ARAB PETROLEUM INVESTMENTS CORPORATIONDr. Abdulla Ali Al-Ibrahim Senior Manager Talal Khalil...

ARAB PETROLEUMINVESTMENTS CORPORATION

P. O. Box 9599Dammam 31423Kingdom of Saudi Arabia

Telephone966(3) 847 0444

Fax966(3) 847 0011966(3) 847 0022

Telex870068 APIC SJ

[email protected]

Websitewww.apicorp-arabia.com

ContentsAPICORP Shareholders 1Financial Summary 1999-2003 2Board of Directors 3Executive Management 4Chairman’s Statement 5Board of Director’s ReportAPICORP Activates in 2003Project and Trade Finance 7Direct Equity Investments 10Treasury Activities 152003 Financial StatementsIntroduction 19Accounting Policies 20Income Statement 25Balance sheet 26Changes in Shareholder’s equity 27Cash Flows 28Notes to the Financial Statements 29Auditors’ Report to the Shareholders 46

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).

1

APICORP SHAREHOLDERS

APICORP is wholly owned by the member states of the Organisation of Arab Petroleum Exporting Countries (OAPEC), as follows:

ShareholdingUnited Arab Emirates 17 %Kingdom of Bahrain 3 %Democratic and Popular Republic of Algeria 5 %Kingdom of Saudi Arabia 17 %Syrian Arab Republic 3 %Republic of Iraq 10 %State of Qatar 10 %State of Kuwait 17 %Socialist People’s Libyan Arab Jamahiriya 15 %Arab Republic of Egypt 3 %

100%

2

The Corporation is independent, both in its management and in the performance of its activities. APICORP conducts its operations 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 industry at large. These include all businesses which are based on the development, 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 market.

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

1. initiate, study and promote petroleum, and petroleum related projects, and participate in their equity financing;2. extend or guarantee medium and long-term loans to finance projects in the petroleum industry;3. participate in the short-term financing of the international trade in Arab petroleum, gas and petrochemicals.4. underwrite, purchase and sell the shares (and equity capital) of companies in the petroleum industry; and5. issue its own bonds and borrow from Arab and international financial markets.

FINANCIAL SUMMARY 1999-2003

60,000

50,000

40,000

30,000

20,000

10,000

0

19

99

2000

2001

2002

2003

19

99

2000

2001

2002

2003

19

99

2000

2001

2002

2003

1,800,000

2,000,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000 100,000

200,000

300,000

400,000

500,000

600,000

700,000

0 0

Sha

reho

lder

’s E

qui

tyU

S$

000

Tota

l Ass

ets

US

$ 00

0

Net

Inco

me

US

$ 00

0

BOARD OF DIRECTORS

Chairman of the BoardAbdullah A. Al-ZaidFor the Kingdom of Saudi Arabia

Deputy Chairman of the BoardMohammed A. DahmaniFor the Socialist People’s Libyan Arab JamahyriaMember of the Audit CommitteeMohamed Ali Al-Huwej up to March 2004

Naser Mohamed Al-SharhanFor the United Arab Emirates

Dr. Muthana A. Al BadryFor the Republic of Iraq

Ibrahim Ben A. Al-MannaieFor the State of QatarAhmed Bin Hamad Al-Noaimi up to April 2004

Abbas Ali NaqiFor the State of KuwaitChairman of the Audit Committee

H.E. Eng. Sameh FahmiFor the ArabRepublic of Egypt

Mahmood Hashim Al-KoohejiFor the Kingdom of BahrainMember of the Audit Committee

Fareed BakaFor the Democratic and PopularRepublic of AlgeriaAbderrezak Naili Douaouda up to April 2004

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

Members of the Board

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EXECUTIVE MANAGMENT

Chief Executive and General ManagerRasheed M. Al-Maraj

Projects DepartmentDr. Abdulla Ali Al-IbrahimSenior Manager

Talal KhalilBusiness Development ManagerNorth Africa and the MediterraneanBussiness Group

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

Dr. Mohamed Abdul-JabbarSenior Economist

Project and Trade FinanceDepartmentThe late Michael HamiltonSenior Manager

Nicolas ThevenotManager, North Africa and theMediterranean Business Group

Rashed Al-GhurairiManager, Trade Finance

Darren DavisManager, GCC Business Group

Bassam Al-TamimiAssistant ManagerNorth Africa and the MediterraneanBusiness Group

Ravi KrishnanAssistant ManagerGCC Business Group

Ali AissaouiSenior Research Officer

Haitham A. MalaikahAssistant Manager GCC Business Group

Treasury and Capital MarketsDepartmentDino Roy MorettoSenior Manager

Hesham FaridPortfolio Manager

Faiq HussainTreasury Officer - Money Markets

Financial Control DepartmentOmar Ibrahim Al OmarSenior Manager

Aymen F. ZeyadaBack Office Manager

Faisal Abbas FadlManagement Accounting Manager

G.G. MangalaChief Accountant

Legal DepartmentDr. Mohamed Nur El-Din El-TahirGeneral Counsel

Dr. Mohamed Abdel-Khalek OmarLegal Consultant

Administration & HumanResources DepartmentAbdulla A. Al NashwanSenior Manager

Mahdi Al. MahdiHead of Public Affairs

Information Systems DepartmentGalal OsmanSenior Manager

Mohamed El-ShinawayOperations & CommunicationsManager

Mohamed El-KhoulySenior Analyst/Programmer

Internal AuditorAbdulaziz Al-Matar

CHAIRMAN’S STATEMENT

It is my pleasure to present to you, on behalf of the Board of Directors of Arab PetroleumInvestments Corporation (APICORP), the twenty-eighth Annual Report on the Corporation’sactivities and its financial results for the year ended 31 December 2003.

Performance and Financial Results

APICORP’s operations in the year 2003 achieved a net profit of US$33.5 million, compared with US$28.5 millionin 2002, 17.5% increase, while total assets rose to US$2,088 million by year end, compared to US$1,864 millionat the end of 2002, a 12% increase. Total shareholder’s equity jumped to US$707 million at the end of 2003 fromUS$680 million at the end of 2002.

We managed to achieve these results in spite of the difficulties that the Arab Region experienced, particularlyduring the first half of the year, which negatively impacted the execution of projects throughout the Arab Region.

APICORP continued its activities in supporting the petroleum industries in the Arab countries, and maintained itsleading position as one of the Arab leading financial institutions in the oil, gas and petrochemical sectors. That wasachieved through the Corporation’s involvement in further equity investment in these industries and by arrangingthe financing required for their development.

During the year 2003, APICORP acted as an arranger of loan financings to total value of US$6.2 billion, with a finaltake of US$435 million, compared to US$ 6.8 billion and a final take of US$624 million in 2002. The net loanbalance rose to US$1,150 million in 2003, compared to US$1,056 million in 2002. Gross income from loanfinancing was US$16 million, compared to US$15.2 million in 2002.

Our loan portfolio is diversified across many sectors of the industry. Our loans help to finance the establishment ofnew projects, support operational or revamping activities of existing projects, financing Arab oil exports, or in theacquisition of equity in the share capital of companies engaged in the petroleum sector. APICORP’s support ofArab oil exports was achieved through the participation in trade finance transactions amounting to US$614 million,with a final take of US$57 million.

Improvement in the world’s oil demand, which rose by 2% during the year, coincided with positive signs of a returnto growth in the world economy, particularly in the US. In addition, the continued strength of oil and gas pricesthroughout the world, as well as the improved prices for many petrochemical products during the year, helped toincrease the profit of the petrochemical and fertiliser industries. Many companies in the Arab Region achievedgood profit margins including those where APICORP holds an equity interest and this positive development wasreflected in the income from our equity participations which contributed US$8.4 million to the Corporation’s profits,equivalent to 18% of the gross income for the year.

The Corporation continued to boost its financial advisory activities during 2003. Of particular note was the awardof two important mandates. Firstly by Oman Polypropylene LLC, for the structuring of its US$ 220 million debtfinancing to partly fund the construction of a new polypropylene plant in Sohar. The second mandate was awardedby Egyptian Natural Gas Holding Company (EGAS), and included a strategic review of its investment in theDamietta LNG project, to be established by the Egyptian General Petroleum Corporation, EGAS and Union Fenosaof Spain.

New Equity Participations

During September 2003, APICORP signed a joint-venture agreement with: Sidi Krier Petrochemical Company,Alexandria Carbon Black Company, the Egyptian Petrochemical Holding Company, the Saudi Egyptian IndustrialInvestments Company and Aditya Birla Group of India. The agreement provides for the establishment of AlexandriaAcrylic Fibers Company. APICORP owns 10% of the company’s paid-up capital of about US$25 million.

This investment represents a new addition to the Corporation’s direct equity investments, and it has added furtherdiversification to our portfolio in line with the Corporation’s strategy aimed at reducing the concentration of itsinvestments, in similar goods or products. This strategy has been adopted in order to reduce the risks that may

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The Chairman and members of the Board of Directors, the General Manager and all APICORP employees, would like toexpress their deep sorrow and grief over the tragic incident that took place at the company’s premises on the morningof Saturday 29th May, 2004 which resulted in the murder of a number of the Corporation’s employees.

Among the victims of that brutal incident was Mr. Michael L. Hamilton, the Senior Manager of the Project and TradeFinance Department who had worked for APICORP for nearly 15 years. His time with APICORP witnessed greatachievements for the Corporation, particularly in the important role that APICORP has taken in the support of the oil,gas and petrochemical industries across the Arab World. There is no doubt that with Mr. Hamilton’s passing, APICORPhas lost one of its outstanding managers and a key architect of its financing activity. Known for his shrewd thinking,hard work and integrity, he was respected by all those who knew or worked with him, and APICORP would like toconvey its deep condolences to his wife, children, friends and family.

The Corporation would also like to extended its sincere condolences to the families of the three other victims of theattack: APICORP employees Zain Al-Abdali and Turki Sohail Al-Nuaimi and the child Rami, the son of our colleague Mr.Samir El-Ghonaimi. We pray that God will rest their souls in peace and will provide their families and friends withcomfort and consolation.

result from the fluctuations associated with particular product price cycles, and also to reflect the Corporation’sdesire to exploit investment opportunities available in the member states in a wider range of petroleum relatedindustries.

Outlook for the Future

APICORP is optimistic of the outlook for economic growth in the Arab Region during 2004, particularly if thesecurity tensions are contained both regionally and internationally, and political and economic reforms are givenmore attention. Such reforms would undoubtedly increase the flow of inward investments and would alsoencourage the more active participation of the private sector in the economic development of the Region.

All indicators confirm that Arab petroleum producing countries would continue their efforts in developing the oiland gas industry in order to meet the anticipated increase in demand for both oil and gas in the coming years. Thiscalls for efforts to be made in order to draw more investments into the Arab Region and should open up newinvestments possibilities in this vital sector of the industry.

As for the future of the Arab petrochemicals industry, the relative advantage of the Region continues due to theavailability of the feedstock needed by these industries, and at a competitive price. For the LNG industry, theincreasing world demand for natural gas will continue to drive growth in the industry in the Arab world, and theGulf Region in particular. In addition, with oil and gas prices continuing to maintain their strength,the petrochemicaland Arab fertilisers industries able to access low-priced feedstocks in the Region, have enjoyed improvedprofitability. In our opinion, these developments will have a positive impact on the Corporation’s business in thefuture, as it should bring numerous opportunities for project financing and advisory and for direct equityinvestments.

