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Arab Petroleum Investments Corporation Annual Report 2004

APICORP

ARAB PETROLEUM INVESTMENTS CORPORATION

P. O. Box 9599, Dammam 31423, Saudi ArabiaTel: 966 3 847 0444 Fax: 966 3 847 0011 / 966 3 847 0022Telex: 870068 APIC SJ

E-mail: [email protected]:www.apicorp-arabia.com

ContentsAPICORP’S Shareholders 02

APICORP’S Objectives 03

Financial Summary 2000-2004 03

Board of Directors 04Executive Management 05Chairman’s Statement 06World and Arab Economic Review in 2004 09

Board of Directors’ Report APICORP Activities in 2004Project and Trade Finance 13Direct Equity Investments 17Treasury Activities 22

2004 Financial StatementsIntroduction 25Accounting Policies applied in the financial statements 26Income Statement 31Balance Sheet 32Changes in Shareholder’s Equity 33Cash Flows 35Notes to the Financial Statements 36Auditors’ Report to the Shareholders 60

Arab Petroleum Investments Corporation (APICORP)

is an inter Arab joint stock company established on

23 November 1975 in accordance with an international

agreement signed and ratified by the governments of

ten member states of the Organisation of Arab

Petroleum Exporting Countries (OAPEC)

APICORP: The Pioneer FinancialInstitution of the Arab Oil andGas Industry

APICORP

United Arab Emirates 17%Bahrain 3%Algeria 5%Saudi Arabia 17%Syria 3%Iraq 10%Qatar 10%Kuwait 17%Libya 15%Egypt 3%

APICORP’S Shareholders

APICORP is wholly owned by the member states of the Organisationof Arab Petroleum Exporting Countries (OAPEC) as listed below:

The Corporation is independent, both in its management and in the performance of its activities. APICORP conducts itsoperations on a commercial basis, in a business-like manner and with the intention of making a profit.

The prime objective of APICORP is to participate in the equity,as well as the debt financing, of projects in the petroleum industryat large. These include all businesses which are based on thedevelopment, processing or transportation of the products of the oil and gas industry and its downstream derivatives.The Corporation gives priority to joint Arab ventures which serve the regional Arab Corporation market.

APICORP’S OBJECTIVES & FINANCIAL SUMMARY ARAB PETROLEUM INVESTMENTS CORPORATION 03

The Corporation may undertake all operations required for thefulfilment of its objectives, in particular :

1. initiate, study and promote petroleum, and petroleum relatedprojects, and participate in their equity financing;

2. extend or guarantee medium and long-term loans to financeprojects in the petroleum industry;

3. participate in the short-term financing of the international tradein Arab petroleum, gas and petrochemicals;

4. underwrite, purchase and sell the shares (and equity capital) of companies in the petroleum industry; and

5. issue its own bonds and borrow from Arab and internationalfinancial markets.

Financial Summary 2000-2004

APICORP’S Objectives

2000

2001

2002

2003

2004

500,000

1,000,000

1,500,000

2,000,000

2,500,000

0

Total Assets US$ 000

2000

2001

2002

2003

2004

10,000

20,000

30,000

40,000

0

50,000

Shareholder's Equity US$ 000

2000

2001

2002

2003

2004

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

0

Net Income US$ 000

Board of Directors

04 ARAB PETROLEUM INVESTMENTS CORPORATION BOARD OF DIRECTORS

Members of the Board

Chairman of the Board of DirectorsAbdullah A. Al-Zaid

For the Kingdom of Saudi Arabia

Deputy Chairman of the Board of DirectorsMohammed A. Dahmani For the Socialist People’s Libyan Arab Jamahiriya

Naser Mohamed Al-SharhanFor the United Arab Emirates(Member of the Audit Committee)

Dr. Radhwan H. HasanFor the Republic of Iraq

Ibrahim A. Al-MannaieFor the State of Qatar

Abbas Ali NaqiFor the State of Kuwait(Chairman of the Audit Committee)

H.E. Eng. Sameh FahmiFor the Arab Republic of Egypt

Mahmood Hashim Al-KoohejiFor the Kingdom of Bahrain(Member of the Audit Committee)

Fareed BakaFor the Democratic and Popular Republic of Algeria

H.E. Dr. Ibrahim HadadFor the Syrian Arab Republic

Projects DepartmentDr. Abdulla Ali Al-IbrahimSenior Manager

Talal KhalilBusiness Development ManagerNorth Africa and the Mediterranean Business Group

Dr. Abdul-Aziz Al-IdiBusiness Development ManagerGCC Business Group

Dr. Mohamed Abdul-JabbarSenior Economist

Project and Trade Finance DepartmentNicolas ThevenotSenior Manager

Bassam Al-TamimiManager, North Africa and theMediterranean Business Group

Haitham A. MalaikahManager, GCC Business Group

Ali AissaouiSenior Research Officer

Kamel Ali Bu-KhamsinFinance Trade Officer

Sami R. Al-SunaidProject Finance Officer

Rajesh RamanathanProject Finance Officer

Treasury and CapitalMarkets DepartmentDino Roy MorettoSenior Manager

Hesham FaridPortfolio Manager

Faiq HussainTreasury Officer - Money Markets

Ravi KumarAssistant Portfolio Manager

Investment andPlacementFaysal Essam HamzaSenior Manager

Financial ControlDepartmentOmar Al OmarSenior Manager

Aymen F. ZeyadaOperations Manager

Faisal Abbas FadlAccounting and Reports Manager

Legal DepartmentDr. Mohamed Nur El-Din El-TahirGeneral Counsel and Secretary of the Board of Directors

Ali Hassan FadelLegal Counsel

Administration andHuman ResourcesDepartmentAbdulla A. Al-NashwanSenior Manager

Mahdi Al-MahdiHead of Public Affairs

Information SystemsDepartmentGalal OsmanSenior Manager

Mohamed L. El-KhoulyAssistant Manager, Fin.Apps. Group

Internal AuditAbdul-Aziz Habib Al-MatarHead of Internal Audit

Ahmad Bin Hamad Al-Nuaimi*Chief Executive and General Manager

Executive Management

EXECUTIVE MANAGEMENT ARAB PETROLEUM INVESTMENTS CORPORATION 05

* Mr. Rasheed Al-MarajUp to April 6, 2005

Financial ResultsAPICORP’s operations in the year 2004 achieved a net profit ofUS$38.85 million, compared with US$33.52 million in 2003, 16%increase, while total assets rose to US$2,121 million at the end of 2004, compared to US2,088 million in 2003.Total shareholder’sequity rose to US$744 million at the end of 2004 from US$707million in 2003.

Project FinanceDuring the year 2004, APICORP participated in arranging of loanfinancings to the total value of US$9.1 billion, with a final take ofUS$482 million, compared to US$6.2 billion and a final take of US$435 million in 2003.The net loan portfolio, including undrawncommitments, rose to US$1,629 million, compared to US$1,597million in 2003. Income from loan financing was US$19.4 million,compared to US$16.0 million in 2003, approximately 35% of thetotal income of the Corporation.

Our loan portfolio during 2004 was diversified across varioussectors of the oil and gas industry.The loans extended last yearwere utilised to finance the establishment of new projects, supportoperational or expansion activities of existing projects, or to acquireequity shares in the capital of companies involved in the oil and gassector.

APICORP’s support of Arab oil exports continued in 2004 throughthe participation in trade finance transactions amounting to US$792million, with a final take of US$60 million.

Direct Equity InvestmentsWorld economic recovery, together with the rise of energy prices have positively impacted the performance of the companies inwhich APICORP holds an equity interest leading to an increase inthe total fair value of the Corporation’s holdings in these projectsby about 12.1% or US$208 million in 2004.

The growth in world demand for oil, resulting from the recovery of the world economy, together with the improved competitiveadvantage of the Arab oil and gas industries - as an outcome of theworld’s commodities price increase have had a remarkable impacton the US$10.7 million dividend achieved by APICORP’s directequity investments portfolio in 2004, a 27.7% increase over 2003.

Chairman’s Statement

It is my pleasure to present to you, on behalf of the Board of Directors of Arab Petroleum Investments Corporation (APICORP),the twenty-ninth Annual Report on the Corporation’s activities and its financial results for the year ended 31 December 2004.

06 ARAB PETROLEUM INVESTMENTS CORPORATION CHAIRMAN’S STATEMENT

High energy prices have slowed down the development of theintensive energy-consuming projects highly dependent on oil and gas products outside the Arab region.This helped the opening up of more opportunities for the expansion of the existing industries,as well as the setting up of new projects in the Arab region.

Outlook for the FutureThe structural changes witnessed in the world’s energy market over the past few years have stimulated a strong appetite byinvestors towards the hydrocarbon projects planned for the Arabregion. APICORP is closely monitoring these developments and thefeasibility of taking an equity share in the capital of those projects.This goes in line with APICORP’s investment strategy that aims at doubling the net-worth of direct equity investments within the coming three years, while giving consideration to productsdiversification within the approved investment criteria of theCorporation. Complementary to this ambitious plan is APICORP’scommitment to establish an investment fund focusing on energyprojects and related oil and gas industries.

On the project finance front, APICORP is planning to takeadvantage of this positive environment to maintain its effectiveparticipation by playing a leading role in arranging the necessaryfinancing for the expansion and development of projects in the oil, gas, petrochemical and other related industries in the region.

Dividend PayableIn accordance with the Statute of the Corporation, 10% of the net profit was transferred to the Legal Reserve.The Board ofDirectors recommends the distribution of US$20 million as cash dividends to the shareholders for the year 2004.

The General ManagerOn the occasion of the appointment of Mr. Ahmad Bin Hamad Al-Nuaimi as General Manager of APICORP as from 6th April 2005, to succeed Mr. Rasheed Mohamed Al-Maraj, who has beenappointed as Governor of the Bahrain Monetary Agency (BMA),I would like, on behalf of members of the Board of Directors toexpress our sincere thanks and appreciations to Mr. Al-Maraj for his outstanding efforts and contribution that marked his term ofoffice at APICORP, which commenced in April 1999, and wish Mr. Al-Maraj all the success in his new assignment.

ARAB PETROLEUM INVESTMENTS CORPORATION 07

08 ARAB PETROLEUM INVESTMENTS CORPORATION CHAIRMAN’S STATEMENT

Mr. Al-Nuaimi is not new to APICORP; he represented the State of Qatar on APICORP’s Board of Directors from 1992 to 2004 and is a member of the Audit Committee. Mr. Al-Nuaimi hadassumed a number of senior positions at the Islamic DevelopmentBank – he was an Executive Director for the periods from February 1988 to August 1991 and from May 1994 to May 1997.Mr. Al-Nuaimi was also a member of the Finance Committee, theOperations Committee, the Executive Committee of the IslamicBanks Portfolio. He was also a member of the Executive Committeeof the Investment Trust Funds. Mr. Al-Nuaimi had taken a numberof senior positions at the Ministry of Finance in the State of Qatar,most recently, he was the Economic Advisor to the SupremeCouncil for Economic Affairs and Investments at the State of Qatar.

A Note of ThanksThe Board of Directors would like to seize this opportunity to express their thanks, gratitude and appreciation to local, regional and international banks and financial institutions for their continuedsupport, and close cooperation with APICORP since the early years of its establishment. No doubt, their support was crucial to APICORP’s success and achievement of its objectives to play a leading role in the financing of oil and gas industries throughoutthe Arab region.

On behalf of the Board of Directors, I wish to register our sincerethanks and appreciation to the management and staff of APICORPfor their efforts, and perseverance, which contributed to the strong results achieved by the Corporation in 2004. I am alsopleased to take this opportunity to express our sincere appreciationto the Governments of the Member States, for their continuedsupport and fruitful cooperation with the management of APICORP.Also, I am honoured, to extend our gratitude to the Government of the Custodian of the Two Holy Mosques, the Kingdom of Saudi Arabia, the host country, for the special attention received by the Corporation.

Abdullah A. Al-ZaidChairman of the Board of Directors

World EconomyThe world economy achieved a remarkable growth during 2004,in spite of the tensions experienced by developed economies due to the unprecedented rise in oil prices. The USA, China, and Indiawere engines of the world economy in 2004, notwithstanding themeasures taken by those nations to prevent their economies fromoverheating.

The OECD countries were estimated to have achieved a growthrate of around 3.6% in 2004, compared to 2.2% in 2003. In 2004,China maintained its impressive economic performance andcontinued to grow at around 9%.

Robust economic growth in both Asia and America has had positiveimpacts on the oil market in 2004 when world oil demand grew by 3.4%, compared to 2.4% and 0.8% in 2003 and 2002 respectively.In addition, hurricanes that hit Gulf coast of the United States, andcaused a sharp decline in US output, tightened global oil marketeven further and pushed prices much higher. In 2004, price of Brentcrude rose by 33.3% (year-over-year) to around US$38/bbl, and WTIprice averaged US$41.5/bbl, an increase of 33.9% over 2003.

