Cairn is an independent, publicly traded company based in Edinburgh, Scotland and quoted on the London Stock Exchange. The company has built a significant portfolio concentrated on the geographic region of South Asia. Cairn gained a foothold in this region after becoming one of the first foreign companies to operate in Bangladesh, where it discovered the Sangu gas field. As the Indian E&P sector opened up to private investments, Cairn turned its attention to India and acquired production at the Ravva field through the acquisition of Command Petroleum. Cairn then built a portfolio of exploration acreage that has now started to yield significant discoveries.

Cairn is largely owned by institutional investors and no single shareholder holds more than 15% of the company’s shares. As of 14 October 2003, the five largest reported shareholders were the following: Deutsche Asset Management (15%,) Fidelity Investments (13%,) ISIS Asset Management (9%,) Lazard Asset Management (6%) and Legal & General Investment Management (4%.) As a publicly traded company, Cairn regularly issues audited financials and communicates with investors. Cairn achieved revenues of GBP110 million ($177 million), EBITDA of GBP74 million ($119 million) and non-adjusted net income of GBP26 million ($43 million) in 2002.

Cairn will put in place revolving unsecured credit facilities with commercial banks and IFC. IFC’s $40 million financing will be a seven year facility versus the one to three year tenors offered by commercial banks.

40.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	40.0
Equity

* These investment figures are indicative

Cairn is an oil and gas company based in Edinburgh, Scotland whose operations are focused in South Asia. In addition to its headquarters in Edinburgh, Scotland, Cairn maintains offices in New Delhi and Chennai, India, and in Dhaka, Bangladesh, as well as project offices at its exploration and production sites. Cairn operations in South Asia include:

Ravva, Andhra Pradesh – Ravva field - offshore shallow water natural gas and oil production & onshore treatment facilities
- KG-OS/6 & KG-DWN-98/2, Andhra Pradesh – offshore deep water natural gas and oil exploration
- CB/OS-2, Gujarat – Lakshmi field - offshore shallow water gas production and oil exploration & onshore treatment facilities. Gauri field - offshore shallow water gas development & oil exploration
- RJ-ON-90/1, Rajasthan – onshore oil and gas exploration

Cairn is the operator of all of the above.

Cairn also has an interest in the Sangu Field in Bangladesh. Cairn announced on 15th September 2003 that it had signed an Asset Purchase Agreement to acquire Shell’s interests in the Sangu Field and exploration blocks 5 and 10, with an economic effective date of 1 July 2003. Subject to Bangladesh Government approval, Cairn will also assume the operatorship of the Sangu Field.

This corporate loan facility is a category B project according to IFC’s environment and social review procedure. In general, the focus of IFC’s environmental and social due diligence for corporate facilities such as this is to assess the capacity of the corporate sponsor to identify, assess, and manage environmental and social issues in compliance with IFC’s requirements. In that regard, the environmental and social issues associated with this project and reviewed by IFC’s environmental specialist include the following:

- Corporate environmental, health, and social management system. Cairn has a corporate environmental, health, and social management system (EMS) which has the full support of management in place.

- Compliance with applicable World Bank Group (WBG) and national standards. The EMS ensures compliance, in Cairn’s ongoing operations in South Asia, with applicable World Bank Group and national environmental and social standards, including IFC’s environmental and social safeguard policies.

- New activities. The EMS has the capacity to identify and manage potential environmental, health and social impacts that may result from new operations and manage such impacts in accordance with applicable WBG and national environmental and social requirements.

The proposed project will meet the applicable World Bank/IFC environment and social policies and the environmental, health and safety guidelines.

IFC will evaluate the project''s compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing the annual monitoring reports (AMRs) prepared for the project covering ongoing performance of project-specific environmental, health and safety and social activities. Periodic site supervision visits may also be conducted.
Location of environmental documents In locally affected community
Copies of a Environmental Review Summary (ERS) report will be made available in the following offices and languages:

Jodhpur in Rajasthani
Cairn Energy (I) Pty Ltd.
12 Bhanwari House, Old Residency Road,
Opp. Dist Collector’s Bungalow
Ratnada,
Jhodpur 342 001

Delhi in Hindi / English
Cairn Energy (I) Pty Ltd.
No.3, Rajdoot Marg,
Chanakyapuri,
New Delhi 110 021

Surat in Gujurati
Cairn Energy (I) Pty Ltd.
First Floor, Ess Enn House,
Ghod Dod Road,
Surat 395 007

Chennai in Tamil / English
Cairn Energy (I) Pty Ltd.
No. 90, Annasalai,
II Floor, Wellington Plaza,
Mount Road
Chennai 600 002

Rajahmundry in Telegu
Cairn Energy (I) Pty Ltd.
No. 3 & 4, Mounika Towers,
Behind Petrol Pump,
Innispet,
Rajahmundry 533 101

Development Impact

- Promoting development of domestic oil and gas resources:

Cairn’s operations will contribute to developing India''s scarce domestic gas reserves, as well as Bangladesh’s domestic gas market. India is the world''s sixth largest energy consumer, but is strongly deficit in oil and gas. In the case of Bangladesh, demand for gas in the domestic market continues to grow and Cairn is supporting this demand.

- Enhancing availability of higher quality fuel:

India''s power sector is strongly dependent on more expensive naphtha supplies or relatively inferior coal brought from India''s central and eastern states. Cairn’s activities strengthen the availability of locally produced fuel sources for power generation and for small industry. Increasing availability of fuel sources, especially gas, offers advantages of promoting use of a more clean and convenient fuel.

- Promoting private sector participation in India:

Since the mid nineties, India has implemented policy changes to encourage private and foreign investment in its E&P sector. Although success remains modest, a number of quality foreign companies such as Cairn have successfully entered the sector and seek to grow their operations. IFC''s investment will help support growing foreign investment and private sector role in the upstream India’s hydrocarbons sector.

Dedicated foreign investment in Bangladesh:

Lack of an export market for gas in Bangladesh has led many foreign investors to cease investment in the country. Cairn remains dedicated to Bangladesh, focusing on the development of the country’s domestic market, through its interest in the producing Sangu gas field and other exploration blocks.

Direct economic benefits:

The governments of India and Bangladesh will receive payments from royalties, production sharing and corporate taxes.

IFC Role

IFC will support the development of a dynamic oil and gas company with a strong focus in India’s liberalizing E&P sector and on Bangladesh, where appropriate harnessing of its gas resources could make a significant impact on economic development. IFC plays a number of important roles in this investment:
- Firstly, IFC will provide longer term financing to Cairn than is available from the market.

- Secondly, IFC’s financing gives comfort on political risk issues as the company becomes more a long-term investor in India and Bangladesh, again because of its transition to a developer and producer of oil and gas (rather than only exploration). International E&P companies have faced difficulties in Bangladesh and Cairn hopes to benefit from the WB Groups broader dialogue with the country on the energy sector.

- Thirdly, IFC has conducted a full-fledged audit of the standards and capacity of Cairn in the area of environment and social impact of its operations. If necessary, IFC will work with Cairn to upgrade its environmental standards and capacity.

- Finally, given the fact that Cairn’s major assets are gas reserves, IFC will support the development of gas as a clean and competitive fuel.