combined Financial Information of CESC Limited (the Company) has been prepared to show the combined financial position and operations of the Company (after merger with Pathik Foods Private Limited) and Spencer’s Retail Limited, as if the merger occurred with effect from April 1, 2006 for the Pro Forma Combined Profit and Loss Account and as of March 31, 2007 for the Pro Forma Combined Balance Sheet. The objective of the unaudited Pro Forma Combined Financial Information is to show for illustrative purposes only what the Balance Sheet and Profit and Loss Account might have been as at and for the year ended March 31, 2007 and Profit and Loss Account might have been for the six months period ended September 30, 2007, on that basis.

The unaudited Pro Forma Combined Financial Information has been prepared based upon historical financial information of the Company and Spencer’s Retail Limited giving effect to the issuance of shares in the merger and other related adjustments described in these footnotes. Certain schedules and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in India have been omitted. The unaudited Pro Forma Combined Financial Information is based upon available information and certain estimates that the Company believes are reasonable. The unaudited Pro Forma Combined Financial Information should be read in conjunction with the historical financial statements/ information of the Company and Spencer’s Retail Limited, prepared in line with the requirements of Clause 41 of the Listing Agreements, which are included elsewhere in this document.

The unaudited Pro Forma Combined Financial Information is not necessarily indicative of the financial position or the results of operations that would have been achieved had the merger actually taken place at the dates indicated and does not purport to be indicative of future financial position or operating results. The unaudited Pro Forma Combined Financial Information by its nature may not give a true picture of the Company’s actual financial position or results.

The merger will be accounted for in terms with the requirement of Accounting Standard 14, “Accounting for Amalgamations” under Purchase Method (at erstwhile book value) and also the order of the High Court, and the subsidiary will be consolidated based on Accounting Standard 21, “Consolidated Financial Statements”, under Indian GAAP.

The principal adjustments to the combined historical financial information of the Company and Spencer’s Retail Limited (on a non-consolidated basis) in arriving at the unaudited Pro Forma Combined Financial Information include the following:

1. In terms of the Scheme of Amalgamation as sanctioned by the High Court, Pathik Foods Private Limited, the holding company of Spencer’s Retail Limited was merged with the Company from April 1, 2007, involving the issue of 31.1 million fully paid up equity shares of Rs. 10 each of the Company amounting to Rs. 310.6 million and expenses in connection with acquisition of this investment until October 31, 2007 amounting to Rs.70.7 million. Following the merger, Spencer’s Retail Limited became a subsidiary of the Company from April 1, 2007. The said scheme became effective from October 11, 2007 and consequently, the shares were issued on October 12, 2007. The Pro Forma Combined Balance Sheet as at March 31, 2007, considers the issue of shares in terms of the above scheme for the reasons explained above.

— 37 — 2. The Pro Forma Combined Balance Sheet also considers the following adjustment on consolidation of Spencer’s Retail Limited:

a. Elimination of investment in Spencer’s Retail Limited (Rs. 381.3 million) with the share of the Company in Spencer’s Retail Limited’s shareholder’s fund (Rs. 1343.6 million) and Profit and Loss Account debit balance (Rs. 558.9 million), resulting in a capital reserve amounting to Rs. 403.4 million;

b. Similarly, allocating the share of the minority in the shareholder’s fund and Profit and Loss Account debit balance of Spencer’s Retail Limited resulting in minority interest amounting to Rs. 52.3 million.

3. The Pro Forma Combined Profit and Loss Account considers the following adjustment on consolidation of Spencer’s Retail Limited:

a. Allocation of loss of Spencer’s Retail Limited to minority shareholders amounting to Rs. 27.6 million and Rs. 31.6 million for the year ended March 31, 2007 and six months period ended September 30, 2007, respectively.

In compiling the Pro Forma Combined Financial Information, certain entities have not been considered significant and accordingly have not been reflected as mentioned below:

a. Pathik Foods Private Limited, the holding Company of Spencer’s Retail Limited with effect from March 30, 2007, having total assets (other than investments which has been reflected in Note 2(a) above), revenue and loss of Rs. 0.4 million, Rs. 0.4 million and Rs. 3.0 million respectively as at and for the year ended March 31, 2007.

b. RPG Cellucom Limited, a subsidiary of Spencer’s Retail Limited as at March 31, 2007, having total assets, revenue and loss of Rs. 55.6 million, Rs. 16.5 million and Rs. 33.2 million respectively as at and for the year ended March 31, 2007.

c. Rosemery Enclave Private Limited, which became CESC Properties Limited, a subsidiary of the Company, with effect from April 12, 2007, having total assets of Rs. 0.1 million as at March 31, 2007. Since commercial operation of the Company is yet to commence there is no Profit and Loss Account for the year ended March 31, 2007.

The Company and Spencer’s Retail Limited had no significant transactions with each other in the year ended March 31, 2007 and no significant transaction on revenue account during the six months period ended September 30, 2007.

The unaudited Pro Forma Combined Financial Information included in this document does not purport to be in compliance with Article 11 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission.

The following tables present Pro Forma Combined Financial Results for the six months period ended September 30, 2007, Pro Forma Combined Profit and Loss Account for the year ended March 31, 2007 and Pro Forma Combined Balance Sheet data as at March 31, 2007.

— 38 — Unaudited Pro Forma Financial Information for the six months period ended September 30, 2007

Pro Forma Combined Financial Results

Spencer’s CESC Retail Pro Forma Total Pro Total Pro Limited (1) Limited (2) Adjustments Notes Forma Forma (3)

For the six months period ended September 30, 2007

Rs. Million Rs. Million Rs. Million Rs. Million US$ Million (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)

INCOME Sales ...... 14,472.7 3,371.3 — 17,844.0 448.9 Other Income ...... 566.4 166.0 — 732.4 18.4 15,039.1 3,537.3 — 18,576.4 467.3

EXPENDITURE Cost of Fuel for the Power Business 4,482.1 —— 4,482.1 112.8 Cost of Electrical Energy Purchased for the Power Business ...... 2,312.0 —— 2,312.0 58.2 Cost of Goods Sold ...... — 2,822.4 — 2,822.4 70.9 Personnel Cost ...... 1,450.5 363.5 — 1,814.0 45.6 Depreciation...... 810.0 82.3 — 892.3 22.4 Interest ...... 728.3 63.6 — 791.9 19.9 Other Expenditure ...... 3,519.6 813.6 — 4,333.2 109.0 13,302.5 4,145.4 — 17,447.9 438.8

Exceptional Income ...... 250.0 16.4 — 266.4 6.7

Profit/(Loss) before Taxation ..... 1,986.6 (591.7) — 1,394.9 35.2

Provision for Taxation - Current & Fringe Benefit Tax...... 234.1 6.9 — 241.0 6.1 - Deferred Tax (net)...... 720.0 —— 720.0 18.1 Recoverable . . . (720.0) —— (720.0) (18.1) 234.1 6.9 — 241.0 6.1

Profit/(Loss) after Taxation before Minority Interest ...... 1,752.5 (598.6) — 1,153.9 29.1 Minority Interest ...... 31.6 (e) 31.6 0.8 Combined Net Profit ...... 1,185.5 29.9

Notes:

(1) Extracted from the Power Business Interim Financial Information.

(2) Extracted from the Retail Business Interim Financial Information.

(3) The above Pro Forma Combined Financial Results have been prepared in Indian Rupees (“Rs.”), the legal currency of India and the Company’s reporting currency. Solely for the convenience of readers, the Pro Forma Combined Financial Results for the half year ended September 30, 2007 have been translated into United States Dollars as a matter of arithmetical computation only at the noon buying rate as indicated by the Federal Reserve Bank of New York as at September 28, 2007, US$1.00 = Rs. 39.75. This translation should not be construed as a representation that the rupee amounts actually represent or have been or could be converted into U.S. Dollars at this rate or any other rate.

— 39 — Unaudited Pro Forma Financial Information for the year ended March 31, 2007

Pro Forma Combined Profit and Loss Account

Spencer’s CESC Retail Pro Forma Total Pro Total Pro Limited(1) Limited(2) Adjustments Notes Forma Forma(3)

For the year ended March 31, 2007

Rs. Million Rs. Million Rs. Million Rs. Million US$ Million (Audited) (Audited) (Unaudited) (Unaudited) (Unaudited)

INCOME Sales ...... 24,843.2 4,966.9 — 29,810.1 749.9 Other Income ...... 926.6 195.3 — 1,121.9 28.2 25,769.8 5,162.2 — 30,932.0 778.1

EXPENDITURE Cost of Fuel for Power Business . . . 8,426.7 —— 8,426.7 212.0 Cost of Electrical Energy purchased for Power Business ...... 2,678.9 —— 2,678.9 67.4 Cost of Goods Sold ...... — 4,203.7 — 4,203.7 105.7 Personnel Cost ...... 2,701.6 435.6 — 3,137.2 78.9 Depreciation...... 1,579.4 93.9 — 1,673.3 42.1 Interest ...... 1,678.7 66.7 — 1,745.4 43.9 Other Expenditure ...... 4,990.5 878.3 — 5,868.8 147.7 22,055.8 5,678.2 — 27,734.0 697.7

Profit/(Loss) before Taxation ..... 3,714.0 (516.0) — 3,198.0 80.4

Provision for Taxation - Current ..... (381.0) —— (381.0) (9.6) - Fringe Benefit Tax...... (19.0) (7.4) — (26.4) (0.7) - Deferred Tax (net)...... (1,294.6) —— (1,294.6) (32.6) Recoverable . . . 1,294.6 —— 1,294.6 32.6 (400.0) (7.4) — (407.4) (10.3) Profit/(Loss) after Taxation before Minority Interest ...... 3,314.0 (523.4) 2,790.6 70.1 Minority Interest ...... 27.6 (d) 27.6 0.7 Combined Net Profit ...... 2,818.2 70.8

Notes:

(1) Extracted from the audited Power Business Annual Financial Statements for the year ended March 31, 2007.

(2) Extracted from the audited Retail Business Annual Financial Statements for the year ended March 31, 2007.

(3) The above Pro Forma Combined Financial Information have been prepared in Indian Rupees (“Rs.”), the legal currency of India and the Company’s reporting currency. Solely for the convenience of readers, the Pro Forma Combined Financial Information as of and for the year ended March 31, 2007 have been translated into United States Dollars as a matter of arithmetical computation only at the noon buying rate as indicated by the Federal Reserve Bank of New York as at September 28, 2007, US$1.00 = Rs. 39.75. This translation should not be construed as a representation that the rupee amounts actually represent or have been or could be converted into U.S. Dollars at this rate or any other rate.

— 40 — Pro Forma Combined Balance Sheet

Spencer’s CESC Retail Pro Forma Total Pro Total Pro Limited(1) Limited(2) adjustments Notes Forma Forma(3) As at March 31, 2007 Rs. Million Rs. Million Rs. Million Rs. Million US$ Million (Audited) (Audited) (Unaudited) (Unaudited) (Unaudited)

I. SOURCES OF FUNDS Shareholders’ Funds Share Capital ...... 849.8 260.1 50.5 (a)(b)(c) 1,160.4 29.2 Stock Options Outstanding..... — 8.6 (8.6) (c) —— Reserves and Surplus ...... 37,301.8 1,158.4 (755.0) (b)(c) 37,705.2 948.5 38,151.6 1,427.1 (713.1) 38,865.6 977.7 Minority Interest...... ——52.3 (c) 52.3 1.3 Loan Funds Secured Loans ...... 15,466.7 873.0 — 16,339.7 411.1 Unsecured Loans ...... 2,515.8 —— 2,515.8 63.3 17,982.5 873.0 — 18,855.5 474.4

Consumers’ Security Deposits .... 6,521.0 —— 6,521.0 164.0

Deferred Tax Liability ...... 1,130.3 —— 1,130.3 28.4 Less: Recoverable ...... (1,130.3) —— (1,130.3) (28.4)

Advance against Depreciation .... 1,004.8 —— 1,004.8 25.3 63,659.9 2,300.1 (660.8) 65,299.2 1,642.7

II. APPLICATION OF FUNDS Fixed Assets Gross Block ...... 84,695.8 1,251.8 — 85,947.6 2,162.2 Less: Depreciation ...... 31,794.9 226.8 — 32,021.7 805.6 Net Block ...... 52,900.9 1,025.0 — 53,925.9 1,356.6 Capital Work-in-progress ...... 2,656.8 213.6 — 2,870.4 72.2 55,557.7 1,238.6 — 56,796.3 1,428.8

Investments...... 2,413.7 10.1 — (a)(b) 2,423.8 61.0

Current Assets, Loans and Advances Inventories ...... 1,673.2 608.6 — 2,281.8 57.4 Sundry Debtors ...... 4,151.4 117.2 — 4,268.6 107.4 Cash and Bank Balances ...... 7,314.4 220.0 — 7,534.4 189.5 Loans and Advances ...... 1,770.0 593.9 — 2,363.9 59.5 Deferred Payments ...... 515.0 —— 515.0 13.0 15,424.0 1,539.7 — 16,963.7 426.8

Less: Current Liabilities and Provisions Current Liabilities...... 8,966.8 1,060.7 70.7 (a) 10,098.2 254.1 Provisions...... 861.7 17.7 — 879.4 22.1 9,828.5 1,078.4 70.7 10,977.6 276.2

Net Current Assets ...... 5,595.5 461.3 (70.7) 5,986.1 150.6

Profit and Loss Account Debit Balance...... — 590.1 (590.1) (b)(c) ——

Miscellaneous Expenditure to the extent not written off or adjusted ...... 93.0 —— 93.0 2.3 63,659.9 2,300.1 (660.8) 65,299.2 1,642.7

— 41 — Notes:

(1) Extracted from the audited Power Business Annual Financial Statements as at March 31, 2007.

(2) Extracted from the audited Retail Business Annual Financial Statements as at March 31, 2007.

(3) The above Pro Forma Combined Financial Information have been prepared in Indian Rupees (“Rs.”), the legal currency of India and the Company’s reporting currency. Solely for the convenience of readers, the Pro Forma Combined Financial Information as of and for the year ended March 31, 2007 have been translated into United States Dollars as a matter of arithmetical computation only at the noon buying rate as indicated by the Federal Reserve Bank of New York as at September 28, 2007, US$1.00 = Rs.39.75. This translation should not be construed as a representation that the rupee amounts actually represent or have been or could be converted into US Dollars at this rate or any other rate.

Notes to the Pro Forma Financial Information

(a) Reflects issuance of 31.1 million equity shares of Rs.10 each by the Company consequent to the merger with Pathik Foods Private Limited by virtue of the Scheme of Amalgamation stated above amounting to Rs.310.6 million and accrual of liability towards merger and acquisition expenses amounting to Rs.70.7 million and its capitalization to the investment account.

(b) Reflects, as at March 31, 2007, elimination of the Company’s share in the share capital, reserves and surplus and debit balance in the profit and loss account of Spencers Retail Limited on consolidation amounting to Rs.246.4 million, Rs.693.8 million and Rs.558.9 million respectively against the Company’s investment in Spencer’s Retail Limited amounting to Rs.381.3 million as determined in Note (a) above.

(c) Reflects, as at March 31, 2007, recognition of minority interest in the balance sheet by eliminating minority interest share of equity capital, reserves and surplus and debit balance in profit and loss account amounting to Rs.13.7 million, Rs.61.2 million and Rs.31.2 million respectively and transfer of stock options outstanding to minority interest amounting to Rs.8.6 million.

(d) Reflects allocation of share of loss pertaining to minority interest on consolidation amounting to Rs.27.6 million for the year ended March 31, 2007.

(e) Reflects allocation of share of loss pertaining to minority interest on consolidation amounting to Rs.31.6 million for the six month period ended September 30, 2007.

— 42 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the Power Business Annual Financial Statements as of and for each of the years in the three year period ended March 31, 2007, and the notes thereto included elsewhere in this Placement Document. The Power Business Annual Financial Statements have been prepared in accordance with Indian Accounting Standards except for certain inconsistencies in 2004-2005 with certain provisions of the now repealed ESA which prevailed over Indian Accounting Standards. The Power Business Annual Financial Statements were audited by Lovelock & Lewes, as stated in their qualified auditors’ reports appearing elsewhere in this Placement Document. Such report is qualified in relation to the Power Business Annual Financial Statements for the year ended March 31, 2005 only.

For a discussion of the historical results of the retail business conducted by the Company’s subsidiary SRL see “Business Conducted by the Company’s Subsidiaries.” The retail business is not discussed in this section given that such business has not yet been consolidated in the financial statements of the Company.

For a discussion of certain significant differences between Indian GAAP, IFRS and US GAAP, see “Summary of Significant Differences between Indian GAAP, IFRS and US GAAP.”

For a discussion of the financial results of the Power Business for the six month periods ended September 30, 2006 and 2007 see “— Recent Developments”.

For the Pro Forma Financial Information, see “Pro Forma Financial Information”. The Pro Forma Financial Information has not been audited and has been prepared for illustrative purposes only, and is not intended to suggest that these are the results of operations that would have been obtained had the Retail Business been consolidated in the financial statements of the Company for the periods presented by the Pro Forma Financial Information.

This Placement Document contains forward-looking statements that involve risks and uncertainties. The Company cautions investors that the Company’s business and financial performance is subject to substantive risks and uncertainties. The Company’s actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set out in “Risk Factors.” In evaluating the Company’s business, investors should carefully consider all of the information included in “Risk Factors.”

Overview

The Company holds a license originally granted by the State Government of West Bengal to supply electricity in the cities of Kolkata and Howrah and in the adjoining areas, which expires on December 31, 2019. The Company is currently the only distributor of electricity within an area of 567 sq km. In the year ended March 31, 2007, the Company sold electricity to approximately 2.2 million consumers, including domestic, industrial and commercial users. In the year ended March 31, 2007, 88 per cent. of the units the Company delivered to its distribution system was electricity from the Company’s own generating stations and 12 per cent. was electricity purchased from third parties.

— 43 — transmission lines linking the Company’s generating and receiving stations with 85 distribution stations; 3,837 circuit km of HT lines further linking distribution stations with LT substations and large industrial consumers; and 9,867 circuit km of LT lines connecting the LT substations to LT consumers.

The Company’s revenues are primarily affected by the amount of electricity the Company can sell and the tariffs it is able to charge consumers for the electricity it provides to them. Revenues from the sale of electricity constituted 97.4 per cent., 97.2 per cent. and 96.4 per cent. of the Company’s total revenues for the years ended March 31, 2005, 2006 and 2007, respectively.

WBERC Tariff Adjustment for the Years Ended March 31, 2005, 2006 and 2007

Because the tariff setting mechanism has been recently amended, this section briefly discusses how those regulations and mechanisms have evolved in the periods under review.

Tariff structure

Up to 2004-05

Tariff adjustments were made annually by the WBERC under the provisions of the ESA, the ERC Act and the associated regulations. The Company was permitted, with the approval of the WBERC, to adjust its tariff during a given year so that the Company’s profit after recovery of properly incurred costs of operations (including depreciation, interest, taxation and special appropriations) would be equal to a permitted return on the Company’s entitled return base (consisting primarily of net fixed assets and stores and spares, less loans, consumers’ security deposits and capital contributions under the ESA) and the Company’s outstanding borrowings. Such return was calculated by applying the rates stipulated in the sixth schedule to the ESA to the Company’s entitled return base and outstanding borrowings. In the year ended March 31, 2005, the permitted return as a percentage of the Company’s entitled return base and outstanding borrowings amounted to 14.8 per cent. (excluding special appropriations).

2005-06

During the year ended March 31, 2006, the tariff was determined by WBERC under the provisions of the Electricity Act and the associated regulations. WBERC allowed the Company the permitted return on a provisional basis, keeping it at the same level as that of the previous year. In a significant departure from the principles followed until 2004-05 of passing on the benefit of performance above the norm to consumers, from 2005-06 costs were allowed on a normative basis and the Company was able to retain a part of its savings in costs as its performance was better than the norm.

2006-07

Pursuant to finalization of the National Tariff Policy, new regulations were introduced in 2005. The regulations, inter alia, provided for a fixed return for a licensee to be computed on its frozen equity base as of March 2006 and thereafter for up to 30 per cent. of the approved capital expenditure on a year to year basis. The regulations also provided for an additional return of one per cent. for the distribution business of the licensee at the discretion of the regulators. Most importantly, the principles of sharing of income from different business initiatives such as export of power and other ancillary activities were clearly stated.

Tariff determination for the year 2006-07 was made on the basis of the above regulations. However, an additional rate of return to the Company in relation to the distribution business was not included. Although the need for incentives relating to operational performance was recognized, no incentive was allowed due to the absence of clear benchmarks.

— 44 — Changes in Tariff Structure — Electricity Act

New tariff structure

From the year ending on March 31, 2008 the Company has entered into a Multi-Year Tariff (“MYT”) framework, for which WBERC has issued the WBERC Terms and Conditions of Tariff Regulations, 2007, which succeed its earlier Regulations from November 2005. The MYT framework requires the determination of tariff by the WBERC for a number of years together but has initially been introduced for the financial year 2007-08, which is the first control period and subsequently for a block of three years from 2008-09 to 2010-11 and for a block of five years from 2011-12 onwards. The Company’s tariff for the year ended 2007-08 was determined by WBERC in July 2007 (effective April 2007 onwards) under the new regulations published in February 2007. In determining the Company’s tariff, WBERC dealt with sharing of certain of the Company’s income with consumers (including rental income from its real estate business and export profits). Although incentives linked to operational performances have been recognized in the applicable regulations, clear benchmarks have yet to be established by WBERC and therefore such incentives have not been extended to the Company to date. Under the applicable regulations, the Company is also to provide an annual performance review in respect of the concluded years.

The Company understands that WBERC is in the process of producing regulations under which efficiency bench marks and norms will be stipulated, and incentives linked to operational efficiencies will be allowed in the tariff, enabling licensees to obtain a higher return. The Company expects that from 2008-09 onwards the tariff will be determined taking into account the new efficiency benchmarks and norms.

Procedure

Upon receipt of the Company’s request for tariff revision in each financial year, the WBERC is required, after due consideration, to determine the average tariff and consumer category-wise tariff within 120 days of the submission of the tariff petition. For finalization of fuel related costs the Company is required to provide the relevant details after the audit of the Company’s accounts in respect of the preceding year. Fuel costs were completed up to the year ended March 31, 2007 pursuant to this process.

Cashflow

The WBERC sets the Company’s tariff at the beginning of each financial year, based upon expected sales volume, power purchase costs, fuel costs and other expenses and operating data. Over the course of a given year actual costs may exceed, and sales volumes may be below, the expected costs and sales volumes each contained in the tariff calculation. In this situation, the Company may experience liquidity constraints, as the Company is unable to adjust the Company’s tariff during the year and, accordingly, funds received from sales may be inadequate to pay the Company’s expenses. Although the Company may be entitled to tariff adjustments in subsequent periods to compensate for lower sales or increased costs, the billing of such adjustments and collection of the related funds will take place in subsequent periods. The delay of cash inflow from operations could have a material adverse effect on the Company’s operations and could limit the Company’s ability to pay the Company’s obligations when they become due. In addition, the Electricity Act provides that the Company must recover the cost of electricity in a reasonable manner. There can be no assurance that the WBERC will determine that any increase in the Company’s operating costs is reasonable and therefore recoverable under the Company’s tariff. If the Company is unable to recover such costs through its tariff, it may be required to fund the Company’s operating costs through borrowings. However, the latest regulation proposed by the WBERC allows a licensee such as the Company to approach WBERC for review of its annual performance whereby any unfavorable deviations in the cost attributable to uncontrollable factors may be recovered. Since no major rise is anticipated in the overall current cost structure

— 45 — of the Company unless there is an uncontrollable price increase, and given the regulation described above, the Company believes that it should be able to recover costs incurred within the broad operating efficiency levels laid down by WBERC. In view of its existing operating parameters the Company does not expect this situation to change materially in the near future. The current regulation also allows the Company to claim in advance against depreciation in order to meet any shortfall that arises where depreciation is lower than the debt servicing obligations.

Critical Accounting Policies

Critical accounting policies are those that require management’s most difficult, subjective or complex judgments in order to make estimates in relation to matters that are inherently uncertain and that may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. The Company’s significant accounting policies are more fully described under Note 3 of the Power Business Annual Financial Statements included elsewhere in this Placement Document.

Described below are the critical accounting policies that the Company’s management believes are the most significant judgments and estimates used in the preparation of the Company’s financial statements.

Fixed Assets

Fixed assets other than furniture, vehicles and intangible assets acquired up to March 31, 2005, were adjusted in the 2005-06 financial statements for revaluation by an approved valuer at the then current replacement cost after necessary adjustment for depreciation. These assets were previously revaluated in the financial statements for the year 1993-1994. Acquisitions of these assets subsequent to these years and furniture, vehicles and intangible assets are stated at cost of acquisition together with any incidental expenses related to acquisition and appropriate borrowing costs. Project costs also include pre-operative expenses and, where applicable, expenses during trial (less revenue earned during trial) and income arising from temporary use of funds pending utilization. An impairment loss is recognized where the carrying value of fixed assets of a cash generating unit exceeds its market value or value in use, whichever is the higher. Capital works in progress include advances made in respect of capital expenditure. Software cost is treated as an intangible asset if it is expected to provide future enduring economic benefit.

The effects of the variation in exchange rates on repayment or restatement of year end liabilities as at March 31, 2005 in respect of borrowings in foreign currencies attributable to acquisition of fixed assets are not adjusted with the cost thereof as required under AS11 (1994) issued by ICAI. Until this time ESA (now repealed) required that, for the purpose of determining the return of a licensee, fixed assets should be stated at cost. The Company has since complied with the requirements of AS11 (Revised - 2003) issued by the Institute of Chartered Accountants of India.

Depreciation/Amortization

Depreciation on fixed assets other than leasehold land is provided for using the straight line method in terms of the appropriate applicable regulations and/or circulars under applicable statutes.

Accordingly, depreciation for the year 2004-05 was provided for at the rates prescribed by the Central Government in circular no. s.o.265(E) dated March 27, 1994 under the provisions of ESA. In accordance with past practices, depreciation for that year was provided only in relation to assets in existence at the beginning of the year, and excluded providing for any additions and retirements during the year.

— 46 — Depreciation for the years 2005-06 and 2006-07 was provided for using the straight line method on a pro-rata basis at rates prescribed under the applicable statutes/regulations. There has not been any significant impact on the results of the Company from year to year due to any changes in rates as the tariff for the years was determined taking into account such depreciation.

Leasehold land is amortized over the unexpired period of the lease. Additional charges of depreciation for the year on year increase in value arising from revaluation is recouped from the revaluation reserve. Intangible assets, including software related expenditure, are amortized in three equal annual installments.

Sales

Earnings from the sale of electricity are net of discount for prompt payment of bills and do not include electricity duty payable to the State Government. They also include estimated sums recoverable from or adjustable on consumers’ accounts calculated on the basis of rates approved or specified by the appropriate authorities. In terms of the applicable regulations and tariff determination process followed by WBERC, advances against depreciation form part of the tariff. Such advances received in a year are adjusted against earnings from the sale of electricity for inclusion in the earnings in subsequent years following adjustment by the authorities in the tariff determination process.

Retirement/Separation Benefits

Retirement benefits are accounted for on an accrual basis considering contributions payable to the provident fund, the pension fund and the gratuity fund. The liabilities for leave payments and other related benefits to the employees are accounted for on an accrual basis. In ascertaining these liabilities, actuarial valuation is carried out if appropriate. Compensation payable in respect of the Company’s voluntary separation schemes is accounted for in three equal annual installments.

Significant Factors Affecting Results of Operations

In future the Company expects its operations to be affected by the following factors:

Tariff

Pursuant to current regulations and the MYT framework the Company will receive a fixed post tax return on its equity base which is comprised of paid up equity capital, share premium and free reserves as frozen on the basis of the audited accounts of the Company as at March 31, 2006. After this time up to 30 per cent. of actual capital expenditure approved by WBERC is entitled to the fixed return. Under the current regulations WBERC may consider, at its discretion, an additional return of one per cent. on the equity base attributable to the distribution business on account of higher risks involved.

Costs and Efficiency

Under the MYT regime, costs will be allowed taking into consideration normative efficiency parameters and performance targets. The licensee will be able to retain a substantial portion of cost savings for achieving in excess of these parameters. Incentives will also be allowed for exceeding the performance targets. However, there is a possibility of disallowance of costs and imposition of penalties for performing below the norms and the target performance. The Company expects to benefit by retaining a portion of ancillary and non electricity income. The Company will also be allowed to retain a part of the profit (currently 40 per cent.) on the export of power outside the license area.

— 47 — The Company’s results of operations will be substantially influenced by its ability to meet or exceed the norm.

Entitled Equity Base

To the extent that the Company is able to expand its entitled equity base it may be able to increase its profitability since its permitted return is linked to the size of its equity base. The Company’s ability to achieve the maximum permitted level of 30 per cent. of capital expenditure will ensure maximization of entitled profit.

Business Outside the License Area

Following the liberalization in the regulatory environment, the Company’s ability to identify opportunities outside the license area in distribution and generation of electricity and the subsequent successful implementation and adequate addressing of the risks involved in any such projects will enhance the profitability and effective return on funds deployed.

Principal Components of Results of Operations

Earnings from the sale of electricity: Earnings from the sale of electricity comprise the units of electricity delivered to consumers at applicable tariff rates approved by WBERC. Any revision or adjustment to the Company’s tariff rates by the appropriate authorities is also given effect in earnings from the sale of electricity. Advances against depreciation allowed by WBERC in the Company’s tariff to facilitate the Company’s debt repayment obligations are adjusted from the revenue billed to the consumers. These adjustments may be given effect in the tariffs charged to consumers in subsequent periods. Earnings from the sale of electricity include earnings from the sale of bulk electricity to power trading agencies but do not include electricity duty payable to the State Government of West Bengal.

Other income: Other income comprises the hire of meters and other apparatus, public lighting and other miscellaneous and service connection fees, interest income and miscellaneous income which also includes delayed payment surcharge.

Cost of electricity purchased: Cost of electricity purchased comprises the amount of electricity the Company purchases from third parties, including WBSEB/WBSEDCL and power trading agencies, to cover the shortfall between the demand for electricity in the Company’s licensed area and the Company’s total generating capacity.

Cost of fuel including freight: Cost of fuel comprises both the cost of coal and oil that the Company uses in its electricity generating process and the freight costs involved in transporting coal and oil to the Company’s power stations.

Salaries and related costs: The Company’s salaries and related costs primarily include salaries, wages and bonuses paid to its employees, expenses related to workmen and staff welfare, and payments to the employee provident fund, pension fund and gratuity funds.

Other generation, distribution and administration expenses : Other generation, distribution and administration expenses include provision for cost adjustments and repair and maintenance costs.

Depreciation: Rate of depreciation and manner of computation on fixed assets other than leasehold land is considered on a straight line method at the rates used by WBERC in determining the Company’s tariff under the applicable statute and regulations. Leasehold land is amortized over the period of the lease. Additional depreciation on value increases arising from revaluations are recouped from the revaluation reserve.

— 48 — Interest expense : The Company’s interest expense includes interest due on the Company’s debentures, fixed loans, a short term working capital facility and fixed deposits from the public.

Results of Operations

The table below sets forth, for the periods indicated, certain revenue and expense items for the Company’s operations extracted from the Power Business Annual Financial Statements.

For the year ended March 31,

2005 2006 2007

(Rs. millions)

Income Earnings from sale of electricity ...... 23,207.3 25,140.7 24,843.2 Other income ...... 618.6 731.9 926.6

Total income ...... 23,825.9 25,872.6 25,769.8

Expenditure Cost of electrical energy purchased ...... 2,066.1 2,268.4 2,678.9 Generation, distribution, administration & other expenses ...... 14,421.4 16,653.9 16,118.8 Interest ...... 2,646.3 2,123.6 1,678.7 Depreciation ...... 2,915.3 2,538.5 1,579.4 Special appropriation for deferred payments ...... 34.5 69.0 —

Total expenditure (incl. above special appropriation) ...... 22,083.6 23,653.4 22,055.8

Profit before income tax ...... 1,742.3 2,219.2 3,714.0 Provision for income tax ...... (128.5) (200.0) (400.0) Profit after income tax ...... 1,613.8 2,019.2 3,314.0

Years ended March 31, 2007 and 2006

Total income

Earnings from the sale of electricity decreased 1.2 per cent. from Rs.25,140.7 million in the year ended March 31, 2006 to Rs.24,843.2 million in the year ended March 31, 2007. This decrease was primarily due to a reduction in the average tariff determined by WBERC from Rs.3.81 per unit to Rs.3.74 per unit following consideration of the effect of advance against depreciation, despite a growth of 2.8 per cent. in total units sold to consumers and an increase of Rs.636.4 million in export sales. Other income increased by Rs.194.70 million from Rs.731.9 million in the year ended March 31, 2006 to Rs.926.6 million in the year ended March 31, 2007. This increase was largely on account of an increase in interest income by Rs.117.8 million. As a result of the foregoing, total income marginally decreased from Rs.25,872.6 million in the year ended March 31, 2006 to Rs.25,769.8 million in the year ended March 31, 2007.

— 49 — Cost of power purchased

Cost of power purchased increased from Rs.2,268.4 million in the year ended March 31, 2006 to Rs.2,678.9 million in the year ended March 31, 2007. This increase was primarily due to an increase in the units of power purchased from third parties including WBSEDCL.

Generation, Distribution, Administration and Other Expenses

Cost of fuel including freight

Cost of fuel including freight increased only marginally (by 0.4 per cent.) from Rs.8,396.4 million in the year ended March 31, 2006 to Rs.8,426.7 million in the year ended March 31, 2007 although generation went up by 0.9 per cent. One of the reasons that the increase was fairly small is that a greater portion of coal was sourced from ICML, which resulted in a lower per unit cost of coal.

Salaries and related costs

Salaries and related costs increased 1.0 per cent. from Rs.2,676.0 million in the year ended March 31, 2006 to Rs.2,701.6 million in the year ended March 31, 2007.

Repairs and maintenance

Repairs and maintenance including consumption of stores increased 13.8 per cent. from Rs.1,544.3 million in the year ended March 31, 2006 to Rs.1,757.9 million in the year ended March 31, 2007 due in part to increased focus on preventive maintenance of the distribution systems.

Foreign exchange rate variation

Foreign exchange rate variation decreased from Rs.572.7 million in the year ended March 31, 2006 to Rs.230.7 million in the year ended March 31, 2007 mainly on account of reduction of foreign currency debt repayment obligations pursuant to final repayment of the foreign currency loan from DKW.

Cost adjustment

Amount of cost adjustment decreased by a net sum of Rs.634.3 million due to the effect of the adjustment arising from applicable orders received from the appropriate authorities during the year. As a result of this cost adjustment, generation, distribution, administration and other expenses decreased from Rs.16,653.9 million in the year ended March 31, 2006 to Rs.16,118.8 million in the year ended March 31, 2007.

Depreciation

Depreciation expenses decreased from Rs.2,538.5 million in the year ended March 31, 2006 to Rs.1,579.4 million in the year ended March 31, 2007. This decrease was primarily due to a decrease in the applicable rates considered when setting the tariff pursuant to changes in the WBERC Regulations for the respective years.

Interest

Interest decreased from Rs.2,123.6 million in the year ended March 31, 2006 to Rs.1,678.7 million in the year ended March 31, 2007. The reduction of interest expense was due to a decrease in outstanding indebtedness.

— 50 — Profit before income tax

As a result of the foregoing, the Company’s profit before income tax increased from Rs.2,219.2 million in the year ended March 31, 2006 to Rs.3,714.0 million in the year ended March 31, 2007.

Provision for income tax

Provision for income tax increased from Rs.200.0 million in the year ended March 31, 2006 to Rs.400.0 million in the year ended March 31, 2007. This increase was primarily due to an increase in profit before income tax and rise in the basic rate of Minimum Alternate Tax from 7.5 per cent. in 2006 to 10 per cent. in 2007.

Profit after income tax

As a result of the foregoing, profit after income tax increased from Rs.2,019.2 million in the year ended March 31, 2006 to Rs.3,314.0 million in the year ended March 31, 2007.

Years ended March 31, 2006 and 2005

Total income

Earnings from the sale of electricity increased 8.3 per cent. from Rs.23,207.3 million in the year ended March 31, 2005 to Rs.25,140.7 million in the year ended March 31, 2006. This increase was primarily due to a growth of 6.6 per cent. in total units sold to consumers and an increase in export sales of Rs.670.1 million, despite a reduction in the average tariff set by WBERC from Rs.4.03 per unit in the year ended March 31, 2005 to Rs.3.81 per unit in the year ended March 31, 2006. Other income increased from Rs.618.6 million in the year ended March 31, 2005 to Rs.731.9 million in the year ended March 31, 2006. This increase was primarily due to an increase in interest income of Rs.76.1 million. As a result of the foregoing, total income increased 8.6 per cent. from Rs.23,825.9 million in the year ended March 31, 2005 to Rs.25,872.6 million in the year ended March 31, 2006.

Cost of power purchased

Cost of power purchased increased from Rs.2,066.1 million in the year ended March 31, 2005 to Rs.2,268.4 million in the year ended March 31, 2006, primarily due to an increase in the volume of power purchased from third parties to meet increased demand.

Generation, Distribution, Administration and Other Expenses

Cost of fuel including freight

Cost of fuel including freight increased 10.4 per cent. from Rs.7,605.4 million in the year ended March 31, 2005 to Rs.8,396.4 million in the year ended March 31, 2006. This was primarily due to an increase in generation of 8.2 per cent. and a marginal increase in the cost of coal.

Salaries and related costs

Salaries and related costs increased 4.7 per cent. from Rs.2,555.1 million in the year ended March 31, 2005 to Rs.2,676.0 million in the year ended March 31, 2006.

Repairs and maintenance

Repairs and maintenance including consumption of stores increased 14.7 per cent. from Rs.1,346.0 million in the year ended March 31, 2005 to Rs.1,544.3 million in the year ended March 31, 2006. This was primarily due to an increase in generation of 8.2 per cent.

— 51 — Foreign exchange rate variation

Foreign exchange rate variation increased from Rs.519.2 million in the year ended March 31, 2005 to Rs.572.7 million in the year ended March 31, 2006 due to the prepayment of an instalment by the IFC, ADB and CDC.

Cost Adjustment

The amount of cost adjustment increased by 1,090.2 million from Rs.596.0 million in the year ended March 31, 2005 to Rs.1,686.2 million in the year ended March 31, 2006 due to the effect of adjustments relating to the cost of electrical energy purchased, the cost of fuel and recovery of fixed costs due to higher sales pursuant to applicable regulations.

As a result, generation, distribution, administration and other expenses increased from Rs.14,421.4 million in the year ended March 31, 2005 to Rs.16,653.9 million in the year ended March 31, 2006.

Depreciation

Depreciation expense decreased from Rs.2,915.3 million in the year ended March 31, 2005 to Rs.2,538.5 million in the year ended March 31, 2006. This decrease was primarily due to a decrease in the applicable rates applied when setting the tariff pursuant to changes in the WBERC Regulations for the respective years.

Interest

Interest cost decreased from Rs.2,646.3 million in the year ended March 31, 2005 to Rs.2,123.6 million in the year ended March 31, 2006. The reduction of interest expense was due to a decrease in outstanding indebtedness.

Profit before income tax

As a result of the foregoing, the Company’s profit before income tax increased from Rs.1,742.3 million in the year ended March 31, 2005 to Rs.2,219.2 million in the year ended March 31, 2006.

Provision for income tax

Provision for income tax increased from Rs.128.5 million in the year ended March 31, 2005 to Rs.200.0 million in the year ended March 31, 2006 due to an increase in profit before income tax and introduction of the fringe benefit tax.

Profit after income tax

As a result of the foregoing, profit after income tax increased from Rs.1,613.8 million in the year ended March 31, 2005 to Rs.2,019.2 million in the year ended March 31, 2006.

— 52 — Liquidity and Capital Resources

Cash Flows

The Company needs cash primarily to fund purchases of capital assets including meters, cables of different voltages, transformers, switchgears and other plant and equipment necessary for improving or replacing the existing distribution network, for major repairs, for overhauling the Company’s generating stations and for the Company’s working capital needs. The Company funds these capital requirements through a variety of sources, including cash from operations, long-term lines of credit, capital contributions and security deposits from consumers.

Cash flow for the years ended March 31, 2007, 2006 and 2005

In the year ended March 31, 2007, net cash flow was an inflow of Rs.3.4 billion against an inflow of Rs.2.3 billion in the year ended March 31, 2006 and an inflow of Rs.1.1 billion in the year ended March 31, 2005, bringing the Company’s cash and cash equivalents position at March 31, 2007 to Rs.7.3 billion.

Year ended March 31, 2007

For the year ended March 31, 2007, cash flow from operating activities was an inflow of Rs.10.4 billion while the Company’s profit before taxation and special appropriation was Rs.3.7 billion. The difference of Rs.6.7 billion was primarily due to a decrease in trade and other receivables by Rs.853.9 million, an increase in trade payables of Rs.2.9 billion and a decrease in inventories of Rs.39.8 million. Depreciation was Rs.1.6 billion and interest expense was Rs.1.7 billion.

Cash flow from investing activities was an outflow of Rs.5.5 billion for the year ended March 31, 2007. This amount reflected additions to fixed assets and capital work-in-progress relating to normal capital expenditure, unit 3 of the Budge Budge 250MW plant and the net purchase of short-term/current investments.

Cash flow from financing activities was an outflow of Rs.1.5 billion for the year ended March 31, 2007. This amount reflected the repayment of long-term loans of Rs.3.0 billion, repayment of a public deposit of Rs.1.1 billion, net of a fresh loan of Rs.2.0 billion, the increase of a short term loan of Rs.998.0 million and interest payments of Rs.1.8 billion.

Year ended March 31, 2006

For the year ended March 31, 2006, cash flow from operating activities was an inflow of Rs.7.0 billion while the Company’s profit before taxation and special appropriation was Rs.2.3 billion. The difference of Rs.4.7 billion was primarily due to a decrease in trade and other receivables of Rs.325.7 million which was offset by a decrease in trade payables of Rs.264.9 million and an increase in inventories of Rs.289.9 million. Depreciation was Rs.2.5 billion and interest expense was Rs.2.1 billion.

Cash flow from investing activities was an outflow of Rs.1.9 billion for the year ended March 31, 2006. This amount reflected additions to fixed assets and capital work-in-progress relating to normal capital expenditure.

Cash flow from financing activities was an outflow of Rs.2.8 billion for the year ended March 31, 2006. This amount reflected interest paid of Rs.2.0 billion and the repayment of long-term loans of Rs.3.3 billion, a net decrease in cash credit/short term loans of Rs.2.0 billion, proceeds from a share issue of Rs.1.8 billion and the drawing of a long term loan of Rs.1.4 billion.

— 53 — Year ended March 31, 2005

For the year ended March 31, 2005, cash flow from operating activities was an inflow of Rs.8.7 billion while the Company’s profit before taxation and special appropriation was Rs.1.8 billion. The difference of Rs.6.9 billion was primarily due to decrease in trade and other receivables by Rs.2.2 billion, which was offset by a decrease in trade payables of Rs.1.5 billion and an increase in inventories of Rs.200.0 million. Depreciation was Rs.2.9 billion and interest expense was Rs.2.6 billion.

Cash flow from investing activities was an outflow of Rs.1.2 billion for the year ended March 31, 2005. This amount reflected additions to fixed assets and capital work-in-progress relating to normal capital expenditure.

Cash flow from financing activities was an outflow of Rs.6.4 billion for the year ended March 31, 2005. This amount reflected the repayment of long-term loans (net of refinance loans) of Rs.4.4 billion and interest paid of Rs.3.1 billion.

Indebtedness

The following table sets forth the principal debt outstanding as at March 31, 2007 and repayment schedules of the Company’s indebtedness categorized into the following facilities:

CESC Limited Outstanding REPAYMENT SCHEDULE

31-Mar-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18

Debentures ...... 1,391 961 430 ————————— Commercial Banks . . . 4,371 919 667 967 653 553 613 ————— Financial Institutions IDFC...... 2,720 479 495 495 330 330 315 65 65 65 65 16 PFC...... 2,412 402 402 402 402 402 402 ————— Public Deposit ..... 325 325 ——————————

TOTAL ...... 11,219 3,085 1,994 1,864 1,385 1,285 1,330 65 65 65 65 16

Foreign Currency Loans IFC...... 1,129 282 565 282 ———————— ADB...... 528 107 214 137 69 ——————— CDC...... 156 39 78 39 ———————— ICICIBankLtd...... 1,567 90 181 313 313 313 223 133 ———— FRN...... 602 —————602 —————

TOTAL...... 3,982 519 1,038 772 382 313 825 133 ————

Budge Budge Unit III Loan - UCO Bank(1) . 200 ——————————— Working Capital ..... 2,582 ———————————

TOTAL...... 17,983 3,604 3,032 2,636 1,767 1,598 2,155 198 65 65 65 16

Note:

(1) Repayment of the Budge Budge Unit III loan from UCO Bank has not been considered as substantial disbursement was pending as at March 31, 2007.

— 54 — The following table sets forth the Company’s loan funds as of the periods indicated:

As of March 31,

2005 2006 2007 2007

(U.S.$ (Rs. millions) millions)

Secured Loans Debentures ...... 3,363.2 2,211.4 1,390.7 35.0 Term Loans ...... 12,711.2 13,245.7 12,632.8 317.8 Facilities from Banks ...... 1,141.1 1,186.9 1,443.2 36.3 Deferred Payment Liability ...... 45.5 ——— Unsecured Loans ...... 4,410.8 2,455.5 2,515.8 63.3 21,671.8 19,099.5 17,982.5 452.4

Notes:

(1) The translations from Rupee to U.S. Dollar, or U.S. Dollar to Rupee, as the case may be, have been made on the basis of the Noon Buying Rate in New York City on September 28, 2007, for cable transfers in Indian Rupees, as certified for customs purposes by the Federal Reserve Bank of New York of Rs.39.75 = U.S.$1.00.

(2) For the years ended March 31, 2005, 2006 and 2007, interest costs charged to the Profit and Loss Account on account of the loan funds described above were Rs.2,646.3 million, Rs.2,123.6 million and Rs.1,678.7 million, respectively.

Under the terms of the Company’s long-term borrowings, it is required to comply with various financial covenants as discussed below. These borrowings may be accelerated if the Company defaults, including by failure to comply with these financial covenants. Payment defaults, as well as defaults under covenants leading to acceleration of debt repayment in any of these borrowings would trigger a default in other borrowings. The Company is currently in compliance with all of these covenants.

IFC Loan: The Company’s debt service coverage ratio must be at least 1.2. As of March 31, 2007 the Company’s debt service coverage ratio as calculated under the IFC loan was 1.3. The Company’s current ratio must be at least 1.1. As of March 31, 2007, the Company’s current ratio as calculated under the IFC loan was 1.6. The Company’s long-term debt to equity ratio must be less than or equal to 2.6. As of March 31, 2007, the Company’s long term debt to equity ratio as calculated under the IFC loan was 0.9.

CDC Loan: The Company’s current debt to equity ratio must be at least 1.1. As of March 31, 2007, the Company’s current debt to equity ratio as calculated under the CDC loan was 1.2 The Company’s long term debt to equity ratio must be less than or equal to 2.6. As of March 31, 2007, the Company’s long term debt to equity ratio as calculated under the CDC loan was 0.7.

ADB Loan: The Company’s debt service coverage must be at least 1.15. As of March 31, 2007, the Company’s debt service coverage as calculated under the ADB loan was 1.32. The Company’s long-term debt to equity ratio must be less than or equal to 3.0. As of March 31, 2007, the Company’s long-term debt to equity ratio as calculated under the ADB loan was 1.01.

FRNs: The Company’s interest coverage must be no less than 1.5. As of March 31, 2007, the Company’s interest coverage as calculated under the floating rate notes was 3.91 (including interest allocated to capital accounts). The Company’s asset debt cover ratio must be no less than 1.75. As of March 31, 2007 the Company’s asset debt cover ratio as calculated under the Floating Rate Notes was 2.74.

— 55 — Rupee Loan Agreements: Under the Rupee loan agreements the Company’s security cover must be no less than 1.4. As of March 31, 2007, the Company’s security cover was 1.7. The Company’s debt service coverage must be at least 1.2. As of March 31, 2007, the Company’s debt service coverage was 1.3.

The ratios described above are based on the Power Business Annual Financial Statements.

If the Company is not able to comply with its financial covenants, it may have to apply for amendments to the covenants or seek waivers in respect of any events of default, including cross defaults arising from the breach of the covenants. The Company cannot assure you that it will be able to obtain such amendments or waivers on satisfactory terms, or at all. If the Company’s debt obligations are accelerated as described above, it will face significant liquidity constraints, and may be unable to comply with all of its repayment obligations. In addition, the Company’s borrowings are secured by certain of its assets, and the acceleration of loan repayments could result in foreclosure on the mortgages or security interests held by lenders over such assets.

The Company’s ability to incur additional debt in the future is subject to a variety of uncertainties including the amount of capital that other Indian entities may seek to raise in the domestic and foreign capital markets, economic and other conditions in India that may affect investor demand for the Company’s securities and those of other Indian entities, the liquidity of Indian capital markets and the Company’s financial condition and results of operations. The Company intends to continue to utilize long term debt.

The following table sets forth a summary of the maturity profile for the Company’s outstanding long-term debt obligations as at March 31, 2007:

Payments Due by Period (Rs. millions)

Repayment within one year ...... 3,605 Repayment after one and up to two years...... 3,032 Repayment after two and up to five years...... 6,001 Repayment after five years ...... 2,563 Total...... 15,201

Note: Does not include repayment of a loan received in March 31, 2007 from UCO Bank amounting to Rs.200 million, where further disbursements are pending.

Capital Expenditure

The Company is required to obtain the approval of 50 per cent. or more of the lenders and, after the occurrence of an event of default, the approval of 75 per cent. or more of the lenders, prior to undertaking any new projects or expansion schemes other than (i) for projects or schemes that are of a routine nature, (ii) for the expansion of the distribution network or (iii) in order to acquire assets on lease(s) in excess of Rs.250.0 million per financial year. Prior approval of the lenders is also required for additional borrowings.

The Company has made, and expects to continue to make, substantial capital expenditures in connection with upgrading and maintaining its existing generating stations by way of technology absorption for improved efficiency, planned refurbishments and to meet environmental requirements. The Company also continues to make necessary capital expenditure in its distribution network including the setting up of distribution stations, the increase of transformer capacity, the setting up of new LT substations, the improvement of its transmission and distribution lines both for strengthening its existing supply and providing new supplies and

— 56 — periodic replacement of meters in its consumers’ premises based on age and efficiency. The Company undertakes capital schemes to monitor such expenditure and capitalizes costs from capital works-in-progress only upon commissioning of the plant and equipment. Payments made for capital expenditure amounted to Rs.1,205.2 million, Rs.1,988.9 million and Rs.3,644.9 million in the years ended March 31, 2005, 2006 and 2007, respectively. A sum of Rs.1,006.0 million was spent up to March 31, 2007 in relation to the 250MW third unit of Budge Budge thermal power plant currently under construction (which is included in the expenditure referred to above). In addition, the estimated amount on contracts remaining to be executed on the capital account amounted to Rs.8,673.9 million in the year ended March 31, 2007. The Company also hopes to establish a 600MW generating facility in Haldia in 2011 at an estimated cost of approximately Rs. 26 billion. The Company expects to incur routine capital expenditure costs of approximately Rs. 3 billion or more per year for the next several years relating to new connections, improving the reliability of supply and other routine distribution capital expenditure.

Under the Tariff Regulations, the Company’s entitled return base may be increased by an amount equal to the amount of shareholders’ equity or retained earnings that it has contributed to any capital expenditure, provided that the indebtedness contributed constitutes at least 70 per cent. of the overall expenditure of a given project. To maximize the return on the Company’s entitled return base, the Company must fund its capital expenditure in the debt to equity ratio of 70:30.

The 1.5 million tonne coal washery constructed at a cost of approximately Rs.490 million is scheduled to be commissioned in January 2008.

For a further discussion of certain of the Company’s projects, see “The Company’s Business — Strategy”.

Strengthening and Improving the Transmission and Distribution Network

The Company’s existing distribution network comprises 132/33 kV substations with an aggregate capacity of over 1800 MVA, 33/11/6 kV distribution stations with an aggregate capacity of approximately 2400 MVA and over 5000 6/0.4 kV LT substations. These electrical installations are connected by over 250 circuit km of 132 kV lines, approximately 1,200 circuit km of 33 kV and 20 kV lines, approximately 4,000 circuit km of 11 kV and 6 kV lines and 10,000 circuit km of LT distribution mains.

The network has been built over a period of time to provide effective service connections to the Company’s emerging HT and LT consumers which are spread over approximately 567 sq. km of license area. Every year the distribution network requires an increase in capacity, network extension and replacement of aging equipment to enable the Company to meet its service obligations as a licensee, to provide new connections and to maintain security of supply.

The Company’s existing supply to consumers is met from its four generating stations and four receiving stations at various locations in the license area. Once power is generated in the 250MW third unit in Budge Budge and the 600MW generation facility in Haldia, the dynamics of power sourcing will change. The load pattern will need to be geographically aligned to the available sources of power across the Company’s distribution network. The Company’s proposed network development project has primarily been formulated to address this as well as other requirements in the distribution network.

Currently, the Company’s network is within the WBSEDCL network system and has no direct connectivity with the national grid. Connectivity with the national grid would both substantially reduce dependence on the WBSEDCL network and its availability and reduce costs towards wheeling of power for both import and export.

— 57 — The project for strengthening and improving the Company’s distribution network also involves building 220 kV of overhead lines and cable circuit, 220 kV of outdoor yard, a 220/132/33 kV substation with multiple power transformers, and 132 kV long corridors connecting power received from new sources towards the central, eastern and northern parts of the license area to provide necessary network flexibility for operational optimization.

The equipment and construction activities in the project are estimated to cost Rs.4.5 billion over a period of four years. As a result of the network improvements, the Company will be able to integrate the additional generation from its 250MW third unit at Budge Budge and 600MW Haldia facility into its system. It will also be possible to close down the New Cossipore Generating Station that has been in use since 1949. The project will provide additional flexibility in the Company’s systems, enabling the Company to best utilize any off-peak surplus generation. The Company intends to utilize part of the proceeds of this Issue for the capital expenditure plan involved in this strengthening and reorganization of the Company’s network.

Contingent Liabilities

The following table sets forth the Company’s quantifiable contingent liabilities as of March 31, 2007:

As of March 31,

2007 2007

(Rs. millions) (U.S.$ millions)

Commercial Taxes Department ...... 3.0 0.08 Municipal tax ...... 7.2 0.18 Income tax ...... 6.1 0.15 Total...... 16.3 0.41

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. The Company is exposed to various types of market risk, including changes in interest rates and foreign exchange rates, in the ordinary course of business. The Company maintains its accounting records and prepares its financial statements in Rupees.

Exchange Rate Risk

The primary foreign currencies to which the Company is exposed are the foreign currency loans of U.S.$80.7 million, GBP 1.8. million, EUR 1.2 million and JPY 508.8 million as of March 31, 2007. Losses arising out of repayment of foreign currency loans are allowed on an actual basis.

— 58 — A significant portion of the Company’s borrowings are also denominated in foreign currencies. The following table sets forth certain information regarding the Company’s foreign currency debt exposure for the periods indicated:

As of March 31,

2005 2006 2007

Total foreign currency denominated debt (Rs. millions) . . . 4,020.4 4,220.7 3,981.8 Total foreign currency debt as percentage of total outstanding debt (percent.) ...... 18.6 22.1 22.1

Interest Rate Risk

The Company’s exposure to market risk for changes in interest rates relates primarily to its long-term debt obligations. The interest charge on loans including foreign currency loans can be recovered through tariff.