WORLD AND ARAB ECONOMIC REVIEW IN 2004 ARAB PETROLEUM INVESTMENTS CORPORATION 09

World and Arab Economic Review in 2004

The Arab EconomiesRobust global oil demand in 2004 and the resulting increase in OPEC output reflected positively on the real growth of Arabeconomies. OPEC production (excluding Iraq) rose by around 5% above its 2003 average, while Iraq oil output enjoyed a healthyrecovery, rising by about 50% above its 2003 level.

Also, the decline in private capital outflow from Arab world in general and GCC in particular has greatly contributed toeconomic performance of the region. Initial estimates indicate that economic growth in the Arab region achieved a rate of 5.1% in 2004, compared to 4.3% in 2003. In addition, increasedliquidity in the regional markets, which offer limited investmentchannels in productive activities, have pushed up Arab stock markets to record levels during 2004.

These economic developments have taken place with only mildinflationary pressures in the Gulf region. The benefits to the Arabeconomies from these developments would have been greater had it not been for the weakness of the US dollar versus majorcurrencies. Continued weakness of the US dollar over 2004 had negatively impacted the purchasing power of the oil exportrevenues as US dollar exchange rates averaged 9% and 6.4% lower(than in 2003) against the Euro and the Japanese Yen, respectively.

10 ARAB PETROLEUM INVESTMENTS CORPORATION WORLD AND ARAB ECONOMIC REVIEW IN 2004


The Petrochemical IndustriesFundamentals of world petrochemical industry witnessed asignificant improvement in 2004 as a result of global economicrecovery and its positive impact on global demand on one hand,and the slowdown in building new capacities on the other. In 2004,Arab petrochemical and fertilizers industries posted record salesand profit margins, as higher energy prices have further enhancedtheir competitive advantage.

Rising energy prices have slowed further the development of newenergy-intensive production capacities outside the Arab region.That would certainly help to increase the opportunities for boththe expansion of the existing capacities and the establishment ofnew projects in the Arab region. APICORP intends to seize thispositive atmosphere and ascertain its developmental role byincreasing its direct equity investments; and playing leading roles in arranging the necessary financing for the existing industries aswell as the newly developed projects in the oil, gas, petrochemicaland fertilizers industries.To that end, APICORP has already set plans to monitor the progress of more than 30 new projects,whose developments are in advanced stages of planning andimplementation.

12 ARAB PETROLEUM INVESTMENTS CORPORATION WORLD AND ARAB ECONOMIC REVIEW IN 2004

Outlook for 2005Latest OECD’s forecast that the 2005 OECD economic growthrate will be close to 2.9% is certainly reassuring, but fears that high oil prices would negatively impact American consumerspending remain there. Moreover, the US has yet the need tocorrect the budget and trade deficits, but that may lead to a decline in government spending and may further weaken the value of the US dollar. As far as China is concerned, IMF forecasts that the Chinese economy will maintain its robustperformance of around 7.5% in 2005.

As for the Arab economies, their fundamentals have seen aremarkable improvement recently as a result of the rise in energyprices over the last few years. That is a cause for optimism for thefuture of economic development in the Arab region, especially if the spike in oil prices would not slow the economic and politicalreforms, which started to take place in some major Arab countries.

The International Energy Agency (IEA) forecasts that the 2005 call on OPEC crude may rise by about 100 thousand bpd to 28.3 million bpd from 28.2 million bpd in 2004. In 2005, global oil demand is expected to increase by 1.5 million bpd, of which 0.9 million bpd would be supplied by non-OPEC countries, andaround 0.5 million bpd is the estimated increase in OPECproduction of (NGLs). Despite the projected decline in the growthof the world oil demand to 1.8% in 2005, from 3.4% in 2004, oilprices are not expected to average lower in 2005. In addition to a limited non-OPEC supply growth, there are a number of othermarket supportive factors.These factors include tight commercial oil inventories in the group of OECD countries, continued erosionof spare production capacity within OPEC, and the still considerableglobal geopolitical and security risks.

As for the medium term outlook (2005-2007) of globalpetrochemical industry, evidence indicates that its fundamentalswould improve even further, and the year 2004 perhapsrepresented a significant turning point for the industry, particularly if the world economy remains free of any unforeseen shocks.

BOARD OF DIRECTORS’ REPORT ARAB PETROLEUM INVESTMENTS CORPORATION 13

The Board of Directors’ Report for the year 2004 represents anoverview of the main activities of the Corporation related to thefinancing of oil, gas, petrochemical, electric power and Arab oilexports, together with advisory services activity. In addition, theAnnual Report also reviews the progress of the Corporation’sequity participations in oil, gas and petrochemical projects andindustries in the Arab world, as well as the Treasury activities.

Project and Trade FinanceThe Corporation has continued to play an active role in financingoil, gas and petrochemical industries in the Arab world, focusing onprojects that are entrepreneurial and viable, while maintaining itsleading role among the financial institutions in the region.

During the year, the Arab region greatly benefited from the steadyimprovement in the global economic conditions. In particular,sustained higher international oil, gas and petrochemical pricestranslated into a significant upsurge in project activities, whichallowed the Corporation to increase its net loan portfolio, includingundrawn commitments from US$1,597 million at the end of 2003to US$1,629 million by the close of 2004. The resulting strong loanasset growth, which is in line with the Corporation’s strategicdirection, boosted the department’s operating income to US$19.4million from US$16.0 million in the previous year.

Project FinanceThe upsurge in project activities was reflected into higher fundingrequirements. As a result, the Corporation was involved in 18facilities totalling US$9.1 billion with a final take of US$482 million.This compares to the 11 facilities realised in 2003, totalling US$6.2billion with a final take of US$435 million. As illustrated in thefollowing table, which provides a sample of the deals concludedduring the year, the Corporation continued to take a leading role in the arrangement of most of these financings.

Board of Directors’ Report

APICORP Activities in 2004

PurposeAmount and Signing date

Main SponsorsClient APICORP’s Role

Part finance the costof a Fertilizer plantexpansion project

Part finance the costof setting up aPetrochemical project

Part finance cost of building fourchemical tankers of 46,200 tons.

Part finance the debtrequirement for thegas pipeline project

Part finance the debtrequirement for apetrochemical project

Fertilizer Plantexpansion

To finance part of the acquisition cost of three new buildingLNG carriers

US$250 millionMay 17, 2004

US$240 millionMay 31, 2004

US$104 millionJuly 6, 2004

US$1,360 millionJuly 21, 2004

US$492 millionJuly 21, 2004

US$330 millionAugust 11, 2004


Government of Egyptand private sectorinvestors, with leadingfinancial institutions in Egypt

Oman Oil Company& LG International

NSCSA

Emirate of Abu Dhabi,Total, Oxy

Saudi IndustrialInvestment Group and Chevron PhillipsChemical Co

SABIC

Sonatrach

Egyptian FertilizersCompany

OmanPolypropylene LLC

National ChemicalCarriers

Dolphin EnergyLimited

Jubail ChevronPhillips LLC

Saudi ArabianFertilizer Company

SonatrachPetroleumCorporation

Mandated Arranger,Book runner,Technical Bank

Financial Advisor,Arranger,Underwriter,Documentation Bank,Technical andInsurance Bank

Mandated LeadArranager

Lead Manager

Co-Arranger

Mandated LeadArranger

Lead Manager

14 ARAB PETROLEUM INVESTMENTS CORPORATION BOARD OF DIRECTORS’ REPORT

APICORP’S Financing Activities in 2004



Funding Oman LNGequity participation in Qalhat LNG

Debt re-financing

Funding two newLNG trains


US$600 millionNovember 10,2004

US$3600 millionDecember 15, 2004

Government ofOman, Shell,Total

Government ofKuwait and the DowChemical Company

Qatargas and ExxonMobil

Oman LNG LLC

EquatePetrochemicalCompany

Qatargas II

Mandated LeadArranger

Co-Arranger

Mandated LeadManager



Oil Import

Unfunded riskguarantee and cash advances

Oil import

US$200 millionFeb 25, 2004

US$300 millionNov 23, 2004

US$322 millionNov 30, 2004

Government of India

Oil investNetherlands BV(partly owned by theLibyan Government)

Government ofIndonesia

Indian OilCorporation Ltd.

Holborn EuropeanMarketing Co.

P T Pertamina(Persero)

Participant

Participant

Participant


Trade FinanceAs part of its commitment to participate in trade-financetransactions involving oil and gas transactions with the Arab world,the Corporation contributed to three transactions in favor of Indian Oil Company Ltd, Holborn European Marketing Co, and PT Pertamina (Persero) calling for a total funding of US$792 millionand a final take of US$60 million.

APICORP’S Financing Activities in 2004


Advisory In addition to its financing activity, the Department has remainedcommitted to provide specialized advisory services in the field ofstructured finance for the hydrocarbon sector within the region.Two financial advisory mandates were signed in 2004, both forprojects in the petrochemical sector in Saudi Arabia.

ResearchAs part of its main task of scanning the Corporation environment,the Research Unit has embarked on a broad survey of energyinvestments in the Arab world to support the Corporation’sbusiness and marketing strategy. The Unit also progressed on an in-house methodology for country and industry risk assessments.Furthermore, the unit has researched and analyzed a wide range ofeconomic issues relating to the Department’s financing and advisorywork and contributed to efforts aimed at raising the Corporation’sprofile by providing research materials for presentations to regionaland international conferences and workshops.


As at end-2004, APICORP has equity investments in 12 companiessituated in seven Arab countries. That portfolio of investments was valued at US$208 million, at the end of 2004. The operations of these companies cover a wide array of activities: drilling andrelated services, seismic services, extraction of LPG, production of polypropylene, methyl tertiary butyl ether, aromatics, purifiedterephathalic acid, polyester fibres, linear alkyl benzene, carbon black, ammonia, urea, NPK fertilizer, storage of petroleum products,and production of acrylic fibre.

A brief summary of APICORP'S direct equity investments isprovided below:

(1) - Bahrain National Gas Company (BANAGAS)APICORP share: 12.5%BANAGAS was established in 1978 to extract and market LPG and light naphtha from associated gas.Total production in 2004 was 83,000 tons of propane, 91,000 tons of Butane and 190,000 tons of light naphtha. At-end 2004, BANAGAS reported net income of BD5.4 million (versus BD1.96 million in 2003).

(2) - Arab Drilling and Workover Company (ADWOC)APICORP share: 20%ADWOC was established in 1978 to provide drilling and relatedoperation services in Libya and nearby Arab markets. In 2004,ADWOC has achieved an average utilisation rate of 92% for its 14 rigs versus 89% in 2003, an increase of 3.4%. At-end of 2004,ADWOC posted net income of LD9.7 million (versus LD16 millionin 2003), and its total shareholders' equity totalled LD85.6 million in 2004.

(3) - Arab Company For Detergent Chemicals (ARADET)APICORP share: 32%ARADET was established in 1981 to produce 50,000 tons/yr of linear alkyl benzene (LAB) and (STPP) with the same capacity.The LAB complex at Baiji, in operation since 1987, also includes an aromatics line with a capacity of 30,000 tons/yr of benzene andtoluene. In 2004, the Company produced 29,000 tons of LAB, ofwhich 27,000 tons were sold on the local and regional markets.At-end 2004, ARADET generated net profit to the equivalent ofUS$1.3 million (versus US$9.3 million in 2003).

Direct Equity Investments

(4) - Tankage Méditerranée (TANKMED)APICORP share: 20%TANKMED was established in 1984 to provide storage services for petroleum products at La Skhira terminal in Tunisia.TANKMED’stotal storage capacity stands at 300,000 cubic meters. TANKMEDwas able to raise capacity utilisation rate from 67% in 2003 to 72%in 2004. In 2004,TANKMED witnessed an increase in its revenuesto TD6.0 million from TD5.6 million in 2003. At-end 2004,TANKMED posted a net income of TD1.6 million, compared to TD1.8 million in 2003.

(5) - Arab Geophysical Exploration Services Company(AGESCO)APICORP share: 10%AGESCO was established in 1985 to provide advanced seismicservices in Libya and the Arab world. The company maintains three seismic crews and was able to achieve operation rate of 90% in 2004. AGESCO recorded a net profit of LD2.4 million at the end of 2004 (versus LD 6.8 million in 2003).

(6) - Saudi-European Petrochemical Company (Ibn Zahr)APICORP share: 10%Ibn Zahr was established in 1985 in Jubail to produce methyltertiary butyl ether (MTBE), a gasoline octane booster andpolypropylene. In 2004, MTBE production was about 1.4 milliontons, while polypropylene output totalled about 488,000 tons.At end-2004, Ibn Zahr reported record net income of SR836million, an increase of 79% over 2003.

(7) - Alexandria Carbon Black Company (ACBC)APICORP share: 12%ACBC was established in 1993 to produce and market carbonblack, an oil based material. Having commissioned its fourthproduction line in October 2004, ACBC currently has a designcapacity of about 150,000 tons/yr. Its 2004 sales were 143,000 tons, an increase of 2.8% on 2003 level. In 2004, ACBC posted a net income of LE140.8 million, an increase of 9.5% over 2003.The General assembly approved in 2003 an increase in thecompany’s paid-up capital from LE99.5 million to LE150 million.