Dividend Payable

On the light of the financial results for the year, the General Assembly resolves the distribution of US$20 million tothe shareholders as cash dividends for the year 2003. In accordance with the Statute of the Corporation, the sumof US$ 3.4 million, or 10% of the net profit for 2003 has been transferred to the Legal Reserve.

On behalf of the Board of Directors, I wish to register our sincere thanks and gratitude to the management andstaff of APICORP for their efforts, and perseverance, which contributed to the strong results achieved by theCorporation in 2003. I would also like to take this opportunity to record our sincere appreciation to theGovernments of the Member States, for their continued support and for the fruitful cooperation. Also, I amhonoured, to extend our deep gratitude to the Government of the Custodian of the Two Holy Mosques, theKingdom of Saudi Arabia, the host country, for the special care they offer to the Corporation, commending theirrole in the Corporation’s achievements.

Abdullah A. Al-ZaidChairman of the Board of Directors

BOARD OF DIRECTORS’ REPORT - APICORP ACTIVITIES IN 2003

Project and Trade Finance

Despite the geopolitical uncertainties, which reduced business opportunities and disrupted financial markets in2003, the Corporation remained at the forefront of the regional financing scene. Auspiciously, demand for loanablefunds, which was somewhat subdued in the run up to the war in Iraq, resumed in the immediate aftermath. As aresult, the volume of the Corporation’s outstanding loans rose from US$1,056 million to US$1,150 million duringthe year, an increase of 8.9%.

This growth of loan assets did not, however, translate into higher income. As delays in some of the key projectsaffected the level of both fees and interest income, total operating income rose slightly to US$16 million in 2003from US$15.2 million in the previous year.

An encouraging development over the year has been the expansion of the Department’s advisory and researchactivities, discussed further below.

Project Finance

Given the regional uncertainties and, inevitably, a more cautious approach to new business possibilities, thenumber of new deals concluded during the year was commendable. We estimate that, on average, the totalamounts raised in recent years for hydrocarbon and petrochemical projects in the region has been around US$6billion per year. In 2003, the Corporation was involved in eleven facilities totaling US$6,167 million, with a final takeof US$435 million, and it took a leading role in the arrangement of most of the financing. The following table, whichprovides a sample of the deals concluded during the year, illustrates the diversity of the loan portfolio bothgeographically and by industry.

Client Main Sponsors Amount Purpose APICORP’s Roleand SigningDate

Oryx GTL Qatar Petroleum US$700 million Funding the Mandated Lead Limited, Qatar (51%) and 31 January construction of Arranger, Underwriter

SASOL (49%) 2003 a gas-to-liquid and Bookrunner.plant

Tamoil SA Oilinvest- CHF$42 million Funding the Mandated ArrangerNetherlands BV 1 February 2003 acquisition of(partly-owned TotalFinaElf’sby the Libyan retail network ingovernment) Switzerland

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Egyptian Government of US$ 80 million Project Equity Sole Mandated LeadNatural Gas Egypt (100%) 16 June 2003 Financing Arranger, UnderwriterHolding Documentation BankCompany (EGAS) and Bookrunner

Jubail National Power US$ 167.5 Funding the ParticipantEnergy Company Company Holding million construction of(JEC) (75%) and CMS 11 July 2003 a co-generation

Energy(25%) (steam-power)plant.

Egyptian Government of US$ 100 million Pre-export Mandated LeadGeneral Petrolium Egypt (100%) 16 December facility Arranger and UnderwriterCorporation (EGPC) 2003

Sohar TheGovernment of US$ 1.170 million Funding the ParticipantRefinery Oman (80%) 17 December constructionCompany and Oman Oil 2003 of a new

Company(20%) refinery

Egypt LNG-Train 1 BG(35.5%) US$ 950 million Term loan Mandated LeadCompany Petronas 22 December facility for the Arranger, Underwriter(ELNG-1) (35.5%), EGPC 2003 construction and Bookrunner.

(12%), EGAS of a first natural(12%) and GDF(5%) gas export

liquefaction train

Trade FinanceTrade finance activity was put on hold until the geopolitical concerns eased. Thereafter, the Corporationcommitted to participate in trade-finance transactions of US$ 614 million and a final take of US$ 57 million, infavor of Hyundai Oilbank Co. Ltd and Bangladesh’s Ministry of Power, Energy & Mineral Resources. Furthermore,the Corporation renewed its participation in the US$300 million working capital facility in favour of HolbornMarketing Company Ltd., Cyprus, with an amount of US$ 35 million. These three transactions are detailed in theTable below:

Client Main Sponsors Amount Purpose APICORP’s Roleand SigningDate

Hyundai Oil Bank IPIC-Abu Dhabi US$ 154 million Import of crude Mandated LeadCo, South Korea (50%), Hyundai 26 June oil from the Arranger

Heavy Industry GCC countries(27.7%) andOthers (22.3%)

Ministry of power, Government of US$ 160 million Import of crude Participantenergy &Mineral Bangladesh 5 August oil from theresources, Bangladesh GCC countries

Holborn Europan Oilinvest Netherlands BV US$ 300 million Import of Crude ParticipantMarketing Co. (partly owned by the 14 October oil from Libya

Libyan government) and sales ofrefined productsin German

Client Main Sponsors Amount Purpose APICORP’s Role and SigningDate

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Research

A further encouraging development has been the progress made by the Research Unit within the Project & TradeFinance Department. This Unit was set up early in the year to contribute to the scanning of the Corporationbusiness environment and help in formulating its financing strategy. Over the year, the Research Unit hasfocused on the assessment of industry and country risk exposures. It also supported the advisory work of theDepartment as well as efforts aimed at raising APICORP’s international profile. Further to the presentation madeat the Royal Institute for International Affairs in London in February, the Corporation participated in the jointOPEC-IEA Workshop on Oil Investment Prospects in Vienna in June 2003. Subsequently, the Corporation wasinvited to review the draft study prepared by the International Energy Agency (IEA), ‘World Energy InvestmentOutlook’, which was published later in the year with due attribution to APICORP for its contribution.

Advisory

In addition to the financing activity, the Corporation has stepped up its commitment to advisory work, mainly inconnection with raising debt for projects. The increasing use of project finance within the region is creating theneed for more advisory services, which the Corporation appears to be well placed to provide. In this context, wewere awarded two mandates in 2003, by the Egyptian Natural Gas Holding Company (EGAS) in connection withtheir participation in the Damietta LNG project and by Oman Polypropylene Company for the structuring of thedebt for their Sohar polypropylene plant.

9

Direct Equity Investments

At the end of 2003, the Corporation held direct equity investments in 11 companies in seven Arab countries witha total net asset value of US$ 185.6 million.The operations of these companies cover a wide array of activities: drilling and related services, seismicservices, extraction of LPG, production of polypropylene, methyl tertiary butyl ether, aromatics, purifiedterephathalic acid, polyester fibres, linear alkyl benzene, carbon black, ammonia, urea, NPK fertilizer in additionto storage, trans-shipping and handling of petroleum and petrochemical products.In addition to that, in September 2003, APICORP singed an agreement with Birla Group of India, Sidi KrierPetrochemicals Company, Saudi Egyptian Industrial Investment Company, and Alexandria Carbon BlackCompany to establish “Alexandria Fiber Company” near Alexandria in Egypt. This new company is to produce18,000 ton of acrylic fiber to be marketed in the local market, Middle East, and North Africa.Birla Group will own 55% of the project that will cost about US$ 70 million. Sidi Krier Petrochemicals Companywill own 20%, APICORP and the Saudi Egyptian Industrial Investment Company will own 10% each, andAlexandria Carbon Black Company will own 5%. The shareholders will cover US$ 24.4 million and the other 45million will be covered by commercial loans.

1- Bahrain National Gas Company (BANAGAS) (APICORP investment: 12.5%)

BANAGAS was established in 1978 to extract LPG and condensate from associated gas. Total production in2003 was 82,000 tons of propane, 85,000 tons of butane and 175,000 tons of light naphtha.The net profit for the year reached BD 1.97 million (2002: BD 1.2 million).

2- Arab Drilling & Workover Company (ADWOC) (APICORP investment: 20%)

ADWOC was established in 1978 to provide drilling and related operation services in Libya and nearby Arabmarkets.The utilisation rate for ADWOC’s 14 rigs reached 89 % in 2003 (2002: 88%).Due to the continuous improvements in market conditions, the Company has registered a record profit of LD19.4 million at the end of 2003 (2002: LD 30 million).

10

3- Arab Company For Detergent Chemicals (ARADET) (APICORP investment: 32%)

ARADET was established in 1981 to produce 50,000 tons/yr of linear alkyl benzene (LAB). The LAB complex atBaiji, in operation since 1987, also includes an aromatics line with a capacity of 30,000 tons/yr of benzene.

In 2003, the Company produced 12.7 thousand tons of LAB and sold 15.6 thousand tons (6.3 thousand tons in thelocal market and 9.3 thousand tons exported) and generated a net lprofit equivalent to US$ 9.3million (Net profit in2002: ID 1.311 million).

It is worth mentioning that, although ARADET’s complex in Baiji did not suffer any damages during the militaryoperations, the results of the company’s activities were negatively impacted by the interruption of feedstock supplyfrom nearby refineries.

4- Tankage Méditerranée (TANKMED) (APICORP investment: 20%)

TANKMED was established in 1984 to provide storage, trans-shipping and handling services for petroleum andpetrochemicals products at La Skhira terminal in Tunisia. TANKMED’s total storage capacity, which is 300,000cubic meters, mainly serves the local market.The capacity utilisation rate for 2003 decreased to reach an averageof 60% during the first nine months of the year and total revenues reached TD 5.6 million at the end of 2003(2002: TD 9.1 million). The company has recorded a net profit of TD 1.8 million at the end of 2003 (Net Profit in2002: TD 5.9 million).

5- Arab Geophysical Exploration Services Company (AGESCO) (APICORP investment: 10%)

AGESCO was established in 1985 to provide advanced seismic services in the Arab world .The company owned two seismic crews in 2003 and was able to achieve an operation rate of 90% through theyear.AGESCO has recorded a profit of LD 7.5 million at the end of 2003. (Loss in 2002: LD 2.6 million).

6-The Saudi European Petrochemical Company (Ibn Zahr) (APICORP investment: 10%)

Ibn Zahr was established in 1985 in Jubail to produce methyl tertiary butyl ether (MTBE), a gasoline octanebooster, and polypropylene.MTBE production was 1.5 million tons in year 2003 (design capacity is 1.3 million tons/yr) and polypropyleneproduction reached about 600 thousand tons (design capacity is 640,000 tons/yr.).2003 was another good year for Ibn Zahr with a net profit of SR. 467.4 million (2002: SR 446 million).

