ESSAR POWER GUJARAT LIMITED

Essar Power Gujarat Limited (EPGL) is a 100% subsidiary of Essar Power Limited (EPL) which proposes to set up a 1,200 MW, imported coal based power plant in Gujarat. The Essar group incorporated EPGL on April 5, 2007 to exploit emerging opportunities in the Indian power sector. EPGL is presently implementing a coal fired power plant of 1,200 MW (2x600 MW) at Khajurda village at Khambalia taluka in Jamnagar district of Gujarat. The company proposes to implement the project on turnkey EPC contract basis comprising separate Offshore and On-shore EPC contracts. Essar Power Limited, its parent company had, on February 26, 2007, signed a 25 year Power Purchase Agreement (PPA) with Gujarat Urja Vikas Nigam Limited (GUVNL) for sale of 1,000 MW power (on net basis) from the proposed plant. The remaining power will be sold outside Gujarat on merchant basis. EPGL is currently managed by a Board comprising Mr. A.K Srivastava, Mr. B.C.P. Singh and Mr. V.G.Raghavan.

Project Overview
As already mentioned, the company proposes to set up a 1,200 MW, imported coal fired power plant near Khajurda village in Jamnagar District of Gujarat. The plant proposed to supply a major part of its production (net 1000 MW) to GUVNL under a PPA for a period of 25 years from COD. The configuration of the plant would be 2 units of 600 MW each. The power plant will be of sub-critical steam parameters. The power plant will be based on imported coal. The coal imported from Indonesia/ South Africa will be unloaded at Essar Bulk Terminal Salaya Ltd. (EBTSL) and brought to the plant site through conveyer belt. The company has already entered into a contract for handling the coal with EBTSL and fuel supply & affreightment contract with the Essar Shipping and Logistics Ltd (ESLL) for supply of up to 4 million tonne of coal per annum. ESLL has in turn received offers for long term coal supply from the coal suppliers in Indonesia and South Africa. ESLL would be responsible for the entire activities involved in supply of coal to the plant including procurement, shipping, unloading at ports and transportation by conveyer belt to the plant stockyard. The proposed project site is well connected by air, rail, road and sea. Jamnagar city, the nearest airport, is about 45 kms. from project site, Khambalia, the nearest railway station, is about 12 kms. from the site, the state highway passes close to the boundary of the proposed site and sea coast is about 8 kms. from the proposed project site. The plant would require about 7,500 m3 of water per hour. Entire water requirement of the plant including cooling and steam generation is proposed to be met from sea water. EPGL proposes to set up a desalination plant and DM plant of adequate capacity to meet the water requirement. TCE Consulting Engineers Limited (TCE) had prepared the Detailed Project Report (DPR) for the Project. The unit I of the project is expected to be implemented in 48 months from the date of signing of the PPA, while unit II will be ready in 54 months. The Delivery Point shall be the point of delivery for fulfilling the obligation of the Seller to deliver the contracted electrical output/energy to Procurer; i.e. Salaya Thermal Power Project bus bar at 400 KV voltage level at Khajurada, Taluka: Khambaliya, District: Jamnagar, Gujarat.

POWER PURCHASE AGREEMENT

INTRODUCTION The parties to the PPA include: 1. 2. as electricity Procurers: GUJRAT URJA VIKAS NIGAM LIMITED as electricity Sellers: M/S ESSAR POWER GUJRAT LIMITED

The PPA provide the terms under which electricity is sold, such as the quantity(1000MW) and the methodology based on competitive tariff based bidding guidelines provided by Ministry of Power to determine price of power. The PPA also defines the penalties that apply to a Seller for failure to deliver the amount of power documented in the PPA and to a Procurer for failure to pay for the power delivered.

I.

Background
A. Definitions

Capitalized terms used have the meanings provided in the Article 1of the POWER PURCHASE AGREEMENT.