(8) - Arabian Industrial Fibers Company (Ibn Rushd)APICORP share: 8.26%Ibn Rushd was established in 1993 in Yanbu on the west of SaudiArabia. Ibn Rushd is an integrated petrochemical complex composedof three plants for the production of aromatics (725,000 tons/yr),purified terephathalic acid (PTA, 350,000 tons/yr) and polyester(154,000 tons/yr). In 2004, Ibn Rushd production reached 1.1 milliontons: 194,000 tons polyester ; 509,000 tons aromatics; and 387,000tons of PTA. For the first time, Ibn Rushd succeeded in 2004 to posta net profit of SR4.3 million versus net loss of SR456 million in 2003.

(9) - Oriental Petrochemicals Company (OPC)APICORP share: 14%OPC was established in 1996 with a design capacity of 120,000tons/yr polypropylene expandable to 162,000 tons/yr.The companyannounced the successful commissioning of its plant at the beginningof 2002, and since then it has become the main producer andsupplier of polypropylene in the Egyptian market. During 2004,OPC produced 132,000 tons of polypropylene and made a recordnet profit of LE94 million (versus LE64 million in 2003).

(10) - Egyptian Fertilizers Company (EFC)APICORP share: 10%EFC was established in Egypt in 1998 to produce 400,000 tons/yr of ammonia and 600,000 tons/yr of urea. In 2004, the companyproduced 626,000 tons urea, all of which was sold in theinternational and local markets. In addition, the company produced 17,000 tons of surplus ammonia, which was sold in the local market. In March 2003 the EFC’s General Assemblyapproved the increase of the company’s paid-up capital fromUS$118 million to US$147.5 million to partially finance theexpansion project currently underway in order to double the urea production. For 2004, EFC reported record net income of US$65.3 million versus US$63.6 million in 2003.

(11) - Alexandria Acrylic Fiber Company (AFCO)APICORP share: 10%AFCO was established late 2003 in Egypt to produce acrylic fibers used in the manfacturing of various consumer products such as blankets, carpets and clothes. AFCO plant with 18,000tons/yr output capacity is still under-construction and is expected to be commissioned in September 2005.



Other Major ShareholdersParticipationPaid-up Capital

Company Name Activities

Bahrain National Oil Co.(BANOCO), Bahrain Caltex Trading & Transport Co., Bahrain

Arab Petroleum Services Co.(APSC), LibyaSanta Fe, USA

Government of the Republic ofIraq, Government of the Kingdomof Saudi Arabia, Government of the State of Kuwait, Arab MiningCompany, Jordan,The ArabInvestment Co., Riyadh

I’Entreprise Tunisienne d’Activities Petrolieres (ETAP),Tunisia Societe Tuniso Seoudienned’Investissement et deDeveloppement (STUSID)Banque Tunisio-Koweitienne de Developpement (BTKD)

Arab Petroleum Services Co.(APSC), LibyaGeosource, UKNational Oil Co., Libya

Saudi Basic Industries Corp.(SABIC), Saudi ArabiaEcofuel, Italy, Fortum Oy, Finland

12.5%

20%

32%

20%

10%

10%

BD8million

LD12million

ID36million

TD12million

LD4million

SR1,025million

Bahrain NationalGas Company(BANAGAS) Bahrain

Arab Drilling andWorkoverCompany(ADWOC) LibyanArab Jamahiriya

Arab Company for DetergentChemicals(ARADET)Iraq

TankageMéditerranée(TANKMED)Tunisia

Arab GeophysicalExplorationServices Company(AGESCO) LibyanArab Jamahiriya

Saudi-EuropeanPetrochemicalCompany(IBN ZAHR)Saudi Arabia

Extraction andmarketing of LPG and condensatesfrom associated gas.

Drilling and relatedoperations in the Arab world.

Production andmarketing of linearalkyl benzene and sodiumtripolyphosphate(STPP). STPP project is beingimplemented.

Storing,trans-shipping andhandling petroleumand petrochemicalproducts at La Skhira terminal.

Providing advancedseismic services in the Arab world.

Production of gasoline octanebooster MTBE, andPolypropylene.

APICORP Activities in 2004APICORP Equity Participations as at 31 December 2004


* In 2003, the General Assembly approved the increase of the paid up capital from LE99.5 million to LE150 million.

Other Major ShareholdersParticipationPaid-up Capital

Company Name Activities

Government of the Kingdom ofJordan, Government of the State of Kuwait, Arab Mining Company,Jordan, Islamic Development Bank,Saudi Arabia

Indian Industrial Investment Group(BIRLA), India,Transport andEngineering Company (El Nesser TireCo.), Egypt,Alexandria Tire Company,Egypt,Al-Nasr Coke Company, Egypt,Saudi Egyptian Industrial InvestmentCompany, Egypt, International Finance Corporation (IFC), USAContinental Carbon Company, USA

Saudi Basic Industries Corp. (SABIC),Saudi Arabia GIC, KuwaitSaudi Pharmaceuticals Co., SaudiArabia, SAFCO, Saudi Arabia

Oriental Weavers Group, EgyptArab International Investments Co.,Libya, National Bank of Egypt (Al-Ahli Bank), Egypt, EgyptianPetrochemicals Co., Egypt, MisrInsurance Co., Egypt, OrientInsurance Co. (Al-Sharq), Egypt

Orascom, Egypt,The holding EgyptianKuwaiti Company, Banque Misr, Egypt,Misr Insurance Co., Egypt, NationalInvestment Bank, Egypt, Others

Aditya Birla Group, IndiaSidikrier Petrochemical Co., EgyptAlexandria Carbon Black Co., EgyptThe Saudi Egyptian IndustrialInvestment Co., Egypt

0.76%

12%

8.3%

14%

10%

10%

JD75million

LE150*million

SR3,550million

LE120million

$147.5million

LE150million

Jordan PhosphateMining Company(JPMC) Jordan

Alexandria CarbonBlack Company(ACBC)Egypt

Arabian IndustrialFibers Company (IBN RUSHD)Saudi Arabia

OrientalPetrochemicalCompany (OPC)Egypt

Egyptian FertilizersCompany (EFC)Egypt

Alexandria AcrylicFiber Co. Egypt

Mining phosphate rock,production andmarketing of chemicalfertilizer compounds.

Production andmarketing of carbonblack.

Production ofAromatics, PTA andPolyester Fibers.

Production andmarketing ofPolypropylene.

Production andmarketing of Urea and surplus Ammonia.

Production andmarketing of PolyAcrylic Fibers.


Treasury Activities in 2004The conservative strategy adopted by the management toward the Treasury investments and funding operations has had a positiveimpact on the overall performance.Treasury has maintained itsfocus on high quality investments while abandoning weakerpositions to ensure high liquidity and stable return.

In 2004,Treasury operations achieved a net income of US$14.0million, compared to US$21.8 million in the year 2003.Treasuryassets grew from US$691 million in 2003 to US$706 million at 31st December 2004. Securities portfolio has maintained a highstandard of credit profile and stands at an average AA Rating byDecember 2004.

The rise in the US dollar interest rate has negatively impacted the bond markets, while positively impacting the equities andinvestment managed funds. Capital gains from the sales of securities and investment funds totalled US$1.9 million.

Conferences and Seminars1) The 18th Conference on the

Fundamentals of Oil andGas Industry, OAPEC, Kuwait20-25 March, 2004.

2) A Workshop by Oxford Institute for Energy Studies,Bahrain 20-21 April, 2004.

3) AFA 10th International AnnualConference held in Cairo, Egypt,20-23 January, 2004.

4) The Advisory Workshop (Nexant/Chem Systems)27-28 April, 2004, Abu Dhabi,UAE.

CONTENTS

24 The financial statements consist of pages 25 to 59

IntroductionThe formation, status and activities of APICORP 25Accounting policies applied in the 2004 financial statements

A General 26B Financial instruments 26-28C Cash and cash equivalents 28D Loans and other receivables 28E Securities 28-29F Direct equity investments 29G Property and equipment 30H Investment property 30I Income recognition 30

Primary financial statements for the year ended 31 December 2004Income statement 31Balance sheet 32Changes in shareholders' equity 33-34Cash flows 35

Notes to the 2004 financial statements1 Net interest income 362 Net fee income 373 Dividend income 374 Gains on trading securities 375 Realised gains on available-for-sale securities 376 Other operating income 387 General administrative expenses 388 Impairment losses 38-399 Other operating expenses 3910 Trading securities 3911 Available-for-sale securities 4012 Deposits placed with banks 4013 Syndicated and direct loans 40-4214 Direct equity investments 43-4415 Property and equipment 4416 Other assets 4517 Deposits from banks 4618 Term financing 4619 Other liabilities 4620 Employee retirement benefits 4721 Off-balance sheet exposures 47-4822 Related party transactions 4823 Cash flows from operating activities 4924 Capital adequacy 5025 Financial instruments and risk management 50-5226 Effective interest rates 5327 Fair value information 5328 Maturity profile of assets and liabilities 5429 Repricing profile of financial assets and liabilities 55-5630 Currency exposures 56-5731 Industry distribution of assets and liabilities 5832 Geographical distribution of risk 59

Auditors’ report to the shareholders 60

INTRODUCTION

The financial statements consist of pages 25 to 59 25

The formation, status and activities of APICORP

The information on this page is presented in order to provide the reader with background information about APICORP that

is essential to the understanding of the financial statements, as set out in pages 25 to 59. Similarly, the accounting policies as

explained in pages 26 to 30 are intended to acquaint the reader with the International Financial Reporting Standards (IFRS)

and the methodology followed by the Corporation in the presentation of its financial statements, and the classification and

measurement of assets and liabilities therein.

Arab Petroleum Investments Corporation (APICORP - the Corporation) is an Arab joint stock company

established on 23 November 1975 in accordance with an international agreement signed and ratified by the ten member

states of the Organisation of Arab Petroleum Exporting Countries (OAPEC).The agreement defines the objectives of the

Corporation as:

• participation in financing petroleum projects and industries, and in fields of activity which are derived therefrom, ancillary

to, associated with, or complementary to such projects and industries; and

• giving priority to Arab joint ventures which benefit the member states and enhance their capabilities to utilise their

petroleum resources and to invest their funds to strengthen their economic and financial development and potential.

Domicile and taxation

The Corporation is an international entity, and operates from its registered head office in Dammam, Kingdom of Saudi Arabia.

The establishing agreement states that APICORP is exempt from taxation in respect of its operations in the member states.

Share capital

The capital is denominated in shares of US$1,000 and is owned by the governments of the ten OAPEC states as follows:

Issued and AuthorisedUS$ 000 fully paid capital Percentage

United Arab Emirates 93,500 204,000 17%

Kingdom of Bahrain 16,500 36,000 3%

Democratic and Popular Republic of Algeria 27,500 60,000 5%

Kingdom of Saudi Arabia 93,500 204,000 17%

Syrian Arab Republic 16,500 36,000 3%

Republic of Iraq 55,000 120,000 10%

State of Qatar 55,000 120,000 10%

State of Kuwait 93,500 204,000 17%

Socialist People’s Libyan Arab Jamahiriya 82,500 180,000 15%

Arab Republic of Egypt 16,500 36,000 3%

550,000 1,200,000 100%

Activities

APICORP is independent in its administration and the performance of its activities, and operates on a commercial basis with

the intention of generating net income. Most of its 109 (2003: 107) employees are Arab nationals.The Corporation has no

subsidiaries, branches or divisions, and operates only from its head office in the Kingdom of Saudi Arabia. Accordingly no

business or geographical segment information is reported in the financial statements.

Currently the Corporation's project-financing activities take the form of loans and direct equity investments in projects.

These activities are funded by shareholders’ equity, medium-term financing and short-term deposits from banks.

ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTSfor the year ended 31 December 2004

A. GENERALA-1 Compliance with International Financial Reporting StandardsThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issuedby the International Accounting Standards Board (IASB), and interpretations issued by the International Financial ReportingInterpretations Committee (IFRIC) of the IASB.

A-2 Basis of preparationAPICORP presents its financial statements in United States dollars (rounded to the nearest thousand) because it is asupranational organisation with its capital and the majority of its transactions and assets denominated in that currency.

The financial statements are prepared on a fair value basis for financial assets held for trading, available-for-sale assets and financial liabilities.Other financial assets and non-financial assets and liabilities are stated at amortised cost or historical cost.

The accounting policies are consistent with those used in the previous year.

A-3 Foreign currency transactionsTransactions in currencies other than US dollars (foreign currencies) are translated at the exchange rates ruling at the date of the transaction. All monetary assets and liabilities denominated in foreign currencies are translated into US dollars at rates prevailing at the balance sheet date. Differences arising from changes in exchange rates are recognised in the income statement.

