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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

ARAB PETROLEUM INVESTMENTS CORPORATION 15

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.

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