B. Parties to the Power [Gujrat Urja Vikas Limited, a Company incorporated under

Purchase Agreement the Companies Act, 1956 having its registered office at Sardar (the PPA): Patel Vidyut Bhawan, Race Course Circle, Vadodra-39007], as Procurer of electricity Services (the "Procurer"); and [Essar Power Gujrat Limited, a Company incorporated under the Companies Act 1956 having its registered office at Essar House, 11 Keshavarao Khadye Marg, Mahalaxmi, Mumbai], as a supplier of electricity (the "Seller" and, together with the Procurer, the Parties).

C.

Term of the PPA:

The term of PPA will be from the Effective Date to Expiry Date (i.e. 26-02-2007 to 25th anniversary of the commercial operation date) unless mutually extended by the Parties on mutually agreed terms and conditions, atleast 180 days prior to the expiry date.

II. Conditions subsequent to

be satisfied by the Seller and the Procurer

A.

Bank Performance Guarantee :

The Seller have to provide the Performance Guarantee to the Procurer of an aggregreate amount equivalent to Rupees 7.5 lakhs per each MW of the Contracted Capacity which will be valid for 3 months after the actual COD of the Contracted Capacity. The Bank Performance Guarantee can be reduced by 2.5 lakhs per each MW of the Contracted Capacity on due fulfillment by the Seller of all conditions mentioned below within 12 months from Effective Date and investment by the Seller of at least 25% of the total equity required for the project.

B.

Conditions Precedent:

i) The Seller shall have received the Initial Consents (Land Allotment Certificate, Forest & Environmental Clearances, Water Availability Certificate, Chimney Height Clearance) ii) The Seller shall have executed Fuel Supply Agreement iii) The Seller shall awarded the EPC Contract or the BTG contract for the project. iv) The Seller shall have achieved Financial Closure in case the Project is proposed to be developed on the books. v) The Seller shall have sent a written notice to the Procurer indicating that the ScheduledCOD shall be as per the original ScheduledCOD i.e.48 months and 54 months for the Ist and 2nd Unit respectively from the Effective Date.

Subject to terms and conditions of this agreement, the Seller undertakes to be responsible, at Sellers own cost and risk to Subject to terms and conditions of this Agreement, the build own and operate the project including procurement of the Procurer is responsible for procuring the Interconnection and requirements of electricity at the project for construction Transmission Facilities including the payment of Transmission commissioning and start up power. and SLDC charges beyond delivery point.

A. Power Quantities:

The Seller undertakes to sell to the Procurer, and the Procurer undertakes to pay the Tariff for all of the available capacity up to the Contracted Capacity and Scheduled Energy up to the Contracted Capacity. If the Procurer does not avail of power up to the Available Capacity, then the Seller shall be entitled to sell such Available Capacity without losing the right to receive the Capacity Charges. When the Procurer is not availing the Available Capacity and therefore sold to the third party and now the Procurer is willing to avail that Capacity than the Seller has to provide that within two hours.

B. Power Pricing:

The tariff shall be paid in two parts comprising of Capacity and Energy Charge. The full Capacity Charge shall be payable based on the Contracted Capacity at Normative Availability and the incentive shall be for availability beyond 85% and Energy Charge is payed for Scheduled Energy only.

C. Payments: (1)

Invoices:

The Seller shall render invoices to the Procurer, with a copy to the Account Bank, on the 2nd business day of each month for the amounts due with respect to the prior month and that shall include Availability and Energy account for the relevant month and supporting data, documents and calculations in accordance with the agreement. The Procurer shall pay the amount payable under Monthly Bill on the due date to such account of the Seller. In the event of delay in payment of a monthly bill by the Procurer beyond 30 days from Due Date, a late payment surcharge shall be payable by the Procurer to the Seller at the rate of 2% in excess of the applicable SBAR per annum. If the Procurer disputes an invoice submitted by the Seller, the Procurer shall give notice in writing within 90 days from the date of receipt of the invoice stating the grounds for the dispute and the amount in dispute. The Procurer shall pay the 15% of the disputed amount initially. If the invoicing party agrees to claim rose in the Bill Dispute Notice, the invoicing party shall