Direct equity investments (non-monetary assets) denominated in foreign currencies, that are stated at fair value, aretranslated to US dollars at current exchange rates. Differences arising from changes in rates are included in the revaluationreserve in shareholders' equity. Capital expenditure on property and equipment is stated at the historical rates of exchange.There are no other foreign currency denominated non-monetary assets or liabilities.

Share capital originally contributed in Saudi Riyals is maintained at the historical rates of exchange.

B. FINANCIAL INSTRUMENTSB-1 ClassificationTrading securities are those that the Corporation purchased principally for the purpose of gains over the short-term.Theseconsist of managed funds and equity securities.

Loans are created by the Corporation providing money to a debtor, other than those created with the intention of gains overthe short-term. Loans comprise deposits placed with banks, and syndicated and direct loans.

Available-for-sale assets are financial assets that are not held for trading purposes, or loans provided by the Corporation.Available-for-sale instruments include certain debt securities, managed funds and direct equity investments.

B-2 RecognitionPrior to 2003 the Corporation recognised all financial assets held for trading and available-for-sale assets on the date on which it committed to purchase the assets (trade date). From this date forward any gains and losses arising from changesin fair value of the assets are recognised.

From 2003, onward, because of the implementation of new accounting software, the recognition policy has been modifiedwith respect to purchase of available-for-sale assets and assets held for trading, which are now recognised on a settlementdate basis. The effect of this change on carrying values and income has been negligible.

Loans are recognised on the day on which they are drawn down by the borrower.


ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (CONTINUED)

for the year ended 31 December 2004

B-3 MeasurementFinancial instruments are measured initially at cost. Premiums, discounts and initial transaction costs are included in the initial carrying amount of the related instruments, where appropriate. Subsequent to initial recognition, all tradinginstruments and available-for-sale assets are measured at fair value.

All non-trading financial liabilities, loans and receivables are measured at amortised cost, less impairment losses, if any.

B-4 Fair value measurement principlesThe fair value of financial instruments is based on their quoted market price at the balance sheet date without any deductionfor transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using discounted cash flow techniques, or other methods, as appropriate.

B-5 Gains and losses on subsequent measurementGains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in arevaluation reserve in shareholders' equity.When the assets are sold, collected or otherwise disposed of, or are impaired,the cumulative gain or loss recognised in equity is transferred to the income statement.

Gains and losses arising from a change in the fair value of trading instruments are recognised in the income statement.

B-6 DerecognitionA financial asset is derecognised when the Corporation loses control over the contractual rights attaching to that asset.This occurs when the rights are realised, expire or are surrendered.A financial liability is derecognised when it is extinguished.

Prior to 2003 the available-for-sale assets and assets held for trading that were sold were derecognised, and correspondingreceivables from the buyer for the payment were recognised at the date on which the Corporation commits to sell the assets(trade date).The Corporation uses the specific identification method to determine the gain or loss on derecognition.

In 2003 because of the implementation of new accounting software, the recognition policy has been modified with respectto sale of available-for-sale assets and assets held for trading, which are now derecognised on a settlement date basis. Theeffect of this change on carrying values and income has been negligible.

Loans are derecognised on the date on which they are repaid.

B-7 ImpairmentFinancial assets are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Ifany such indication exists, the assets' recoverable amounts are estimated.

The recoverable amount of an equity instrument is its fair value. The recoverable amount of loans and debt instrumentsremeasured to fair value is calculated as the present value of the related expected future cash flows discounted at the currentmarket rate of interest for such an instrument.

Where an asset remeasured to fair value directly through equity is impaired, and a write-down was previously recogniseddirectly in equity, the write-down is transferred to the income statement and is recognised as part of the impairment loss.Any subsequent additional impairment loss is similarly recognised in the income statement.




B-7 Impairment (continued)In the case of an asset remeasured to fair value directly through equity becoming impaired, and an increase in the fair valueof the asset has previously been recognised in equity, the increase in the fair value of the asset previously recognised in equityis reversed, to the extent that the asset is impaired.

If in a subsequent period the amount of an impairment loss decreases, and the decrease is due to a change in estimates, or canbe linked objectively to an event occurring after the write-down, the write-down is reversed through the income statement.

C. CASH AND CASH EQUIVALENTSC-1 ClassificationCash and cash equivalents comprise cash balances on hand and cash in call accounts.

D. LOANS AND OTHER RECEIVABLESD-1 LoansSyndicated and direct loans provided by the Corporation as an arranger, or through participation in the initial syndication,are carried at cost (less allowances for impairment where appropriate). It is the Corporation's policy to hold all loans tomaturity. No loans purchased from the secondary market have been held since 2000.

The unamortised portion of deferred participation and commitment fees received is deducted from the carrying cost of the loans.

D-2 Amounts paid under guaranteesAmounts paid under guarantees are reported net of impairment allowances to reflect the present value of the estimatedrecoverable amounts (after taking into account collateral held).The discount rate used reflects the current cost of fundingthe exposures.

D-3 Allowances for uncollectibility (impairment)Allowances for uncollectibility (impairment) consist of:

• Specific allowances for individual loans when circumstances are identified that may lead to significant, possibly permanent,losses.The most common occurrences are failure to meet interest or repayment commitments.

The impairment allowance is calculated by discounting expected future cash flows from the loan, using the effectiveinterest rate of the loan, and comparing the result with the carrying value.

• Similarly an allowance for potential defaults is maintained against other loan exposures, to cover potential losses, as a result of potential downgradings.

Increases and decreases in allowances for uncollectibility are recognised in the income statement.

When a loan is known to be uncollectible, and the final loss has been determined, the loan is written off after receivingspecific approval to do so from the Board of Directors.

E. SECURITIESE-1 ClassificationThe Corporation’s securities holdings, which include both debt and equity securities as well as managed funds, are classifiedaccording to the purposes for which they were held at 1 January 2001 or, in the case of subsequent purchases, the purposesfor which they were acquired.




E-1 Classification (continued)Securities that the Corporation holds for the purpose of gain over the short-term are classified as trading instruments.Other investments are classified as available-for-sale instruments.

• Available-for-sale portfolio: This consists of investment grade fixed-rate bonds, structured notes and floating-rate notes that are intended to generate a steady stream of interest income, whilst representing a contingency reservoir of liquidity.The portfolio also contains managed funds that are intended to generate capital gains.

The available-for-sale securities are carried at fair value (market value) with changes being routed through shareholders'equity.Allowances are made for specific value impairments as and when these are identified. Such impairments are routedthrough the income statement.

Gains or losses in the value of available-for-sale securities, apart from impairments, are recognised in income only on ultimatedisposal.

• Trading securities consist of equities and managed funds carried at market value with changes in value being routedthrough the income statement.

E-2 AmortisationWhere bonds have been purchased at a premium or a discount, the premiums and discounts are amortised through theincome statement over the period from the date of purchase to the date of maturity.

F DIRECT EQUITY INVESTMENTSF-1 ClassificationAPICORP has direct investments in the unquoted ordinary share capital of closed companies established for specific start-up projects in the petroleum and petrochemical industries, mostly in partnership with governments or quasi-governmental entities.The Corporation is represented on the boards of the companies.

The three companies in which the Corporation holds 20% or more of the equity are not treated as associates under IAS-28 because APICORP's philosophy is that it should act in a fiduciary and advisory capacity and not exercise significantinfluence over the management and operations of the companies.

Once the companies become established and begin paying dividends, it is the Corporation's intention to profitably disposeof its holdings in order to recycle the funds to new projects. Accordingly, these investments are classified as available-for-saleassets, and are recorded initially at cost, including transaction costs.

F-2 Fair valuesBecause the direct equity investments are in closed companies with no available market valuations, management considersthe best approximation to fair value to be the net asset value, or the present value of discounted future cash flows, wherethese can be reasonably estimated.

The net asset values are based upon the most recent audited financial statements or monthly management information,adjusted for conformity with International Financial Reporting Standards. Changes in fair values are routed throughshareholders' equity.

F-3 ImpairmentReductions in net asset values below original cost are examined to determine whether there is evidence of impairment.In assessing impairment, expected future cash flows and other factors are taken into consideration. Changes in impairmentare routed through the income statement.




G. PROPERTY AND EQUIPMENTG-1 ClassificationItems of property and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (if any).

Where an item of property and equipment comprises major components having different useful lives (for example: theCorporation's head office building), these components are accounted for as separate items of property and equipment.No borrowing costs have been capitalised.

G-2 Subsequent expenditureExpenditure incurred subsequently to replace a major component of an item of property and equipment that is accountedfor separately is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefitsexpected to accrue from the item of property and equipment.

All other expenditure, for example on maintenance and repairs, is expensed in the income statement as incurred.

G-3 DepreciationDepreciation is charged to the income statement on a straight-line basis over the estimated useful lives of the items ofproperty and equipment, and of the major components that are accounted for separately. Land is not depreciated.

The estimated useful lives of the Corporation's property and equipment are as follows:

• Head office building (civil works and other major components) 20 to 40 years• Head office building (finishes, systems and equipment) 5 to 20 years• Housing compound buildings (including extension completed in 2000) 15 years (from 2000)• Housing compound equipment, furniture and fittings 5 to 10 years• Office furniture, equipment and computer hardware (and related software) 3 to 10 years

H INVESTMENT PROPERTYThe Corporation's investment property, being land that is no longer required for the development of the head office building,is included in other assets in the balance sheet and is carried at fair value.Any gain or loss arising from a related change infair value is recognised in income.

I. INCOME RECOGNITIONI-1 Interest incomeInterest income is recognised in the income statement as it accrues, taking into account the effective yield of the asset.Thisincludes the amortisation of any discount or premium or other differences between the initial carrying amount of an interest-bearing instrument and its amount at maturity.

I-2 Fee incomeFee income arises from financial services provided by the Corporation including project and structured finance transactions,for example advising on underwriting and arranging syndicated loan facilities, and is recognised when the service is provided.

Fees that are analogous to interest and are considered to be part ot the overall yield on loans, specifically participation and commitment fees, are initially deferred and then amortised over the lives of the related loans.The amortised income is included in interest income.

I-3 Dividend income

Dividend income is recognised in the income statement from the date on which the dividend is declared.


INCOME STATEMENTfor the year ended 31 December 2004


US$ 000 Notes 2004 2003 2002

INTEREST INCOME 22 42,925 39,797 45,636

Interest expense and charges (23,778) (20,599) (25,574)

NET INTEREST INCOME 1 19,147 19,198 20,062

Fee income 22 4,297 1,281 2,689

Fee expense (120) (157) (103)

Net fee income 2 4,177 1,124 2,586

Dividend income 3, 22 10,697 8,414 4,192

Realised and unrealised gains on trading securities 4 9,026 9,907 5,388

Realised gains on available-for-sale securities 5 124 3,013 5,672

Other operating income 6 5,404 1,800 1,552

General administrative expenses 7 (17,327) (14,539) (14,423)

Net reversals of impairment losses 8 7,968 4,620 3,962

Other operating expenses 9 (364) (20) (533)

NET INCOME FOR THE YEAR BEFORE APPROPRIATIONS 38,852 33,517 28,458

Appropriations of net income 2004 2003 2002

Legal reserve 3,900 3,400 3,000

Dividend to shareholders (see below) 20,000 20,000 20,000

Retained earnings 14,952 10,117 5,458

Total net income as above 38,852 33,517 28,458

Appropriations of net income for dividends are proposed by the Directors and are then subject to approval by the Annual

General Assembly of the shareholders.