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7- Alexandria Carbon Black Company (ACBC) (APICORP investment: 12%)

ACBC was established in 1993 for the production and marketing of Carbon Black.The company has exceeded its full production capacity of 110,000 tons and produced 125,000 tons by the endof November 2003. The export sales were 116,000 tons. The General Assembly approved the increase of the paid up capital of the company from LE 99.5 million to LE 150 million in 2003. The net profit for the year was LE 128.5 million. ( EP 47.4 million at the end of 2002).

8-The Arabian Industrial Fibres Company (Ibn Rushd) (APICORP investment: 8.26%)

Ibn Rushd was established in 1993 in Yanbu on the west of Saudi Arabia as an integrated petrochemicalcomplex for the production of aromatics (730,000 tons/yr), purified terephthalic acid PTA (350,000 tons/yr) andpolyester (146,000 tons/yr). Ibn Rushd’s total production in 2003 amounted to 832 thousand tons, while polyester production amounted to202 thonsand tons, production of PTA was 288 thousand tons, benzene 181 thousand tons, and paraxylene 162thousand tons.Ibn Rushd made a net loss of SR 456.2 million in 2003 (against SR 225.4 million in 2002), due to increasedproduction costs and reduction in prices.

9- Oriental Petrochemicals Company (OPC) (APICORP investment: 14%)

OPC was established in 1996 in the new industrial area north west of the Gulf of Suez (Ain Al-Sokhnah) in Egyptto produce 120,000 tons/yr of raffia grade polypropylene, expandable to 162,000 tons/yr (phase I). The Company has started the commercial production in the beginning of 2002 and became the main producerand supplier of polypropylene in the Egyptian market.During 2003,its second year of commercial production, OPC produced 141 thousand tons, and marketed 130thousand tons of polypropylene and recorded a net profit of LE 64.1 million ( Net Loss in 2002: LE 21.4 million)

10- The Egyptian Fertilizers Company (EFC) (APICORP investment: 10%)

EFC, established in Egypt in 1998, specialises in nitrogen fertiliser products. Phase I, was completed in 2000with a design capacity of 400,000 tons/yr of ammonia and 600,000 tons/yr of urea.In 2003, the company produced 657 thousand ton of urea and sold all of its production of urea in theinternational and local markets in addition to 24.3 thousand tons of surplus ammonia in the local market.The General Assembly approved the increase of the paid up capital of the company from US$ 118 million toUS$ 147.5 million in 2003The net profit of the company reached $63.6 million during 2003. (2002: $25.1 million)

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Company Name Paid-up Capital Participation Other Major ActivitiesShareholders

Bahrain National ) BD 8 million 12.5% Bahrain National Extraction and marketing Gas Company Oil Co.(BANOCO), of LPG and condensate(BANAGAS) Bahrain Caltex from associated gas.Bahrain & Transport Co.

Arab Drilling LD 12 million 20% Arab Petroleum Services Drilling and related and Workover Co.(APSC) Libya operations in the Company (ADWOC) Santa Fe, USA Arab world.Libyan Arab Jamahiriya

Arab Company for ID 36 million 32% Government of the Republic Production and marketing Detergent of Iraq of linear alkyl benzeneChemicals (ARADET) Government of the Kingdom and sodium Iraq of Saudi Arabia tripolyphosphate (STPP).

Government of the State of STPP project is beingKuwait implementedArab Mining Company, JordanThe Arab Investment Co., Riyadh

Tankage Mediterranee TD 12 million 20% I’Entreprise Tunisienne Storing, trans-shipping(TANKMED) d’Activities Petrolieres and handlingTunisia (ETAP), Tunisia Societe Tuniso petroleum and

Seoudienne d’Investissement petrochemical products atet de Developpement La Skhirra terminal. (STUSID),Banque Tunisio -Koweitienne de Developpement (BTKD)

Arab Geophysical LD 4 million 10% Arab Petroleum Services Providing advanced seismic Exploration Services Co. (APSC), Libya services in the ArabCompany (AGESCO) Geosource, UK world.Libyan Arab Jamahiriya National Oil Co., Libya

Saudi European SR 1,025 million 10% Saudi Basic Industries Corp. Production of gasoline Petrochemical (SABIC), Saudi Arabia octane booster MTBE, Company (IBN ZAHR) Ecofuel, Italy and Polypropylene.Saudi Arabia Fortum Oy, Finland

Jordan Phosphate JD 75 million 0.76% Government of the Kingdom Mining phosphate rockMining Company of Jordan production and (JPMC), Government of the State of marketing of chemicalJordan Kuwait fertiliser compounds.

Arab Mining Company, JordanIslamic Development Bank

APICORP EQUITY PARTICIPATIONS AS AT 31 DECEMBER 2003


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Company Name Paid-up Capital Participation Other Major ActivitiesShareholders

Alexandria Carbon LE 150* million 12% Transport and Engineering Production and marketing Black Company Company (El Nesser Tire Co.) of carbon black.(ACBC) Egypt.Egypt Alexandria Tire Company, Egypt

Al-Nasr Coke Company, EgyptSaudi Egyptian IndustrialInvestment Company, EgyptIndian Industrial InvestmentGroup (BIRLA), IndiaInternational Finance Corporation (IFC), USAContinental Carbon Company, USA

The Arabian SR 3,550 million 8.3% Saudi Basic Industries Corp. Production of Aromatics , PTA Industrial Fibers (SABIC), Saudi Arabia and Polyester Fibers. Company (IBN RUSHD) GIC, KuwaitSaudi Arabia Saudi Pharmaceuticals Co.

Saudi Arabia, SAFCO, Saudi Arabia.

Oriental Petrochemical LE 120 million 14% Arab International Investments Production and marketing .Company (OPC) Co., Libya, Oriental Weavers of Polypropylene. Egypt Group, Egypt

National Bank of Egypt (Al-Ahli Bank), EgyptEgyptian Petrochemicals Co.,Egypt,Misr Insurance Co.,EgyptOrient Insurance Co. (Al-Sharq),Egypt

Egyptian Fertilisers US $ 147.5** million 10% Orascom, Egypt Production and marketing Company (EFC) The holding Egyptian Kuwaiti of Urea and surplus Ammonia.Egypt Company

Banque Misr, EgyptMisr Insurance Co., EgyptNational Investment Bank,EgyptOthers

Alexandria Acrylic LE 150 million 10% Aditya Birla Group, India Production and MarketingFibers Co. Sidikrier Petrochemical Co. of Poly Acrylic FibersEgypt Egypt(under establishment) Alexandria Carbon Black Co.

EgyptThe Saudi Egyptian IndustrialInvestment Co. EgyptThe Egyptian PetrochemicalHolding Co. Egypt

* The General Assembly approved the increase of the paid up capital from LE 99.5 million to LE 150 million in 2003.** The General Assembly approved the increase of the paid up capital from US$118 million to US$ 147.5 million in 2003.

BOARD OF DIRECTOR REPORT - APICORP ACTIVITIES IN 2003

Treasury Activities

Treasury activities have been resilient to the high volatility that financial markets witnessed during 2003. Theconservative strategy adopted by the management for Treasury investments and funding operations has had apositive impact on overall performance. Treasury has maintained its focus on non-directional strategies and highquality investments to ensure a stable return and high liquidity.

In 2003, continued economic and political uncertainties fueled instability and volatility in the financial marketsdragging down the interest rates to their lowest levels for many years, while positively impacting the bondsmarkets. Treasury activities, therefore, have been focused on minimizing risk exposures on overall investments thatresulted in a net capital gain of US$6.4 million.

Treasury operations achieved a net income of US$ 21.8 million, compared to US$ 14.5 million in the year 2002.Treasury assets grew from US$ 576 million to US$ 691 million at 31st December 2003, a 20% increase. Thesecurities portfolio has maintained a high standard of credit profile, with an average AA+.maintained a high

standard of credit profile, with an average AA+ rating at 31st December 2003.

Conferences and Seminars

During 2003, APICORP participated in a number of international conferences and seminars where it presented anumber of research and study papers connected with oil, gas and petrochemical industries in the Arab Region.Chief among these conferences were the following:

1) SPE Applied Technology Workshop (ATW) “Gas Monetisation” 16-19 February 2003 * Phuket, Thailand, sponsored by Bahrain Petroleum Company and Petronas.

2) Oil & Gas: Strategic Dialogues, Royal Institute for International Affairs, London, 24-25 February 2003.

3) Joint OPEC - IEA Workshop, Oil Investment Prospects, Vienna, 25th June 2003.

4) MEED - Project Finance Conference, Bahrain, 7-8 October 2003.

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FINANCIAL STATEMENTSFINANCIAL STATEMENTSYear ended 31 December 2003

CONTENTS Page

IntroductionThe formation, status and activities of APICORP 19

Accounting policies applied in the 2003 financial statements

A General 20 B Financial instruments 20-21C Cash and cash equivalents 22 D Loans and other receivables 22 E Securities 22-23F Direct equity investments 23G Property and equipment 23-24H Investment property 24I Income recognition 24

Primary financial statements for the year ended 31 December 2003

Income statement 25Balance sheet 26Changes in shareholders’ equity 27Cash flows 28

Notes to the 2003 financial statements

1 Net interest income 292 Net fee income 29 3 Dividend income 304 Gains on trading securities 30 5 Realised gains on available-for-sale securities 306 Other operating income 307 General administrative expenses 308 Impairment losses 319 Other operating expenses 31 10 Trading securities 3111 Available-for-sale securities 3112 Deposits placed with banks 3213 Syndicated and direct originated loans 32-3314 Direct equity investments 3415 Property and equipment 3516 Other assets 3517 Deposits from banks 3618 Term financing 3619 Other liabilities 3620 Employee retirement benefits 36-3721 Off-balance sheet exposures 3722 Related party transactions 3723 Cash flows from operating activities 3824 Capital adequacy 3825 Financial instruments and risk management 39-4026 Effective interest rates 4027 Fair value information 4028 Maturity profile of assets and liabilities 4129 Repricing profile of financial assets and liabilities 4230 Currency exposures 4331 Industry distribution of assets and liabilities 4432 Geographical distribution of risk 45

Auditors’ Report to the Shareholders 4645

17The financial statements consist of pages 19 to 45

18

Financial Statements for the Year Ended 31st December 2003

INTRODUCTIONINTRODUCTION

The formation, status and activities of APICORP

The information on this page is presented in order to provide the reader with background information aboutAPICORP that is essential to the understanding of the financial statements, as set out in pages 19 to 45. Similarly,the accounting policies as explained in pages 20 to 24 are intended to acquaint the reader with the InternationalFinancial Reporting Standards (IFRS) and the methodology followed by the Corporation in the presentation of itsfinancial statements, and the classification and measurement of assets and liabilities there in.

Arab Petroleum Investments Corporation (APICORP - the Corporation) is an Arab joint stock companyestablished on 23 November 1975 in accordance with an international agreement signed and ratified by the tenmember states of the Organisation of Arab Petroleum Exporting Countries (OAPEC). The agreement defines theobjectives 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.

• 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 taxationThe Corporation is an international entity, and operates from its registered head office in Dammam, Kingdom ofSaudi Arabia. The establishing agreement states that APICORP is exempt from taxation in respect of its operationsin the member states.

Share capitalThe capital is denominated in shares of US$ 1,000 and is owned by the governments of the ten OAPEC states asfollows:

Issued and Authorised PercentageUS$ 000 fully paid capital

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 Peoples’ Libyan Arab Jamahiriya 82,500 180,000 15%Arab Republic of Egypt 16,500 36,000 3%

550,000 1,200,000 100%

On 3 May 2003 the General Assembly of shareholders resolved to increase the issued share capital from US$ 460million to US$ 550 million by the capitalisation of reserves (see page 27).

ActivitiesAPICORP is independent in its administration and the performance of its activities, and operates on a commercialbasis with the intention of generating net income. Most of its 107 (2002: 110) employees are Arab nationals. TheCorporation has no subsidiaries, branches or divisions, and operates only from its head office in the Kingdom ofSaudi 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 inprojects. These activities are funded by shareholders’ equity, medium-term financing and short-term deposits frombanks.


A GENERAL

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

A-2 Basis of preparationAPICORP presents its financial statements in United States dollars (rounded to the nearest thousand) because itis a supranational organisation with its capital and the majority of its transactions and assets denominated in thatcurrency.

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

The accounting policies have been consistently applied by the Corporation and are consistent with those used inthe previous year, except for the change to a deferred recognition basis for loan participation and commitmentfees.

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

Direct equity investments (non-monetary assets) denominated in foreign currencies, that are stated at fair value,are translated to US dollars at current exchange rates. Differences arising from changes in rates are included in therevaluation reserve in shareholders’ equity. Capital expenditure on property and equipment is stated at thehistorical 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 INSTRUMENTS

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

Originated loans are loans created by the Corporation providing money to a debtor, other than those created withthe intention of gains over the short-term. Originated loans comprise of deposits placed with banks, andsyndicated and direct loans (other than purchased loans and payments in respect of obligations arising fromguarantees issued to third parties).

Available-for-sale assets are financial assets that are not held for trading purposes, or loans originated by theCorporation. Available-for-sale instruments include certain debt securities, managed funds and direct equityinvestments.

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

In 2003 because of the implementation of new accounting software, the recognition policy has been modified withrespect to purchase of available-for-sale assets and assets held for trading, which are now recognised on asettlement date basis. The effect of this change on carrying values and income has been negligible.

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

ACCOUNTING POLICIESACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTSfor the year ended 31 December 2003


FINANCIAL INSTRUMENTS (continued)

B-3 MeasurementFinancial instruments are measured initially at cost. Premiums, discounts and initial transaction costs are included in theinitial 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, originated loans and receivables are measured at amortised cost, less impairmentlosses, 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 anydeduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimatedusing 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 Fair value adjustments on transition to IAS-39With the adoption of IAS-39 on 1 January 2001, certain investment securities previously carried at cost less impairmentswere reclassified as available-for-sale securities and were valued at fair value. The transition valuation gains or losseswere initially adjusted against retained earnings, but subsequently reclassified to the revaluation reserve (see page 27).

B-7 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 isextinguished.

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

In 2003 because of the implementation of new accounting software, the recognition policy has been modified withrespect to sale of available-for-sale assets and assets held for trading, which are now derecognised on a settlement datebasis. The effect of this change on carrying values and income has been negligible.

Originated loans are derecognised on the date on which they are repaid.

B-8 ImpairmentFinancial assets are reviewed at each balance sheet date to determine whether there is objective evidence of impairment.If any 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 thecurrent market 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.

In the case of an asset remeasured to fair value directly through equity becoming impaired, and an increase in the fairvalue of the asset has previously been recognised in equity, the increase in the fair value of the asset previouslyrecognised in equity is 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 can be linked objectively to an event occurring after the write-down, the write-down is reversed through the incomestatement.

ACCOUNTING POLICIESACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (continued)for the year ended 31 December 2003

The financial statements consist of pages 19 to 45821

C CASH AND CASH EQUIVALENTS

C-1 ClassificationCash and cash equivalents comprise of cash balances on hand and cash in call accounts.

D LOANS AND OTHER RECEIVABLES

D-1 Originated and purchased loansSyndicated and direct loans originated by the Corporation as an arranger, or through participation in the initialsyndication, are carried at cost (less allowances for impairment where appropriate). It is the Corporation’s policy tohold all originated loans to maturity. 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 carryingcost of the loans.

D-2 Amounts paid under guaranteesAmounts paid under guarantees are reported net of impairment allowances to reflect the present value of theestimated recoverable amounts (after taking into account collateral held). The discount rate used reflects thecurrent cost of funding the 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 theeffective interest rate of the loan, and comparing the result with the carrying value.

• Similarly an allowance for potential defaults is maintained against other loan exposures, on a geographical basis,to cover potential losses not separately identified (but known from experience to exist in any portfolio of loans).

This impairment allowance is calculated based on historical default rates for those geographical regions andthe shortfall in the present value of the estimated future cash flows discounted at the current effective interest rate compared with the carrying value.

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 afterreceiving specific approval to do so from the Board of Directors.

E SECURITIES

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

Securities that the Corporation holds for the purpose of gain over the short-term are classified as tradinginstruments. Other investments are classified as available-for-sale instruments.

• Available-for-sale portfolio: This consists principally of investment grade fixed-rate bonds 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 throughshareholders’ equity. Allowances are made for specific value impairments as and when these are identified. Suchimpairments are routed through the income statement.

ACCOUNTING POLICIESACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (continued)for the year ended 31 December 2003


E SECURITIES (continued)

E 1 Classification (continued)Gains or losses in the value of available-for-sale securities, apart from impairments, are recognised in incomeonly on ultimate disposal. Related fair value adjustments made on adoption of IAS-39, and taken to retainedearnings (before being reclassified to the revaluation reserve), are also recycled to the income statement onultimate disposal.

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

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

F DIRECT EQUITY INVESTMENTS

F-1 ClassificationAPICORP has direct investments in the unquoted ordinary share capital of closed companies established forspecific start-up projects in the petroleum and petrochemical industries, mostly in partnership with governmentsor 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 underIAS-28 because APICORP’s philosophy is that it should act in a fiduciary and advisory capacity and not exercisesignificant influence over the management and operations of the companies.

Once the companies become established and begin paying dividends, it is the Corporation’s intention to profitablydispose of its holdings in order to recycle the funds to new projects. Accordingly, these investments are classifiedas available-for-sale assets, 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, managementconsiders the best approximation to fair value to be the net asset value, or the present value of discounted futurecash flows, where these can be reasonably estimated.

The net asset values are based upon the most recent audited financial statements or monthly managementinformation, adjusted for conformity with International Accounting Standards. Changes in fair values are routedthrough shareholders’ equity.

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

G PROPERTY AND EQUIPMENT

G-1 ClassificationItems of property and equipment are stated at cost less accumulated depreciation (see below) and impairmentlosses (if any).

Where an item of property and equipment comprises major components having different useful lives (for example:the Corporation’s head office building), these components are accounted for as separate items of property andequipment. 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 isaccounted for separately is capitalised. Other subsequent expenditure is capitalised only when it increases thefuture economic benefits expected to accrue from the item of property and equipment.

ACCOUNTING POLICIESACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (continued)For the year ended 31 December 2003


G PROPERTY AND EQUIPMENT (continued)

G-2 Subsequent expenditure (continued)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 itemsof property and equipment, and of the major components that are accounted for separately. Land is notdepreciated.

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 PROPERTY

The Corporation’s investment property, being land that is no longer required for the development of the head officebuilding, is included in other assets in the balance sheet and is carried at fair value. Any gain or loss arising froma related change in fair value is recognised in income.

I INCOME RECOGNITION

I-1 Interest incomeInterest income is recognised in the income statement as it accrues, taking into account the effective yield of theasset. This includes the amortisation of any discount or premium or other differences between the initial carryingamount 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 financetransactions, for example advising on underwriting and arranging syndicated loan facilities, and is recognised whenthe service is provided.

Fees that are analagous to interest and are considered to be part ot the overall yield on loans, specificallyparticipation and commitment fees, are initially deferred and then amortised over the lives of the related loans. Theamortised income is included in interest income. In prior years loan participation and commitment fees wererecognised when received and included in fee income. This change in accounting policy was partially introducedin 2002 for participation fees.

Previously reported net income, asset carrying values and retained earnings have been adjusted for the years 2001and 2002 to reflect the change.

I-3 Dividend incomeDividend income is recognised in the income statement from the date on which the dividend is declared.

ACCOUNTING POLICIESACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (continued)For the year ended 31 December 2003

The financial statements consist of pages 19 to 4528 24

INCOME STATEMENTINCOME STATEMENTfor the year ended 31 December 2003

US$ 000 Notes 2003 2002 2001

INTEREST INCOME 22 39,797 45,636 71,996Interest expense and charges (20,599) (25,574) (42,383)

NET INTEREST INCOME 1 19,198 20,062 29,613

Fee income 22 1,281 2,689 389 Fee expense (157) (103) (101)Net fee income 2 1,124 2,586 288

Dividend income 3, 22 8,414 4,192 4,264 Realised and unrealised gains on trading securities 4 9,907 5,388 3,215 Realised gains on available-for-sale securities 5 3,013 5,672 4,145 Other operating income 6 1,800 1,552 157

General administrative expenses 7 (14,539) (14,423) (13,714)Net reversals of impairment losses 8 4,620 3,962 15,938 Other operating expenses 9 (20) (533) (1,408)

NET INCOME FOR THE YEAR BEFORE APPROPRIATIONS 33,517 28,458 42,498

2003 2002 2001

Appropriations of net income

Legal reserve 3,400 3,000 4,300 Dividend to shareholders (see below) 20,000 20,000 30,000 Retained earnings 10,117 5,458 8,198

Total net income as above 33,517 28,458 42,498

Appropriations of net income for dividends are proposed by the Directors and are then subject to approval by the AnnualGeneral Assembly of the shareholders.

Per US$ 1,000 share information 2003 2002 2001

• Earnings (based on weighted average number of shares outstanding) US$ 64.50 US$ 61.87 US$ 92.39

• Proposed dividend US$ 36.36 US$ 43.48 US$ 65.22

• Net asset value US$ 1,285 US$ 1,478 US$ 1,429

The financial statements consist of pages 19 to 458 The25

BALANCE SHEETBALANCE SHEET31 December 2003


US$ 000 Notes 2003 2002 2001

ASSETSCash and cash equivalents 15,564 10,207 9,568 Trading securities 10 71,004 79,921 94,287 Available-for-sale securities 11 394,367 299,137 124,442 Deposits placed with banks 12 209,690 186,866 285,034 Syndicated and direct originated loans 13 1,149,715 1,056,013 856,260 Direct equity investments 14 185,648 168,323 145,780 Property and equipment 15 45,048 47,249 47,669 Other assets 16 17,390 16,286 14,400

Total assets 2,088,426 1,864,002 1,577,440

LIABILITIESDeposits from banks 17 874,375 725,156 458,794 Term financing 18 498,559 423,019 424,091 Unpaid dividends 13 - 28,740 25,291 Other liabilities 19 8,593 6,999 11,701

Total liabilities 1,381,527 1,183,914 919,877

SHAREHOLDERS’ EQUITY Share capital (see page 19) 550,000 460,000 460,000 Legal and general reserves (see page 27) 99,600 156,200 153,200 Revaluation reserve (see page 27) 24,536 11,242 (12,825)Retained earnings (see page 27) 32,763 52,646 57,188

Total shareholders’ equity 706,899 680,088 657,563

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2,088,426 1,864,002 1,577,440

OFF-BALANCE SHEET EXPOSURESCommitments, guarantees and derivatives 21 593,259 609,625 611,417

The financial statements were approved by the Board of Directors on 7 April 2004 and were signed by:

Abdullah A Al-Zaid Rasheed M Al-Maraj Chairman General Manager

26

CHANGES IN SHAREHOLDERS’ EQUITYCHANGES IN SHAREHOLDERS’ EQUITYfor the year ended 31 December 2003

US$ 000 Notes 2003 2002 2001

SHARE CAPITAL (see page 19) Issued share capital at the beginning of the year 460,000 460,000 460,000Capitalisation of general reserve in 2003 (see below) 90,000 - -

Issued share capital at 31 December (as page 26) 550,000 460,000 460,000

LEGAL RESERVELegal reserve at the beginning of the year 81,200 78,200 73,900 Appropriation from net income (see page 25) 3,400 3,000 4,300

84,600 81,200 78,200

GENERAL RESERVEGeneral reserve at the beginning of the year 75,000 75,000 75,000 Transfer from retained earnings (see below) 30,000 - - Used to increase the issued share capital (as above) (90,000) - -

15,000 75,000 75,000

Legal and general reserves at 31 December (as page 26) 99,600 156,200 153,200

REVALUATION RESERVE - available for sale assetsSecuritiesNet unrealised gains at the beginning of the year (2002, 2001: losses) 1,179 (345) (5,842)Increase in fair value (market value) in the year 1,239 3,792 9,065 Gains realised on sales transferred to income 5 (3,013) (5,672) (4,145)Impairments released on realisation of losses (2002: recognition of impairments) 8 (3,476) 3,964 - Exchange rate movements - (560) 577 Net unrealised losses at 31 December (2002: gains) (4,071) 1,179 (345)Direct equity investmentsNet unrealised gains at the beginning of the year 10,063 (12,480) (24,858)Increase in fair value in the year 14 14,375 22,543 12,378 Unrealised losses charged to income on recognition of impairments 8 4,169 - - Net unrealised gains at 31 December (2001: losses) 28,607 10,063 (12,480)

Total revaluation reserve at 31 December (as page 26) 24,536 11,242 (12,825)

RETAINED EARNINGSAt the beginning of the year 52,646 57,188 54,571 Changes in accounting policy

Discounting adjustment - allowance for loan impairments 13 - - 4,441 Discounting of value of Aradet machinery 16 - - (3,688)Deferral of loan participation and commitment fees (see page 24) - - (6,334)

Opening retained earnings as adjusted 52,646 57,188 48,990

Dividends to the shareholders for the previous year (see below) (20,000) (30,000) (30,000)Transfer to general reserve (as above) (30,000) - - Net income for the year before appropriations (from page 25) 33,517 28,458 42,498 Transfer to legal reserve (see below) (3,400) (3,000) (4,300)

Retained earnings at 31 December (as page 26) 32,763 52,646 57,188

TOTAL EQUITY at 31 December as on the balance sheet (page 26) 706,899 680,088 657,563

Legal and general reservesUnder Article 35 of APICORP’s statutes, 10% of annual net income is to be transferred to a legal reserve until such reserveequals 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 isconsistent with the objectives of the Corporation, and as may be resolved by the General Assembly, on the recommendationof the Board of Directors.


CASH FLOWSCASH FLOWSfor the year ended 31 December 2003

US$ 000 Notes 2003 2002 2001

CASH FLOWS FROM OPERATING ACTIVITIES 23 Interest received 47,918 46,025 78,894 Interest paid (20,813) (23,799) (48,838)Fees received 1,281 7,344 3,077 Fees paid (157) (1,950) (424)Dividends received 62 53 87 Net receipts from trading activities (2001: net payments) 18,660 19,413 (20,249)Operating expenses paid (11,248) (12,275) (12,944)

Cash inflows before changes in operating assets (2001: outflows) 35,703 34,811 (397)

DECREASE (INCREASE) IN OPERATING ASSETSIncrease in deposits placed with banks (2002: decrease) (22,824) 98,168 (77,616)Syndicated and direct loans drawn down 13 (403,504) (624,238) (268,054)Loan repayments and prepayments received - performing loans 13 285,072 434,020 281,365 Recoveries in respect of impaired loans 13 14,312 749 127 Increase in deposits from banks (2001: decrease) 149,219 266,362 (124,593)Net payments from other operating assets and liabilities (2001: receipts) (11,897) (9,790) 3,076

Cash inflows from operating activities (2001: outflows) 46,081 200,082 (186,092)

CASH FLOWS FROM INVESTING ACTIVITIESProceeds from redemptions and sales of available-for-sale securities 935,581 409,725 142,803 Purchases of available-for-sale securities (1,038,395) (583,694) (83,372)Dividends from direct equity investments 8,352 4,139 4,177 Payments for direct equity investments (2,950) - - Rent received 694 620 391 Capital expenditure on property and equipment (1,006) (3,233) (2,581)

Cash outflows from investing activities (2001: inflows) (97,724) (172,443) 61,418

CASH FLOWS FROM FINANCING ACTIVITIESTerm financing drawn down 18 75,000 225,000 200,000 Term financing repaid 18 - (225,000) (50,000)Dividends paid in respect of the previous year (18,000) (27,000) (27,000)

Cash inflows from financing activities (2002: outflows) 57,000 (27,000) 123,000

TOTAL CASH INFLOWS IN THE YEAR (2001: outflows) 5,357 639 (1,674)

CASH AND CASH EQUIVALENTSAt the beginning of the year 10,207 9,568 11,242 Total cash inflows in the year as above (2001: outflows) 5,357 639 (1,674)

Cash and cash equivalents at 31 December (as on the balance sheet - see page 26) 15,564 10,207 9,568


NOTES TO THE FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2003

1 NET INTEREST INCOMEUS$ 000

Interest income 2003 2002 2001Interest income arises from:

Cash and cash equivalents 39 158 378 Deposits placed with banks 1,962 3,548 8,508 Available-for-sale securities - coupon interest 17,042 11,868 12,665 Available-for-sale securities - amortisation of purchase premiums (8,904) (3,835) (327)Asset swaps (positions closed in 2001) - - 235Originated syndicated and direct loans - interest excluding amortisation of fees 26,092 31,178 48,117 Amortisation of loan participation and commitment fees 3,566 2,719 2,420

39,797 45,636 71,996

The reduction in interest income in 2003 and 2002 is as a consequence of the worldwide fall in interest rates as most of theCorporation’s interest-bearing assets are floating-rate instruments rather than fixed-rate instruments (see note 26 - Effectiveinterest rates). The level of interest-bearing assets has increased marginally in the three years.

Interest income does not include any interest accrued on non-performing securities or loans (or on potential loan defaults).

Interest expense and chargesInterest expense arises from:

Deposits from banks (8,837) (11,046) (20,547)Term financing (8,128) (9,829) (17,072)Amortisation of term financing front-end fees and commitment fees (665) (878) (788)Unpaid dividends (see note 13) (332) (449) (829)Total interest (17,962) (22,202) (39,236)

Other charges arise from:Morabaha transactions (see note 17) (2,637) (3,372) (3,147)

(20,599) (25,574) (42,383)

The reduction in interest expense in 2003 and 2002 is as a consequence of the worldwide fall in interest rates, as all of theCorporation’s interest-bearing liabilities are either short-term fixed-rate instruments or floating-rate instruments (see note 26 -Effective interest rates).

Net interest income 19,198 20,062 29,613

2 NET FEE INCOMEUS$ 000

Fee income 2003 2002 2001Fee income derived from the Corporation’s lending activities:

Underwriting and arranging services 690 2,087 240 Agency and advisory services 517 556 96

Fees from securities lending activities 74 46 53

1,281 2,689 389

Fee expenseCustody fees and other charges paid to banks (157) (103) (101)

Net fee income 1,124 2,586 288



3 DIVIDEND INCOMEUS$ 000

2003 2002 2001Dividend income is generated from:

Trading securities 62 53 87 Direct equity investments 8,352 4,139 4,177

Total dividend income 8,414 4,192 4,264

4 GAINS ON TRADING SECURITIESUS$ 000

2003 2002 2001Realised and unrealised gains on trading securities arise from:

Listed equities (2002 and 2001: losses) 598 (546) (294)Managed funds 9,309 5,934 3,509

Total realised and unrealised gains on trading securities 9,907 5,388 3,215

5 REALISED GAINS ON AVAILABLE-FOR-SALE SECURITIESUS$ 000

2003 2002 2001Realised gains on available-for-sale securities arise from:

Fixed-rate bonds 5,563 7,466 3,424 US Treasury bonds 256 7 - Floating-rate bonds 64 23 255 Losses on impaired fixed-rate bonds (2001: gains) (2,870) (1,824) 466

Total realised gains on available-for-sale securities 3,013 5,672 4,145

6 OTHER OPERATING INCOMEUS$ 000

2003 2002 2001Other operating income consists of:

Rent - head office building and housing compound 695 620 147 Exchange gains 1,105 - - Investment property - increase in fair value - 865 - Miscellaneous income - 67 10

Total other operating income 1,800 1,552 157

7 GENERAL ADMINISTRATIVE EXPENSESUS$ 000

2003 2002 2001General administrative expenses consist of:

Human resources costs (9,067) (8,928) (9,344)Staff retirement fund contributions (see note 20) (930) (965) (823)Premises costs, including depreciation (2,441) (2,391) (1,490)Equipment and communications costs (909) (821) (578)Directors’ fees, expenses and Board meeting costs (783) (776) (807)Other corporate expenses (409) (542) (672)

Total general and administrative expenses (14,539) (14,423) (13,714)



8 IMPAIRMENT LOSSESUS$ 000

2003 2002 2001

Write-downsAvailable-for-sale securities - transfer from the revaluation reserve (see page 27) - (3,964) - Syndicated and direct loans - SK Global, Korea (see note 13) (9,397) - - Syndicated and direct loans - increase in allowance for potential defaults (275)Direct equity investments (see note 14)

Unrealised losses transferred from the revaluation reserve (see page 27) (4,169) - - Other receivables (see note 16) (181) - -

(14,022) (3,964) -

Reversals of write-downsAvailable-for-sale securities - transfer from the revaluation reserve (see page 27) 3,476 - - Syndicated and direct loans (see note 13)

Iraq Ministry of Oil - reduction against increase in unpaid dividends 2,332 3,449 3,829 Recovery from Aradet, Iraq 11,035 - - Recoveries against other impaired loans 459 749 127 Pakistan loans - performing following reschedulings - - 8,821 Reduction in allowance for potential defaults - 2,759 4,327

Payments under guarantees recoverable from third parties (see note 16)Recovery from Aradet, Iraq 955 - - Net effect of changes in value of machinery and discount rates 385 969 (1,166)

18,642 7,926 15,938

Net decrease in impairment losses 4,620 3,962 15,938

9 OTHER OPERATING EXPENSESUS$ 000

2003 2002 2001

Exchange losses - (93) (98)Head office building - pre-occupation and relocation costs - (111) (696)New computer systems implementation - training costs (20) (149) - New term finance - arrangement costs - (179) - Other expenses - (1) (614)

Total other operating expenses (20) (533) (1,408)

10 TRADING SECURITIESUS$ 000

2003 2002 2001Trading securities (carried at market value) consist of:

Listed equities - mostly USA corporations - denominated in US$ 3,152 3,338 5,426 Managed funds - mostly denominated in US$ 67,852 76,583 88,861

Total trading securities 71,004 79,921 94,287

11 AVAILABLE-FOR-SALE SECURITIESUS$ 000

2003 2002 2001

Available-for-sale securities consist of:Fixed-rate bonds (carried at market value) issued by :

Governments and other public sector issuers 291,679 182,572 24,267 Other issuers - mainly US and EU corporates 57,932 80,739 54,839

Floating-rate bonds (carried at market value) issued by:Governments and other public sector issuers - - 12,639 Other issuers 22,965 33,801 31,861

Managed funds (carried at market value) 21,791 - - Impaired bonds (carried at cost less estimated impairment) - 2,025 836

Total available-for-sale securities 394,367 299,137 124,442



12 DEPOSITS PLACED WITH BANKSUS$ 000

2003 2002 2001

Deposits placed with banks consist of:Deposits maturing within three months 178,618 158,126 259,743 Deposits representing dividends payable to the Iraqi shareholder (see note 13) 31,072 28,740 25,291

Total deposits placed with banks 209,690 186,866 285,034

13 SYNDICATED AND DIRECT ORIGINATED LOANSUS$ 000

2003 2002 2001

Performing originated loansSyndicated, direct and revolving loans and trade finance facilities (at cost) 1,162,891 1,044,702 848,480 Unamortised participation and commitment fees (see page 24) (10,374) (10,649) (8,261)Allowance for unidentified potential defaults (7,055) (6,780) (9,250)

1,145,462 1,027,273 830,969Impaired (non-performing) loans (see below)

Syndicated, direct and revolving loans and trade finance facilities (at cost) 74,589 80,448 79,692 Allowance for specific impairments (39,264) (51,708) (54,401)Dividends due to Iraq Ministry of Oil offset against guaranteed loans (see below) (31,072) - -

4,253 28,740 25,291

Total net loans outstanding 1,149,715 1,056,013 856,260

Impaired (non-performing) loansIraqi 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 8,148 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 1,928 2,386 3,136

Total impaired loans at 31 December 74,589 80,448 79,692

Loans guaranteed by the Central Bank of IraqAs a result of the 1990-1991 Gulf crisis, certain Iraq Ministry of Oil controlled companies defaulted on loans from the Corporationamounting to US$ 42.1 million. These loans were guaranteed on behalf of the Ministry of Oil by the Central Bank of Iraq, against whichthe Corporation duly filed claims in 1996 for the repayment of the principal and the overdue interest. Acknowledging the claims, theCentral Bank informed the Corporation that the matter could only be addressed on the ultimate lifting of the United Nations sanctionsagainst Iraq.

In the meantime, dividends (and accrued interest thereon) for 1992 to 2002, amounting to US$ 31.1 million, due to the Iraq Ministryof Oil (the shareholder in APICORP on behalf of the Government of Iraq) have not been paid because of the United Nations sanctionsagainst Iraq. With effect from 1998, the Corporation reduced impairment allowances against the guaranteed loans by the amount ofthe 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 toset-off bad debts owed to the Corporation by companies and public corporations fully owned by any of APICORP’s shareholdergovernments against accounts held by the Corporation belonging to such bodies and governments including dividends, provided alllegal 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 made a primary offsetof the unpaid dividends due to Iraqi government against the principal amounts of the direct loans to Iraq Oil Ministry companies.

Direct loan to Aradet, IraqFollowing the lifting of the United Nations sanctions against Iraq, APICORP was successful in negotiating terms for the settlement ofits direct loan to Aradet, and other amounts paid on behalf of Aradet under a loan guarantee to an international bank (see note 16).The EUR 10.0 million first instalment of the settlement was duly received from Aradet in November 2003, with a further EUR 10.0million due in 2004.”



13 SYNDICATED AND DIRECT ORIGINATED LOANS (continued)US$ 000

SK Global, KoreaIn 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 anexposure of US$ 16.5 million. Following a restructuring of the SK Group’s debt, APICORP has been obliged to accept a reducedamount of US$ 7.1 million payable in 2003-2004, and to record an impairment loss of US$ 9.4 million in respect of thesefacilities. Under the agreed settlement terms, a first instalment of US$ 2.8 million was duly received on 31 December 2003.

2003 2002 2001Movements in performing loans in the yearOutstanding at the beginning of the year 1,044,702 848,480 862,593 Draw-downs on new and existing loans 403,504 624,238 268,054 Repayments and prepayments received (285,072) (434,020) (281,365)Loans reclassified as impaired - SK Global (see above) (16,486) - - Exchange rate movements (euro and swiss franc-denominated loans) 16,243 6,004 (802)

Outstanding at 31 December 1,162,891 1,044,702 848,480

Undrawn loan commitments and guaranteesAt the beginning of the year 489,887 489,774 320,914 New underwriting and commitment agreements signed 416,390 679,754 452,383 Drawdowns in the year (403,504) (624,238) (268,054)Expired commitments, syndication sell-downs and other movements - net (55,466) (55,403) (15,469)

Undrawn commitments at 31 December 447,307 489,887 489,774

There were no unquantified open underwriting commitments at the year end.

Allowance for specific impairmentsAt the beginning of the year

Non-performing loans (80,448) (79,692) (80,341)Performing loans - Pakistan - - (8,821)Unpaid dividends and interest due to the Iraq Ministry of Oil 28,740 25,291 21,462

(51,708) (54,401) (67,700)

Reversals of write-downs (see note 8)Increase in unpaid dividends and interest due to the Iraq Ministry of Oil 2,332 3,449 3,829 Release - Aradet - following settlement (see above) 11,035 - - Release - Pakistan - performing following reschedulings - - 8,821 Partial recoveries received - non-performing loans - other 459 749 127

Exchange rate movements (1,382) (1,505) 522 Net reduction in the year 12,444 2,693 13,299

Allowance for specific impairments at 31 December - gross (70,336) (80,448) (79,692)Unpaid dividends and interest due to the Iraq Ministry of Oil 31,072 28,740 25,291

Allowance for specific impairments at 31 December - net (39,264) (51,708) (54,401)

Allowance for unidentified potential defaultsAt the beginning of the year (6,780) (9,250) (17,075)Discounting adjustment on 1 January 2001 with the adoption of IAS-39 (see page 27) - - 4,441 Movements in the year (see note 8)

Unrecognised interest - potential defaults (275) (289) (943)Effect of changes in discounting and other factors - 2,759 4,327

Allowance for unidentified potential defaults at 31 December (7,055) (6,780) (9,250)



14 DIRECT EQUITY INVESTMENTSUS$ 000

2003 2002 2001

APICORP has the following direct equity investments in companies in the Arab petroleum and petrochemical industries (and the related percentage participation): Fair value Fair value Fair value

Kingdom of BahrainBahrain National Gas Company (Banagas) - liquefied petroleum gas - 12.5% 9,055 9,089 9,124

Kingdom of Saudi ArabiaSaudi European Petrochemical Co (Ibn Zahr) - MTBE and polypropylene - 10% 92,892 86,235 74,204 Arabian Industrial Fibers Co (Ibn Rushd) - polyester fibres - 8.3% (see below) 23,678 25,193 20,821

Republic of IraqArab Company for Detergent Chemicals (Aradet) - linear alkyl benzene - 32% 16,576 13,051 7,736

Socialist Peoples’ Libyan Arab JamahiriyaArab Drilling and Workover Company (Adwoc) - drilling and related services - 20% 11,159 9,529 12,623 Arab Geophysical Exploration Services Company (Agesco) - seismic services - 10% 624 337 686

Arab Republic of EgyptAlexandria Carbon Black Company - carbon black - 12% 4,790 3,769 3,464 Egyptian Fertilisers Company - ammonia and urea - 10% 21,056 16,065 13,068 Oriental Petrochemicals Company - polypropylene - 14% 3,225 3,888 2,837

Non-shareholder countriesJordan Phosphate Mining Company, Jordan - fertilisers - 0.8% 2,095 1,167 1,217 Tankage Mediterranee (Tankmed), Tunisia - storage facilities - 20% 498 - -

Net carrying value as on the balance sheet 185,648 168,323 145,780

All the investments are carried at net asset values (adjusted for capitalised pre-operating expenses where appropriate) exceptfor Ibn Rushd (at the present value of expected future cash flows - see below) and Jordan Phosphate Mining Company (atquoted market value).

Movements in the yearNet carrying value at the beginning of the year (2001: equivalent to net asset value) 168,323 145,780 158,260 Fair value adjustment on 1 January 2001 with the adoption of IAS-39 (see below) - - (24,858)Adjusted carrying value - fair value 168,323 145,780 133,402 New amounts invested in 2003 - Egyptian Fertilisers Company 2,950 - - Net increase in fair value in the year (see page 27) 14,375 22,543 12,378


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.

Adjusted net asset value at 31 December 2000 45,679 Fair value adjustment on 1 January 2001 with the adoption of IAS-39 (see above) (24,858)Fair value at the beginning of the year 25,193 20,821 20,821 Fair value adjustment for the year (change in value of estimated future cashflows) (1,515) 4,372 -

Fair value - the present value of estimated future cash flows 23,678 25,193 20,821

In 2003, the recoverable amount used in the calculation of the fair value was reviewed for impairment, with the result that US$4.2 million of the accumulated loss was removed from the revaluation reserve in shareholders’ equity (see page 27) and chargedto income as an impairment loss (see note 8).

Commitments - uncalled share capitalArab Company for Detergent Chemicals (Aradet), Iraq - cancelled in 2003 - 24,705 24,705 Saudi European Petrochemical Co (Ibn Zahr) 4,649 4,649 4,649

4,649 9,354 29,354



15 PROPERTY AND EQUIPMENTUS$ 000

2003 2002 2001

CostLand at Rakah - head office building and housing compound 4,004 4,004 4,004 Head office building, equipment, decor and furnishings - occupied in January 2002 36,856 36,796 35,902 Housing compound buildings, equipment, decor and furnishings 27,505 27,222 27,957 Computer hardware and other office equipment 1,552 1,438 4,265 Computer systems software 694 893 276 Total cost at 31 December 70,611 70,353 72,404 Accumulated depreciation (25,563) (23,104) (24,735)


Movements in the yearNet carrying value at the beginning of the year 47,249 47,669 46,974 Additions at cost

Head office building, operating equipment, decor and furnishings 143 894 2,029 Housing compound buildings, operating equipment, decor and furnishings 250 265 327 Core computer systems software - acquisition and implementation 59 617 - Other 81 390 80

Depreciation charge (2,734) (2,569) (1,741)Disposals at net carrying value - mostly fully depreciated - (17) -


Capital commitmentsContracted for 70 84 1,989 Approved by the Board of Directors, but not yet contracted for 630 790 1,313

16 OTHER ASSETSUS$ 000

2003 2002 2001

Payments made under guarantees to creditors of AradetContractors’ claims with respect to STPP plant 1997-1998 - denominated in euros 38,309 33,509 30,101 Bank loan guarantee 1990-1998 - denominated in euros 8,480 7,418 6,663 Partial recovery in 2003 - bank loan guarantee (see note 13) (955) - - Impairment losses - denominated in euros (41,334) (36,812) (33,618)

Fair value - estimated saleable value of machinery, currently in the possessionof APICORP, intended for the Aradet STPP plant in Iraq (see below) 4,500 4,115 3,146

Investment property - land at Dammam at estimated fair value 2,359 2,359 1,493

ReceivablesAccrued interest receivable 8,894 8,386 7,371 Proceeds from sales of securities - - 983 Employee loans and advances 82 136 394 Miscellaneous receivables and advance payments 1,555 1,290 1,013

Carrying value as on the balance sheet 17,390 16,286 14,400

Aradet STPP plant machineryThe machinery came into APICORP’s possession following the settlement (as guarantor on behalf of Aradet) of contractors’ claimsand related costs amounting to US$ 38.3 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 2004 agreement may be reached with respect to repayment of the remaining outstandingamounts 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.The financial statements consist of pages 19 to 45 35


17 DEPOSITS FROM BANKSUS$ 000 2003 2002 2001

Short-term US dollar deposits from banks 588,660 366,226 267,432 Short-term non-dollar deposits from banks (euros, Swiss francs and Saudi riyals) 96,610 169,950 80,343 Short-term US dollar Morabaha liabilities to Islamic financial institutions 117,562 175,731 81,122 Short-term non-dollar Morabaha liabilities to Islamic financial institutions 71,543 13,249 29,897

Total as on the balance sheet 874,375 725,156 458,794

18 TERM FINANCINGUS$ 000 2003 2002 2001

US$ 225 million loan 1997-2002 - fully drawn (matured and repaid July 2002) - - 225,000 Interest rate: US$ LIBOR plus 32.5 basis points

US$ 75 million revolving facility 1997-2002 - partially utilised (matured November 2002) - - - Interest rate: US$ LIBOR plus 32.5 basis points

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 300,000 225,000 - Interest rate: US$ LIBOR plus 45 basis points

Unamortised front-end fees for all current facilities (1,441) (1,981) (909)

Total amortised cost as on the balance sheet 498,559 423,019 424,091

The agreement for the US$ 200 million loan (for general corporate purposes) was signed on 9 July 2000 with a consortium of16 international banks. The agent for the consortium is Deutsche Bank Luxembourg SA.

The agreement for the fourth financing of US$ 300 million (to refinance the two facilities that matured in 2002) was signed on30 May 2002 with a consortium of 20 international banks. The agent is Credit Agricole Indosuez, Paris, France.

All four loans are or were 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.

19 OTHER LIABILITIESUS$ 000 2003 2002 2001

Accrued interest payable 3,543 4,629 4,181 Retentions due to contractors - head office building - 473 1,540 Staff Retirement Fund current account (2002 and 2001: receivable) 681 (1,316) (507)Accrued expenses 1,618 1,355 1,425 Other payables 2,751 1,858 5,062

Total as on the balance sheet 8,593 6,999 11,701

20 EMPLOYEE RETIREMENT BENEFITSA contributory defined-benefit retirement plan (The Staff Retirement Fund - the Fund) has been established to provide APICORPemployees with end-of-service gratuities and indemnities for death or disablement arising during service with the Corporation. It isadministered 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 andaverage annual increases in salaries of 5 percent. The result indicated that the liabilities of the Fund to its beneficiaries were adequatelycovered by the fair values of the Fund’s assets.


36


20 EMPLOYEE RETIREMENT BENEFITS (continued)US$ 000 2003 2002 2001

Current service costThe Corporation’s contributions to the Fund in respect of current service cost, as charged in the income statement 930 965 823

21 OFF-BALANCE SHEET EXPOSURESThe Corporation has off-balance sheet exposures as follows:

2003 2002 2001

Commitments to underwrite and fund loans (see note 13) 447,307 489,887 489,774 Commitments to subscribe further capital to direct equity investments (see note 14) 4,649 29,354 29,354 Guarantees as shareholder (see below) 90,300 90,300 90,300 Contracted capital expenditure commitments (see note 15) 70 84 1,989 Foreign exchange swap commitments - matured and settled in January 2004 50,933 - -

Total exposures as on the balance sheet 593,259 609,625 611,417

Guarantees as shareholderAPICORP is an 8.28% shareholder in The Arabian Industrial Fibers Company (Ibn Rushd) (see note 14), which in turn had asenior debt facility from a consortium of banks (including the Corporation) of US$ 850 million. The shareholders had given aguarantee whereby they would be severally liable to repay the loan to the banks in full, should the borrower fail to comply withcertain conditions. In September 2002 this loan was prepaid and replaced by a similar loan from the Public Investment Fund,similarly guaranteed by the shareholders. The Corporation’s contingent liability thereunder remains at US$ 70.4 million, ashitherto.

Under a previous rescheduling of the US$ 850 million loan, APICORP, as a shareholder, has provided an additional guaranteeof US$ 19.9 million in respect of a new US$ 200 million revolving facility made available by the banks.

DerivativesApart from what is listed above, currently the Corporation has no open positions in derivatives.

22 RELATED PARTY TRANSACTIONSAPICORP’s principal related parties are its shareholders. Although the Corporation does not transact any commercial businessdirectly with the shareholders themselves, it does finance companies which are either controlled by the shareholdergovernments or over which they have significant influence.

US$ 000 2003 2002 2001

Loans to related partiesLoans outstanding at 31 December - gross 1,011,600 881,455 663,546 Impairment allowances at 31 December (17,752) (61,502) (58,243)Dividends offset against Iraq direct loans (31,072) - -

Commitments to lend at 31 December 260,543 351,899 211,245 Interest from loans during the year 21,004 20,582 33,701 Loan fees received during the year 3,387 5,663 1,839

Loans to related parties are made at ruling market interest rates and subject to normal commercial negotiation as to terms. Themajority of loans to related parties are syndicated, which means that participation and terms are negotiated by a group ofarrangers, of which the Corporation may, or may not, be a member. No loans to related parties were written off in 2001-2003.

Direct equity investments in related partiesInvestments at 31 December - at fair value 154,482 147,322 128,031 Guarantees as shareholder at 31 December (see note 21) 90,300 90,300 90,300 Commitments to invest at 31 December 4,649 29,354 29,354

Dividends received during the year 7,798 4,011 4,177



23 CASH FLOWS FROM OPERATING ACTIVITIESUS$ 000 2003 2002 2001

Cash flows from operating activities are reconciled to net income for the year as follows:

Net income for the year (as page 25) 33,517 28,458 42,498 Adjustments for non-cash items

Gains on trading securities (9,438) (4,836) (3,299)Realised gains on sale of available-for-sale securities (3,013) (5,672) (4,145)Depreciation of property and equipment 2,734 2,569 1,741 Investment property - increase in fair value (2001: decrease) - (865) 67 Net reversals of impairment losses - loans (13,826) (6,957) (17,104)Reversal of impairment losses - payments under guarantees (1,340) (969) - Impairment reversals (2002: losses) - available-for-sale securities (3,476) 3,964 - Impairment losses - direct equity investments 4,169 - - Amortisation and exchange differences 8,323 (2,726) 3,361 Other non-cash items 298 1,155 3,905

17,948 14,121 27,024

Net sales of trading securities (2001: net purchases) 18,660 19,413 (20,249)Dividends from direct equity investments (included in investing activities) (8,352) (4,139) (4,177)Rent received (included in investing activities) (694) (620) (391)

27,562 28,775 2,207 Changes in operating assets and liabilities

Increase in deposits placed with banks (2002: decrease) (22,824) 98,168 (77,616)Syndicated and direct loans drawn down (403,504) (624,238) (268,054)Loan repayments and prepayments received - performing loans 285,072 434,020 281,365 Recoveries in respect of impaired loans 14,312 749 127 Increase in other operating assets (2002, 2001: decrease) (694) 258 8,494 Increase in deposits from banks (2001: decrease) 149,219 266,362 (124,593)Decrease in other operating liabilities (3,062) (4,012) (8,022)

Cash inflows (2001: outflows) from operating activities (as page 28) 46,081 200,082 (186,092)

24 CAPITAL ADEQUACYThe risk asset ratio at 31 December 2003, calculated in accordance with the capital adequacy guidelines of the BasleCommittee on Banking Supervision, is as follows:

US$ 000 2003 2002 2001

Carrying valuesOn-balance sheet assets (as page 26) 2,088,426 1,864,002 1,577,440 Off-balance sheet exposures (see note 21) 593,259 609,625 611,417

2,681,685 2,473,627 2,188,857

Risk-weighted exposuresOn-balance sheet assets 1,593,708 1,438,991 1,270,601 Off-balance sheet exposures 541,020 594,948 596,740

Total risk-weighted exposures 2,134,728 2,033,939 1,867,341

Capital adequacy ratioQualifying 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 26) 706,899 680,088 657,563

Capital adequacy ratio 33.1% 33.4% 35.2%



25 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial instrumentsA financial instrument is any contract that gives rise to both a financial asset in one enterprise and a financial liability or equityinstrument 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.

Price risk managementPrice risk is the risk that interest rates, foreign exchange rates or market prices will move relative to positions taken, exposingAPICORP 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 theAssets and Liabilities Committee and are also subject to a framework of Board-approved currency, industry and geographical limits and ratings by agencies including Standard & Poors.

• Interest rate risk: Syndicated and direct loans are normally denominated in United States dollars, as is the Corporation’sfunding, 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 managementCredit risk is the risk that a borrower or counter-party of APICORP will be unable or unwilling to meet a commitment that it hasentered into with the Corporation. It arises from the lending, treasury and other activities undertaken by the Corporation. Policiesand 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 beingreviewed by the Credit Committee (consisting of the General Manager and senior managers), which makes appropriaterecommendations to the Board of Directors, who have the ultimate authority to sanction commitments.These procedures, plusthe fact that most of the loans are backed by sovereign guarantees and export credit agency cover, limit APICORP’s exposureto excessive credit risk.

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

All loan commitments, whether drawn or undrawn, are subject to systematic monitoring so that potential problems may bedetected early and remedial action taken.

With one minor exception, APICORP representatives sit on the boards of companies in which the Corporation has direct equityinvestments and thus are in a position to monitor circumstances that may expose the Corporation to risk.



25 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Credit risk management (continued)Treasury activities are controlled by means of a framework of limits and credit ratings. Dealing in marketable securities isprimarily restricted to United States and major European stock exchanges. Dealings are only permitted with approvedinternationally rated banks, brokers and other counter-parties. Securities portfolios and investing policies are review from timeto time by the Assets and Liabilities Committee.

Liquidity risk and funding managementLiquidity risk is the risk of being unable to raise funds at a reasonable price to meet commitments when they fall due, or to takeadvantage of investment opportunities when they arise. Liquidity risk management ensures that funds are available at all timesto meet the funding requirements of the Corporation.

APICORP’s liquidity management policies are designed to ensure that even under adverse conditions the Corporation hasaccess to adequate funds to meet its obligations, and to service its core investment and lending functions. This is achieved bythe application of prudent but flexible controls, which provide security of access to liquidity without undue exposure toincreased 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 RATESThe effective interest rates of the Corporation’s financial instruments at the balance sheet date were:

2003 2002 2001Interest-bearing financial assets

Deposits placed with banks - weighted average 1.15% 1.49% 2.00%Fixed-rate bonds - weighted average 2.13% 2.33% 8.03%Floating-rate bonds - weighted average 2.26% 3.00% 3.84%Syndicated and direct loans - weighted average 2.83% 2.90% 3.66%

US dollar denominated 2.42% 2.76% 3.65%Non-dollar - mainly denominated in euros 3.34% 4.63% 4.78%

Interest bearing financial liabilities

Deposits from banks - weighted average 1.27% 1.94% 2.86%US dollar denominated 1.20% 1.64% 2.66%Non-dollar - euros, Swiss francs and Saudi riyals 1.75% 2.84% 3.49%

Term financing - weighted average 1.60% 2.16% 2.43%

US$ LIBOR at 31 December was:One-month 1.02% 1.30% 1.74%Three-month 1.06% 1.28% 1.76%Six-month 1.14% 1.30% 1.87%

27 FAIR VALUE INFORMATIONThe following financial assets and liabilities are not carried at fair value in the Corporation’s balance sheet:

US$ 000 2003 2002 2001

Financial assets - syndicated and direct originated loansCarrying value - amortised cost less impairments (see note 13) 1,149,715 1,056,013 856,260

Fair value - based on current market prices 1,166,620 1,070,636 863,975

Financial liabilities - term financingCarrying value - amortised cost (see note 18) 498,559 423,019 424,091

Fair value - based on current market rates for similar remaining maturity 494,331 418,950 424,024



28 MATURITY PROFILE OF ASSETS AND LIABILITIESThe 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 substantiallyreduced in practice because the majority of deposits from banks are routinely rolled over on maturity.

US$ 000 Up to 3 months 1 year 5 years 20033 months to 1 year to 5 years and over Total

ASSETSCash and cash equivalents 15,564 - - - 15,564Trading securities - - 2,149 68,855 71,004Available for sale securities - 7,585 364,991 21,791 394,367Deposits placed with banks 209,690 - - - 209,690Syndicated and direct loans 14,841 66,094 666,310 402,470 1,149,715Direct equity investments - - - 185,648 185,648Property and equipment - - - 45,048 45,048Other assets 5,968 3,171 5,892 2,359 17,390

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

LIABILITIES AND EQUITYDeposits from banks (776,495) (97,880) - (874,375)Term financing 135 405 (499,099) - (498,559)Other liabilities (7,659) (253) - (681) (8,593)Shareholders’ equity - (20,000) - (686,899) (706,899)

Total liabilities and equity (784,019) (117,728) (499,099) (687,580) (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 2002Total assets 228,049 13,631 931,137 691,185 1,864,002 Total liabilities and equity (640,703) (91,452) (451,759) (680,088) (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) -

31 December 2001Total assets 324,209 47,579 590,728 614,924 1,577,440 Total liabilities and equity (407,780) (314,541) (227,556) (627,563) (1,577,440)

Maturity gap (83,571) (266,962) 363,172 (12,639) -

Cumulative maturity gap - 31 December 2001 (83,571) (350,533) 12,639 -



29 REPRICING PROFILE OF FINANCIAL ASSETS AND LIABILITIESThe repricing profile of the Corporation’s financial assets and liabilities at 31 December was as follows:

US$ 000 Effective 2003 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 2.13% 349,611 - 2,589 39,782 307,240 - Floating-rate bonds 2.26% 22,965 22,965 - - - -

Deposits placed with banks 1.15% 209,690 209,690 - - - - Syndicated and direct loans

US$ denominated 2.42% 1,040,681 780,228 260,453 - - - Non-US$ denominated 3.34% 122,210 54,988 67,222 - - -

LIABILITIESDeposits from banks

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

ASSETS 2002Available for sale securities

Fixed-rate bonds 2.33% 263,311 30,228 22,958 94,455 115,670 - Floating-rate bonds 3.00% 33,801 33,801 - - - -


US$ denominated 2.76% 963,227 670,959 292,268 - - - Euro denominated 4.63% 81,475 77,998 3,477 - - -


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 -

ASSETS 2001Available for sale securities

Fixed-rate bonds 8.03% 79,106 2,510 12,036 9,278 36,466 18,816 Floating-rate bonds 3.84% 44,500 44,500 - - - -


US$ denominated 3.65% 837,998 560,414 277,584 - - - Euro denominated 4.78% 10,482 7,602 2,880 - - -


US$ denominated 2.66% (348,554) (296,240) (52,314) - - - Euro and Saudi riyal 3.49% (110,240) (103,625) (6,615) - - -

Term financing 2.43% (424,091) (424,091) - - - -

Interest rate sensitivity gap 374,235 76,104 233,571 9,278 36,466 18,816



30 CURRENCY EXPOSURESThe Corporations’ currency exposures at 31 December were as follows:

US$ 000 2003 2003 2003 2002 2001 assets liabilities net net net

and equity exposure exposure exposure

ASSETS, LIABILITIES AND EQUITYUnited States dollar 1,811,251 (1,955,521) (144,270) (50,620) (46,806)Euro 100,264 (83,742) 16,522 1,273 (953)Other OECD currencies (see below) 28,685 (27,257) 1,428 1,016 167 Arab currencies

GCC (see below) 125,949 (15,899) 110,050 31,638 30,079 Other Middle East 2,095 (1,034) 1,061 1,537 2,273 Egypt and North Africa 20,182 (4,973) 15,209 15,156 15,240

2,088,426 (2,088,426) - - -

COMMITMENTS AND GUARANTEESUnited States dollar 489,666 556,096 596,599 Euro 47,530 48,862 9,030 Other OECD currencies (see below) 481 - - Arab currencies - GCC (see below) 55,582 4,667 5,788

593,259 609,625 611,417

Other OECD currenciesThe other member countries of the Organisation for Economic Co-operation and Development, excluding the United States andthe eleven European Monetary Union countries are: Australia, Canada, Czech Republic, Denmark, Greece, Hungary, Iceland,Japan, Mexico, New Zealand, Norway, Poland, South Korea, Sweden, Switzerland, Turkey and the United Kingdom.

GCCThe member states of the Gulf Co-operation Council are: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United ArabEmirates. Their currencies are pegged against the United States dollar (Kuwait: basket of currencies to 31 December 2002).

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

2003 2002 2001

Euro EUR 1 = US$ 1.2516 1.0488 0.8844 Saudi riyal US$ 1 = SAR 3.7500 3.7500 3.7500 Swiss franc US$ 1 = CHF 1.2480 1.3863 1.6745 Egyptian pound US$ 1 = EGP 6.1852 4.5000 4.5600



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

US$ 000 2003 2002 2001

ASSETSPetroleum and petrochemicals

Refineries 61,973 40,566 39,433 Oilfield production development and services 144,630 82,354 71,186 Floating production, storage and offloading facilities 19,371 14,390 21,897 Pipelines and distribution 55,420 37,814 30,483 Gas-to-liquids plants 9,080 - - Liquefied natural gas plants 155,661 174,117 99,245 Petrochemical plants 578,579 533,849 404,093 Fertiliser plants 93,599 97,231 90,309 Maritime transportation 52,205 49,221 47,993 Trade finance 100,058 96,467 129,002 Power generation 68,101 28,588 5,101 Other petroleum 12,754 76,414 102,792

Total petroleum and petrochemicals 1,351,431 1,231,011 1,041,534

Banks and financial institutions 356,659 371,115 306,755 Banks and financial institutions - managed funds 89,940 76,583 88,861 Other industries 97,010 90,408 119,505 Governments and public sector institutions 193,386 94,885 20,785

Total assets 2,088,426 1,864,002 1,577,440

LIABILITIES AND EQUITY

Banks and financial institutions 1,377,158 1,152,804 887,066 Other industries 4,369 2,370 4,332 Shareholders 706,899 708,828 686,042

Total liabilities and equity 2,088,426 1,864,002 1,577,440

COMMITMENTS AND GUARANTEES

Petroleum and petrochemicalsRefineries 23,506 13,301 101 Oilfield production development and related services 48,333 90,422 1,960 Floating production, storage and offloading facilities - 5,117 11,000 Pipelines and distribution 7,264 11,422 14,000 Gas-to-liquids plants 31,296 - - Liquefied natural gas plants 61,000 4,674 169,108 Petrochemical plants 150,097 213,862 173,316 Fertiliser plants 74,687 51,101 44,755 Maritime transportation - 5,813 2,722 Trade finance 55,773 98,306 78,720 Power generation - 25,223 14,925 Other petroleum - - 8,521

Total petroleum and petrochemicals 451,956 519,241 519,128

Banks and financial institutions 70,833 19,900 90,300 Other industries 70 84 1,989 Governments and public sector institutions 70,400 70,400 -

Total commitments and guarantees 593,259 609,625 611,417



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 2003 2002 2001

ASSETSKingdom of Saudi Arabia 564,340 584,889 414,224 State of Qatar 247,936 249,580 196,518 Other Gulf Cooperation Council states 259,111 219,276 264,522 Other Middle East states 26,338 56,397 70,775 Egypt and North Africa 316,118 228,288 197,446

Total Arab World 1,413,843 1,338,430 1,143,485

Western Europe 484,153 203,918 167,525 Eastern Europe - - 12,447 India, Bangladesh and Pakistan 17,542 12,780 46,995 Asia Pacific Rim 8,913 44,782 73,683 United States 135,695 262,445 102,232 Other North and South America 28,280 1,647 31,073

Total assets 2,088,426 1,864,002 1,577,440

LIABILITIES AND EQUITYKingdom of Saudi Arabia 450,524 290,339 350,916 State of Qatar 130,264 96,956 85,631 Other Gulf Cooperation Council states 676,385 588,235 429,865 Other Middle East states 159,479 214,467 163,199 Egypt and North Africa 216,768 201,339 169,670

Total Arab World 1,633,420 1,391,336 1,199,281

Western Europe 410,450 398,747 293,174 Asia Pacific Rim 44,556 64,885 84,985 United States - 9,034 -

Total liabilities and equity 2,088,426 1,864,002 1,577,440

COMMITMENTS AND GUARANTEESKingdom of Saudi Arabia 277,970 262,675 235,272 State of Qatar 36,780 42,353 64,560 Other Gulf Cooperation Council states 119,625 145,262 138,859 Other Middle East states - 24,705 24,705 Egypt and North Africa 153,111 117,912 114,331

Total Arab World 587,486 592,907 577,727

India, Bangladesh and Pakistan 5,773 - - Asia Pacific Rim - 16,718 33,690

Total commitments and guarantees 593,259 609,625 611,417


AUDITORS’ REPORT TO THE SHAREHOLDERSAuditors’ Report to the Shareholders

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ARAB PETROLEUM INVESTMENTS CORPORATIONDr. Abdulla Ali Al-Ibrahim Senior Manager Talal Khalil...

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