Taxation

The Company is required to collect electricity duty under the provisions of the Bengal Electricity Duty Act, 1935 from consumers on the electricity charges paid by them and deposit this to the account of the State Government of West Bengal.

Corporate tax in India is levied by the Central Government on income earned by corporations. The current general rate of corporate income tax is 30 per cent. plus a 10 per cent. surcharge, education cess of two per cent. and higher education cess of one per cent. However, if the income tax payable on the total income as computed under the Income Tax Act is less than 10 per cent. of the book profit, the book profit is deemed to be the total income of the company and tax liability is determined under the minimum alternative tax regime at 10 per cent. of book profit plus a 10 per cent. surcharge, education cess of two per cent. and higher education cess of one per cent.

The Company is also required to pay Fringe Benefit Tax.

Recent Developments

The Company sets forth below a summary of recent developments since September 30, 2007.

Unaudited Financial Results of the Power Business for the Six Months Ended September 30, 2007

The Power Business Interim Financial Information for the six months ended September 30, 2007 set out below is unaudited and was subject to a limited review by Lovelock & Lewes, the Company’s statutory auditors, in accordance with Indian professional standards for a review of such information. Lovelock & Lewes did not audit, and they do not express an opinion, on the unaudited financial results. Accordingly, the degree of reliance on their report on such results should be restricted in light of the limited nature of the review procedures applied. The limited review report of Lovelock & Lewes for the quarter/half year ended September 30, 2007 is included elsewhere in this Placement Document. The unaudited financial results are based on the Unaudited Financial Results (Provisional) for the quarter/half year ended September 30, 2007

— 59 — prepared in accordance with Clause 41 of the Listing Agreements, which were announced on October 31, 2007. These do not include the results of operations of the Retail Business conducted by the Company’s subsidiary, SRL.

Six months ended September 30,

2006 2007 2007

(Unaudited) (Unaudited) (Unaudited)

(Rs. million) (Rs. million) (U.S.$ million) (1) (2) (3)

NetSales ...... 13,487.7 14,472.7 364.1 Other Income ...... 422.3 566.4 14.2 Total Income ...... 13,910.0 15,039.1 378.3 Expenditure Fuel Cost ...... 4,488.3 4,482.1 112.8 Personnel Cost ...... 1,369.3 1,450.5 36.5 Power Purchase ...... 1,761.2 2,312.0 58.2 Depreciation ...... 818.0 810.0 20.4 Other Expenditure ...... 3,096.0 3,519.6 88.5 Total Expenditure ...... 11,532.8 12,574.2 316.4 Interest ...... 967.0 728.3 18.3 Exceptional Income ...... 0.0 250.0 6.3 Profit from ordinary activities before tax ...... 1,410.2 1,986.6 49.9 Tax Expenses: Current and Fringe Benefits tax ...... 166.2 234.1 5.9 DeferredTax(Net) ...... 440.0 720.0 18.1 Less: Receivable ...... (440.0) (720.0) (18.1) Net Profit from ordinary activities after Tax .... 1,244.0 1,752.5 44.0

Paid-up Equity Share Capital (Shares of Rs.10 Each) . 829.8 849.8 21.4 Earnings Per Share (EPS) (Rs.) — Basic & Diluted (*not annualized) ...... *14.97 *20.75 *0.5 Aggregate of Public Shareholding Number of Shares ...... 49.7million 49.7 million — Percentage of Shareholding ...... 60.32 58.92 —

Note: See pages F-3-F-4 for the notes to the unaudited financial results for the Power Business for the six months ended September 30, 2007, which constitute an integral part of this table.

Net sales increased by 7.3 per cent. from Rs.13,487.7 million in the six months ended September 30, 2006 to Rs.14,472.7 million in the six months ended September 30, 2007. This was primarily due to an increase in sales volume, including exports of electricity, by 6.5 per cent. from 3,716 MU in the six months ended September 30, 2006 to 3,957 MU in the six months ended September 30, 2007. Other income increased by 34.1 per cent. from Rs.422.3 million in the six months ended September 30, 2006 to Rs.566.4 million in the six months ended September 30, 2007 as a result of higher interest income and income from investment of surplus. As a result of the foregoing, total income increased by 8.1 per cent. from Rs.13,910.0 million in the six months ended September 30, 2006 to Rs.15,039.1 million in the six months ended September 30, 2007.

— 60 — Fuel cost remained at approximately the same level in the six months ended September 30, 2007 as compared to September 30, 2006 (Rs.4,488.3 million as compared to Rs.4,482.1 million, respectively) despite an increase in generation by 1.4 per cent. from 4,102 MU in the six months ended September 30, 2006 to 4,161 MU in the six months ended September 30, 2007. Personnel costs increased by 5.9 per cent. from Rs.1,369.3 million in the six months ended September 30, 2006 to Rs.1,450.5 million in the six months ended September 30, 2007 as a result of an annual increase in salaries and a rise in the cost of living index. Cost of power purchased increased by 31.3 per cent. from Rs.1,761.2 million in the six months ended September 30, 2006 to Rs.2,312.0 million in the six months ended September 30, 2007. This was primarily due to an increase in the quantity of units purchased to meet increased demand. Other expenses increased by 13.7 per cent. from Rs.3,096.0 million in the six months ended September 30, 2006 to Rs.3,519.6 million in the six months ended September 30, 2007. This increase was primarily due to an additional expenditure on account of cost adjustment of Rs.664.5 million representing incremental adjustments, relating to cost of electricity purchased, fuel and related costs and revenue account. Interest cost decreased by 24.7 per cent. from Rs.967.0 million in the six months ended September 30, 2006 to Rs.728.3 million in the six months ended September 30, 2007. This was primarily due to repayment of debt during the six months ended September 30, 2007. Depreciation remained at approximately the same level; Rs.818.0 million in the six months ended September 30, 2006, compared to Rs.810.0 million in the six months ended September 30, 2007. There was an exceptional income of Rs.250.0 million during the six months ended September 30, 2007 due to a one off disposal of certain discarded fixed assets located at the since shut down Mulajore generating station of the Company.

As a result of the above, profit before tax increased by 40.9 per cent. from Rs.1,410.2 million in the six months ended September 30, 2006 to Rs.1,986.6 million in the six months ended September 30, 2007. The Company’s profit after tax increased by 40.9 per cent. from Rs.1,244.0 million in the six months ended September 30, 2006 to Rs.1,752.5 million in the six months ended September 30, 2007.

Additional Recent Developments

Subsidiaries

Pursuant to a Scheme of Amalgamation approved by the High Court at Calcutta, SRL became a 94.72 per cent. subsidiary of the Company from April 1, 2007. The scheme became effective on October 11, 2007.

CESC Properties Limited (“CPL”), a company intending to carry on business in the area of real estate development, became the Company’s 100 per cent. subsidiary from April 12, 2007.

Issue of Equity Shares

The Company issued 31,058,414 Shares of Rs.10 each on October 12, 2007 in relation to the Scheme of Amalgamation mentioned above to the shareholders of SRL’s holding company.

Alterations of Memorandum and Articles and Issue of Shares under QIP

The Company has obtained shareholders’ approval for the alteration of its Memorandum and Articles of Association for the creation of 28.25 million Shares of Rs.10 each by cancellation of a similar number of Preference Shares of Rs.10 each, with the authorized share capital remaining at Rs.1,500 million.

Shareholders’ approval has also been obtained for the proposed issue of Shares under the offering of Rupee equivalent of up to the amount of U.S.$150 million.

— 61 — Tariff Order

The Company received its tariff order for the fiscal year 2007-08 from the WBERC, under the provisions of the Electricity Act and regulations framed thereunder in 2007. The average tariff for the year was fixed at Rs.3.757 per kWh.

Commercial Agreements

The power purchase agreement between the Company and WBSEDCL (formerly WBSEB) was extended for a further period of one year with effect from June 8, 2007 with the same terms and conditions for electricity off-take as agreed in previous years.

The Company entered into an agreement with CPL for a period of 20 years for development by CPL of the Company’s Park Circus property in return for payment of a rent.

Coal Linkage for Haldia Project

The Company has been granted coal linkage by the Standing Linkage Committee of the Ministry of Coal, Government of India for the proposed 600MW power station at Haldia.

Jharkhand Project

The Ministry of Coal, Government of India indicated that it will allocate a coal block in the State of Jharkhand to the Company for a proposed pithead power station of 1,000MW. The Company’s share in the total reserves amounts to 110 million tonnes. The power plant is expected to be operative by 2012 and the power generation will mainly be sold in the merchant market. The Company entered into a memorandum of understanding with the State Government of Jharkhand for this project.

Clean Development Mechanism Credit

With the growing concern for cleaner production, the Company has increasingly focused on energy efficient technologies. The Company has adopted various energy efficiency improvement measures in its generating stations towards accomplishment of this mission.

Two initiatives, one each at the Budge Budge Generating Station and Titagarh Generating Station have been registered as Clean Development Mechanism (“CDM”) projects with the UN CDM Board resulting in significant reduction in green house gas emissions and also generating valuable Carbon Emission Reductions (CERs).

At Budge Budge Generating Station, the Company has been able to reduce energy (fuel) consumption per kWh of energy generation through implementation of energy efficient measures and technologies. The CDM project at Budge Budge Generating Station was registered on September 16, 2006 and, as of April 10, 2007 16,486 CERs had been issued to the Company by the UN. These CERs were sold for a total of Rs. 119 lacs.

At Titagarh Generating Station, the Company has upgraded the originally designed auxiliary fuel combustion system in power generation with more energy efficient technology. The CDM project at Titagarh Generating Station was registered on June 22, 2007.

— 62 — ELECTRICITY INDUSTRY IN INDIA

The information in this section has been extracted from publicly available documents from various sources and materials officially prepared by the Central Government and its various ministries, and has not been prepared or independently verified by the Company or the Joint Global Coordinators and Book Running Lead Managers or any of their respective affiliates or advisors.

Power Generation

The per capita consumption of electricity in India is about 631 KWh as against the world average of about 2,596 KWh according to the Ministry of Power (the “MOP”). Low consumption is, in large part, due to the chronic and widespread electricity shortages in the country. According to the MOP, as of March 31, 2007, India’s power system had an installed capacity of around 132,330MW (excluding captive generation capacity) with a gross generation of 659 BUs. In that year, thermal power plants powered by coal, gas, naphtha or oil accounted for approximately 65 per cent. of total power generation capacity, hydroelectric stations for approximately 26 per cent., and others (including nuclear power and wind power) for approximately 9 per cent. In the same year, the Central sector accounted for approximately 34 per cent. of total power generation capacity, the State Sector accounted for approximately 53 per cent. and the Private Sector accounted for approximately 13 per cent.

The consumption of power has increased over the last several years, although consumption growth has been constrained due to power cuts imposed in several states. Although electricity generation capacity has increased substantially in recent years, the demand for electricity in India is still substantially in excess of the available supply. As of March 31, 2007, India faced an electricity shortage of approximately 9.9 per cent. of total energy requirements and 13.5 per cent. of peak capacity requirements according to the CEA. The task of meeting demand is burdened with legacies of poor management. The SEBs, including unbundled state utilities, had for years been in a vicious cycle of under-metering, under-collection and under-investment, which weakened cash flows and consequently the financial health of sector players. Efforts to build capacity and upgrade transmission and distribution infrastructure had been constrained by the financial distress of the state utilities and the fiscal weakness of the Central and State Governments. Meanwhile, private investors remained unwilling to invest due to inadequate protections and increasing risks.

The end users of power can be broadly classified into residential (representing approximately 25 per cent. of demand), industrial (representing approximately 35 per cent. of demand), commercial (representing approximately 8 per cent. of demand) and irrigation consumers (representing approximately 24 per cent. of demand. There is a significant variation in the consumption pattern among the various states depending on industrial investments, the extent of rural electrification and income levels.

A heavy element of cross-subsidy also exists in the Indian power sector in terms of lower rates charged to agricultural and domestic consumers and higher rates charged to industrial and commercial consumers. The burden of cross-subsidy in tariffs, coupled with low collections from agricultural consumers due to inadequate metering, has resulted in a number of industrial consumers shifting to captive power over the last few years.

The Central Government adopts a system of successive “Five Year Plans” which set out the targets for the economic development of the country in various sectors, including the power sector. The additional capacity targets have increased in each successive Five Year Plan. However, the actual achievement of targets has decreased from around 81 per cent. in the fifth plan to around 47 per cent. in the ninth plan (covering the years 1997 to 2002). The tenth plan targeted a capacity addition of 41,110 MW, of which 35 per cent. was to be from hydro capacity and 65 per cent. was to be from thermal capacity, including nuclear power. The expected contribution

— 63 — from each of the State Sector, the Central sector and the Private Sector were 27.2 per cent., 55.5 per cent. and 17.3 per cent., respectively. However, the latest estimates indicate that capacity increased by approximately 21,180MW (52 per cent. of the target). The target for capacity addition has been set at about 78,000MW under the eleventh plan (covering the years 2007 to 2012). However, based on the current status of the major public and Private Sector projects, it seems that these high capacity additions will be difficult to achieve. The main reason for the shortfall in capacity additions is the financial health of the sector. Most of the SEBs and their successors have been unable to make significant investments since they are constrained by their lack of funds caused by poor billings and collections. The Private Sector has not been able to add significant capacity due to problems related to payment security, assured fuel supply and high tariff issues.

Capacity utilization in the power sector, as measured by the PLF of generating plants, tends to be lower than in developed countries. It varies significantly across states and across ownership segments.

According to the CEA, the average PLF improved from 54 per cent. in the year ended March 31, 1991 to approximately 77 per cent. in the year ended March 31, 2007. The current plant availability appears to be above 80 per cent. This gap between the plant availability and PLF indicates that, although the thermal plants are available over 80 per cent. of the time, they are forced to operate at less than their full capacity in some states, particularly in eastern regions during the off-peak hours, due to lower demand.

Fuel and Fuel Exposure

India relies on coal to fulfill 55 per cent. of its commercial energy needs. Coal has become India’s fuel of choice due to the country’s rich coal resources. According to the Geological Survey of India, in June 2007, the total coal reserves in India were estimated at approximately 255 billion tonnes. At the current rate of production, the recoverable coal reserves in India are expected to last for over 100 years. India also has substantial gas resources, with 26.9tcf of gas reserves - 27 times higher than annual production levels. A combination of these resources, and the possibility of using the country’s significant hydroelectric power capability, allows India to maintain a relatively low dependence on external energy. Historically, the country has imported roughly a fifth of its energy needs, and half of its oil consumption has been met with imported oil.

Transmission and Distribution

A reliable transmission and distribution system is important for the transfer of power from generating stations to the end users. A transmission and distribution system comprises transmission lines, transformers, substations, switching stations and distribution lines. In India, the transmission and distribution system is a three-tier structure comprising distribution networks, state grids, and regional grids. The distribution network and the state grids are owned and operated by the respective SEBs or the State Governments through SEBs. The transmission and sub-transmission systems supply power to the distribution system, which in turn supplies power to end consumers. Distribution of power to the end consumer is largely controlled by the respective SEBs and to some extent by the licensees in the Private Sector.

In India, the SEBs and their successors control a majority of the distribution infrastructure. The SEBs and their successors have a monopoly over power distribution in their respective states, with the exception of a few metropolitan areas (including Mumbai, Kolkata, Ahmedabad, Surat, Delhi, and Greater Noida) where private or municipal licensees distribute power.

Regional Power Markets

Geographically, India’s electricity market is divided into five regions and 29 states. Each region and each state is served by a REB and a SEB.

— 64 — The size of each regional power market correlates with the size of the economy of each region. The West of the country accounts for 28 per cent. of India’s GDP and 30 per cent. of its capacity, while the North and South of the country each account for 27 per cent. of GDP and 26 per cent. of capacity respectively. The Central Government has developed more capacity in more remote regions such as the East and the Northeast of the country.

Most of the inter-state transmission links are owned and operated by PGCIL; some are jointly owned by the concerned SEBs. In order to facilitate the transfer of power between neighboring states, state grids are inter-connected through high-voltage transmission links to form a regional grid. There are five regional grids, which have been constituted as follows:

• Northern region grid which comprises Delhi, Haryana, Himachal Pradesh, Jammu and Kashmir, Punjab, Rajasthan, Uttaranchal and Uttar Pradesh;

• Eastern region grid which comprises Bihar, Orissa, Sikkim and West Bengal;

• Western region grid which comprises Dadra and Nagar Havelli, Daman and Diu, Chhattisgarh, Goa, Gujarat, Madhya Pradesh and Maharashtra;

• Southern region grid which comprises Andhra Pradesh, Karnataka, Kerala, Pondicherry and Tamil Nadu; and

• North-eastern region grid which comprises Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura.

Because peak demand does not occur simultaneously in all states, situations may arise in which there is surplus availability in one state and a deficit situation in another state. The regional or inter-state transmission lines facilitate transfer of power from a surplus state to a deficit state. Optimal scheduling of power and coordination between the power plants at the state level is done by the State Load Dispatch Centre, while power control and scheduling for inter-state flow is operated and controlled by the Regional Load Dispatch Centers. In addition, it has been proposed that the regional grids gradually be integrated to form a national grid, whereby surplus power from a region could be transferred to a deficit region, thereby facilitating a more optimal utilization of the generating capacity in India.

The transmission and distribution system in India is characterized by high losses. Actual losses could be higher than the reported figures. Most states report substantial T&D Losses as agricultural consumption is not metered and is charged at a very low tariff. Several reforming states (Orissa, Andhra Pradesh, Haryana and Rajasthan) have also reported higher T&D Losses after the start of the reform process. This is mainly due to the more realistic assessment of agricultural consumption resulting in better estimates of actual T&D Losses, which were earlier partly camouflaged as agricultural consumption. There are considerable inter-state variations in the T&D Losses.

Governance Structure

In India, the responsibility for the development of the power industry is shared between the Central Government and the State Governments. The MOP is the body governing the power industry in the country. The CEA, constituted under the ESA and continuing under the Electricity Act, is the technical wing of the MOP assisting on technical and economic matters.

The MOP also oversees the operation of all CPSUs: it appoints directors to the CPSUs’ boards and oversees the CPSUs’ financial and operational performance (through targets specified in the

— 65 — memorandum of understanding signed with each CPSU every year). In addition, the Central Government funds a large number of CPSU projects in conjunction with private and public sector lenders. Such projects are specified in the Central Government’s long-term plans for the power sector and require prior approval by the MOP.

Planning and Approvals

The Planning Commission, the planning wing of the Central Government (chaired by the Prime Minister), is responsible for designing long-term plans for the Indian economy. The plans, historically in the form of Five Year Plans, are centralized development plans involving major infrastructure and sector development projects. The projects are backed by Central Government funds and are budgeted under the Central Government’s annual budgets. The CCEA is responsible for approving costs of all projects (and any overruns) prior to their initiation, and the relevant ministries and Central Government owned enterprises are responsible for execution of the projects following CCEA approval.

Central Sector entities such as NTPC, NHPC, NPC, NEEPCO, PGCIL, PFC and REC are engaged in various activities, (including construction and operation of generation and transmission projects, funding for the power sector, and specific activities such as rural electrification) and are accountable to the MOP (and also the Ministry of Atomic Energy in the case of NPC). There are two joint venture power corporations under the administrative control of the MOP, namely the Nathpa Jhakri Hydro Power Corporation Ltd. and the Tehri Hydro Development Corporation Ltd., which are responsible for the execution of the Nathpa Jhakri power project and projects of the Tehri Hydro Power Complex, respectively. The Damodar Valley Corporation, constituted under the Damodar Valley Corporation Act, 1948, and the Bhakra Beas Management Board, constituted under the Punjab Reorganization Act, 1966, are also under the administrative control of the MOP. The MOP also administers the Beas Construction Board, a transmission line construction agency.

CPRI, PETS and the EMC are organizations assisting the power sector in various areas such as research and development and human resource development under the administrative control of the MOP.

State Ministries of Power of various State Governments govern the power sector in the states.

The CERC is the regulatory body constituted under the ERC Act to bring into effect rationalization of electricity tariff and transparent policies regarding subsidies for regulation of inter-state transmission of energy and promotion of efficiency and environmentally friendly policies.

The ERC Act also provided for the formation of SERCs in the respective states for the rationalization of the electricity tariff and formulation of policy within each state. Various states have set up or initiated actions to set up their regulatory mechanism, of which 21 have issued tariff orders to date. While the states of Orissa, Andhra Pradesh, Karnataka, Uttar Pradesh, Gujarat, Delhi and Haryana have set up SERCs under their own state legislation, the remainder have set them up under the ERC Act. With the formation of SERCs, all issues related to tariff investment, as well as regulation of utilities will come under the ambit of SERCs.

The SEBs were created under the ESA, which entrusted them with the primary responsibility for generation, transmission and distribution of electricity and the regulation of private utilities. Although the ESA grants the SEBs considerable autonomy, in practice they were required to obtain State Governments’ approval (often at the highest level) for most major decisions including those on investment, borrowings, salary and personnel policies. The states are grouped into five regional interconnected systems. The Regional Power Committees and Load Dispatch Centers co-ordinate system operations in the respective regional grids including generation schedule, overhaul and inter-grid maintenance programs, power transfers and tariff.

— 66 — The Private Sector utilities are accountable to the relevant SERC for the issues within the states and to the CEA. Most of the Private Sector utilities service major cities with high population densities per sq km which contribute to lower distribution losses.

With the opening of the power sector to the private sector, various private groups have entered into the power industry and undertaken the development of power projects. These independent power producers are primarily accountable to the MOP, State Governments and the SERCs for their operations, and for the inter-state issues they are accountable to respective central authorities.

The following chart shows, in schematic form, the regulatory structure of the Indian power sector:

Government of State SERC India Governments

Planning Ministry of SMoP Comm. Power

CCEA SEB CPSUs CEA SU MNES

RPC/LDC CERC

Private DAE One-State Private Multi-States

NPCIL

Dispatch Coordination

Dispatch Tariff Coordination Regulation DAE ...... Department of Atomic Energy NPCIL ...... Nuclear Power Corp. of India Ltd. MNES ...... MinistryonNon-Conventional Energy Source CCEA ...... Cabinet Committee on Economic Affairs CERC ...... Central Electricity Regulatory Commission CEA ...... Central Electricity Authority REBs ...... Regional Electricity Boards CPSUs ...... Central Public Sector Utilities SERC ...... StateElectricity Regulatory Commission SMoP ...... StateMinistry of Power SEB/SU ...... StateElectricity Boards/State Utilities RPC...... Regional Power Committee LDC...... Load Despatch Centre

Note: SEB exist in states where boards have not been unbundled and SU exist in states where the SEBs have been unbundled. Private one-state are private facilities that operate in only one state, private multi-states are private facilities that supply to or operate in more than one state. Source: Fitch.

— 67 — The Electricity Industry in West Bengal

Generation

Installed generation capacity located in the State of West Bengal was approximately 7,500MW (as of June 2006), out of which the capacity available for the state’s consumption was approximately 4,650MW. The peak power demand was approximately 4,784 MW for the year 2006-07. Various projects of about 3,800MW capacity by various entities are currently at different stages of execution. Per capita consumption of electricity in West Bengal is just over 400 kWh compared to the figure for India of approximately 600 kWh.

Distribution

In addition to generation, power must also be distributed to the population of approximately 22 million in the metropolitan area of Kolkata and Howrah. With the exception of Kolkata and certain other areas, electricity distribution in the State of West Bengal is, generally, the responsibility of the WBSEDCL, the successor entity of WBSEB. The distribution of most of the electricity in Kolkata is performed by the Company.

WBERC

The WBERC was constituted in January 1999. The main functions of the WBERC are to determine the tariff structures for electricity, (wholesale, bulk, grid or retail) for intra-state operations and to control licensees. The WBERC also determines the tariff payable for the use of transmission facilities, regulates power purchases and the procurement process of transmission utilities and distribution utilities, and promotes competition, efficiency and economy in the activities of the electricity industries.

Under current legislation, the Company is required to approach the WBERC for all issues related to tariffs and their determination.

— 68 — REGULATION

Electricity Reform in India

The Indian Electricity Act, 1910 and the ESA historically were the two main acts governing the power sector of India. In 1975, an amendment was made to the ESA to allow for the participation of the Central Sector in developing power projects and transmission systems. This was considered an important amendment as the Central Sector provided for over 30 per cent. of the installed capacity of the power generation sector. The ERC Act was also enacted in 1998 to provide for independent and transparent tariff setting and regulation of the industry. The Electricity Act, enacted on June 10, 2003 (the “Electricity Act”), has replaced all existing legislation.

The reform of the power sector officially started in 1991, when the Central Government opened the sector to private investment. This was followed by a range of initiatives in the 1990s that aimed to enhance infrastructure, rationalize tariffs, improve billing and collection and unbundle the SEBs.

Considering the vast additional capacity required to meet the energy shortage and to cope with future demand, the Central Government recognized the need to mobilize the technical, managerial and financial resources of the Private Sector. In July 1991, the Central Government opened up the power industry for the Private Sector as part of broader initiatives to open sectors of the economy which had previously been reserved for the public sector. Amendments to that effect were made to the ESA in October 1991. Various policy initiatives were declared and amended from time to time depending upon the response and feedback from the power industry to attract private investment in the power sector.

As part of the reforms implemented in the power industry, various important initiatives were taken by the MOP. These included the enactment of the ERC Act to constitute regulatory bodies such as the CERC and the SERCs and other legislation such as the Electricity Laws (Amendment) Bill, 1998 and the Energy Conservation Act, 2001. As can be seen from the corporatization of SEBs, private investment in the transmission sector is now encouraged by the MOP which has also implemented policies for the securitization of outstanding debts due from the SEBs.

The Electricity Act

The Central Government enacted the Electricity Act with the objectives of consolidating the laws relating to generation, transmission, distribution, trading and use of electricity and creating measures conducive to the development of the electricity industry, including promoting competition. The Electricity Act includes wide-ranging initiatives to liberalize generation and transmission and distribution, correct the causes of the SEB crisis, upgrade infrastructure and improve Central Government/State Government co-ordination in planning and development.

The Electricity Act requires each state to set up a SERC and designates the SERCs as the regulatory and licensing authorities for distribution and trading activities within each state. To ensure co-ordination, the SERCs are to be guided by the MOP’s NTP and the NEP. Further, multi-year tariffs have been advocated.

The Electricity Act facilitates the development of power markets by permitting open access to transmission facilities and recognizing trading as a separate regulated activity. In distribution, open access to distribution wires and provision for parallel distribution networks have been provided, thus facilitating retail competition. Anti-theft norms have been made more stringent and the Electricity Act provides for the setting up of special courts to deal expeditiously with cases relating to power theft.

— 69 — Since the enactment of the Electricity Act, the CERC has enabled open access to transmission wires by stipulating norms and procedures. Open access will enable generators to bypass the financially distressed SEBs and sell electricity directly to bulk consumers. The provision would also enable distribution entities to source power from the most competitive source (rather than only from the incumbent SEB) and thus promote competition. Flexibility to sell and source power to/from any source has encouraged trading, which has resulted in generating stations, especially in the power surplus eastern region, running at higher plant load factors than previously due to expansion of the consumer base. Licensing norms for power traders have been notified by CERC. Some of the major provisions of the Electricity Act include:

• Elimination of the requirement for a license for setting up a generating station if it complies with the technical standards relating to connectivity with the grid as set out by the CEA;

• Recognizing the trading of electricity as an independent licensed activity;

• Specification of technical standards, grid standards and safety requirements by the CEA;

• Providing State Governments with the freedom to decide the sequence and phases of restructuring, and to retain the integrated structure of the SEB for a limited period;

• Provision for revocation of licenses by the appropriate authority in the event of a licensee making a willful and prolonged default in doing anything required of it or committing a breach in any manner;

• Provision for maintaining separate accounts with respect to generation, transmission, distribution and supply functions for all licensees (including SEBs);

• Provision for the determination of tariffs for the supply of electricity by a generation company to a distribution licensee, the transmission of electricity and the retail sale of electricity as well as the adjudication of the disputes between generating companies, by the appropriate authority;

• Provision for open access with respect to the transmission and distribution system, wherein the owner of the transmission and distribution line is required to make available its services to any generator or buyer of electricity, without any preferential treatment, and only subject to technical considerations. However, the implementation of open-access distribution is left with the SERCs;

• Compulsory metering of all consumers in order to improve accountability;

• Provision for minimizing theft of power;

• Provision for stringent penalties for theft of electricity;

• Constitution of special courts for trial of electricity-related offenses; and

• Constitution of an appellate tribunal to hear and decide appeals from the CERC and the SERCs.

— 70 — Addressing the SEB crisis

The SEB crisis was principally attributable to the State Governments’ management of the power sector, which had been driven by populist politics at a local level. Many states significantly subsidized electricity to farmers and residents, which often took the form of flat rates. As a result, prices were set at significant discounts to the cost of supply and the metering system progressively broke down, as metering is superfluous under flat rates. Weakened incomes, reduced investments, high theft and Transmission and Distribution Losses (“T&D Losses”) ensued.

The cost of state subsidies was largely borne by the SEBs, which were not compensated for the revenue loss, and had little power to overturn political pressures and raise tariffs. In response, cross-subsidization schemes were built into state tariffs to extract additional revenues from industry, leading many large consumers to migrate to captive power plants. The problems were exacerbated in the 1990s by accelerating economic growth and rising power demand. By 2001, all SEBs operated at a loss, with many meeting cash shortfalls by incurring debt and failing to pay invoices, which drove up interest costs and further strained balance sheets. As defaults mounted, the SEBs built up large trade debts to the CPSUs.

By March 2001, the SEBs owed the CPSUs Rs.414.7 billion, of which Rs.257.3 billion was principal and Rs.157.5 billion was represented by accrued penalties and interest. The deteriorating financial health of central and state utilities caused under-investment, continued loss and theft, and perpetuated cash leakage. These conditions slowed the entry of private capital and increasingly shifted the burden of capacity and infrastructure development onto the public sector.

To improve the financial condition of the SEBs, the Central Government launched a combination of regulatory and development initiatives. Anti-theft laws have been made more stringent, and special courts are being established to expedite the prosecution of power theft cases. Unfunded subsidies, which drained the SEBs’ cash flows in the past, are no longer allowed as the Electricity Act requires the states to fund subsidies upfront.

Meanwhile, transmission and distribution initiatives are focusing on the poor transmission and distribution infrastructure and the dilapidated metering systems. Under the APDRP, the Central Government earmarked Rs.200 billion in matching funds for the states’ transmission and distribution projects, extended as concessional loans to fund half the cost of qualified projects. The Central Government made available another Rs.200 billion under the APDRP as incentive payments to the States, which are set to equal half of the reduction in annual cash losses of the states’ SEBs. These programs are complemented by the Electricity Act requirement of 100 per cent. metering for all states.

The measures referred to above have put the sector on a recovery track; cash losses were reduced in five states in the year ended March 31, 2002 and in seven states in the year ended March 31, 2003. Meanwhile, 28 states have signed Memoranda of Understanding with the Central Government to undertake and adhere to reform targets.

Despite the above progress, it will take substantial time for the sector to fully recover from past mismanagement. T&D Losses remain high (approximately 31 per cent.). Efforts have been made to restructure the SEBs into separate entities controlling generation, transmission and distribution.

— 71 — Privatization

Orissa was the first state in the country to privatize the state’s electricity distribution. This was followed by the privatization of DVB. The OSEB was restructured and corporatized by creating three entities, Gridco handling the transmission and distribution system of the state, Orissa Power Generation Company managing thermal power projects of the state and Orissa Hydro Power Company managing hydro power projects of the state. Subsequently, four separate private companies have been established in place of Gridco. However, the Orissa privatization process has had a number of problems. The most significant of these has been the inaccurate estimation of T&D Losses, which were much higher than the estimate at the time of privatization. The new private companies were also burdened by the over-valuation of assets and have not been able to increase their tariffs in line with the increase in the cost of supply. As a result, all the private industry players continue to incur significant losses.

Similarly, in Delhi DVB was restructured into generation, Delhi Transco and three distribution companies.

Various other states including Uttar Pradesh, Haryana, Karnataka, Andhra Pradesh, Madhya Pradesh and Rajasthan have restructured their SEBs into separate entities for generation, transmission and distribution. Some states are also attempting to corporatize the former SEB entities. On the distribution side, states such as Karnataka and Andhra Pradesh are attempting to improve the performance of their distribution circles and privatize them, whereas Kerala and Tamil Nadu are converting their distribution networks into autonomous profit centers.

Electricity Rules, 2005

The Electricity Rules, 2005 were framed under the Electricity Act and lay down the requirements of a captive generating plant.

Generation

Electricity generation has been de-licensed and any generating company can establish, operate and maintain a generating station if it complies with the technical standards relating to connectivity with the grid. Approvals from the Central Government, State Government and the techno-economic clearance from the Central Electricity Authority (“CEA”) have been done away with for all power plants, except for hydroelectric projects. Generating companies are now permitted to sell electricity to any licensees and where permitted by the state regulatory commissions, to consumers.

In addition, no restriction is placed on the setting up of captive power plants by any consumer or group of consumers for their own consumption. Under the Electricity Act, no surcharge is required to be paid on wheeling of power from the captive plant to the destination of use by the consumer. This provides a financial incentive to large consumers to set up their own captive power plants.

The regulatory commissions determine the tariff for supply of electricity from a generating company to any distribution licensee, transmission of electricity, wheeling of electricity and retail sale of electricity. The CERC has jurisdiction over generating companies owned or controlled by the Central Government and those generating companies who have entered into or otherwise have a composite scheme for generation and sale in more than one state. The SERC has jurisdiction over generating stations within the state boundaries, except those under the CERC’s jurisdiction. These provisions are quite similar to those which existed under the ERC Act and address the diverse nature of generating companies operating in the country.

— 72 — Transmission

Transmission, both at the inter-state and intra-state levels, is a regulated activity requiring a license. The Electricity Act requires the Central Government to designate one government company as the central transmission utility (“CTU”), which would be deemed as a transmission licensee. Similarly, each State Government would designate one government company as state transmission utility (“STU”), which would also be deemed as a transmission licensee.

The CTU and STU shall be responsible for the transmission of electricity, planning and co-ordination of transmission systems, providing non-discriminatory open-access to any users and developing a co-ordinated, efficient and integrated inter-state and intra-state transmission system respectively. The Electricity Act prohibits the CTU and the STU from engaging in the businesses of generating or trading in electricity.

A transmission licensee can engage in other businesses by intimating the appropriate commission. A part of the revenues from such other businesses shall, as may be specified by the commission, be utilized for reducing the transmission and wheeling charges. Separate accounts have to be maintained for each business to ensure that the transmission business neither subsidizes the other businesses nor encumbers its transmission assets to support such other businesses. The Electricity Act allows IPPs open access to transmission lines. This will facilitate IPPs to sell power directly to distribution and trading licensees. The provision of open access is subject to the availability of adequate transmission capacity as determined by the CTU/STU. This will allow a multi-buyer model to exist in the sector and allow IPPs to diversify their risk.

Trading

The Electricity Act specifies trading as a licensed activity. Trading has been defined as the purchase of electricity for resale. This may involve wholesale supply (i.e. purchasing power from generators and selling to the distribution licensees) or retail supply (i.e. purchasing from generators or distribution licensees for sale to end consumers).

Trading licenses are awarded by the Electricity Regulatory Commission, based on certain entry norms relating to capital adequacy and technical parameters. However, the NLDC and the RLDC (both as defined below), the CTU, the STU and other transmission licensees will not be allowed to trade in power, to prevent unfair competition. The Electricity Regulatory Commission will also have the right to fix a ceiling on trading margins. Open access, together with the recognition of power trading as a distinct business opportunity, will provide new intermediation opportunities between wholesaler buyers and distribution licensees and between generators and distribution licensees. At a bulk supply level, this provision will create competition and enhance efficiency.

Distribution and retail supply

The Electricity Act does not make any distinction between distribution and retail supply of electricity. Distribution is a licensed activity and distribution licensees are allowed to undertake trading without any separate license. Under the Electricity Act, no license is required for the purposes of supply of electricity. Thus a distribution licensee can undertake three activities: trading, distribution and supply, all through one license. The Electricity Act allows new licensees to enter distribution areas after acquiring licenses from the regulator. Non exclusive licensing and provision for phased open access in distribution will restrict monopolies in the distribution business. Open access to generators will be subject to a surcharge to meet the current level of subsidy, in addition to wheeling charges. The SERCs will decide on the rules for open access within one year.

SERCs will also have the flexibility to determine the time frame for implementing open access in the retail segment, depending on subsidies and readiness of the utilities.

— 73 — Regulatory Environment

Regulatory Framework for Tariffs

The generation, transmission and supply of electricity in India is principally regulated by the Electricity Act, which came into force on June 10, 2003, and the regulations thereunder, as well as legislation in certain states. Prior to the Electricity Act, the Indian Electricity Act, 1910, the ESA and the Electricity Regulatory Commissions Act, 1998 represented the principal legislation regulating the electricity industry in India. The Electricity Act repealed the Indian Electricity Act, 1910, the ESA and the Electricity Regulatory Commissions Act, 1998.

The Electricity Act and the Indian Telegraph Act, 1895 give a licensee power to lay down or place electric supply lines within its area of supply and exempt the licensee’s supply lines, meters and other works and apparatus placed in another person’s premises from any proceedings in the insolvency of such person. Under the Electricity Act, a licensee also has the power, subject to notice requirements, to cut off supply to any person who fails to pay any charge for energy.

Under the repealed ESA, licensees (such as the Company) with the requisite approvals could establish or acquire new generating stations or extend or replace any major plant relating to the generation of electricity in a generating station. The establishment and operation of the Company’s existing power stations, and major transmission projects were originally authorized by the WBSEB under the ESA.

Under the Electricity Act a new NTP is required to be notified by the Central Government. The tariff policy of the SERCs would be guided by the NTP and SERCs are to be guided by the principles and methodologies specified by CERC for determination of tariffs for generating companies and transmission licensees. CERC and MOP have indicated that they will phase out the cost-plus tariff regime and will introduce market determined tariffs. The CERC has issued the Tariff Regulations which will be applicable for a period of five years commencing April 1, 2004. For projects commissioned before April 1, 2004 whose tariff has not been determined by the CERC on that date, the tariff will be determined in accordance with the provisions of the Tariff Regulations issued by the CERC in 2001. The Tariff Regulations allow a licensee to recover its costs through tariffs to customers, including depreciation, interest, taxation, operation and maintenance expenses and to earn a return on its entitled return base. Under the Tariff Regulations and the WBERC Regulations, the specified rate of return on the return base is 14 per cent. Under the Electricity Act, WBERC has the power to determine tariffs for intra-state operators in accordance with the principles set out in Tariff Regulations and to be set out in the NTP.

National Tariff Policy (“NTP”)

Under the Electricity Act, the NTP was finalized by the MOP in January 2006. The main features of the NTP areas are:

• ensuring financial viability of the sector and attracting investment;

• minimizing perception of regulatory risks;

• fixing of suitable performance norms with incentives and disincentives;

• encouraging renovation and modernization;

• promoting competitive bidding;

• recommendation of a multi-year tariff;

— 74 — • encouraging captive generation; and

• promotion of generation from non-conventional sources.

The Electricity Act provides that SERCs should be guided by several factors, which include, inter-alia, adoption of principles formulated by CERC in the Tariff Regulations.

Unregulated rural markets

The licensing requirement does not apply in cases where a person intends to generate and distribute electricity in rural areas as notified by the State Government. However, the supplier has to comply with the requirements specified by the CEA. The Electricity Act mandates formulation of national policies governing rural electrification and local distribution and rural off-grid supply including those based on renewable and other non-conventional energy sources. This policy initiative is expected to give impetus to rural electrification and also establish rural power as a business opportunity.

Anti-Theft Measures

The Electricity Act provides a legal framework for making theft of electricity a recognized offence. Under Section 135 of the Electricity Act, whoever dishonestly taps lines or cables or service wires, or tampers with, damages or destroys meters is punishable with imprisonment for a term which may extend to three years or with a fine or with both.

Roles of Key Organizations and Players

Central and State Governments

The Electricity Act provides for a significant involvement of the Central Government in the governance of the power sector. In this connection it has been assigned a number of duties, including planning and policy formulation, rule making, appointing, establishing, designating authority, prescribing duties and other tasks, funding, and issuing directions.

The Central Government designates a CTU and establishes the National Load Dispatch Centre (“NLDC”), Regional Load Dispatch Centers (“RLDC”), the Appellate Tribunal, the Coordination Forum, and the Regulators’ Forum. It has the power to vest the property of a CTU in a company or companies and decide on the jurisdiction of benches of the Appellate Tribunal. It prescribes the duties and functions of the CEA, NLDC and RLDC, and can make rules on a wide range of areas through the issuance of orders within two years of commencement of the Electricity Act. It also has the power to amend the schedule of States in which reform legislation continues to be applicable.

The Central Government provides loans and grants to the CERC and decides on other sources of funds for the CERC. It decides how the CERC should spend all its revenues and specifies the manner in which the accounts should be maintained. The CERC is required to send its audited accounts to the Central Government. The Central Government is also responsible for, amongst other matters: a) specifying additional requirements for granting more than one distribution licensee; b) providing no objection certificates for granting licenses if the service area includes Central Government installations such as a cantonment, aerodrome or defense area; c) demarcating the country into transmission regions for the purpose of inter-state transmission; d) issuing guidelines for a transparent bidding process; e) approving the salary and benefits of the employees of the CEA, CERC and Appellate Tribunal; f) referring cases to the Appellate Tribunal for removal of members of the CERC on the grounds of misbehavior; and g) prescribing the procedures for inquiry into misbehavior by members.

— 75 — A State Government exercises appointing and designating powers, provides funds and makes rules and notifications. It appoints the members of the SERC including the chairman selected by the selection committee and approves the terms and conditions of appointment of the secretary to the SERC and other staff. It is also responsible for constituting the selection committee for appointing members of SERC. It establishes the State Load Dispatch Centers (“SLDC”), notifies the STU, vests property of STU in companies, and draws up the reorganization of the SEB through acquiring its assets and re-vesting them through a transfer scheme. It can also transfer employees through a transfer scheme. It is empowered to constitute special courts, and a state coordination forum. A State Government creates the SERC fund and can provide loans or grants for running the SERC. It decides how the SERC should utilize the fund and how it should maintain accounts. A State Government can also provide subsidies to consumers, but the Electricity Act requires it to compensate the licensee in advance by the amount of loss expected to be suffered by the licensee in implementing the subsidies. A State Government notifies rural areas where exemption of license conditions apply and issues directions to the SERC on public interest issues.

Other Relevant Regulations

Regulation of Foreign Investment

Foreign investment in India is governed primarily by the provisions of the FEMA which relates to regulation primarily by the RBI and the rules, regulations and notifications thereunder, and the policy prescribed by the Department of Industrial Policy and Promotion, Government of India, the implementation of which is regulated by the FIPB.

The RBI, in exercise of its power under the FEMA, has notified the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (“FEMA Regulations”) to prohibit, restrict or regulate, the transfer by or issue of a security to a person resident outside India. As laid down by the FEMA Regulations, no prior consent and approval is required from the RBI, for FDI under the “automatic route” within the specified sectoral caps. In respect of all industries not specified as FDI under the automatic route, and in respect of investment in excess of the specified sectoral limits under the automatic route, approval for such investment may be required from the FIPB and/or the RBI. Investment in companies associated with electricity and power fall under the automatic approval route for FDI, NRI and OCB investments up to 100 per cent.

— 76 — THE COMPANY’S BUSINESS

Overview

The Company holds a license originally granted by the State Government of West Bengal to supply electricity in the cities of Kolkata and Howrah and in the adjoining areas, which expires on December 31, 2019. The Company is currently the only distributor of electricity within an area of 567 sq km. In the year ended March 31, 2007, the Company sold electricity to approximately 2.2 million consumers including domestic, industrial and commercial users. In the year ended March 31, 2007, 88 per cent. of the units the Company delivered to the Company’s distribution system was electricity from the Company’s own generating stations and 12 per cent. was electricity purchased from third parties.

As of November 30, 2007, the Company’s authorized share capital was Rs.1.5 billion, comprising 150 million Existing Shares of Rs.10 each of which 115.4 million Existing Shares were issued, outstanding and fully-paid. As of November 16, 2007, approximately 24.4 per cent. of the Company’s Existing Shares were held by non-resident foreign holders, 5.7 per cent. by Indian financial institutions, 56.8 per cent. by the RPG Group and 13.1 per cent. by domestic investors. All of the Company’s Shares are listed on the CSE, BSE and NSE and the Company’s existing GDRs are listed on the EuroMTF of the Luxembourg Stock Exchange. Certain of the Company’s outstanding Existing Shares are listed on the LSE.

History

The Company was incorporated in Kolkata, India in 1978 under the name of The Calcutta Electric Supply Corporation (India) Limited to take over the business of The Calcutta Electric Supply Corporation Limited, a company incorporated in England which had established India’s first generating station in Kolkata in 1899. In 1979, the Company took over the assets and liabilities of The Calcutta Electric Supply Corporation Limited through a scheme of arrangement

— 77 — and amalgamation sanctioned by the High Court. The Company was renamed CESC Limited in 1987. RPG Group’s association with the Company began in 1989 following its purchase of approximately 10 per cent. of the Company’s Existing Shares. Mr. R.P. Goenka became the Company’s Chairman in 1991.

The Company operates in a regulated industry and requires regulatory approvals in relation to various operating issues including the adjustment of the Company’s tariff levels in order to cover any changes in the Company’s costs and permitted returns under the applicable statutes.

During the last decade the regulatory environment of the Company has undergone significant changes pursuant to reform initiated in the electricity industry in India. The introduction of the Electricity Regulatory Commission Act, 1998 led to the formation of The West Bengal Electricity Regulatory Commission (“WBERC”) in the State of West Bengal. WBERC was subsequently authorized to determine the tariff of a licensee such as the Company.

During the transition stages of the regulatory changes, the Company was unable to obtain adequate tariff levels, which led to financial problems at the Company, resulting in the restructuring of its debts. Pursuant to an order passed by the Honorable Supreme Court of India in November 2002, the Company was allowed by the WBERC to adjust its tariff and recover the tariff arrears in respect of the past periods. For the years 2000-01 and 2001-02, the Company was able to pursue a phased recovery of arrears of Rs.5.2 billion, and this recovery is still continuing.

In 2003 and 2004, the Company’s domestic debts were restructured under a CDR mechanism established by the Reserve Bank of India as an institutional mechanism for the restructuring of corporate debts, which was approved by the Company’s creditors led by ICICI. The Company also effected the restructuring of debts with the Company’s international lenders and with the trustees of floating rate notes issued by the Company in 1997.

The broad terms of the restructuring covered an extension of the term of the debt by approximately two years and a reduction in interest rate in line with the then market rates. The Company has subsequently refinanced many of the restructured loans. The Company is not in default of its obligations under the Company’s various loan covenants, including the new loans which the Company began entering into 2004-05 onwards. In November 2005, the Company exited the CDR mechanism.

With effect from April 1, 2007, the Company acquired 94.7 per cent. of the issued share capital of SRL. For a description of the business of this subsidiary please see “Businesses conducted by the Company’s Subsidiaries”.

Strengths and Competitive Advantages

The Company has been engaged in the generation and distribution of electricity for over 100 years and enjoys several key strengths and competitive advantages, including the following:

— 78 — In the year ended March 31, 2007, 88 per cent. of the units the Company delivered to its distribution system was from the Company’s own generating stations and the remaining 12 per cent. was from third parties. This reflects an increase in the PLF at the Company’s base load stations, reaching 94 per cent. in the year ended March 31, 2007, and a reduction in T&D Losses to 14.7 per cent. during the same period. Limited reliance on third parties for electricity enables the Company to provide consumers with a reliable supply of electricity and reduces the Company’s cost base as purchasing electricity from third parties is generally more costly than generating it ourselves. In addition, the Company’s distribution system has a largely depreciated asset base which also enables the Company to operate a cost-efficient distribution network.

The Company has a wide and diverse customer base which reduces its exposure to payment defaults: The Company sells electricity to approximately 2.2 million consumers, including domestic, industrial and commercial users, and none of the consumers accounts for more than 2 per cent. of the Company’s total sales. As a result of the Company’s licensed area covering Kolkata, Howrah and the adjoining areas, the Company generally supplies electricity to consumers in urban areas, which the Company believes are subject to lower payment defaults than consumers in non-urban areas.

Strategy

— 79 — Expansion of generation capacity: The Company has experienced a steady growth in demand in the past five years and the PLF of the Company’s base load stations (comprising the Budge Budge, Southern and Titagarh facilities) increased to 94 per cent. in the year ended March 31, 2007 and 101 per cent. in the six months ended September 30, 2007. In addition, the New Cossipore generating station is 58 years old and the Company expects it to be decommissioned in three to four years. As a result, the Company’s dependence on third parties for electricity supplies, which are generally more costly than the electricity the Company generates, is likely to increase unless the Company expands its generating capacity.

Strengthening and improving the transmission and distribution network: Despite regular maintenance of the Company’s transmission and distribution network, given the age of the network and the expected increase in demand, the Company believes substantial investment in its transmission and distribution network is required. The construction of the 250MW third unit in Budge Budge and the 600MW generation facility in Haldia will require the strengthening of the existing network of the Company. Currently, the network to facilitate export as well as to import power is considerably reliant on the WBSEDCL network. Due to this, the Company is planning to build a 220/132 kV grid to facilitate the flow of power from various generating stations of the Company to different load centers and create the capability to receive the required power to meet the license area requirements. The Company is also planning to connect to the national grid, which would enhance the Company’s ability to export power. The Company also intends to utilize part of the proceeds of this Issue to strengthen the network and commission the connection to the national grid. The upgrade of certain network-related equipment also forms part of the Company’s strategy for further reduction of T&D Losses. The Company estimates the costs of these improvements to be approximately Rs.4.5 billion, and it is targeting completion in 2011.

— 80 — Cost control: During last four years, the Company’s improved profitability in spite of the decrease in tariff and inflation has been due to the Company’s sustained efforts to reduce operating and financing costs, which has kept its tariff competitive. The Company is aware of the competitive issues which may arise from open access and multiple licensing and has been exploiting various revenue streams in addition to sale of electricity to help the Company contain overall cost and improve profitability.

Emerging opportunities

The Company has initiated steps to set up a 1,000MW-1,300MW coal fired generating facility in Haldia as Phase II, where Phase I is currently underway in relation to a 600MW plant, for merchant market operations. The land acquisition process has been initiated with the State Government for the entire 1,600MW-1,900MW plant at Haldia and a pre-feasibility study for both phases has begun.

— 81 — Supply of Fuel

Coal is the primary fuel the Company uses in the generation of electricity. In the year ended March 31, 2007, the Company sourced 54 per cent. of the Company’s current annual coal requirements of 4.8 MT from ICML, an RPG Group company. It is a condition of ICML’s mining license that they must supply all of the coal they produce to the Company. The Company believes that the mine licensed to ICML has total reserves of approximately 75 MT. The mine, which started operations in October 2002, has a maximum mining capacity of 2.6 MT. However, in view of the Company’s projected requirement for the third unit at Budge Budge, ICML has been reengineering its mining plans to increase its annual production to 3.1 MT. ICML is in the process of expanding its operations in order to increase coal supplies and the Company will seek to renegotiate the Company’s coal supply agreement with them so that a greater portion of the Company’s coal requirement is supplied from their captive mine. This will reduce the risk of interruption in coal supply and improve the performance reliability of the Company’s generating stations. In the year ended March 31, 2007, the Company purchased 38 per cent. of the Company’s coal requirements from subsidiaries of CIL, a Central Government-owned company, under allocations approved by the Standing Linkage Committee on Coal, which reports to the Ministry of Coal and Mines. The collieries owned by subsidiaries of CIL which supply the Company’s generating stations are also located approximately 200 km from Kolkata and coal is delivered by rail to the stations. In the year ended March 31, 2007, the Company imported 8 per cent. of its coal requirements.

The Company also purchases small quantities of oil for start up of boilers and as supporting fuel in its base load generating stations. Supplies of oil are readily available from several domestic sources.

The coal supplied from domestic sources is of a low sulfur content and relatively high ash content. The quality of coal has on occasion been uneven, which has required higher consumption of oil as a support fuel. The Company is setting up a coal washery at Asansol in close proximity to the coal mine licensed to ICML, which is expected to be commissioned in January 2008.

Electricity Supply License

The Company holds a license originally granted by the State Government of West Bengal to supply electricity in the cities of Kolkata and Howrah and in the adjoining areas, which expires on December 31, 2019. Pursuant to the Electricity Act, the license may be extended for subsequent periods at the discretion of WBERC. The license is not exclusive, the terms may be amended or the license may be revoked on not less than three months’ written notice by WBERC in certain circumstances, including a willful and prolonged default under the Electricity Act or if, in the opinion of WBERC, the Company’s financial position is such that it is unable to discharge fully and efficiently the duties imposed on it by the license. In such circumstances, WBERC may require the Company to sell its assets to a purchaser whose application has been accepted by WBERC in accordance with the provisions of the Electricity Act. In the event such sale does not occur, the Company may be required to pay for the removal of its assets from public land.

— 82 — Electricity Generation

The Company has an electricity generation capacity of 975MW consisting of four coal-based generating stations all located within the Company’s licensed area of distribution along the Hooghly River, which flows through Kolkata and Howrah. The following table presents information on the Company’s generating stations:

Plant load factor (PLF) in year ended March 31,(1)

Year of Capacity Power Station Commissioning (MW) 2005 2006 2007

per cent.

Base Load Stations: Budge Budge(2) ...... 1999 500 86.4 99.6 99.8 Southern ...... 1990 135 84.4 83.7 85.4 Titagarh ...... 1983 240 85.2 87.1 87.4 Base load stations combined . . . 85.8 93.7 94.2 Other Stations: NewCossipore...... 1949 100 54.9 51.1 55.4 Combined ...... 975 82.6 89.3 90.2

Notes:

(1) Actual electricity generated by generating station unit in a year divided by that station’s rated/de-rated capacity in that year.

(2) The Company’s first unit at Budge Budge was commissioned in 1997 with a capacity of 250MW and the Company’s second unit at Budge Budge was commissioned in 1999 with a capacity of 250MW.

Subject to receiving all necessary regulatory approvals, the Company intends to use part of the proceeds of the Issue to establish the 600MW generating capacity in Haldia. The 100MW New Cossipore generating station is 58 years old and decommissioning will be planned to coincide with the commissioning of the 250MW third unit at Budge Budge and 600MW generating facility in Haldia.

The Company operates its generating stations at Budge Budge, Titagarh and Southern as base load units in order to optimize fuel efficiency. These stations generate electricity at a lower variable cost per unit than the older unit at New Cossipore. Generally, the output of electricity from the New Cossipore station is reduced before that of the newer stations during periods of lower demand for electricity. With the Company’s three newer stations running as base load units and the Company’s older station being used to supplement any shortfalls the Company may experience during periods of peak demand, the Company is able to generate electricity in a cost efficient manner.

— 83 — The following table presents certain information on the annual electricity generation of each of the Company’s generating stations, electricity purchased from third parties and the T&D Losses for the years ended March 31, 2005, 2006 and 2007:

Year ended March 31,

2005 2006 2007

(kWh millions)

Generating Station: Budge Budge ...... 3,783 4,363 4,370 Southern ...... 998 990 1,010 Titagarh ...... 1,792 1,830 1,837 NewCossipore...... 481 447 485 Total Generation ...... 7,054 7,630 7,702 Less: Auxiliary Consumption ...... 617 651 653 Units Sent out from the Stations ...... 6,437 6,979 7,049 Power Purchase ...... 749 857 960 Total system output ...... 7,186 7,836 8,009 T&DLosses(percent.)...... 16.3 15.5 14.7

Agreement for Power Purchase

To the extent that the Company’s electricity generating capacity does not meet the demand for electricity in its licensed area, the Company buys electricity from WBSEB under a power purchase agreement. Net purchases of electricity from WBSEB amounted to 960 million kWh in the year ended March 31, 2007, representing 12 per cent. of the units delivered to the Company’s distribution system. The original agreement has been amended by supplemental agreements from time to time and the current agreement expires on June 9, 2008. Under this agreement, WBSEB is obliged to supply up to 560,000 KVA of electricity at any time at a tariff to be decided by WBERC from time to time and the Company is entitled to draw electricity at four different points of supply. Maximum off-take from each point of supply is as follows:

Point of Supply As at June 8, 2007

KVA

Howrah ...... 170,000 Lillooah ...... 130,000 Kasba...... 220,000 Titagarh ...... 40,000

In addition, in the year ended March 31, 2007, the Company purchased small numbers of units from power trading agencies through short term power purchase agreements. The Company expects to achieve self-sufficiency in respect of power generation post implementation of the 250MW third unit at Budge Budge and the 600MW generation unit in Haldia, both in terms of energy as well as peak demand.

— 84 — WBERC Tariff Adjustment for the Years Ended March 31, 2005, 2006 and 2007

Because the tariff setting mechanism has been recently amended, this section briefly discusses how those regulations and mechanisms have evolved in the periods under review.

Tariff structure

Up to 2004-05

Tariff adjustments were made annually by the WBERC under the provisions of the ESA, the ERC Act and the regulations promulgated thereunder. The Company was permitted, with the approval of the WBERC, to adjust its tariff during a given year so that the Company’s profit after recovery of properly incurred costs of operations (including depreciation, interest, taxation and special appropriations) would be equal to a permitted return on the Company’s entitled return base (consisting primarily of net fixed assets and stores and spares, less loans, consumers’ security deposits and capital contributions under the ESA) and the Company’s outstanding borrowings. Such return was calculated by applying the rates stipulated in the Sixth Schedule to the ESA to the Company’s entitled return base and outstanding borrowings. In the year ended March 31, 2005, the permitted return as a percentage of the Company’s entitled return base and outstanding borrowings amounted to 14.8 per cent. (excluding special appropriations).

2005-06

During the year ended March 31, 2006, the tariff was determined by WBERC under the provisions of the Electricity Act and the associated regulations. While allowing the Company the permitted return, WBERC did this on a provisional basis keeping it at the same level as that of the previous year. In a significant departure from the principles followed until 2004-05 of passing on the benefit of performance above the norm to consumers, from 2005-06 costs were allowed on a normative basis and the Company was allowed to retain a part of the savings in cost as its performance was better than the norm.

2006-07

Pursuant to finalization of the National Tariff Policy, new regulations were introduced in 2005. The regulations, inter alia, provided for a fixed return for a licensee to be computed on its frozen equity base as of March 2006 and thereafter for up to 30 per cent. of the approved capital expenditure on a year to year basis. The regulations also provided for additional return of one per cent. for the distribution business of the licensee at the discretion of the regulators. Most importantly, the principles of sharing of income from different business initiatives such as export of power and other ancillary activities were also clearly stipulated.

New tariff structure

— 85 — February 2007. In determining the Company’s tariff, WBERC dealt with sharing of certain of the Company’s income with consumers (including rental income from its real estate business and export profits). Although incentives linked to operational performances have been recognized in the applicable regulations, clear benchmarks have yet to be established by WBERC and therefore such incentives have not been extended to the Company to date. Under the applicable regulations, the Company is also to provide an annual performance review in respect of the concluded years.

The Company understands that WBERC is in the process of producing regulations under which efficiency bench marks and norms will be stipulated, and incentives linked to operational efficiencies will be allowed in the tariff, enabling licensees to obtain a higher return. From 2008-09 onwards the tariff will be determined taking into account the new efficiency benchmarks and norms.

Procedure

Upon receipt of the Company’s request for tariff revision in each financial year, the WBERC is, after consideration of the submissions filed, required to determine the average tariff and consumer category-wise tariff within 120 days of the submission of the tariff petition. For finalization of fuel related costs the Company is required to provide the relevant details after the audit of the Company’s accounts in respect of the preceding year. Fuel related costs were finalised up to the year ended March 31, 2007 pursuant to this process. The Company is also required to file an annual performance review in respect of each concluded year with WBERC.

Costs of Units Delivered to the System

The Company’s costs of generation, transmission and distribution, which are recovered through tariffs, consist of variable costs such as fuel costs and electricity purchase costs, as well as fixed costs, such as employee costs, administration costs and depreciation.

The following table presents certain information concerning the Company’s average generation costs including depreciation, the average cost of electricity purchased, the average cost of units delivered to the system and the average electricity tariff charged during the years ended March 31, 2005, 2006 and 2007:

Year ended March 31,

2005 2006 2007

(Rs./kWh)

Average cost of electricity generated(1) ...... 1.53 1.49 1.44 Average cost of electricity purchased ...... 2.76 2.65 2.79 Average cost of units delivered to system ...... 1.65 1.61 1.59 Average revenue per unit of electricity sold(2) ...... 3.85 3.77 3.75

Notes:

(1) This represents costs of electricity generated.

(2) Earnings from the sale of electricity, grossed up by advance against depreciation where applicable, divided by units sold.

The Company’s average cost of electricity generated decreased from Rs.1.53 per unit in the year ended March 31, 2005 to Rs.1.44 per unit in the year ended March 31, 2007, primarily due to an increase in supply of coal from ICML.

— 86 — Transmission and Distribution

The Company owns and operates the transmission and distribution systems through which it supplies power to consumers in the Company’s license area. This system comprises: 1,474 circuit km of transmission lines linking the Company’s generating and receiving stations with 85 distribution stations; 3,837 circuit km of HT lines further linking distribution stations with LT substations and large industrial consumers; and 9,867 circuit km of LT lines connecting the LT substations to LT consumers. Approximately 70 per cent. of the Company’s transmission lines are underground.

The following table describes the physical additions to the Company’s transmission and distribution network over the 10 years ended March 31, 2007:

Total Addition For the five For the five for the 10 years ended years ended years ended Total as of March 31, March 31, March 31, March 31, 2002 2007 2007 2007

Addition to plant 132KVmains(circuitkm)...... 55 1 56 267 33KVmains(circuitkm)...... 81 138 219 1,157 6KVand11KVmains(circuitkm).... 355 407 762 3,837 Medium voltage mains (circuit km) .... 734 609 1,343 9,867 132 KV/33 KV transformer (in MVA) . . . 287 145 432 1,802 33/11/6KVtransformer(inMVA) ..... 391 114 505 2,399 LT sub-station transformer (in MVA) . . . 295 266 561 1,642

T&D Losses

T&D Losses refer to the loss of electricity over the transmission and distribution network arising largely out of thermal loss, theft of electricity and faulty metering. The Company’s T&D Losses for the year ended March 31, 2007 were 14.7 per cent. compared to 15.5 per cent. for the year ended March 31, 2004.

Major steps taken to reduce T&D Losses include:

• on-site testing of meters for HT consumers;

• installation of quality static meters;

• closer supervision and verification of meter readings;

• improved billing practices, including computerized billing;

• installation of capacitors to maintain quality of electricity to consumers; and

• improvement of the distribution network.

The Company is focused on the reduction of its T&D Losses, particularly those relating to theft. The Company carries out energy audits at different distribution voltage levels to identify areas particularly susceptible to electricity theft. The Company has also implemented an awareness program against theft. The Company has a loss control department which routinely disconnects unauthorized connections, disconnects consumers charged with theft and lodges

— 87 — complaints with the police. Although legal proceedings have been initiated in some cases, the progress of these proceedings has been slow. However, with the establishment of special courts in all the districts to deal exclusively with matters related to theft of electricity, the Company expects to be able to continue to reduce its T&D Losses in the near future.

Supervisory Control and Data Acquisition System

In order to increase the effective utilization of the network and manpower, the Company has installed the SCADA System for its receiving stations, covering its distribution system down to sub-station level. The Company has laid 275 km of optical fiber cable in its licensed area connecting its receiving stations. This optical fiber cable is used as a communications medium for the SCADA System.

The SCADA System is a real-time monitoring system that works in conjunction with a three-tier operating system. Each receiving station represents the LCC and is controlled from its ZCC located in the respective zonal area. All LCCs and ZCCs are in turn monitored and controlled by a MCC, located at our headquarters at Kolkata.

The SCADA System is being used for better control and real-time monitoring of the unmanned remote sub-stations. Any abnormalities within the distribution system are immediately reported to the relevant ZCC and MCC. The SCADA System operation team can then take immediate action in order to reduce downtime across the network.

In addition to improving reliability and reducing interruption in supply, the data available through the SCADA System is used for energy management, and for improvement in the overall system performance.

Electricity Demand

In the year ended March 31, 2007, the supply of electricity and demand was evenly balanced in the Eastern Region of India and at certain periods of the day, the region exports power to other regions of the country. The peak electricity requirement in the region in that year was more than 10,500MW. Although electricity is in surplus for most of the day in the region, there were occasions of shortfall in the evening peak period and some restrictions were in force on electricity drawal during peak periods. Therefore actual demand may be greater than the estimated amount.

The demand in the Company’s license area is substantially more than the quantum of power the Company can generate on its own. The gap between the peak load requirement in the Company’s license area and the Company’s effective capacity is approximately 300 to 400 MW, a gap of nearly 30 per cent. with respect to a demand of 1,250MW. The gap between overall demand and generation is met by purchases of electricity from third parties, mainly the State Sector distribution licensee (WBSEDCL (formerly WBSEB)). At times, the Company needs to procure power from outside this region through short term bilateral contracts. The Company also estimates that there is significant captive electricity within its license area, which it believes is predominantly used as a back-up or standby. These units tend to be small diesel or furnace oil units with higher running costs than that of a corresponding tariff for electricity supply. The Electricity Act provides for the gradual elimination of cross-subsidies, whereby industrial and commercial users pay higher tariffs to subsidize domestic users, and this may lead to a reduction in the utilization of captive electricity. The Company expects to meet additional demand for electricity through an increase in its generating capacity over time, including the third 250MW unit at Budge Budge and 600MW facility at Haldia, to be financed, in part, by the proceeds of this issue.

— 88 — The following table presents certain information on the Company’s peak load, rated/derated capacity, effective capacity and negative peak reserve margin for the years ended March 31, 2005, 2006 and 2007.

Year ended March 31,

2005 2006 2007

(MW)

Peak load(1) ...... 1,253 1,343 1,359 Rated/derated(2) capacity ...... 975 975 975 Effective capacity(3) ...... 878 878 878 Negative peak reserve margin (per cent.)(4) ...... 30 35 35

Notes:

(1) The actual maximum peak load on the Company’s electricity system at any single time during the year.

(2) This is equivalent to installed capacity less permanent reductions in the capacity as a result of ageing, as agreed periodically with the CEA.

(3) This is equivalent to 90 per cent. of the rated/de-rated capacity reflecting the consumption by auxiliary equipment.

(4) The negative peak reserve margin is equal to the difference between effective capacity and peak load as a percentage of peak load.

Maintenance

The Company’s maintenance staff undertake regular maintenance work on boilers, turbines, generators and other equipment used in the generation of electricity. Major overhaul work at the Company’s generating stations is generally contracted out to third parties.

The Company reviews the boilers at its generating stations every two years and undertakes repairs and maintenance as required. The Company reviews other plant and equipment at the generating stations on an ongoing basis and undertakes repairs, maintenance or replacement based on the estimated remaining useful life of plant and equipment. The Company maintains a stock of normal spares and certain critical spares in order to reduce the time for replacements in the event of unplanned outages. On the distribution side, the Company maintains stocks of conductors and cable, HV consumer and feeder switches, distribution transformers, meters and other critical spares to meet normal outages within an acceptable turn around time. Planned maintenance of the Company’s overhead and underground network is regularly undertaken by the Company’s own staff and contractors, together with replacement of ageing distribution assets by qualified engineers in the Company’s engineering division.

Sales and Customer Base

The Company sells electricity to approximately 2.2 million consumers, including approximately 1.8 million domestic consumers, approximately 328,000 commercial users and approximately 59,150 industrial users. None of the consumers account for more than 2 per cent. of the Company’s total electricity sales. Among major industrial users in the year ended March 31, 2007, jute mills represented 33 per cent, and steel and engineering 24 per cent. of industrial consumption, respectively.

Unit sales to domestic consumers increased by 3 per cent. from the year ended March 31, 2006 to the year ended March 31, 2007 and those to commercial users increased by 6 per cent. Unit sales to industrial users remain at approximately the same level during the above period.

— 89 — The Company’s billing procedure is fully computerized and monitored on a decentralized basis by six regional offices. The Company operates a customized billing system using Oracle RDBMS, a database management system, which receives collection updates from point-of-sale machines based in the Company’s 37 cash offices. Customers may pay bills at the Company’s cash offices, over the internet or using credit cards. The Company believes that its level of bad debts is low, at 0.5 per cent. of total operating income in the year ended March 31, 2007, largely due to maintenance of security deposits of an amount equal to the cost of two to three months electricity consumption, together with monthly meter readings by the Company’s own personnel and comprehensive billing and collection systems.

The Company provides a discount for payment of bills within the due date. Late payments are penalized by a delayed payment surcharge of 1.25 per cent. to 2 per cent. per month on amounts due. Defaulting customers are subject to disconnection and adjustment of their security deposit against amounts due.

The following tables summarize the amount of electricity sold to major categories of consumers and the revenues earned from each such category in the years ended March 31, 2005, 2006 and 2007:

Year ended March 31,

2005 2006 2007

(MU) (%) (MU) (%) (MU) (%)

Electricity (units) Domestic ...... 2,440 40 2,575 39 2,664 39 Commercial ...... 1,085 18 1,189 18 1,264 18 Industrial ...... 1,805 30 1,918 29 1,923 28 Others(1) ...... 534 9 569 8 573 8 Export ...... 160 3 418 6 458 7 Totalsales ...... 6,024 100 6,669 100 6,882 100

Note:

(1) Others include sale of electricity for street lighting, public bodies and educational institutions.

— 90 — Year ended March 31,

2005 2006 2007

(%) (%) (%) (Rs. millions) Electricity revenue Domestic ...... 8,693 36 8,996 36 9,197 35 Commercial ...... 5,442 22 5,443 21 5,649 22 Industrial ...... 8,134 33 7,764 31 7,419 29 Others(1) ...... 1,955 8 1,994 8 2,003 8 Export ...... 273 1 944 4 1,580 6 Total...... 24,497 100 25,141 100 25,848 100

Adjustment ...... (1,290)(2) — (1,005)(3) Total revenue ...... 23,207 25,141 24,843

Notes:

(1) Others include sale of electricity for street lighting, public bodies and educational institutions.

(2) Adjustments shown above represent the amount required to be set off against revenue pursuant to applicable orders of the WBERC.

(3) Adjustments for advance drawings of depreciation are allowed in tariff.

The following table indicates the number of consumers by reference to the major categories of domestic, commercial and industrial users for the years ended March 31, 2005, 2006 and 2007:

Year ended March 31, Domestic Commercial Industrial Total

(millions)

2005 ...... 1.7 0.3 0.1 2.0 2006 ...... 1.7 0.3 0.1 2.1 2007 ...... 1.8 0.3 0.1 2.2

Sums Owed by Municipalities

Settlement of electricity dues to the Company by certain municipalities takes place after significant delays. Given the nature of activities of these entities, the Company generally does not consider disconnection of supply. Final settlement usually takes place under direction of the State Government. In the past several years a number of settlement packages have been entered into to the satisfaction of the Company. As of September 30, 2007 monies owed to the Company by these municipalities amounted to approximately Rs.359 million and the Company is confident of reaching a satisfactory recovery plan in relation to this sum.

— 91 — Subsidiaries and Affiliates

As of March 31, 2007, the Company did not have any subsidiaries or affiliates. As of April 1, 2007, pursuant to a Court approved merger scheme, SRL has become one of the Company’s subsidiaries and effective April 12, 2007, CESC Properties Ltd became the Company’s wholly- owned subsidiary. The businesses of these subsidiaries are discussed in “Business Conducted by the Company’s Subsidiaries”.

Environmental Regulations and Compliance

The Company’s management considers the protection of the environment to be an important part of the Company’s power generation and distribution processes and sets stringent standards with the aim of exceeding the levels of compliance required. The Company actively controls emissions and has a current level of emissions of less than 50 per cent. of the statutory limit.

The Company has implemented various energy conservation projects at the Company’s generating stations to achieve a reduction in coal consumption and therefore carbon dioxide. Some such projects have been registered as Clean Development Mechanism (“CDM”)projectsby CDM Executive Projects, and the Company believes that Budge Budge is the first thermal power plant in the world to receive Certified Emission Reduction (“CER”) for a CDM project. This has been achieved due to energy efficiency through a change of power cycle chemistry and modification in furnace draft control.

In addition, the Company develops its facilities and operations in accordance with internationally accepted good management practices on environmental and social issues. The Company acknowledges these codes of conduct, including World Bank environmental standards.

Competition and Customer Service

Until the enactment of the Electricity Act and the associated regulations, the Company’s license granted the Company exclusive distribution rights. The Electricity Act provides for multiple licensing and open access for consumers to purchase electricity from any supplier subject to payment of a network capacity surcharge determined by the Regulatory Commission. In the Company’s license area, no such application for an additional license has been made to date.

The Company believes that it is able to maintain a competitive advantage through the quality of its service and competitive tariff. The Company is an established participant in the electricity market in India and believes that this, coupled with a reduction in costs and improvement in T&D Losses, has enabled it to compete effectively.

Consumer service initiatives

The Company has several customer service initiatives designed to improve relations with consumers and provide a high level of service. Power interruption reports by consumers are handled through call centers, which operate 24 hours a day seven days a week.

Fault restoration is carried out through large number of mobile vans with mobile phones operating across the licensed area. All commercial and billing complaints are handled at regional office level. A computerized letter tracking system monitoring the status of each complaint redressal is also in place.

For industrial consumers a round the clock consumer desk has been set up at the control room to provide personalized assistance. There is a Consumer Grievance Redressal Forum that operates above these initiatives to handle any unresolved complaints.

— 92 — The Company has established a customer relations department headed by a senior executive to focus on the requirements of the Company’s major consumers.

Properties

The Company maintains a number of properties in its licensed area. The Company owns all of its generating stations, which are constructed on land held on a freehold or leasehold basis. The Company owns, on a freehold or leasehold basis, a number of properties that house its receiving stations, distribution stations, reporting centers, central stores and offices, including the head office and certain regional offices.

The following table sets forth certain details on the Company’s significant properties as of March 31, 2005:

Location Land Area Primary Use Owned/Leased CESC House ...... 2,400square meters Head Office Owned Budge Budge ...... approximately 356 acres Generating Station 282 acres owned/ 74 acres leased Southern ...... approximately 19 acres Generating Station 4.20 acres owned/ 15 acres leased Titagarh ...... approximately 36 acres Generating Station Owned NewCossipore..... 10acres Generating Station Owned Mulajore ...... 43acres Generating Station Owned — being since closed down commercially exploited CentralStores ..... 3.4acres Stores Owned — being commercially exploited

In addition, the Company leases a number of properties that are used for offices including regional cashier offices, LT substations and other establishments.

The Company’s network of overhead mains and underground cables is laid across its licensed area and the Company pays fees to the concerned authorities for use of the land.

Insurance

The Company maintains an industrial all-risks policy and the Company paid premiums in relation thereto of Rs.75 million during the year ended March 31, 2007. The Company believes that its insurance coverage is consistent with industry practice and is maintained at adequate levels.

Litigation

The Company is party to the legal proceedings summarized below.

Civil Cases Filed by the Company’s HT Consumers

Before the High Court: There are 13 cases pending against the Company before the High Court, filed by the Company’s HT consumers challenging, inter alia, orders of the district and subordinate courts and forums directing the consumers to pay tariff, electricity duty, delayed payment and surcharge to the Company. The total amount involved in this litigation is approximately Rs.22.37 million.

— 93 — Before the Official Liquidator: There are five cases pending before the Official Liquidator filed by the Company for the recovery of dues from the Company’s customers. The total amount involved in this litigation is approximately Rs.14.17 million.

Before the District Collector: The Company has filed six cases before the Learned District Collector for recovery of dues from the Company’s customers. The total amount involved in this litigation is approximately Rs 20.5 million.

Before the Chief Electrical Inspector (West Bengal): There is one case pending before the Chief Electrical Inspector (West Bengal) where the amount involved in this litigation is approximately Rs 0.5 million.

Civil Cases Filed by the Company’s LT Consumers

There are 45 cases pending before the High Court and the district and subordinate courts involving an aggregated amount of approximately Rs.2.06 million. These cases have been filed by the Company’s LT consumers, challenging, inter alia, the electricity bills raised by the Company.

There are approximately 1,200 cases pending before the High Court, filed by consumers of the Company, challenging, inter alia, the un-metered consumption charges levied by the Company for theft and/or pilferage of electricity. The total amount involved in these cases is approximately Rs.69.6 million.

Income Tax

The Income Tax Department has claimed Rs.18.7 million in respect of minimum corporate income tax for the assessment year 1988-89 (financial year 1987-88). The Income Tax Appellate Tribunal (“ITAT”) dismissed the case and the Assessing Office also withdrew its demand. The Company understands that the Income Tax Department has filed a delayed appeal before the High Court against such order of the ITAT. The Company has so far not received any notice or order in respect of admission of such appeal by the High Court.

A number of issues in respect of the computation of taxable income are pending before the High Court for other assessment years which, if decided adversely, would lead to reduction in the Company’s brought forward losses.

The Company has made no provisions in respect of any of the proceedings described above, except for the provision of Rs.18.7 million in respect of the above claim for minimum corporate income tax which has not yet been written back. The Company believes that the determination of the income tax proceedings will have no impact on the Company’s financial condition and results of operations because the Company’s permitted return ensures reimbursement of income taxes through the Company’s tariffs.

Commercial Taxes

The West Bengal Taxation Tribunal had held that meter rentals received by the Company from consumers should be deemed sales under the provisions of the Bengal Finance (Sales Tax) Act, 1941 and that sales tax is payable on such rentals. Based on these findings, the Commercial Taxes Directorate assessed Rs.6.9 million as sales tax on meter rentals received during the year ended 31 March, 1993 and raised a demand of Rs.3.6 million on account of interest. Against the above demand, the Company had deposited a sum of Rs.7.5 million with the sales tax authorities and obtained a stay against the balance demand from the Deputy Commissioner of Commercial Taxes. The sales tax authorities also indicated their intention to levy such sales tax on meter rentals for the subsequent years, against which, the Company filed a writ petition in the High Court and requested an interim order, inter alia, restraining the sales tax authorities from

— 94 — proceeding with the assessment for the subsequent years until disposal of the appeal. An interim order has been issued by the High Court permitting the sales tax authorities to carry out assessments but restraining them from serving any assessment order on the Company. The outcome of the case is still pending.

Criminal Cases

There are no criminal cases against the Company. There are a number of criminal cases filed by the state in relation to theft of electricity. In all such cases the Company is involved as de facto complainant.

— 95 — BUSINESS CONDUCTED BY THE COMPANY’S SUBSIDIARIES

The information provided in relation to SRL and CPL in this section is for information purposes only. The proceeds received by the Company from the Issue of the Shares shall not be used for investing in or for funding the businesses of SRL and/or CPL. See “Use of Proceeds”.

The Company owns two subsidiaries which are active in retailing and real estate development, which are run as a separate business from the Company, with management teams with specialised industry expertise.

Overview of the Retail Business

Spencer’s Retail Limited (“SRL”) is one of the leading organized retailers in India. SRL’s business can be broadly divided into (1) Spencer’s (a network of food-intensive outlets providing a broad product range) and (2) specialty stores focusing on music retailing and books. SRL is managed separately from the Company, which owns 94.7 per cent. of SRL.

SRL currently operates 309 food-focused stores under the Spencer’s brand name in 48 cities, with contracted retail space of approximately 1.2 million square feet. To cater to its customers’ varied needs, it operates through a variety of formats: “Express”, “Daily”, “Super” and “Hyper”. The “Express” and “Dailies” are convenience stores generally located in neighbourhoods, and the “Super” and “Hyper” formats are destination outlets. SRL also operates a broad network of stores under the “Music World” brand, which management believes is a market-leading organized retailer of music, home video and related products. SRL also operates two flagship bookstores under the “Books & Beyond” brand.

In the year ended March 31, 2007, SRL had net sales of Rs.4,966.9 million, 83.6 per cent. higher than in the previous year when it had net sales of Rs.2,705.1 million. It generated a loss before tax of Rs.516.0 million in the year ended March 31, 2007, which increased from a pre-tax loss of Rs.151.6 million in the previous year.

History of the Retail Business

SRL was initially incorporated in 2000 as Great Wholesale Club Ltd (“GWCL”), an RPG Group company, which entered into the hypermarket segment with the opening of a hypermarket in Hyderabad in 2001. In 1996, Spencer’s & Co. (an RPG Group company) started operating convenience food stores under the “FoodWorld” brand. In 1999, the RPG Group entered into a joint venture with Dairy Farm International, Hong Kong, and the “FoodWorld” stores of Spencer’s & Co Ltd. were transferred to a joint venture company along with the brand name “FoodWorld”. The joint venture vehicle was subsequently dissolved and resulted in the acquisition of approximately 50 stores by GWCL. In December 2005, the music retail business was transferred from Music World Entertainment Ltd into GWCL. Thereafter, all of the food stores held by GWCL were changed to the Spencer’s brand, which was held by Spencer’s & Co. Ltd. GWCL changed its name to Spencer’s Retail Ltd in September 2006. Thereafter, pursuant to a scheme of arrangement sanctioned by the High Court, M/s Pathik Foods Pvt Ltd., the holding company of SRL, merged with the Company, and from April 1, 2007 SRL became a subsidiary of the Company. As of September 30, 2007, the authorized share capital of the company is Rs.300 million comprising 30 million equity shares of Rs.10 each, of which 26.0 million equity shares were issued, outstanding and fully paid. The Company now owns 94.7 per cent. of SRL, comprising 24.6 million equity shares of Rs.10 each.

As of September 2007 Rs.2,205 million has been invested by the Company in SRL, which appears as advance against equity in the books of SRL.

— 96 — Strengths and Competitive Advantages of the Retail Business

Management of SRL believes that it benefits from the following key strengths and competitive advantages:

SRL cluster format approach differentiates it from the competition: SRL adopts a cluster approach through the multiple formats it offers customers, which enables it to cater to all customer requirements. Its “Express” and “Daily” formats focus on convenience and address the day-to-day needs of consumers, whereas its “Super” and “Hyper” formats cater to consumers buying in bulk on their weekly or monthly shop. Management believes that SRL offers customers a unique proposition in this regard, and that the SRL offering is well suited for its target customer, who demands both convenience and a shopping “experience”. Significantly, this approach enables greater penetration of the Spencer’s brand across the various cities in which SRL operates.

SRL’s supply and distribution network provides a platform to generate profitability and enable growth: One of SRL’s key strengths is its supply-chain management and distribution. It has a consolidation center operating at Hoskote, where produce and other items are cleaned, prepared and packaged before onward distribution. SRL also intends to establish five more consolidation centers. SRL also has five collection centers where fresh produce is collected from farmers and consolidators for eventual sale in its retail outlets. Apart from these, there are several repacking centers for staples (such as rice, wheat and pulses) where the bulk product is broken, cleaned, graded and packed for final sale in stores. Each state in which SRL operates has its own distribution center, through which all SRL’s products (other than perishables) are distributed to its stores. This logistics network enables SRL to efficiently monitor and transport large volumes of stock-keeping units, which is particularly important in a food-intensive format.

Spencer’s is a well-known brand, which is critical in the organized retail sector: SRL’s goal is to provide a shopping “experience” for its target customers (primarily women aged 25 to 35) in order to generate consumer loyalty and to leverage off the strength of the Spencer’s brand. Management believes that SRL has a first-mover advantage in the potentially high-growth organized retail segment, which has created substantial brand recognition. SRL was a leader in developing the hypermarket concept in 2001 in Hyderabad, and its experience in the retail sector has enabled its personnel to develop the “soft skills” required to build and sustain the value of its brand.

Strategy of the Retail Business

SRL’s overall strategy is to ensure that it is well-placed to take advantage of the high growth that it expects in the organized retail sector, particularly in the food-intensive segment. SRL seeks to capitalize on the confluence of favourable demographics, rising consumer income and the increase in the development of shopping malls and other retail developments in India.

SRL aims to substantially expand its number of stores in the food-focused segment, by opening multiple formats of stores in new cities and by increasing its penetration where it already operates. In addition to its existing contracted space under lease of approximately 1.2 million square feet, it presently has a pipeline of approximately an additional 1.5 million square feet that it can lease to support its intended expansion, with new properties being added regularly. In summary, SRL’s goal is to achieve a pan-Indian presence by substantially increasing the number of stores it operates, from 309 today to approximately 1500 or more within the next two to three years. The present trading area of 950,000 square feet is expected to reach approximately 1.4 million square feet by March 2008 and approximately 2.5 million square feet by March 2009. SRL also intends to grow its specialty ranges. It intends to achieve this by continuing to focus on food retailing to its target customer with a differentiated offering and memorable shopping experience, while growing its presence in specialty niche markets and undertaking initiatives in the food and lifestyle segments.

— 97 — Operations and Stores

General

SRL currently operates 309 stores under the Spencer’s brand name in 48 cities across the country, with contracted retail space of approximately 1.2 million square feet. It operates its music retailing business under the “Music World” brand, with 11 main stores, 66 “Express” stores, 23 franchised operations and 154 “touch points” (smaller locations offering a limited range of best-selling products). Books and related products are offered under the “Books & Beyond” brand, which currently has two flagship stores in Gurgoan and Pitampura.

Management of the retail business believes that the key factors underlying the appeal of SRL’s stores are the overall shopping experience and the depth of its product range.

Retailing Format

Spencer’s Daily: Spencer’s Daily is a convenience store format, with floorspace ranging from 3,000 to 5,000 square feet per store. As at October, 2007, there were 166 Spencer’s Daily stores. These stores generally stock fruit and vegetables, food staples, processed food, fast-moving consumer goods, beverages, baked goods, and frozen and chilled goods.

Spencer’s Express: Spencer’s Express is also a convenience store format, with floorspace ranging from 1,400 to 1,800 square feet per store. As at October, 2007, there were 120 Spencer’s Express. These stores generally offer a smaller range of the same sorts of products carried by Spencer’s Daily, and cater to “top-up” purchases by consumers who may require a small number of items during the course of the day.

Spencer’s Super: Spencer’s Super is a grocery store format, with floorspace ranging from 10,000 to 18,000 square feet per store. As at October, 2007, there were 12 Spencer’s Super stores. These supermarkets carry the full range of food products stocked by Spencer’s Daily, with greater depth in products lines. In addition, these stores provide a range of goods for the home, brown goods and select clothing.

Spencer’s Hyper: Spencer’s Hyper is a hypermarket format, with floorspace ranging from 30,000 to 75,000 square feet per store. As at October, 2007, there were 11 Spencer’s Hyper stores, which are designed as destination discount stores. They carry a full range of food products, goods for the home, clothing, white goods, electronic and electrical goods, and a full range of fast moving consumer goods (“FMCG”).

Development of New Stores

The size and location of new stores are approved centrally pursuant to a standard template and are determined on a regional basis by a dedicated development team based in each zone/cluster. Consistent with SRL’s retailing format, location and convenience are the key factors in selecting premises for new stores. SRL generally seeks premises and sites that are located in residential districts, close to transport hubs, close to or in major shopping centers, adjacent to major traffic intersections or thoroughfares, or adjacent to major roads. Other criteria include the number of residents in the adjacent area and proximity to, and visibility from, roads, easy access by vehicles, as well the availability of suitable leasehold terms. Each development team’s primary task is the acquisition of sites and development of new stores in sufficient numbers and suitable locations. The development teams have accumulated considerable expertise in site acquisition, which has enabled SRL to add in excess of 30 new stores per month.

— 98 — Products

SRL’s product range consists of approximately 13,000 items, the majority of which are produced in India. Food products comprise approximately 47 per cent. of SRL’s product sales. Most of SRL’s product range comprises fast selling food products and beverages. Fresh and perishable products represent approximately 7 per cent. of SRL’s sales. SRL carries a wide range of specialty foods, including imported goods, as well as meats, fish, baked goods, fresh juices and ready-to-eat foods.

The indicative product sales mix is reflected for all food stores (under the Spencer’s brand) for October 2007 as follows:

Category Mix

(%)

F&V ...... 7.6 Staples...... 20.4 FMCG ...... 43.6 Dairy and Frozen ...... 5.1 Baked Goods...... 2.5 Apparel ...... 4.5 E&E...... 7.7 HWP...... 8.6 Total...... 100

Management believes that the development of private label goods will be significant for the continuing success of its business. SRL’s first own-label products were introduced in 1999. SRL’s private label goods (including goods repackaged under the Spencer’s Brand), which currently account for approximately 10 per cent. of SRL’s sales, include approximately 150 food items developed in co-operation with approximately 12 manufacturers. SRL focuses its development of private label goods primarily on fast selling, non-perishable and medium-length shelf-life food products and beverages, as well as basic staple products and non-food items. SRL has two different own label brands, including a premium line of products. Although SRL’s private label goods are typically priced at a discount to the equivalent branded products, management believes that they can produce considerable costs efficiencies resulting in higher margins. SRL aims to more than double the percentage of private label goods sold as a percentage of its total sales in the medium term.

Marketing

The objective of SRL’s marketing and advertising activities is to attract and retain customers, improve brand awareness, engender customer trust in the quality of SRL’s products and offering and promote SRL’s private label goods. In the year ended March 31, 2007, SRL’s gross annual marketing and advertising expenses amounted to approximately three per cent. of its total gross sales. SRL currently conducts its marketing activities on a city-specific level, but as its expands its presence nationally it will consider pan-Indian advertising as appropriate.

— 99 — Suppliers and Purchasing

Purchases are generally made on standardized contract terms and in accordance with SRL’s overall purchasing policy, which restricts long-term supply contracts with terms exceeding one year. With approximately 3000 active suppliers, SRL’s supplier base remains diversified. Management believes that as the SRL’s network grows and increases its purchasing power, SRL may be able to negotiate more favorable terms of purchase.

Inventory Management and Distribution

Management believes that profitable growth of SRL’s business requires modern warehousing and logistics arrangements. SRL has a consolidation center in Hoskote and intends to add approximately five additional consolidation centers in the medium term. SRL also has 13 distribution centers, which are being equipped with warehouse management systems which will enable SRL to increase the efficiency of its operations and accommodate the increased demand resulting from the opening of new stores. SRL follows a “hub and spoke” model for distribution in a given cluster. SRL is focused on inventory management and controlling the operating costs at its stores, at which stock replenishment is generally automated. SRL’s inventory management system tracks the availability and sales of all the items at each store on a regular basis, which information enables efficient purchasing. Orders made by the stores are delivered either from the distribution centers or directly from suppliers (typically with respect to perishables and frozen and chilled goods, given that SRL currently does not currently use refrigerated trucks and does not have refrigerating facilities in its distribution centers).

Properties

All of SRL’s premises (including with respect to its specialty stores) are leased. Typical lease terms range from approximately nine years for smaller premises, to in excess of 20 years for SRL’s hypermarkets. Although the terms of individual leases may vary, rents are typically adjusted upwards every three years. Management believes that the use of leased premises is less capital-intensive than buying and developing sites, and that leasing facilitates more rapid roll-out of stores in line with its growth strategy.

Information Technology

SRL uses IT systems to support its day-to-day operations and the growth of its business. It uses hardware developed by leading manufacturers and software developed by SAP, among others. SRL has also developed in-house software. SRL’s IT strategy is to provide flexibility and scalability, complemented by low development, upgrade and maintenance costs. In particular, SRL is rolling out new operating systems, infrastructure and software in connection with its material management system in order to increase the efficiency of its operations and to cater for the increased demand resulting from the opening of new stores.

Management and Employees

SRL benefits from a management team, both at the corporate and regional levels, with substantial retail and domain experience. Managers have been recruited both within India and from abroad. Recruiting capable and experienced personnel is critical to SRL’s expansion strategy, which has seen it roll out between 30 and 35 Spencer’s-branded stores per month. To encourage high and consistent levels of service, SRL created the Pragati Training Institute, which has 10 training centers across India where hundreds of employees are trained each month to facilitate this expansion strategy.

As at September 30, 2007, SRL had 7,682 employees (compared to approximately 840 in November 2005). Management believes that none of the employees belongs to trade unions and there are no collective bargaining agreements between Spencer’s and its employees.

— 100 — Specialty “Verticals”

Music World — Music World is one of India’s leading music retailers. The brand operates in multiple formats in 46 cities with 11 main stores, 60 “Express” stores, 19 franchised operations and 154 “touch points” (smaller locations offering a limited range of best-selling products). These stores offer music (including cassettes, CDs, DVDs and MP3 players), home video and complementary products such as handheld devices, video games and DVD players. Management is considering further expanding the number of stores under this brand.

Books & Beyond — Books and related products are offered under the “Books & Beyond” brand, which currently has two flagship stores in Gurgoan and Pitampura. Management expects to expand the number of stores in this format in the medium term.

SRL is also exploring tie-ups with international players in the areas of baked goods, children’s wear, toys, office stationery and related products which are at various stages of discussion.

Management’s Discussion and Analysis of Results of Operations and Financial Condition of the Retail Business

You should read the following discussion and analysis in conjunction with the Retail Business Financial Statements as of and for the year ended March 31, 2007, and the notes thereto, included elsewhere in this Placement Document, as well as the Retail Business Interim Financial Information for the six months ended September 30, 2007. Those financial statements have been prepared in accordance with AS. This discussion contains forward-looking statements that involve risks and uncertainties. The retail business’s operations and financial performance are subject to substantive risks and uncertainties. The retail business’s actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set out in “Risk Factors.” In evaluating the operations of the retail business, investors should carefully consider all of the information included in “Risk Factors.”

Significant Factors Affecting Results of Operations

New store openings: During the periods under review, SRL has pursued a rapid store expansion strategy, with the number of its stores growing from 58 in March 2006 to 124 in March 2007. The store expansion strategy has affected the SRL’s results of operations in the periods under review by increasing sales, cost of goods sold, personnel expenses and selling and administration expenses, thus making period to period comparison difficult. The store roll-out program also affected SRL’s results of operations, given the start-up costs involved with new stores and the time lag before new stores typically achieve profitability, which typically takes six months or more for Express stores and 12 to 24 months for other stores (depending on the size of the store). This is one of the primary reasons that SRL has been loss-making since it initiated its store expansion plan, and it may continue to incur losses as it further expands the number of its stores.

Moreover, SRL’s results of operations have also been adversely impacted by the fixed costs associated with developing the corporate and regional offices and distribution centers, which are being set up on a large scale base given SRL’s future plans of growth.

— 101 — Given that SRL intends to rapidly increase the number of its stores across India, the foregoing factors will continue to have a substantial impact on its results of operations for the foreseeable future.

Real estate prices: Given that SRL leases all of its premises under leases which provide for upward rent adjustments on a periodic basis, it is substantially exposed to increases in real estate prices. This is of particular significance for SRL going forward as it seeks to substantially increase the number of its outlets. Particularly in the early stages of a store opening, SRL’s sales may be lower as a percentage of rental costs than in a more mature store. Therefore, rising real estate prices have had an impact on SRL’s results of operations and will continue to have a substantial impact going forward.

Macroeconomic trends: All of SRL’s operations are located in India. As a result, Indian macroeconomic trends significantly influence its results of operations. India has experienced economic growth in recent years, which management believes have contributed to the increasing purchasing power of SRL’s customer base.

Improved distribution: During the periods under review, SRL has been improving the efficiency of its warehousing and distribution arrangements by increasing the volume of deliveries to its stores from its distribution centers. This has resulted in lower delivery costs and, consequently, affected cost of sales. Management believes that, as the number of stores it operates increases, it will be able to benefit from economies of scale with respect to its distribution network.

Seasonal variations: Sales are generally higher during the second half of a year as the period corresponds with festivities in India. To that extent, sales during a year show some seasonality especially in larger formats (such as Hypers and Supers).

Principal Components of Results of Operations

Sales. Sales are comprised of sales of food and non-food items. Net sales is equal to gross sales less value added taxes and sales tax.

Income from Recoveries and Services. Income from recoveries and services comprises recoveries made on account of bulk discounts and advertisement and other expenses recharged to suppliers.

Cost of Goods Sold. Cost of goods sold is determined by adding to the value of opening stock of traded goods the value of purchases during the period under review, less the value of closing stock.

Personnel Expenses. Personnel expenses are comprised of salaries, wages and bonuses; contributions to provident and other funds; and costs associated with staff welfare.

Selling and Administration Expenses. The primary components of selling and administrative expenses are rental costs, power and fuel costs, repairs and maintenance, advertising and selling expenses, traveling and distribution, security charges, and packaging.

Financial Expenses. Financial expenses include interest on term loans, interest on amounts due to banks and bank charges and other financial charges.

Depreciation. Depreciation is determined on a straight-line basis with respect to the useful lives of the relevant assets as estimated by management or as prescribed by law, whichever is higher, as described more fully in Note 2 to the Retail Business Financial Statements.

— 102 — Results of Operations

Six months ended September 30, 2007

The table below sets forth, for the period indicated, certain revenue and expense items for SRL’s operations:

Six months ended September 30, 2007 Particulars (Unaudited)

(Rs. Million)

Sales (net) ...... 3,371.3 Other Income ...... 166.0

Total Income ...... 3,537.3

Expenditure (a) Cost of Power & Fuel ...... 112.8 (b) Cost of Goods Sold ...... 2,822.4 (c) Personnel Cost ...... 363.5 (d) Depreciation ...... 82.3 (e) Interest ...... 63.6 (f) Other Expenditure ...... 700.8

Total Expenditure ...... 4,145.4

Exceptional Income ...... 16.4

Loss from ordinary activities before tax ...... 591.7

Tax Expenses: Fringe Benefits tax ...... 6.9 Currenttax...... — Deferred Tax ...... —

Net Loss from ordinary activities after Tax ...... 598.6

Paid-up Equity Share Capital (Shares of Rs.10 Each) ...... 260.1 Reserves as per latest audited Balance Sheet as on March 31, 2007 ...... 1,158.4 Earnings Per Share (EPS) (Rs.) - Basic & Diluted (*not annualised for half year) . (23.0)

Aggregate of Public Shareholding* No. of Shares ...... 1,374,004 Percentage of Shareholding ...... 5.28%

* denotes shares held by non-promoters

Note: See pages F-37 - F-38 for the notes to the unaudited financial information of SRL for the six months ended September 30, 2007 which constitute an integral part of this table.

— 103 — Gross Sales: Gross sales for the six months ended September 30, 2007 were Rs.3,537.3 million compared to Rs.5,162.3 million for the full year ended March 31, 2007. The periods are not strictly comparable due to seasonal impact in the retail industry. This reflects an increase on an annualized basis primarily due to an increase in the number of retail outlets from 124 in March 2007 to 282 at September 2007.

Cost of Goods Sold: The cost of goods sold followed the sales trend with Rs.4,203.7 million in the twelve month period ended March 31, 2007 compared to Rs.2,822.4 million in the six month period ended September 30, 2007. This reflects an increase on an annualized basis for costs of goods sold which reflects an increase in gross margins.

Personnel Expenses: The personnel expenses were Rs.435.6 million for the twelve months ended March 31, 2007 and Rs.363.5 million for the six months ended September 30, 2007. This reflects an increase on an annualized basis, mainly on account of cost of staff in new stores, annual increments and the increase in regional, zonal and corporate manpower to support SRL’s growth plans.

Cost of Power and Fuel: The cost of power and fuel was Rs.118.4 million for the twelve months ended March 31, 2007 and Rs.112.8 million for the six month period ended September 30, 2007. This reflects an increase on an annualized basis but the first half of September corresponds to the summer season in India when consumption is high due to air conditioning requirements. The increase is mainly due to an increase in retail space and in the rates of electricity in certain areas such as the State of Maharashtra.

Depreciation: The depreciation expense was Rs.93.9 million for the year ended March 31, 2007 and Rs.82.3 million for the six months ended September 30, 2007. This increase on an annualized basis represents the growth achieved during the first half of the period.

Interest: The interest expenses were Rs.66.7 million in the twelve month period ended March 31, 2007 and Rs.63.6 million in the six month period ended September 30, 2007. This increase on an annualized basis was due to a loan taken from ICICI during the latter part of the year ended March 31, 2007.

Net Loss: The net loss was Rs.523.3 million in the year ended March 31, 2007 and Rs.598.6 million during the six months ended September 30, 2007. The increase was primarily due to the fact that, although revenue increased substantially, costs associated with the growth of SRL’s portfolio grew at an increased rate. The opening of new stores requires substantial initial outlays and it takes a period of time for stores to reach target sales levels and operate on a profitable basis. Similarly, SRL has spent substantial amounts on merchandising and expanding its central and distribution functions in order to accommodate future growth which has had a negative impact on short term profitability.

— 104 — Years ended March 31, 2007 and 2006

The table below sets forth, for the periods indicated, certain revenue and expense items for SRL’s operations:

March 31, March 31, 2007 2006

(Rs. million) (Rs. million)

Income Sales(Gross) ...... 5,211.5 2,798.9 Less: Value Added Tax/Sales tax ...... 244.6 93.9 Sales(Net) ...... 4,966.9 2,705.1 Income from Recoveries and Services ...... 186.8 107.4 Other Income ...... 8.6 2.9 5,162.3 2,815.4 Expenditure Cost of Goods Sold ...... 4,203.7 2,295.7 Personnel Expenses ...... 435.6 209.0 Selling and Administration Expenses ...... 878.3 391.6 Financial Expenses ...... 66.7 34.2 Depreciation ...... 93.9 36.4 5,678.2 2,967.0 Loss for the year before Taxes ...... (515.9) (151.6) Fringe Benefit Tax ...... 7.4 3.8 Loss for the year after Taxes ...... (523.3) (155.4)

Gross sales: Gross sales increased by 86.2 per cent. from Rs.2,798.9 million in the year ended March 31, 2006 to Rs.5,211.6 million in the year ended March 31, 2007. Part of the increase is attributable to the increase in the number of stores at period-end from 58 to 124 and to the transfer of 48 stores from FoodWorld Supermarket Ltd to SRL during September 2005. Of SRL’s gross sales, Rs.2,465.3 million (or 47 per cent.) related to food, while Rs.2,746.2 million (or 53 per cent.) related to non-food items (this includes sales from its speciality verticals). Net sales (after deduction of value added tax and sales tax) increased by 83.6 per cent. over the same periods, for substantially the same reason.

Income from recoveries and services: Income from recoveries and services increased by 73.8 per cent. from Rs.107.4 million in the year ended March 31, 2006 to Rs.186.7 million in the year ended March 31, 2007. This increase was primarily due to a larger number of stores and concerted efforts to increase display income.

Cost of goods sold: Cost of goods sold increased by 83.1 per cent. from Rs.2,295.7 million in the year ended March 31, 2006 to Rs.4,203.7 million in the year ended March 31, 2007. This increase was primarily due to an increase in the amount of traded goods attributable to expansion of the SRL’s portfolio of stores.

Personnel expenses: Personnel expenses increased by 108.4 per cent. from Rs.209.0 million in the year ended March 31, 2006 to Rs.435.6 million in the year ended March 31, 2007. This increase was primarily due to a substantial increase in total salaries and wages paid in connection with the expansion of SRL’s portfolio of stores as well as expansion of offices to meet SRL’s growth plan.

— 105 — Selling and administration expenses: Selling and administration expenses increased by 124.3 per cent. from Rs.391.6 million in the year ended March 31, 2006 to Rs.878.3 million in the year ended March 31, 2007. This increase was primarily due to growth of the portfolio of stores, with the largest increases relating to rental costs (from Rs.122.2 million to Rs.353.0 million) and power and fuel costs (from Rs.50.6 million to Rs.118.4 million). The rental cost increase also includes the impact of straight line amortization of lease rental as required under Indian AS-19.

Financial expenses: Financial expenses increased by 95.0 per cent. from Rs.34.2 million in the year ended March 31, 2006 to Rs.66.7 million in the year ended March 31, 2007. This increase was primarily due to increased interest payable on loans, including a Rs.750.0 million loan entered into in December 2006 with ICICI Bank.

Depreciation: Depreciation expenses increased from Rs.36.4 million in the year ended March 31, 2006 to Rs.93.9 million in the year ended March 31, 2007. This increase was primarily due to a substantial increase in the volume of assets subject to depreciation (including plant) as the portfolio of SRL’sstoresgrew.

Loss after taxes: Loss for the year after taxes increased to Rs.523.4 million in the year ended March 31, 2007 from a loss of Rs.155.4 million in the preceding year. This increase was primarily due to the fact that, although revenue increased substantially, costs associated with the growth of SRL’s portfolio grew at a faster rate. Opening new stores requires substantial initial outlays, and it typically takes a period of time for new stores to settle, reach target sales levels and to operate on a profitable basis. Similarly, SRL has spent substantial amounts on merchandising and building out its central and distribution functions, in order to enable it to accommodate future growth — this has a negative impact in the short term on profitability.

Liquidity and Capital Resources

In addition to financing its existing operations, SRL’s liquidity needs arise principally from the need to finance the expansion of its store portfolio, as well as costs associated with their opening. In the periods under review, SRL has been able to meet its liquidity needs out of net cash provided by operating activities and bank borrowings. SRL typically operates with very little working capital given the size of its business, which management believes is common in the organized food retail sector. When SRL requires substantial outlays, for instance in connection with opening of hypermarkets, working capital will be required.

SRL has raised a substantial amount of funding in the periods under review through the issuance of equity securities. Total equity proceeds raised to meet the capital expenditure and operational deficits of SRL were Rs.504.5 million in 2005-06 and Rs.921 million in 2006-07. In addition, SRL obtained a term loan from ICICI in the amount of Rs.750.0 million during the year ended March 31, 2007.

In the future, SRL may consider raising funding by an infusion of equity capital from private investors, new indebtedness, or a possible public equity offering.

Cash flow for the years ended March 31, 2007 and 2006: In the year ended March 31, 2007, net cash flow was an inflow of Rs.69.3 million against an inflow of Rs.18.4 million in the year ended March 31, 2006, bringing SRL’s cash and cash equivalents position at March 31, 2007 to Rs.103.8 million.

Year ended March 31, 2007: For the year ended March 31, 2007, cash flow from operating activities was an outflow of Rs.584.5 million. This reflected a substantial increase from net cash outflows in the preceding year of Rs.59.7 million, which was due in substantial part to an increase in SRL’s net loss before tax in 2007 compared to 2006 as well as an increase in amounts payable for inventory.

— 106 — Cash flow from investing activities was an outflow of Rs.834.4 million for the year ended March 31, 2007. This amount reflected predominantly the purchase of fixed assets including store front, in connection with SRL’s ongoing expansion and opening of new stores.

Cash flow from financing activities was an inflow of Rs.1,488.2 million for the year ended March 31, 2007. This amount reflected the proceeds of Rs.750.0 million from a term loan received from ICICI, as well as the proceeds from the issuance of share capital of Rs.921.0 million, partially offset by the repayment of certain unsecured loans and medium-term loans.

Year ended March 31, 2006: For the year ended March 31, 2006, cash flow from operating activities was an outflow of Rs.59.7 million. This was due in substantial part to an increase in SRL’s net loss before tax in 2006 as well as an increase in amounts payable for inventory.

Cash flow from investing activities was an outflow of Rs.372.2 million for the year ended March 31, 2006. This amount reflected predominantly the purchase of fixed assets including store front, in connection with SRL’s ongoing expansion and opening of new stores.

Cash flow from financing activities was an inflow of Rs.450.3 million for the year ended March 31, 2006. This amount reflected proceeds received from the issuance of share capital of Rs.442.0 million, as well as Rs.62.5 million from the receipt of share application monies, partially offset by the repayment of certain medium-term loans.

Critical Accounting Policies in respect of the Retail Business

The Retail Business Annual Financial Statements included in the Placement Document have been prepared in connection with Indian GAAP. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including the amounts of revenue and expenses during the reported period. SRL’s critical accounting policies are those that are most important to its financial condition and results of operations and those that require the most difficult, subjective or complex judgments by its management. On an ongoing basis, management evaluates its estimates and assumptions. Management bases its estimates and assumptions on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the financial statements, actual results may vary from these estimates. Management believes that the following policies are the SRL’s critical accounting policies, which are described in detail in Note 2 to the Retail Business Financial Statements:

• Depreciation of assets, which requires estimates by management of the useful life of assets

• Impairment of assets, which requires the carrying amount of assets to be reviewed at each balance sheet date

• Valuations of inventory, which are (in the case of traded goods) typically valued at the lower of cost and net realizable value (which is the estimated selling price in the ordinary course of business less estimated costs needed to make the sale)

• Provisions, which require management to make estimates regarding amounts required to settle certain obligations

— 107 — Contingent Liabilities

SRL has a number of contingent liabilities which are not reflected in its balance sheet, including capital commitments relating to estimated amounts of contracts that remain to be executed, which amount to Rs.209.1 million as of March 31, 2007 (compared to Rs.53.9 million in the previous year). This increase is primarily due to the reflection of the capital commitments disclosed pursuant to Indian GAAP due to the increased growth of SRL that are yet to be executed. For further details, see Note 4 to the Retail Business Financial Statements.

Deferred Taxation

SRL has carried forward losses and unabsorbed depreciation of Rs.1,003.6 million as at March 31, 2007. SRL has not recognized these deferred tax assets, given the absence of virtual certainty that it will earn sufficient taxable income in the future.

Indebtedness

The following table sets forth the principal debt outstanding as at March 31, 2007 and repayment schedules of SRL’s indebtedness categorized into the following facilities (all amounts are in millions of Rupees:

Outstanding Repayment Schedule

31 Mar 07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 Financial Institutions ICICI ...... 750.0 — 37.5 150.0 150.0 150.0 150.0 112.5 Kotak Mahindra Bank . . . 24.4 15.0 9.4 ————— IDFC ...... 74.8 24.1 24.1 24.1 2.3 ——— Total ...... 849.2 39.1 71.1 174.1 152.3 150.0 150.0 112.5

The following table sets forth a summary of the maturity profile for SRL’s outstanding long-term debt obligations as at March 31, 2007:

Payments Due by Period (Rs. millions)

Repayment within one year ...... 39.1 Repayment after one and up to two years ...... 71.1 Repayment after two and up to five years...... 476.4 Repayment after five years ...... 262.5 Total...... 849.2

Overview of Indian Retail Industry

The information in this sub-section has been extracted from publicly available documents from various sources and materials officially prepared by the Central Government and its various ministries, and has not been prepared or independently verified by the Company or the Joint Global Coordinators and Book Running Lead Managers or any of their respective affiliates or advisors.

— 108 — The Indian retail sector has grown significantly in recent years, reflecting a strong economy which is growing at 7 to 8 per cent., favorable demographics, rising consumer incomes, real estate developments such as the emergence of new shopping malls and changing lifestyles. Amongst others these changes are driving growth of organized retailing. Food and grocery is the dominant sector followed by clothing, textiles and fashion accessories and jewellery.

Organized Retail

Organized retail in India has been growing rapidly, and the size of the total retail industry market is currently estimated to be approximately U.S.$270 billion, with organized retailing accounting for 3.5 per cent. of the India’s total retail market.

Growth Drivers

Changing demographic profile: India has a younger consumer profile as compared to the ageing populations of the United States, the UK and Japan. The composition of the Indian population is shifting more towards the 20-49 year old demographic.

Rising Income Levels: A larger number of households are joining the consumer class due to growth in income levels. There has been nearly 100 per cent. growth in the number of households, from approximately 45 million in 1995 to approximately 80 million households in 2005 as per FICCI KPMG Report 2005. In addition, a growing number of educated and employed women with increasing disposable incomes, media proliferation and growing consumerism have all contributed to the growth of organized retail.

Source: FICCI KPMG Report 2005

Urbanization: Currently organized retail is focused on metros. It is expected that in the next few years the growth in the organized retail sector will continue to come from the major cities. Organized retail has been more successful in cities, especially in the south and west of India. The reasons for this regional variation range from differences in consumer buying behaviour to cost of real estate and taxation laws. (Source: FICCI KPMG Report 2005)

Retail space: Quality retail space has always been one of the key hurdles for the development of organized retail in India.

Increased use of credit cards and availability of affordable finance: The use of plastic money (credit and debit cards) has increased significantly in the last three to four years. The number of credit cards issued has grown at a compound annual growth rate of over 25 per cent. in the last four years and was at 22.1 million by January 2007, while the use of debit cards has grown by more than 100 per cent. and was at over 70 million by January 2007.

Retail formats preferred in India: Management believes that the specialty and supermarket formats have the highest potential for growth followed by hypermarkets.

— 109 — The Real Estate Business

CESC Properties Ltd. (“CPL”), a wholly-owned subsidiary of the Company, was formed in April 2007 to engage in real estate development with respect to properties in the Company’s land bank which do not have critical electrical installations, as well as property in central Kolkata. Thus far the Company has invested RS.20.0 million in CPL.

The first project that CPL intends to develop is a premium shopping mall in the center of Kolkata, where the Company owns 3.2 acres of land. The development is expected to have approximately 400,000 square feet of floor space, and has already received a number of preliminary approvals and consents. Completion is targeted for 2010. CPL has entered into a twenty-year agreement with the Company regarding the development of the site and under which CPL will pay a user fee to the Company.

CPL also intends to develop two sites at the location of one of its old power plants and one existing plant which is expected to be shut down in the coming years. It intends to develop these two sites for commercial purposes. These sites comprise a total of 35 acres of land in the north fringes of Kolkata. CPL is also seeking to identify and obtain other land for development.

CPL is expected to develop and earn money from these properties, and the Company as owner of the land will earn a fixed rental return which will be approved by the regulator, which will require the Company to pass on approximately 40 per cent. of this rental income to its consumers as rebates.

— 110 — RPG GROUP

The Company is part of the group of companies within the RPG Group which comprises various affiliated entities controlled by the Goenka family, which directly or indirectly owns 56.84 per cent. of the Company. The RPG Group includes 20 operating companies. Business transactions with the other members of the RPG Group are carried out on an arm’s length basis. Total turnover of the RPG Group in the year ended March 31, 2007 was approximately Rs.114 billion (U.S.$2.8 billion). The market capitalization of the RPG group stood at approximately Rs.127 billion (U.S.$3.1 billion) as on October 31, 2007.

The RPG Group is active in various businesses: Power, Transmission, Tyres, Carbon Black, Organized Retailing, Information Technology, Pharmaceuticals, Media and Plantations.

The activities of the main companies within the RPG Group and the non-Indian collaborators with which they are associated, if any, are presented in the following table.

Company Principal activity (Foreign collaborators)

Power and Transmission CESC Limited ...... Power Generation and Distribution KEC International Limited...... Power Transmission & Distribution EPC Noida Power Company Limited ...... Distribution of Power RPG Transmission Limited ...... Power Transmission & Distribution EPC Integrated Coal Mining Limited ...... Coal mining operations National Information Technologies Limited . . . Telecom Infrastructure Solutions

Tyres, Carbon Black & Plantation Ceat Limited ...... Tyres Ceat Kelani Limited ...... Tyres Harrison Malayalam Limited ...... Rubber & Tea Plantations Phillips Carbon Black Limited ...... CarbonBlack RPG Life Sciences Limited ...... Pharmaceuticals

Information Technology and Communication Zensar Limited ...... InformationTechnology RPG Cables Limited...... Power Cables Raychem RPG Limited ...... Diversified

Organized Retailing Spencer’sRetailLimited...... Organized Retailing

Specialized Businesses Saregama India Limited ...... Media & Entertainment Spencer’s Travel Services Limited ...... ToursandTraveling Services

— 111 — PRINCIPAL SHAREHOLDERS

The Company is a listed company having 28,296 shareholders as of October 31, 2007. The following table sets forth the principal categories of shareholders as of October 31, 2007:

As at October 31, 2007

Name of Shareholder Shareholding Percentage

Management Group/Families ...... 65,576,442 56.8 Financial Institutions, Banks, Mutual Funds ...... 12,002,670 10.4 FIIs ...... 25,717,157 22.3 NRI/OCB/Foreign Banks/Non-Resident Individuals ...... 2,712,216 2.4 Private Body Corporate ...... 4,540,508 3.9 Individuals/Others ...... 4,826,932 4.2 Total...... 115,375,925 100.0

The following table sets forth the 10 largest shareholders as of October 31, 2007. Certain of the entities listed below (including Rainbow Investments Ltd., Hilltop Holdings India Ltd, Harrisons Malayalam Financial Services Ltd and Jubilee Investments & Industries Ltd.) are controlled directly or indirectly by the Goenka family (see “RPG Group”);

Name of Shareholder Holding

(%)

Rainbow Investments Ltd...... 26.92 Hilltop Holdings India Ltd...... 7.46 Life Insurance Corporation of India ...... 4.57 Goldman Sachs Investments (Mauritius) I Ltd...... 4.41 Jubilee Investments & Industries Ltd...... 4.23 BNKCapitalMarketsLtd...... 2.61 HSBC Global Investment Funds Mauritius Ltd. — GDR...... 2.15 Matthews India Fund ...... 1.90 Universal Industrial Fund Ltd...... 1.79 Harrisons Malayalam Financial Services Ltd...... 1.78

— 112 — The shareholding pattern as at October 31, 2007, of persons belonging to the category “Public” (that is, other than promoters) and who hold more than one per cent. of the total number of the Company’s issued and paid-up share capital is set out in the table below:

As at October 31, 2007 Holding

Name of shareholder Shareholding percentage

Life Insurance Corporation of India ...... 5,277,548 4.57 Goldman Sachs Investments (Mauritius) Limited ...... 5,086,629 4.41 BNKCapitalMarketsLimited...... 3,005,917 2.61 HSBC Global Investment Funds Mauritius Limited ...... 2,476,921 2.15 Matthews India Fund ...... 2,191,117 1.90 CLSA (Mauritius) Limited ...... 2,034,484 1.76 Reliance Capital Trustee Company Limited ...... 1,952,408 1.69 Deutsche Securities Mauritius Limited ...... 1,917,481 1.66 FID Funds (Mauritius) Limited ...... 1,750,566 1.52 Smallcap World Fund Inc ...... 1,660,000 1.44 Citigroup Global Markets Mauritius Private Limited ...... 1,579,660 1.37

— 113 — MANAGEMENT AND EMPLOYEES

Board of Directors

The Board of Directors is headed by a non-executive Chairman. The Company’sVice Chairman also holds a non-executive position. The Board has the ultimate responsibility for the overall management and administration of the affairs of the Company. Day-to-day affairs are managed by the Managing Director, who is assisted by a team of ten Executive Directors and other key personnel in each functional area. Under the Company’s Articles of Association, the number of the Company’s Directors cannot be less than three or more than 10. However, this number excludes those Directors who have been nominated to the Board by certain institutional lenders, whose respective appointments under relevant Indian law are not required to be taken into account for this purpose. The Company may, subject to the provisions of the Articles of Association and the applicable Indian laws and regulations, increase or reduce the number of Directors by special resolution in a general meeting. At present there are nine Directors including two nominees of the institutional lenders and a nominee of the State Government of West Bengal.

Pursuant to the Companies Act, the Directors may be appointed by the Board or by a general meeting of the shareholders. The Board may appoint any person as an additional Director, but such a Director must vacate his office at the next AGM unless re-elected by the shareholders after complying with the provisions of the Companies Act. A casual vacancy on the Board due to the death or resignation of a sitting member can be filled by the Board, but such a person can remain in office only for the unexpired term of the person in whose place he was appointed and he will retire on the expiry of the term unless elected by the shareholders. The Board may appoint an alternate Director to act for a Director during his physical absence from the state in which meetings of the Board are ordinarily held for a period of not less than three months in accordance with the provisions of the Companies Act.

Not less than two-thirds of the total number of Directors are subject to retirement by rotation and of such Directors one-third must retire every year. The Directors to retire are those who have been the longest in office. The Directors are not required to hold any qualification Shares.

Year Appointed Name Position Age as Director

Mr. Rama Prasad Goenka .... Chairman 77 1989 Mr. Sanjiv Goenka ...... ViceChairman 46 1989 Mr. Sumantra Banerjee ...... Managing Director 57 1992 Mr. Pradip Kumar Khaitan .... Non-executive Director 66 1992 Mr. Brij Mohan Khaitan ...... Non-executive Director 80 1994 Mr. Bhagwati Prasad Bajoria . . Non-executive Director 78 1995 Mr. Pradip Roy(1) ...... Non-executive Director 59 2000 Mr. Birenjit Kumar Paul(2) .... Non-executive Director 68 2002 Mr. Ajay Saraf(3) ...... Non-executive Director 37 2005

Notes:

(1) Representative Director appointed by IDBI, one of the Company’s institutional lenders.

— 114 — (2) Representative Director appointed by the State Government of West Bengal.

(3) Representative Director appointed by ICICI, one of the Company’s institutional lenders.

Six of the Company’s nine Directors are independent directors. Except for the Chairman, Vice Chairman and State Government representative, the remaining six of the Company’s Directors are subject to retirement by rotation.

Mr. Rama Prasad Goenka, Non-executive Chairman. Mr. Goenka holds a Masters degree in Arts. He is the founder and head of the RPG Group, and has been the Company’s Chairman since 1991. He is also a former member of Parliament. He was the chairman of the board of governors of IIT, Kharagpur and former director of IDBI. Mr. Goenka is also a director of Ceat Limited, Saregama India Ltd., Hilltop Holdings India Limited, Jubilee Investments & Industries Ltd. and Chairman of the International Management Institute. He is also an executive trustee of the Jawaharlal Nehru Memorial Fund, the Indira Gandhi Memorial Trust and the Rajiv Gandhi Foundation.

Mr. Sanjiv Goenka, Non-executive Vice Chairman. Mr. Goenka is a Commerce graduate. He is also the current chairman of the board of governors of IIT, Kharagpur, Vice President of the All India Management Association and a member of the International Management Institute, New Delhi. He is the former president of CII. Mr. Goenka is also a member of a number of trade and industry committees and representative bodies. In addition, he is a director of Phillips Carbon Black Limited, Harrisons Malayalam Limited, Spencer & Co. Limited, RPG Enterprises Limited, Saregama India Ltd., Graphite India Ltd., Noida Power Company Ltd., RPG Cellucom India Private Limited, Spencer International Hotels Ltd., Spencer Travel Services Limited and Eveready Industries India Limited. He is also the chairman of the board of directors of Woodlands Medical Centre Limited.

Mr. Sumantra Banerjee, Managing Director. Mr. Banerjee is a B. Tech (Hons.), M.S. (USA) and MBA (USA). He has 34 years of experience in India and abroad in manufacturing, engineering, finance, marketing, retail and general management functions. He has been the Company’s Managing Director since 1993. He is also the president and chief executive of the RPG Power and Retail Group. In addition, he is a member of the board of Spencer International Hotels Ltd., Noida Power Company Ltd., Ghaziabad Power Company Ltd., Hilltop Holdings India Limited, Dakshin Bharat Petrochem Limited, Carniwal Investments Limited, Saregama India Limited, Jubilee Investments & Industries Ltd., Spencer’s Retail Limited and RPG Cellucom India Private Limited.

Mr. Pradip Kumar Khaitan, Non-executive Director. Mr. Khaitan is a B.Com, LLB. He is a senior partner at Khaitan & Co. and has been on the Company’s Board since 1992. In addition, he is a director of Electrosteel Castings Limited, Graphite India Ltd., Hindustan Motors Ltd., OCL India Ltd., Pilani Investment & Industries Corporation Ltd., Dalmia Cement (Bharat) Ltd., India Glycols Limited, South Asian Petrochem Ltd., Woodlands Medical Centre Limited, Lanco Industries Ltd., Suzlon Energy Ltd., Visa Steel Ltd., Gillanders Arbuthnot & Company Ltd. and Emaar MGF Land Limited.

Mr. Brij Mohan Khaitan, Non-executive Director. Mr. B.M. Khaitan is a B.Com. He has been on the Company’s Board since 1994. He is a director of Williamson Magor & Co. Ltd., Phillips Carbon Black Limited, The Moran Tea Company (India) Limited, Babcock Borsig Limited, Eveready Industries India Ltd., McLeod Russel India Limited and Jayashree Tea & Industries Limited.

Mr. Bhagwati Prasad Bajoria, Non-executive Director. Mr. Bajoria is a graduate. He has been on the Company’s Board since 1995. In addition, he is a member of the board of Kesoram Industries Ltd., Texmaco Limited, IFGL Refractories Ltd., The Grob Tea Co. Ltd., IFGL Monocon Holdings Limited, The Budge Budge Investment Company Pvt. Ltd. and Danin Enterprise Pvt. Ltd.

— 115 — Mr. Pradip Roy, Non-executive Director. Mr. Roy is B.Sc, MBA and CAIIB. He is the nominee of Industrial Development Bank of India Limited. In addition, he is a director of IL&FS Investment Managers Ltd., Vadinar Oil Terminal Limited and JK Corporation Limited.

Mr. Birenjit Kumar Paul, Non-executive Director. Mr. Paul, a BE, is the nominee of the State Government of West Bengal and is also a director of The West Bengal Power Development Corporation Ltd (“WBPDCL”), Emta Steel and Energy Limited, Himachal Emta Power Limited and Durgapur Projects Ltd. Formerly he was WBPDCL’s managing director.

Mr. Ajay Saraf, Non-executive Director. Mr. Saraf is B. Com., ACA, AICWA. He is the nominee of ICICI Bank Limited. He is a director of Videocon Industries Limited, ABG Shipyard Limited and Mcleod Russel India Limited.

Executive Officers

Set out below are the current executive officers of the Company, and the year they joined the Company:

Year of Name Position joining

Mr. Santanu Bhattacharya . Executive Director (Materials) 1999 Mr. Santanu Chatterjee . . . Executive Director (Corporate Development) 1966 Mr. Dilip Kumar Sen ..... Executive Director (Commercial & Mains) 1974 Mr. Jayanta Chakrabarty . . Executive Director (Projects) 1970 Mr. Dipes Kumar Guha . . . Executive Director (Program Implementation) 1966 Mr. Satya Sundar Sinha . . . Executive Director — Technical 1977 (Transmission & Distribution) Mr. Amitabha Sengupta . . Executive Director (Administration) 1968 Mr. Utpal Bhattacharyya . . Executive Director (Corporate Services) 1980 Mr. Subrata Talukdar ..... Executive Director (Finance) 1985 Mr. Vinod Kumar ...... Executive Director (Business Development) 2007 Mr. Subhasis Mitra ...... VicePresident and Company Secretary 1978 Mr. Probir Kumar Bose . . . Vice President (Customer Relations) 1999 Mr. Sanjay Kumar Vice President (Generation) 1979 Chakraborti ...... Mr. Bijay Bhusan Vice President (System Operations) 1977 Chakraborti ...... Mr. Debashis Roy ...... VicePresident (IT) 2007

The address of the Company’s Directors and executive officers is that of the Company’s registered office at CESC House, Chowringhee Square, Kolkata 700 001, India.

Fees

During the year ended March 31, 2007, the Company paid sitting fees of Rs.1.1 million to the Company’s Directors in their capacity as such.

— 116 — Committees

The Audit Committee was constituted on October 28, 1986 and currently comprises Mr. S. Goenka, Mr. Ajay Saraf and Mr. B.P. Bajoria. Mr. Bajoria is the Chairman of the Audit Committee. The constitution of the Committee also meets the requirements of Section 292A of the Companies Act. The broad terms of reference of the Audit Committee are:

(a) Supervision of internal control systems, internal audit functions, the Company’s financial reporting process and disclosures in order to ensure that the same are accurate, proper and sufficient.

(b) Overseeing with the management, observations of the auditors and periodical financial statements before submission to the Board.

(d) Investigating matters referred to it by the Board and significant findings during the year and, for this purpose, having full access to relevant information and records and also to seek external professional support, if necessary.

The Remuneration Committee was constituted on November 20, 2002 to recommend/review the remuneration package of the Directors taking into account their qualifications, experience, expertise, contribution and the prevailing levels of remuneration in companies of corresponding size and stature. Currently, it comprises Mr. B.P. Bajoria, Mr. P. Roy and Mr. Pradip Kumar Khaitan. Mr. Pradip Kumar Khaitan is the Chairman of the Remuneration Committee.

The Investors’ Grievance Committee was constituted on March 21, 2002 to oversee the redress of shareholders’ and investors’ complaints and other important matters related to investor service. Currently, it comprises Mr. S. Goenka and Mr. S. Banerjee. Mr. Goenka is the Chairman of the Investors’ Grievance Committee.

The Finance and Forex Committee was constituted on March 3, 1997 to deal with all matters relating to finance and foreign exchange exposure of the Company. Currently, it comprises Mr. S Goenka, Mr. Pradip Kumar Khaitan and Mr. S. Banerjee. Mr. Goenka is the Chairman of the Finance and Forex Committee.

Employees

As of March 31, 2007, the Company employed a total of 10,579 people. As of March 31, 2007, 794 of the Company’s employees were employed in an executive capacity.

The Company’s employees are represented by the four registered unions. The Company has not suffered any strikes in the past five years, and believes that its employee relations are good.

The Company provides provident fund benefits to all its employees by operating a recognized provident fund. Pension benefits are applicable to certain employees under the applicable statute. All employees contribute 12 per cent. of their base salary to the provident fund and the Company makes a matching contribution after netting off a portion which it deposits with the statutory pension fund. The Company maintains two gratuity funds to extend gratuity benefits to all eligible employees under the applicable statute. Based on the latest actuarial valuation for the gratuity funds, as of March 31, 2007 the Company had fully provided for all of its liabilities under the gratuity funds. The Company also operates a superannuation fund for the executives where the Company contributes 15 per cent. of the base salary and a pension is available based only on an individual’s accumulation in the fund.

— 117 — The Company offers its employees comprehensive on-going training in order to raise their competence and capability. This training is tailored to the Company’s evolving business environment and corporate needs with the objective of improving customer services. The Company has also implemented a performance appraisal system which allows the performance of its employees to be assessed through an objective and transparent process. The Company believes that the training and appraisal system will result in a more productive and service-oriented workforce.

The average age of the Company’s officers and employees is 44 years, and their average tenure is 17 years. The mandatory retirement age for the Company’s employees is 60 years (reducing to 58 years for management).

The aggregate compensation paid to the Company’s employees for the year ended March 31, 2007 was Rs.2,998.6 million.

— 118 — INDIAN SECURITIES MARKET

The information in this section has been extracted from publicly available documents from various sources, including officially prepared materials from the SEBI, the BSE and the NSE, and has not been prepared or independently verified by the Company or the Joint Global Coordinators and Book Running Lead Managers or any of their respective affiliates or advisors.

The Indian Securities Market

India has a long history of organized securities trading. In 1875, the first stock exchange was established in Mumbai. The SEBI Act granted the SEBI powers to regulate the business of Indian securities markets, including stock exchanges and other financial intermediaries, promote and monitor self-regulatory organizations, prohibit fraudulent and unfair trade practices and insider trading, and regulate substantial acquisitions of shares and takeovers of companies. The SEBI has also issued guidelines concerning minimum disclosure requirements by public companies, rules and regulations concerning investor protection, insider trading, substantial acquisitions of shares and takeovers of companies, buybacks of securities, employee stock option schemes, stockbrokers, merchant bankers, underwriters, mutual funds, foreign institutional investors, credit rating agencies and other capital market participants.

Stock Exchange Regulations

India’s stock exchanges are regulated primarily by the SEBI, as well as by the Central Government acting through the Ministry of Finance, Stock Exchange Division, under the SCRA and the Securities Contract Regulation Rules 1957 (the “SCRR”) which, along with the rules, by-laws and regulations of the respective stock exchanges, regulate the recognition of stock exchanges, the qualifications for membership thereof and the manner in which contracts are entered into and enforced between members.

Listing

The listing of securities on recognized Indian stock exchanges is regulated by the SCRA, the SCRR and the listing agreement between the issuer of securities and the respective stock exchanges, under which the governing body of each stock exchange is empowered to suspend trading of or dealing in a listed security for breach of that issuer’s obligations under such agreement, subject to the receipt of prior notice of such intent of the stock exchange. The SEBI has the power to direct the amendment of listing agreements and bye-laws of stock exchanges in India. Any amendment of the bye-laws by the stock exchanges of their own accord requires the prior approval of the SEBI.

A listed company can be delisted under the provisions of the SEBI (Delisting of Securities) Guidelines, 2003, which govern voluntary and compulsory delisting of shares of Indian companies from the stock exchanges. A company may be delisted through a voluntary delisting sought by the promoters of the said company; a compulsory delisting by the stock exchange or due to any acquisition of shares of the said company or scheme of arrangement or consolidation of holdings by the person in control of management as a result of which the public shareholding falls below the limit specified in the listing conditions or in the listing agreement. A company may voluntarily delist from the stock exchange where its securities are listed provided that an exit opportunity has been given to the investors at an exit price determined in accordance with a specified formula. Such exit opportunity need not be given in cases where securities continue to be listed on a stock exchange having nationwide trading terminals. The procedure for compulsory delisting also requires the company to make an exit offer to the shareholders in accordance with the abovementioned guidelines.

— 119 — In order to restrict abnormal price volatility in any particular stock, the SEBI has instructed stock exchanges to apply daily circuit breakers which do not allow transactions beyond a certain price volatility. The index-based market-wide circuit breaker system (equity and equity derivatives) applies at three stages of the index movement, at 10 per cent., 15 per cent. and 20 per cent. These circuit breakers, when triggered, bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the Sensex of the BSE or the NSE, whichever is breached earlier.

In addition to the market-wide index-based circuit breakers, there are currently varying individual scrip-wise price bands in place. However, no price bands are applicable on scrips on which derivative products are available or scrips included in indices on which derivative products are available.

The stock exchanges in India can also exercise the power to suspend trading during periods of market volatility. Margin requirements are imposed by stock exchanges that are required to be paid by the stockbrokers. At the discretion of the stock exchanges and under instructions from the SEBI, stock exchanges can also impose ad hoc margins for specific stocks in the event of extreme volatility in price movement.

Disclosures under the Companies Act and Securities Regulations

Under the Companies Act, a public offering of securities in India must be made by means of a prospectus, which must contain information specified in the Companies Act and the SEBI Guidelines, and be filed with the relevant Registrar of Companies having jurisdiction over the place where a company’s registered office is situated, which, in the case of the Company, is currently the Registrar of Companies, West Bengal, located at Nizam Palace, 2nd MSO Building, 2nd Floor, 234/4, A.J.C.B. Road, Kolkata, 700020, India. A company’s directors and promoters may be subject to civil and criminal liability for misstatements in a prospectus. The Companies Act also sets forth procedures for the acceptance of subscriptions and the allotment of securities among subscribers and establishes maximum commission rates for the sale of securities. The SEBI has issued detailed guidelines concerning disclosures by public companies and investor protection which also have to be complied with. Prior to the repeal of certain rules in mid-1992, the Controller of Capital Issues of the Central Government regulated the prices at which companies could issue securities. The SEBI Guidelines now permit companies to price their issues of securities freely.

All companies, including public limited companies, are required under the Companies Act to prepare, file with the Registrar of Companies and circulate to their shareholders, audited annual accounts which comply with the Companies Act’s disclosure requirements and regulations governing their manner of presentation, including sections pertaining to corporate governance and the management’s discussion and analysis. In addition, a listed company is subject to continuing disclosure requirements pursuant to the terms of its listing agreement with the relevant stock exchange, including the requirement to publish unaudited financial statements on a quarterly basis, and is required to inform stock exchanges immediately regarding any stock price-sensitive information.

The Companies Act further provides for the buyback of securities, issuance of sweat equity shares (as defined in the Companies Act) and mandatory compliance with accounting standards issued by the Institute of Chartered Accountants of India (“ICAI”).

— 120 — The ICAI and SEBI implemented changes which required Indian companies to account for deferred taxation, to consolidate their accounts with subsidiaries, to provide sector reporting and to increase their disclosure of related party disclosures from April 1, 2001, and to account for investments in associated companies and joint ventures in consolidated accounts and interim financial reporting from April 1, 2002.

As of April 1, 2003, accounting of intangible assets was also regulated by accounting standards set by the ICAI and as of April 1, 2004 accounting standards set by the ICAI have regulated accounting for impairment of assets.

Indian Stock Exchanges

There are now 23 stock exchanges in India. Most of the stock exchanges have their governing board for self-regulation. A number of these exchanges have been directed by the SEBI to file schemes for demutualization as part of a move towards greater investor protection. The BSE and NSE together hold a dominant position among the stock exchanges in terms of number of listed companies, market capitalization and trading activity.

The Bombay Stock Exchange Limited

The BSE, the oldest stock exchange in India, was established in 1875. The BSE switched to online trading (“BOLT”) from May 1995. As of August 2007, the BSE had 950 members, comprising 178 individual members, 749 Indian companies and 23 foreign institutional investors. Only a member of the BSE has the right to trade in the stocks listed on the BSE.

As of August 31, 2007, there were 4,867 listed companies trading on the BSE and the estimated market capitalization of stocks trading on the BSE was Rs.45,380.1 billion. The average daily turnover on the BSE was Rs.48.20 billion in August 2007. The BSE has obtained SEBI approval to expand its BOLT network to more than 400 cities. (Source: BSE)

Derivatives trading commenced on the BSE in 2000. The BSE has wholesale and retail debt trading segments. Retail trading in government securities commenced in January 2003.

The National Stock Exchange of India Limited

The NSE serves as a national exchange, providing nationwide on-line satellite-linked screen based trading facilities with an electronic order-based trading system, and electronic clearing and settlement for securities, including government securities, debentures, public sector bonds and units. The principal aim of the NSE is to enable investors to buy or sell securities from anywhere in India and to serve as a national market for securities.

Deliveries for trades executed “on-market” are settled through the National Securities Clearing Corporation Limited. The NSE does not categorize shares into groups as in the case of the BSE, except in respect of the trade-to-trade category. Screen-based paperless trading and settlement is possible through the NSE from 354 cities in India. The NSE commenced operations in the wholesale debt market in June 1994, in capital markets in November 1994 and in derivatives in June 2000.

The average daily turnover of the capital market segment was Rs.105.1 billion as of August 31, 2007. The NSE launched the NSE 50 Index, now known as S&P CNX NIFTY, on April 22, 1996 and the mid-cap index on January 1, 1996. The securities in the NSE 50 Index are highly liquid. The market capitalization of the NSE was Rs.42,696.9 billion on August 31, 2007.

— 121 — The Calcutta Stock Exchange Association Limited

The CSE is the stock exchange on which the Existing Shares were originally listed for regulatory purposes. Incorporated in 1908, the CSE has approximately 945 members which includes corporate and institutional members. The number of companies listed on the CSE is more than 3,200. In 1997, the CSE replaced the old manual trading system with a computerized on-line trading and reporting system known as “C-STAR” (CSE Screen Based Trading and Reporting).

Takeover Code

Disclosures and mandatory bid obligations for listed Indian companies under Indian law are governed by the Takeover Code, which prescribes certain thresholds or trigger points that give rise to these obligations. The Takeover Code is under constant review by the SEBI and was last amended on May 28, 2007.

The salient features of the Takeover Code are as follows:

Any acquirer (meaning a person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in a company, or acquires or agrees to acquire control over a company, either by himself or with any person acting in concert) who acquires shares or voting rights that would entitle him to more than 5 per cent., 10 per cent., 14 per cent., 54 per cent. or 74 per cent. of the shares or voting rights in a company is required to disclose the aggregate of his shareholding or voting rights in that company to the company and to each of the stock exchanges on which the company’s shares are listed at every such stage within two days of (i) the receipt of intimation of allotment of shares or (ii) the acquisitions of shares or voting rights, as the case may be. The term “shares” has been defined under the Takeover Code to mean shares or any other security which entitles a person to receive shares with voting rights.

A person who holds more than 15 per cent. of the shares or voting rights in any company is required to make an annual disclosure of his holdings to that company within 21 days of the end of each financial year (which in turn is required to disclose the same to each of the stock exchanges on which the company’s shares are listed). Further, such person who holds 15 per cent. or more but less than 55 per cent. of the shares or voting rights in any company is required to disclose any purchase or sale of shares aggregating to 2 per cent. or more of the share capital of the company, to the company and to each of the stock exchanges where the shares of the company are listed within two days of (i) the receipt of intimation of allotment of shares or (ii) the annual sale or acquisitions of shares or voting rights, as the case may be.

Promoters or persons in control of a company are also required to make periodic disclosure of their holdings in the same manner as above, annually within 21 days of the end of each financial year as well as from the record date for entitlement of dividend.

An acquirer who, along with persons acting in concert, acquires 15 per cent. or more of the shares or voting rights of a company would be required to make a public announcement offering to acquire a further 20 per cent. of the shares of the company. Since the Company is an Indian listed company, the provisions of the Takeover Code will apply to the Company. However, no acquirer may acquire shares or voting rights through market purchases or preferential allotment which, taken together with the shares held by such acquirer, entitle him to exercise more than 55 per cent. of the voting rights in the company. Any acquisition of shares or voting rights in the aforesaid manner beyond 55 per cent. is required to be divested within one year in the manner provided in the Takeover Code.

— 122 — An acquirer who, together with persons acting in concert with him/her, has acquired 15 per cent. or more, but less than 55 per cent., of the shares or voting rights in the shares of a company, cannot acquire additional shares or voting rights that would entitle him to exercise more than 5 per cent. of the voting rights in any financial year unless such acquirer makes a public announcement offering to acquire a minimum of another 20 per cent. of the shares of the company. Any further acquisition of shares or voting rights by an acquirer who, together with persons acting in concert, holds 55 per cent. or more but less that 75 per cent. of the shares or voting rights in a company (or, where the company concerned has made the initial listing of its shares by making an offer of at least 10 per cent. of its post-issue paid-up capital to the public pursuant to Rule 19(2)(b) of the SCRR, less than 90 per cent. of the shares or voting rights in the company) would require such an acquirer to make an open offer to acquire a minimum of another 20 per cent. of the shares or voting rights of that company. However, if an acquisition made pursuant to an open offer results in the public shareholding in the target company being reduced below the minimum level required under the listing agreement of the stock exchanges, the acquirer would be required to take steps to facilitate compliance by the target company with the relevant provisions of the listing agreement within the timeframe provided therein.

In addition, regardless of whether there has been any acquisition of shares or voting rights in a company, an acquirer cannot directly or indirectly acquire control over a company (for example, by way of acquiring the right to appoint a majority of the directors or to control the management or the policy decisions of the company) unless such acquirer makes a public announcement offering to acquire a minimum of 20 per cent. of the voting capital of the company. However, the public announcement requirement will not apply to any change in control which takes place pursuant to a special resolution passed by way of a postal ballot of the shareholders of the company.

The Takeover Code sets out the contents of the required public announcements as well as the minimum offer price. The minimum offer price depends on whether the shares of the company are “frequently” or “infrequently” traded (as defined in the Takeover Code). Where the shares are frequently traded, the minimum offer price shall be the highest of:

• the negotiated price under the agreement for the acquisition of shares or voting rights in the company;

• the highest price paid by the acquirer or persons acting in concert with him/her for any acquisitions, including through an allotment in a public, preferential or rights issue, during the 26 week period prior to the date of public announcement; or

• the average of the weekly high and low of the closing prices of the shares of the company as quoted on the stock exchange where the shares of the company are most frequently traded during the 26 weeks or the average of the daily high and low of the closing prices of the shares as quoted on the stock exchange where the shares of the company are most frequently traded during the two weeks preceding the date of public announcement, whichever is higher.

The open offer for acquisition of a further minimum of 20 per cent. of shares of a company has to be made by way of a public announcement which is to be made within four working days of entering into an agreement for acquisition or deciding to acquire shares or voting rights exceeding the relevant percentages of shareholding in the company and/or control over the company.

— 123 — The Takeover Code provides that an acquirer who seeks to acquire any shares or voting rights whereby the public shareholding in the target company may be reduced to a level below the limit specified in the listing agreement with the stock exchange for the purpose of listing on a continuous basis may acquire such shares or voting rights only in accordance with the SEBI (Delisting of Securities) Guidelines. Further, the Takeover Code contains penal provisions in case of violation of any provisions.

The Takeover Code permits conditional offers as well as the acquisition and subsequent delisting of all shares of a company and provides specific guidelines for the gradual acquisition of shares or voting rights. Specific obligations of the acquirer and the board of directors of the target company in the offer process have also been set out. Acquirers making a public offer are also required to deposit in an escrow account a percentage of the total consideration, which amount will be forfeited in the event that the acquirer does not fulfill its obligations. In addition, the Takeover Code introduces the “chain principle” by which indirect acquisition by virtue of acquisition of companies, whether listed or unlisted, whether in India or abroad of a company listed in India will oblige the acquirer to make a public offer to the shareholders of each such company which is indirectly acquired.

The Takeover Code does not apply, inter alia, to certain specified acquisitions including the acquisition of shares (i) by allotment in a public and rights issue subject to the fulfillment of certain conditions, (ii) pursuant to an underwriting agreement, (iii) by registered stockbrokers in the ordinary course of business on behalf of clients, (iv) in unlisted companies, (v) pursuant to a scheme of reconstruction or amalgamation, (vi) pursuant to a scheme under the Sick Industrial Companies (Special Provisions) Act, 1985, (vii) resulting from transfers between companies belonging to the same group of companies or between promoters of a publicly listed company and their relatives, provided the relevant conditions are complied with, (viii) through inheritance on succession, (ix) resulting from transfers by Indian venture capital funds or foreign venture capital investors registered with the SEBI, to their respective promoters or to other venture capital undertakings or (x) by companies controlled by the Central or State Government unless such acquisition is made pursuant to a disinvestment process undertaken by the Central Government or a State Government. The Takeover Code does not apply to acquisitions in the ordinary course of business by public financial institutions either on their own account or as a pledgee. An application may also be filed with the Takeover Panel seeking exemption from the requirements of the Takeover Code.

In addition, the Takeover Code does not apply to the acquisition of global depository receipts, so long as they are not converted into shares carrying voting rights where the issuer is a public listed company.

In order to ensure availability for floating stocks of listed companies, the SEBI has recently notified amendments to the listing agreement. All listed companies are required to ensure that their minimum level of public shareholding remains at or above 25 per cent. of the total number of issued shares of a class or kind, for every such class or kind of its shares which are listed. This requirement does not apply to those companies who at the time of the initial public offer of their shares had offered at least 10 per cent. of their post-issue paid-up capital to the public pursuant to Rule 19(2)(b) of the SCRR, nor to companies that have reached a size of 20,000,000 or more in terms of the number of listed shares and Rs.10,000 million or more in terms of market capitalization. However, such listed companies are required to maintain the minimum level of public shareholding of 10 per cent. of the total number of issued ordinary shares of a class or kind for the purposes of the listing. Failure to comply with this clause in the Listing Agreement requires the company to delist its shares pursuant to the terms of the SEBI (Delisting of Securities) Guidelines and may result in penal action being taken against the listed company pursuant to the SEBI Act, 1992.

— 124 — Depositories

In August 1996, the Indian Parliament enacted the Depositories Act 1996 (the “Depositories Act”) which provides a legal framework for the establishment of depositories to record ownership details and effect transfers in electronic book-entry form. The SEBI has framed the Securities and Exchange Board of India (Depositories and Participants) Regulations 1996 which provide for the formation of such depositories, the registration of participants as well as the rights and obligations of the depositories, participants, the company, the beneficial owners and the issuers. The depository system has significantly improved the operations of the Indian securities markets.

Trading of securities in book-entry form commenced in December 1996. In January 1998, the SEBI notified scripts of various companies for compulsory dematerialized trading by certain categories of investors such as foreign institutional investors and other institutional investors and has also notified compulsory dematerialized trading in specified scripts for all retail investors. The SEBI has subsequently significantly increased the number of scripts in which dematerialized trading is compulsory for all investors. However, even in the case of scripts notified for compulsory dematerialized trading, investors, other than institutional investors, may trade in and deliver physical shares on transactions outside the stock exchange where there are no requirements to report such transactions to the stock exchange and on transactions on the stock exchange involving lots of less than 500 securities.

Transfers of shares in book-entry form require both the seller and the purchaser of the shares to establish accounts with depository participants registered with the depositories established under the Depositories Act. Upon delivery, the shares shall be registered in the name of the relevant depository in the relevant company’s books and this depository shall enter the name of the investor in its records as the beneficial owner, thus effecting the transfer of beneficial ownership. The beneficial owner shall be entitled to all rights and benefits of a shareholder and be subject to all liabilities in respect of his shares held by a depository. Every person holding shares of the company and whose name is entered as a beneficial owner in the records of the depository is deemed to be a member of the concerned company.

The Companies Act compulsorily provides that Indian companies making any initial public offerings of securities for or in excess of Rs.100 million should issue the securities in dematerialized form.

Derivatives (Futures and Options)

Trading in derivatives in India is governed by the SCRA, the SCRR and the SEBI Act. The SCRA was amended in February 2000 and derivative contracts were included within the term “securities”, as defined in the SCRA. Trading in derivatives in India takes place either on an independent derivative exchange or on separate segments of the existing stock exchanges. The derivative exchanges or the derivative segments of the stock exchanges function as a self- regulatory organization under the supervision of the SEBI. Derivative products were introduced in four phases in India, starting with futures contracts in June 2000 and index options, stock options and stock futures in June 2000, July 2001 and November 2001, respectively.

Insider Trading

The Insider Trading Regulations prevent insider trading in India by prohibiting an insider from dealing, either on his/her own behalf or on behalf of any other person, in the securities of a company listed on any stock exchange when in possession of unpublished price-sensitive information. The insider is also prohibited from communicating, counseling or procuring any unpublished price-sensitive information while in possession of such information. The prohibition under Regulation 3A also extends to a company dealing while in the possession of unpublished

— 125 — price-sensitive information, and is not restricted to insiders alone. It is to be noted that recently the SEBI has amended the Insider Trading Regulations to provide certain defenses to the prohibition on insiders in possession of unpublished price-sensitive information dealing in securities.

On a continuing basis under the Insider Trading Regulations, any person who holds more than 5 per cent. of the shares or of the voting rights in any listed company is required to disclose to the company the number of shares or voting rights held by him and any change in shareholding or voting rights (even if such change results in the shareholding falling below 5 per cent.). If there has been a change in such holdings since the last disclosure made, provided such change exceeds 2 per cent. of the total shareholding or voting rights in the company, such disclosure is required to be made within four working days of (i) the receipt of intimation of allotment of the shares or (ii) the acquisition or the sale of the shares or voting rights.

The Insider Trading Regulations make it compulsory for listed companies and certain other entities associated with the securities market to establish an internal code of conduct to prevent insider trading deals and also to regulate disclosure of unpublished price-sensitive information within such entities so as to minimize misuse thereof. To this end, the Insider Trading Regulations provide a model code of conduct. Further, the Insider Trading Regulations specify a model code of corporate disclosure practices to prevent insider trading, which is to be implemented by all listed companies and other such entities.

All directors, officers and substantial shareholders in a listed company are required to make periodic disclosures of their shareholding as specified in the Insider Trading Regulations.

— 126 — DESCRIPTION OF THE SHARES

Set forth below is certain information relating to the Company’s share capital, including brief summaries of certain provisions of the Company’s Memorandum and Articles of Association, the Companies Act and certain related legislation of India, all as currently in effect.

General

As of November 30, 2007, the Company’s authorized share capital was Rs.1.5 billion, comprising 150 million Shares of Rs.10 each of which 115,375,925 million Existing Shares were issued and fully-paid.

Capital Structure

As at November 17, 2007

(Rs. millions)

Authorized Share Capital 150,000,000 Shares of Rs.10 each...... 1,500.0 1,500.0 Issued Share Capital 121,675,897 Shares of Rs.10 each...... 1,216.8 1,216.8 Subscribed and Paid-up Share Capital 115,375,925 Shares of Rs.10 each ...... 1,153.8 Add: Forfeited Shares (amount originally paid-up)...... 6.6 1,160.4 Share Premium Account ...... 6,736.0

7,896.4

Issued Share Capital History

Date of Issue Allotted Par Value Issue Price Consideration Comments

(Rs.) (Rs. million)

Opening Balance in 17.620 Brought Share Premium forward from Account ...... the accounts of the Calcutta Electric Supply Corporation Limited, a company incorporated in England

— 127 — Shares

Date of Issue Allotted Par Value Issue Price Consideration Comments

(Rs.) (Rs. million)

March 28, 1978 ...... 75 10.00 10.00 0.001Allottedto subscribers April 7, 1979 ...... 7,194,951 10.00 10.00 71.950 Allotted to the shareholders of the Calcutta Electric Supply Corporation Limited pursuant to a Scheme of Arrangement and Amalgamation September 24, 1981 . . 300,000 10.00 10.00 3.000 Conversion of loans October 30, 1981 .... 650,000 10.00 10.00 6.500 Conversion of loans May 5, 1982 ...... 300,000 10.00 10.00 3.000 Conversion of loans October 1, 1986 ..... 8,500,000 10.00 10.00 85.000 Rights Issue July 1, 1991 ...... 3,994,596 10.00 25.00 99.621 Rights Issue December 1, 1991 .... 9,175,980 10.00 25.00 229.400 Conversion of debenture April 25, 1995 ...... 8,366,140 10.00 U.S.$10.67 2,799.772 Issue of 8,366,140 GDRs representing 8,366,140 Shares at U.S.$53.34 per unit of 5 GDRs July 29, 1995 ...... 5,000,000 10.00 142.00 710.000 Private Placement July 24, 1996 ...... 3,497,000 10.00 80.00 27.976 Conversion of Warrant ‘A’ July 24, 1996 ...... 11,841,437 10.00 50.00 468.931 Conversion of Warrant ‘A’ October 15, 1996 .... 104,648 10.00 50.00 5.232 Conversion of Warrant ‘A’ April 1, 1997 ...... 8,103 10.00 50.00 0.405 Conversion of Warrant ‘A’ February 15, 1999 .... 10,188,665 10.00 20.00 203.407 Conversion of Warrant ‘B’ October 15, 2003 .... 3,300,000 10.00 49.70 164.010 Preferential Issue November 22, 2004 . . . 8,265,203 10.00 60.00 495.912 Rights Issue

— 128 — Shares

Date of Issue Allotted Par Value Issue Price Consideration Comments

(Rs.) (Rs. million)

September 30, 2005 . . 7,930,685 10.00 U.S.$5.0437 1,760.720 Issue of 7,930,685 GDRs representing 7,930,685 Shares March 12, 2007 ...... 2,000,000 10.00 216.68 433.360 Preferential Issue October 12, 2007 .... 31,058,414 10.00 310.584 Allotted pursuant to Scheme of Amalgamation Forfeiture on August (6,263,293) 10, 1999 ...... Forfeiture on July 24, (36,679) 2004 ...... Total...... 115,375,925 7,896.401

Memorandum of Association

Under the provisions of its Memorandum of Association, the Company is entitled to carry on the business of an electric light and power company in all its branches and to generate, accumulate, distribute and supply electricity for the purposes of light, heat, motive power and all other purposes for which electrical energy can be employed and to manufacture and deal in all apparatus and things required for or capable of being used in connection with the generation, distribution, supply, accumulation and employment of electricity. Further, the Company is also entitled to acquire concessions and licenses granted by and to enter into contracts with the Central Government or any State Government or any municipal or local authority for the construction and maintenance of any electric installation for the production, transmission or use of electric power.

Dividends

Under the Companies Act, unless the Board recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. The shareholders at a general meeting may declare a lower, but not higher, dividend than that recommended by the Board. Dividends are generally declared as a percentage of the par value of the Shares. The dividend recommended by the Board and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid-up value of their Shares as on the record date for which such dividend is payable. In addition, as is permitted by the Articles of Association, the Board may announce and pay interim dividends. Under the Companies Act, dividends can only be paid in cash to shareholders listed on the register of shareholders on the date which is specified as the “record date” or “book closure date” or to those shareholders registered in NSDL and CDSL. No shareholder is entitled to a dividend while any lien in respect of unpaid calls on any of his Shares is outstanding.

The Shares now being offered rank pari passu with the Existing Shares of the Company in all respects including entitlement to the dividend declared.

— 129 — Dividends must be paid within 30 days of the date of declaration and any dividend that remains unpaid or unclaimed after that period must be transferred within seven days to a special unpaid dividends account held at a scheduled bank. Any money that remains unpaid or unclaimed for seven years from the date of such transfer must be transferred to the investor protection fund created by the Government.

Under the Companies Act, the Company may pay a dividend in excess of 10 per cent. of paid-up Share capital in respect of any year out of the profits of that year only after it has transferred to the reserves of the Company a percentage of its profits for that year ranging between 2.5 per cent. and 10 per cent. depending on the rate of dividend proposed to be declared in that year. The Companies Act further provides that if the profit for a year is insufficient, the dividend for that year may be declared out of the accumulated profits earned in previous years and transferred to reserves, subject to the following conditions: (i) the rate of dividend to be declared may not exceed the lesser of the average of the rates at which dividends were declared in the five years immediately preceding the year, or 10 per cent. of paid-up capital; (ii) the total amount to be drawn from the accumulated profits from previous years and transferred to the reserves may not exceed an amount equivalent to one-tenth of the paid-up capital and free reserves, and the amount so drawn is first to be used to set off the losses incurred in the financial year before any dividends in respect of preference shares or Shares; and (iii) the balance of reserves after withdrawals must not be below 15 per cent. of paid-up capital.

Capitalization of Reserves and Issue of Bonus Shares

The Company’s Articles of Association permit the Company, by a resolution of the shareholders in a general meeting, to resolve in certain circumstances that certain amounts standing to the credit of certain reserves or securities premium can be capitalized by the issue of fully paid bonus shares or by crediting shares not fully paid-up with the whole or part of any sum outstanding. Bonus shares must be issued pro rata to the amount of capital paid-up on existing shareholdings.

Any issue of bonus shares would be subject to the guidelines issued by the SEBI in this regard. The relevant SEBI Guidelines prescribe that no company shall, pending conversion of convertible securities, issue any shares by way of bonus unless similar benefit is extended to the holders of such convertible securities through reservation of shares in proportion to such conversion. The bonus issue shall be made out of free reserves built out of the genuine profits or share premium collected in cash only. The bonus issue cannot be made unless any partly paid shares are made fully paid-up. Further, for the issuance of such bonus shares a company should not have defaulted in the payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption of such debentures. The declaration of bonus shares in lieu of dividend cannot be made. Further, a company should have sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees such as contributions to provident funds, gratuities or bonuses. The issuance of bonus shares must be implemented within six months from the date of approval by the Board, the directors or the shareholders, whichever is later. Recent amendments also permit an Indian company to issue bonus shares to its non-resident shareholders, subject to the satisfaction of certain conditions.

Pre-emptive Rights and Alteration of Share Capital

Subject to the provisions of the Companies Act, the Company may increase its share capital by issuing new Shares on such terms and with such rights as the Company, by action of shareholders in a general meeting, determines. Such new Shares shall be offered to existing shareholders listed on the members’ register on the record date or to shareholders holding shares in dematerialized form as per the list provided by NSDL and CDSL in proportion to the amount paid up on those Shares at that date. The offer shall be made by notice specifying the number of Shares offered and the date (being not less than 30 days from the date of the offer) after which the offer, if not accepted, will be deemed to have been declined. After such date the Board may

— 130 — dispose of the Shares offered in respect of which no acceptance has been received, in such manner as they think most beneficial to the Company. The offer is deemed to include a right exercisable by the person concerned to renounce the Shares offered to him in favor of any other person provided that the person in whose favor such Shares have been renounced is approved by the Board in its absolute discretion.

Under the provisions of the Companies Act, new shares may be offered to any persons whether or not those persons include existing shareholders, either if a special resolution to that effect is passed by the shareholders of the company in a general meeting or, where only a simple majority of shareholders present and voting has passed the resolution, the Central Government’s permission has been obtained. The present issuance of the Shares has been duly approved by a special resolution of the shareholders of the Company dated November 17, 2007 and such shareholders have waived their pre-emptive rights with respect to such Shares.

The Company’s issued share capital may, among other things, be increased by the exercise of warrants attached to any security of the Company, or individually issued which entitle the holder to subscribe for Shares in the Company, or upon the conversion of convertible debentures issued. The issue of any convertible debentures or the taking of any convertible loans, other than from the Central Government and financial institutions, requires the approval of a special resolution of shareholders.

The Articles of Association provide that the Company may, in accordance with the provisions of the Companies Act, by resolution passed at the general meeting, consolidate or sub-divide its share capital, or cancel Shares which have not been taken up by any person.

Under the Companies Act, a company may issue redeemable preference shares if so authorized by the articles of association of the company. The Articles of Association of the Company give the Company the power to issue preference shares but: (i) no such shares shall be redeemed except out of profits of the Company which would otherwise be available for dividends or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; (ii) no such shares shall be redeemed unless they are fully paid; (iii) the premium, if any, payable on redemption shall have been provided for out of the profits of the Company or out of the Company’s share premium account, before the shares are redeemed; (iv) where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall be transferred to a reserve fund, to be called the Capital Redemption Reserve Account, a sum equal to the nominal amount of the shares redeemed out of profits which would otherwise have been available for dividends; and (v) the provisions of the Companies Act relating to the reduction of the share capital of a company shall apply as if such reserve account were paid-up share capital of such company. Preference shares must be redeemable before the expiry of a period of 20 years from the date of their issue.

General Meetings of Shareholders

The Company must hold its AGM each year within 15 months of the previous AGM unless extended by the Registrar of Companies at the request of the Company for any special reason. The Board may convene an extraordinary general meeting of shareholders when necessary or at the request of a shareholder or shareholders holding in the aggregate not less than 10 per cent. of the paid-up capital of the Company. Written notices convening a meeting setting out the date, place and agenda of the meeting must be given to members at least 21 clear days prior to the date of the proposed meeting. A general meeting may be called after giving shorter notice if consent is received from all shareholders entitled to vote, in the case of an AGM, and from shareholders holding not less than 95 per cent. of the paid-up capital of the Company in the case of any other general meeting. Currently, the Company gives written notices to all members and,

— 131 — in addition, gives public notice of general meetings of shareholders in a daily newspaper of general circulation in the region of the registered office of the Company. General meetings are generally held in the city where the registered office of the Company is situated. The quorum for a general meeting of the Company is five shareholders personally present.

A company intending to pass a resolution relating to matters such as, but not limited to, making an amendment to the objects clause of the memorandum, buyback of shares under the Companies Act, giving loans or extending guarantees in excess of limits prescribed under the Companies Act and guidelines issued thereunder is required to obtain a resolution passed by means of a postal ballot instead of transacting the business in the general meeting of the company. A notice to all the shareholders shall be sent along with a draft resolution explaining the reasons therefor and requesting them to send their assent or dissent in writing on a postal ballot within a period of 30 days from the date of posting the letter.

Voting Rights

At a general meeting, upon a show of hands, every member holding shares and entitled to vote and present in person has one vote. Upon a poll the voting rights of each shareholder entitled to vote and present in person or by proxy and in the same proportion as the capital paid-up on each share held by such holder bears to the total paid-up capital of the Company.

Voting is by show of hands, unless a poll is ordered by the Chairman of the meeting or demanded by a shareholder or shareholders holding at least 10 per cent. of the voting rights in respect of the resolution or by those holding paid-up capital of at least Rs.50,000 (i.e. 5,000 Shares of Rs.10 each). The Chairman of the meeting has a casting vote.

Ordinary resolutions may be passed by simple majority of those present and voting. Special resolutions require the vote of three quarters of the members present and voting. The Companies Act provides that, to amend the Articles of Association, a special resolution is required to be passed in a general meeting. Certain instances, including dissolutions, merger or consolidation of the Company, preferential allotment of Shares, transfer of the whole or a significant part of the business of the Company to another company or taking over the whole of the business of any other company and, in any case where shareholding of public financial institutions and nationalized banks exceeds 25 per cent., appointment of statutory auditors, require a special resolution.

A shareholder may exercise his voting rights by proxy to be given in the form required by the Articles of Association of the Company. The instrument appointing a proxy is required to be lodged with the Company at least 48 hours before the time of the meeting. Any shareholder of the Company may appoint a proxy. A proxy shall not vote except on a poll and does not have a right to speak at meetings. A corporate shareholder is also entitled to nominate a representative to attend and vote on its behalf at general meetings, who shall not be deemed a proxy. Such an authorized representative can vote in all respects as if a member, including on a show of hands and a poll.

The Companies Act allows for a company to issue shares with differential rights as to dividends, voting or otherwise subject to certain conditions prescribed under applicable law. In this regard, the laws require that for a company to issue shares with different voting rights the company must (i) have had distributable profits within the meaning of the Companies Act for a period of three financial years, (ii) the company must not have defaulted in filing annual accounts and annual returns for the immediately preceding three years, (iii) the Articles of Association of the Company must allow for the issuance of such shares with different voting rights and (iv) such other conditions set forth in the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001 must have been complied with.

— 132 — Convertible Securities/Warrants

The Company may issue from time to time debt instruments that are partly and fully convertible into Shares and/or warrants to purchase Shares.

The Company is obliged to maintain a register of shareholders at its registered office. The register and index of beneficial owners maintained by a depository under the Depositories Act is deemed to be an index of members and a register and index of debenture holders. The Company recognizes as shareholders only those persons who appear on its register of shareholders and the Company cannot recognize any person holding any Share or part of it upon any trust, express, implied or constructive, except as permitted by law. In the case of Shares held in physical form, the Company registers transfers of Shares on the register of shareholders upon submission of the share transfer form duly complete in all respects accompanied by a share certificate, or, if there is no certificate, the letter of allotment in respect of the Shares to be transferred together with duly stamped transfer forms. In respect of electronic transfers, the depository transfers Shares by entering the name of the purchaser in its books as the beneficial owner of the Shares. In turn, the Company enters the name of the depository in its records as the registered owner of the Shares. The beneficial owner is entitled to all the rights and benefits as well as the liabilities with respect to the Shares that are held by the depository. Transfer of beneficial ownership through a depository is exempt from any stamp duty.

For the purpose of determining the shareholders, the register may be closed for periods not exceeding 45 days in any one year or 30 days at any one time. In order to determine the shareholders entitled to dividends the Company generally keeps the register of shareholders closed for approximately seven to 15 days before the AGM. Under the listing regulations of the Indian Stock Exchanges (on which the Company’s outstanding Shares are listed), the Company may, upon at least 15 days’ advance notice to such stock exchanges, set a record date and/or close the register of shareholders in order to ascertain the identity of shareholders. The trading of Shares and the delivery of certificates in respect thereof may continue while the register of shareholders is closed.

Annual Report and Financial Results

The Annual Report must be laid before the AGM. It includes certain financial information of the Company, a corporate governance section and management’s discussion and analysis and is made available for inspection at the Company’s registered office during normal working hours for 21 days prior to the AGM.

Under the Companies Act, the Company must file the Annual Report with the Registrar of Companies within seven months from the date of the end of the accounting year or 30 days from the date of the AGM, whichever is the earlier. As required under the Listing Agreement, copies are required to be simultaneously sent to the Indian Stock Exchanges. The Company must also publish its unaudited financial results in at least one English language daily newspaper circulating in the whole or substantially the whole of India and also in a newspaper published in the language of the region where the registered office of the Company is situated.

The Company files certain information on its website, including its Annual Report, half-yearly financial statements, report on corporate governance and the shareholding pattern statement, in accordance with the requirements of the Listing Agreement.

— 133 — Transfer of Shares

Following the introduction of the Depositories Act, and the repeal of Section 22A of the SCRA, which enabled companies to refuse to register the transfer of shares in some circumstances, the shares of a public company became freely transferable, subject only to the provisions of Section 111A of the Companies Act. Since the Company is a public company, the provisions of Section 111A apply to it. Furthermore, in accordance with the provisions of Section 111A(2) of the Companies Act, the Board may refuse to register a transfer of Shares within two months from the date on which the instrument of transfer or intimation of transfer, as the case may be, is delivered to the Company, if they have sufficient cause to do so. If the Board refuses to register a transfer of Shares, the shareholder wishing to transfer his, her or its shares may file an appeal with the Company Law Board and the Company Law Board can direct the Company to register such transfer.

Pursuant to Section 111A(3), if a transfer of shares contravenes any of the provisions of the SEBI Act, 1992, or the regulations used thereunder or any other Indian laws, the Company Law Board may, on application made by a company, a depository, a participant, an investor or the SEBI, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or the intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct that the register of transfers be rectified. If a company, without sufficient cause, refuses to register a transfer of shares within two months from the date on which the instrument of transfer is delivered to the company, the transferee may appeal to the Company Law Board seeking to register the transfer. The Company Law Board may, in its discretion, issue an interim order suspending the voting rights attached to the relevant shares before making or completing its investigation into the alleged contravention. Further, the provisions of Section 111A do not restrict the right of a holder of shares or debentures to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by the Company Law Board. By the Companies (Second Amendment) Act, 2002, the Company Law Board is proposed to be replaced by the National Company Law Tribunal, which is expected to be set up shortly.

Shares held through depositories are transferred in the form of book-entries or in electronic form in accordance with the regulations laid down by the SEBI. These regulations provide the regime for the functioning of the depositories and the participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system. Transfers of beneficial ownerships of shares held through a depository are exempt from stamp duty. The Company has entered into an agreement for such depository services with NSDL and CDSL. Intime Spectrum Registry Limited are the registrars who maintain all records pertaining to physical transfer and transmission of shares and details of transfers and transmissions in electronic form through electronic connectivity with NSDL and CDSL.

The SEBI requires that the Company’s Shares, for trading and settlement purposes, be in book-entry form for all investors, except for transactions that are not made on a stock exchange and transactions that are not required to be reported to a stock exchange.

Transfers of shares in book-entry form require both the seller and the purchaser of the shares to establish accounts with depository participants appointed by depositories established under the Depositories Act, 1996. Charges for opening an account with a depository participant, transaction charges for each trade and custodian charges for securities held in each account vary depending upon the practice of each depository participant. Upon delivery, the shares shall be registered in the name of the relevant depository on the Company’s books and this depository shall enter the name of the investor in its records as the beneficial owner. The transfer of beneficial ownership shall be entitled to all rights and benefits and subject to all liabilities in

— 134 — respect of his securities held by a depository. Transfer of beneficial ownership through a depository is exempt from any stamp duty but each depository participant may have its own depository charges. A transfer of shares by way of share transfer form attracts stamp duty at the rate of 0.25 per cent of the transfer price.

The Companies Act provides that the shares or debentures of a public listed company (such as the Company) shall be freely transferable. The Company’s Articles of Association provide for certain restrictions on the transfer of Shares, including granting power to the Board in certain circumstances to refuse to register or acknowledge the transfer of Shares or other securities issued by the Company.

Acquisition by the Company of its Own Shares

The Company is prohibited from acquiring its own Shares unless the consequent reduction of capital is effected by an approval of at least 75 per cent. of the shareholders voting on the matter and is also sanctioned by the High Court of competent jurisdiction. However, pursuant to certain amendments to the Companies Act, a company is empowered to purchase its own shares or other specified securities out of its free reserves, or the securities premium account or the proceeds of any shares or other specified securities (other than the kind of shares or other specified securities proposed to be bought back) subject to certain conditions, including:

(i) the buyback must be authorized by the articles of association of the company;

(ii) a special resolution has been passed at the general meeting of the company authorizing the buyback;

(iii) the buyback is limited to 25 per cent. of the total paid-up capital and free reserves;

(iv) the ratio of debt owed by the company is not more than twice the capital and free reserves after such buyback; and

(v) the buyback is in accordance with the Securities and Exchange Board of India (Buy-Back of Securities) Regulation, 1998.

The condition mentioned above in (ii) is not applicable if the buyback is for less than 10 per cent. of the total paid-up equity capital and free reserves of the company provided that such buyback has been authorized by the board of directors. A company buying back its securities is required to extinguish and physically destroy the securities so bought back within seven days of the last date of completion of the buyback. Further, a company buying back its securities is not permitted to buy back any securities for a period of one year from the buyback or to issue new securities for six months.

The Company is also prohibited from purchasing its own Shares or specified securities directly or through any entity (other than a purchase of Shares in accordance with a scheme for the purchase of shares by trustees of or for Shares to be held by or for the benefit of employees of the Company) or if the Company is defaulting on the repayment of deposit or interest, redemption of debentures or preference Shares or payment of dividend to a shareholder or repayment of any term loan or interest payable thereon to any financial institution or bank, or in the event of non-compliance with certain other provisions of the Companies Act.

— 135 — Liquidation Rights

Subject to the rights of creditors, workmen and of the holders of any other Shares entitled by their terms of issue to preferential repayment over the Shares, in the event of winding up the Company, the holders of the Shares are entitled to be repaid the amounts of capital paid-up or credited as paid-up on such Shares. All surplus assets after payments due to workmen, the holders of any preference Shares and other creditors belong to the holders of the Shares in proportion to the amount paid-up or credited as paid-up on such Shares respectively at the commencement of the winding-up.

Disclosure of Ownership Interests

The provisions of the Companies Act generally require beneficial owners of shares of Indian companies that are not holders of record to declare to the company details of the holder of record and holders of record to declare details of the beneficial owner. Failure to comply with these provisions would not affect the obligation of a company to register a transfer of shares or to pay any dividends to the registered holder of any shares in respect of which this declaration has not been made, but any person who fails to make the required declaration may be liable for a fine of up to Rs.1,000 for each day this failure continues.

— 136 — TRANSFER RESTRICTIONS

Resales of Shares by “qualified institutional buyers” (as defined in Rule 144A), except on recognized stock exchanges, are not permitted for a period of one year from the date of allotment, pursuant to Chapter XIII-A of the SEBI Guidelines. Because the following additional restrictions will apply, investors are advised to consult legal counsel prior to making any resale, pledge or transfer of the Shares.

Shares Offered and Sold within the United States

Each purchaser of the Shares within the United States pursuant to Section 4(2) of the Securities Act or another exemption from registration thereunder, by accepting delivery of this Placement Document, will be deemed to have represented, agreed and acknowledged that:

(1) It (a) is a “qualified institutional buyer” (as defined in Rule 144A), (b) is aware that the sale of the Shares to it is being made in reliance on an exemption from registration requirements of the Securities Act (which may include Section 4(2) or Rule 144A) and (c) is acquiring such Shares for its own account or for the account of a “qualified institutional buyer”, as the case may be, without a view to distributing the Shares.

(2) It understands that the Shares have not been and will not be registered under the Securities Act and may not be offered, sold, pledged or otherwise transferred except (a) for a period of one year from the date of allotment, in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S and on a recognized stock exchange, as applicable, and (b) thereafter (i) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believes is a qualified institutional buyer (within the meaning of Rule 144A under the Securities Act) purchasing for its own account or for the account of a qualified institutional buyer, (ii) in an offshore transaction in accordance with Rule 903 or 904 of Regulation S, (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if available) or (iv) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any State of the United States.

(3) It understands that the Shares purchased pursuant to Section 4(2) of the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act (including Rule 144A) (to the extent they are in certificated form), unless the Company determines otherwise in accordance with applicable law, will bear a legend substantially to the following effect:

“THESE SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)ORWITHANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. BY ITS ACCEPTANCE OF A SHARE, THE PURCHASER WILL BE DEEMED TO REPRESENT THAT IT IS NOT ACQUIRING SUCH SHARES WITH A VIEW TO ANY DISTRIBUTION THEREOF AND THAT IT IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A “QIB”) AND THAT IT IS EITHER PURCHASING THE SHARES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB. THESE SHARES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) FOR A PERIOD OF ONE YEAR FROM THE DATE OF ALLOTMENT, IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S AND ON A RECOGNIZED STOCK EXCHANGE, AS APPLICABLE, AND (B) THEREAFTER (I) IN ACCORDANCE WITH RULE 144A TO A PERSON THAT IT AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, (II) IN AN OFFSHORE TRANSACTION IN

— 137 — ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THESE SHARES.”

(4) If it is acquiring any Shares for the account of one or more qualified institutional buyers (as defined in Rule 144A under the Securities Act), it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account.

(5) The Company, each Joint Global Coordinator and Book Running Lead Manager, their respective affiliates and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements.

Regulation S Shares

Each purchaser of the Shares outside the United States pursuant to Regulation S, by accepting delivery of this Placement Document and those Shares, will be deemed to have represented, agreed and acknowledged that:

(1) It is, or at the time the Shares are purchased pursuant to Regulation S will be, the beneficial owner of such Shares and (a) it is located outside the United States (within the meaning of Regulation S) and (b) it is not an affiliate of the Company or a person acting on behalf of such an affiliate.

(2) It understands that the Shares have not been and will not be registered under the Securities Act and it is aware that the sale of such Shares to it is being made pursuant to and in accordance with Rule 903 or 904 of Regulation S.

(3) The Company, each Joint Global Coordinator and Book Running Lead Manager, their respective affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements.

General

Any resale or other transfer, or attempted resale or other transfer, made otherwise than in compliance with the above-stated restrictions shall not be recognized by the Company in respect of the Shares.

— 138 — SELLING RESTRICTIONS

General

The Company has been advised that the Joint Global Coordinators and Book Running Lead Managers propose to sell the Shares to not more than 49 QIBs at the price set forth on the cover page of this Placement Document in India pursuant to the SEBI Regulations, outside the United States in reliance on Regulation S and in the United States pursuant to Section 4(2) of the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act (which may include Rule 144A). The price at which the Shares are offered may be changed at any time without notice.

United States

The Shares have not been and will not be registered under the U.S. Securities Act or any state securities laws in the United States and may not be offered or sold within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act. The Joint Global Coordinators and Book Running Lead Managers are expected to make offers and sales of the Shares to “qualified institutional buyers” (as such term is defined in Rule 144A under the Securities Act) in the United States pursuant to Section 4(2) of the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act (which may include Rule 144A).

— 139 — PLACEMENT PROCEDURE

Below is a summary intended to present a general outline of the procedure relating to the bidding, payment, allocation and allotment of the Shares. The procedure followed in the Issue may differ from the one mentioned below and prospective investors are assumed to have appraised themselves of the same from the Company or the Joint Global Coordinators and Book Running Lead Managers. Prospective investors are advised to inform themselves of any restrictions or limitations that may be applicable to them.

Qualified Institutions Placements

The Issue is being made in reliance upon the SEBI Guidelines through the mechanism of Qualified Institutions Placements, pursuant to which an Indian listed company may issue and allot Shares, fully convertible debentures, partly convertible debentures or any other security (excluding warrants) on a private placement basis to QIBs as defined in clause 2.2.2B (v) of the SEBI (DIP) Guidelines and below.

The Company has applied for and received the approval of the Indian Stock Exchanges under Clause 24(a) of the listing agreements. The Company has also filed a draft of this Placement Document with the Indian Stock Exchanges.

Issue Procedure

1. The Company and the Joint Global Coordinators and Book Running Lead Managers shall circulate the Placement Document either in electronic form or physical form to not more than 49 QIBs.

2. The Joint Global Coordinators and Book Running Lead Managers shall deliver to such QIBs a Bid cum Application form (each, a “Bid cum Application Form”). The list of QIBs to whom the Bid cum Application Form is delivered shall be determined by the Joint Global Coordinators and Book Running Lead Managers at their sole discretion. Unless this Placement Document and Bid cum Application Form is pre-numbered serially and addressed to a particular QIB, no invitation to subscribe shall be deemed to have been made. Even if such documentation were to come into the possession of any person other than the intended recipient, no offer or invitation to offer shall be deemed to have been made to such person.

3. QIBs may submit their bids/applications through the Bid cum Application Form during the bidding period to the Joint Global Coordinators and Book Running Lead Managers.

4. QIBs would have to indicate the following in the Bid cum Application Form:

(a) the full official name of the QIB;

(b) the number of Shares bid for;

(c) the price at which they are willing to apply for the Shares, provided that QIBs may also indicate that they are willing to submit a bid at “Cut-off Price” which shall be any price as may be determined by the Company in consultation with the Joint Global Coordinators and Book Running Lead Managers at or above the minimum price calculated in accordance with clause 13A.3 of the SEBI Guidelines (“the Floor Price”) (being, in the case of the Company, Rs.573.25); and

(d) the details of the dematerialized account(s) to which the Shares should be credited.

— 140 — Note: Each sub-account of an FII will be considered as an individual QIB and separate Bid cum Application Form would be required from each sub-account for submitting bids.

5. Based on the Bid cum Application Forms received from the QIBs who have received a serially numbered copy of this Placement Document either in electronic form or physical form, the Company shall decide: (i) the price at which the Shares will be offered (the “Offer Price”), which shall be at or above the Floor Price; and (ii) the number of Shares to be issued, in each case, in consultation with the Joint Global Coordinators and Book Running Lead Managers. The Company shall notify the Indian Stock Exchanges of the Offer Price. On determination of the Offer Price, each QIB to whom an allocation shall be made shall be sent Confirmation of Allocation Note (each, a “CAN”). Each CAN shall contain details of the number of Shares allocated to the QIB, the details of the amounts payable by the QIB for the allocation of Shares in its name and the date applicable to the respective QIB on which payment of the application monies is required to be made in respect of the Shares. The decision of the Company and the Joint Global Coordinators and Book Running Lead Managers in this regard shall be at their sole and absolute discretion.

6. After the receipt of the Bid cum Application Forms, the bid Closing Date shall be notified to the Indian Stock Exchanges and the QIBs shall be deemed to have been given notice of the same. Upon receipt of the application monies from the QIBs, the Company shall issue and allot the Shares to those QIBs as per the details provided for in their respective CANs. The Company shall intimate to the Indian Stock Exchanges the details of such allocation.

7. After receipt of the in-principle approval of the Indian Stock Exchanges, the Company shall credit the Shares into the depository participant accounts of the QIBs.

8. The Company shall then apply for the final trading and listing permissions from the Indian Stock Exchanges.

9. The Shares that have been so allotted and credited to the depository participant accounts of the QIBs shall be eligible for trading on the Indian Stock Exchanges only upon the receipt of final trading and listing approvals from the Indian Stock Exchanges.

10. The Indian Stock Exchanges shall notify the final trading and listing permissions, which are ordinarily available on their websites, and the Company shall communicate the receipt of the final trading and listing permissions from the Indian Stock Exchanges to those QIBs to whom the Shares have been allotted. The Company shall not be responsible for any delay or non-receipt of the communication of the final trading and listing permissions from the Indian Stock Exchanges or any loss arising from such delay or non-receipt. QIBs are advised to appraise themselves of the status of the receipt of the permissions from the Indian Stock Exchanges or the Company.

Qualified Institutional Buyers

Only QIBs as defined in clause 2.2.2B(v) of the SEBI (DIP) Guidelines are eligible to invest. Currently these include:

• public financial institutions as defined in section 4A of the Companies Act, 1956;

• scheduled commercial banks;

• mutual funds registered with the SEBI (“Mutual Funds”);

— 141 — • FIIs;

• multilateral and bilateral development financial institutions;

• venture capital funds registered with the SEBI;

• foreign venture capital investors registered with the SEBI;

• state industrial development corporations;

• insurance companies registered with Insurance Regulatory and Development Authority, India;

• provident funds with minimum corpus of Rs.250 million; and

• pension funds with minimum corpus of Rs.250 million.

FIIs are permitted to participate in the Issue through the portfolio investment scheme. FIIs are permitted to participate in the Issue, subject to compliance with all applicable laws and such that the shareholding of the FIIs does not exceed the specified limits in this regard.

The Company and the Joint Global Coordinators and Book Running Lead Managers are not liable for any amendments or modifications or changes in applicable laws or regulations, which may occur after the draft of the Placement Document is filed with the Indian Stock Exchanges. QIBs are advised to make their own independent investigations and satisfy themselves that they are eligible to bid. QIBs are advised to ensure that any single bid from them does not exceed the investment limits or maximum number of Shares that may be held by them under applicable laws or regulation or as specified in this Placement Document. Further, QIBs are required to satisfy themselves that any requisite compliances pursuant to this allotment such as public disclosures under applicable laws are complied with. QIBs are advised to consult their advisers in this regard. Further, QIBs are required to satisfy themselves that their bids would not eventually result in triggering a tender offer under the Takeover Code.

Note: Affiliates or associates of the Joint Global Coordinators and Book Running Lead Managers who are QIBs may participate in the Issue in compliance with applicable laws.

Application and Bidding

Bid cum Application Form

QIBs shall only use the serially numbered Bid cum Application Form supplied by the Joint Global Coordinators and Book Running Lead Managers in either electronic form or by physical delivery for the purpose of making a bid in accordance with the terms of this Placement Document.

— 142 — By making a bid for Shares pursuant to the terms of this Placement Document, each QIB will be deemed to have given the following representations and warranties and to have agreed to comply with the provisions set out under “Placement — Selling Restrictions”, namely:

(a) the QIB confirms that it is a Qualified Institutional Buyer in terms of Clause 2.2.2B(v) and is eligible to participate in the Issue;

(b) the QIB confirms that it has no rights under a shareholders agreement or voting agreement with the Company, no veto rights or right to appoint any nominee director on the Board of the Company other than that acquired in the capacity of a lender;

(d) the QIB confirms that if allotted Shares pursuant to this Placement Document, it shall, for a period of one year from allotment, sell the Shares so acquired only on the floor of the Indian Stock Exchanges;

(e) the QIB confirms that the QIB is eligible to bid and hold Shares so allotted and together with any Shares held by the QIB prior to the Offering and the QIB further confirms that the holdings of the QIB, do not, and shall not, exceed the level permissible as per any regulations applicable to the QIB;

(f) the QIB confirms that the bid would not eventually result in triggering an open offer under the Takeover Code; and

(g) the QIB confirms that to the best of its knowledge and belief together with other QIBs in the Issue that belong to the same group or are under common control, the allotment to the QIB shall not exceed 50 per cent. of the aggregate amount of the Issue.

For the purposes of this statement:

(i) the expression “belongs to the same group” shall derive meaning from the concept of “companies under the same group” as provided in sub-section (11) of Section 372 of the Companies Act, 1956; and

(ii) “Control” shall have the same meaning as is assigned to it by clause (c) of Regulation 2 of the Takeover Code.

— 143 — Submission of Bid cum Application Form

All Bid cum Application Forms shall be duly completed including price and the number of Shares bid. All Bid cum Application Forms duly completed along with copy of the PAN card shall be submitted to the Joint Global Coordinators and Book Running Lead Managers. The Bid cum Application Form shall be submitted within the Bidding Period to the Joint Global Coordinators and Book Running Lead Managers either in electronic form or through physical delivery at the following address:

Name: Name: Name: CLSA India Limited Citigroup Global Markets Kotak Mahindra Capital India Private Limited Company Ltd.

Address: Address: Address: 8/F, Dalamal House 12th Floor, Bakhtawar 3rd Floor, Bakhtawar Nariman Point Nariman Point 229, Nariman Point Mumbai 400 021 Mumbai 400 021 Mumbai 400 021 India India India

Contact Person: Contact Person: Contact Person: Mr. Sumit Jalan Mr. Niraj Karwa Mr. Karl Sahukar

Fax: Fax: e-mail: +(91) 22 2285 6524 +(91) 22 6631 9973 [email protected]

The Joint Global Coordinators and Book Running Lead Managers shall not be required to provide any written acknowledgement of the same.

Pricing and Allocation

Build-up of the Book

The QIBs shall submit their bids through the Bid cum Application Forms within the Bidding Period to the Joint Global Coordinators and Book Running Lead Managers who shall maintain the Book. The Joint Global Coordinators and Book Running Lead Managers shall not be required to provide any written acknowledgement to the Investors.

Price Discovery and Allocation

The Company, in consultation with the Joint Global Coordinators and Book Running Lead Managers, shall finalize the Offer Price which shall be at or above the Floor Price.

Method of Allocation

The Company shall determine the allocation in consultation with the Joint Global Coordinators and Book Running Lead Managers in compliance with Chapter XIII-A of the SEBI (DIP) Guidelines.

Bids received from QIBs at or above the Offer Price shall be grouped together to determine the total demand. Any allocation to all such QIBs will be made at the Offer Price. Allocation shall be decided by the Company in consultation with the Joint Global Coordinators and Book Running Lead Managers on a discretionary basis for a maximum of 49 investors.

— 144 — Allocation to Mutual Funds for up to a minimum of 10 per cent. of the aggregate amount of the Issue shall be undertaken subject to valid bids being received at or above the Offer Price.

THE DECISION OF THE COMPANY AND THE JOINT GLOBAL COORDINATORS AND BOOK RUNNING LEAD MANAGERS IN RESPECT OF ALLOCATION SHALL BE BINDING ON ALL QIBS. QIBS MAY NOTE THAT ALLOCATION OF SHARES IS AT THE SOLE AND ABSOLUTE DISCRETION OF THE COMPANY AND QIBS MAY NOT RECEIVE ANY ALLOCATION, EVEN IF THEY HAVE SUBMITTED VALID BIDS AT OR ABOVE THE OFFER PRICE. NEITHER THE COMPANY NOR THE JOINT GLOBAL COORDINATORS AND BOOK RUNNING LEAD MANAGERS ARE OBLIGED TO ASSIGN ANY REASONS FOR SUCH NON-ALLOCATION.

Number of Allottees

The minimum number of allottees of Shares shall not be less than:

• two, where the issue size is less than or equal to Rs.2.5 billion; or

• five, where the issue size is greater than Rs.2.5 billion, provided that no single allottee shall be allotted more than 50 per cent. of the aggregate amount of the Issue. Provided further that QIBs belonging to the same group or those who are under common control shall be deemed to be a single allottee for the purpose of this paragraph.

THE DECISION OF THE COMPANY AND THE JOINT GLOBAL COORDINATORS AND BOOK RUNNING LEAD MANAGERS IN RESPECT OF ALLOTMENT SHALL BE FINAL AND BINDING ON ALL QIBS.

The maximum number of allottees of Shares shall not be greater than 49 allottees.

CAN

Based on the Bid cum Application Forms received, the Company and the Joint Global Coordinators and Book Running Lead Managers will decide the list of QIBs to whom the serially numbered CAN shall be sent, pursuant to which the details of the Shares allocated to them and the details of the amounts payable for allotment of the same in their respective names shall be notified to such Investors. Additionally, the CAN would include details of the bank account(s) for transfer of funds if done electronically, address where the application money needs to be sent, Pay-In Date as well as the probable designated date (“Designated Date”), being the date of credit of the Shares to the investor’s account, as applicable to the respective QIBs.

The eligible QIBs would also be sent a serially numbered Placement Document either in electronic form or by physical delivery along with the serially numbered CAN.

The dispatch of the serially numbered Placement Document and the CAN by the QIB shall be deemed a valid, binding and irrevocable contract for the QIB to furnish all details that may be required by the Joint Global Coordinators and Book Running Lead Managers and to pay the entire Offer Price for all the Shares allocated to such QIB.

QIBS WOULD NEED TO PROVIDE THEIR DEPOSITORY ACCOUNT DETAILS, THEIR DEPOSITORY PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE BID CUM APPLICATION FORM. QIBS MUST ENSURE THAT THE NAME GIVEN IN THE BID CUM APPLICATION FORM IS EXACTLY THE SAME AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. FOR THIS PURPOSE, SUB-ACCOUNTS OF A FII WOULD BE CONSIDERED AS AN INDEPENDENT QIB.

— 145 — Each scheme or fund of a mutual fund will have to submit separate Bid cum Application Forms. Demographic details like address, bank account etc. will be obtained from the Depositories in accordance with the dematerialised account details given above.

By submitting the Bid cum Application Form, the QIB will be deemed to have made the representations and warranties as specified under the section, “Notice to Investors” and further that such QIB shall not undertake any trade in the Shares credited to its depository participant account until such time that the final listing and trading approval for the Shares is issued by the Indian Stock Exchanges.

QIBs are advised to instruct their Depository Participant to accept the Shares that may be allocated/allotted to them pursuant to this Issue.

Bank Account for Payment of Application Money

The Company has opened a special bank account (the “Account”) with Citibank, N.A., in terms of the arrangement between the Company and the Bank. Each QIB will be required to deposit the entire amount payable for the Shares allocated to it by the Pay-In Date as mentioned in the CAN. If the payment is not made in favor of the Account within the time stipulated in the CAN, the CAN of the concerned QIBs is liable to be cancelled. In the case of cancellations or default by the QIBs, the Company and the Joint Global Coordinators and Book Running Lead Managers have the right to reallocate the Shares at the Offer Price among existing or new QIBs at their sole and absolute discretion.

Payment Instructions

The payment of the application money shall be made by the QIBs in the name of “CESC QIP Account” as per the payment instructions provided in the CAN. QIBs may make payment through cheques or electronic fund transfer.

Note: Payment of the amounts through outstation cheques are liable to be rejected. Payment through cheques should only be through high value cheques payable at Mumbai.

Designated Date and Allotment of Shares

(a) The Shares will not be allotted unless the QIBs pay the Offer Price to the Account as stated above.

(b) In accordance with the SEBI (DIP) Guidelines, Shares will be issued and allotment shall be made only in dematerialized form to QIBs. Allottees will have the option to re-materialize the Shares, if they so desire, as per the provisions of the Companies Act and the Depositories Act, 1996.

(c) The Company reserves the right to cancel the Issue at any time up to allotment without assigning any reasons whatsoever.

(d) Post allotment and credit of Shares into the QIBs’ depositories accounts, the Company will apply for trading/listing approvals from the Indian Stock Exchanges.

(e) The Payment Collection Bank shall not release the monies lying to the credit of the Account to the Company until such time that the Company delivers to the Payment Collection Bank the approval of the Indian Stock Exchanges for the final listing and trading of the Shares offered in this Issue.

— 146 — (f) In the unlikely event of any delay in the allotment or credit of the Shares, or receipt of trading or listing approvals or cancellation of the Issue, no interest or penalty will be payable by the Company.

Submissions to the SEBI

The Company shall submit this Placement Document to the SEBI within 30 days of the date of allotment for record purposes.

Other Instructions

Permanent Account Number

The copy of the PAN cards or PAN allotment letter is required to be submitted along with the payment for the Shares allocated to the QIBs through the CAN. Without this information, the CAN will be liable to be cancelled. It is to be specifically noted that the applicant should not submit the GIR number or any other identification number instead of the PAN as the bids are liable to be rejected on this ground.

Company’s Right to Reject Bids

The Company in consultation with the Joint Global Coordinators and Book Running Lead Managers may reject bids, in part or in full, without assigning any reasons whatsoever. The decisions of the Company and the Joint Global Coordinators and Book Running Lead Managers in relation to a bid shall be final and binding.

Shares in dematerialized form with NSDL or CDSL

As per the provisions of Section 68B of the Companies Act, the allotment of Shares pursuant to the Issue shall be only in a dematerialized form (i.e., not in the form of physical certificates but to be fungible and to be represented by the statement issued electronically).

(a) A QIB applying for Shares must have at least one beneficiary account with either of the depository participants of either NSDL or CDSL prior to making the bid.

(b) Allotment to a successful QIB will be credited in electronic form directly to the beneficiary account (with the depository participant) of the QIB.

(c) Shares in electronic form can be traded only on those stock exchanges which have electronic connectivity with NSDL and CDSL. All the stock exchanges where the Company’s Shares are proposed to be listed have electronic connectivity with NSDL and CDSL.

(d) The trading of the Shares of the Company will be in dematerialized form only for all QIBs in the dematerialized segment of the respective exchanges.

(e) The Company will not be responsible or liable for the delay in the credit of Shares due to errors in the Bid cum Application Form on part of the QIBs.

— 147 — PLACEMENT

Placement Arrangement

The Joint Global Coordinators and Book Running Lead Managers entered into a Memorandum of Understanding with the Company, (the “Memorandum of Understanding”), pursuant to which the Joint Global Coordinators and Book Running Lead Managers have agreed to use their best efforts to place the Shares to QIBs, pursuant to Chapter XIII-A of the SEBI Guidelines, outside the United States, in reliance on Regulation S under the Securities Act and within the United States to qualified institutional buyers (as such term is defined in Rule 144A under the Securities Act) pursuant to Section 4(2) of the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act (which may include Rule 144A).

The Memorandum of Understanding provides that the obligations of the investors to pay for and accept delivery of the Shares offered by this Placement Document are subject to the approval of certain legal matters by the counsels to the Joint Global Coordinators and Book Running Lead Managers and to other conditions. The Memorandum of Understanding also provides that the Company will indemnify the Joint Global Coordinators and Book Running Lead Managers against certain liabilities.

Applications shall be made to list the Shares and admit them to trading on the Indian Stock Exchanges. No assurance can be given as to the liquidity or sustainability of the trading market for the Shares, the ability of holders of the Shares to sell their Shares or the price at which holders of the Shares will be able to sell their Shares. See “Risk Factors”.

The Placement Document has not been, and will not be, registered as a prospectus with the Registrar of Companies in India and, with the exception of QIBs, no Shares will be offered in India or overseas to the public or any members of the public in India or any other class of investors other than QIBs.

In connection with the Issue, the Joint Global Coordinators and Book Running Lead Managers (or their affiliates) may, for their own accounts, enter into asset swaps, credit derivatives or other derivative transactions relating to the Shares at the same time as the offer and sale of the Shares, or in secondary market transactions. As a result of such transactions, the Joint Global Coordinators and Book Running Lead Managers may hold long or short positions in such Shares. These transactions may comprise a substantial portion of the Issue and no specific disclosure will be made of such positions. Affiliates of the Joint Global Coordinators and Book Running Lead Managers may purchase Shares and be allocated Shares for proprietary purposes.

The Joint Global Coordinators and Book Running Lead Managers and other affiliates have performed investment banking and advisory services for the Company from time to time for which they have received customary fees and expenses. The Joint Global Coordinators and Book Running Lead Managers and other affiliates may, from time to time, engage in transactions with and perform services for the Company in the ordinary course of their business for which they may receive customary compensation.

Lock-up

Each of the Company and the members of the RPG Group that are shareholders of the Company has agreed that it will not (1) directly or indirectly, offer, pledge, sell, contract to sell, purchase any option or contract to sell, grant or sell any option, right, contract or warrant to purchase, lend, make any short sale or otherwise transfer or dispose of any Shares or any other securities of the Company substantially similar to the Shares, including, but not limited to options, warrants or other securities that are convertible into, exercisable or exchangeable for, or that represent the right to receive, Shares or any such substantially similar securities, whether

— 148 — now owned or hereinafter acquired; (2) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the Shares or any such substantially similar securities, whether now owned or hereinafter acquired (whether any such transaction described in (1) or (2) above is to be settled by delivery of Shares or such other securities, in cash or otherwise); or (3) publicly announce its intention to enter into the transactions referred to in (1) or (2) above, for a period of 180 days from the date of the Placement Document, without the prior written consent of the Joint Global Coordinators and Book Running Lead Managers, provided that the members of the RPG Group specified above may transfer Shares and other securities substantially similar to Shares to other members of the RPG Group which have agreed to be bound by the terms of the lock-up agreement.

— 149 — INDIAN REGULATORY APPROVALS

Approvals

This Issue is being made under the “automatic approval” route and does not require prior approval of the Central Government or the RBI.

Reporting Requirements

The Company issuing shares is required to furnish full details of such issue within 30 days from the date of receipt of the amount of consideration of the issue to the RBI, in accordance with the rules laid down under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.

Approvals Received by the Company

The Company has received in-principle approvals for the listing of the Shares from the following Indian Stock Exchanges:

• BSE pursuant to a letter dated November 26, 2007;

• NSE pursuant to a letter dated November 26, 2007; and

• CSE pursuant to a letter dated November 28, 2007.

Filing

This Placement Document shall be submitted to the BSE, the NSE and the CSE.

— 150 — TAXATION

Indian Taxation

Preamble

• This statement sets out the possible tax implications on and benefits available to the Qualified Institutional Buyers (“QIB”) under the tax laws presently in force in India. Several of these benefits are dependent on the Company or its shareholders fulfilling the conditions prescribed under the relevant provisions of the Indian Income Tax Act and the rules made thereunder. Based on business requirements, the Company or its shareholders may or may not choose to fulfill those conditions.

• This statement sets out the provisions of law in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of equity shares. This statement is only intended to provide general information to the investors and is neither designed nor intended to be a substitute for a professional tax advice. In view of the individual nature of tax consequences and the changing tax laws, each investor is advised to consult his or her or their own tax consultant with respect to the specific tax implications arising out of their participation in the issue.

• In respect of Non-Residents, the tax rates and the consequent taxation shall be further subject to any benefits available under the Double Taxation Avoidance Agreement (“DTAA”), if any, between India and the country in which the Non-Resident has fiscal domicile.

• The stated benefits will be available only to the sole/first named holder if the Shares are held by joint shareholders.

Tax Benefits available to shareholders of the Company under the Indian Income Tax Act

For these purposes, “Non-Resident” means a person who is not a resident in India. For purposes of the IT Act, an individual is considered to be a resident of India during any financial year if he or she is in India in that year for:

• a period or periods amounting to 182 days or more; or

• 60 days or more if within the four preceding years he/she has been in India for a period or periods amounting to 365 days or more; or

• 182 days or more, in the case of a citizen of India or a person of Indian origin living abroad who visits India and within the four preceding years has been in India for a period or periods amounting to 365 days or more; or

• 182 days or more, in the case of a citizen of India who leaves India for the purposes of employment outside India in any previous year and has within the four preceding years been in India for a period or periods amounting to 365 days or more.

A company is resident in India if it is formed and incorporated in accordance with the Companies Act and has its registered office in India or the control and management of its affairs is situated wholly in India. A firm or other association of persons is resident in India except where the control and management of its affairs is situated wholly outside India.

— 151 — (A) Resident shareholders

1. Under Section 10(34) of the IT Act, income by way of dividend received on the Shares of the Company is exempt from income tax in the hands of shareholders. However it is pertinent to note that section 14A of the IT Act restricts claims for deduction of expenses incurred in relation to exempt income. Thus, any expenditure incurred to earn the dividend income is not an allowable expenditure.

2. The characterization of the gains/losses, arising from sale of Shares, as capital gains or business income would depend on the nature of holding in the hands of the member and various other factors.

3. (a) Shares held by a Non-Resident investor for a period of more than 12 months shall be treated as long-term capital assets. If the Shares are held for a period of less than 12 months, the capital gain arising on the sale thereof is to be treated as short-term capital gain.

(b) The long-term capital gains accruing to the shareholders of the Company on sale of the Company’s Shares in a transaction carried out through a recognized stock exchange in India, where Securities Transaction Tax (“STT”) has been paid, shall be exempt from tax as per the provisions of Section 10(38) of the IT Act.

(c) The short-term capital gains accruing to the shareholders of the Company on sale of the Company’s Shares in a transaction carried out through a recognized stock exchange in India, where STT has been paid, will be chargeable to tax at 10 per cent. plus applicable surcharge and education cess as per the provisions of Section 111A of the IT Act. Further, no deduction under Chapter VI-A would be allowed in computing such short term capital gains subjected to tax under section 111A of the IT Act. In other situations where the transaction is not subject to STT, the short term capital gains would be chargeable as a part of the total income and would be subject to tax at the rate of 30 per cent. plus applicable surcharge and education cess.

(d) Pursuant to Section 112 of the IT Act, long term gains accruing to the shareholders of the Company from the transfer of Shares of the Company listed on recognized stock exchanges, otherwise than as mentioned in 3(a) above, shall be charged to tax at 10 per cent. plus applicable surcharge and education cess after deducting from the sale proceeds the cost of acquisition without indexation. However, the shareholders claiming the benefit of indexation would be subjected to tax at 20 per cent. plus applicable surcharge and education cess on the long term gains. Further, no deduction under Chapter VI-A would be allowed in computing such long term capital gains subjected to tax under Section 112 of the IT Act.

(e) The shareholders are entitled to claim exemption in respect of tax on long term capital gains other than those exempt under section 10(38) of the IT Act under section 54EC of the IT Act, if the amount of capital gains is invested in certain specified bonds/securities, subject to the fulfilment of the conditions specified therein. The maximum investment permissible on and after April 1, 2007 for the purposes of claiming the exemption in the above bonds by any person in a financial year is Rs.5 million.

However, if the shareholder transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains previously exempted would become chargeable to tax as long term capital gains in the year in which such bonds are transferred or otherwise converted into money.

— 152 — 4. Section 88E of the IT Act provides that where the total income of a person includes income chargeable under the head “Profits and gains of business or profession” arising from purchase or sale of an equity share in a company carried out through a recognized stock exchange, i.e., from taxable securities transactions, that person shall get a rebate equal to the securities transaction tax paid by him in the course of his business. Such rebate is to be allowed from the amount of income tax in respect of such transactions calculated by applying the average rate of income tax. The rebate may not exceed the income tax paid on that income. Therefore, where the income from the purchase and sale of equity shares in a company is taxable in the hands of the shareholder as business income and not as capital gains, a rebate of Securities Transaction Tax paid is available to such person.

(B) Non-Resident shareholders — other than Foreign Institutional Investors

1. Dividends (whether interim or final) declared, distributed or paid under Section 115-O of the IT Act by the Company, are exempt in the hands of shareholders as per the provisions of Section 10(34) of the IT Act. However, it is pertinent to note that section 14A of the IT Act restricts claims for deduction of expenses incurred in relation to exempt income. Thus, any expenditure incurred to earn the dividend income is not an allowable expenditure.

2. The characterization of the gains/losses arising from a sale of shares as capital gains or business income, would depend on the nature of the holding in the hands of the shareholder and various other factors.

3. (a) Long-term capital gains accruing to the Non-Resident shareholders of the Company on the sale of the Company’s Shares in a transaction carried out through a recognized stock exchange in India, where STT has been paid, shall be exempt from tax as per the provisions of Section 10(38) of the IT Act.

(b) Short-term capital gains accruing to the shareholders of the Company on sale of the Company’s shares in a transaction carried out through a recognized stock exchange in India, where STT has been paid, will be chargeable to tax at 10 per cent. plus applicable surcharge and education cess as per the provisions of Section 111A of the IT Act. Further, no deduction under Chapter VI-A is allowed in computing such short term capital gains subject to tax under section 111A of the IT Act. In other situations where the transaction is not subject to STT, the short term capital gains would be chargeable as a part of the total income and would be taxed accordingly. It would be subject at the rate of 30 per cent. plus applicable surcharge and education cess if the Non-Resident shareholder is an individual and at the rate of 40 per cent. plus applicable surcharge and education cess if the non-resident shareholder is a company or is an individual whose income exceeds Rs.1 million. The actual rate of tax on short-term gains depends on a number of factors, including the legal status of the Non-Resident holder and the type of income chargeable in India. Further, no deduction under Chapter VI-A would be allowed in computing such short term capital gains subjected to tax under section 111A.

(c) As per the provisions of Section 112 of the IT Act, long term capital gains accruing to the Non-Resident shareholders of the Company from the transfer of Shares of the Company being listed on recognized stock exchanges, other than as mentioned in 3(a) above, shall be charged to tax at 20 per cent. plus applicable surcharge and education cess after deducting from the sale proceeds the cost of acquisition. Such non resident shareholders are allowed to adjust the cost of acquisition by the amount of foreign exchange rate fluctuations in computing long term capital gains. Further, no deduction under Chapter VI-A would be

— 153 — allowed in computing such long term capital gains subject to tax under Section 112 of the IT Act. Pursuant to a recent decision by the Authority of Advance Ruling, non-resident shareholders are also entitled to claim the benefit of the rate of 10 per cent. plus applicable surcharge and education cess under the proviso to section 112 of the IT Act.

(d) The shareholders of the Company are entitled to claim exemption in respect of tax on long term capital gains other than those exempt under section 10(38) of the IT Act under section 54EC of the IT Act, if the amount of capital gains is invested in certain specified bonds/securities subject to the fulfillment of the conditions specified therein. The maximum investment permissible for the purposes of claiming the exemption in the above bonds by any person in a financial year is Rs.5 million.

However, if the shareholder transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which such bonds are transferred or otherwise converted into money.

4. Under the provisions of section 90(2) of the IT Act, if the provisions of the DTAA between India and the country of residence of the Non-Resident are more beneficial than under Indian law, then the provisions of the DTAA shall be applicable.

1. Under Section 10(34) of the IT Act, income by way of dividend referred to in Section 115-O received on the Shares of the Company is exempt from income tax in the hands of shareholders. However it is pertinent to note that section 14A of the IT Act restricts claims for the deduction of expenses incurred in relation to exempt income.

2. The characterization of the gains/losses arising from sale of Shares as capital gains or business income would depend on the nature of holding in the hands of the FII shareholder and various other factors.

3. (a) The long-term capital gains accruing to the FII shareholders of the Company on sale of the Company’s Shares in a transaction carried out through a recognized stock exchange in India, and where STT has been paid, shall be exempt from tax as per provisions of Section 10(38).

(b) The short-term capital gains accruing to the FII shareholders of the Company on sale of the Company’s Shares in a transaction carried out through a recognized stock exchange in India, and where STT has been paid, will be chargeable to tax at 10 per cent. plus applicable surcharge and education cess as per the provisions of Section 111A of the IT Act. In other situations where the transaction is not subjected to Securities Transaction Tax, pursuant to the provisions of section 115AD of the IT Act, the short term capital gains would be chargeable to tax at 30 per cent. plus applicable surcharge and education cess.

(c) As per the provisions of Section 115AD of the IT Act, long term capital gains accruing to the FII Shareholders of the Company from the transfer of Shares of the Company, being listed in recognized stock exchanges other than as mentioned in 3(a) above, shall be charged to tax at 10 per cent. plus applicable surcharge and education cess. The benefit of indexation and the adjustment with respect to fluctuation in foreign exchange rates would not be allowed to such members.

— 154 — (d) The FII shareholders of the Company are entitled to claim exemption in respect of tax on long term capital gains under section 54EC of the IT Act, if the amount of capital gains is invested in certain specified bonds/securities subject to the fulfilment of the conditions specified therein. The maximum investment permissible for the purposes of claiming the exemption in the above bonds by any person in a financial year is Rs.5 million.

However, if the FII shareholder transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which such bonds are transferred or otherwise converted into money.

4. Under the provisions of section 90(2) of the IT Act, if the provisions of the DTAA between India and the country of residence of the FII are more beneficial, then the provisions of the DTAA shall be applicable.

5. If the Shares held by FIIs are held by way of an investment, the gains, whether short term or long term, realized on the disposition of such Shares will be computed as above. However, where the Shares form a part of the FII’s stock-in-trade, any income realized in the disposition of such Shares will be treated as business profits, taxable in accordance with the DTTs between India and the country of residence of the FII. The nature of the Shares held by the FII is usually determined on the basis of the substantial nature of the transactions, the manner of maintaining books of account, the magnitude of purchases and sales and the ratio between purchases and sales and the holding. If the income realized in the disposition of Shares is chargeable to tax in India as business income, FIIs could claim a rebate of the tax payable on such income with respect to STT paid on the purchase or sale of the Shares. Business profits may be subject to tax at the rate of 40 per cent. (plus applicable surcharge and education cess).

FIIs should consult their own tax advisers as to the tax consequences of such purchase, ownership and disposition under the tax laws of India, the jurisdiction of their residence and any tax treaty between India and their country of residence.

(D) Others

1. Under section 10(25)(ii) of the IT Act any income received by the trustees on behalf of a recognized provident fund is unconditionally exempt from tax. Section 10(25)(ii) of the IT Act unconditionally exempts any income received by the trustees of a recognized superannuation (pension) fund. Accordingly, the dividend income and any gains resulting from the transfer of such shares is also not taxable per se in the hands of a recognized provident fund or a recognized superannuation fund under the IT Act.

2. Subject to the conditions prescribed in Chapter XII-E of the IT Act, any income of a mutual fund registered under the SEBI is exempted from income-tax under section 10(23D) of the IT Act. The income receivable by such mutual funds either by way of dividend from investments in the QIP or gains from transfer of the shares is also not taxable in the hands of the mutual funds subject to the provisions of Chapter XII-E of theITAct.

Tax Deducted at Source

Generally, tax, surcharge and education cess on capital gains if any, are withheld at source by the purchaser/person paying for the shares in accordance with the relevant provisions of the Income Tax Act, with the exception of capital gains arising to FIIs.

— 155 — Capital Loss

In general terms, loss arising from transfer of a capital asset in India can only be set off against capital gains. Since long-term capital gains on the sale of listed equity shares in respect of which STT has been paid is not liable to capital gains tax, it is doubtful whether any long-term capital loss arising on account of such sale would be allowed to be set off. A short-term capital loss can be set off against capital gain whether short term or long-term. To the extent that the loss is not absorbed in the year of transfer, it may be carried forward for a period of eight assessment years immediately succeeding the assessment year for which the loss was first determined by the tax authority and may be set off against the capital gains assessable for such subsequent assessment years. In order to set off a capital loss as above, the Non-Resident investor would be required to file appropriate and timely returns in India and undergo the usual assessment procedure.

Tax Benefits available to the shareholders under the Wealth Tax Act, 1957

Shares of a Company held by a shareholder will not be treated as an asset within the meaning of section 2(ea) of Wealth Tax Act, 1957. Hence no wealth tax will be payable on the market value of shares of the Company held by the shareholder of the Company.

Tax Benefits available to the shareholders under the Gift Tax Act, 1958

Gift tax is not leviable in respect of any gifts made on or after October 1, 1998. Therefore, any gift of Shares of the Company will not attract gift tax.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS PLACEMENT DOCUMENT IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE ISSUER IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE ISSUER OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

*****

The following is a summary of certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of Shares by a U.S. Holder (as defined below). This summary deals only with initial purchasers of Shares that are U.S. Holders and that will hold the Shares as capital assets. The discussion does not cover all aspects of U.S. federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of Shares by particular investors, and does not address state, local, foreign or other tax laws. In particular, this summary does not address tax considerations applicable to investors that own (directly or indirectly) 10 per cent. or more of the voting stock of the Company, nor does this summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the U.S. federal income tax laws (such as financial institutions, insurance companies, investors liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, tax-exempt organisations, dealers in securities or currencies, investors that will hold the Shares as part of straddles, hedging transactions or conversion transactions for U.S. federal income tax purposes or investors whose functional currency is not the U.S. dollar).

— 156 — As used herein, the term “U.S. Holder” means a beneficial owner of Shares that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States or any State thereof, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for U.S. federal income tax purposes.

The U.S. federal income tax treatment of a partner in a partnership that holds Shares will depend on the status of the partner and the activities of the partnership. Prospective purchasers that are partnerships should consult their tax advisers concerning the U.S. federal income tax consequences to their partners of the acquisition, ownership and disposition of Shares by the partnership.

The summary assumes that the Company is not a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, which the Company believes to be the case. The Company’s possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company were to be a PFIC in any year, materially adverse consequences could result for U.S. Holders.

The summary is based on the tax laws of the United States, including the Internal Revenue Code of 1986 (the “Code”), as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, as well as on the income tax treaty between the United States and India (the “Treaty”), all as currently in effect and all subject to change at any time, possibly with retroactive effect.

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE SHARES, INCLUDING THEIR ELIGIBILITY FOR THE BENEFITS OF THE TREATY, THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.

Dividends

General. Distributions paid by the Company out of current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be taxable to a U.S. Holder as foreign source dividend income, and will not be eligible for the dividends received deduction allowed to corporations. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s basis in the Shares and thereafter as capital gain. However, the Company does not maintain calculations of its earnings and profits in accordance with U.S. federal income tax accounting principles. U.S. Holders should therefore assume that any distribution by the Company with respect to Shares will constitute ordinary dividend income. U.S. Holders should consult their own tax advisors with respect to the appropriate U.S. federal income tax treatment of any distribution received from the Company.

For taxable years that begin before 2011, dividends paid by the Company will generally be taxable to a non-corporate U.S. Holder at the special reduced rate normally applicable to long-term capital gains, assuming that the Company qualifies for the benefits of the Treaty.

— 157 — A U.S. Holder will be eligible for this reduced rate only if it has held the Shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Prospective purchasers should consult their tax advisers concerning the applicability of the foreign tax credit and source of income rules to dividends on the Shares.

Foreign Currency Dividends. Dividends paid in Rupees will be included in income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the U.S. Holder, regardless of whether the Rupees are converted into U.S. dollars at that time. If dividends received in Rupees are converted into U.S. dollars on the day they are received, the U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend income.

Prospective purchasers should consult their tax advisers concerning the foreign tax credit implications of receiving a dividend from the Company that is eligible for the special reduced rate described above under “Dividends — General”.

Sale or other Disposition

Upon a sale or other disposition of Shares, a U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount realised on the sale or other disposition and the U.S. Holder’s adjusted tax basis in the Shares. This capital gain or loss will be long-term capital gain or loss if the U.S. Holder’s holding period in the Shares exceeds one year. However, regardless of a U.S. Holder’s actual holding period, any loss may be long-term capital loss to the extent the U.S. Holder receives a dividend that qualifies for the reduced rate described above under “Dividends — General”, and exceeds 10 per cent. of the U.S. Holder’s basis in its Shares.

As discussed in “Taxation — Indian Taxation — Taxation on Sale of Shares”, under current law, the sale of Shares on a recognized stock exchange in India is subject to Indian tax (the STT) at the rate of 0.125 per cent. on the value of the transaction. If the sale of Shares is not conducted on a recognized stock exchange in India, and therefore the sale is not subject to the STT, then any gain will be subject to Indian capital gains tax. The Company believes that the STT qualifies as a foreign tax under Section 903 of the Code because the STT is imposed “in lieu of” an income tax. If the STT constitutes an “in lieu of” tax, U.S. Holders will be able to claim the amount of the STT actually paid as a credit against their foreign source income. However, any gain or loss realized on the sale of Shares will generally be U.S. source. Therefore, a U.S. Holder may have insufficient foreign source income to utilise foreign tax credits attributable to any STT or other Indian tax imposed on a sale or disposition. If the STT does not qualify as a foreign tax under Section 903 of the Code, U.S. Holders will not be entitled to claim a foreign tax credit. Prospective purchasers should consult their tax advisers as to the availability of and limitations on any foreign tax credit attributable to STT.

A U.S. Holder’s tax basis in a Share will generally be its U.S. dollar cost. The U.S. dollar cost of a Share purchased with foreign currency will generally be the U.S. dollar value of the purchase price on the date of purchase, or the settlement date for the purchase, in the case of Shares traded on an established securities market, as defined in the applicable Treasury Regulations, that are purchased by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects). Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the IRS. The amount realized on a sale or other disposition of Shares for an amount in foreign currency will be the U.S. dollar value of this amount on the date of sale or disposition. On the settlement date, the U.S. Holder will recognize U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the U.S. dollar value of the amount received based on the exchange rates in effect on the date

— 158 — of sale or other disposition and the settlement date. However, in the case of Shares traded on an established securities market that are sold by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), the amount realised will be based on the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognized at that time.

Disposition of Foreign Currency

Foreign currency received on the sale or other disposition of a Share will have a tax basis equal to its U.S. dollar value on the settlement date. Foreign currency that is purchased will generally have a tax basis equal to the U.S. dollar value of the foreign currency on the date of purchase. Any gain or loss recognised on a sale or other disposition of a foreign currency (including its use to purchase Shares or upon exchange for U.S. dollars) will be U.S. source ordinary income or loss.

Backup Withholding and Information Reporting

Payments of dividends and other proceeds with respect to Shares, by a U.S. paying agent or other U.S. intermediary will be reported to the IRS and to the U.S. Holder as may be required under applicable regulations. Backup withholding may apply to these payments if the U.S. Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its U.S. federal income tax returns. Certain U.S. Holders (including, among others, corporations) are not subject to backup withholding. U.S. Holders should consult their tax advisers as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption.

— 159 — VALIDITY OF SHARES

The validity of the Shares will be passed upon for the Company and the Joint Global Coordinators and Book Running Lead Managers by Khaitan & Co.

— 160 — INDEPENDENT ACCOUNTANTS

The Power Business Annual Financial Statements as of and for each of the years in the three year period ended March 31, 2007 included in this Placement Document have been audited by Lovelock & Lewes, independent accountants, as stated in their qualified report appearing herein.

The Retail Business Annual Financial Statements as of and for the year ended March 31, 2007 included in this Placement Document have been audited by SR Batliboi & Co., independent accountants, as stated in their qualified report appearing herein.

With respect to the unaudited Power Business Interim Financial Information for the six months ended September 30, 2007 included in this Placement Document, the Company’s independent accountants reported that they have applied limited review procedures in accordance with Indian professional standards for a review of such information. However, their report dated October 31, 2007, appearing herein, states that they did not audit and they do not express an opinion on the unaudited financial results. Accordingly, the degree of reliance on their report on such results should be restricted in light of the limited nature of the review procedures applied.

With respect to the unaudited Retail Business Interim Financial Information for the six months ended September 30, 2007 included in this Placement Document, SRL’s independent accountants reported that they have applied limited review procedures in accordance with Indian professional standards for a review of such information. However, their report dated November 30, 2007, appearing herein, states that they did not audit and they do not express an opinion on the unaudited financial results. Accordingly, the degree of reliance on their report on such results should be restricted in light of the limited nature of the review procedures applied.

— 161 — ENFORCEABILITY OF CIVIL LIABILITIES

The Company is a limited liability public company incorporated under the laws of India. Substantially all of the Company’s directors and executive officers are residents of India and all or a substantial portion of the assets of the Company and such persons are located in India. As a result, it may not be possible for investors to effect service of process upon the Company or such persons in jurisdictions outside India, or to enforce against them judgments obtained in courts outside India. Recognition and enforcement of foreign judgments is provided for under Section 13 of the Code of Civil Procedure, 1908 (the “Code”) on a statutory basis. Section 13 and Section 44A of the Code provide that a foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon except (i) where it has not been pronounced by a court of competent jurisdiction, (ii) where it has not been given on the merits of the case, (iii) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases where such law is applicable, (iv) where the proceedings in which the judgment was obtained were opposed to natural justice, (v) where it has been obtained by fraud or (vi) where it sustains a claim founded on a breach of any law in force in India.

India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. However, Section 44A of the Code provides that where a foreign judgment has been rendered by a superior court in any country or territory outside India which the Central Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty.

The United States has not been declared by the Central Government to be a reciprocating territory for the purpose of Section 44A of the Code. However, the United Kingdom has been declared by the Central Government to be a reciprocating territory. Accordingly, a judgment of a court in the United States may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce a foreign judgment if it viewed the amount of damages awarded as excessive or inconsistent with public policy. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to execute such judgment and to repatriate outside India any amount recovered. In addition, any such amount recovered may be subject to income tax in accordance with applicable laws.

— 162 — GENERAL INFORMATION

The Company was incorporated in 1978 under the name of The Calcutta Electric Supply Corporation (India) Limited as a limited liability public company and received the Company’s certificate of commencement of business on March 30, 1978.

The registered office of the Company is located at CESC House, Chowringhee Square, Kolkata, 700 001, India.

The registration number of the Company is 21-31411 (CIN — L31901WB1978PLC031411), issued by the Registrar of Companies, Kolkata.

A committee of directors constituted by the Board of Directors of the Company has authorized the Issue pursuant to a resolution passed at its meeting held on October 16, 2007. The shareholders of the Company subsequently authorized the Issue by a special resolution passed on November 17, 2007.

The Company will issue the Shares on or around December [●], 2007.

Applications have been made to the BSE, the NSE and the CSE for the Shares to be issued on the Closing Date to be admitted to listing and to trading on the BSE, the NSE and the CSE. It is expected that admission of the Shares to listing and to trading on the BSE, the NSE and the CSE will be granted on or around December [●], 2007, subject to the issue of the Shares. There is no assurance that such listings will be granted or maintained. Transactions will normally be effected for settlement in Rupees and for settlement on or before the fifth business day in Mumbai after the date of the transaction.

Except as described in this Placement Document, the Company is not involved in any litigation or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) that may have, or have had during the 12 months preceding the date of this Placement Document, a significant effect on the Company’s financial position, nor is the Company aware that any such proceedings are pending or threatened.

There has been no significant change in the Company’s financial or trading position since March 31, 2007, the date of the latest audited financial statements.

The Company’s auditors are Lovelock & Lewes, Kolkata, who have audited the Power Business Annual Financial Statements of the Company as disclosed in this Placement Document. They have consented to the inclusion of their report in this Placement Document. A written consent under the listing rules of the SEBI is different from a consent filed with the U.S. Securities and Exchange Commission under the Securities Act, which is applicable only to transactions involving securities registered under the Securities Act. As the offered Shares have not been and will not be registered under the Securities Act, Lovelock & Lewes has not filed a consent under the Securities Act.

The Company confirms that it is in compliance with the minimum public shareholding requirements as required under the terms of the listing agreements with the Indian Stock Exchanges.

— 163 — Copies of the following documents (together with English translations, where applicable) will be available for inspection and may be obtained free of charge, during normal business hours on any weekday at CESC House, Chowringhee Square, Kolkata, 700 001, India:

(a) the Memorandum and Articles of Association of the Company; and

(b) the Power Business Annual Financial Statements of the Company, the Retail Business Annual Financial Statements, the Power Business Interim Financial Information and the Retail Business Interim Financial Information and the Pro Forma Financial Information, including the auditors’ audit report or limited review report (as the case may be) in respect thereof.

— 164 — SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP, IFRS AND US GAAP

The audited Power Business Annual Financial Statements and the Retail Business Annual Financial Statements appearing in this Placement Document have been prepared in accordance with Indian GAAP, which differ in certain material respects from IFRS and US GAAP.

Significant differences exist between Indian GAAP, IFRS and US GAAP, which might be material to the financial information herein. The Company has made no attempt to quantify the impact of those differences. In making an investment decision, investors must rely upon their own examination of the Company, the terms of the offering and the financial information. Potential investors should consult their own professional advisors for an understanding of the differences between Indian GAAP, IFRS and US GAAP, and how those differences might affect the financial information herein.

The following table summarizes significant differences between Indian GAAP, IFRS and US GAAP insofar as they are relevant to the Power Business Annual Financial Statements presented in this Placement Document.

The Company has not prepared financial statements in accordance with IFRS or US GAAP. Accordingly, there can be no assurance that the table below is complete, or that the differences described would give rise to the most material differences between Indian GAAP, IFRS and US GAAP. In addition, the Company cannot presently estimate the net effect of applying IFRS or US GAAP on the results of operations or financial position, which may result in material adjustments when compared to Indian GAAP.

The discussion herein includes various IFRS, US GAAP and Indian GAAP pronouncements issued for which the mandatory application dates are later than the reporting dates in this Placement Document. Indian GAAP comprise accounting standards issued by the Institute of Chartered Accountants of India (ICAI) (“Indian Accounting Standards”), certain provisions of the listing agreement with the stock exchanges of India, and certain provisions of statutes including the Companies Act, 1956, the Electricity (Supply) Act, 1948 (the “Repealed Electricity Act”) and the Electricity Act. In certain cases, the Indian GAAP description also refers to Guidance Notes issued by the Institute of Chartered Accountants of India that are recommendations but not mandatory in nature. In instances where Indian Accounting Standards conflict with provisions of the Repealed Electricity Act as noted in Note 1 and Notes 3c, 3e, 3h and 3n to the audited financial statements of the Company for the year ended March 31, 2005, the provisions of the Repealed Electricity Act are followed. Accordingly, the Power Business Annual Financial Statements do not fully comply with Indian Accounting Standards with respect to 2004-2005, but comply with generally accepted accounting principles applicable to the electricity industry in India.

The above, together with standards that are in the process of being developed in each of these jurisdictions, could have a significant impact on future comparisons between IFRS or US GAAP and Indian GAAP.

— 165 — IFRS US GAAP INDIAN GAAP

1 Basis of presentation Financial statements Financial statements Financial statements — Electricity Industry must comply with IFRS. must comply with US must comply with and Regulated There are no GAAP and if a public Indian GAAP. Enterprises specialized standards company, the SEC’s or guidance for the rules, regulations and Generally, Indian GAAP electricity industry or financial comprises: regulated enterprises. interpretations. (i) accounting Specialized standards standards and exist for regulated other enterprises such as pronouncements electric utilities. For an issued by the ICAI; entity that qualifies as and a “regulated enterprise” under SFAS (ii) the requirements 71 Accounting for the of the Indian Effects of Certain Types Companies Act. of Regulation (“SFAS 71”), the accounting as It also includes detailed in SFAS 71 certain provisions and as summarized in of listing the various items agreements with below would be the stock required. Alternatively, exchanges of India if an entity does not and in some cases qualifyasa“regulated the Guidance notes enterprise”,allUS issued by the ICAI GAAP applicable to which are non-regulated recommended and enterprises would need not mandatory. to be followed.

The Company has not evaluated or determined whether it qualifies as a regulated enterprise under SFAS 71.

— 166 — IFRS US GAAP INDIAN GAAP

2 First-time adoption of Full retrospective First-time adoption of Similar to US GAAP accounting frameworks application of all IFRS’s US GAAP requires effective at the retrospective Transitional provisions reporting date for an application. There is no are given in all the entity’sfirstIFRS requirement to present new accounting financial statements, reconciliations of standards, individually. with some optional equity or profit or loss exemptions and limited on first-time adoption mandatory exceptions. of US GAAP.

Reconciliations of profit or loss in respect of the last period reported under previous GAAP, of equity at the end of that period and of equity at the start of the earliest period presented in comparatives must be included in an entity’s first IFRS financial statements.

3 Contents of financial Comparative two years’ Similar to IFRS, except Balance sheet, profit statements — General balance sheets, income three years required for and loss account, cash statements, cash flow public companies for flow statement, statements, changes in all statements except accounting policies and Shareholders’ equity balance sheet where notes are presented for and accounting policies two years provided. the current year, with and notes. comparatives for the previous year.

The Company has elected to present three years of financial statements.

4 Balance sheet Does not prescribe a Does not prescribe a Companies Act particular format; particular format; prescribes the balance entities should present entities should present sheet format; short- a classified balance a classified balance term/long-term sheet. Assets and sheet. Items on the distinction is only liabilities should be face of the balance required for certain disclosed in an order sheet are generally balance sheet items. which reflects their presented in decreasing relative liquidity with order of liquidity with No separate disclosure current and non- current and non- on the face of the current classification. current classification. balance sheet is Certain items must be required for restricted presented on the face Restricted accounts are accounts. of the balance sheet. disclosed separately on the face of the balance sheet.

Public companies must follow SEC guidelines regarding minimum disclosure requirements.

— 167 — IFRS US GAAP INDIAN GAAP

5 Income statement Does not prescribe a Present as either a No prescribed format standard format, single-step or multiple- for the profit and loss although expenditure step format. account but there are must be presented in Expenditures must be disclosure norms for one of two formats presented by function. certain income and (function or nature). expenditure items. Certain items must be presented on the face of the income statement.

6 Cash flow statements Standard headings, but Similar headings to Similar to IFRS, except — format and method limited flexibility of IFRS, but more specific that use of indirect contents. Use direct or guidance for items method is required for indirect method. included in each listed companies. category (see Notes 7 and 8 below). Use direct or indirect method.

7 Cash flow statements Cash includes Cash excludes Similar to US GAAP, — definition of cash overdrafts and cash overdrafts but includes except that restricted and cash equivalents equivalents with cash equivalents with or encumbered cash original short-term original short-term included in cash and maturities (less than maturities. Restricted cash equivalents is three months). or encumbered cash is required to be not included in cash disclosed separately. Cash and cash and cash equivalents. equivalents are Cash and bank disclosed on the face Cash and cash balances are disclosed of the balance sheet. equivalents are on the face of the disclosed on the face balance sheet. of the balance sheet.

8 Cash flows — classification of (i) Interest and (i) Interest paid, (i) Interest and specific items dividend paid — interest received dividend paid — Operating or and dividend Financing activities financing activities received — Operating activities

(ii) Interest and (ii) Dividends paid — (ii) Interest and dividend received Financing activities dividend received — Operating or — Investing investing activities activities

(iii) Taxes paid — (iii) Taxes paid — (iii) Taxes paid — Operating — Operating activities Operating — unless specific and subject to unless specific identification with supplementary identification with financing or disclosure financing or investing investing

— 168 — IFRS US GAAP INDIAN GAAP

9 Statement of Changes The statement must be Similar to IFRS. No separate statement in Shareholders’ Equity presented as a primary required. However, any statement. adjustments to equity and reserve account The statement shows are shown in the capital transactions schedules/notes with owners, the accompanying the movement in financial statements. accumulated profit and a reconciliation of all other components of equity.

10 Statement of The total of gains and Total comprehensive No concept of recognized income and losses recognized in income and comprehensive income. expenses (SoRIE)/Other the period comprises accumulated other However, certain comprehensive income net income and the comprehensive income adjustments are and statement of following gains and are disclosed, allowed through accumulated other losses recognized presented either on a reserves where comprehensive income directly in equity: separate primary prescribed by statement or combined accounting standards, • Fair value gains with the income statute or is done in (losses) available statement or with the accordance with for sale statement of changes industry practices and investments and in Shareholders’ Equity. court orders. certain financial instruments; Comprehensive income is divided into net • Foreign exchange income and other translation comprehensive income. differences; and An enterprise that has • Changes in fair no items of other values on certain comprehensive income financial in any period presented instruments if is not required to report designated as cash comprehensive income. flow hedges, net of tax, and cash Items included in other flow hedges comprehensive income reclassified to shall be classified based income and/or the on their nature. For relevant hedged example, under existing asset/liability. accounting standards, other comprehensive Recognized gains and income shall be losses can be presented classified separately either in the notes or into: separately highlighted within the primary • cumulative foreign statement of changes currency in shareholders’ equity. translation adjustments;

• minimum pension liability adjustments;

• changes in the fair value of cash flow and net investment hedges; and

• unrealized gains and losses on certain investments in debt and equity securities.

— 169 — IFRS US GAAP INDIAN GAAP

11 Correction of Restatement of Similar to IFRS. Include effect in the fundamental errors comparatives is current year income mandatory. statement.

The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on current profit or loss can be perceived.

12 Changes in accounting Restate comparatives Similar to IFRS. Include effect in the policies and prior-year opening income statement of retained earnings. the period in which the change is made except as specified in certain standards (transitional provision) where the change during the transition period resulting from adoption of the standard has to be adjusted against opening retained earnings and the impact needs to be disclosed.

13 Contents of financial In general, IFRS has In general, US GAAP Generally, disclosures statements — extensive disclosure has extensive disclosure are not extensive as Disclosures requirements. Specific requirements. Areas compared to IFRS and items include, among where US GAAP US GAAP. Disclosures others: the fair values requires specific are driven by the of each class of additional disclosures requirements of the financial assets and include, among others: Companies Act and the liabilities, customer or concentrations of Accounting Standards. other concentrations of credit risk, segment risk, income taxes and reporting, significant pensions. customers and suppliers, use of Other disclosures estimates, income include amounts set taxes, pensions, and aside for general risks, comprehensive income. contingencies and commitments and the aggregate amount of secured liabilities and the nature and carrying amount of pledged assets.

— 170 — IFRS US GAAP INDIAN GAAP

Consolidated Financial Statements

14 Consolidation The consolidated A company must first Consolidation is financial statements evaluate whether the required when there is include all enterprises potential subsidiary is a a controlling interest, that are controlled by variable interest entity directly or indirectly the parent. (“VIE”) and whether through subsidiaries, the Company has a by virtue of holding Control is presumed to variable interest in an majority voting shares exist when the parent entity. A variable or control over board owns, directly or interest changes with a of directors. indirectly through change in an entity’s subsidiaries, more than net asset value and is one half of the voting the means through power of an enterprise which expected losses unless, in exceptional are absorbed and circumstances, it can expected residual be clearly returns are received. If demonstrated that such theentityisaVIE,the ownership does not Company must constitute control. evaluate the potential Control can also exist subsidiary under the in certain situations FIN 46 Consolidation of where the parent owns Variable Interest one half or less of the Entities (“FIN 46”) voting power of an model. If the potential enterprise. subsidiary is not a VIE, the Company should evaluate the consolidation of the potential subsidiary under the provisions of SFAS 94 Consolidation of All Majority Owned Subsidiaries (“SFAS 94”).

Under FIN 46 the party exposed to the majority of the risks and rewards is the primary beneficiary and must consolidate the entity regardless of the ownership interest.

SFAS 94 states all majority-owned subsidiaries (i.e., all companies in which a parent has a controlling financial interest through direct or indirect ownership of a majority voting interest) must be consolidated unless control does not rest with the majority owner.

— 171 — IFRS US GAAP INDIAN GAAP

15 Associate company An entity is equity Similar to IFRS. Similar to IFRS except accounted and that the determination considered as an of significant influence associate over which is less rigorous an investor has compared to US GAAP significant influence. or IFRS. Hence, the scope of entities If an investor holds, covered under the directly or indirectly 20 definition of an per cent. or more of associate company voting power of the could be different than investee, it is presumed IFRS or US GAAP. that the investor has significant influence, unless it can be clearly demonstrated that this is not the case.

16 Presentation of Use the equity method. Similar to IFRS. Similar to IFRS, except associate results Show share of post-tax that upon adoption of results. Upon adoption the equity method of the equity method from the cost method, from the cost method the effect of the all prior periods are change is reflected in restated to reflect the the opening retained change in the financial earnings in the statements. consolidated financial statements.

Revenue Recognition

17 Revenue recognition Based on several Four key criteria. In Similar to IFRS. See criteria, which require principle, similar to note 19 below for the recognition of IFRS. Extensive detailed discussion of revenue revenue when risks and guidance exists for recognition based on rewards have been specific transactions. the requirements of transferred and the See note 19 below for electricity laws, rules revenue can be discussion of revenue and regulations. measured reliably. recognition by regulated enterprises.

— 172 — IFRS US GAAP INDIAN GAAP

18 Revenue recognition — Revenue recognition Revenue arrangements No specific guidance Multiple-element criteria are applied to with multiple for multiple-element arrangements each separately deliverables should be revenue recognition identifiable component divided into separate arrangements. of a transaction to units of accounting if reflect the substance of the deliverables in the the transaction — e.g, arrangement meet to divide one specified criteria transaction into the outlined in EITF 00-21 sale of goods and to Accounting for the subsequent Multiple Element servicing of those Arrangements. The goods. No further arrangement’s detailed guidance consideration should exists. be allocated among the separate units of accounting based on their relative fair values. Applicable revenue recognition criteria should be considered separately for separate units of accounting.

19 Revenue recognition No separate guidance The amount refundable The Company records for regulated covering revenue to customers due to the amount refundable enterprises recognition aspects has changes in tariff to customers as a been addressed in IFRS regulations would reduction of revenue, for service concession generally be considered in case the orders are arrangements. as a reduction of received from the revenue. regulatory authorities The amount refundable before finalization of to customers due to However, under SFA5 the financial changes in tariff 71, if an entity statements; else it is regulations would qualifies as a estimated and provided generally be considered “regulated enterprise” for as an expense a reduction of revenue. and meets the criteria (termed as “Cost Increases in tariffs are of loss contingency, adjustment”) with recognized pursuant to refunds to customers suitable disclosures in the general revenue shall be recorded as the notes to the recognition criteria (see liabilities and as financial statements. note 17 above). reductions of revenue or as expenses.

— 173 — IFRS US GAAP INDIAN GAAP

Generally additional Additional revenues as revenues as a result of a result of increases in increases in tariff rates tariff rates for earlier for electricity provided periods are recorded as in prior periods to be revenue (including billed in the future are unbilled amounts) in recorded as revenue if the period when such the program is rates are established by established by an order the regulatory from the utility’s authorities. regulatory commission, the amount of additional revenues for the period is objectively determinable and is probable of recovery and the additional revenues will be collected within a reasonable period following the period in which they are recognized.

20 Capital contributions The Company receives Similar to IFRS. The capital from consumers capital contributions contributions received towards cost of from its consumers to from consumers are construction of service assist in the directly recorded in lines construction of service equity (reserves) based lines where the full on the opinion of ICAI ownership of the taken in earlier years. service lines remain with the Company. No specific guidance on such capital contributions from consumers. However, in practice, such contributions would either be recognized as revenue when the network is extended or modified or recorded as a reduction in the cost of the assets, depending on the specific facts and circumstances.

— 174 — IFRS US GAAP INDIAN GAAP

Expense Recognition

21 Employee benefits — Projected unit credit For pension benefit With the adoption of Defined benefit plans method is used to plans and gratuity AS 15 (revised), similar determine benefit plans, must use the to the IFRS, although obligation and record projected unit credit several differences in plan assets at fair method to determine detail. eg. actuarial value. Actuarial gains benefit obligation. gains and losses are and losses can be recognized upfront in deferred. An amount equal to the income statement. the “net periodic This is applicable to pension cost” is to be the Company from charged to the April 1, 2007. statement of financial performance regardless PriortoAS15 of whether (revised), no method is contributions are made prescribed for actuarial during the period. The valuation and limited net periodic pension guidance available on cost is an actuarially other specific issues. determined amount equal to:

(i) the present value of future benefits which have accrued during the period; and

(ii) an interest cost component related to the increase in the projected benefit obligation due to the passage of time; less

(iii) estimated earnings on invested assets segregated to provide future benefits; and

(iv) an amortization of previously unrecognized prior service costs, transition assets/obligations and experience gains/losses.

— 175 — IFRS US GAAP INDIAN GAAP

If contributions differ from the net pension cost, an asset representing prepaid pension costs or a liability for unfunded accrued pension costs arises and is recorded in the statement of financial position.

A curtailment of a pension plan is an event that significantly reduces the expected years of future service of present employees or eliminates for a significant number of employees the accrual of defined benefits for some or all of their future services. SFAS 88 “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” requires the pro-rata recognition of previously unrecognized net gains or losses, prior service costs, and transition amounts when part of a defined benefit plan is curtailed.

22 Employee benefits — It qualifies as short- No segregation With the adoption of Compensated absences term or other long- between short-term AS 15 (revised) similar term employee and long-term. to IFRS. This is benefits. The expected applicable to the cost of accumulating The expected cost of Company from April 1, short-term all the accumulating 2007. compensated absences compensated absences is recognized on an is recognized on an Prior to AS 15 (revised) accrual basis. Liability accrual basis. practice varies for for long-term accrual of compensated compensated absences Discounting is absences other than is measured using permitted in rare for leave encashable on projected credit unit circumstances. retirement, which is method. recognized based on an actuarial valuation.

— 176 — IFRS US GAAP INDIAN GAAP

23 Employee Benefits — Costs of voluntary Similar to IFRS. The Company defers Cost of voluntary terminations before and amortizes costs of terminations normal retirement date voluntary terminations are expensed as over three equal incurred. annual installments.

Assets

24 Property, plant and Use historical cost or PP&E is recorded at Use historical cost or equipment (“PP&E”) revalued amounts. historical acquisition revalued amounts. On Regular valuations of cost. revaluation, an entire entire classes of assets class of assets is are required, when Revaluations are not revalued, or selection revaluation option is permitted. of assets is made on chosen. systematic basis. No current requirement on frequency of valuation.

25 Capitalization of asset Includes initial estimate Includes fair value of No specific guidance, retirement obligations of the costs of all asset retirement hence practice varies. dismantling and obligations. removing the item and restoring the site on Such asset retirement which it is located. obligations are measured only at Such asset retirement discount rate on the obligations are initial date of remeasured annually recognition and for applying the prevailing increases in estimated discount rates valid for cash flows from new the relative balance liabilities or changes in sheet. estimates.

Asset retirement asset Amortization method is adds to the cost basis consistent with IFRS. of the asset and is amortized to expense The recently issued FIN over the economic 47, clarifies that an useful life of the asset. entity must also record a liability for a “conditional” asset retirement obligation if the fair value of the obligation can be reasonably estimated. The types of asset retirement obligations that are covered by this Interpretation are those for which an entity has a legal obligation to perform an asset retirement activity, however the timing and (or) method of settling the obligation are conditional on a future event that may or may not be within the control of the entity.

— 177 — IFRS US GAAP INDIAN GAAP

26 Capitalization of Permitted for qualifying Required. Required. borrowing costs assets, but not required.

27 Capitalization of Not permitted, except Not permitted. Required. preoperative and trial certain trial run run expenses, net of expenses may be revenue earned during capitalized if they are a trial run period necessary part of bringing the asset to its working condition.

28 Depreciation Allocated on a Similar to IFRS. Based on the rates systematic basis to prescribed in the each accounting period Electricity Act 2003. over the economic useful life of the asset. As per the Repealed Electricity Act, depreciation is only provided on assets in existence at the beginning of the year and is not provided on assets acquired or retired during the year.

However, with effect from April 1, 2005, as per the West Bengal (Tariff) Regulation 2003, the Company depreciates any new additions from the date of purchase and its existing assets from April 1, 2005 at rates prescribed in the Companies Act, 1956.

29 Impairment of long- If impairment is For assets to be held Similar to IFRS. lived assets indicated, write down and used, impairment assets to recoverable review based on amount which is the undiscounted cash higher of net selling flows. If the price and value in use undiscounted cash based on discounted flows are less than the cash flows. If no loss carrying amount, arises, reconsider measure the useful lives of those impairment loss using assets. market value or discounted cash flows. Impairment loss is recorded in the income Impairment loss is statement. Reversal of recorded in the income loss is permitted in statement. Reversals of certain cases. impairment losses are prohibited.

— 178 — IFRS US GAAP INDIAN GAAP

30 Depreciation on Under IFRS, any Not applicable as Similar to IFRS. revalued assets accumulated revaluations are not However, there would depreciation at the permitted. be a reduction in date of the revaluation charge to the income is either restated statement when proportionately with compared to IFRS on the change in the gross an overall basis due to carrying amount of the compensating transfer asset so that the (attributable to the carrying amount of the depreciation incurred asset after revaluation on the revalued part of equals its revalued the asset) made from amount; or eliminated revaluation reserve to against the gross income statement carrying amount of the under Indian GAAP; a asset and the net similar transfer amount restated to the (optional) is made revalued amount of the directly to equity in asset. case of IFRS. Frequency of revaluation is not addressed by the Guidance Note which governs revaluation of fixed assets.

31 Impairment of revalued An impairment loss Not applicable as Similar to IFRS. assets (downward revaluation) revaluations are not may be offset against permitted. revaluation reserves to the extent that it relates to the same asset; any uncovered deficit must be accounted for in the income statement.

32 Finance leases Requires recognition of Similar to IFRS, except For assets leased an asset with a the lessee’s incremental during the accounting corresponding borrowing rate must be period on or after April obligation to pay used to calculate the 1, 2001, Accounting future rentals, at an present value of the Standard requires amount equal to the minimum lease accounting similar to lower of the fair value payments, excluding IFRS. However, for of the asset and the the portion of assets leased prior to present value of the payments representing that period, either minimum lease executory costs unless accounting similar to payments at the lease it is practicable to IFRS is applied or the inception. The asset is determine the rate lease rentals are depreciated over its implicit in the lease expensed to the profit useful life or the lease and the implicit rate is and loss account. term if shorter. The lower than the interest rate implicit in incremental borrowing Lease rentals up to the lease must rate. In addition, US 2004-05 were normally be used to GAAP provides certain expensed to the profit calculate the present specific tests in and loss account, value of the minimum determining whether pursuant to the lease payments. If the lease is a finance lease requirements of the implicit rate is or an operating lease. Repealed Electricity unknown, the lessee’s Act. incremental borrowing rate may be used.

— 179 — IFRS US GAAP INDIAN GAAP

33 Investments Investments in listed Similar to IFRS. Long-term investments securities are classified Investments in unlisted are carried at cost as held-to-maturity, equity securities are (with provision for available-for-sale or recorded at cost less other than temporary trading at acquisition. impairment, if any. diminution in value).

Investments classified Current investments as held-to-maturity are carried at lower of cost recorded at amortized or fair value. cost less impairment, if any. Realized gains and losses are reported in earnings.

Investments classified as available-for-sale are reported at fair value. Unrealized gains and losses on the change in fair value are reported in equity, less impairment, if any. Investments classified as trading are reported at fair value with unrealized gains and losses included in earnings.

Investments in unlisted equity securities are recorded at cost less impairment if any.

There is an option in IFRS to classify any financial asset “at fair value through profit or loss”. Changes in fair values in respect of such securities are recognized in the income statement. This is an irrevocable option to classify a financial asset at fair value through profit or loss.

34 Inventory — Retail No specific guidance. Under US GAAP, retail No specific guidance. industry inventory method is commonly used by However, inventory in retail companies. It is the retail business is an averaging technique recorded as follows: used by retailers. The retailer maintains the Traded Goods are aggregate cost of valued at lower of cost purchases and retail and net realizable value of the purchases value. Packing to calculate cost materials are valued at component. or below cost.

Cost is arrived under First In First out (FIFO)/ Moving Weighted Average method.

— 180 — IFRS US GAAP INDIAN GAAP

35 Deferred expenditure Costs in respect of any Similar to IFRS. Preliminary and share start up are expensed issue expenses are as incurred. charged to income statement. Capital issue expenses should be accounted However, preliminary for as a deduction expenses and capital from equity, net of any issue expenses incurred related income tax prior to April 1, 2006 benefit. are deferred and amortized over the remaining electricity license period.

Other Accounting and Reporting Topics

36 Foreign currency Transactions in foreign Similar to IFRS. Similar to IFRS. transactions currency are accounted for at the exchange However, under SFAS However, foreign rate prevailing on the 71, if an entity currency loans up to transaction date. qualifies as a March 31, 2005 were Foreign currency assets “regulated enterprise”, not restated at the and liabilities are an entity shall year-end exchange restated at the year- capitalize all or part of rate, as required under end exchange rates. an incurred cost that the Accounting otherwise would be Standard on No separate guidance charged to expense if “Accounting for the for regulated both the following Effect of Changes in enterprises. conditions are met: Foreign Exchange Rates (AS-11) (1994)” issued (a) It is probable that by the Institute of future revenue in Chartered Accountants an amount at least of India in the absence equal to the of any specific capitalized cost will provision under the result from repealed ESA. inclusion of that cost in allowable With effect from costs for rate- 2005-06, year-end making purposes. outstanding balance of the foreign currency (b) Based on available loans are restated at evidence, the the year-end exchange future revenue will rate and exchange gain be provided to or loss arising in permit recovery of respect of such the previously restatement is incurred cost accounted for as an rather than to income or expense provide for with recognition of the expected levels of said amount as similar future refundable or costs. If the recoverable, as the revenue will be case may be, which provided through will be taken into an automatic rate- consideration in adjustment clause, determining the this criterion Company’s future tariff requires that the in respect of the regulator’s intent amount settled. clearly be to permit recovery of the previously incurred cost.

— 181 — IFRS US GAAP INDIAN GAAP

37 Provisions Record the provisions Similar to IFRS. Rules Similar to IFRS. relating to present for specific situations obligations from past (including employee Discounting is not events if outflow of termination costs, permitted. resources is probable environmental liabilities and can be reliably and loss estimated. contingencies).

Discounting required if Discounting required effect is material. only when timing of cash flows is fixed.

38 Fringe benefit taxes Included as part of Similar to IFRS. Disclosed as a separate related expenses item after ‘profit (fringe benefit) which before tax’ on the face gives rise to incurrence of income statement. of the tax.

39 Contingent assets A possible asset that Contingent assets are Similar to IFRS, except arises from past events, recognized when that certain disclosures and whose existence realized, generally as specified in IFRS are will be confirmed only upon the receipt of not required. by the occurrence or consideration. non-occurrence of one or more uncertain future events not wholly within the entity’s control. The item is recognized as an asset when the realization of the associated benefit, such as an insurance recovery, is virtually certain.

40 Contingent liability A possible obligation An accrual for a loss Similar to IFRS. whose outcome will be contingency is confirmed only on the recognized if it is occurrence or non- probable (defined as occurrence of uncertain likely) that there is a future events outside present obligation the entity’s control. It resulting from a past can also be a present event and an outflow obligation that is not of economic resources recognized because it is reasonably estimable. is not probable that If a loss is probable but there will be an the amount is not outflow of economic estimable, the low end benefits, or the of a range of estimates amount of the outflow is recorded. Contingent cannot be reliably liabilities are disclosed measured. Contingent unless the probability liabilities are disclosed of outflows is remote. unless the probability of outflows is remote.

— 182 — IFRS US GAAP INDIAN GAAP

41 Financial liabilities — Classify capital Generally when an Generally accepted classification instruments depending instrument is not a accounting practice on substance of the share, it is classified as follows legal form obligations of the a liability when an rather than substance. issuer. obligation to transfer economic benefit exists.

Mandatorily Similar to IFRS. Preference shares are redeemable preference classified as share shares are classified as capital. liabilities.

Long-term debt with a Similar to IFRS. Long-term debt with a call feature is classified call feature is not as a current liability. required to be classified as a current liability.

42 Debt issue costs Direct incremental Similar to IFRS. Debt issue costs are costs of issuing debt charged to income are deferred as an statement. asset and amortized as an adjustment to yield. Debt issue costs incurred prior to April 1, 2006 were permitted to be deferred and amortized on a straight line basis over the remaining electricity license period.

43 Debt covenant violation Long-term debt is Similar to IFRS. Covenant violations are classified as current not required to be when the debtor is in disclosed in the violation of a provision financial statements. of the debt agreement at the balance sheet Classification does not date and the violation change, as there is no makes the obligation current/non-current callable by the lender. classification requirement. Long-term debt is also classified as current when the debt agreement contains subjective acceleration clauses that are vague and difficult to interpret making the debt callable by the lender.

Debt covenant violations must be disclosed in the financial statements. In addition, consideration must be given as to whether the lender’s right to demand payment creates a going concern presumption.

— 183 — IFRS US GAAP INDIAN GAAP

44 Derecognition of If an entity transfers Derecognize based on Limited guidance. financial assets substantially all the control. Legal isolation risks and rewards of of assets even in Derecognize based on ownership of the asset bankruptcy is necessary the transfer of (e.g., an unconditional for derecognizing. If significant risks and sale of a financial sale criteria is not met, rewards of ownership. asset), the entity the transferred assets Guidance note on derecognizes the asset. are not removed from securitized assets If an entity neither the balance sheet and requires derecognizing transfers nor retains any proceeds received based on loss of substantially all the are recorded as control. risks and rewards of borrowings. No income ownership of the asset, would be recognized as the entity has to a result of the transfer. determine whether it has retained control of A further evaluation is the asset. Control is necessary to determine based on the whether the transferee’s practical derecognized asset ability to sell the asset. needs to be If the entity has lost consolidated under FIN control the asset is 46, as explained in the derecognized. If the discussion relating to entity has retained consolidation. control, it continues to recognize the asset to the extent of its continuing involvement.

45 Derecognition of Derecognize liabilities US GAAP only permits No specific guidance financial liabilities when extinguished. The extinguishments when but practice is similar difference between the payment is made or to IFRS. carrying amount and legally released. the amount paid is recognized in the income statement.

46 Forfeiture of partly Amount forfeited on Similar to IFRS. Amount forfeited on paid shares forfeiture of partly paid forfeiture of partly paid shares are classified as shares have been part of additional disclosed as part of paid-in capital. share capital.

47 Dividends Dividends are recorded Similar to IFRS. Dividends are recorded as liabilities when as provisions when declared. proposed.

— 184 — IFRS US GAAP INDIAN GAAP

48 Deferred Income taxes Use full provision Deferred income tax Until 2004-05, the method (some assets and liabilities are Company did not exceptions), driven by determined using the account for deferred balance sheet balance sheet method. taxes, pursuant to the temporary differences. The net deferred tax requirements of the Recognize deferred tax asset or liability is Repealed Electricity assets if recovery is based on temporary Act. probable. differences between the book and tax bases From 2005-06, the Deferred tax assets and of assets and liabilities, Company started liabilities are measured and recognizes enacted recognizing deferred using tax rates that changes in tax rates tax assets or liabilities have been enacted or and laws. US GAAP with a corresponding substantively enacted permits deferred tax provision of liability or by the balance sheet assets to be recognized assets, as the case may date. for any operating loss be, since tax on profits carry forwards to the forms part of extent that it is more chargeable expenditure likely than not that under applicable they will be realized. A regulations and are valuation allowance recoverable through should be recorded future tariff. against deferred tax assets when it is Under Indian determined that Accounting Standards, realization of the deferred tax assets and deferred tax assets is liabilities should be less than more likely recognized for all than not. timing differences subject to Per SFAS 71, if the consideration of current income tax prudence in respect of benefit or costs of deferred tax assets. temporary differences Where an enterprise are passed through to has unabsorbed customers in current depreciation or carry prices and it is forward of losses under probable that any tax laws, deferred tax resulting income taxes assets should be payable in future years recognized only to the will be recovered extent that there is through future rates, virtual certainty the Company should supported by not record (only convincing evidence disclose) deferred taxes that sufficient future resulting from those taxable income will be temporary differences. available against which such deferred tax assets can be realized.

Deferred tax assets and liabilities are measured using tax rates that have been enacted or substantively enacted by the balance sheet date.

— 185 — IFRS US GAAP INDIAN GAAP

49 Measurement of Measure derivatives Similar to IFRS, except Derivatives are initially derivative instruments and hedge instruments no “basis adjustment” measured at cost. at fair value. Recognize on cash flow hedges of However, there is no the changes in fair forecast transactions. comprehensive value in the income guidance for derivative statement, except for accounting. effective cash flow hedges, where the changes are deferred in equity until effect of the underlying transaction is recognized in the income statement. Ineffective portions of hedges are recognized in the income statement. IFRS requires extensive documentation and effectiveness testing to obtain hedge accounting.

Gains/losses from hedge instruments that are used to hedge forecast transaction may be included in cost of non-financial asset/liability (basis adjustment).

50 Post balance sheet Adjust the financial Similar to IFRS. Similar to IFRS. events statements for However, non-adjusting subsequent events, events are not required providing evidence of to be disclosed in conditions at balance financial statements sheet date and but are disclosed in materially affecting report of approving amounts in financial authority e.g. statements (adjusting Directors’ Report. events). Disclose non- adjusting events.

51 Interim financial Contents are Similar to IFRS. Similar to IFRS. reporting prescribed and basis Additional quarterly should be consistent reporting requirements However, pursuant to with full-year apply for SEC the listing agreement, statements. Frequency registrants (domestic all listed entities in of reporting (e.g. US entities only). India are required to quarterly, half-year) is Interim reporting furnish their quarterly imposed by local requirements for results in the regulator or is at foreign private issuers prescribed format. discretion of entity. are based on local law and stock exchange Quarterly results requirements. include financial results relating to the working of the Company and certain notes thereon.

— 186 — IFRS US GAAP INDIAN GAAP

52 Related Party There is no specific The nature and extent The scope of parties Disclosures requirement in IFRS to of any transactions covered under the disclose the name of with all related parties definition of related the related party (other and the nature of the party could be less than the ultimate relationship must be than under IFRS or US parent entity). There is disclosed, together GAAP. a requirement to with the amounts disclose the amounts involved. Unlike IFRS, Unlike IFRS, name of involved in a all material related related party is transaction, as well as party transactions required to be the balances for each (other than disclosed. major category of compensation related parties. arrangements, expense However, these allowances and similar disclosures could be items) must be required in order to disclosed in the present meaningfully separate financial the “elements” of the statements of wholly transaction, which is a owned subsidiaries, disclosure requirement. unless these are presented in the same financial report that includes the parent’s consolidated financial statements (including those subsidiaries).

53 Segment reporting Report primary and Report based on Similar to IFRS. secondary (business operating segments and geographic) and the way the chief segments based on operating decision- risks and returns and maker evaluates internal reporting financial information structure. for purposes of allocating resources Use group accounting and assessing policies or entity performance. accounting policy. Use internal financial reporting policies (even if accounting policies differ from group accounting policy).

— 187 — DEFINITIONS AND GLOSSARY

Definitions of certain terms used in this Placement Document

The following list of defined terms is intended for the convenience of the reader only and is not exhaustive.

ADB ...... AsianDevelopment Bank

AGM ...... Annual General Meeting

Annual Financial Statements . The Power Business Annual Financial Statements and the Retail Business Financial Statements

Annual Report ...... The Company’s Power Business Annual Financial Statements for the relevant financial year, the directors’ report and the auditors’ report

APDRP ...... Accelerated Power Development & Reform Program

Articles of Association ...... Articles of Association of the Company

AS ...... Accounting Standard issued by the Institute of Chartered Accountants of India

BIFR ...... TheBoard for Industrial and Financial Reconstruction billion ...... Onethousand million

Board ...... TheCompany’s Board of Directors

BSE ...... TheBombay Stock Exchange Limited

Bus ...... Billions of Units

CCEA ...... TheCabinet Committee of Economic Affairs

CDC ...... Commonwealth Development Corporation

CDR ...... CorporateDebt Restructuring

CDR Cell ...... The first tier of the CDRM which prepares a preliminary report on the prima facie feasibility of the proposed restructuring and submits its report to the CDR Empowered Group within one month of receiving the reference

CDR Empowered Group ..... The second tier of the CDRM which considers the preliminary report submitted to it by the CDR Cell and has the power to approve the individual cases of corporate debt restructuring

CDR Standing forum and its The third tier of the CDRM which lays down the policies Core Group ...... and guidelines to be followed by the two other tiers, the CDR Empowered Group and the CDR Cell, and provides an official platform for both creditors and debtors to amicably and collectively evolve policies and guidelines for evolving and constructing debt restructuring plans

— 188 — CDRM ...... Corporate Debt Restructuring Mechanism established by the RBI

CDRM Package ...... Restructuring scheme promulgated pursuant to the CDRM

CDSL ...... Central Depository Services (India) Limited

CEA ...... Central Electricity Authority

Central Government ...... TheGovernment of India

Central Sector ...... Central Government controlled entities

CERC ...... Central Electricity Regulatory Commission

CERC Regulations ...... CERC Regulations dated March 26, 2004, as amended from time to time

Chairman ...... Thechairman of the Board

CIL ...... Coal India Limited circuit km ...... Circuitkmistheproduct of the number of lines and the length of such lines in km

Civil Code ...... TheCode of Civil Procedure, 1908 of India (as amended)

CLA ...... TheCentral Listing Authority

Closing Date ...... December [●], 2007

CLSA ...... CLSA Singapore Pte Ltd.

Code ...... TheCode of Civil Procedure, 1908 of India (as amended)

Companies Act ...... Companies Act, 1956 of India (as amended)

Company ...... CESC Limited

CPRI ...... Central Power Research Institute

CSE ...... TheCalcuttaStockExchange Association Ltd.

DCA ...... Debtor-Creditor Agreement between the relevant company and the lenders that have chosen to participate in the CDRM Package

Depositories Act ...... TheDepositories Act, 1996

Directors ...... ThedirectorsoftheCompany

Electricity Act ...... TheElectricity Act enacted on June 10, 2003

EMC ...... Energy Management Centre

ERC Act ...... Electricity Regulatory Commission Act, 1998

ESA ...... Electricity (Supply) Act, 1948

— 189 — Exchange Act ...... TheU.S.Securities Exchange Act of 1934, as amended

Existing Shares ...... Fully-paidordinaryShares of the Company of par value of Rs.10 each

FDI ...... Investment by way of subscription of securities of an Indian company by persons resident outside India

FEMA ...... TheForeignExchange Management Act, 1999

FERA ...... ForeignExchange (Regulation) Act, 1973 of India

FIIA ...... ForeignInvestment Implementation Authority

FIIs ...... ForeignInstitutional Investors

FIPB ...... ForeignInvestment Promotion Board, Ministry of Finance, Government of India

FMCG ...... Fast Moving Consumer Goods

Foreign Institutional Investor The SEBI (Foreign Institutional Investor) Regulations, 1995 Regulations ......

FSMA ...... TheFinancial Services and Markets Act 2000

GDP ...... grossdomestic product

Goenka family ...... Mr.R.P.Goenka and members of his family grid ...... Anational or regional high voltage transmission network

Gridco ...... GridCorporationofOrissaLimited

High Court ...... HighCourt of Calcutta

HT ...... Hightension

HV ...... HighVoltage

ICAI ...... TheInstitute of Chartered Accountants of India

ICML ...... IntegratedCoal Mining Limited

IDBI ...... Industrial Development Bank of India

IFC ...... International Finance Corporation

IFRS ...... International Financial Reporting Standards

India ...... TheRepublic of India

Indian GAAP ...... Generally accepted accounting principles followed in India

Indian Income Tax Act or IT The Indian Income Tax Act, 1961 (43 of 1961) Act ......

— 190 — Indian Stock Exchanges ..... Each of the BSE, the NSE, the CSE and any other stock exchanges in India on which the Shares are listed from time to time

Insider Trading Regulations . . The SEBI (Prohibition of Insider Trading) Regulations, 1992

ICAI...... Institute of Chartered Accountants of India

Issue ...... The offering of the Shares pursuant to this Placement Document

Joint Global Coordinators CLSA India Limited, Citigroup Global Markets India Private and Book Running Lead Limited, Kotak Mahindra Capital Company Ltd. Managers ...... km ...... kilometers

Kolkata ...... ThecityofKolkata,previouslynamed Calcutta

KV...... Kilovolt

KVA ...... Kilovolt ampere

KWh ...... Kilowatt hour

LCC ...... Local Control Center

LIC ...... LifeInsurance Corporation of India

Listing Agreements ...... TheListingAgreements of the Indian Stock Exchanges

LSE ...... London Stock Exchange plc

LT ...... Lowtension

Luxembourg Stock Exchange . Bourse de Luxembourg

MCC ...... Master Control Center

Memorandum of The Memorandum of Understanding entered into between Understanding ...... the Company and the Joint Global Coordinators and Book Running Lead Managers

MOEF ...... Ministry of Environment and Forests of the Central Government

MOF ...... MinistryofFinance of the Central Government

MOP ...... MinistryofPower of the Central Government

MT ...... Million tonnes

MU ...... Million units

MVA ...... 1000 KVA

MW ...... Megawatt

— 191 — NEEPCO ...... NorthEastern Electric Power Corporation Limited

NEP ...... Thenational electricity policy of the Central Government dated February 12, 2005

NHPC ...... National Hydro Power Corporation Limited

Non-Resident Indian or NRI . . An individual of Indian nationality or origin residing outside India

Noon Buying Rate ...... noon buying rate in New York city for cable transfers in Indian Rupees as certified for customs purposes by the Federal Reserve Bank of New York

NPC ...... Nuclear Power Corporation Limited

NSDL ...... National Securities Depository Limited

NSE ...... TheNational Stock Exchange of India Limited

NTP ...... TheNational Tariff Policy of the Central Government

NTPC ...... National Thermal Power Corporation Limited

OECD ...... The Organization for Economic Cooperation and Development

OSEB ...... Orissa SEB

PETS ...... Power Engineers Training Society research and development

PFC ...... Power Finance Corporation Limited

PGCIL ...... Power Grid Corporations of India Limited

PLF ...... Plantloadfactor

Portfolio Investments ...... Investments by registered FIIs or Non-Resident Indians made through a stock exchange

Power Business ...... CESC Limited (excluding SRL) and its subsidiaries

Power Business Annual The balance sheets of the Power Business as of March 31, Financial Statements ...... 2005, 2006 and 2007, the profit and loss accounts of the Power Business for each of the years in the three year period ended March 31, 2007 and the cash flow statements of the Power Business for each of the years in the three year period ended March 31, 2007, prepared in accordance with Indian GAAP, except as otherwise stated in the qualified auditors’ report thereon

Power Business Interim The Unaudited Financial Results (Provisional) of the Power Financial Information ..... Business for the six month period ended September 30, 2007, prepared in accordance with Clause 41 of the Listing Agreements, and the limited review report of the auditors thereon

— 192 — Preference Shares ...... Cumulative redeemable preference shares of the Company of Rs.10 each

Private Sector ...... Privatesector controlled utilities

Pro Forma Annual Financial Unaudited, annual pro forma financial information as at Information ...... and for the year ended March 31, 2007

Pro Forma Combined The Pro Forma Annual Financial Information and the Pro Financial Information ..... Forma Interim Financial Information

Pro Forma Interim Financial Unaudited, interim pro forma financial results for the six Information ...... month period ended September 30, 2007

QIBs ...... Qualified Institutional Buyers (as defined in the SEBI Guidelines)

RBI ...... Reserve Bank of India

REBs ...... Regional Electricity Boards

REC ...... RuralElectrification Corporation

Registrar of Companies ..... theRegistrar of Companies in India

Regulation S ...... Regulation S under the Securities Act

Regulations ...... Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000

Relevant Date ...... Thirty days prior to the date of the shareholder meeting at which a given resolution is passed

Restructured Loans ...... Theloans restructured pursuant to the Company’s debt restructuring

Retail Business ...... Spencer’s Retail Ltd

Retail Business Annual The non-consolidated balance sheet of the Retail Business Financial Statements ...... as of March 31, 2007, the non-consolidated profit and loss account of the Retail Business for the year ended March 31, 2007 and the non-consolidated cash flow statements of the Retail Business for the year ended March 31, 2007, prepared in accordance with Indian GAAP, except as otherwise stated in the qualified auditors’ report thereon

Retail Business Interim The non-consolidated profit and loss account of the Retail Financial Information ...... Business for the six month period ended September 30, 2007, prepared in accordance with Indian GAAP

RPG Group ...... Thegroupofcompanies which comprises various affiliated entities under the leadership of the Goenka family

RSA 421-B ...... Chapter 421-B of The New Hampshire Revised Statutes

Rule 144A ...... Rule144A under the Securities Act

— 193 — Rupee, Rs...... Thecurrency of India

SCADA System ...... Supervisory Control and Data Acquisition System

Scheme of Amalgamation . . . Scheme of Amalgamation sanctioned by the High Court on June 14, 2004, the undertakings of the wholly owned subsidiaries have vested with the Company with effect from March 31, 2004. The Scheme of Amalgamation was approved by the Company’s shareholders on April 21, 2004

SCRA ...... TheSecurities Contracts (Regulation) Act, 1956

SCRR ...... TheSecurities Contracts Regulation Rules, 1957

SEB ...... StateElectricity Board

SEBI ...... TheSecurities and Exchange Board of India

SEBI Act ...... TheSecurities and Exchange Board of India Act, 1992

SEBI Guidelines ...... SEBI Guidelines on Disclosure and Investor Protection, 2000

SEC ...... TheUSSecurities and Exchange Commission

Section 115AC Regime ...... Section 115AC and other significant applicable provisions of the Indian Income Tax Act, without reference to any double taxation avoidance agreements, and the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme 1993, as amended from time to time, promulgated by the Central Government

Securities Act ...... TheUnitedStatesSecurities Act of 1933, as amended

SERC ...... StateElectricity Regulatory Commission

Shares ...... The[●] Shares being offered pursuant to the Issue

SICA ...... SickIndustrial Companies (Special Provisions) Act, 1985 sq km ...... square kilometers

State Government ...... stategovernment of West Bengal

State Sector ...... SEBcontrolled entities

STT ...... Securities Transaction Tax

Supreme Court ...... Supreme Court of India

Takeover Code ...... The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997

Tariff Regulations ...... TheTariffRegulations dated March 26, 2004 issued by the CERC for determination of tariffs for generating companies and transmission licensees

— 194 — T&D Losses ...... Transmission and Distribution losses

UK ...... TheUnitedKingdom of Great Britain and Northern Ireland

UN ...... UnitedNations

Unit ...... oneKWh; that is, the energy contained in a current of one thousand amperes flowing under an electromotive force of one volt during one hour

United Nations Framework UNFCCC Convention on Climate Change ......

United States, U.S...... The United States of America, its territories and possessions, any State of the United States and the District of Columbia

U.S. Dollars, Dollars, $, US$, The currency of the United States U.S.$ ......

US GAAP ...... Generally Accepted Accounting Principles of the U.S.

WBERC ...... WestBengal Electricity Regulatory Commission

WBERC Regulations ...... Thedrafttariffregulations of WBERC dated September 23, 2005

WBPCB ...... WestBengal Pollution Control Board

WBSEB ...... WestBengal State Electricity Board

WBSEDCL ...... WestBengal State Electricity Distribution Company Limited

ZCC ...... Zonal Control Center

— 195 — INDEX TO THE FINANCIAL STATEMENTS AND INFORMATION

Interim Financial Information of CESC Limited for the six months ended September 30, 2007

Limited Review Report of Lovelock & Lewes, Chartered Accountants dated October 31, 2007 ...... F-2

Unaudited Financial Results (Provisional) for the quarter/half year ended September 30, 2007 ...... F-3

Annual Financial Statements of CESC Limited as of and for each of the years in the three year period ended March 31, 2005, 2006 and 2007

Auditors’ Report of Lovelock & Lewes, Chartered Accountants dated November 30, 2007 ...... F-5

Audited Balance Sheet as of March 31, 2005, 2006 and 2007 ...... F-7

Audited Profit and Loss Account for the three years ended March 31, 2007 ...... F-9

Audited Cash Flow Statement for the three years ended March 31, 2007 ...... F-11

Schedules to the Annual Financial Statements of CESC Limited ...... F-13

Interim Financial Information of SRL for the six months ended September 30, 2007

Limited Review Report of SR Batliboi & Co., Chartered Accountants dated December 1, 2007 ...... F-36

Unaudited Financial Results for the six months ended September 30, 2007 ...... F-37

Annual Financial Statements of SRL as of and for the year ended March 31, 2007

Auditors’ Report of SR Batliboi & Co., Chartered Accountants dated October 29, 2007 ...... F-39

Audited Balance Sheet as of March 31, 2007 ...... F-44

Audited Profit and Loss Account for the year ended March 31, 2007 ...... F-46

Audited Cash Flow Statement for the year ended March 31, 2007 ...... F-47

Notes to the Financial Statements of SRL ...... F-49

F-1 REVIEW REPORT OF LOVELOCK & LEWES, CHARTERED ACCOUNTANTS

Review Report

1. We have reviewed the accompanying statement of Unaudited Financial Results (Provisional) of CESC Limited for the quarter/half year ended 30th September 2007. This statement is the responsibility of the Company’s Management and has been approved by the Board of Directors of the Company, in their meeting held on 31st October 2007.

2. A review of interim financial information consists principally of applying analytical procedures for financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

3. Based on our review conducted as above, nothing has come to our notice that causes us to believe that, the accompanying statement of Unaudited Financial Results (Provisional), prepared in accordance with accounting standards and other recognised accounting practices and policies has not disclosed the information required to be disclosed in terms of Clause 41 of the Listing Agreement, including the manner in which it is to be disclosed, or that it contains any material misstatement.

Prabal Kr. Sarkar Partner Membership No. 52340

For and on behalf of Lovelock & Lewes Chartered Accountants

Kolkata, 31st October 2007

F-2 UNAUDITED FINANCIAL RESULTS (PROVISIONAL) FOR THE QUARTER/HALF YEAR ENDED 30 SEPTEMBER 2007

Three Three months months Six months Six months ended ended ended ended Year ended 30.09.2007 30.09.2006 30.09.2007 30.09.2006 31.03.2007

(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)

Particulars (1) (2) (3) (4) (5)

Rs. Crore

Net Sales ...... 730 675 1,447 1,349 2,484 Other Income ...... 26 21 56 42 93

Total Income ...... 756 696 1,503 1,391 2,577

Expenditure (a) Fuel Cost ...... 224 227 448 449 843 (b) Personnel Cost ...... 74 67 145 137 278 (c) Power Purchase ...... 116 91 231 176 268 (d) Depreciation ...... 40 41 81 82 158 (e) Other Expenditure ...... 175 149 352 310 521

Total Expenditure ...... 629 575 1,257 1,154 2,068

Interest ...... 34 42 73 96 168 Exceptional Income ...... 12 0 25 0 0

Profit from ordinary activities before tax ...... 105 79 198 141 341

Tax Expenses:- Current & Fringe Benefits tax ..... 12 10 23 17 40 Deferred Tax (Net) ...... 35 22 72 44 129 Less : Receivable ...... (35) (22) (72) (44) (129)

Net Profit from ordinary activities after Tax ...... 93 69 175 124 301

Paid-up Equity Share Capital (Shares of Rs. 10 Each)...... 85 83 85 83 85 Reserves (excluding Revaluation Reserve of Rs. 1,822 Crores) as per latest audited Balance Sheet as on 31 March 2007 ...... 1,908 Earnings Per Share (EPS) (Rs.) - Basic & Diluted (*not annualised) ...... *11.03 *8.33 *20.75 *14.97 36.20 Aggregate of Public Shareholding No. of Shares ...... 497 lakhs 497 lakhs 497 lakhs Percentage of Shareholding ...... 58.92% 60.32% 58.90%

Notes:

1. Pursuant to receipt of the Tariff Order dated 26 July 2007 from the West Bengal Electricity Regulatory Commission (WBERC) for the financial year 2007-08, billing to the consumers at revised tariff commenced from August 2007, as per the said order. Net Sales in columns (1) and (3) above have been arrived at considering the revenue billed as aforesaid and, for the period April-July 2007, at the average tariff stipulated in the said order, final adjustment

F-3 in respect of which would be made at the time of recomputing the bills as per the above order. Net Sales and Other Expenditure have been arrived at after considering advance against depreciation, and adjustments for cost of fuel and electrical energy purchased and those relating to revenue account respectively, which have been determined/estimated based on the applicable available orders and regulations. Exceptional income represents the net income in respect of one-off disposal of certain discarded old fixed assets of the Company.

2. In terms of the Scheme of Amalgamation as sanctioned by the Hon’ble High Court at Calcutta, the holding Company of Spencer’s Retail Limited was merged with the Company from 1 April 2007, involving issue of 311 lakhs fully paid up equity shares of Rs. 10 each, which were allotted by the Company on 12 October 2007. As the said Scheme became effective from 11 October 2007, expenditure of Rs. 14,204 incurred by the merging company, during the period has not been considered in the results for the quarter/half year ended 30 September 2007 and issue of the said shares not considered in EPS computation.

3. EPS in columns (2) and (4) have been restated in terms of Accounting Standard 20 issued by the Institute of Chartered Accountants of India.

4. Equity dividend @ Rs. 3.50 per share was recommended and subsequently paid during the current year in respect of the financial year 2006-07.

5. The Auditors of the Company have carried out limited review of the above unaudited financial results.

6. The Company is engaged in generation and distribution of electricity and does not operate in any other reportable segment.

7. Figures of the previous periods have been regrouped/rearranged, where necessary.

8. Out of 31 investor complaints received during the quarter, 1 complaint pending as on 30 September 2007, has since been resolved.

By Order of the Board S. Banerjee Managing Director

Dated: 31 October 2007

F-4 AUDITORS’ REPORT OF LOVELOCK & LEWES, CHARTERED ACCOUNTANTS

Auditors’ Report to the Board of Directors of CESC Limited on the Financial Statements of CESC Limited for the years ended 31st March 2005, 31st March 2006 and 31st March 2007

1. We have audited the attached Balance Sheet of CESC Limited as at 31st March 2005, 31st March 2006 and 31st March 2007 and the related Profit and Loss Account and the Cash Flow Statements for the years ended on those dates annexed thereto, collectively hereinafter referred to as ‘the Financial Statements’, all of which we have signed under reference to this report. These Financial Statements are the responsibility of the Company’s management and have been prepared for the purpose of inclusion in the Placement Document of 2007 relating to the offering of equity shares of the Company to Qualified Institutional Buyers (as such term is defined under Chapter XIII A of the SEBI (Disclosure and Investor Protection) Guidelines, 2000, as amended). Our responsibility is to express an opinion on these Financial Statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework and are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. Further to the above, we report that:

For the reasons stated in Notes 1, 3(c), 3(h), 3(e) and 3(n) of the Notes, the requirement of Accounting Standards on “Accounting for the Effects of Changes in Foreign Exchange Rates (AS-11) (1994)”, “Leases (AS-19)” and “Accounting for Taxes on Income (AS-22)” issued by the Institute of Chartered Accountants of India could not be adopted in preparation of the financial statements for the year 2004-05.

4. Subject to our remarks in Paragraph ‘3’ above, based on our audit, in our opinion and to the best of our information and according to the explanations given to us, the Financial Statements together with the notes thereon, give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) in the case of the Balance Sheet, of the state of affairs of CESC Limited as at 31st March 2005, 31st March 2006 and 31st March 2007;

(b) in the case of the Profit and Loss Account, of the profits for CESC Limited for the years ended on those dates; and

5. The accompanying financial statements and the notes thereto as of and for the year ended March 31, 2007 have been translated into United States dollars, solely for the convenience of the reader, on the basis set forth in Note 2 of Schedule 13 to the financial statements.

F-5 6. As indicated in Note 34 of the Notes, the accompanying financial statements have been prepared on the basis of the audited statutory financial statements for the respective years, which have been adjusted for certain items as disclosed in the above note having a consequential impact on the liabilities, retained earnings and net profit in the respective years. However there is no change in the liability or reserves position as at 31 March 2007 compared to the audited statutory financial statements for 2006-07. The audited statutory financial statements will continue to be the basis of annual reporting for the Company without these adjustments.

7. This report is solely for your information and for the purpose of inclusion in the Placement Document being issued by the Company in connection with the offering of equity shares that are being issued by the Company to Qualified Institutional Buyers (as such term is defined under Chapter XIII A of the SEBI (Disclosure and Investor Protection) Guidelines, 2000, as amended), and is not to be used, referred to or distributed for any other purpose without our prior written consent.

Partha Mitra Partner Membership No. 50553

For and on behalf of Lovelock & Lewes Chartered Accountants

Kolkata, 30 November 2007

F-6 CESC LIMITED BALANCE SHEET

As at As at As at As at Schedule 31st March 31st March 31st March 31st March No. 2005 2006 2007 2007 (Audited) (Audited) (Audited) (Unaudited) Rs. Million Rs. Million Rs. Million US$ Million I. SOURCES OF FUNDS Shareholders’ Funds Share Capital ...... 1 750.4 829.8 849.8 21.4 Equity Warrants issued and subscribed . — 43.3 —— (Note 9, Schedule 13) Reserves and Surplus ...... 2 14,089.8 35,751.7 37,301.8 938.4

14,840.2 36,624.8 38,151.6 959.8 Loan Funds Secured Loans ...... 3 17,261.0 16,644.0 15,466.7 389.1 Unsecured Loans ...... 4 4,410.8 2,455.5 2,515.8 63.3

21,671.8 19,099.5 17,982.5 452.4 Consumers’ Security Deposits ...... 4,409.5 5,595.5 6,521.0 164.0 Deferred Tax Liability ...... ——1,130.3 28.4 (Note 22, Schedule 13) Less: Recoverable ...... ——(1,130.3) (28.4) Advance against Depreciation ...... (Note 4, Schedule 13) ——1,004.8 25.3

40,921.5 61,319.8 63,659.9 1,601.5

II. APPLICATION OF FUNDS Fixed Assets 5 Gross Block ...... 62,054.2 82,610.0 84,695.8 2,130.7 Less: Depreciation ...... 24,597.4 28,266.5 31,794.9 799.9

Net Block ...... 37,456.8 54,343.5 52,900.9 1,330.8 Capital Work-in-progress ...... 969.8 1,314.4 2,656.8 66.8

38,426.6 55,657.9 55,557.7 1,397.6 Investments ...... 6 314.4 313.7 2,413.7 60.7 Deferred Tax Asset ...... — 164.3 —— (Note 22, Schedule 13) Less: Payable ...... — (164.3) —— Current Assets, Loans and Advances 7 Inventories ...... 1,423.1 1,713.0 1,673.2 42.1 Sundry Debtors ...... 5,692.0 5,224.1 4,151.4 104.5 Cash and Bank Balances ...... 1,651.4 3,959.3 7,314.4 184.0 Loans and Advances ...... 1,380.2 1,398.4 1,770.0 44.6 Deferred Payments ...... 69.2 749.8 515.0 13.0

10,215.9 13,044.6 15,424.0 388.2

Less: Current Liabilities and Provisions 8 Current Liabilities ...... 7,264.2 6,988.5 8,966.8 225.6 Provisions ...... 878.5 808.0 861.7 21.7

8,142.7 7,796.5 9,828.5 247.3

Net Current Assets ...... 2,073.2 5,248.1 5,595.5 140.9

Miscellaneous Expenditure to the extent not written off or adjusted ...... 9 107.3 100.1 93.0 2.3

40,921.5 61,319.8 63,659.9 1,601.5

F-7 As at As at As at As at Schedule 31st March 31st March 31st March 31st March No. 2005 2006 2007 2007 (Audited) (Audited) (Audited) (Unaudited) Rs. Million Rs. Million Rs. Million US$ Million

NOTES ON ACCOUNTS 13 Schedules referred to above form an integral part of the Balance Sheet

This is the Balance Sheet referred to in our Report of even date.

Partha Mitra Subhasis Mitra S. Banerjee Partner Vice President and Company Secretary Managing Director Membership No.: 50553

For and on behalf of Lovelock & Lewes Chartered Accountants Kolkata, 30 November, 2007

F-8 CESC LIMITED PROFIT AND LOSS ACCOUNT FOR THE YEAR

Schedule No. 2004-05 2005-06 2006-07 2006-07 (Audited) (Audited) (Audited) (Unaudited) Rs. Million Rs. Million Rs. Million US$ Million INCOME Earnings from sale of Electricity ...... 23,207.3 25,140.7 24,843.2 625.0 Other Income ...... 10 618.6 731.9 926.6 23.3

23,825.9 25,872.6 25,769.8 648.3

EXPENDITURE Cost of Electrical Energy purchased ...... 2,066.1 2,268.4 2,678.9 67.4 Generation, Distribution, Administration and Other Expenses ...... 11 14,421.4 16,653.9 16,118.8 405.5 Interest ...... 12 2,646.3 2,123.6 1,678.7 42.3 Depreciation ...... 2,915.3 2,538.5 1,579.4 39.7

22,049.1 23,584.4 22,055.8 554.9

Profit before Special Appropriation Adjustments, Taxation and Other Appropriation ...... 1,776.8 2,288.2 3,714.0 93.4 Less: Special Appropriation Adjustments for Deferred Payments ...... (34.5) (69.0) ——

Profit before Taxation and Other Appropriation ...... 1,742.3 2,219.2 3,714.0 93.4

Provision for Taxation - Current ...... (128.5) (172.5) (381.0) (9.6) - Fringe Benefit Tax ..... — (27.5) (19.0) (0.5) - Deferred Tax (net) .... — 164.3 (1,294.6) (32.6) Recoverable/(Payable) .. — (164.3) 1,294.6 32.6

(128.5) (200.0) (400.0) (10.1)

Profit after Taxation ...... 1,613.8 2,019.2 3,314.0 83.3 Other Special Appropriation ...... (208.1) (416.2) —— Reserve for unforeseen exigencies ...... ——(122.5) (3.1)

1,405.7 1,603.0 3,191.5 80.2 Transfer - Other Special Appropriation ...... 208.1 416.2 ——

1,613.8 2,019.2 3,191.5 80.2 Transfer from Contingencies Reserve ...... 477.5 ——— Debenture Redemption Reserve ...... 120.0 ——— Transfer to Debenture Redemption Reserve ...... — (18.5) (19.0) (0.5) General Reserve ...... (1,999.3) (1,766.0) (2,307.0) (58.0) Proposed dividend on Equity Shares ...... (185.9) (205.8) (295.1) (7.4) Tax on proposed dividend ...... (26.1) (28.9) (50.2) (1.3)

Carried forward to Balance Sheet ...... 0.0 0.0 520.2 13.0

Earnings per equity share (in Rupees/US$) (Face value of Rs. 10 per share) Basic & Diluted (Note 23, Schedule 13) .... 22.45 25.72 39.89 1.00

F-9 Schedule No. 2004-05 2005-06 2006-07 2006-07 (Audited) (Audited) (Audited) (Unaudited) Rs. Million Rs. Million Rs. Million US$ Million NOTES ON ACCOUNTS 13 Schedules referred to above form an integral part of the Profit and Loss Account

This is the Profit and Loss Account referred to in our Report of even date.

Partha Mitra Subhasis Mitra S. Banerjee Partner Vice President and Company Secretary Managing Director Membership No.: 50553

For and on behalf of Lovelock & Lewes Chartered Accountants Kolkata, 30 November, 2007

F-10 CESC LIMITED CASH FLOW STATEMENT FOR THE YEAR

2004-05 2005-06 2006-07 2006-07

(Audited) (Audited) (Audited) (Unaudited)

Rs Millions Rs Millions Rs Millions US$ Millions

A. Cash flow from Operating Activities Profit before Taxation and Special Appropriation Adjustment ...... 1,776.8 2,288.2 3,714.0 93.4 Adjustments for: Depreciation ...... 2,915.3 2,538.5 1,579.4 39.7 Loss on Sale/Disposal of Assets ...... 2.5 9.7 1.2 0.0 Investment written off ...... — 0.7 —— Income from current Investments ...... (2.0) (15.0) (29.1) (0.7) Income from Investment ...... — (3.1) (3.0) (0.1) Miscellaneous expenditure written off .... 7.2 7.2 7.1 0.2 GDR Issue Expenses ...... — 69.3 —— Bad debts/Provision for doubtful debts and advances written off (net) ...... 169.6 85.8 132.7 3.3 Interest Expense ...... 2,646.3 2,123.6 1,678.7 42.3 Guarantee Commission Expenses ...... 14.0 5.2 —— Lease Rent ...... 251.4 ——— Interest Income ...... (17.5) (93.6) (211.4) (5.3) Foreign Exchange Rate Variation ...... 519.2 572.7 230.7 5.8

Operating Profit before Working Capital changes ...... 8,282.8 7,589.2 7,100.3 178.6

Adjustments for: Trade & other receivables ...... 2,155.8 325.7 853.9 21.5 Inventories ...... (200.0) (289.9) 39.8 1.0 Trade payables ...... (1,540.3) (264.9) 2,902.9 73.0

Cash Generated from Operations ...... 8,698.3 7,360.1 10,896.9 274.1 Income Tax paid (net) ...... — (344.0) (479.6) (12.1)

Net cash flow from Operating Activities . . 8,698.3 7,016.1 10,417.3 262.0

B. Cash flow from Investing Activities Addition to Fixed Assets/Capital Work-in-Progress ...... (1,205.2) (1,988.9) (3,644.9) (91.7) Sale of Fixed Assets ...... 7.8 2.5 14.2 0.3 Purchase of Investments ...... (13.5) ——— (Purchase)/Sale of Current Investments (net) . . 2.0 15.0 (2,070.9) (52.1) Income from Investment received ...... — 3.1 3.0 0.1 Interest received ...... 18.6 38.8 150.1 3.8

Net cash flow from Investing Activities . . . (1,190.3) (1,929.5) (5,548.5) (139.6)

F-11 2004-05 2005-06 2006-07 2006-07

(Audited) (Audited) (Audited) (Unaudited)

Rs Millions Rs Millions Rs Millions US$ Millions

C. Cash flow from Financing Activities Share issue expenses ...... (8.2) (68.8) —— Proceeds from issue of share capital/warrants . 497.5 1,804.0 390.1 9.8 Proceeds from Long Term Loans ...... — 1,402.6 1,964.7 49.4 Repayment of Long Term Loans (net of refinance loans) ...... (4,381.8) (3,267.5) (2,959.2) (74.4) Repayment of Public Deposits ...... — (23.0) (1,116.4) (28.1) Net increase/(decrease) in Cash Credit facilities and other Short Term Loans ...... (125.0) (2,007.8) 998.0 25.1 Capital Contributions and Advance received from Consumers ...... 307.6 372.8 333.3 8.4 Consumers Security Deposit ...... 677.4 1,185.9 925.5 23.3 Interest Paid ...... (3,101.5) (1,962.9) (1,816.5) (45.7) Unclaimed dividend Transfer to Investors Education and Protection Fund ...... (0.9) ——— Lease Rent paid ...... (219.7) ——— Guarantee Commission paid ...... (28.7) (3.9) —— Dividends paid ...... — (184.0) (204.3) (5.1) Dividend tax paid ...... — (26.1) (28.9) (0.7)

Net Cash flow from Financing Activities . . (6,383.3) (2,778.7) (1,513.7) (38.0)

Net Increase in cash and cash equivalents . 1,124.7 2,307.9 3,355.1 84.4

Cash and Cash equivalents - Opening Balance ...... 526.7 1,651.4 3,959.3 99.6 Cash and Cash equivalents - Closing Balance ...... 1,651.4 3,959.3 7,314.4 184.0

Note:

(a) Previous years’ figures have been regrouped/rearranged wherever necessary.

(b) The Cash Flow Statement has been prepared under the indirect method as given in the Accounting Standard on Cash Flow Statement (AS-3) issued by the Institute of Chartered Accountants of India.

This is the Cash Flow referred to in our Report of even date.

Partha Mitra Subhasis Mitra S. Banerjee Partner Vice President and Company Secretary Managing Director Membership No. 50553

For and on behalf of LOVELOCK & LEWES Chartered Accountants Kolkata, 30 November, 2007

F-12 SCHEDULE TO THE ACCOUNTS

SCHEDULE 1 - SHARE CAPITAL

As at As at As at As at 31st March 31st March 31st March 31st March 2005 2006 2007 2007

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

AUTHORISED CAPITAL 121,750,000 Equity Shares of Rs. 10 each . . . 1,217.5 1,217.5 1,217.5 30.6 28,250,000 Cumulative Redeemable Preference Shares of Rs. 10 each ...... 282.5 282.5 282.5 7.1

1,500.0 1,500.0 1,500.0 37.7

ISSUED CAPITAL 90,617,483 (31.3.2006 - 88,617,483; 31.3.2005 - 80,686,798) Equity Shares of Rs. 10 each ...... 806.9 886.2 906.2 22.8

806.9 886.2 906.2 22.8

SUBSCRIBED AND PAID UP CAPITAL 84,317,511 (31.3.2006 - 82,317,511; 31.3.2005 - 74,386,826) Equity Shares of Rs. 10 each ...... 743.8 823.2 843.2 21.2 Add: Forfeited Shares (amount originally paid-up) ...... 6.6 6.6 6.6 0.2

750.4 829.8 849.8 21.4

Notes:

1 Subscribed and Paid up Capital includes:

a. 7,194,951 Equity Shares allotted on 7 April 1979 as fully paid to the stockholders of The Calcutta Electric Supply Corporation Limited, the erstwhile sterling company, in terms of a Scheme of Arrangement and Amalgamation approved by the High Courts at Calcutta and London pursuant to which the undertaking and the assets, liabilities, reserves and surplus of the said sterling company were transferred to this Company.

b. 2,000,000 fully paid-up Equity Shares of Rs. 10 each allotted to the management group in 2006-07 on conversion of equal number of Equity Warrants issued in 2005-06 at a premium of Rs. 206.68 per share in terms of the applicable guidelines.

c. 7,930,685 Equity Shares of Rs. 10 each issued at a premium of Rs. 212 per share representing 7,930,685 Global Depository Receipts issued in 2005-06.

d. 8,265,203 Equity Shares of Rs. 10 each offered on a rights basis to the equity shareholders at a premium of Rs. 50 per share alloted in 2004-05.

2. In 2004-05 148,248 Equity Shares became fully paid-up upon receipt of balance amount from the holders thereof and 36,679 Equity Shares, paid-up to the extent of Rs. 5 per share towards share capital and Rs. 5 per share towards share premium, were forfeited due to non payment of balance dues thereon.

F-13 SCHEDULE TO THE ACCOUNTS

SCHEDULE 2 - RESERVES AND SURPLUS

As at As at As at As at 31st March 31st March 31st March 31st March 2005 2006 2007 2007

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

Capital contribution from consumers as at beginning of the year ...... 2,387.7 2,702.1 3,074.9 77.3 Add: Contributions during the year ...... 314.4 372.8 333.3 8.4

2,702.1 3,074.9 3,408.2 85.7 Capital Reserves as at beginning of the year . . . 1,075.2 ——— Less: Transfer to General Reserve ...... 1,075.2 ———

Capital Redemption Reserve ...... 201.3 201.3 201.3 5.1 Share Premium Account as at beginning of the year ...... 4,227.2 4,641.3 6,322.6 159.1 Add: Addition during the year ...... 414.1 1,681.3 413.4 10.4

4,641.3 6,322.6 6,736.0 169.5 Revaluation Reserve as at beginning of the year . 2,998.6 2,559.6 20,382.9 512.8 Add: Net amount added on revaluation of assets — 19,007.7 ——

2,998.6 21,567.3 20,382.9 512.8 Less: Withdrawal on account of depreciation on amount added on revaluation ...... 429.7 1,175.9 2,022.6 50.9

2,568.9 20,391.4 18,360.3 461.9 Less: Withdrawal of the residual amount added on revaluation consequent to sale/disposal of revalued assets ...... 9.3 8.5 142.7 3.6

2,559.6 20,382.9 18,217.6 458.3 Reserve for unforeseen exigencies ...... ——122.5 3.1 Debenture Redemption Reserve as at beginning of the year ...... 125.0 5.0 23.5 0.6 Add: Transfer from Profit and Loss Account .... 18.5 19.0 0.5 Less: Transfer to Profit and Loss Account ...... 120.0 ———

5.0 23.5 42.5 1.1 General Reserve as at beginning of the year .... 906.0 3,980.5 5,746.5 144.6 Add: Transfer from Profit and Loss Account .... 1,999.3 1,766.0 2,307.0 58.0 Add: Transfer from Capital Reserve ...... 1,075.2 ———

3,980.5 5,746.5 8,053.5 202.6 Contingencies Reserve as at beginning of the year ...... 477.5 ——— Less: Transfer to Profit and Loss Account ...... 477.5 ———

Surplus as per Profit and Loss Account ...... ——520.2 13.0

14,089.8 35,751.7 37,301.8 938.4

F-14 SCHEDULE TO THE ACCOUNTS

SCHEDULE 3 - SECURED LOANS

As at As at As at As at 31st March 31st March 31st March 31st March 2005 2006 2007 2007

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

I. Debentures (i) Non-Convertible Debentures of Rs. 1,000,000 each allotted on 14 May, 2001 ...... 276.8 221.4 110.7 2.8 (ii) Non-Convertible Debentures of Rs.10,000,000 each allotted on 1 February, 2004 ...... 3,086.4 1,990.0 1,280.0 32.2

3,363.2 2,211.4 1,390.7 35.0

II. Term Loans A. Rupee loans: (i) Banks ...... 3,613.8 4,232.9 4,120.7 103.7 (ii) Financial and other Institutions ...... 5,364.4 5,230.1 5,132.1 129.1 (iii) Government of West Bengal ...... 204.4 178.8 ——

9,182.6 9,641.8 9,252.8 232.8

B. Foreign Currency Loans: (a) International Finance Corporation ..... 2,038.7 1,726.8 1,129.0 28.4 (b) Asian Development Bank ...... 826.7 760.9 527.4 13.3 (c)CDCGroupplc ...... 214.2 213.6 156.3 3.9 (d) Dresdner Kleinwort Wasserstein Limited . . 449.0 ——— (e) ICICI Bank Limited ...... — 902.6 1,567.3 39.4

3,528.6 3,603.9 3,380.0 85.0

III. Facilities from banks: (i) Overdraft ...... 477.5 737.9 1,293.2 32.5 (ii) Others ...... 663.6 449.0 150.0 3.8

1,141.1 1,186.9 1,443.2 36.3

IV. Deferred Payment Liability: (net of future interest as on 31.3.2005 - Rs. 3.5 million) ...... 45.5 ———

45.5 ———

17,261.0 16,644.0 15,466.7 389.1

F-15 Notes:

1 The debentures and term loans in I and II above are secured by hypothecation of all movable assets and equitable mortgage of the immovable properties of the Company. However, creation of such security in respect of a Rupee Loan of Rs. 200 million (31.3.06 - Nil) and a Foreign Currency Loan of Rs. 664.7 million (31.03.06 - Rs. 902.6 million) was in process as at 31-03-2007. Further, the foreign currency loan in IIB(d) above, repaid in full during the year 2005-06, was secured by a gaurantee furnished by Industrial Development Bank of India Limited, ICICI Bank Limited & IFCI Limited which in turn had security identical to that of the debentures and term loans mentioned above. Hypothecation and mortgage security for the above term loans and debentures rank pari passu inter se except for a Rupee Loan of Rs. 72.9 million as at 31-03-2007 (31.3.06 - Rs.149.9 million; 31.3.05 - Rs. 215.6 million) from a bank which is secured on a second and subservient charge basis.

2 Facilities from banks in III above are secured by equitable mortgage/hypothecation of fixed assets of the Company and its current assets comprising stock of stores, coal, book debts, monies receivable etc. The said security on current assets ranks prior to and that on fixed assets ranks subservient to the security in respect of the debentures, term loans and gurantee assistance stated in Note 1 above.

3 Deferred Payment Liability referred to in IV above and fully repaid during the year 2005-06 was secured by hypothecation of assets acquired under respective schemes in favour of certain banks against their acceptances. Such hypothecation of assets ranked prior to hypothecation of security referred to in Notes 1 & 2 above.

4 The schedule of redemption of debentures in I above is as follows:

Item No. Redemption at par

I(i)...... Equal monthly instalments between 2004-05 and 2007-08. I(ii) ...... Equal monthly/quarterly instalments between 2004-05 and 2008-09.

F-16 SCHEDULE TO THE ACCOUNTS

SCHEDULE 4 - UNSECURED LOANS

As at As at As at As at 31st March 31st March 31st March 31st March 2005 2006 2007 2007

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

(a) Public Deposits ...... 1,464.3 1,441.3 324.9 8.2 (b) Facilities from Banks (i) Short term loans ...... 2,110.0 — 1,116.0 28.1 (ii) Bridge Loan ...... ——450.0 11.3 (iii)Others 341.0 397.4 23.1 0.6 Interest accrued and due on above ...... 3.7 ——— (c) Floating Rate Notes (US$13.75 million repayable in year 2012-13) . . . 491.8 616.8 601.8 15.1

4,410.8 2,455.5 2,515.8 63.3

F-17 SCHEDULE TO THE ACCOUNTS

SCHEDULE 5 - FIXED ASSETS

GROSS BLOCK AT COST OR VALUATION CUMULATIVE DEPRECIATION NET BLOCK

Additions/(Deductions)

2005-06 As at As at As at As at As at As at As at As at As at 31 March, On 31 March, 31 March, 31 March, 31 March, 31 March, 31 March, 31 March, 31 March, 2004 2004-05 Revaluation Others 2006-07 2007 2005 2006 2007 2005 2006 2007 2007

PARTICULARS (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Unaudited)

(Rs. (Rs. (Rs. (Rs. (Rs. (Rs. (Rs. (Rs. (Rs. (Rs. (Rs. (Rs. (US$ Million) Million) Million) Million) Million) Million) Million) Million) Million) Million) Million) Million) Million)

Land Freehold...... 1,003.6 2.1 7,067.0 10.0 141.8 8,224.5 ———1,005.7 8,082.7 8,224.5 206.9 Leasehold ...... 629.4 0.8 2,998.4 — 4.8 3,633.4 135.9 152.5 169.1 494.3 3,476.1 3,464.3 87.2 Buildings and Structures F-18 Freehold...... 1,179.9 23.4 772.1 30.2 98.8 2,104.4 371.3 420.0 468.9 832.0 1,585.6 1,635.5 41.1 Leasehold ...... 4,068.3 3.7 (1,613.5) 6.2 6.6 2,471.3 1,723.8 1,765.1 1,806.4 2,348.2 699.6 664.9 16.7 PlantandMachinery...... 30,389.0 362.9 5,888.2 564.1 517.3 37,721.5 13,861.9 15,523.7 17,194.3 16,890.0 21,680.5 20,527.2 516.4 Transmission and Distribution System . 20,119.7 847.3 3,299.3 624.5 1,164.4 26,055.2 6,987.7 8,508.5 10,062.4 13,979.3 16,382.3 15,992.8 402.3 Meters and Other Apparatus on Consumers’ Premises ...... 2,239.2 149.3 964.0 207.6 103.3 3,663.4 1,155.5 1,482.2 1,607.9 1,233.0 2,077.9 2,055.5 51.7 River Tunnel ...... 7.8 — 40.9 0.0 — 48.8 7.7 10.3 12.9 0.1 38.5 35.9 0.9 Furniture ...... 277.0 21.5 — 48.1 37.7 384.3 183.1 211.9 223.1 115.4 134.7 161.2 4.1 Vehicles ...... 42.6 9.2 — 19.2 7.4 78.4 30.7 32.7 37.5 21.1 38.3 40.9 1.0 Railway Sidings Freehold...... 80.1 0.8 (34.6) 2.2 — 48.5 28.5 33.9 39.3 52.4 14.6 9.2 0.2 Leasehold ...... 554.4 — (374.1) ——180.3 89.9 97.8 105.7 464.5 82.5 74.6 1.9 Intangible asset - Software ...... 41.3 0.9 — 35.9 3.7 81.8 21.4 27.9 67.4 20.8 50.2 14.4 0.4

60,632.3 1,421.9 19,007.7 1,548.1 2,085.8 84,695.8 24,597.4 28,266.5 31,794.9 37,456.8 54,343.5 52,900.9 1,330.8

Note: All assets of the Company other than furniture, vehicles and intangible assets as at 31 March, 2005 were revalued as at 1st April, 2005 for which net addition as revaluation was Rs. 19,007.7 million (Note 5, Schedule 13) SCHEDULE TO THE ACCOUNTS

SCHEDULE 6 - INVESTMENTS

As at As at As at As at 31st March 31st March 31st March 31st March 2005 2006 2007 2007

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

LONG TERM - Unquoted Trade 16,667 Equity Shares of Integrated Coal Mining Ltd of Rs. 10/- each, fully paid ...... 0.2 0.2 0.2 0.0 30,000,000 1% Cumulative Optionally Convertible Redeemable Preference Shares of Integrated Coal Mining Limited of Rs. 10/- each, fully paid ..... 300.0 300.0 300.0 7.5 Other than Trade 75,000 Equity shares of SBI Home Finance Ltd of Rs.10/- each, fully paid ...... 0.7 ——— (Market Value 31.03.05 Rs. 1.6 million) (Written off in 2005-06 and included in Miscellaneous Expenses in schedule 11) 12,685.585 units of UTI - Floating Rate Fund of Rs. 1,000/- each, fully paid ...... 13.5 13.5 13.5 0.3 (Repurchase Price 31.03.07 Rs. 15.5 million; 31.03.06 Rs. 14.5 million; 31.03.05 Rs. 13.7 million) Current - Unquoted (fully paid) (i) 50,000,000 units of Rs. 10 each of Standard Chartered Fixed Maturity Plan - Quarterly Series 6 ——500.0 12.6 (ii) 25,000,000 units of Rs. 10 each of UTI Fixed Maturity Plan (HFMP/0207) - Growth Plan ..... ——250.0 6.3 (iii) 50,000,000 units of Rs. 10 each of UTI Fixed Maturity Plan (QFMP/03/07/II) - Growth Plan .... ——500.0 12.6 (iv) 25,000,000 units of Rs. 10 each of ICICI Prudential FMP - Series 35 - Three Months Plan C -Growth...... ——250.0 6.3 (v) 50,000,000 units of Rs. 10 each of ICICI Prudential FMP - Series 37 - Three Months Plan B -Growth...... ——500.0 12.6 (vi) 9,112,862.81 units of Rs. 10.9735 each of ICICI Prudential Institutional Liquid Plan - Super Institutional - Growth ...... ——100.0 2.5

314.4 313.7 2,413.7 60.7

Purchase and sale of current investments during the year:

A. 2006-07

(i) 23,789,916.74 units of ICICI Prudential Institutional Liquid Plan - Super Institutional Growth at a cost of Rs. 260.0 million.

(ii) 5,000,000 units of UTI Fixed Maturity Plan Quarterly Series QFMP/1006/II Growth Plan at a cost of Rs. 50.0 million.

(iii) 7,493,980.14 units of UTI Liquid Cash Plan Institutional - Growth Option at a cost of Rs. 8,965.0 million.

F-19 (iv) 19,145,058.82 units of Standard Chartered Liquidity Manager - Plus - Growth at a cost of Rs. 20100.0 million.

(v) 10,000,000 units of Standard Chartered Fixed Maturity Plan - Quarterly Series2-Growthatacost of Rs. 100 million.

B. 2005-06

(i) 19,881,323.79 units of ICICI Prudential Institutional Short Term Plan - Cumulative option at a cost of Rs. 260.0 million

(ii) 23,317,456.92 units of HSBC Cash Fund - Institutional Plan - Growth Plan at a cost of Rs. 251.1 million

(iii) 23,777,367.75 units of HSBC Floating Rate Fund - Short Term - Institutional - Growth Plan at a cost of Rs. 250.0 million

(iv) 23,399,520.44 units of Deutsche Insta Cash Plus Fund - Institutional - Growth Plan at a cost of Rs. 250.0 million

(v) 208,055,662.40 units of UTI Floating Rate Fund - Short Term Plan - Growth Option at a cost of Rs. 2,315.0 million

(vi) 55,962,226.08 units of Standard Chartered Liquidity Manager - Plus - Growth at a cost of Rs. 560.0 million

(vii) 692,286,428.60 units of Grindlays Cash Fund - Super Institutional Plan - Growth at a cost of Rs. 7,403.5 million

(viii) 57,398,142.21 units of Grindlays Floating Rate Fund - LT Institutional Plan - Growth at a cost of Rs. 600.0 million

(ix) 10,000,000.00 units of Grindlays Fixed Maturity - 17th Plan - Growth at a cost of Rs. 100.0 million

C. 2004-05

(i) 199,675,706.40 units of Grindlays Cash Fund - Super Institutional Plan - Growth at a cost of Rs. 2,080.0 million

(ii) 333,222.37 units of UTI Floating Rate Fund - Short Term Plan - Growth Option at a cost of Rs. 360.0 million

F-20 SCHEDULE TO THE ACCOUNTS

SCHEDULE 7 - CURRENT ASSETS, LOANS AND ADVANCES

As at As at As at As at 31st March 31st March 31st March 31st March 2005 2006 2007 2007 (Audited) (Audited) (Audited) (Unaudited) Rs. Million Rs. Million Rs. Million US$ Million

(a) Inventories Stores and Spares ...... 1,011.8 1,127.2 1,171.0 29.5 Fuel ...... 411.3 585.8 502.2 12.6

1,423.1 1,713.0 1,673.2 42.1

(b) Sundry Debtors 1. For electricity supplied Debts outstanding for a period exceeding six months Secured - considered good ...... 87.8 142.1 85.8 2.2 Unsecured - considered good ...... 512.6 584.3 593.0 14.9

600.4 726.4 678.8 17.1 Unsecured - considered doubtful ...... 147.2 150.0 110.0 2.8

747.6 876.4 788.8 19.9 Other Debts Secured - considered good ...... 1,693.5 1,997.8 2,042.1 51.4 Unsecured - considered good ...... 3,366.6 2,459.8 1,364.6 34.3

5,060.1 4,457.6 3,406.7 85.7

5,807.7 5,334.0 4,195.5 105.6 Less: Provision for doubtful debts ...... 147.2 150.0 110.0 2.8

5,660.5 5,184.0 4,085.5 102.8

Note:

Rs. 17,968 (31.03.06: Rs. 22,388 & 31.03.05: Rs.22,091) due by Directors and Rs. Nil (31.03.06 - Rs. 953 & 31.03.05: Rs. 1,234) due by an officer of the Company on account of electricity bills; maximum amount due by Directors and an officer of the Company during the year: Rs. 24,173 (31.03.06 - Rs. 36,262 & 31.03.05: Rs. 28,772) and Rs. Nil (31.03.06 - Rs. 2,633 & 31.03.05: Rs. 1,951)

2. For claims and services rendered - unsecured (considered good) Debts outstanding for a period exceeding six months ...... 18.4 12.7 19.6 0.5 Other debts ...... 13.1 27.4 46.3 1.2

31.5 40.1 65.9 1.7

5,692.0 5,224.1 4,151.4 104.5

F-21 As at As at As at As at 31st March 31st March 31st March 31st March 2005 2006 2007 2007

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

(c) Cash and Bank Balances Cash in hand ...... 27.9 20.4 13.9 0.3 Cheques in hand ...... 29.5 37.5 23.6 0.6 With Scheduled Banks on: Current accounts ...... 91.2 118.6 76.0 1.9 Dividend accounts ...... — 1.9 3.4 0.1 Deposit accounts ...... 1,502.8 3,780.9 7,197.5 181.1

1,651.4 3,959.3 7,314.4 184.0

(d) Loans and Advances Unsecured - considered good Intercorporate Deposit ...... 249.9 234.9 234.9 5.9 Advances recoverable in cash or in kind or for value to be received ...... 773.5 797.9 1,019.7 25.7 (Includes Interest accrued on deposits with banks: 31.03.07 Rs. 121.0 million; 31.03.06 Rs. 59.6 million; 31.03.05 Rs. 4.7 million) Deposits with Excise, Port Trust etc...... 23.3 23.4 23.4 0.6 Other Deposits ...... 333.5 342.2 492.0 12.4

1,380.2 1,398.4 1,770.0 44.6

(e) Deferred Payments ...... 69.2 749.8 515.0 13.0

F-22 SCHEDULE TO THE ACCOUNTS

SCHEDULE 8 - CURRENT LIABILITIES AND PROVISIONS

As at As at As at As at 31st March 31st March 31st March 31st March 2005 2006 2007 2007

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

(a) Current Liabilities Sundry Creditors ...... 3,267.1 1,960.6 2,087.1 52.5 Other Liabilities ...... 2,709.2 3,744.1 5,329.5 134.1 Unpaid/Unclaimed dividend ...... — 1.9 3.4 0.1 Unclaimed public deposits ...... 19.0 14.3 26.6 0.7 Interest accrued but not due on loans and debentures ...... 356.3 521.6 374.3 9.4

6,351.6 6,242.5 7,820.9 196.8 Consumers’ Benefit account ...... 7.1 7.1 7.1 0.2 Liabilities on capital account ...... 408.1 285.0 533.7 13.4 Advance payment received from consumers for capital jobs ...... 497.4 453.9 605.1 15.2

7,264.2 6,988.5 8,966.8 225.6

(b) Provisions Taxation ...... 226.2 82.2 2.5 0.1 (net of advance payment of tax 31.03.2007 Rs. 823.6 million; 31.03.2006 Rs.344.0 million; 31.03.2005 Rs. Nil) Retirement/Separation Benefits ...... 440.3 491.1 513.9 12.9 Proposed dividend ...... 185.9 205.8 295.1 7.4 Tax on proposed dividend ...... 26.1 28.9 50.2 1.3

878.5 808.0 861.7 21.7

Notes:

(i) Sundry Creditors and Liabilities on Capital Account include outstanding dues of small scale industrial undertakings 31.3.2007 - Rs. 21.5 million (31.3.2006 - Rs. 11.1 million; 31.3.2005 - Rs. 10.3 million) out of which, dues outstanding for more than 30 days as on 31.3.2007 - Rs. Nil (31.3.2006 - Rs. Nil & 31.3.2005: Rs. NIL). For the above purpose, a small scale industrial undertaking has the same meaning as assigned to it under clause (j) of Section 3 of the Industries (Development and Regulation) Act, 1951.

(ii) Unclaimed dividend and unclaimed Public Deposits do not include any amounts, due and outstanding, to be credited to Investors Education and Protection Fund.

F-23 SCHEDULE TO THE ACCOUNTS

SCHEDULE 9 - MISCELLANEOUS EXPENDITURE TO THE EXTENT NOT WRITTEN OFF OR ADJUSTED

As at As at As at As at 31st March 31st March 31st March 31st March 2005 2006 2007 2007

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

(a) Preliminary expenses ...... 0.2 0.2 0.1 0.0 Less: Written off during the year ...... 0.0 0.1 0.1 0.0

0.2 0.1 0.0 0.0 (b) Share/Debenture/Debt issue expenses ...... 114.2 107.1 100.0 2.5 Less: Written off during the year ...... 7.1 7.1 7.0 0.2

107.1 100.0 93.0 2.3

107.3 100.1 93.0 2.3

SCHEDULE 10 - OTHER INCOME

2004-05 2005-06 2006-07 2006-07

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

Hire of meters and other apparatus ...... 320.7 329.8 346.1 8.7 Public lighting maintenance and service connection fees ...... 5.0 4.9 3.4 0.1 Income from long term trade investments ..... — 3.1 3.0 0.1 Income from current investments - other than trade - gross (net of allocation to capital account 2006-07 - Rs. Nil; 2005-06 Rs. 7.4 million; 2004-05 - Rs. Nil) ...... 2.0 15.0 29.1 0.7 Interest on deposits (net of allocation to capital account: 2006-07 - Rs. 209.7 million; 2005-06 - Rs.42.5 million; 2004-05 - Rs. Nil) ...... 17.5 93.6 211.4 5.3 (Tax deducted at source 2006-07 - Rs. 80.3 million; 2005-06 - Rs.27.5 million; 2004-05: Rs. 3.7 million) Miscellaneous income (Note 12, Schedule 13) . . . 273.4 285.5 333.6 8.4

618.6 731.9 926.6 23.3

F-24 SCHEDULE TO THE ACCOUNTS

SCHEDULE 11 - GENERATION,DISTRIBUTION, ADMINISTRATION AND OTHER EXPENSES

2004-05 2005-06 2006-07 2006-07

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

Cost of Fuel (including freight 2006-07 - Rs. 1,529.0 million; 2005-06 - Rs. 1,392.5 million; 2004-05 - Rs. 1,286.8 million) ..... 7,605.4 8,396.4 8,426.7 212.0 Consumption of stores & spares ...... 1,037.9 1,136.2 1,497.8 37.7 Repairs - Building ...... 55.8 58.0 58.9 1.5 - Plant and machinery ...... 257.7 252.1 301.6 7.6 - Distribution System ...... 301.2 322.3 419.5 10.6 - Others ...... 29.2 35.4 56.9 1.4

Salaries, wages and Bonus ...... 2,068.6 2,192.0 2,576.5 64.8 Contributions to provident and pension funds . . 148.9 156.6 177.1 4.5 Contributions to other funds ...... 178.9 156.9 93.1 2.3

Employees’ welfare expenses ...... 139.9 120.7 151.9 3.8 Compensation under voluntary separation scheme 295.3 298.7 —— Insurance ...... 50.1 51.1 75.0 1.9 Rent (including lease rent 2006-07 - Rs. 157.2 million; 2005-06 - Rs. 233.6 million; 2004-05 - Rs. 251.4 million) ...... 285.8 276.3 208.5 5.2 Rates and Taxes ...... 84.3 96.4 105.2 2.6 Audit Fees ...... 1.4 1.4 2.0 0.1 Interest on consumers’ security deposits ...... 267.0 316.2 394.8 9.9 Bad debts/advances (net of recoveries/provision 2006-07 - Rs. 64.8 million; 2005-06 - Rs. 17.1 million; 2004-05 - Rs. 15.4 million) ...... 116.2 83.0 132.7 3.3 Provision for doubtful debts ...... 21.4 2.8 —— Cost Adjustments ...... 596.0 1,686.2 1,051.9 26.5 Loss on sale/disposal of assets ...... 2.5 9.7 1.2 0.0 Miscellaneous expenditure written off ...... 7.2 7.2 7.1 0.2 Foreign Exchange Rate Variation ...... 519.2 572.7 230.7 5.8 Foreign Exchange Restatement ...... — 749.8 (36.7) (0.9) Miscellaneous expenses ...... 963.7 949.2 1,107.9 27.9

15,033.6 17,927.3 17,040.3 428.7 Less: Allocated to capital & deferred payment accounts ...... 612.2 1,273.4 921.5 23.2

14,421.4 16,653.9 16,118.8 405.5

F-25 SCHEDULE TO THE ACCOUNTS

SCHEDULE 12 - INTEREST

2004-05 2005-06 2006-07 2006-07

(Audited) (Audited) (Audited) (Unaudited)

Rs. Million Rs. Million Rs. Million US$ Million

Debentures ...... 589.4 291.1 194.9 4.9 Fixed Loans ...... 1,501.7 1,424.1 1,225.5 30.8 Fixed deposits from public and others ...... 169.1 170.4 86.3 2.2 Others ...... 386.1 248.3 197.6 5.0

2,646.3 2,133.9 1,704.3 42.9 Less: Allocated to capital accounts ...... — 10.3 25.6 0.6

2,646.3 2,123.6 1,678.7 42.3

F-26 SCHEDULE TO THE ACCOUNTS

SCHEDULE 13 - NOTES ON ACCOUNTS

1. The operations of the Company are governed by the Electricity Act, 2003 and various Regulations and/or Policies framed there under by the appropriate authorities. Accordingly, the financial statements have been prepared in accordance with generally accepted accounting principles in India which comprise of accounting standards and other non-mandatory pronouncements issued by the Institute of Chartered Accountants of India (ICAI), certain provisions of listing agreements with stock exchanges regarding disclosures in financial statements, and applicable provisions of the Companies Act, 1956, the Electricity (Supply) Act, 1948 and the Electricity Act, 2003.

The relevant provisions of the Electricity (Supply) Act, 1948 which were repealed w.e.f. 10th June 2003 (“repealed ESA”) remained applicable for part of 2004-05 accounting year in respect of the operations of the Company. Accordingly in line with the consistently applied past practices and based on legal advice, in preparation of the financial statements for the year ended 31st March 2005 were prepared in terms of the provisions of the repealed ESA, which prevailed, wherever, they were inconsistent with the provisions of Companies Act 1956, or the accounting standards issued by ICAI, except incorporation of increase in value of fixed assets arising from revaluation in earlier years.

2. The accompanying financial statements of the Company have been prepared in Indian Rupees (“Rs.”), the legal currency of India and the Company’s reporting currency. Solely for the convenience of the readers, the financial statements as of and for the year ended 31st March 2007 have been translated into United States Dollars (“US$” or “US Dollars”) as a matter of arithmetical computation only at the noon buying rate as indicated by the Federal Reserve Bank of New York as at 28 September 2007, US$1.00 = Rs.39.75. This translation should not be construed as a representation that the rupee amounts actually represent or have been or could be converted into US Dollars at this rate or any other rate.

3. Significant Accounting Policies

(a) Accounting Convention

These financial statements are prepared in accordance with applicable Accounting Standards in India, except for the year 2004-05, as mentioned in paragraphs ‘3c’, ‘3e’, ‘3h’, ‘3n’ below . A summary of important accounting policies which have been applied consistently except for item ‘3c’, ‘3d’, ‘3h’, ‘3l’ and ‘3n’ below are set out below.

(b) Basis of Accounting

The financial statements have been prepared under the historical cost convention, modified by revaluation of certain fixed assets as stated in item ‘3c’ below.

Fixed Assets are stated at cost of acquisition together with any incidental expenses related to acquisition and appropriate borrowing costs. In case of a project, cost also includes pre-operative expenses and where applicable, expenses during the trial run period after netting off of revenue earned during trial run and income arising from temporary use of funds pending utilisation. Software costs are capitalized as intangible assets, where it is expected to provide future enduring economic benefit.

Fixed Assets other than furniture, vehicles and intangible assets acquired upto 31 March 2005, have been adjusted for the effect of valuation made by an approved valuer at the then current replacement cost after necessary adjustment for depreciation, and given effect to in the financial statements for 2005-06. Earlier, an effect of revaluation of similar fixed assets as on 31 March, 1993 was given effect to in the financial statements for the year 1993-1994. Post 31 March 2005, there has been no revaluation and these assets are carried at the revalued amounts and other fixed assets, including assets acquired subsequent to 31 March 2005, are carried at cost.

An impairment loss is recognized where applicable, when the carrying value of fixed assets of cash generating unit exceed its market value or value in use, whichever is higher. Capital Works in progress include advances made in respect of capital expenditure.

The effect of variation in exchange rate on repayment/restatement of year-end liabilities as on 31 March, 2005, in respect of borrowings in foreign currencies attributable to acquisition of fixed assets are not adjusted with the cost thereof, as required, under the Accounting Standard on Accounting for the Effects of Changes in Foreign Exchange Rates [AS11(1994)] issued by the Institute of Chartered Accountants of India as the repealed ESA required that for the purpose of determining return of a licensee, fixed assets should be stated at cost incurred by it.

F-27 (d) Depreciation/Amortisation

Depreciation on fixed assets other than leasehold land is provided using the straight line method in terms of appropriate Central Government circular/statute/regulations, as applicable. Accordingly, depreciation for the year 2004-05 had been provided at the rates prescribed by the Central Government in circular no. s.o.265(E) dated 27 March, 1994 under the provisions of the repealed ESA. In accordance with past practices, depreciation for the said year had been provided only on assets in existence at the beginning of the year, without providing it on additions and retirements during the year.

Depreciation for the year 2005-06 and 2006-07 was provided for on a pro-rata basis at the rates prescribed under applicable statute/regulations. However, there has not been any significant impact on the net results of the Company from year to year due to such changes in rates, as the tariff for the respective years are determined by the Commission, considering the depreciation under applicable Regulations.

Additional charge of depreciation for the year on increase in value arising from revaluation is recouped from Revaluation Reserve.

Leasehold land is amortized over the unexpired period of the lease.

Intangible assets, comprising software related expenditure which till 2005-06 was depreciated at applicable aforesaid rates are being amortized in three equal annual installments from 2006-07. As a result the depreciation charge in 2006-07 is higher by Rs.35.3 million with a consequential effect on the Company’s results for the year.

(e) Leasing

Lease rentals in respect of assets taken under operating lease are charged to revenue. Rentals in respect of assets taken under finance lease arrangements outstanding during 2004-05 were not capitalized but charged off to revenue as such treatment was permitted under the provisions of repealed ESA, being an allowable expenditure under the Income Tax Act, 1961. Consequently, assets taken under such arrangements were not treated as fixed assets of the Company, as required under Accounting Standards on “Leases” (AS-19) issued by ICAI. There were no lease arrangement qualifying as finance leases in 2005-06 and 2006-07.

(f) Investments

Current Investments are stated at lower of cost or fair value and Long Term Investments are stated at cost. Provision is made where there is a decline, other then temporary, in the value of a Long Term Investment.

(g) Inventories

Inventories of stores and spares and fuel are valued at cost or below. Cost is calculated on weighted average basis and comprises of expenditure incurred in the normal course of business in bringing such inventories to their location and condition. Obsolete, slow moving and defective inventories are identified at the time of physical verification of inventories and where necessary, adjustment is made for such items. Loose tools are charged off to consumption on purchase.

(h) Foreign Currency Transactions

Transactions in foreign currency are accounted for at the exchange rate prevailing on the date of transactions. Transactions remaining unsettled are translated at the exchange rate prevailing at the end of the financial year. Exchange gain or loss arising on settlement/translation is recognized in the Profit and Loss Account. Foreign currency loans upto 31 March, 2005 were not restated at the year-end exchange rate, as required under the Accounting Standard on “Accounting for the Effect of Changes in Foreign Exchange Rates (AS-11) (1994)” issued by ICAI in absence of any specific provision under the repealed ESA, in that regard. With effect from 2005-06, year-end outstanding balance of the foreign currency loans are restated at the year-end exchange rate and exchange gain or loss arising in respect of such restatement is accounted for as an income or expense with a concurrent recognition of the said amount as refundable or recoverable, as the case may be, which will be taken into consideration in determining the Company’s future tariff in respect of the amount settled.

F-28 (i) Sales

Earnings from sale of electricity are net of discount for prompt payment of bills and do not include electricity duty payable to the State Government. They also include, as per established practice, consistently followed by the Company in the past, estimated sums recoverable from/adjustable on consumers’ account, calculated on the basis of rates approved/specified by the appropriate authorities which are reflected in the subsequent bills. In terms of the applicable regulations and tariff determination process followed by the Commission, advance against depreciation forms part of tariff. Such advance received in a year is adjusted against earning from sale of electricity for inclusion in the same in subsequent years, on due adjustment by the authorities in the tariff determination process.

(j) Other Income

Income from hire of meters and apparatus is accounted for as per the approved rates. Income from investments and deposits etc. are accounted for on an accrual basis inclusive of related tax deducted at source, where applicable. Delayed payment surcharge, as a general practice, is determined and recognised on receipt of overdue payment from consumers.

(k) Retirement/Separation Benefits

Retirement benefits are accounted for on an accrual basis considering contributions payable to Provident Fund, Pension Fund and Gratuity Fund. The liabilities for leave encashment and other separation related benefits to the employees are accounted for on accrual basis at the year-end. In ascertaining the aforesaid liabilities, actuarial valuation as at the year-end is carried out, where appropriate. Compensations payable in respect of the Company’s Voluntary Separation Schemes are charged off in three equal annual installments.

(l) Miscellaneous expenditure to the extent not written off or adjusted

The Company amortizes preliminary expenses and certain capital issue expenses incurred until 2004-05 over the unexpired period of license in accordance with the repealed ESA. Pursuant to repeal of Electricity (Supply) Act, 1948, with effect from the year 2005-06, expenditure incurred from April 1, 2005 towards such items, are charged off to revenue. Had the earlier policy been followed in respect of expenditure incurred in 2005-06, the charge for the said year would have been lower by Rs.64.7 million with its consequential impact on the profit and net assets of the Company.

(m) Borrowing Costs

Borrowing Costs attributable to acquisition and/or construction of qualifying assets are capitalized as a part of cost of such assets upto the date where such assets are ready for their intended use. Other borrowing costs are charged to revenue.

(n) Deferred Taxation

Deferred taxes are accounted using liability method at the current rates of taxation on all timing differences to the extent it is probable that a liability or asset will crystallize. Deferred tax assets are recognized subject to the consideration of prudence and are periodically reviewed to reassess realization thereof. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits. Deferred tax liability or asset will give rise to actual tax payable or recoverable at the time of reversal thereof. Since tax on profits forms part of chargeable expenditure for the Company under the applicable tariff regulations, deferred tax liability or asset is recoverable or payable through future tariff. Hence, recognition of deferred tax asset or liability is made with a corresponding provision of liability or asset, as the case may be. In absence of any specific provision in the repealed ESA, deferred taxation was not recognized in the books till 2004-05.

4. Earnings from sale of electricity are determined in accordance with the applicable orders of the Commission, where appropriate, giving due effect of the required adjustments. Such earnings are net of discount for prompt payment of bills amounting to Rs.337.7 million for 2004-05, Rs.410.6 million for 2005-06 and Rs.459.7 million for 2006-07 and advance against depreciation of Rs.1,004.8 million for 2006-07 which has become applicable from 2006-07. Earnings from sale of electricity for the year 2004-05 was arrived at considering an adjustment, arising from applicable orders amounting to Rs.533.2 million towards fuel and related costs in respect of earlier years.

F-29 5. Revaluation of Land, Buildings and Structures, Plant and Machinery, Transmission and Distribution System, Meters and Other Apparatus on Consumers’ Premises, River Tunnel and Railway Sidings as on 31 March, 1993 was carried out by an approved valuer as on 31 March, 1994 on the basis of their then current replacement cost which resulted in an increase in the value of above-mentioned assets over the net book values as on 31 March, 1994 by Rs.14,607.4 million with a corresponding credit to Revaluation Reserve. Thereafter the fixed assets other than furniture and vehicles and intangible assets as at 31 March, 2005 were revalued as at 1 April, 2005 resulting in a net increase in the value of such assets by an amount of Rs.19,007.7 million with a corresponding credit to Revaluation Reserve.

6. Estimated amount of contracts remaining to be executed on capital account and not provided for are Rs.104.9 million for the year ended 31 March, 2005, Rs.108.8 million for the year ended 31 March, 2006 and Rs.8,673.9 million for the year ended 31 March, 2007 respectively.

7. Claims against the Company not acknowledged as debts:-

(a) The West Bengal Taxation Tribunal had held meter rentals received by the Company from consumers to be deemed sales under the provisions of the Bengal Finance (Sales Tax) Act, 1941 and that sales tax was payable on such rentals. Based on such findings the Commercial Taxes Directorate assessed Rs.6.9 million as sales tax on meter rentals received during the year ended 31 March, 1993 and raised a demand of Rs.3.6 million on account of interest. Against the above demand, the Company had deposited a sum of Rs.7.5 million with the sales tax authorities and obtained a stay against the balance demand from the Deputy Commissioner of Commercial Taxes. The sales tax authorities also indicated their intention to levy such sales tax on meter rentals for the subsequent years as well, against which, the Company filed a writ petition in the Calcutta High Court and prayed for an interim order, inter alia, restraining the sales tax authorities from proceeding with the assessment for the subsequent years till disposal of the appeal. An interim order has been issued by the High Court permitting the sales tax authorities to carry out assessments but restraining them from serving any assessment order on the Company. The disposal of the case is still pending.

(b) Other matters:

i. Municipal Tax: Rs.18.6 million for the year ended 31 March 2005, Rs.6.7 million for the year ended 31 March 2006 and Rs.7.2 million for the year ended 31 March 2007 respectively, in respect of certain properties, the rates of which are disputed by the Company.

ii. Income Tax: Rs.5.5 million for the year ended 31 March 2005, Rs.5.5 million for the year ended 31 March 2006 and Rs.6.1 million for the year ended 31 March 2007 respectively, towards advance tax not admitted by authorities.

8. Capital works-in-progress as on 31.3.2007 include a sum of Rs.1,006.0 million towards expenditure incurred in respect of the 250 MW thermal power project at Budge Budge.

9. During 2004-05, the Company allotted 826.5 million equity shares of Rs.10 each offered for cash at a premium of Rs.50 per share to the equity shareholders of the Company on a rights basis. During 2005-06, 2 million equity warrants were allotted to the management group on a preferential basis. As per terms, each warrant was converted in 2006-07 into one equity share of Rs.10/- each at a price of Rs.216.68, out of which Rs.21.668 per warrant was paid up as at 31 March, 2006. Proceeds of the above issue of shares have been utilized for the respective stated purposes. Also, 793.1 million equity shares representing 793.1 million Global Depository Receipts of Rs.10 each were issued at a premium of Rs.212 per share in 2005-06. Pending utilization, the proceeds of the Global Depository Receipts issued in 2005-06, have been placed as deposits with scheduled banks, included under Cash and Bank balances.

10. The Company has provided for in 2004-05, 2005-06 and 2006-07, a net sum of Rs.596 million, Rs.1,686.2 million and Rs.1,051.9 million respectively, shown as cost adjustments in Schedule 11 to the financial statements, based on the Company’s understanding of the applicable regulatory provisions in respect thereof towards an estimated adjustable sum on account of cost of electrical energy purchased and fuel and related cost for the respective years, taking into account the effect of the applicable orders obtained in this regard and duly considering the impact of adjustments relating to revenue account under the applicable regulatory provisions. The accurate quantification and disposal of the matter are being given effect on receipt of necessary orders/directions from the appropriate authorities.

11. Sundry Debtors for electricity supplied - Other Debts include net arrear tariff amounting to Rs.2276.3 million as on 31 March, 2005, Rs.1580.4 million as on 31 March, 2006 and Rs.780.8 million as on 31 March, 2007 respectively (after set off in 2004-05 of unbilled fuel surcharge for earlier years of Rs.663.1 million, with a corresponding adjustment against Earnings from sale of electricity), recovery of which is being made in accordance with the orders of the Commission.

F-30 12. Miscellaneous income in Schedule-10 includes Delayed Payment Surcharge of Rs.119.0 million for the year 2004-05, Rs.118.1 million for the year 2005-06 and Rs.116.4 million for the year 2006-07 respectively. Miscellaneous expenses in Schedule 11 in respect of 2004-05 include amount of Rs.47.50 million towards write-off of certain old receivables of the Company.

13. Interest expenses include (gains)/loss of 2004-05 - Rs.(1.3) million, 2005-06 - Rs.(0.5) million and 2006-07 - Rs.1.2 million and Discounting charges include (gains)/loss of 2004-05 - Rs.(3.3) million, 2005-06 - Rs.10.7 million, 2006-07 - Rs.0.5 million due to exchange fluctuations.

14. Future lease rentals payable during next one year and thereafter till five years in respect of assets comprising various equipment and vehicles acquired after April 1, 2001 under operating leases work out as follows:

Next 1 year Next 5 years

(Rs. million) (Rs. million)

31 March, 2006 ...... 86.1 143.8 31 March, 2007 ...... 58.9 74.1

15. No amount is transferred to the Debenture Redemption Reserve in respect of debentures redeemed subsequent to the balance-sheet date based on the counsel’s opinion.

16. Generation at the Company’s plant at Mulajore was discontinued in the year 2003-04 in view of its unviable cost of generation, pollution related issues and the observations of the Supreme Court of India. Necessary permission from the State Government for permanent closure of the establishment had been obtained. Pursuant to the revaluation of fixed assets (as detailed in note 5), net block of fixed assets include Rs.465.8 million on account of assets at Mulajore, based on an appropriate valuation.

17. In terms of the Scheme of Amalgamation under Section 394(2) of the Companies Act as sanctioned by the Hon’ble High Court at Calcutta, Pathik Foods Private Limited, the holding Company of Spencer’s Retail Limited was merged with the Company from 1 April 2007, involving issue of 31.1 million fully paid up equity shares of Rs.10 each, which were allotted by the Company on 12 October 2007.

18. In absence of any specific information available with the Company in respect of any supplier attracting provisions of the Micro, Small and Medium Enterprises Development Act, 2006, no disclosure/treatment has been considered necessary in this regard.

19. During 2004-05, appropriations of Rs.477.5 million made to Contingencies Reserve during 2000-01 to 2003-04 was withdrawn in absence of any specific requirement under the Electricity Act, 2003 and based on counsel’s opinion in this regard.

20. Based on the Commission’s orders dated 24th May 2004 and 31st March 2005, for the years 2004-05 and 2005-06 respectively, Rs.242.6 million and Rs.485.2 million have been considered as Special Appropriation for the said years, which consists of Rs.34.5 million and Rs.69.0 million were towards recovery against Deferred Payment for 2004-05 and 2005-06 respectively and Rs.208.1 million and Rs.416.2 millions were towards past entitlement of the Company for 2004-05 and 2005-06 respectively.

21. Directors’ Remuneration:

2004-05 2005-06 2006-07 2006-07

(Rs. million) (Rs. million) (Rs. million) (US$ million)

Salary ...... 1.2 2.4 3.6 0.1 Contribution to Pension and Provident Funds and Gratuity . . . 0.4 0.8 0.8 0.0 Estimated value of other benefits . . 0.8 1.5 1.8 0.0 Non-Wholetime Directors’ Fees .... 0.9 1.3 1.1 0.0

3.3 6.0 7.3 0.1

F-31 22. The major components of Deferred Tax Assets /(Liabilities) based on the timing differences are as under:

31 March 2006 31 March 2007 31 March 2007

(Rs. million) (Rs. million) (US$ million)

Liabilities Depreciation difference ...... (3,092.5) (3,315.4) (83.4) Assets Items covered under section 43 B ...... 130.9 132.5 3.4 Unabsorbed business depreciation ...... 2,894.5 1,892.2 47.6 Others including items covered under section 35DDA . . 231.4 160.4 4.0

Assets/(Liabilities) ...... 164.3 (1,130.3) (28.4)

23. Earnings per Share:

Particulars 2004-05 2005-06 2006-07 2006-07

(Rs. million) (Rs. million) (Rs. million) (US$ million)

Profit After Tax (A) ...... 1613.8 2019.2 3314.0 83.3 Weighted Average no. of shares for Earnings per Share (B) ...... 71,871,368 78,509,890 83,068,661 83,068,661

Basic & Diluted Earnings per Share of Rs.10/- = [(A) / (B)] (Rs.) ...... 22.45 25.72 39.89 1.0

24. The Company is engaged in generation and distribution of electricity and does not operate in any other reportable segment.

25. Related Party disclosures

Related Party and their relationship

Names of Related Parties Nature of Relationship

Mr. S Banerjee ...... KeyManagement Personnel

Disclosure of transactions between the Company and related parties and status of outstanding balance:

Key Key Key Key Management Management Management Management Personnel Personnel Personnel Personnel

2004-05 2005-06 2006-07 2006-07

(Rs. million) (Rs. million) (Rs. million) (US$ million)

Remuneration Paid ...... 2.4 4.7 6.2 0.1

F-32 26. Miscellaneous Expenses shown in Schedule 11 include Auditors’ Remuneration and Expenses:

2004-05 2005-06 2006-07 2006-07

(Rs. million) (Rs. million) (Rs. million) (US$ million)

(a) Tax Audit ...... 0.3 0.3 0.4 0.0 (b) Other Services ...... 2.3 5.6 2.6 0.1 (c) Reimbursement of expenses (including applicable service tax) ...... 0.4 0.9 0.8 0.0

27. C.I.F. value of imports:

2004-05 2005-06 2006-07 2006-07

(Rs. million) (Rs. million) (Rs. million) (US$ million)

Capital goods ...... 6.2 11.8 0.8 0.0 Fuel ...... 949.6 952.7 762.6 19.2

28. Expenditure in foreign currency:

2004-05 2005-06 2006-07 2006-07

(Rs. million) (Rs. million) (Rs. million) (US$ million)

Travelling ...... 6.2 8.0 6.2 0.2 Technical services fees (net of tax) . . 1.6 0.6 1.0 0.0 Finance charges (net of tax) ...... 669.7 265.3 202.9 5.1 Others ...... 27.3 60.5 49.2 1.2

Total ...... 704.8 334.4 259.3 6.5

29. Dividend remitted in foreign currency:

On account of dividends to non-resident shareholders relating to previous year

2004-05 2005-06 2006-07

Net Net Net Net amount amount amount amount No. of No. of remitted No. of No. of remitted No. of No. of remitted remitted Share- Shares (Rupees in Share- Shares (Rupees in Share- Shares (Rupees in (US$ in holders held million) holders held million) holders held million) million)

Equity Dividend . Nil Nil Nil 428 16,56,864 4.1 404 15,26,484 3.8 0.1

F-33 30. Values of raw materials and stores and spare parts consumed (excluding on capital account):

2004-05 2005-06 2006-07 2006-07

(Rs. (Rs. (Rs. (US$ million) % million) % million) % million) %

Raw Material Imported ...... 1,152.1 15.15 1,159.4 13.81 1,052.3 12.49 26.5 12.49 Indigenous ...... 6,453.3 84.85 7,237.0 86.19 7,374.4 87.51 185.5 87.51

7,605.4 100.00 8,396.4 100.00 8,426.7 100.00 212.0 100.00

Stores and Spares Imported ...... 0.0 0.01 —————— Indigenous ...... 702.1 99.99 876.4 100.00 920.9 100.00 23.2 100.00

702.1 100.00 876.4 100.00 920.9 100.00 23.2 100.00

31. 2004-05 2005-06 2006-07

(Million kWh) (Million kWh) (Million kWh)

(a) Total number of units generated during the year .... 7,054 7,630 7,702 (b) Total number of units consumed in Generating Stations ...... 617 651 653 (c) Total number of units sent out ...... 6,437 6,979 7,049 (d) Total number of units imported during the year (gross) 820 930 1,032 (e) Total number of units delivered ...... 7,257 7,909 8,081 (f) Total number of units sold as per meter readings . . . 5,864 6,251 6,424 (g) Total number of units exported ...... 160 418 458 (h) Total number of units consumed in Company’s premises ...... 18 19 17 (i) Total number of units supplied for WBSEB (gross) . . . 71 73 72 (j) Total number of units supplied to WBSEB (net) ..... 68 70 68

32. The derated installed capacity of the Generating Stations of the Company (as per certification of technical expert) as on 31 March, 2007 was 975,000 kW (31 March, 2006 : 975,000 kW) (31 March, 2005 : 975,000 kW)

33. Consumption of fuel: 2004-05 2005-06 2006-07

(a) Consumption of coal Quantity Tonnes 4,507,715 4,763,440 4,785,920 Value Rs. in million 7,461.5 8,287.1 8,311.3 Value US$ in million ——209.1 (b) Consumption of oil Quantity Kilolitres 6,696.62 4,076.29 3,929.15 Value Rs. in million 143.9 109.3 115.4 Value US$ in million ——2.9

F-34 34. The figures disclosed in these financial statements are extracted from the audited statutory financial statements for the financial years 2004-05, 2005-06 and 2006-07 approved by the Board of Directors on 24 June 2005, 21 June 2006 and 25 June 2007 respectively which, however have been adjusted for uncovered past liabilities in respect of certain post separation benefit provided for on an actuarial valuation and certain claims made by power supplying agencies in earlier years originally disputed by the Company but subsequently provided for based on negotiation/settlement with the agencies. Consequently profits for 2004-05, 2005-06 and 2006-07 have been increased by Rs.141.8 million, Rs.244.5 million and Rs.307.0 million respectively with corresponding adjustment against General Reserve as on 1st April, 2004. Accordingly there is no change in the Reserves as at 31 March 2007 from what has been included in the above referred audited statutory financial statements.

35. Figures of earlier years have been regrouped/rearranged, wherever necessary to make them comparable to the classification as at 31 March 2007.

Kolkata, 30 November, 2007 Subhasis Mitra S. Banerjee Vice President and Company Secretary Managing Director

F-35 SPENCER’S RETAIL LIMITED REVIEW REPORT

To The Board of Directors Spencer’s Retail Limited Duncan House 31, Netaji Subhas Road, KoIkata - 700 001

1. We have reviewed the accompanying statement of unaudited financial results of Spencer’s Retail Ltd (’the Company’) for the six months’ period ended September 30, 2007. This statement has been approved by the Board of Directors of the Company and is the responsibility of the Company’s management. Our responsibility is to issue a report on this statement based on our review.

2. We conducted our review in accordance with the Auditing and Assurance Standard (AAS) 33, “Engagements to Review Financial Statements” issued by the Institute of Chartered Accountants of India. This Standard requires that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

3. The Management has decided to prepare and present only the financial results for the six months’ ended September 30, 2007 in accordance with the requirements of Clause 41 of the Listing Agreement of Securities Exchange Board of India, though such Listing agreement is not applicable to the Company. Accordingly, the Company has only applied the measurement and recognition principles of Accounting Standard 25 - “Interim Financial Reporting” and not the disclosure and presentation requirements of such accounting standard.

4. We observe that as indicated in Note no 1 on the accompanying unaudited financial results, the regional office and distribution centre of the Company at Pune was destroyed in a fire during August 2007. The original supporting documents having been lost in fire were not available for audit but a trial balance taken out from the system and certified by the Management was produced for Audit, which has been relied upon by us.

5. The Branch Auditor’s review Report has been forwarded to us and the same has been appropriately dealt with.

6. Based on our review and read with our observations in para 3 and 4 above, nothing has come to our attention that causes us to believe that the accompanying statement of unaudited financial results does not give a true and fair view in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India. forS.R.BATLIBOI&CO Chartered Accountants

Per R. K. AGRAWAL Partner Membership No.: 16667

22 Camac Street Block ‘C’, 3rd Floor Kolkata - 700 016 Date: 1 December, 2007

F-36 SPENCER’S RETAIL LIMITED UNAUDITED FINANCIAL RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2007

6 month ended Year Ended 30-Sep-07 31-Mar-07 Particulars (Unaudited) (audited)

(Rs. Million) (Rs. Million)

Sales (net) ...... 3,371.3 4,966.9 Other Income ...... 166.0 195.4 Total Income ...... 3,537.3 5,162.3

Expenditure (a) Cost of Power & Fuel ...... 112.8 118.4 (b) Cost of Goods Sold ...... 2,822.4 4,203.7 (c) Personnel Cost ...... 363.5 435.6 (d) Depreciation ...... 82.3 93.9 (e) Interest ...... 63.6 66.7 (f) Other Expenditure ...... 700.8 759.9

Total Expenditure ...... 4,145.4 5,678.2

Exceptional Income ...... 16.4 — Loss from ordinary activities before tax ...... 591.7 515.9

Tax Expenses: Fringe Benefits tax ...... 6.9 7.4 Currenttax...... —— Deferred Tax ...... —— Net Loss from ordinary activities after Tax ...... 598.6 523.3

Paid-up Equity Share Capital (Shares of Rs.10 Each) ...... 260.1 260.1 Reserves as per latest audited Balance Sheet as on 31 March 2007 ...... 1,158.4 1,158.4 Earnings Per Share (EPS) (Rs.) - Basic & Diluted (*not annualised for half year) .... (23.0) (23.8)

Aggregate of Public Shareholding * No. of Shares ...... 1,374,004 1,374,004 Percentage of Shareholding ...... 5.28% 5.28%

* denotes shares held by non-promoters

1 On 27th August 2007, there was a fire in the Pune Regional office and Distribution Centre of the Company, destroying the entire fixed assets and inventories lying therein amounting to Rs. 4,812 thousands and Rs. 6,600 thousands respectively. An Insurance claim for the above loss has already been lodged by the company which is pending settlement. The books of accounts and records maintained at the above office also got destroyed in the fire and thus, original supporting documents were not available for audit. However, the trial balance for the said office being available in the system was taken out and produced to the auditors for verification.

2. a) During the year, the Company’s investment in RPG Cellucom India (P) Limited has gone below 50% thereby making it an associate of the Company as against a subsidiary as on 31 March 2007.

F-37 b) The financial statements of the above associate company, RPG Cellucom India (P) Limited, a start-up company, showed negative net worth as at 31st March 2007. However, based on a valuation report, from a firm of Chartered Accountants, the intrinsic value of shares in the above subsidiary Company is higher than the cost of the investment as appearing in the books of account of the Company. Therefore, no provision is considered necessary towards this investment since the shortfall is temporary in nature.

3 Exceptional income represents compensation towards loss of business received upon non fulfillment of obligations by a party under a lease agreement entered into with the Company.

4 The company has prepared unaudited financial results for the interim 6 months period ended 30 September 2007 in the format prescribed by Clause 41 of the Listing Agreement of Securities Exchange Board of India for the first time. Consequently, it has not presented the interim results for the second quarter ended 30 September 2007 as included in the half year results and also the comparative information for the corresponding interim period of the previous year ended 30 September 2006.

5 These financial results have been approved by the Board of Directors at its meeting held on 30 November 2007.

On behalf of the board Place: Kolkata Sumantra Banerjee Date: 30 November 2007 Managing Director

F-38 Auditors’ Report To the Members of Spencer’s Retail Limited

1. We have audited the attached Balance Sheet of Spencer’s Retail Limited (‘the Company’)as at 31st March, 2007 and also the Profit and Loss account and the cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As indicated in note no. 5 of schedule R, the regional office and distribution centre of the Company at Pune was destroyed in a fire during August 2007. The original supporting documents having been lost in fire were not available for audit but a trial balance taken out from the system and certified by the Management was produced for Audit, which has been relied upon by us.

4. As required by the Companies (Auditor’s Report) Order, 2003 (as amended) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order, subject to the limitation mentioned under paragraph 3 above.

5. On the basis of the written representations received from the directors, as on 31st March, 2007, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

6. Further to our comments in the Annexure referred to above and subject to the limitation mentioned under paragraph 3 above, we report that:

i. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii. In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books. The Branch Auditor’s Report has been forwarded to us and the same has been appropriately dealt with;

iii. The balance sheet, profit and loss account and cash flow statement dealt with by this report are in agreement with the books of account and with the audited returns received from the branches;

iv. In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.

F-39 v. In our opinion and to the best of our information and according to the explanations given to us, the said accounts, subject to adjustments, if any, arising out of the matter disclosed in paragraph 3 above, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India;

a) in the case of the balance sheet, of the state of affairs of the Company as at 31st March, 2007;

b) in the case of the profit and loss account, of the loss for the year ended on that date; and

c) in the case of cash flow statement, of the cash flows for the year ended on that date. forS.R.BATLIBOI&CO Chartered Accountants

Per R. K. AGRAWAL Partner Membership No.: 16667

22 Camac Street Block ‘C’, 3rd Floor Kolkata - 700 016 Date: 29th October, 2007

F-40 ANNEXURE TO THE AUDITORS’ REPORT TO THE MEMBERS OF SPENCER’S RETAIL LIMITED REFERRED TO IN OUR REPORT OF EVEN DATE

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) All fixed assets have not been physically verified by the management during the year but there is a regular programme of verification of the fixed assets over a period of 3 years which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. As informed, no material discrepancies were noticed on such verification.

(ii) (a) The management has conducted physical verification of inventory at reasonable intervals during the year.

(b) The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) On the basis of our examination of the inventory records, in our opinion the Company maintains proper records of inventory and no material discrepancies were noticed on physical verification.

(iii) (a) As informed to us, the Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of clause 4(iii) (b), (c) and (d) of the Companies (Auditor’s Report) Order, 2003 (as amended) are not applicable to the Company.

(b) The Company had taken interest free loan from a company covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs.183,500 thousands, but there was no balance outstanding as at the year end. In our opinion and according to the information and explanations given to us, the terms and conditions for such loans are not prima facie prejudicial to the interest of the Company.

(iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books and records of the Company and according to the information and explanation given to us, we have neither come across nor have we been informed of any continuing failure to correct major weaknesses in the aforesaid internal control system.

(v) (a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered into the register maintained under the above section, have been so entered.

(b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements exceeding value of Rupees five lakhs have been entered into during the financial year at prices which are reasonable having regard to the prevailing market prices at the relevant time.

F-41 (vi) The Company has not accepted any deposit from public within the meaning of sections 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framed there under.

(vii) The Company has an internal audit system, commensurate with the size and nature of its business.

(viii) To the best of our knowledge and as explained, the provision regarding maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 is not applicable to the Company.

(ix) (a) Undisputed statutory dues including provident fund, investor education and protection fund, or employees’ state insurance, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, cess as applicable, have generally been deposited with the appropriate authorities with delays.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Income-Tax, Wealth-Tax, Service Tax, Sales Tax, Customs Duty, Excise Duty, Cess and other undisputed statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable except as under, which have been paid subsequently.

Amount Period to which the Name of the Statute Nature of the dues (Rs. ’000) amount relates Profession Tax Act Professional tax 201.39 March 06-August 06

The Employees’ State Employee state 23.97 April 06-August 06 Insurance Act, 1948. insurance dues

(c) According to the information and explanations given to us and the records of the Company examined by us, there are no dues outstanding of sales tax, income tax, custom duty, wealth tax, service tax, excise duty and cess on account of any dispute, other than the following:

Period to Forum where Nature of Amount which it dispute is Name of Statute dues (Rs. ’000) relates pending Andhra Pradesh General Value 3,903 2005-06 Deputy Sales Tax Act, 1957 Added Tax Commissioner of Commercial Tax, Appeals

Tamil Nadu General Sales Sales Tax 818 2000-01 Deputy Tax Act, 1959 Commissioner of Commercial Tax, Appeals

(x) The Company has accumulated losses amounting to Rs.590,107 thousands as at 31st March 2007 and it has incurred cash losses in the current financial year as well as in the immediately preceding financial year.

F-42 (xi) Based on our audit procedures and as per the information and explanations given by the management, we are of the opinion that the Company has not defaulted in repayment of dues to financial institutions and banks. The Company did not have any outstanding towards debentures during the year.

(xii) According to the information and explanations given to us and based on the documents and records produced to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor’s Report) Order, 2003 (as amended) 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, the provisions of clause 4(xiv) of the Companies (Auditor’s Report) Order, 2003 (as amended) are not applicable to the Company.

(xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.

(xvi) Based on the information and explanations given to us by the management, term loans were applied for the purpose for which these loans were obtained, though idle/surplus funds which were not required for immediate utilization, have been temporarily invested in liquid investments payable on demand.

(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet and cash flow statement of the Company, we report that no funds raised on short-term basis have been used for long-term investment.

(xviii) The Company has not made any preferential allotment of shares during the year to parties or Companies covered in the register maintained under section 301 of the Companies Act, 1956.

(xix) The Company did not have any outstanding debentures during the year.

(xx) The Company has not raised any money through a public issue during the year.

(xxi) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For S. R. Batliboi & Co. Chartered Accountants

per R.K. AGRAWAL Partner Membership no. 16667

22 Camac Street Block ‘C’, 3rd Floor Kolkata - 700 016 Date: 29th October, 2007

F-43 SPENCER’S RETAIL LIMITED BALANCE SHEET AS AT 31ST MARCH, 2007

As at

31st March, 31st March, Schedule 2007 2006

Rs. 000’s Rs. 000’s I SOURCES OF FUNDS SHARE HOLDERS’ FUNDS Share Capital ...... A 260,121 206,068 Share Application money (Pending allotment) ...... — 62,500 Stock Options outstanding (Refer Note 4 on Schedule R) ...... 8,581 — Reserves and Surplus ...... B 1,158,447 228,999 LOAN FUNDS ...... C Secured Loans ...... 873,018 172,874 Unsecured Loans ...... — 98,500

2,300,167 768,941

II APPLICATION OF FUNDS FIXED ASSETS ...... D Gross Block ...... 1,251,805 611,042 Less: Depreciation ...... 226,782 133,814

Net Block ...... 1,025,023 477,228 Capital Work in Progress (including Capital Advances) ...... 213,563 103,507

1,238,586 580,735

INVESTMENTS ...... E 10,120 100

CURRENT ASSETS, LOANS AND ADVANCES Inventories ...... F 608,643 365,037 Sundry Debtors ...... G 117,286 66,050 Cash and Bank Balances ...... H 219,976 70,446 Other Current Assets ...... I 929 138 Loans and Advances ...... J 592,951 300,501

1,539,785 802,172

LESS: CURRENT LIABILITIES AND PROVISIONS ...... K Current Liabilities ...... 1,060,672 668,421 Provisions ...... 17,759 12,361

1,078,431 680,782

NET CURRENT ASSETS ...... 461,354 121,390

Profit and Loss Account Debit Balance ...... L 590,107 66,716

2,300,167 768,941

Significant Accounting Policies and Notes to Accounts ...... R

F-44 The schedules referred to above form an integral part of the Balance Sheet

As per our report of even date

For S. R. BATLIBOI & Co. On behalf of the board Chartered Accountants per R. K. Agrawal M. Chauduri R. K. Jha S. Mitra Partner Manager Director Director Membership No 16667

Place: Kolkata Date: 29 October, 2007

F-45 SPENCER’S RETAIL LIMITED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2007

For the year ended

31st March, 31st March, Schedule 2007 2006

Rs. 000’s Rs. 000’s INCOME Sales and Services Sales (Gross) ...... 5,211,546 2,798,928 Less: Value Added Tax/ Sales tax ...... 244,637 93,863

Sales (Net) ...... 4,966,909 2,705,065 Income from Recoveries and Services (Tax deducted at Source:Rs.2,970 thousands (Rs.874 thousands)) .... 186,759 107,427

5,153,668 2,812,492 Other Income ...... M 8,606 2,863

5,162,274 2,815,355

EXPENDITURE Cost of Goods Sold ...... N 4,203,654 2,295,685 Personnel expenses ...... O 435,612 209,032 Selling and Administration Expenses ...... P 878,315 391,606 Financial Expenses ...... Q 66,705 34,227 Depreciation ...... 93,948 36,440

5,678,234 2,966,990 Loss for the year before Taxes ...... (515,960) (151,635) Fringe Benefit Tax ...... 7,431 3,769 Loss for the year after Taxes...... (523,391) (155,404) Brought Forward Loss from the previous year...... (66,716) (175,046)

Loss carried forward to Schedule L...... (590,107) (330,450)

Loss per Share (Nominal value Rs.10 each) Basic and Diluted (Rs.) ...... (23.82) (9.21)

Significant Accounting Policies and Notes to Accounts ...... R

The schedules referred to above form an integral part of the Profit and Loss Account

As per our report of even date

For S. R. BATLIBOI & Co. On behalf of the board Chartered Accountants per R. K. Agrawal M. Chauduri R. K. Jha S. Mitra Partner Manager Director Director Membership No 16667

Place: Kolkata Date: 29th October, 2007

F-46 SPENCER’S RETAIL LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2007

For the year ended

31st March, 2007 31st March, 2006

Rs. 000’s Rs. 000’s

A. CASH FLOW FROM OPERATING ACTIVITIES Net Loss before tax (515,960) (151,635)

Adjustments for: Depreciation ...... 93,948 36,440 Interest expense ...... 34,713 18,346 Profit on sale of Investments ...... (4,704) (642) Interest Income ...... (3,902) (2,144) (Profit)/ Loss on sale of Assets (net) ...... 157 (77) Provision for Lease equalisation ...... 53,137 — Provision for Employee Stock Option...... 8,581 — Provision for Bad and Doubtful Debts ...... 9,119 4,236 Provision for Doubtful advances and deposits .... 600 2,968 Provision for Obsolete stocks ...... 3,912 2,481 195,561 61,608

Operating Loss before working capital changes . . . (320,399) (90,027)

Adjustments for: Increase/Decrease in Inventories ...... (247,518) (54,179) Sundry Debtors ...... (60,355) (31,874) Loans & Advances and Other Current Assets..... (289,172) (76,028) Current Liabilities & Provisions ...... 344,324 197,697

(252,721) 35,616

Cash Generated from Operations ...... (573,120) (54,411)

Income Taxes paid (represents Fringe Benefit Tax andTDS)...... (11,419) (5,313)

Net Cash used in Operating Activities...... (584,539) (59,724)

B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed assets ...... (753,612) (225,006) Proceeds from Sale of fixed assets ...... 1,656 432 Investments in Subsidiary Company ...... (10,020) — Sale of Investments ...... 1,065,204 129,142 Purchase of Investments ...... (1,060,500) (128,500) Purchase of business from Foodworld Super Markets Limited ...... — (217,000) Proceeds towards transfer of building acquired . . . — 77,500 Deposits made with the Bank ...... (80,269) (10,738) Interest received ...... 3,111 2,007

Net cash used in Investing activities...... (834,430) (372,163)

F-47 For the year ended

31st March, 2007 31st March, 2006

Rs. 000’s Rs. 000’s C. CASH FLOW FROM FINANCING ACTIVITIES

Share Application Money received ...... — 62,500 Unsecured loan from Holding Company...... — 8,500 Repayment of Unsecured Loans ...... (98,500) — Repayment of Term Loans ...... (36,764) (44,436) Proceeds from Term Loans ...... 750,000 — Proceeds from Issue of Share Capital ...... 921,001 441,999 Interest paid ...... (34,415) (18,436) Cash credit from bank...... (13,092) 190

Net Cash Flow from Financing activities ..... 1,488,230 450,317

Net Increase/(Decrease) in Cash and Cash equivalents (A+B+C) ...... 69,261 18,430

* Cash and cash equivalents as at 1st April . . 34,508 5,795

* Cash and cash equivalents as at 31st March...... 103,769 24,225 Cash and Cash equivalents from Amalgamation (MWD of MWEL) ...... — 10,283 Total Cash and cash equivalents as at 31st March...... 103,769 34,508

* Represents Cash and Bank Balances as indicated in Schedule H (excluding amounts in Deposit Account)

This is the Cash Flow statement referred to in our report of even date.

For S. R. BATLIBOI & Co. On behalf of the Board Chartered Accountants per R. K. Agrawal M. Chauduri R. K. Jha S. Mitra Partner Manager Director Director Membership No 16667

Place: Kolkata Date: 29th October, 2007

F-48 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS

As at

31st March, 31st March, 2007 2006

Rs. 000’s Rs. 000’s SCHEDULE A SHARE CAPITAL Authorized 30,000,000 (25,000,000) Equity Shares of Rs. 10 each ...... 300,000 250,000

Issued, Subscribed and Fully Paid 26,012,113 (20,606,776) Equity Shares of Rs. 10 each ...... 260,121 206,068 Note: Of the above, 24,638,103 shares are held by the Holding Company, Pathik Foods Private Limited (Previous year 13,513,283 shares were held by the Holding Company, Rainbow Investments Limited)

260,121 206,068

SCHEDULE B RESERVES AND SURPLUS

SECURITIES PREMIUM ACCOUNT As per last account ...... 228,999 — Add: Amount received during the year ...... 929,448 412,533 Less: Adjustment of Losses as per the Court order ...... — 183,534

1,158,447 228,999 CAPITAL RESERVE As per last account ...... — 80,200 Less: Adjustment of Losses as per the Court order ...... — 80,200

1,158,447 228,999

SCHEDULE C SECURED LOANS

Term loans From Scheduled Banks (refer note 1 below) ...... 774,434 38,041 From the Financial Institutions (refer note 2 below) ...... 75,747 98,904

Other Loans Cash Credit from a Scheduled Bank (refer note 3 below) ...... 22,837 35,929

873,018 172,874

UNSECURED LOANS ...... From Others* ...... — 98,500

— 98,500

* Due within one year Rs.Nil (Rs.98,500 thousands)

F-49 Notes:

(1) Term loans of Rs.774,434 thousands (Rs.38,041 thousands) from Banks are secured as follows:

(i) Hypothecation by way of an exclusive first charge in favour of Kotak Mahindra Bank Limited over all the collections (cash and non-cash), movable properties including the movable plant and machinery, machinery spares, tools & accessories and other movables, both present and future, of the Vishakapatnam Store.

(ii) Hypothecation by way of an exclusive residual charge subject to a first charge in favour of IDFC over all the collections (cash and non-cash) from the Mumbai and Hyderabad stores of the company.

(iii) Margin money amounting Rs.25,648 (000’) (Rs.24,584 (000’)) (since released.)

(iv) Hypothecation by way of first charge in favour of ICICI Bank Limited over all the current assets and movable assets (tangible & intangible, both present and future) and all the receivables of the company arising out of, pursuant to or under the merchant establishment agreement (including the credit card receivables account) save and except any asset situated in or any such receivables arising from the hyper stores situated at Vishakapatnam, Hyderabad and Malad (Mumbai).

(v) Secured by a corporate guarantee given by a body corporate

(2) Term loan of Rs.75,747 thousands (Rs.98,904 thousands) from a Financial Institution is secured as follows:

(i) A First charge by way of hypothecation of all the movables relating to the Project including movable plant and machinery, machinery spares, tools and accessories, furniture and fixtures, vehicles, and all other movable assets, book debts, operating cash flows, receivables, commissions, revenues of whatsoever nature and wherever arising, present and future subject to prior charges created/ to be created in favour of the Company’s bankers on the stocks of raw materials, semi finished and finished goods, consumable goods and book debts and operating cash flows for securing the working capital borrowings in the ordinary course of business.

(ii) A first charge on all the intangible assets including but not limited to goodwill, trademark, uncalled capital, and undertaking of the Company.

(iii) A first charge by way of assignment or creation of security, interest in all the rights, title, interest, benefits, claims and demands whatsoever in the license agreement with respect to hypermarkets in Mumbai, and in the license agreement dated June 14th, 2002 with respect to the use of the trademarks and copyrights which requires modification, subject to consent from the counter parties and all insurance contracts/ insurance proceeds relating to the project ; and

(iv) A first charge on the trust and retention accounts, other reserves and any other bank accounts of the company relating to the project wherever maintained.

(v) Hypothecation of vehicles.

(3) Cash credit facilities of Rs. 22,837 thousands (Rs. 35,929 thousands) are secured by the hypothecation of stock in trade, consumable stores, book debts, other receivables, both present and future of the Music World Division of the company.

F-50 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS

SCHEDULE D FIXED ASSETS

GROSS BLOCK DEPRECIATION/AMORTIZATIONS NET BLOCK

On As at Deletions/ As at As at Deletions/ As at As at As at 01.04.2006 Additions Adjustments 31.03.2007 01.04.2006 For the year Adjustments 31.03.2007 31.03.2007 31.03.2006

Rs. 000’s Tangible: Leasehold Improvements ...... 173,545 173,530 147 346,928 36,453 24,993 8 61,438 285,490 137,092 Plant and Machinery ...... 257,802 318,110 127 575,785 27,656 18,662 5 46,313 529,472 230,146 Computer Hardware ...... 80,774 86,940 548 167,166 39,459 17,204 192 56,471 110,695 41,315 MotorVehicles...... 9,572 7,773 1,613 15,732

(a) 2,686 2,435 644 4,477 11,255 6,886 Furniture and Fittings (including office equipments) ..... 75,733 47,030 358 122,405 22,141 26,221 131 48,231 74,174 53,592 F-51 Intangible Computer Software ...... 13,516 10,173 — 23,689 5,319 4,433 — 9,752 13,937 8,197 Licenses ...... 100 ——100 100 ——100 — 611,042 643,556 2,793 1,251,805 133,814 93,948 (b) 980 226,782 1,025,023 477,228 Capital Work in Progress (including Capital advances) . 103,507 753,612 643,556 213,563 ————213,563 103,507

Total - This year ...... 714,549 1,397,168 646,349 1,465,368 133,814 93,948 980 226,782 1,238,586 580,735

Total - Previous year ...... 226,425 945,832 457,708 714,549 97,627 36,440 253 133,814 580,735 —

Notes:

(a) Includes assets acquired on Hire Purchase, Gross book value being Rs.1,999 thousands (Rs.2,540 thousands) and Net Book Value being Rs.1,500 thousands (Rs.2,313 thousands).

(b) Includes Rs.1,993 thousands (Rs. Nil) for earlier years. SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS

As at

31st March, 31st March, 2007 2006

Rs. 000’s Rs. 000’s SCHEDULE E INVESTMENTS Long term, Unquoted In a Subsidiary Company (Trade) 1,002,000 (Nil) equity shares of Rs.10 each in RPG Cellucom India (P) Limited . . 10,020 —

Other than Trade 10,000 equity shares of Rs.10 each in Retail Association of India ...... 100 100

10,120 100

SCHEDULE F INVENTORIES Traded goods (including stock in transit Rs.1,473 thousands (Rs.Nil)) ...... 610,104 365,735 Packing Materials ...... 6,384 3,235

616,488 368,970 Less: Provision for Obsolete Stock ...... 7,845 3,933

608,643 365,037

SCHEDULE G SUNDRY DEBTORS Unsecured, Considered good ...... Debts outstanding for a period exceeding 6 months ...... 6,035 1,209 Other debts ...... 111,251 64,841

117,286 66,050 Unsecured, Considered Doubtful ...... Debts outstanding for a period exceeding 6 months ...... 9,076 3,001 Other debts ...... 5,661 2,617 Less: Provision for doubtful debts ...... 14,737 5,618

117,286 66,050

SCHEDULE H CASH AND BANK BALANCES Cash on hand ...... 24,206 10,203

With Scheduled Banks: On Current Accounts ...... 79,563 24,305 On Deposit Account * ...... 116,207 35,938

219,976 70,446

* Includes margin money for Term Loan and Bank Guarantees Rs.25,648 thousands (24,585 thousands), and for Overdraft facilities Rs.10,559 thousands (Rs.10,134 thousands)

F-52 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS

As at

31st March, 31st March, 2007 2006

Rs. 000’s Rs. 000’s SCHEDULE I OTHER CURRENT ASSETS Unsecured, Considered good Interest receivable ...... 929 138

929 138

SCHEDULE J LOANS AND ADVANCES Unsecured, Considered Good unless stated otherwise

Advances to subsidiaries Against Equity Shares (Pending allotment) ...... 28,480 — Others ...... 401 —

Advances recoverable in cash or in kind or for value to be received ...... 121,125 52,370 Deposits Property ...... 418,033 233,312 Others ...... 22,136 15,321 Tax Deducted at Source ...... 6,930 3,052

597,105 304,055 Less: Provisions Doubtful Deposits ...... 2,400 2,400 Doubtful Advances ...... 1,754 1,154

592,951 300,501

F-53 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS

As at

31st March, 31st March, 2007 2006

Rs. 000’s Rs. 000’s SCHEDULE K CURRENT LIABILITIES AND PROVISIONS A. Current Liabilities Sundry Creditors for Goods and Services# ...... 1,005,353 644,472 Advances from customers ...... 2,800 560 Sundry deposits ...... 10,531 2,272 Other Liabilities ...... 41,343 20,770 Interest accrued but not due on loans ...... 645 347

1,060,672 668,421

# Includes amounts payable to SSI creditors Rs.323 thousands (151 thousands) Refer Note No.9 on Schedule R

B. Provisions Leave Salary ...... 12,707 7,584 Gratuity ...... 3,569 3,246 Fringe benefit tax ...... 1,399 1,509 Wealth tax ...... 84 22

17,759 12,361

SCHEDULE L PROFIT AND LOSS ACCOUNT Accumulated Loss - Opening ...... 66,716 175,046 Add : Loss during the year ...... 523,391 155,404

Loss brought forward from Profit and Loss Account ...... 590,107 330,450 Less : Adjusted against Capital Reserve ...... — 80,200 Less : Adjusted against Share Premium ...... — 183,534

590,107 66,716

F-54 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS

For the year ended

31st March, 31st March, 2007 2006

Rs. 000’s Rs. 000’s

SCHEDULE M OTHER INCOME Interest received on Deposits ...... 3,902 2,144 (Tax deducted at Source: Rs. 908 thousands (Rs. 383 thousands)) ...... Profit on Sale of Investments ...... 4,704 642 Profit on Sale of Fixed Assets (Net) ...... — 77

8,606 2,863

SCHEDULE N COST OF GOODS SOLD Traded goods Opening stock ...... 361,802 72,118 Add: Purchases (including procurement and other expenses) ...... 4,444,111 2,585,369

4,805,913 2,657,487 Less: Closing stock ...... 602,259 361,802

4,203,654 2,295,685

SCHEDULE O PERSONNEL EXPENSES Salaries, Wages, and Bonus ...... 378,138 187,385 Contribution to Provident and other funds ...... 34,302 11,729 Staff Welfare ...... 23,172 9,918

435,612 209,032

F-55 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS

For the year ended

31st March, 31st March, 2007 2006

Rs. 000’s Rs. 000’s

SCHEDULE P SELLING AND ADMINISTRATION EXPENSES Power and Fuel ...... 118,415 50,594 Freight ...... 20,758 6,599 Rent (Refer Note No.11 (b) on Schedule R) ...... 352,953 122,156 Repairs and Maintenance - Plant and Machinery ...... 42,834 16,735 - Others ...... 53,010 27,526 Insurance ...... 6,593 2,348 Rates and taxes ...... 8,093 12,521 Advertisement and Selling Expenses (net of recoveries) ...... 48,296 41,627 Packing Materials Consumed ...... 20,649 8,237 Travelling and Conveyance ...... 52,535 28,866 Security Charges ...... 32,392 13,534 Director’s Sitting Fees ...... 56 38 Auditor’s remuneration - Audit fees ...... 4,400 1,400 - Tax Audit fees ...... 600 500 - Management Services ...... — 800 - Out of pocket expenses ...... 392 31 Communication expenses ...... 27,514 11,258 Printing and Stationery ...... 22,551 8,711 Legal and consultancy charges ...... 14,162 5,408 Loss on Sale of fixed assets (Net) ...... 157 — Bad Debts written off ...... 254 72 Provision for Obsolete Stocks ...... 3,912 2,481 Provision for Doubtful Deposits/ Advances ...... 600 2,968 Provision for Bad and Doubtful Debts ...... 9,119 4,236 Other Expenses ...... 38,070 22,960

878,315 391,606

SCHEDULE Q FINANCIAL EXPENSES Interest: Term loans ...... 33,734 18,096 Other Loans ...... 4,337 250 Bank charges ...... 31,992 15,881 Less : Interest Capitalized ...... (3,358) —

66,705 34,227

F-56 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS

SCHEDULE R

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

1. Significant Accounting Policies a) Basis of Preparation of Financial Statements

These financial statements have been prepared to comply in all material respects with the mandatory Accounting Standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared under the historical cost convention on an accrual basis. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year, unless stated otherwise. b) Use of Estimates

The preparation of financial statements in conformity with the generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and results of operations during the reporting period. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. c) Fixed Assets

Fixed Assets are stated at cost less accumulated depreciation and impairment losses if any. Cost comprises of purchase price and any attributable cost of bringing the asset to its working conditions for its intended use. Expenditure in respect of improvements, etc. carried out at the rented/leased premises are capitalized and depreciated over the initial period of lease.

Expenditure incurred in setting up the stores are capitalized as a part of the Leasehold improvements. d) Depreciation

Depreciation is provided using the Straight Line Method at the rates prescribed under schedule XIV of the Companies Act, 1956. However, in the following cases, a higher rate of depreciation has been applied based on the useful life of the relevant assets:

Plant and Machinery Ranges from 4.75% - 20.% Motor vehicles 19% Furniture and fittings Ranges from 6.33% - 20.% (Includes office equipment) e) Intangibles

Acquired Computer software and licenses are capitalized on the basis of costs incurred to acquire and bring the specific software to its intended use. These costs are amortized over their estimated useful lives. f) Impairment

The carrying amounts of assets are reviewed at each balance sheet date, if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital. For the purpose of assessing impairments, assets are regrouped at the lowest levels for which there are identifiable cash flows. g) Leases

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased asset, are classified as operating leases. Operating lease payments are recognized as an expense in the Profit and Loss account on a straight-line basis over the lease term. Finance leases, which effectively transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the lower of the fair value and present

F-57 value of the minimum lease payments at the inception of the lease term and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the lease liability based on the implicit rate of return. Finance charges are charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalized.

In case there is no reasonable certainty that the Company will obtain the ownership by the end of the lease term, the capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. h) Investments

Investments that are readily realizable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments. Current investments are carried at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost, but adequate provision for diminution in value, is made to recognize a decline other than temporary, in the value thereof. i) Inventories

Inventories are valued as follows:

Traded Goods are valued at lower of cost and net realizable value.

Packing materials are valued at or below cost.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. Cost includes purchase price and other incidental expenses. Cost is arrived under First In First out (FIFO)/Moving Weighted Average method. j) Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.

Sale of Goods

Revenue is recognized when the significant risks and rewards of ownership of the goods get passed on to the buyers.

Income from recoveries and Services

Income from recoveries and services mainly represents recoveries made on account of advertisement for use of space and other expenses charged from suppliers and are recognized and recorded based on the arrangements with concerned parties.

Interest

Revenue is recognized on a time proportionate basis taking into account the amount outstanding and the rate applicable. k) Foreign currency transactions

(i) Initial Recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

(ii) Conversion

Foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.

F-58 (iii) Exchange Difference

Exchange differences arising on the settlement of monetary items or on reporting company’s monetary items at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognized as income or as expenses in the year in which they arise. l) Retirement and other employee benefits

Retirement benefit in the form of Provident Fund and Superannuation Fund is a defined contribution scheme and the contributions are charged to the Profit and Loss Account of the year when the contributions to the respective funds are due.

Gratuity liability is a defined benefit obligation and contribution by way of premium is made to Life Insurance Corporation of India (L.I.C), under the Group Gratuity Scheme. All contributions are charged to Profit and Loss account when they become due.

Long term compensated absences are provided for based on actuarial valuation. m) Income Taxes

Tax expense comprises of current, deferred and fringe benefit tax. Current income tax and fringe benefit tax are measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.

Deferred Tax is measured based on the tax rates and tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits.

At each balance sheet date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be that sufficient future taxable income will be available against which such deferred tax assets can be realized. n) Earnings per Share

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. o) Provisions

A provision is recognized when an enterprise has a present obligation as a result of past event and it is probable that an outflow 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 are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. p) Employee Stock Compensation Cost

Measurement and disclosure of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants of India. The Company measures compensation cost relating to employee stock options using the fair value method. Compensation expense is amortized over the vesting period of the option on a straight line basis. q) Borrowing Costs

i) Borrowing costs that are directly attributable to the acquisition of a qualifying asset are capitalized as part of the cost of the asset.

ii) All other borrowing costs are recognized as expenditure during the period in which these are incurred.

iii) Ancillary costs incurred in connection with the arrangement of borrowings are amortized over the period of borrowings for which these are incurred.

F-59 2. Segment Information

The Company’s primary segment is “organized retailing”, and the gross revenue, net results, assets and the liabilities correspond to organized retailing in India and accordingly there are no reportable segments.

3. Contingent Liabilities not provided for

(a) Sales tax demands under appeal Rs.3,903 thousands (Rs.5,068 thousands)

(b) Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for Rs.209,064 thousands (Rs.53,939 thousands).

4. Employee Stock Option Plan

The Company has provided equity settled ESOP to its employees vesting over a period of 5 years in equal installments linked to performance rating of respective employees. During the year ended March 2007, the following scheme is in operation which was approved by the Board of Directors in their meeting dated 27th May, 2005 and by the shareholders of the Company in the Extraordinary General Meeting dated 29th June, 2005:

2006-2007 2005-2006

Number of Exercise price Number of Exercise price shares (Rs.) shares (Rs.)

Outstanding at the beginning of the year . 411,000 44 —— Granted during the year ...... 298,000 200 411,000 44 124,000 44 — — Forfeited/cancelled during the year ..... 117,130 44 —— Options vested during the year ...... 39,870 44 —— Options outstanding at the end of the year — out of last year grant ...... 254,000 44 —— — out of current year grant ...... 298,000 200 411,000 44 124,000 44 —— Weighted average remaining contractual 4.7 5 life (in years) ......

The weighted average fair value of the options granted is Rs.165 (Rs.150). The Company is unlisted and the fair value of the shares is based on the fair valuation obtained by the management.

An expense of Rs.8,581 thousands (including Rs.2,605 thousands pertaining to previous year), has been charged to the Profit and Loss account.

5. Subsequent Events

On 27th August 2007, there was a fire in the Pune Regional office and Distribution Centre of the Company, destroying the entire fixed assets and inventories lying therein amounting to Rs.4,812 thousands and Rs.6,600 thousands respectively. An Insurance claim for the above loss has already been lodged by the company which is pending settlement. The books of accounts and records maintained at the above office also got destroyed in the fire and thus, original supporting documents were not available for audit. However, the trial balance for the said office being available in the system was taken out and produced to the auditors for verification. The quantum of net current assets, turnover and loss before tax for the said office relating to the year ended on 31st March 2007 amounted to Rs.2,039 thousands, Rs.282,163 thousands and Rs.19,740 thousands respectively. The financial effect of this event mainly in relation to loss of fixed assets and inventories, has not been considered in these financial statements since it did not represent a condition existing at the Balance Sheet date.

F-60 6. (a) Expenditure in foreign currency

2006-07 2005-06

(Rs. 000’s) (Rs. 000’s)

CIF Value of Imports (Capital goods) ...... 1,587 4,587 Professional Services ...... 4,463 — Relocation expenses ...... 515 — Traveling Expenses ...... — 255

6,565 4,842

6. (b) Earnings in foreign currency ...... — 1,290

7. The Company is in organized retailing dealing in a number of items and also renders certain service activities. The following particulars are given in respect of gross turnover only:

Value

2006-07 2005-06

(Rs. 000’s)

Food ...... 2,465,315 1,418,186 Non food ...... 2,746,231 1,380,742

5,211,546 2,798,928

8. The Company has obtained exemption from complying with the disclosure requirements in respect of quantitative details under Para 3(i) (a) and 3(ii)(b) of Part II of Schedule VI to the Companies Act, 1956 vide letter dated 17th August, 2007 ref no.46/144/2007-CL-III from the Department of Company Affairs, Government of India and accordingly no disclosures are made.

9. As per the information available with the company and certified by the Management, the following are the SSI Creditors viz., Asawa Non-woven Pvt Limited, Add Corporation Limited, Goldstar Glassware Pvt Limited, Gala Tablewares Pvt Limited, Infinum Retail Marketing Pvt Limited, M A Enterprises, Pleasantime Products, Zonac Knitting Machines Private Limited, Sunshine INC to whom dues are outstanding beyond 30 days as at 31st March 2007.

10. The following units of mutual funds (Cost aggregating to Rs.1,060,500 thousands) were bought and sold/ redeemed during the year:

Name of the Mutual Fund Units Amount

(000’s) (000’s)

HDFC Cash Management Fund ...... 13,162 140,000 DSP ML Liquid Fund ...... 5,495 55,000 Standard Chartered Liquidity Manager Plus ...... 820 865,500

F-61 11. Leases

(a) Operating Lease:

Retail Stores are taken by the company generally on operating lease and the lease rent is payable as per the agreements entered with the lessors. Agreements are both in the nature of Cancellable and Non Cancellable leases. The lease term is for varied years and renewable for further years as per the agreements at the option of the Company. There are no restrictions imposed by these lease arrangements. There are no subleases. The details of lease rentals payable are given below:

Operating Leases

2006-07 2005-06

(000’s) (000’s)

Lease payments for the year ...... 299,816 122,156

Minimum Lease Payments: Not later than one year ...... 230,975 82,080 Later than one year but not later than five years ...... 871,971 332,979 Later than five years ...... 1,882,678 589,100

(b) Rent and Hire Charges, as indicated in Schedule P includes Rs. 53,137 thousands being the lease rent, payable by the company in future years, but accounted for during the year as lease equalization in terms of a recent opinion of the Expert Advisory Committee of The Institute of Chartered Accountants of India (ICAI) and Accounting Standard - 19 on “Leases”, which requires lease rental to be charged by the company on a straight-line basis over the lease term. Had such lease rental payable in future years not accounted for, the loss before tax for the year would have been Rs.462,823 thousands.

12. Related Party Transactions:

(a) Names of related parties where control exists

Holding Company* Spencer and Company Limited Rainbow Investments Limited Pathik Foods Private Limited Subsidiary Company RPG Cellucom India Private Limited Associate Company** Food World Super Markets Limited Music World Entertainment Limited Key Management Personnel (KMP) Manab Chaudhuri (from 01st October, 2006)

* Spencer and Company Limited and Rainbow Investments Limited were Holding Company upto 30th March 2006 and 30th March 2007 respectively.

** Food World Super Markets Limited and Music World Entertainment Limited were Associate Company up to 15th September 2005 and 30th November 2005 respectively.

F-62 (b) Nature of transactions

Holding Company

Spencer & Rainbow Pathik Foods Company Investments Private Associate Limited Limited Limited Subsidiary Companies

(Rs. in 000’s)

Sale of Goods ...... ————— ————(1,307) Purchase of Goods ...... ————— ————(2,629) Rent paid ...... 2925 ———— (1,800) ———— Rent collected ...... ———401 — ————(3,196) Loan given ...... ————— ————(6,750) Issue of Shares ...... ——40,313 —— (29,467) ———— Share Premium ...... ——693,187 — (412,533) ———— Loans taken ...... 85,000 563,500 ——— (98,500) ———— Loans repaid ...... 183,500 563,500 —— ————— Expenses reimbursemets realised . 99,180 —— ————— Equity Investment ...... ———10,020 ————— Purchase of business ...... ————— ————(217,000) Sale of Fixed Assets ...... ———— (77,500) ————

Closing Balance Debit ...... ———28,881 — ————— Credit ...... 820 ——— (98,500) ————

Notes:

(a) No remuneration is being paid to the Key Management Personnel.

(b) Figures in brackets are for previous year.

F-63 13. Earnings per share:

2006-07 2005-06

Profit/(Loss) after tax as per Profit and Loss account (Rs. in thousands) ..... (523,391) (155,404) Number of Equity Shares outstanding (Face value of Rs.10 each) ...... 21,973,223 16,881,254 Earnings per Share (Basic/Diluted) (Rs.) ...... (23.82) (9.21)

14. Deferred Tax Asset amounting to Rs.317,731 thousands is not recognized in these accounts in terms of Accounting policy disclosed vide Note 1(m).

15. With effect from 1st April, 2007, Pathik Foods Pvt Ltd, the holding company, was merged with CESC Limited and, the Company has become a subsidiary of CESC Limited, pursuant to the amalgamation scheme approved by the Hon’ble High Court, Calcutta. The said scheme was filed with the registrar of Companies on 11th October, 2007.

16. The financial statements of Company’s subsidiary, RPG Cellucom India (P) Limited, a start-up company, shows negative net worth as at 31st March 2007. However, based on a valuation report, from a firm of Chartered Accountants, the intrinsic value of shares in the above subsidiary Company is higher than the cost of the investment as appearing in Schedule E. Therefore, no provision is considered necessary towards this investment.

17. The Company has not been informed by any supplier of being covered under Micro, Small and Medium Enterprises Development Act, 2006. As a result, no interest provisions/payments have been made by the company in respect of any credit, if any to such creditors, beyond the stipulated period under the above Act.

18. Previous year’s figures, were audited by another firm of Chartered Accountants, and these have been regrouped where necessary to conform to this year’s classification.

As per our report of even date

For S. R. BATLIBOI & CO. For and on behalf of the Board of Directors of Spencer’s Retail Limited Chartered Accountants per R. K. Agrawal M. Chauduri R. K. Jha S. Mitra Partner Manager Director Director Membership No. 16667

Place: Kolkata Date: 29th October, 2007

F-64 THE COMPANY

CESC Limited CESC House Chowringhee Square Kolkata 700 001 India

JOINT GLOBAL COORDINATORS AND BOOK RUNNING LEAD MANAGERS

CLSA India Limited Citigroup Global Markets Kotak Mahindra Capital 8/F, Dalamal House India Private Limited Company Ltd. Nariman Point 12th Floor, Bakhtawar 3rd Floor, Bakhtawar Mumbai 400 021 Nariman Point 229, Nariman Point India Mumbai 400 021 Mumbai 400 021 India India

LEGAL ADVISORS TO THE LEGAL ADVISORS TO THE LEGAL ADVISORS TO THE COMPANY JOINT GLOBAL JOINT GLOBAL COORDINATORS AND BOOK COORDINATORS AND BOOK as to Indian law RUNNING LEAD MANAGERS RUNNING LEAD MANAGERS

Khaitan & Co. as to Indian law as to United States law Meher Chambers 4th & 5th Floors, RK Marg Talwar Thakore & Associates Linklaters LLP Ballard Estate Hague Building One Silk Street Mumbai 400 038 9 Sprott Road London EC2Y 8HQ India Ballard Estate United Kingdom Mumbai 400 001 India

THE COMPANY’S STATUTORY AUDITORS

Lovelock & Lewes, Chartered Accountants Plot No. Y-14, Block-EP, Sector-V Salt Lake Electronic Complex Bidhan Nagar Kolkata 700 091 India Printed by IFN Financial Press Limited 27823