Per US$ 1,000 share information 2004 2003 2002

• Earnings (based on weighted average number of shares outstanding) US$ 70.64 US$ 64.50 US$ 61.87

• Proposed dividend (2003 and 2002: actual) US$ 36.36 US$ 36.36 US$ 43.48

• Net asset value US$ 1,353 US$ 1,285 US$ 1,478

BALANCE SHEET31 December 2004


US$ 000 Notes 2004 2003 2002

ASSETS

Cash and cash equivalents 16,079 15,564 10,207

Trading securities 10 75,858 71,004 79,921

Available-for-sale securities 11 420,713 394,367 299,137

Deposits placed with banks 12 193,669 209,690 186,866

Syndicated and direct loans 13 1,149,413 1,149,715 1,056,013

Direct equity investments 14 208,111 185,648 168,323

Property and equipment 15 42,734 45,048 47,249

Other assets 16 14,019 17,390 16,286

Total Assets 2,120,596 2,088,426 1,864,002

LIABILITIES

Deposits from banks 17 858,674 874,375 725,156

Term financing 18 499,098 498,559 423,019

Unpaid dividends 13 - - 28,740

Other liabilities 19 18,408 8,593 6,999

Total liabilities 1,376,180 1,381,527 1,183,914

SHAREHOLDERS' EQUITY

Share capital (see page 25) 550,000 550,000 460,000

Legal and general reserves (see page 33) 103,500 99,600 156,200

Revaluation reserve (see page 33) 43,201 24,536 11,242

Retained earnings (see page 34) 47,715 32,763 52,646

Total shareholders' equity 744,416 706,899 680,088

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,120,596 2,088,426 1,864,002

OFF-BALANCE SHEET EXPOSURES

Commitments, guarantees and derivatives 21 563,494 593,259 609,625

The financial statements were approved by the Board of Directors on 6 April 2005 and were signed by:

Abdullah A. Al-Zaid Mohammed A. Dahmani Rasheed M. Al-Maraj

Chairman Deputy Chairman General Manager

CHANGES IN SHAREHOLDERS’ EQUITYfor the year ended 31 December 2004


US$ 000 Notes 2004 2003 2002

SHARE CAPITAL (see page 25)

Issued share capital at the beginning of the year 550,000 460,000 460,000

Capitalisation of general reserve in 2003 (see below) - 90,000 -

Issued share capital at 31 December (as page 32) 550,000 550,000 460,000

LEGAL RESERVE

Legal reserve at the beginning of the year 84,600 81,200 78,200

Appropriation from net income (see page 31) 3,900 3,400 3,000

88,500 84,600 81,200

GENERAL RESERVE

General reserve at the beginning of the year 15,000 75,000 75,000

Transfer from retained earnings (see page 34) - 30,000 -

Used to increase the issued share capital (as above) - (90,000) -

15,000 15,000 75,000

Legal and general reserves at 31 December (as page 32) 103,500 99,600 156,200

REVALUATION RESERVE - available for sale assets

Securities

Net unrealised losses at the beginning of the year (2003: gains) (4,071) 1,179 (345)

Decrease in fair value (market value) in the year

(2003, 2002: increase) (1,011) 1,239 3,792

Gains realised on sales transferred to income 5 (124) (3,013) (5,672)

Impairments released on realisation of losses

(2002: recognition of impairments) 8 (236) (3,476) 3,964

Exchange rate movements - - (560)

Net unrealised losses at 31 December (2002: gains) (5,442) (4,071) 1,179

Direct equity investments

Net unrealised gains at the beginning of the year (2002: losses) 28,607 10,063 (12,480)

Increase in fair value in the year 14 20,036 14,375 22,543

Unrealised losses charged to income on

recognition of impairments 8 - 4,169 -

Net unrealised gains at 31 December 48,643 28,607 10,063

Total revaluation reserve at 31 December (as page 32) 43,201 24,536 11,242

CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)for the year ended 31 December 2004


US$ 000 Notes 2004 2003 2002

RETAINED EARNINGS

At the beginning of the year 32,763 52,646 57,188

Dividends to the shareholders for the previous

year (see below) (20,000) (20,000) (30,000)

Transfer to general reserve (see page 33) - (30,000) -

Net income for the year before

appropriations (from page 31) 38,852 33,517 28,458

Transfer to legal reserve (see below) (3,900) (3,400) (3,000)

Retained earnings at 31 December (as page 32) 47,715 32,763 52,646

EQUITY at 31 December as on the balance sheet (page 32) 744,416 706,899 680,088

Share capital

On 3 May 2003 the General Assembly of shareholders resolved to increase the issued share capital from US$ 460 million to

US$ 550 million by the capitalisation of reserves.

Legal and general reserves

Under Article 35 of APICORP's statutes, 10% of annual net income is to be transferred to a legal reserve until such reserve

equals the subscribed share capital.The legal reserve is not available for distribution.

Article 35 also permits the creation of other reserves such as the general reserve. The general reserve may be applied as is

consistent with the objectives of the Corporation, and as may be resolved by the General Assembly, on the recommendation

of the Board of Directors.

CASH FLOWSfor the year ended 31 December 2004


US$ 000 Notes 2004 2003 2002

CASH FLOWS FROM OPERATING ACTIVITIES 23

Interest received 49,191 47,918 46,025

Interest paid (20,733) (20,813) (23,799)

Fees received 4,296 1,281 7,344

Fees paid (119) (157) (1,950)

Other income 72 62 53

Net receipts from trading activities 4,500 18,660 19,413

Interest recovery from restructured loans 4,120 - -

Operating expenses paid (13,646) (11,248) (12,275)

Cash inflows before changes in operating assets 27,681 35,703 34,811

DECREASE (INCREASE) IN OPERATING ASSETS

Decrease in deposits placed with banks (2003: increase) 16,021 (22,824) 98,168

Syndicated and direct loans drawn down 13 (380,484) (403,504) (624,238)

Loan repayments and prepayments received - performing loans 13 386,272 285,072 434,020

Net impairments recovery 13 13,337 14,312 749

Decrease in deposits from banks (2003, 2002 : increase) (15,701) 149,219 266,362

Net payments from other operating assets and liabilities (1,816) (11,897) (9,790)

Cash inflows from operating activities 45,310 46,081 200,082

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from redemptions and sales of available-for-sale securities 76,192 935,581 409,725

Purchases of available-for-sale securities (111,449) (1,038,395) (583,694)

Dividends from direct equity investments 10,669 8,352 4,139

Payments for direct equity investments (2,427) (2,950) -

Rent received 678 694 620

Capital expenditure on property and equipment (458) (1,006) (3,233)

Cash outflows from investing activities (26,795) (97,724) (172,443)

CASH FLOWS FROM FINANCING ACTIVITIES

Term financing drawn down 18 - 75,000 225,000

Term financing repaid 18 - - (225,000)

Dividends paid in respect of the previous year (18,000) (18,000) (27,000)

Cash outflows from financing activities (2003: inflows) (18,000) 57,000 (27,000)

TOTAL CASH INFLOWS IN THE YEAR 515 5,357 639

CASH AND CASH EQUIVALENTS

At the beginning of the year 15,564 10,207 9,568

Total cash inflows in the year as above 515 5,357 639

Cash and cash equivalents at 31 December

(as on the balance sheet - see page 32) 16,079 15,564 10,207

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004


1 NET INTEREST INCOME

US$ 000 2004 2003 2002

Interest income

Interest income arises from:

Cash and cash equivalents 102 39 158

Deposits placed with banks 2,661 1,962 3,548

Available-for-sale securities - coupon interest 15,136 17,042 11,868

Available-for-sale securities - amortisation of purchase premiums (7,900) (8,904) (3,835)

Syndicated and direct loans - interest excluding amortisation of fees 29,521 26,092 31,178

Amortisation of loan participation and commitment fees 3,405 3,566 2,719

42,925 39,797 45,636

The increase in interest income in 2004 and 2002 is as a consequence of the higher interest rates prevailing during these

years compared to 2003, as most of the Corporation's interest-bearing assets are floating-rate instruments rather than

fixed-rate instruments (see note 26 - Effective interest rates).The level of interest-bearing assets has increased marginally in

the three years presented.

Interest income does not include any interest accrued on non-performing securities or loans.

Interest expense and charges

Interest expense arises from:

Deposits from banks (9,895) (8,837) (11,046)

Term financing (9,678) (8,128) (9,829)

Amortisation of term financing front-end

fees and commitment fees (575) (665) (878)

Unpaid dividends (see note 13) (490) (332) (449)

Total interest (20,638) (17,962) (22,202)

Other charges arise from:

Morabaha transactions (see note 17) (3,140) (2,637) (3,372)

(23,778) (20,599) (25,574)

The increase in interest expense in 2004 and 2002 is as a consequence of the higher interest rates prevailing during these

years compared to 2003, as all of the Corporation's interest-bearing liabilities are either short-term fixed-rate instruments

or floating-rate instruments (see note 26 - Effective interest rates).

Net interest income 19,147 19,198 20,062

Notes 2004 2003 2002



2 NET FEE INCOME

US$ 000 2004 2003 2002

Fee income

Fee income derived from the Corporation's lending activities:

Underwriting and arranging services 2,489 690 2,087

Agency, advisory and other services 1,782 517 556

Fees from securities lending activities 26 74 46

4,297 1,281 2,689

Fee expense

Custody fees and other charges paid to banks (120) (157) (103)

Net fee income 4,177 1,124 2,586

3 DIVIDEND INCOME

US$ 000 2004 2003 2002

Dividend income is generated from:

Trading securities 28 62 53

Direct equity investments 10,669 8,352 4,139

Total dividend income 10,697 8,414 4,192

4 GAINS ON TRADING SECURITIES

US$ 000 2004 2003 2002

Realised and unrealised gains on trading securities arise from:

Listed equities (2002: losses) 1,043 598 (546)

Managed funds 7,983 9,309 5,934

Total realised and unrealised gains on trading securities 9,026 9,907 5,388

5 REALISED GAINS ON AVAILABLE-FOR-SALE SECURITIES

US$ 000 2004 2003 2002

Realised gains on available-for-sale securities arise from:

Fixed-rate bonds 142 5,563 7,466

US Treasury bonds - 256 7

Floating-rate bonds - 64 23

Managed funds 28 - -

Losses on impaired fixed-rate bonds (46) (2,870) (1,824)

Total realised gains on available-for-sale securities 124 3,013 5,672



6 OTHER OPERATING INCOME

US$ 000 2004 2003 2002

Other operating income consists of:

Rent - head office building and housing compound 678 695 620

Exchange gains 562 1,105 -

Investment property - increase in fair value - - 865

Restructured interest of delinquent loans 4,120 - -

Miscellaneous income 44 - 67

Total other operating income 5,404 1,800 1,552

7 GENERAL ADMINISTRATIVE EXPENSES

US$ 000 2004 2003 2002

General administrative expenses consist of:

Human resources costs (9,802) (9,067) (8,928)

Staff retirement fund contributions (see note 20) (915) (930) (965)

Premises costs, including depreciation (2,599) (2,441) (2,391)

Equipment and communications costs (811) (909) (821)

Directors' fees, expenses and Board meeting costs (867) (783) (776)

Special donations (1,000) - -

Other corporate expenses (1,333) (409) (542)

Total general and administrative expenses (17,327) (14,539) (14,423)

8 IMPAIRMENT LOSSES

US$ 000 2004 2003 2002

Write-downs

Available-for-sale securities - transfer from the revaluation

reserve (see page 33) - - (3,964)

Syndicated and direct loans - SK Global, Korea (see note 13) - (9,397) -

Syndicated and direct loans - increase in allowance for

other potential defaults (312) (275) -

Direct equity investments (see note 14)

Unrealised losses transferred from the revaluation reserve (see page 33) - (4,169) -

Other receivables - (181) -

(312) (14,022) (3,964)



8 IMPAIRMENT LOSSES (continued)

US$ 000 2004 2003 2002

Reversals of write-downs

Available-for-sale securities - transfer from the revaluation

reserve (see page 33) 236 3,476 -

Syndicated and direct loans (see note 13)

Iraq Ministry of Oil - reduction against increase in unpaid dividends 2,489 2,332 3,449

Recovery from Aradet, Iraq - 11,035 -

Recoveries against other impaired loans 388 459 749

Reduction in allowance for other potential defaults - - 2,759

Payments under guarantees recoverable from third parties (see note 16)

Recovery from Aradet, Iraq 7,855 955 -

Net effect of changes in value of machinery and discount rates

(see note 16) (2,688) 385 969

8,280 18,642 7,926

Net decrease in impairment losses 7,968 4,620 3,962

9 OTHER OPERATING EXPENSES

US$ 000 2004 2003 2002

Exchange losses - - (93)

Investment property - decrease in fair value (364) - -

Head office building - pre-occupation and relocation costs - - (111)

New computer systems implementation - training costs - (20) (149)

Term finance - arrangement costs - - (179)

Other expenses - - (1)

Total other operating expenses (364) (20) (533)

10 TRADING SECURITIES

US$ 000 2004 2003 2002

Trading securities (carried at market value) consist of:

Listed equities - mostly USA corporations - denominated in US$ 3,347 3,152 3,338

Managed funds - mostly denominated in US$ 72,511 67,852 76,583

Total trading securities 75,858 71,004 79,921



11 AVAILABLE-FOR-SALE SECURITIES

US$ 000 2004 2003 2002

Available-for-sale securities consist of:

Fixed-rate bonds (carried at market value) issued by:

Governments and other public sector issuers 248,550 291,679 182,572

Other issuers - mainly US and EU corporates 28,010 57,932 80,739

Floating-rate bonds (carried at market value) issued by:

Governments and other public sector issuers - - -

Other issuers 36,854 22,965 33,801

Structured notes (carried at market value) 78,727 - -

Managed funds (carried at market value) 28,572 21,791 -

Impaired bonds (carried at cost less estimated impairment) - - 2,025

Total available-for-sale securities 420,713 394,367 299,137

12 DEPOSITS PLACED WITH BANKS

US$ 000 2004 2003 2002

Deposits placed with banks consist of:

Deposits maturing within three months 160,108 178,618 158,126

Deposits representing dividends payable to the Iraqi

shareholder (see note 13) 33,561 31,072 28,740

Total deposits placed with banks 193,669 209,690 186,866

13 SYNDICATED AND DIRECT LOANS

US$ 000 2004 2003 2002

Performing loans

Syndicated, direct and revolving loans and trade finance facilities (at cost) 1,166,954 1,162,891 1,044,702

Unamortised participation and commitment fees (see page 30) (10,174) (10,374) (10,649)

Allowance for other potential defaults (7,367) (7,055) (6,780)

1,149,413 1,145,462 1,027,273

Impaired (non-performing) loans (see page 41)

Syndicated, direct and revolving loans and trade finance facilities (at cost) 69,948 74,589 80,448

Allowance for specific impairments (36,387) (39,264) (51,708)

Dividends due to Iraq Ministry of Oil offset against guaranteed loans

(see page 41) (33,561) (31,072) -

- 4,253 28,740

Total net loans outstanding 1,149,413 1,149,715 1,056,013



13 SYNDICATED AND DIRECT LOANS (continued)

US$ 000 2004 2003 2002

Impaired (non-performing) loans

Iraqi companies - guaranteed by the Central Bank of Iraq (see below) 42,090 42,090 42,090

Arab Company for Detergent Chemicals (Aradet), Iraq - direct loan (see below) - - 9,654

Other Iraqi companies (see below) 9,758 9,758 9,758

SK Global, Korea (see below) - 4,253 -

Sudan company 16,560 16,560 16,560

Other 1,540 1,928 2,386

Total impaired loans at 31 December 69,948 74,589 80,448

Loans guaranteed by the Central Bank of Iraq

As a result of the 1990-1991 Gulf crisis, certain Iraq Ministry of Oil controlled companies defaulted on loans from the

Corporation amounting to US$ 42.1 million.These loans were guaranteed on behalf of the Ministry of Oil by the Central

Bank of Iraq, against which the Corporation duly filed claims in 1996 for the repayment of the principal and the overdue

interest.Acknowledging the claims, the Central Bank informed the Corporation that the matter could only be addressed on

the ultimate lifting of the United Nations sanctions against Iraq.

In the meantime, dividends (and accrued interest thereon) for 1992 to 2003, amounting to US$ 33.6 million due to the Iraq

Ministry of Oil (the shareholder in APICORP on behalf of the Government of Iraq), have not been paid because of the United

Nations sanctions against Iraq. With effect from 1998, the Corporation reduced impairment allowances against the

guaranteed loans by the amount of the unpaid dividends, while still carrying the dividends as liabilities in the balance sheet.

In May 2003, APICORP Board of Directors adopted a resolution authorizing management, in cases where no settlement

is reached, to set-off bad debts owed to the Corporation by companies and public corporations fully owned by any of

APICORP's shareholder governments, against accounts held by the Corporation belonging to such bodies and governments

including dividends, provided all legal requirements are satisfied and complied with. Also in May 2003 the United Nations

repealed the sanctions against Iraq.

Accordingly, and until such time as negotiations may be undertaken with the Government of Iraq, the Corporation has made

a primary offset of the unpaid dividends due to the Iraqi Government, against the principal amounts of the direct loans to

Iraq Oil Ministry companies.

Direct loan to Aradet, Iraq

Following the lifting of the United Nations sanctions against Iraq, APICORP was successful in negotiating terms for the

settlement of its direct loan to Aradet, and other amounts paid on behalf of Aradet under a loan guarantee to an international

bank.The settlement amount of EUR 20.0 million was duly received in two equal instalment from Aradet in November 2003

and March 2004 and the related provisions were released, accordingly.



13 SYNDICATED AND DIRECT LOANS (continued)

SK Global, Korea

In 2003, SK Global, a Korean company of hitherto good international standing, collapsed as a result of massive internal fraud.

At the time,APICORP was a participant in two international syndicated Islamic trade finance facilities to SK Global, with an

exposure of US$ 16.5 million. Following a restructuring of the SK Group's debt, APICORP has been obliged to accept a

reduced amount of US$ 7.1 million payable in 2003-2004, and to record an impairment loss of US$ 9.4 million in respect of

these facilities.All instalments of US$ 7.1 were received in accordance with the agreed settlement terms.

US$ 000 2004 2003 2002Movements in performing loans in the yearOutstanding at the beginning of the year 1,162,891 1,044,702 848,480 Draw-downs on new and existing loans 380,484 403,504 624,238 Repayments and prepayments received (386,272) (285,072) (434,020)Loans reclassified as impaired - SK Global (see above) - (16,486) - Exchange rate movements (euro and swiss franc-denominated loans) 9,851 16,243 6,004

Outstanding at 31 December 1,166,954 1,162,891 1,044,702 Undrawn loan commitments and guaranteesAt the beginning of the year 447,307 489,887 489,774 New underwriting and commitment agreements signed 523,339 416,390 679,754 Drawdowns in the year (380,484) (403,504) (624,238)Expired commitments, syndication sell-downs and other movements - net (109,678) (55,466) (55,403)

Undrawn commitments at 31 December 480,484 447,307 489,887

There were two open underwriting commitments of approximately US$ 96.6 million at the year end.

Allowance for specific impairmentsAt the beginning of the year

Non-performing loans (70,336) (80,448) (79,692)Unpaid dividends and interest due to the Iraq Ministry of Oil 31,072 28,740 25,291

(39,264) (51,708) (54,401)Reversals of write-downs (see note 8)

Increase in unpaid dividends and interest due to the Iraq Ministry of Oil 2,489 2,332 3,449 Release - Aradet - following settlement (see page 41) - 11,035 - Partial recoveries received - non-performing loans - other 388 459 749

Net exchange rate movements - (1,382) (1,505)

Net reduction in the year 2,877 12,444 2,693 Allowance for specific impairments at 31 December - gross (69,948) (70,336) (80,448)Unpaid dividends and interest due to the Iraq Ministry of Oil 33,561 31,072 28,740

Allowance for specific impairments at 31 December - net (36,387) (39,264) (51,708)

Allowance for other potential defaultsAt the beginning of the year (7,055) (6,780) (9,250)Movements in the year (see note 8)

Unrecognised interest - potential defaults (312) (275) (289)Effect of changes in discounting and other factors - - 2,759

Allowance for other potential defaults at 31 December (7,367) (7,055) (6,780)



14 DIRECT EQUITY INVESTMENTSUS$ 000 2004 2003 2002

Fair value Fair value Fair value

APICORP has the following direct equity investments in companies

in the Arab petroleum and petrochemical industries (and the related

percentage participation):

Kingdom of Bahrain

Bahrain National Gas Company (Banagas) - liquefied petroleum

gas - 12.5% 9,056 9,055 9,089

Kingdom of Saudi Arabia

Saudi European Petrochemical Co (Ibn Zahr) - MTBE and

polypropylene - 10% 99,717 92,892 86,235

Arabian Industrial Fibers Co (Ibn Rushd) - polyester fibres -

8.3% (see below) 24,561 23,678 25,193

Republic of Iraq

Arab Company for Detergent Chemicals (Aradet) -

linear alkyl benzene - 32% 13,673 16,576 13,051

Socialist People’s Libyan Arab Jamahiriya

Arab Drilling and Workover Company (Adwoc) -

drilling and related services - 20% 12,133 11,159 9,529

Arab Geophysical Exploration Services Company (Agesco) -

seismic services - 10% 626 624 337

Arab Republic of Egypt

Alexandria Carbon Black Company - carbon black - 12% 7,557 4,790 3,769

Alexandria Fiber Co. SAE (AFC) - acrylic fiber - 10% 2,470 - -

Egyptian Fertilisers Company (EFC) - ammonia and urea - 10% 29,322 21,056 16,065

Oriental Petrochemicals Company - polypropylene - 14% 5,567 3,225 3,888

Non-shareholder countries

Jordan Phosphate Mining Company, Jordan - fertilisers - 0.8% 2,606 2,095 1,167

Tankage Méditerranée (Tankmed), Tunisia - storage facilities - 20% 823 498 -

Net carrying value as on the balance sheet 208,111 185,648 168,323

All the investments are carried at net asset values (adjusted for capitalised pre-operating expenses, where appropriate)

except for Ibn Rushd (at the present value of expected future cash flows - see page 44) and Jordan Phosphate Mining

Company (at quoted market value).

Movements in the year

Net carrying value at the beginning of the year 185,648 168,323 145,780

New amounts invested in 2004 - AFC (2003: EFC) 2,427 2,950 -

Net increase in fair value in the year (see page 33) 20,036 14,375 22,543




14 DIRECT EQUITY INVESTMENTS (continued)

Arabian Industrial Fibers Co (Ibn Rushd)

For Ibn Rushd the net asset value is considered not to represent the fair value because of the trend of continuing losses.

Accordingly, the fair value of Ibn Rushd has been determined using the present discounted value of estimated future cash flows.

US$ 000 2004 2003 2002

Fair value at the beginning of the year 23,678 25,193 20,821

Fair value adjustment for the year

(change in value of estimated future cashflows) 883 (1,515) 4,372

Fair value - the present value of estimated future cash flows 24,561 23,678 25,193

Commitments - uncalled share capital

Arab Company for Detergent Chemicals (Aradet), Iraq - cancelled in 2003 - - 24,705

Saudi European Petrochemical Co (Ibn Zahr) 4,649 4,649 4,649

4,649 4,649 29,354

15 PROPERTY AND EQUIPMENT

US$ 000 2004 2003 2002

Cost

Land at Rakah - head office building and housing compound 4,004 4,004 4,004

Head office building, equipment, décor and furnishings 36,945 36,856 36,796

Housing compound buildings, equipment, decor and furnishings 27,713 27,505 27,222

Computer hardware and other office equipment 1,664 1,552 1,438

Computer systems software 743 694 893

Total cost at 31 December 71,069 70,611 70,353

Accumulated depreciation (28,335) (25,563) (23,104)


Movements in the year

Net carrying value at the beginning of the year 45,048 47,249 47,669

Additions at cost

Head office building, operating equipment, décor and furnishings 89 143 894

Housing compound buildings, operating equipment, décor and furnishings 208 250 265

Core computer systems software - acquisition and implementation 50 59 617

Other 112 81 390

Depreciation charge (2,771) (2,734) (2,569)

Disposals at net carrying value - mostly fully depreciated (2) - (17)


Capital commitments

Contracted for 131 70 84

Approved by the Board of Directors, but not yet contracted for 660 630 790



16 OTHER ASSETS

US$ 000 2004 2003 2002

Payments made under guarantees to creditors of Aradet

Contractors' claims with respect to STPP plant

1997-1998 - denominated in Euros 46,211 38,309 33,509

Bank loan guarantee 1990-1998 - denominated in Euros 7,855 8,480 7,418

Recovery - bank loan guarantee (see note 13) (7,855) (955) -

Impairment losses - denominated in Euros (45,241) (41,334) (36,812)

Fair value - estimated saleable value of machinery, currently in the

possession of APICORP, intended for the Aradet STPP plant in Iraq

(see below) 970 4,500 4,115

Investment property - land at Dammam at estimated fair value 1,995 2,359 2,359

Receivables

Accrued interest receivable 10,328 8,894 8,386

Employee loans and advances 68 82 136

Miscellaneous receivables and advance payments 658 1,555 1,290

Carrying value as on the balance sheet 14,019 17,390 16,286

Aradet STPP plant machinery

The machinery came into APICORP's possession following the settlement (as guarantor on behalf of Aradet) of contractors'

claims and related costs amounting to US$ 46.2 million (at current exchange rates) in 1997-1998. It is presently warehoused

in Belgium, and Aradet reimburses the Corporation for the storage costs.

Following the successful negotiations leading to the settlement the Corporation's long outstanding direct loan to Aradet in

2003 (see note 13), it is envisaged that in 2005 agreement may be reached with respect to repayment of the remaining

outstanding amounts related to the STPP plant and the release of the machinery to Aradet.

Meanwhile, for prudence, the machinery is carried at its estimated saleable value on the open market as assessed by an

independent expert .



17 DEPOSITS FROM BANKS

US$ 000 2004 2003 2002

Short-term US dollar deposits from banks 502,471 588,660 366,226

Short-term non-dollar deposits from banks

(euros, Swiss francs and Saudi riyals) 102,450 96,610 169,950

Short-term US dollar Morabaha liabilities to Islamic financial institutions 149,129 117,562 175,731

Short-term non-dollar Morabaha liabilities to Islamic financial institutions 104,624 71,543 13,249

Total as on the balance sheet 858,674 874,375 725,156

18 TERM FINANCING

US$ 000 2004 2003 2002

US$ 200 million loan 2000-2005 - fully drawn 200,000 200,000 200,000

Interest rate: US$ LIBOR plus 40 basis points

US$ 300 million loan 2002-2007 - fully drawn 300,000 300,000 225,000

Interest rate: US$ LIBOR plus 45 basis points

Unamortised front-end fees for all current facilities (902) (1,441) (1,981)

Total amortised cost as on the balance sheet 499,098 498,559 423,019

The agreement for the US$ 200 million loan (for general corporate purposes) was signed on 9 July 2000 with a consortium

of 16 international banks. The agent for the consortium is Deutsche Bank Luxembourg SA. The Corporation intends to

refinance this facility, upon maturity, in 2005.

The agreement for the US$ 300 million (to refinance the two facilities that matured in 2002) was signed on 30 May 2002

with a consortium of 20 international banks.The agent is Credit Agricole Indosuez, Paris, France.

The loans are subject to similar financial covenants, with which the Corporation has complied:

• The ratio of total shareholders' funds to total assets shall at all times be equal to or greater than 0.2; and

• The amount of total shareholders' funds shall at all times be greater than US$ 500 million.

2004 2003 200219 OTHER LIABILITIES

US$ 000 2004 2003 2002

Accrued interest payable 5,558 3,543 4,629

Retentions due to contractors - head office building - - 473

Staff Retirement Fund current account (2002: receivable) - 681 (1,316)

Accrued expenses 1,265 1,618 1,355

Other payables 11,585 2,751 1,858

Total as on the balance sheet 18,408 8,593 6,999



20 EMPLOYEE RETIREMENT BENEFITS

A contributory defined-benefit retirement plan (The Staff Retirement Fund - the Fund) has been established to provide

APICORP employees with end-of-service gratuities and indemnities for death or disablement arising during service with the

Corporation. It is administered by a committee consisting of the General Manager and other senior managers as appointed

by the Board of Directors.

The Fund was actuarily valued at 31 December 1999, by the projected benefit method, assuming a discount rate of 8 percent

and average annual increases in salaries of 5 percent.The result indicated that the liabilities of the Fund to its beneficiaries

were adequately covered by the fair values of the Fund's assets.

US$ 000 2004 2003 2002

Current service cost

The Corporation's contributions to the Fund in respect of

current service cost, as charged in the income statement 915 930 965

21 OFF-BALANCE SHEET EXPOSURES

US$ 000 2004 2003 2002

The Corporation has off-balance sheet exposures as follows:

Commitments to underwrite and fund loans (see note 13) 480,484 447,307 489,887

Commitments to subscribe further capital to direct equity

investments (see note 14) 4,649 4,649 29,354

Guarantees as shareholder (see below) 75,230 90,300 90,300

Contracted capital expenditure commitments (see note 15) 131 70 84

Foreign exchange swap commitments - 50,933 -

Credit default swap commitments 3,000 - -

Total exposures as on the balance sheet 563,494 593,259 609,625

Guarantees as shareholder

APICORP is an 8.28% shareholder in The Arabian Industrial Fibers Company (Ibn Rushd) (see note 14), which in turn had a

senior debt facility from a consortium of banks (including the Corporation) of US$ 850 million.The shareholders had given

a guarantee whereby they would be severally liable to repay the loan to the banks in full, should the borrower fail to comply

with certain conditions. In September 2002 this loan was prepaid and replaced by a similar loan from the Public Investment

Fund, Saudi Arabia, similarly guaranteed by the shareholders. The Corporation's contingent liability thereunder remains at

US$ 70.4 million, as hitherto.

Under a previous rescheduling of the US$850 million loan,APICORP, as a shareholder, has provided an additional guarantee

of US$19.9 million in respect of a new US$200 million revolving facility made available by the banks.The facility was prepaid

and cancelled in 2004 and the related guarantee was released accordingly.



21 OFF-BALANCE SHEET EXPOSURES (continued)

APICORP is a 10% shareholder in The Egyptian Fertilisers Company (EFC) (see note 14), which had a loan facility from a

consortium of banks (including the Corporation) of US$250 million to finance an expansion project. In compliance with the

loan's conditions, the shareholders had given an undertaking, prorated on their respective shares, to cover cost overrun or

cash flow shortfall limited to 15% of the total project cost of US$322 millions. The Corporation's contingent liability

thereunder is US$4.8 million.

Derivatives

As at 31 December 2004, APICORP had one open credit default swap transaction, of US$3 million, for a reference bond

portfolio rated A- by Standard & Poor's.The portfolio is managed by HSBC.

22 RELATED PARTY TRANSACTIONS

APICORP's principal related parties are its shareholders. Although the Corporation does not transact any commercial

business directly with the shareholders themselves, it does finance companies which are either controlled by the shareholder

governments or over which they have significant influence.

US$ 000 2004 2003 2002

Loans to related parties

Loans outstanding at 31 December - gross 907,129 1,011,600 881,455

Impairment allowances at 31 December (13,335) (17,752) (61,502)

Dividends offset against Iraq direct loans (33,652) (31,072) -

Commitments to lend at 31 December 367,097 260,543 351,899

Interest from loans during the year 23,585 21,004 20,582

Loan fees received during the year 5,305 3,387 5,663

Loans to related parties are made at ruling market interest rates and subject to normal commercial negotiation as to

terms.The majority of loans to related parties are syndicated, which means that participation and terms are negotiated by a

group of arrangers, of which the Corporation may, or may not, be a member. No loans to related parties were written off

in 2002-2004.

2004 2003 2002

Direct equity investments in related parties

Investments at 31 December - at fair value 160,589 154,482 147,322

Guarantees as shareholder at 31 December (see note 21) 75,230 90,300 90,300

Commitments to invest at 31 December 4,649 4,649 29,354

Dividends received during the year 9,287 7,798 4,011



23 CASH FLOWS FROM OPERATING ACTIVITIES

US$ 000 2004 2003 2002

Cash flows from operating activities are reconciled to

net income for the year as follows:

Net income for the year (as page 31) 38,852 33,517 28,458

Adjustments for non-cash items

Gains on trading securities (8,766) (9,438) (4,836)

Realised gains on sale of available-for-sale securities (124) (3,013) (5,672)

Depreciation of property and equipment 2,771 2,734 2,569

Investment property - decrease in fair value (2002 : increase) 364 - (865)

Net reversals of impairment losses - loans (2,877) (13,826) (6,957)

Impairment losses - payments under guarantees (2003, 2002 : reversal) 3,530 (1,340) (969)

Impairment reversals (2002: losses) - available-for-sale securities (236) (3,476) 3,964

Impairment losses - direct equity investments - 4,169 -

Amortisation and exchange differences, net (2,540) 8,323 (2,726)

Other non-cash items 2,633 298 1,155

33,607 17,948 14,121

Net sales of trading securities 4,500 18,660 19,413

Dividends from direct equity investments (included in investing activities) (10,669) (8,352) (4,139)

Rent received (included in investing activities) (678) (694) (620)

26,760 27,562 28,775

Changes in operating assets and liabilities

Decrease in deposits placed with banks (2003: increase) 16,021 (22,824) 98,168

Syndicated and direct loans drawn down (380,484) (403,504) (624,238)

Loan repayments and prepayments received - performing loans 386,272 285,072 434,020

Recoveries in respect of impaired loans 4,640 14,312 749

Decrease in other operating assets (2003: increase) 782 (694) 258

Decrease in deposits from banks (2003, 2002 :increase) (15,701) 149,219 266,362

Increase in other operating liabilities (2003, 2002 : decrease) 7,020 (3,062) (4,012)

Cash inflows from operating activities (as page 35) 45,310 46,081 200,082

2004 2003 2002US$ 000 US$ 000 US$ 000



24 CAPITAL ADEQUACY

The risk asset ratio at 31 December 2004, calculated in accordance with the capital adequacy guidelines of the Basle

Committee on Banking Supervision, is as follows:

US$ 000 2004 2003 2002

Carrying values

On-balance sheet assets (as page 32) 2,120,596 2,088,426 1,864,002

Off-balance sheet exposures (see note 21) 563,494 593,259 609,625

2,684,090 2,681,685 2,473,627

Risk-weighted exposures

On-balance sheet assets 1,698,904 1,593,708 1,438,991

Off-balance sheet exposures 543,400 541,020 594,948

Total risk-weighted exposures 2,242,304 2,134,728 2,033,939

Capital adequacy ratio

Qualifying capital base expressed as a percentage of total

risk-weighted exposures:

Capital base - Tier-1 capital: Shareholders' equity as on

the balance sheet (as page 32) 744,416 706,899 680,088

Capital adequacy ratio 33.2% 33.1% 33.4%

25 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial instruments

A financial instrument is any contract that gives rise to both a financial asset in one enterprise and a financial liability or equity

instrument in another enterprise.

• APICORP’s financial assets are principally trading securities (note 10), available-for-sale securities (note 11), deposits placed

with banks (note 12), syndicated and direct loans (note 13), direct equity investments (note 14) and certain other assets

(note 16).

• Financial liabilities consist of commitments to lend (note 13) and invest (note 14), deposits from banks (note 17), term

financing (note 18), other liabilities (note 19), and guarantees (note 21).

These financial instruments expose APICORP to varying degrees of price risk (including currency, interest rate and market

risks), credit risk and liquidity risk.


25 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Price risk management

Price risk is the risk that interest rates, foreign exchange rates or market prices will move relative to positions taken,

exposing APICORP to potential losses and potential gains.

• Market risk is the risk that the value of a financial instrument will vary as a result of changes in market prices, whether

caused by factors specific to the individual security or its issuer or by factors affecting all securities traded in the market.

It arises both on financial instruments valued at current market prices (mark-to-market basis) as well as those valued at

cost-plus-accrued-interest (accruals basis).

APICORP holds (but currently does not actively trade) debt and equity securities.Treasury activities are controlled by the

Assets and Liabilities Committee and are also subject to a framework of Board-approved currency, industry and

geographical limits and ratings by agencies including Standard & Poor’s.

• Interest rate risk: Syndicated and direct loans are normally denominated in United States dollars, as is the Corporation’s

funding, and interest rates for both are normally linked to LIBOR.

Exposure to interest rate risk is restricted by permitting only a limited mismatch between the repricing of the main

components of the Corporation’s assets and liabilities.The repricing profile of assets and liabilities is set out in note 29.

• Currency risk is minimised by regular review of exposures to currencies other than United States dollars to ensure that

no significant positions are taken which may expose APICORP to undue risks. Currently there is no trading in foreign

exchange.The Corporation’s net currency exposures are set out in note 30.

Credit risk management

Credit risk is the risk that a borrower or counter-party of APICORP will be unable or unwilling to meet a commitment that

it has entered into with the Corporation. It arises from the lending, treasury and other activities undertaken by the

Corporation. Policies and procedures are in place for the control and monitoring of all such exposures.

Proposed loans and direct equity investments are subject to systematic investigation, analysis and appraisal before being

reviewed by the Credit Committee (consisting of the General Manager and senior managers), which makes appropriate

recommendations to the Board of Directors, who have the ultimate authority to sanction commitments.These procedures,

plus the fact that most of the loans are backed by sovereign guarantees and export credit agency cover, limit APICORP’s

exposure to excessive credit risk.

The Corporation faces a credit risk on undrawn commitments because it is potentially exposed to loss in an amount equal to

the total unused commitments. However the eventual loss, if any, will be considerably less than the total unused commitments,

since most commitments to extend credit are contingent upon borrowers maintaining specified credit standards.



25 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Credit risk management (continued)

All loan commitments, whether drawn or undrawn, are subject to systematic monitoring so that potential problems may be

detected early and remedial action taken.

With one minor exception,APICORP representatives sit on the boards of companies in which the Corporation has direct

equity investments and thus are in a position to monitor circumstances that may expose the Corporation to risk.

Treasury activities are controlled by means of a framework of limits and credit ratings. Dealing in marketable securities is

primarily restricted to United States and major European stock exchanges. Dealings are only permitted with approved

internationally rated banks, brokers and other counter-parties. Securities portfolios and investing policies are reviewed from

time to time by the Assets and Liabilities Committee.

Liquidity risk and funding management

Liquidity risk is the risk of being unable to raise funds at a reasonable price to meet commitments when they fall due, or

to take advantage of investment opportunities when they arise. Liquidity risk management ensures that funds are available at

all times to meet the funding requirements of the Corporation.

APICORP’s liquidity management policies are designed to ensure that even under adverse conditions, the Corporation has

access to adequate funds to meet its obligations, and to service its core investment and lending functions.This is achieved by

the application of prudent but flexible controls, which provide security of access to liquidity without undue exposure to

increased costs from the liquidation of assets or to bid aggressively for deposits.

Liquidity controls also provide for an adequately diversified deposit base in terms of maturities and the range of counter-parties.

The asset and liability maturity profile based on contractual repayment terms is set out in note 28.




26 EFFECTIVE INTEREST RATES

The effective interest rates of the Corporation's financial instruments at the balance sheet date were:

2004 2003 2002

Interest-bearing financial assets

Fixed-rate bonds - weighted average 2.08% 2.13% 2.33%

Floating-rate bonds - weighted average 3.06% 2.26% 3.00%

Structured notes 2.80% - -

Deposits placed with banks - weighted average 2.73% 1.15% 1.49%

Syndicated and direct loans - weighted average 3.20% 2.83% 2.90%

US dollar denominated 3.21% 2.42% 2.76%

Non-dollar - mainly denominated in euros 3.08% 3.34% 4.63%

Interest bearing financial liabilities

Deposits from banks - weighted average 2.19% 1.27% 1.94%

US dollar denominated 2.30% 1.20% 1.64%

Non-dollar - euros, Swiss francs and Saudi riyals 2.02% 1.75% 2.84%

Term financing - weighted average 2.75% 1.60% 2.16%

US$ LIBOR at 31 December was:

One-month 2.39% 1.02% 1.30%

Three-month 2.56% 1.06% 1.28%

Six-month 2.79% 1.14% 1.30%

27 FAIR VALUE INFORMATION

The following financial assets and liabilities are not carried at fair value in the Corporation's balance sheet:

US$ 000 2004 2003 2002

Financial assets - syndicated and direct loans

Carrying value - amortised cost less impairments (see note 13) 1,149,413 1,149,715 1,056,013

Fair value - based on current market prices 1,175,781 1,166,620 1,070,636

Financial liabilities - term financing

Carrying value - amortised cost (see note 18) 499,098 498,559 423,019

Fair value - based on current market rates for similar remaining maturity 499,224 494,331 418,950



28 MATURITY PROFILE OF ASSETS AND LIABILITIES

The maturity profile of the Corporation's assets and liabilties as at 31 December, based on contractual repayment

arrangements, is set out below.The apparent significant short-term mismatch between maturities of assets and liabilities is

substantially reduced in practice because the majority of deposits from banks are routinely rolled over on maturity.

Up to 3 months 1 year 5 years 2004

3 months to 1 year to 5 years and over Total

ASSETS

Cash and cash equivalents 16,079 - - - 16,079

Trading securities - - 75,858 75,858

Available for sale securities - 20,366 362,442 37,905 420,713

Deposits placed with banks 193,669 - - - 193,669

Syndicated and direct loans (752) 18,485 556,710 574,970 1,149,413

Direct equity investments - - - 208,111 208,111

Property and equipment - - - 42,734 42,734

Other assets 9,264 1,759 31 2,965 14,019

Total assets 218,260 40,610 919,183 942,543 2,120,596

LIABILITIES AND EQUITY

Deposits from banks (635,926) (222,748) - - (858,674)

Term financing 135 274 (299,507) (200,000) (499,098)

Other liabilities (15,638) (2,770) - - (18,408)

Shareholders' equity - (20,000) - (724,416) (744,416)

Total liabilities and equity (651,429) (245,244) (299,507) (924,416) (2,120,596)

MATURITY GAP (433,169) (204,634) 619,676 18,127 -

CUMULATIVE MATURITY GAP -

31 December 2004 (433,169) (637,803) (18,127) -

31 December 2003

Total assets 246,063 76,850 1,039,342 726,171 2,088,426


Maturity gap (537,956) (40,878) 540,243 38,591 -

Cumulative maturity gap -

31 December 2003 (537,956) (578,834) (38,591) -

31 December 2002

Total assets 228,049 13,631 931,137 691,185 1,864,002


Maturity gap (412,654) (77,821) 479,378 11,097 -

Cumulative maturity gap -

31 December 2002 (412,654) (490,475) (11,097) -



29 REPRICING PROFILE OF FINANCIAL ASSETS AND LIABILITIES

The repricing profile of the Corporation's financial assets and liabilities at 31 December was as follows:

Effective 2004 Up to Between Between Between interest Total 3 months 3 months 1 year and 2 years More than

rate and 1 year 2 years and 5 years 5 years

ASSETS

Available for sale securities

Fixed-rate bonds 2.08% 276,560 - 15,336 260,238 986 -

Floating-rate bonds 3.06% 36,854 36,854 - - - -

Structured notes 2.80% 78,727 9,646 69,081 - - -

Deposits placed with banks 2.73% 193,669 193,669 - - - -

Syndicated and direct loans

US$ denominated 3.21% 1,060,284 774,024 286,260 - - -

Non-US$ denominated 3.08% 106,670 32,902 73,768 - - -

LIABILITIES

Deposits from banks

US$ denominated 2.30% (651,600) (467,519) (184,081) - - -

Non-US$ denominated 2.02% (207,074) (168,407) (38,667) - - -

Term financing 2.75% (499,098) (249,865) (249,233) - - -

Interest rate sensitivity gap 394,992 161,304 (27,536) 260,238 986 -

Effective 2003 Up to Between Between Between More thaninterest Total 3 months 3 months 1 year and 2 years 5 years

rate and 1 year 2 years and 5 years

ASSETS

Available for sale securities

Fixed-rate bonds 2.13% 349,611 - 2,589 39,782 307,240 -




US$ denominated 2.42% 1,040,681 780,228 260,453 - - -

Euro denominated 3.34% 122,210 54,988 67,222 - - -

LIABILITIES

Deposits from banks

US$ denominated 1.20% (706,221) (612,221) (94,000) - - -

Euro and Saudi riyal 1.75% (168,154) (164,274) (3,880) - - -

Term financing 1.60% (498,559) (498,559) - - - -

Interest rate sensitivity gap 372,223 (207,183) 232,384 39,782 307,240 -



29 REPRICING PROFILE OF FINANCIAL ASSETS AND LIABILITIES (continued)

Effective 2002 Up to Between Between Between More thaninterest Total 3 months 3 months 1 year 2 years 5 years

rate and 1 year and 2 years and 5 years

ASSETSAvailable for sale securities

Fixed-rate bonds 2.33% 263,311 30,228 22,958 94,455 115,670 -




US$ denominated 2.76% 963,227 670,959 292,268 - - -

Euro denominated 4.63% 81,475 77,998 3,477 - - -

LIABILITIES

Deposits from banks

US$ denominated 1.64% (541,957) (451,854) (90,103) - - -

Euro and Saudi riyal 2.84% (183,199) (183,199) - - - -

Term financing 2.16% (423,019) (423,019) - - - -

Interest rate sensitivity gap 380,505 (58,220) 228,600 94,455 115,670 -

30 CURRENCY EXPOSURES

The Corporations' currency exposures at 31 December were as follows:

US$ 000 2004 2004 2004 2003 2002 assets liabilities net net net

and equity exposure exposure exposureASSETS, LIABILITIES AND EQUITY

United States dollar 1,833,545 (1,883,441) (49,896) (144,270) (50,620)

Euro 96,805 (95,955) 850 16,522 1,273

Other OECD currencies (see page 57) 29,611 (27,574) 2,037 1,428 1,016

Arab currencies

GCC (see page 57) 128,894 (100,980) 27,914 110,050 31,638

Other Middle East 2,606 (1,545) 1,061 1,061 1,537

Egypt and North Africa 29,135 (11,101) 18,034 15,209 15,156

2,120,596 (2,120,596) - - -

COMMITMENTS AND GUARANTEES

United States dollar 511,366 489,666 556,096

Euro 47,356 47,530 48,862

Other OECD currencies (see page 57) - 481 -

Arab currencies - GCC (see page 57) 4,772 55,582 4,667

563,494 593,259 609,625



Other OECD currencies

The other member countries of the Organisation for Economic Co-operation and Development, excluding the United States

and the twelve European Monetary Union countries are:Australia, Canada, Czech Republic, Denmark, Hungary, Iceland, Japan,

Mexico, New Zealand, Norway, Poland, South Korea, Sweden, Switzerland,Turkey and the United Kingdom.

GCC

The member states of the Gulf Co-operation Council are: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab

Emirates.Their currencies are pegged against the United States dollar (Kuwait: basket of currencies to 31 December 2002).

Significant exchange rates

The following year-end rates have been used in translating other currencies to United States dollars:

US$ 000 2004 2003 2002

Euro EUR 1 = US$ 1.3624 1.2516 1.0488

Saudi riyal US$ 1 = SAR 3.7500 3.7500 3.7500

Swiss franc US$ 1 = CHF 1.1334 1.2480 1.3863

Egyptian pound US$ 1 = EGP 6.1000 6.1852 4.5000



31 INDUSTRY DISTRIBUTION OF ASSETS AND LIABILITIESThe industry distribution of the Corporation's assets and liabilities at 31 December was as follows:

US$ 000 2004 2003 2002

ASSETSPetroleum and petrochemicals

Refineries 78,083 61,973 40,566 Oilfield production development and services 113,259 144,630 82,354 Floating production, storage and offloading facilities - 19,371 14,390 Pipelines and distribution 43,406 55,420 37,814 Gas-to-liquids plants 24,330 9,080 - Liquefied natural gas plants 195,750 155,661 174,117 Petrochemical plants 620,869 578,579 533,849 Fertiliser plants 65,222 93,599 97,231 Maritime transportation 55,953 52,205 49,221 Trade finance 14,854 100,058 96,467 Power generation 105,970 68,101 28,588 Other petroleum 9,276 12,754 76,414

Total petroleum and petrochemicals 1,326,972 1,351,431 1,231,011

Banks and financial institutions 395,540 356,659 371,115 Banks and financial institutions - managed funds 101,155 89,940 76,583 Other industries 94,258 97,010 90,408 Governments and public sector institutions 202,671 193,386 94,885

Total assets 2,120,596 2,088,426 1,864,002

LIABILITIES AND EQUITYBanks and financial institutions 1,363,330 1,377,158 1,181,544 Other industries 12,850 4,369 2,370 Shareholders 744,416 706,899 680,088

Total liabilities and equity 2,120,596 2,088,426 1,864,002

COMMITMENTS AND GUARANTEESPetroleum and petrochemicals

Refineries 46,944 23,506 13,301 Oilfield production development and related services 10,000 48,333 90,422 Floating production, storage and offloading facilities - - 5,117 Pipelines and distribution - 7,264 11,422 Gas-to-liquids plants 14,166 31,296 - Liquefied natural gas plants 118,097 61,000 4,674 Petrochemical plants 179,574 150,097 213,862 Fertiliser plants 34,429 74,687 51,101 Maritime transportation 34,894 - 5,813 Trade finance 21,736 55,773 98,306 Power generation 30,123 - 25,223

Total petroleum and petrochemicals 489,963 451,956 519,241Banks and financial institutions 3,000 70,833 19,900 Other industries 131 70 84 Governments and public sector institutions 70,400 70,400 70,400

Total commitments and guarantees 563,494 593,259 609,625



32 GEOGRAPHICAL DISTRIBUTION OF RISKThe geographical distribution of risk of the Corporation's assets and liabilities at 31 December, after taking into accountinsurance and third-party guarantees, was as follows:

US$ 000 2004 2003 2002

ASSETSKingdom of Saudi Arabia 607,364 564,340 584,889 State of Qatar 256,037 247,936 249,580 Other Gulf Co-operation Council states 378,186 259,111 219,276 Other Middle East states 17,343 26,338 56,397 Egypt and North Africa 217,135 316,118 228,288

Total Arab World 1,476,065 1,413,843 1,338,430

Western Europe 410,139 484,153 203,918 India, Bangladesh and Pakistan 15,126 17,542 12,780 Asia Pacific Rim 30,823 8,913 44,782 United States 110,659 135,695 262,445 Other North and South America 77,784 28,280 1,647

Total assets 2,120,596 2,088,426 1,864,002

LIABILITIES AND EQUITYKingdom of Saudi Arabia 446,672 450,524 290,339 State of Qatar 96,344 130,264 96,956 Other Gulf Co-operation Council states 780,980 676,385 588,235 Other Middle East states 100,679 159,479 214,467 Egypt and North Africa 223,259 216,768 201,339

Total Arab World 1,647,934 1,633,420 1,391,336

Western Europe 468,662 410,450 398,747 Asia Pacific Rim 4,000 44,556 64,885 United States - - 9,034

Total liabilities and equity 2,120,596 2,088,426 1,864,002

COMMITMENTS AND GUARANTEESKingdom of Saudi Arabia 283,800 277,970 262,675 State of Qatar 117,895 36,780 42,353 Other Gulf Co-operation Council states 78,981 119,625 145,262 Other Middle East states 4,830 - 24,705 Egypt and North Africa 64,988 153,111 117,912

Total Arab World 550,494 587,486 592,907

Western Europe 3,000 - - India, Bangladesh and Pakistan - 5,773 - Asia Pacific Rim 10,000 - 16,718

Total commitments and guarantees 563,494 593,259 609,625

AUDITORS’ REPORT TO THE SHAREHOLDERS

AUDITORS' REPORT TO THE SHAREHOLDERS

OF ARAB PETROLEUM INVESTMENTS CORPORATION

We have audited the accompanying balance sheet of Arab Petroleum Investments Corporation as of 31 December 2004, and

the related statements of income, cash flows and changes in equity for the year then ended.These financial statements are

the responsibility of the corporation's management. Our responsibility is to express an opinion on these financial statements

based on our audit.

We conducted our audit in accordance with International Standards on Auditing.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 management, as well as

evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the corporation as of

31 December 2004 and the results of its operations and its cash flows for the year then ended in accordance with

International Financial Reporting Standards.

6 April 2005

Manama, Kingdom of Bahrain

A Member of Ernst & Young Global

60

DR. ABDULLAH A. BAESHEN - COUNTRY CO-ORDINATING PARTNER

P.O Box 140 Phone: 17 53 54 5514th Floor Fax: 17 53 54 05City Gardens [email protected] www.ey.com/meKingdom of Bahrain C.R. No. 6700

Financial Statementsfor the year ended 31 December 2004

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