(2)

Payments:

revise such bill within 7 days of receiving such notice and the excess payment (if any) shall be returned within 15 days. If the invoicing party does not agree to the claim, it shall within 15 days furnish a notice to the disputing party providing the reasons and written materials in support of its counter claim. If, within [15] days following the date of such dispute notice, the amount due cannot be agreed by consultation between the Seller and the Procurer, then the matter shall be referred to appropriate commission.
D. Transmission

Arrangements

Sellers obligation will be to deliver contracted power to the Salaya Thermal Power Project bus bar at 400 KV voltage level. All necessary arrangements to receive the contracted capacity from the delivery point and transmission there onwards shall be taken care by procure. Penalty to Procurer: The penalty to the Procurer for not taking the contracted power, or for causing an interruption of transmission of contracted power by failing to pay Transmission Charges, shall be [the contract price] [the fixed cost component of the tariff] per kWh times the kWh of contracted power not taken

E. Liquidated Damages

a) For Not Fulfilling the Initial Conditions:

Penalty to Seller: If any of the conditions specified in II B is not duly fulfilled by the Seller even within 3months after the time specified, then on and from the expiry of such period and until the Seller has satisfied all conditions specified above, the Seller have to give additional weekly Performance Guarantee, a sum equivalent to 0.375 lakhs per MW of Contracted Capacity within two business days, and if the Seller fails to fulfill the conditions for a period of 8 months beyond specified time than the Seller and the Procurer have the right to terminate the agreement. On termination of Agreement the Seller have to pay Rs. 10 lakhs per MW of the Contracted Capacity as Liquidated

b) For Delay in Providing

Contracted Capacity:

damages.

If any Unit does not achieve COD by its scheduled COD, the Seller shall pay to the procurer liquidated damages as per the formula: SLDb = [CCun dn DR1], if dn 60 SLDb = [CCun 60 DR1] + [CCun (dn-60) DR2]; if dn > 60

Where: SLDb are liquidated damages payable by the seller during the period beginning with the day from the scheduled commercial operation date. CCun is the contracted capacity of Unit n d is the no. of days in the period DR1= 10,000 per MW per day DR2 = 15,000 per MW per day COD for Unit I is 26- 02- 2011 COD for Unit II is 26-08-2011

i)

From 26-02 2011 to 27-04-2011

Contracted Capacity of Unit I 10,000 Rs/ MW/day = 500 MW 10,000 Rs/MW/day = 50,00,000 Rs per day

ii)

From 28-04-2011 to 24-08-2011

500MW 15,000 Rs/MW/day = 75,00,000 Rs per day

iii)

From 25-08-2011 to 25-10-2011

500MW15,000Rs/MW/day+500MW10,000Rs/MW/day = 1,25,00,000 Rs per day

iv)

From 26-10-2011 to 25-02-2012

500MW15,000Rs/MW/day+500MW15,000 Rs/MW/day = 1,50,00,000 Rs per day

v)

After 25-02-2012

Agreement will be terminated and on termination Seller have to give liquidated damage of 10,00,000 per MW that will sum up to 100 crores.

c) Derating:

If a Units current tested capacity as established by the Repeat performance test and the final test certificate issued by the independent engineer, is less than Rated capacity of the unit as existing on effective Date , the unit shall be derated and the contracted capacity shall be reduced in proportion to the rated capacity and Quoted capacity Charges shall be paid with respect to such reduced capacity and further the quoted nonescalable Capacity Charge shall be reduced by: Rs.0.25/kwh[1-{( reduced Contracted Capacity + Contracted Capacity at the Effective Date of all units not commissioned)/Contracted Capacity at the effective date of all units}]

d) On Failing of Giving Procurers Proportionate Right:

In case the Seller fails to establish Procurers right, the seller shall be liable to penalized. Such penalty shall be 1.5 times the difference between highest energy charges for industrial consumer in Gujarat and energy charges quoted by the seller for each unit of energy.

e) For availability below 75% In case the Availability for a contract year is less than 75%, the seller shall pay a penalty at the rate of 20% of the simple average capacity charge(in Rs/kwh) for all months in the contract year applied on the energy (in kwh) corresponding to the difference between 75% and Availability during such contract year. Variation between Scheduled Energy and Actual Energy at the Delivery Point shall be accounted through UI charges as detailed in Grid Code and ABT. F) Force Majeure:

f) Deviation from the schedule

Notwithstanding anything in the PPA to the contrary, neither Party shall be considered to be in default or breach of the PPA or liable in damages or otherwise responsible to the other Party for any delay in or failure to carry out any of its obligations under the PPA (other than payment obligations) if, and only to the extent that, it is unable to perform or is prevented from performing by an event of Force Majeure and notifies the other Party in writing within [7] days of the occurrence of the event of Force Majeure. A Force Majeure exemption from liability will extend for the period of time necessitated by such event of Force Majeure. Such event of Force Majeure will not relieve either Party of its obligation to make payments due hereunder. Neither Party can claim an excuse for failure to perform due to Force Majeure for the actions (including change in law) or inaction of its own government, but can do so for the actions or inaction of any other government involved directly or indirectly in the overall transaction (including transmission). The

inability of the Purchaser to utilize energy as a result of Force Majeure will not excuse payment, but the Seller will be under an obligation to mitigate its losses by selling to third parties on a spot basis. The inability of the Seller to provide the energy specified under the PPA due to Force Majeure will not excuse the Seller from reimbursing the Purchaser for Transmission Charges attributable to the period during which energy was not available.

G) Language:

The language for contract administration shall be English unless mutually agreed by the Parties.

V. Operation and

Maintenance A.) Scheduled Outages: The Seller shall always plan to take Scheduled Outages only during the months of July, August and September. Further, without the prior consent of the Procurer, the Seller shall not take Scheduled Outages for all the units of a power station at the same time: provided that, a Maintenancenotice of notshall Whenever the Seller needs after giving a Outage it less than 2 years, Procurer in shall have the rightthe replace the advise the the Procurer accordance with to Operating above months with nature of three months. be carried out, the procedures of the any other the work to estimated time required to complete it and the latest time by which in the Sellers opinion the work should begin consistent with Prudent Utility Practices. The rights under the PPA shall not be assignable or transferable nor the duties delegable by either Party without the prior written consent of the other Party, which consent may be granted or withheld in such other Party's sole discretion. Neither Party may terminate the PPA prior to the Termination Date under the Agreement, provided that, upon the occurrence and continuance of an event of Force Majeure that continuously precludes provision of Transmission Services for one year, then the PPA may be terminated by the Seller or the Purchaser (provided that the terminating party is not responsible for creating or permitting the applicable Force In the event that the Seller is that will be perceived as seller Majeure. The list of events prevented from performing its obligations underand can cause the termination are, theto any event of default III A. by the stipulated date due failure Procurer event of default by because of Force Majeure Events to commission any Unit or the date falling 12 months after its then the Scheduled Commercial Operation the units tested scheduled commercial operation date or Date, Schedule Connection Date than 92% during its retest and remains for capacity is less and Expiry Date shall be deferred for a reasonable periodor the less thanfails for day basis.Average three months but not seller day to achieve availability of 65% for a period of consecutive 12 months or

B.) Maintenance Outage:

VI. Transfer of Interests:

VII. Termination:

VIII.

Extension of Time: Either party is entitled to raise any dispute, out of or in connection with this agreement including its existence or validity of termination by giving a written notice to the other party containing the description and grounds of dispute with all written material in support of its claim. Dispute shall be settled within 30 days of issue of notice by any party with the reference of Appropriate Commission.

IX. Dispute Resolution: