dammam 31423, - apicorp · dino roy moretto senior manager hesham farid portfolio manager faiq...

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

Telephone966 (3) 847 0444

Facsimile966 (3) 847 0011966 (3) 847 0022

Telex870068 APIC SJ

[email protected]

Websitewww.apicorp-arabia.com

Arab Petroleum Investments Corporation

ContentsFinancial Summary 1998 - 2002 3Board of Directors 4Executive Management 5Chairman's Statement 6Board of Director's Report APICORP Activates in 2002Project and Trade Finance 8Direct Equity Investments 10Treasury Activities 16

Introduction 20Accounting Policies 21Income Statement 25Balance Sheet 26Changes in Shareholders' Equity 27Cash Flows 28Notes to the Financial Statements 29Auditors Report to the Shareholders 46

2002 Financial Statements

Arab Petroleum Investments Corporation (APICORP) is an inter Arab joint stockcompany established on 23 November 1975 in accordance with an internationalagreement signed and ratified by the Governments of ten Member States ofthe Organisation of Arab Petroleum Exporting Countries (OAPEC).APICORP's head office is situated between the cities of Dammam and Al Khobarin the eastern province of the Kingdom of Saudi Arabia.

APICORP SHAREHOLDERS

United 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%

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

Shareholding

100%

FINANCIAL SUMMARY 1998 - 2002

The Corporation operates independently, on a commercial basis and with the intention ofmaking profits.

The prime objective of APICORP is to participate in equity, and the debt financing of upstreamand downstream projects in the petroleum industry. In pursuit of its objectives, the Corporationis empowered by its statues to:

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 and equity capital of companies in the petroleum industry; and

5- Issue its own bonds and borrow from Arab and international financial markets.

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1998

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1,200,000

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1,800,000

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1998

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2002

BOARD OF DIRECTORS

Chairman of the Board

Abdullah A. Al-ZaidFor the Kingdom of Saudi Arabia

Deputy Chairman of the Board

Mohamed Ali Al HuwejFor the Socialist Peoples' Libyan Arab Jamahiriya

Members of the Board

Naser Mohamed Al-SharhanFor the United Arab Emirates

Mahmood Hashim Al-KoohejiFor the Kingdom of Bahrain

Abderrezak Naili-DouaoudaFor the Democratic and Popular Republic of Algeria

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

Hussein Suleiman Al-HadithiFor the Republic of Iraq

Ahmed Bin Hamed Al NoaimiFor the State of Qatar

Abbas Ali NaqiFor the State of Kuwait

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

EXECUTIVE MANAGEMENT

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Chief Executive and General Manager

Rasheed Al-Maraj

Projects Department

Dr. Abdullah A. Al-IbrahimSenior Manager

Talal KhalilBusiness Development Manager, Middle East andNorth Africa Business Group

Dr. Abdul-Aziz S. AlidiBusiness Development Manager,GCC Business Group

Dr. Mohammed Abdel-JabbarSenior Economist

Project and Trade Finance Department

Michael HamiltonSenior Manager

Nicolas ThevenotManager, North Africa Business Group

Rashed Al-GhurairiManager, Trade Finance

Darren DavisManager, GCC Business Group

Bassam Al-TamimiAssistant ManagerNorth Africa Business Group

Ravi KrishnanAssistant ManagerGCC Business Group

Patrick MgnbenweluAssistant ManagerGCC Business Group

Haitham A. MalaikahAssistant ManagerGCC Business Group

Treasury and Capital Markets Department

Dino Roy MorettoSenior Manager

Hesham FaridPortfolio Manager

Faiq HussainTreasury Officer-Money Markets

Financial Control Department

Edward J. LutleySenior Manager

Omar Ibrahim Al OmarDeputy Manager

Ayman F. ZeyadaBack Office Manager

G.G. MangalaChief Accountant

Faisal Abbas FadlManagement Accounting

Legal Department

Dr. Mohamed Nur El-Din El-TahirGeneral Counsel

Dr. Mohamed Abdel Khalek OmarLegal Consultant

Administration & Human ResourcesDepartment

Abdulla A. Al-NashwanSenior ManagerAdministration & Human Resources

Mahdi Al-MahdiHead of Public Affairs

Information Systems Department

Galal OsmanSenior Manager

Internal Audit

Abdlulaziz Habib Al MatarHead of Internal Audit

CHAIRMAN’S STATEMENT

It is my pleasure to present on behalf of the Board of Directors of Arab PetroleumInvestments Corporation (APICORP), the twenty-seventh Annual Report on theCorporation’s activities and its financial results for the year ended 31 December2002.

APICORP’s 2002 operations resulted in a net income of US$29.8 million, compared with US$42.8 million in

2001. However, total assets increased by 18% from US$1,584 million to US$1,872 million. We achieved these

results in spite of the turbulence on the political and economy fronts throughout the world, which severely

impacted the performance of the financial markets. The third consecutive year of interest rate decline caused

interest rates of major currencies to fall to levels unprecedented for 40 years.

Recent political developments and their economic repercussions confronted the financial institutions in the

region, including APICORP, with a number of challenges calling for a serious commitment to actively participate

in providing the financing required for expansion and development projects.

In view of the strategic importance of the energy sector to the world economy, and the significant and influential

role of the Arab oil and gas exporting countries in energy markets, it is imperative that these countries continually

develop and expand their production capacities. In this context APICORP plays an essential role with its continuing

commitment to participating in the provision of the financing needed for the development of these industries.

The Corporation recognises the efforts of the Arab oil producers to develop their oil and gas industries, to

increase locally generated added value, and to achieve more integration with the regional economies. Furthermore,

creating opportunities for the private sectors to participate in such developments, should lead to the creation

of more investment and financing opportunities, thus widening the field of operations in future for Arab financing

institutions, amongst them APICORP.

In spite of the economic and political situation in the region, APICORP has steadily pursued its activities in

support of the Arab petroleum industries, while maintaining its position as one of the leading Arab financial

institutions in the oil and gas industry. This has been done through APICORP’s significant participation, and the

leading roles it has played, in arranging the necessary financing for these industries, which in turn resulted in

a 23% increase in our loan portfolio in 2002. During the year, APICORP participated in the arrangement of

loan financings of US$5.2 billion, with a final take of US$ 436 million, compared to US$4.3 billion and a final

take of US$428 million in 2001. Revenues from lending increased by 43.1% compared to 2001.

Our loan portfolio is diversified across many sectors of the industry, whether in the establishment of new projects

or in support of operational or revamping activities of existing projects, or financing Arab oil exports, or in the

acquisition of equity in companies engaged in the oil and gas sector.

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During 2002, APICORP continued to support Arab oil exports by participating in trade finance transactions

amounting to US$679 million, with a final take of US$120 million.

In the mean time, the APICORP Taylor-DeJongh Alliance for financial advisory services was mandated by the

Saudi Petrochemical Company (SADAF) to act as financial advisor for the refinancing of their term debt. This

assignment will in turn strengthen APICORP’s reputation and ability in providing such services through this

Alliance in the future.

In May 2002, APICORP made its fourth borrowing from the international financial markets when it signed a

new 5-year US$300 million term loan agreement arranged by Credit Agricole Indosuez, Gulf International Bank

B.S.C., HSBC Investment Bank Plc, Riyad Bank and Sumitomo Mitsui Banking Corporation.

Because of over-subscription by regional and international financial institutions, the value of the facility was

raised from an initial US$250 million to US$300 million. The loan attracted a particularly strong response

from regional market and was primarily used to refinance the first loans that APICORP signed in 1997.

To strengthen its capital base and financial adequacy to meet the increasing financing demands of Arab oil and

gas projects in future, the Corporation needs to retain part of its annual income. The Board of Directors has

recommended to the General Assembly an increase in the Corporation’s paid-up capital from US$460 million

to US$550 million by the capitalisation of the general reserve and retained earnings.

On behalf of the Board of Directors, I must thank the management and staff of APICORP for their contributions

to the results achieved by the Corporation, and I reiterate to the Governments of the Member States, our

appreciation of the continued support received by the Corporation.

Also, we record our gratitude to the Government of the Custodian of the Two Holy Mosques for the special care

extended to the Corporation.

Abdullah A Al-Zaid

Chairman of the Board of Directors

BOARD OF DIRECTORS’ REPORT - APICORP ACTIVITIES IN 2002

Project and Trade FinanceThe financing business of the Corporation was remarkably successful, with the contribution to net income rising from US$ 11.6million in 2001 to US$ 16.6 million in 2002, an increase of 43.1%.

Fees generated by the financing activity rose to a record US$ 6.7 million, 40.4% of the contribution to net income.

The loan and trade finance portfolio rose to US$ 1,064 million at year end 2002, from US$ 863 million at the beginning of the year.

Priority was accorded to allocating lending capacity to the region: credit to borrowers in the Arab world increased to 81% comparedwith 74% at the beginning of the year.

Project Finance2002 was a particularly challenging year for financial institutions in the region active in the hydrocarbon sector, as they endeavouredto manage continuing heavy demands for credit. Contributing to this was the continuing reduction in the number of internationalbanks active in the region, leaving regional institutions to take on a larger share of the financing requirement

APICORP was well able to take on this challenge and maintain its position at the forefront of regional hydrocarbon financings,resulting in the sharp increase of loan balances, net of impairments, from US$863 million at the beginning of the year to US$1,064million at year end, an increase of 23%.

A list of the main term loan facilities concluded by the Corporation over 2002 is given in the table below:

Although the financing activity within the GCC continued to be dominant, a welcome development over the year, has been thegrowth of the lending business in North Africa. Several financings, notably in Egypt, were significantly advanced over 2002 andwe expect them to be successfully concluded in the year ahead.

Client Main Sponsors Facility and Signing Date Purpose APICORP RoleRas Laffan Power CompanyLimited, Qatar

AES Ras Laffan HoldingsLimited 55%,QP 10%QEWC 25%GIC 10%

US$ 572 million,20 February 2002

Part financing of a powerand water project

Arranger

Egyptian GeneralPetroleum Corporation(EGPC)

Government of Egypt US$ 100 million,8 May 2002

Oil & Gas purchases Mandated CoordinatingArranger, Sole Underwriter,Book Runner andDocumentation Bank

Ministry of Finance &National Economy,Kingdom of Bahrain

Kingdom of Bahrain US$ 600 million,27 May 2002

Development of theoffshore Abu Saafa oil field

Mandated Lead Arrangerand Underwriter

Saudi Basic IndustriesCorporation (SABIC) andSABIC EuropetrochemicalsBV

Saudi Government 70%GCC Private Sector 30%

Euro 2,353 million,22 June 2002

Acquisition of DPCPetrochemicals, refinanceof existing debt andworking capital

Mandated Lead Arranger,Underwriter andDocumentation Bank

Oman India FertilizersCompany (OMIFCO), Oman

Oman Oil Company 50%,KRIBHCO 25%IFFCO 25%

US$ 674 million,5 July 2002

Construction of ammonia/urea plant in Oman

Lead Arranger

Tamoil S.A., Switzerland Oilinvest CHF 250 million,15 July 2002

Upgrade of refinery inSwitzerland

Participant

Jubail UnitedPetrochemical Company(JUPC)

SABIC US$ 1,154 million,29 August 2002

Construction ofpetrochemical plant inAl-Jubail, KSA.

Arranger (club deal)

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Advisory Services

Good progress was achieved by APICORP Taylor-DeJongh Inc., Washington D.C. , Financial Advisory Services, with the advisorymandate for Saudi Petrochemical Company, Al Jubail (SADAF), owned jointly by SABIC and Shell, substantially advanced over 2002:the associated US$ 650 million financing was concluded in February 2003.

This assignment essentially involved the refinancing of the company’s term debt facilities.

Trade Finance

Our target business over the year has continued to be financing the exports of crude oil and petrochemicals shipped from the Arabworld to foreign buyers with which regional national oil companies have long-term strategic interests. Trade finance commitmentsover the year amounted to US$120 million, despite this activity being curtailed on account of continuing reservations about emerging markets.

This is reflected in the table below, which summarizes the main trade finance facilities concluded over 2002:

Client Main Sponsors Facility and Signing Date Purpose APICORP Role

Hyundai Oilbank Co. Ltd.South Korea (guaranteedby IPIC, Abu Dhabi)

IPIC-Abu Dhabi, 50%Hyundai Heavy Industry27.7% Others 22.3%

US$ 154 Million15 August 2002

Crude oil imports fromSaudi Aramco

Lead Arranger

S-Oil CorporationSouth Korea

Saudi Aramco 35%Public and others 65%

US$ 95 Million21 August 2002

Crude oil imports fromSaudi Aramco

Participant

Holborn EuropeanMarketing Co. Ltd.

Oilinvest 100% US$ 300 Million18 December 2002

Crude oil imports mainlyfrom Libya and sales ofrefined products

Participant


Direct Equity Investments

At the end of 2002, the Corporation held direct equity investments in 11 companies in sevenArab countries with a total net asset value of US$ 167 million.

The operations of these companies cover a wide array of activities: drilling and related services,seismic services, extraction of LPG, production of polypropylene, methyl tertiary butyl ether,aromatics, purified terephathalic acid, polyester fibres, linear alkyl benzene, carbon black,ammonia, urea, NPK fertiliser, in addition to storage, trans-shipping and handling of petroleumand petrochemical products.

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

BANAGAS was established in 1979 to extract LPG and condensate from associatedgas. Total production in 2002 was 89,000 tons of propane, 89,000 tons of butaneand 171,000 tons of light naphtha.

The net profit for the year was BD 1.2 million.

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

ADWOC was established in 1978 to provide drilling and related operationalservices in Libya and nearby Arab markets.

The utilisation rate for ADWOC’s (13 rigs) reached 88 % in 2002, and theutilisation rate for the rig in Syria is 100%.

Due to improvements in market conditions, the Company has registered a recordprofit of LD 30.2 million at the end of 2002 (end December 2001: LD 7.5 million).

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) and a similar amount of sodium tripolyphosphate (STPP). The LAB complexat Baiji, in operation since 1987, also includes an aromatics line with a capacityof 30,000 tons/yr of benzene, 8,000 tons/yr of toluene and 3,000 tons/yr of heavyalkyl benzene.

In 2002, the Company produced 41.5 thousand tons and sold 47.5 thousand tonsof LAB (32.6 thousand tons in the local market) and (15 thousand tons wereexported to adjacent markets) and generated by the end of 2002 a net profit ofID 1,311 million from local sales in addition to US$ 2.85 million in hard currency.

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

Ibn Zahr produces methyl tertiary butyl ether (MTBE), a gasoline octane booster,and polypropylene. MTBE production was 1.4 million tons in year 2002 (designcapacity is 1.5 million tons/yr) and polypropylene production reached 611 thousandtons (design capacity is 640,000 tons/yr.).

2002 was another good year for Ibn Zahr with a net profit of SR. 446 million(2001: SR 349 million).

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

AGESCO was established in 1985 to provide advanced seismic services in theArab world and currantly owns three seismic teams operating in Libya.

In 2002, the Company has merged its crews and formed a 3D seismic crew andplanning to form another similar crew.

AGESCO has incurred a net loss of LD 2.29 million in 2002.( 2001: LD 179,000 net profit).

Tankage Méditerranée (TANKMED)APICORP investment: 20%

TANKMED was established in 1984 to provide storage, trans-shipping and handlingservices for petroleum and petrochemicals products at La Skhira terminal inTunisia. TANKMED’s total storage capacity, which is 300,000 cubic metres, servesmainly the local market.

The capacity utilisation rate for 2002 increased to an average of 93% during theyear and total revenues reached TD 9.1 million at the end of 2002. Net profitof the Company has also improved to TD 5.93 million at the end of 2002 (2001:TD 2.81 million).


Direct Equity Investments

Jordan Phosphate Mining Company (JMPC)APICORP investment: 0.76%

JPMC is a public company, 82% owned by the Jordanian Government (2000:69%)established in 1953 to mine and process phosphate rock. The annual productioncapacity of the phosphate fertiliser plant at Aqaba is 750,000 tons of di-ammonium phosphate, 410,000 tons of phosphoric acid and 20,000 tons ofaluminum fluoride by-product.

The net sales increased during 2002 to JD 198.3 million from JD 191.5 millionin 2001.

The Company recorded a net profit of JD 5.52 million at the end of 2002(2001: JD 4 million)

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

The Company has exceeded its nominal production capacity of 110,000 tons andproduced 121,000 tons in 2002. The export sales were 127,000 tons. TheCompany has succeeded in increasing its sales by 10% this year.

The net profit for the year was EGP 40.7 million versus EGP 5.9 million in 2001.

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

Ibn Rushd is an integrated petrochemical complex for the production of aromatics(730,000 tons/yr), purified terephthalic acid PTA (350,000 tons/yr) and polyester(146,000 tons/yr).

In 2002, Ibn Rushd’s polyester production amounted to 198,000 tons, productionof PTA was 379,000 tons, benzene 149,000 tons, paraxylene 157,000 tons, andheavy aromatics 41,000 tons, as a result, Ibn Rushd total production reached924,000 tons by the end of 2002.

The Company was able to overcome most of the technical problems facing itsCyclar Unit and succeeded to put it into operation.

Due to the continuation of the unexpected low prices for its products, Ibn Rushdmade a net loss of SR 225.4 million in 2002 (against SR240 million in 2001).

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Oriental Petrochemicals Company (OPC)APICORP investment: 14%

The design capacity for the OPC project is 120,000 tons/yr of raffia gradepolypropylene, expandable to 162,000 tons/yr (phase I). The project is locatedin the new industrial area north west of the Gulf of Suez (Ain Al-Sokhnah).

The Company has started commercial production in January 2002. It producedand sold 112,000 tons of polypropylene in 2002 , thus establishing OPC as themain producer and supplier of polypropylene in the Egyptian market.

Due to the low price of polypropylene products, the Company recorded a loss ofEGP 21.4 million during 2002.

The Company is studying the possibility of expansion by adding a second productionline with a similar capacity.

The Egyptian Fertilisers Company (EFC)APICORP investment: 10%

EFC specialises in nitrogen fertiliser products. Phase I, located in the new industrialarea north west of the Gulf of Suez (Ain Al-Sokhnah), was completed in 2000with a design capacity of 396,000 tons/yr of ammonia and 577,000 tons/yr ofurea.

In 2002, the Company produced 682,000 tons of urea and 410,000 tons ofammonia and sold 697,000 tons of urea in the international and local markets(94% of it in local markets) in addition to 23,000 tons of surplus ammonia inthe local market.

The net profit of the Company was $25.1 million in 2002, compared to 20.5 millionin 2001.

EFC is currently considering the expansion of its urea output by the addition ofa new urea/ammonia line with similar production capacity.


Direct equity investments as at 31 December 2002

Company Name Paid-up Capital Participation Other MajorShareholders

Activities

Bahrain National GasCompany (BANAGAS)Bahrain

BD 8 million 12.5% Bahrain National Oil Co.(BANOCO), BahrainCaltex Trading & TransportCo., Kingdom of Bahrain

Extraction and marketingof LPG and condensatesfrom associated gas.

Arab Drilling and WorkoverCompany (ADWOC)Libyan Arab Jamahiriya

LD 12 million 20% Arab Petroleum ServicesCo. (APSC), LibyaSanta Fe, USA

Drilling and relatedoperations in the Arabworld.

Arab Company forDetergent Chemicals(ARADET)Iraq

ID 36 million 32% Govt. of the Republic of IraqGovt. of the Kingdom ofSaudi ArabiaGovt. of the State of KuwaitArab Mining Company,JordanThe Arab Investment Co.,Riyadh

Production and marketingof linear alkyl benzene andsodium tripolyphosphate(STPP). STPP project is beingimplemented.

Saudi EuropeanPetrochemical Company(IBN ZAHR)Saudi Arabia

SR 1,025 million 10% Saudi Basic Industries Corp.(SABIC), Saudi ArabiaEcofuel, ItalyFortum Oy, Finland

Production of gasolineoctane booster MTBE, andpolypropylene.

Arab GeophysicalExploration ServicesCompany (AGESCO)Libyan Arab Jamahiriya

LD 4 million 10% Arab Petroleum ServicesCo. (APSC), LibyaHaliburton For PetroleumServices Co., U.S.ANational Oil Co., Libya

Providing advanced seismicservices in the Arab world.

Tankage Mediterranee(TANKMED)Tunisia

TD 12 million 20% Socie’te’ Tuniso Seoudienned’Invesstissement et deDe’velopement (STUSID)Banque Tuniso-Koweitiennede De’velopement (BTKD)I’Entreprise Tunisienned’Activities Petrolieres(ETAP), Tunisia

Storing, trans-shipping andhandling petroleum andpetrochemical products atLa Skhirra terminal.

Jordan Phosphate MiningCompany (JPMC)Jordan

JD 75 million 0.76% Govt. of the Kingdom ofJordanGovt. of the State ofKuwaitArab Mining Company,JordanIslamic Development Bank,Saudi Arabia

Mining phosphate rock,production and marketingof chemical fertilisercompounds.

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Alexandria Carbon BlackCompany (ACBC)Egypt

LE 99.5 million 12% Indian IndustrialInvestment Group(BIRLA), IndiaTransport and EngineeringCompany (El Nesser TireCo.), EgyptPirelli Tyre Co., ItalyAlexandria Tire Company,EgyptAl-Nasr Coke Company,EgyptSaudi Egyptian IndustrialInvestment Company,EgyptInternational FinanceCorporation (IFC), USAContinental CarbonCompany, USA

Production and marketingof carbon black.

The Arabian IndustrialFibers Company (IBNRUSHD)Saudi Arabia

SR 3,550 million 8.3% Saudi Basic IndustriesCorp. (SABIC), Saudi ArabiaSaudi PharmaceuticalsCo., Saudi ArabiaSAFCO, Saudi ArabiaGIC, KuwaitOthers

Production of aromatics,PTA and polyester fibers.

Oriental PetrochemicalCompany (OPC)Egypt

LE 120 million 14% Oriental Weavers Group,EgyptArab InternationalInvestments Co., LibyaNational Bank of Egypt(Al-Ahli Bank), EgyptEgyptian PetrochemicalsCo., EgyptMisr Insurance Co., EgyptOrient Insurance Co.(Al-Sharq), Egypt

Production and marketingof polypropylene.

Company Name Paid-up Capital Participation Other Major Shareholders Activities

Egyptian FertilisersCompany (EFC)Egypt

US$ 118 million 10% Orascom, EgyptThe Chemical IndustriesHolding Co.EgyptThe Mineral IndustriesHolding Co.Egyptand the Coke Co. EgyptBanque Misr, EgyptMisr Insurance Co., EgyptShubiksi Co. ForDevelopment and Trade,Saudi ArabiaNational InvestmentBank, EgyptOthers

Production and marketingof urea and surplusammonia.

Others


Treasury ActivitiesTreasury activities have been resilient to the high volatility and turbulence that financial markets witnessed in2002. The conservative strategy adopted for Treasury investments and funding operations has had a positiveimpact on overall performance. Treasury has maintained its focus on non-directional markets and high qualityinvestments to ensure a stable return.

With instability and volatility in financial markets and the general theme of prevailing uncertainties aboutpolitical and economic developments, Treasury activities have been focused on minimizing risk exposures onoverall investments.

Treasury operations achieved a net income of US$14.5 million, compared to US$26.0 million in the year 2001.Treasury assets grew from US$513 million to US$576 million at 31 December 2002. The securities portfoliohas maintained a high standard of credit profile, with an average AA rating at 31 December 2002.

Conferences and SeminarsDuring the year 2002, APICORP participated in a number of conferences and seminars, chief among them beingthe 7th Arab Energy Conference, held in Cairo between 11-14 May 2002.

At that conference APICORP presented a study paper entitled: The Investment Requirements Anticipated forOil, Gas and Petrochemical Industry Sectors in the Arab Region and Their Sources of Finance: The Chances andChallenges.

APICORP also participated in a conference titled: Financing Hydrocarbon Projects in Egypt. The Conference washeld in London on 26-27 June 2002.

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FINANCIAL STATEMENTSYear ended 31 December 2002

Introduction 20Accounting Policies 21Income Statement 25Balance Sheet 26Changes in Shareholders' Equity 27Cash Flows 28Notes to the Financial Statements 29Auditors’ Report to the Shareholders 46

2002 FINANCIAL STATEMENTS - INTRODUCTION

The information on this page is presented in order to provide the reader with background information about APICORP that is essentialto the understanding of the financial statements, as set out in pages 20 to 45. Similarly, the accounting policies as explained inpages 21 to 24 are intended to acquaint the reader with the International Financial reporting Standards (IFRS) and the methodologyfollowed by the Corporation in the presentation of its financial statements, and the classification and measurement of assets andliabilities therein.

Arab Petroleum Investments Corporation (APICORP - the Corporation) is an Arab joint stock company established on 23 November1975 in accordance with an international agreement signed and ratified by the ten member states of the Organisation of ArabPetroleum Exporting Countries (OAPEC). The agreement defines the objectives of the Corporation as:

participation in financing petroleum projects and industries, and in fields of activity which are derived therefrom, ancillary to, associated with, or complementary to such projects and industries.

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 of Saudi Arabia. Theestablishing agreement states that APICORP is exempt from taxation in respect of its operations in 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 as follows:

US$ 000 Issued and fully paid Authorised capital Percentage

United Arab Emirates 78,200 204,000 17%Kingdom of Bahrain 13,800 36,000 3%Democratic and Popular Republic of Algeria 23,000 60,000 5%Kingdom of Saudi Arabia 78,200 204,000 17%Syrian Arab Republic 13,800 36,000 3%Republic of Iraq 46,000 120,000 10%State of Qatar 46,000 120,000 10%State of Kuwait 78,200 204,000 17%Socialist People’s Libyan Arab Jamahiriya 69,000 180,000 15%Arab Republic of Egypt 13,800 36,000 3%

460,000 1,200,000 100%

The Board of Directors meeting on 22 December 2002 resolved to recommend to the shareholders in 2003 that the issued sharecapital be increased to US$ 550 million by the capitalisation of the general reserve and retained earnings. The Directors also resolvedto recommend that dividends be capped at 50 percent of annual net income in order to enhance capital adequacy.

ActivitiesAPICORP is independent in its administration and the performance of its activities, and operates on a commercial basis with theintention of generating net income. Most of its 110 (2001: 112) employees are Arab nationals. The Corporation has no subsidiaries,branches or divisions, and operates only from its head office in the Kingdom of Saudi Arabia. Accordingly no business or geographicalsegment information is reported in the financial statements.

Currently the Corporation's project-financing activities take the form of loans and direct equity investments in projects.These activities are funded by shareholders’ equity, medium-term financing and short-term deposits from banks.

APICORP Taylor-DeJongh Advisory ServicesIn March 2001 the Corporation entered into a memorandum of understanding with Taylor-DeJongh Inc, Washington DC, wherebythe two organisations will jointly provide financial consultancy services to the petroleum, petrochemical and energy industries inthe Middle East and North Africa. The specialisation of the alliance is in the area of project finance. Corporate finance advisoryservices are also provided.

The f inancia l s tatements cons ist of pages 20 to 45

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A GENERAL

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

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

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

The accounting policies have been consistently applied by the Corporation and are consistent with those used in the previous year,except for one minor change involving the amortisation of certain fee income, as explained on page 24.

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

Direct equity investments (non-monetary assets) denominated in foreign currencies, that are stated at fair value, are translated toUS dollars at current exchange rates. Differences arising from changes in rates are included in the revaluation reserve in shareholders'equity. Capital expenditure on property and equipment is stated at the historical rates of exchange. There are no other foreigncurrency 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 puchased principally for the purpose of gains over the short-term. These consistof managed funds and equity securities.

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

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

B-2 RecognitionThe Corporation recognises financial assets held for trading and available-for-sale assets on the date on which it commits to purchasethe assets (trade date). From this date forward any gains and losses arising from changes in fair value of the assets are recognised.Originated loans are recognised on the day on which they are drawn down by the borrower.

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

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

B-4 Fair value measurement principlesThe fair value of financial instruments is based on their quoted market price at the balance sheet date without any deduction fortransaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using discounted cash flowtechniques, 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 a revaluationreserve in shareholders' equity. When the assets are sold, collected or otherwise disposed of, or are impaired, the cumulative gainor 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.

ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS



B FINANCIAL INSTRUMENTS (continued)

B-6 Fair value adjustments on transition to IAS-39With the adoption of IAS-39 on 1 January 2001, investment securities previously carried at cost less impairments were reclassifiedas available-for-sale securities and were valued at fair value (see notes 11 and 12). The transition valuation gains or losses wereadjusted against retained earnings (see page 27).

When these securities are sold, the transition gains or losses originally adjusted against retained earnings are recycled through theincome statement (see page 25 and 27).

B-7 DerecognitionA financial asset is derecognised when the Corporation loses control over the contractual rights attaching to that asset. This occurswhen the rights are realised, expire or are surrendered. A financial liability is derecognised when it is extinguished.

Available-for-sale assets and assets held for trading that are sold are derecognised, and corresponding receivables from the buyerfor the payment are recognised at the date on which the Corporation commits to sell the assets (trade date). The Corporation usesthe specific identification method to determine the gain or loss on derecognition.

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 anysuch 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 instruments remeasuredto fair value is calculated as the present value of the related expected future cash flows discounted at the current market rate ofinterest for such an instrument.

Where an asset remeasured to fair value directly through equity is impaired, and a write-down was previously recognised directlyin equity, the write-down is transferred to the income statement and is recognised as part of the impairment loss. Any subsequentadditional 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 fair value of theasset has previously been recognised in equity, the increase in the fair value of the asset previously recognised 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 belinked objectively to an event occurring after the write-down, the write-down is reversed through the income statement.

C CASH AND CASH EQUIVALENTS

C-1 ClassificationCash and cash equivalents comprise 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 initial syndication, arecarried at cost (less allowances for impairment where appropriate). It is the Corporation's policy to hold all originated loans tomaturity. No loans purchased from the secondary market have been included in the balance sheet since early 2000.

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

Prior to 2001, for convenience, these receivables were included in loans in the balance sheet. However, since they do not have anyof the characteristics of loans, with the adoption of IAS-39 on 1 January 2001, they were reclassified as other receivables andincluded in other assets (see notes 14 and 17).

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.


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D LOANS AND OTHER RECEIVABLES (continued)

The impairment allowance is calculated by discounting expected future cash flows from the loan, using the effective 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 and the shortfall in thepresent 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 after receiving specificapproval 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 accordingto the purposes for which they were held at 1 January 2001 or, in the case of subsequent purchases, the purposes for which theywere acquired.

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

Available-for-sale bond portfolio: This consists principally of investment grade fixed and floating-rate bonds that are intended to generate a steady stream of interest income, whilst representing a contingency reservoir of liquidity.

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

In 2000, the majority of bonds were included in an investment bond portfolio and were carried at amortised cost less allowances for specific impairments (see note 12). With the adoption of IAS-39 they were remeasured to fair value.

Gains or losses in the value of available-for-sale bonds, apart from impairments, are recognised in income only on ultimate disposal. Related fair value adjustments made on adoption of IAS-39, and taken to retained earnings, are also recycled to the income statement on their ultimate 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 amortised through the incomestatement 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 for specific start-up projectsin the petroleum and petrochemical industries, mostly in partnership with governments or quasi governmental entities. The Corporationis represented on the boards of the companies.

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

Once the companies become established and begin paying dividends, it is the Corporation's intention to profitably dispose of itsholdings in order to recycle the funds to new projects. Accordingly, these investments are classified as 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 market valuations, management considers the bestapproximation to fair value to be the net asset value, or the present value of discounted future cash flows, where these can bereasonably estimated.




F DIRECT EQUITY INVESTMENTS (continued)

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

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

G PROPERTY AND EQUIPMENT

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

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

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

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

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

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

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

H INVESTMENT PROPERTYThe Corporation's investment property, being land that is no longer required for the development of the head office building, isincluded in other assets in the balance sheet and is carried at fair value. Any gain or loss arising from a related change in fair valueis 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 the asset. This includesthe amortisation of any discount or premium or other differences between the initial carrying amount of an interest-bearinginstrument and its amount at maturity.

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

Prior to 2002 all fee income was taken directly into income. With effect from 2002, fees that are analagous to interest are amortisedover the lives of the related loans. This change in accounting policy, the effect of which is not material in terms of net income ornet assets, has been applied retroactively to prior years and retained earnings have been adjusted accordingly (see page 27). Previouslyreported net income for the years 2000 and 2001 were not affected by this change.

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


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INCOME STATEMENTfor the year ended 31 December 2002


US$ 000 Notes 2002 2001 2000

INTEREST INCOME 1,25 42,917 69,576 100,213Interest expense and charges 1 (24,696) (41,595) (59,838)

NET INTEREST INCOME 1 18,221 27,981 40,375

Fee income 2,25 6,792 3,130 5,623Fee expense 2 (981) (889) (1,100)Net fee income 2 5,811 2,241 4,523

Dividend income 3, 25 4,192 4,264 1,074Realised and unrealised gains on trading securities 4 5,388 3,215 16,565Realised gains on available-for-sale securities (2000: realised losses 5 5,672 4,145 (3,807)Other operating income 6 1,552 157 234

General administrative expenses 7 (14,423) (13,714) (12,901)Net reversals of impairment losses (2000: net allowances for impairment) 8 3,962 15,938 (3,105)Other operating expenses 9 (533) (1,408) (2,520)

NET INCOME FOR THE YEAR 29,842 42,819 40,438

AppropriationsThe appropriations of the 2002 net income are set out in the statement of changes in shareholders' equity on page 27.

Per US$ 1,000 share information 2002 2001 2000

Earnings US$ 64,87 US$ 93,09 US$ 87,91Proposed dividend US$ 43,48 US$ 43,48 US$ 65,22Net asset value US$ 1,496 US$ 1,447 US$ 1,446

BALANCE SHEET31 December 2002

US$ 000 Notes 2002 2001 2000

ASSETSCash and cash equivalents 10,207 9,568 11,242Trading securities 10 79,921 94,287 92,887Available-for-sale securities 11 299,137 124,442 -Investment securities 12 - - 161,404Deposits placed with banks 13 186,866 285,034 207,418Syndicated and direct originated loans 14 1,064,052 862,915 864,553Direct equity investments 15 168,323 145,780 158,260Property and equipment 16 47,249 47,669 46,974Other assets 17 16,286 14,400 19,916

TOTAL ASSETS 1,872,041 1,584,095 1,562,654

LIABILITIESDeposits from banks 18 725,156 458,794 583,387Term financing 19 423,019 424,091 273,626Unpaid dividends 14 28,740 25,291 21,462Other liabilities 20 6,999 11,701 20,708

Total liabilities 1,183,914 919,877 899,183

SHAREHOLDERS' EQUITY Share capital (see page 20) 460,000 460,000 460,000Legal and general reserves (see page 27) 156,200 153,200 148,900Revaluation reserve (see page 27) 11,242 15,622 -Retained earnings (see page 27) 60,685 35,396 54,571

Total shareholders' equity 688,127 664,218 663,471

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,872,041 1,584,095 1,562,654

OFF-BALANCE SHEET EXPOSURESCommitments, guarantees and derivatives 22 609,625 611,417 460,568

The financial statements consisting of pages 20 to 45 were approved by the Board of Directors on 3 May 2003 and were signed by:

Abdullah A Al-Zaid Mohamed Ali El-Huwej Rasheed M Al-Maraj Chairman Deputy Chairman General Manager

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CHANGES IN SHAREHOLDERS' EQUITYfor the year ended 31 December 2002


US$ 000 Notes 2002 2001 2000

SHARE CAPITAL (see page 20) - no change in the year (as page 26) 460,000 460,000 460,000

LEGAL AND GENERAL RESERVESLegal reserve at the beginning of the year 78,200 73,900 69,850Transfer from net income (see below) 3,000 4,300 4,050

81,200 78,200 73,900General reserve - no change in the year 75,000 75,000 75,000Legal and general reserves at 31 December (as page 26) 156,200 153,200 148,900

REVALUATION RESERVE - available-for-sale assetsSecuritiesNet unrealised gains at the beginning of the year 3,244 - -Transfer from retained earnings (3,589) - -Increase in market value in the year 3,792 9,065 -Gains realised on sales transferred to income 5 (5,672) (6,398) -Unrealised losses charged to income on recognition of impairments 8 3,964 - -Exchange rate movements (560) 577 -Net unrealised gains at 31 December 1,179 3,244 -Direct equity investmentsNet unrealised gains at the beginning of the year 12,378 - -Transfer from retained earnings (24,858) - -Increase in fair value in the year 15 22,543 12,378 -Net unrealised gains at 31 December 10,063 12,378 -

Total revaluation reserve at 31 December (as page 26) 11,242 15,622 -

RETAINED EARNINGSAt the beginning of the year 35,396 54,571 45,738Changes in accounting policy - adoption of IAS-39 Fair value adjustment - available-for-sale securities - (5,842) - Discounting adjustment - allowance for loan impairments 14 - 4,441 - Fair value adjustment - direct equity investments 15 - (24,858) -Other changes in accounting policy Fair value adjustment - investment property - - (949) Discounting of value of machinery 17 - (3,688) - Deferral of loan participation fees - - (1,606)Transfer to revaluation reserve - net 2001 fair value adjustments 28,447 - -Opening retained earnings as adjusted 63,843 24,624 43,183

Dividends to the shareholders for the previous year (see below) (30,000) (30,000) (25,000)Pre-IAS-39 losses - available-for-sale securities recycled to income 5 - 2,253 -Net income for the year (from page 25) 29,842 42,819 40,438Transfer to legal reserve (see below) (3,000) (4,300) (4,050)Retained earnings at 31 December (as page 26) 60,685 35,396 54,571

TOTAL EQUITY at 31 December as on the balance sheet (page 26) 688,127 664,218 663,471

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

Article 35 also permits the creation of other reserves such as the general reserve. The general reserve may be applied as is consistentwith the objectives of the Corporation, and as may be resolved by the General Assembly, on the recommendation of the Board ofDirectors.

Proposed dividendAppropriations of net income for dividends are proposed by the Directors and are then subject to approval by the Annual GeneralAssembly. The Directors have proposed a dividend of US$ 20 million for 2002 (2001 dividend paid: US$ 30 million).

CASH FLOWSfor the year ended 31 December 2002


US$ 000 Notes 2002 2001 2000

CASH FLOWS FROM OPERATING ACTIVITIES 24Interest received 46,025 78,894 97,413Interest paid (23,799) (48,838) (62,085)Fees received 7,344 3,077 5,420Fees paid (1,950) (424) (1,175)Dividends received 53 87 462Net receipts from trading activities (2001: net payments) 19,413 (20,249) 30,693Operating expenses paid (12,275) (12,944) (10,403)Cash inflows before changes in operating assets (2001: outflows) 34,811 (397) 60,325

DECREASE (INCREASE) IN OPERATING ASSETSDecrease in deposits placed with banks (2001: increase) 98,168 (77,616) 37,878Syndicated and direct loans drawn down 14 (624,238) (268,054) (263,027)Loan repayments and prepayments received 14 434,769 281,492 253,837Increase in deposits from banks (2000 and 2001: decrease) 266,362 (124,593) (116,405)Net payments from other operating assets and liabilities (2000 and 2001: receipts) (9,790) 3,076 6,944Cash inflows from operating activities (2000 and 2001: outflows) 200,082 (186,092) (20,448)

CASH FLOWS FROM INVESTING ACTIVITIESProceeds from redemptions and sales of available-for-sale securities 409,725 142,803 -Purchases of available-for-sale securities (583,694) (83,372) -Proceeds from redemptions and sales of investment securities - - 56,866Purchases of investment securities - - (18,163)Dividends from direct equity investments 4,139 4,177 612Payments for direct equity investments - - (13,346)Rent received 620 391 72Capital expenditure on property and equipment (3,233) (2,581) (7,113)Cash outflows from investing activities (2000 and 2001: inflows) (172,443) 61,418 18,928

CASH FLOWS FROM FINANCING ACTIVITIESTerm financing drawn down 19 225,000 200,000 25,000Term financing repaid 19 (225,000) (50,000) -Dividends paid in respect of the previous year (27,000) (27,000) (22,500)Cash outflows from financing activities (2000 and 2001: inflows) (27,000) 123,000 2,500

TOTAL CASH INFLOWS IN THE YEAR (2001: outflows) 639 (1,674) 980

CASH AND CASH EQUIVALENTSAt the beginning of the year 9,568 11,242 10,262Total cash inflows in the year as above (2001: outflows) 639 (1,674) 980Cash and cash equivalents at 31 December (as on the balance sheet - see page 26) 10,207 9,568 11,242

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NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2002


1 NET INTEREST INCOME

US$ 000 2002 2001 2000Interest incomeInterest income arises from: Cash and cash equivalents 158 378 449 Deposits placed with banks 3,548 8,508 13,474 Available-for-sale securities 8,033 12,338 - Asset swaps (positions closed in 2001 - see note 22) - 235 2,146 Trading securities (2000 only) - - 3,322 Investment securities (2000 only) - - 12,899 Originated syndicated and direct loans 31,178 48,117 67,923

42,917 69,576 100,213

In 2001, all fixed and floating-rate bonds from the investment and trading portfolios were reclassified to the newly establishedavailable-for-sale portfolio on the adoption of IAS-39.The reduction in interest income in 2002 and 2001 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 27 - Effective interestrates). 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 (11,046) (20,547) (39,067) Term financing (9,829) (17,072) (18,044) Unpaid dividends (see note 14) (449) (829) (1,244) Total interest (21,324) (38,448) (58,355)Other charges arise from: Morabaha transactions (see note 18) (3,372) (3,147) (1,483)

(24,696) (41,595) (59,838)

The reduction in interest expense in 2002 and 2001 is a consequence of the worldwide fall in interest rates, as all of the Corporation'sinterest-bearing liabilities are either short-term fixed-rate instruments or floating-rate instruments (see note 27 - Effective interest rates).

Net interest income 18,221 27,981 40,375

2 NET FEE INCOME

US$ 000 2002 2001 2000Fee incomeFee income derived from the Corporation's lending activities: Underwriting and arranging services 5,106 1,645 3,879 Commitment fees 1,406 1,283 1,484 Agency and advisory services 234 149 57Fees from securities lending activities 46 53 203

6,792 3,130 5,623Fee expenseFee expense from the Corporation's term financings: Commitment fees and amortisation of front-end fees (878) (788) (975)Other fees and charges paid to banks (103) (101) (125)

(981) (889) (1,100)

Net fee income 5,811 2,241 4,523

18,221



3 DIVIDEND INCOME

US$ 000 2002 2001 2000Dividend income is generated from:Trading securities 53 87 462Direct equity investments 4,139 4,177 612

Total dividend income 4,192 4,264 1,074

4 GAINS ON TRADING SECURITIES

US$ 000 2002 2001 2000Realised and unrealised gains on trading securities arise from: Listed equities (2002 and 2001: losses) (546) (294) 4,040 Managed funds 5,934 3,509 8,315 Fixed and floating-rate bonds - - 4,210

Total realised and unrealised gains on trading securities 5,388 3,215 16,565

5 REALISED GAINS ON NON-TRADING SECURITIES

US$ 000 2002 2001 2000Gains on non-trading securities arise from: Available-for-sale securities Gains realised on sales transfered from the revaluation reserve (see page 27) 5,672 6,398 - Pre-2001 losses recycled from retained earnings (see page 27) - (2,253) -Investment securities Losses realised on sales of fixed and floating-rate bonds - - (3,807)

Total net realised gains on non-trading securities (2000: losses) 5,672 4,145 (3,807)

6 OTHER OPERATING INCOME

US$ 000 2002 2001 2000Other operating income consists of: Rent - head office building and housing compound 620 147 72 Sales of furniture and office equipment 11 4 150 Investment property - increase in fair value 865 - - Miscellaneous income 56 6 12

Total other operating income 1,552 157 234

7 GENERAL ADMINISTRATIVE EXPENSES

US$ 000 2002 2001 2000General administrative expenses consist of: Human resources costs (9,893) (10,167) (10,072) Premises costs (2,391) (1,490) (585) Equipment and communications costs (821) (578) (806) Directors' fees and expenses (776) (807) (752) Other corporate expenses (542) (672) (686)

Total general and administrative expenses (14,423) (13,714) (12,901)


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8 IMPAIRMENT LOSSES

US$ 000 2002 2001 2000Write-downs Available-for-sale securities Unrealised losses transferred from the revaluation reserve (see page 27) (3,964) - - Investment securities (see note 12) - - (4,589) Syndicated and direct loans (see note 14) - - (3,263) Direct equity investments (see note 15) - - (1,068)

(3,964) - (8,920)Reversals of write-downs Syndicated and direct loans (see note 14) Iraq Ministry of Oil - reduction against increase in unpaid dividends 3,449 3,829 3,746 Pakistan loans - performing following reschedulings - 8,821 2,560 Recoveries against other impaired loans 749 127 - Reduction in allowance for potential defaults (2000: increase) 2,759 4,327 (1,126) Payments under guarantees recoverable from third parties (see note 17) Net effect of changes in value of machinery and discount rates 969 (1,166) - Cash recovered on final settlement with contractors - - 635

7,926 15,938 5,815

Net decrease in impairment losses (2000: net increase) 3,962 15,938 (3,105)

9 OTHER OPERATING EXPENSES

US$ 000 2002 2001 2000Loss on foreign exchange (93) (98) (1,730)Head office building - miscellaneous pre-occupation and relocation costs written off (111) (696) -New computer systems implementation - training costs (149) - -New term finance - arrangement costs (179) - -Investment property - decrease in fair value - (67) -Other expenses (1) (547) (790)

Total other operating expenses (533) (1,408) (2,520)

10 TRADING SECURITIES

US$ 000 2002 2001 2000Trading securities (carried at market value) consist of: Listed equities - mostly US corporates - denominated in US$ 3,338 5,426 6,417 Managed funds - mostly denominated in US$ 76,583 88,861 65,837 Fixed and floating rate-bonds - denominated in US$ - - 20,633

Total trading securities 79,921 94,287 92,887

11 AVAILABLE-FOR-SALE SECURITIES

US$ 000 2002 2001 2000Available-for-sale securities - reclassified from trading and investment securities on1 January 2001 on the adoption of IAS-39 (see notes 10 and 12) - consist of: Fixed-rate bonds (carried at market value) issued by : Governments and other public sector issuers 182,572 24,267 - Other issuers - mainly US and EU corporates 80,739 54,839 - Floating-rate bonds (carried at market value) issued by: Governments and other public sector issuers - 12,639 - Other issuers - mainly US and EU corporates 33,801 31,861 - Impaired bonds (carried at cost less estimated impairment) 2,025 836 -

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



12 INVESTMENT SECURITIES

US$ 000 2002 2001 2000Investment securities consisted of:Fixed rate bonds - carried at amortised cost less allowances for impairment (reclassifiedas available-for-sale securities on 1 January 2001 with the adoption of IAS-39 - see note 11) - - 114,534Floating rate bonds - carried at amortised cost (reclassified as available-for-sale securitieson 1 January 2001 with the adoption of IAS-39 - see note 11) - - 46,870

Total investment securities - - 161,404

With the adoption of IAS-39 on 1 January 2001, the adjustment to recognise the fixed and floating-rate bonds at fair value wasrecorded as an adjustment to opening retained earnings (see page 27).

13 DEPOSITS PLACED WITH BANKS

US$ 000 2002 2001 2000Deposits placed with banks consist of: Deposits maturing within three months (carried at cost) 158,126 259,743 185,956 Deposits representing dividends payable to the Iraqi shareholder (see note 14) 28,740 25,291 21,462

Total deposits placed with banks 186,866 285,034 207,418

14 SYNDICATED AND DIRECT ORIGINATED LOANS

US$ 000 2002 2001 2000Performing originated loans Syndicated, direct and revolving loans and trade finance facilities (at cost) 1,044,702 848,480 862,593 Unamortised participation fees (2,610) (1,606) (1,606) Allowance for specific potential defaults - Pakistan - - (8,821) Allowance for unidentified potential defaults (2000: general allowance) (6,780) (9,250) (17,075)

1,035,312 837,624 835,091Non-performing (impaired) loans (see below) Syndicated, direct and revolving loans and trade finance facilities (at cost) 80,448 79,692 80,341 Allowance for specific impairments (80,448) (79,692) (80,341) Dividends due to Iraq Ministry of Oil offset against guaranteed loans (see below) 28,740 25,291 21,462

28,740 25,291 21,462Payments under guarantees - transferred to other assets on 1 January 2001 Estimated recoverable value (see note 17) - - 8,000

Total net loans outstanding (2000: and payments under guarantees) 1,064,052 862,915 864,553

Non-performing (impaired) loansIraqi companies - guaranteed by the Central Bank of Iraq (see below) 42,090 42,090 42,090Other Iraqi companies 19,412 17,906 18,428Sudan company 16,560 16,560 16,560Other 2,386 3,136 3,263

Total non-performing loans at 31 December 80,448 79,692 80,341

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, againstwhich the Corporation duly filed claims in 1996 for the repayment of the principal and the overdue interest.

Acknowledging the claims, the bank informed the Corporation that the matter could only be addressed on the ultimate lifting ofthe United Nations sanctions against Iraq.

NOTES TO THE FINANCIAL STATEMENTS

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for the year ended 31 December 2002


14 SYNDICATED AND DIRECT ORIGINATED LOANS (continued)

In the meantime, dividends (and accrued interest thereon) for 1992 to 2001, amounting to US$ 28.7 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 sanctions,and are held in escrow pursuant to a 1993 resolution of the APICORP Board of Directors.

Accordingly, the Corporation deems it appropriate to reduce impairment allowances against the guaranteed loans by the amountof the unpaid dividends.

US$ 000 2002 2001 2000Movements in performing loans in the yearOutstanding at the beginning of the year 848,480 862,593 843,704Draw-downs on new and existing loans 624,238 268,054 263,027Repayments and prepayments received (434,020) (281,365) (253,202)Loan reclassified as impaired - - (3,263)Previously impaired loans reclassified as performing - - 11,810Amortisation of discount on purchased loan (repaid in 2000) - - 703Exchange rate movements (euro and swiss franc-denominated loans) 6,004 (802) (186)

Outstanding at 31 December 1,044,702 848,480 862,593

Undrawn loan commitments and guaranteesAt the beginning of the year 489,774 320,914 311,086New underwriting and other commitment agreements signed 679,754 452,383 315,295Drawdowns in the year (624,238) (268,054) (263,027)Expired commitments, syndication sell-downs and other movements - net (55,403) (15,469) (42,440)

Undrawn commitments at 31 December 489,887 489,774 320,914

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

Allowance for specific impairmentsAt the beginning of the year Non-performing loans (79,692) (80,341) (89,557) Performing loans - Pakistan - (8,821) - Unpaid dividends and interest due to the Iraq Ministry of Oil 25,291 21,462 17,716

(54,401) (67,700) (71,841)

New impairment - non-performing loan - other - - (3,263)Reversals of write-downs (see note 8) Increase in unpaid dividends and interest due to the Iraq Ministry of Oil 3,449 3,829 3,746 Release - Pakistan - performing following reschedulings in 1999-2000 - 8,821 2,560 Partial recoveries received - non-performing loans - other 749 127 -Exchange rate movements (1,505) 522 1,098Net reduction in the year 2,693 13,299 7,404

Allowance for specific impairments at 31 December - gross (80,448) (79,692) (89,162)Unpaid dividends and interest due to the Iraq Ministry of Oil 28,740 25,291 21,462Allowance for specific impairments at 31 December - net (51,708) (54,401) (67,700)

Allowance for unidentified potential defaultsAt the beginning of the year (2000: general allowance) (9,250) (17,075) (15,949)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 (289) (943) - Effect of changes in discounting and other factors 2,759 4,327 (1,126)

Allowance for unidentified potential defaults at 31 December (6,780) (9,250) (17,075)



15 DIRECT EQUITY INVESTMENTS

US$ 000 2002 2001 2000APICORP has the following direct equity investments in companies in the Arabpetroleum and petrochemical industries (and the related percentage participation): Fair value Fair value Original costKingdom of Bahrain Bahrain National Gas Company (Banagas) - liquefied petroleum gas - 12.5% 9,089 9,124 2,606Kingdom of Saudi Arabia Saudi European Petrochemical Co (Ibn Zahr) - MTBE and polypropylene - 10% 86,235 74,204 18,063 Arabian Industrial Fibers Co (Ibn Rushd) - polyester fibres - 8.3% (see below) 25,193 20,821 83,020Republic of Iraq Arab Company for Detergent Chemicals (Aradet) - linear alkyl benzene - 32% 13,051 7,736 37,370Socialist Peoples' Libyan Arab Jamahiriya Arab Drilling and Workover Company (Adwoc) - drilling and related services - 20% 9,529 12,623 8,100 Arab Geophysical Exploration Services Company (Agesco) - seismic services - 10% 337 686 1,355Arab Republic of Egypt Alexandria Carbon Black Company - carbon black - 12% 3,769 3,464 3,546 Egyptian Fertilisers Company - ammonia and urea - 10% 16,065 13,068 11,800 Oriental Petrochemicals Company - polypropylene - 14% 3,888 2,837 5,104Non-shareholder countries Jordan Phosphate Mining Company, Jordan - fertilisers - 0.8% 1,167 1,217 4,432 Tankage Mediterranee (Tankmed), Tunisia - storage facilities - 20% - - 2,932

Allowances for impairment in value - - (20,068)

Net carrying value as on the balance sheet (2000: equivalent to net asset value) 168,323 145,780 158,260

In 2002 and 2001, all the investments are carried at net asset values (adjusted for capitalised pre-operating expenses whereappropriate) except for Ibn Rushd (at the present value of expected future cash flows - see below) and Jordan Phosphate MiningCompany (at quoted market value).

Movements in the yearNet carrying value at the beginning of the year (2001: equivalent to net asset value) 145,780 158,260 145,982Fair value adjustment on 1 January 2001 with the adoption of IAS-39 (see below) - (24,858) -Adjusted carrying value - fair value 145,780 133,402 New amounts invested in the year - - 13,346Additional allowances for impairment (see note 8) - - (1,068)Net increase in fair value (see page 27) 22,543 12,378 -

Net carrying value as on the balance sheet (2000: equivalent to net asset value) 168,323 145,780 158,260

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.

Original cost (as above) 83,020Reported accumulated losses to 31 December 2000 (22,055)Pre-operating expenses capitalised contrary to International Accounting Standards (15,286)Adjusted net asset value at 1 January 2001 (2000: at 31 December) 45,679 45,679 45,679Fair value adjustment on 1 January 2001 with the adoption of IAS-39 (see above) (24,858) (24,858)Fair value adjustment for 2002 (change in value of estimated future cashflows) 4,372 -

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

Commitments - uncalled share capitalArab Company for Detergent Chemicals (Aradet), Iraq 24,705 24,705 24,705Other 4,649 4,649 4,649


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16 PROPERTY AND EQUIPMENT

US$ 000 2002 2001 2000CostLand at Rakah - head office building and housing compound 4,004 4,004 4,004Head office building, equipment, décor and furnishings - occupied in January 2002 36,796 35,902 33,873Housing compound buildings, decor and furnishings 27,222 27,957 27,652Computer hardware and other office equipment 1,438 4,265 4,191Computer systems software 893 276 273Total cost at 31 December 70,353 72,404 69,993Accumulated depreciation (23,104) (24,735) (23,019)

Net carrying value as on the balance sheet 47,249 47,669 46,974

Movements in the yearNet carrying value at the beginning of the year 47,669 46,974 38,423Additions at cost Head office building, operating equipment, décor and furnishings 894 2,029 8,042 Core computer systems software - acquisition and implementation 617 - - Other 655 407 1,149Depreciation charge (2,569) (1,741) (591)Disposals at net carrying value (17) - (49)

Net carrying value as on the balance sheet 47,249 47,669 46,974

Capital commitmentsContracted for 84 1,989 5,000Approved by the Board of Directors, but not yet contracted for 790 1,313 1,300

17 OTHER ASSETS

US$ 000 2002 2001 2000Payments made under guarantees to creditors of Aradet - carried at the present valueof the estimated scrap value of the machinery intended for the Aradet STPP plant, andcurrently in the possession of APICORP Estimated future saleable value - reclassified on 1 January 2001 (see note 14) 8,000 Effect of discounting - change in accounting policy on 1 January 2001 (see page 27) (3,688) - Restated carrying value at the beginning of the year 3,146 4,312 Movements in the year 969 (1,166)Net carrying value at 31 December 4,115 3,146 -

Investment property - land at Dammam at estimated fair value 2,359 1,493 1,560

Accrued interest receivable 8,386 7,371 16,158

Receivables - 983 -Miscellaneous receivables 1,287 835 553Employee loans and advances 136 394 416

Advance payments to contractor - head office building - - 1,084

Prepaid expenses and other advance payments 3 178 145

Carrying value as on the balance sheet 16,286 14,400 19,916



18 DEPOSITS FROM BANKS

US$ 000 2002 2001 2000Short-term US dollar deposits from banks 366,226 267,432 395,200Short-term non-dollar deposits from banks (mainly denominated in Saudi riyals and euros) 169,950 80,343 118,214Short-term US dollar Morabaha liabilities to Islamic financial institutions 175,731 81,122 69,973Short-term non-dollar Morabaha liabilities to Islamic financial institutions 13,249 29,897 -

Total as on the balance sheet 725,156 458,794 583,387

19 TERM FINANCING

US$ 000 2002 2001 2000US$ 225 million loan 1997-2002 - fully drawn (matured and repaid July 2002) - 225,000 225,000 Interest rate: US$ LIBOR plus 32.5 basis pointsUS$ 75 million revolving facility 1997-2002 - partially utilised (matured November 2002) - - 50,00 Interest rate: US$ LIBOR plus 32.5 basis pointsUS$ 200 million loan 2000-2005 - fully drawn 200,000 200,000 - Interest rate: US$ LIBOR plus 40 basis pointsUS$ 300 million loan 2000-2005 - partially drawn 225,000 - - Interest rate: US$ LIBOR plus 45 basis pointsUnamortised front-end fees for all current facilities (1,981) (909) (1,374)

Total amortised cost as on the balance sheet 423,019 424,091 273,626

The agreement for the US$ 200 million loan (for general corporate purposes) was signed on 9 July 2000 with a consortium of 16international 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.

20 OTHER LIABILITIES

US$ 000 2002 2001 2000Accrued interest payable 4,629 4,181 12,253Retentions due to contractors - head office building and housing compound 473 1,540 2,769Staff Retirement Fund current account (1,316) (507) (1,996)Accrued expenses 1,355 1,425 1,532Other payables 1,858 5,062 6,150

Total as on the balance sheet 6,999 11,701 20,708

21 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. Itis administered by a committee consisting of the General Manager and other senior managers as appointed by the Board of Directors.

The Fund was actuarily valued at 31 December 1999, by the projected benefit method, assuming a discount rate of 8 percent andaverage annual increases in salaries of 5 percent. The result indicated that the liabilities of the Fund to its beneficiaries wereadequately covered by the fair values of the Fund's assets.


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21 EMPLOYEE RETIREMENT BENEFITS (continued)

US$ 000 2002 2001 2000Current service costThe Corporation's contributions to the Fund in respect of current service cost,as charged in the income statement 965 823 948

22 OFF-BALANCE SHEET EXPOSURES

The Corporation has off-balance sheet exposures as follows: 2002 2001 2000Commitments to underwrite and fund loans (see note 14) 89,887 489,774 320,914Commitments to subscribe further capital to direct equity investments (see note 15) 29,354 29,354 29,354Guarantee as shareholder (see below) 90,300 90,300 90,300Contracted capital expenditure commitments (see note 16) 84 1,989 5,000Asset swaps - nominal value (see below) - - 15,000

Total exposures as on the balance sheet 609,625 611,417 460,568

Guarantee as shareholderAPICORP is an 8.28% shareholder in The Arabian Industrial Fibers Company (Ibn Rushd) (see note 15), which in turn had a seniordebt facility from a consortium of banks (including the Corporation) of US$ 850 million. The shareholders had given a guaranteewhereby they would be severally liable to repay the loan to the banks in full, should the borrower fail to comply with certainconditions. However the prepayment of the loan in September 2002 extinguished the guarantee and the Corporation's contingentliability thereunder of US$ 70.4 million.

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

DerivativesAs at 31 December 2000, APICORP had open asset swap transactions based on an aggregate notional amount of US$ 15.0 million,which were closed out satisfactorily early in 2001. Currently the Corporation has no open positions in derivatives.

23 FAIR VALUE INFORMATION

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

US$ 000 2002 2001 2000Financial assets - carrying valueInvestment securities - at amortised cost less impairments (see note 12) - - 161,404Syndicated and direct loans - at amortised cost less impairments (see note 14) 1,064,052 862,915 864,553Direct equity investments - at cost less impairments (see note 15) - - 158,260

1,064,052 862,915 1,184,217

Financial assets - fair valueInvestment securities - market value - - 155,562Syndicated and direct loans - based on current prices 1,070,636 863,975 868,763Direct equity investments - net asset values - - 158,260

1,070,636 863,975 1,182,585

Financial liabilitiesTerm financing - carried at amortised cost 423,019 424,091 273,626

Term financing - fair value based on current market rates for similar remaining maturity 418,950 424,024 270,270



24 CASH FLOWS FROM OPERATING ACTIVITIES

US$ 000 2002 2001 2000Cash flows from operating activities are reconciled to net income for the year as follows:

Net income for the year (as page 25) 29,842 42,819 40,438 Adjustments for non-cash items Gains on trading securities (4,836) (3,299) (16,565) Realised gains on sale of available-for-sale securities (2000: losses) (5,672) (4,145) 3,807 Depreciation of property and equipment 2,569 1,741 591 Investment property - increase in fair value (2001: decrease) (865) 67 - Net reversals of impairment losses - loans (6,957) (17,104) (1,917) Reversal of impairment losses - payments under guarantees (969) - (635) Impairment losses - available-for-sale securities 3,964 - - Impairment losses - investment securities - - 4,589 Impairment losses - direct equity investments - - 1,068 Exchange differences (2,726) 3,361 2,677 Other non-cash items (229) 3,584 3,342

14,121 27,024 37,395

Net sales of trading securities (2001: net purchases) 19,413 (20,249) 30,693Dividends from direct equity investments (included in investing activities) (4,139) (4,177) (612)Rent received (included in investing activities) (620) (391) (72)

28,775 2,207 67,404Changes in operating assets and liabilities Decrease in deposits placed with banks (2001: increase) 98,168 (77,616) 37,878 Syndicated and direct loans drawn down (624,238) (268,054) (263,027) Loan repayments and prepayments received 434,769 281,492 253,837 Decrease in other operating assets (2000: increase) 258 8,494 (2,095) Increase in deposits from banks (2001 and 2000: decrease) 266,362 (124,593) (116,405) Decrease in other operating liabilities (2000: increase) (4,012) (8,022) 1,960

Cash inflow from operating activities (2000 and 2001: outflows) (as page 28) 200,082 (186,092) (20,448)

25 RELATED PARTY TRANSACTIONSAPICORP's principal related parties are its shareholders. Although the Corporation does not transact any commercial business directlywith the shareholders themselves, it does finance companies which are either controlled by the shareholder governments or overwhich they have significant influence.

US$ 000 2002 2001 2000Loans to related partiesLoans outstanding at 31 December - gross 881,455 663,546 680,424Impairment allowances at 31 December (61,502) (58,243) (68,840)

Commitments to lend at 31 December 351,899 211,245 185,655

Interest income from loans during the year 20,582 33,701 40,075Fee income from loans during the year 5,663 1,839 2,966

Loans to related parties are made at ruling market interest rates and subject to normal commercial negotiation as to terms.The majority of loans to related parties are syndicated, which means that participation and terms are negotiated by a group ofarrangers, of which the Corporation may, or may not, be a member. No loans to related parties were written off in 2000-2002.

Direct equity investments in related parties

Investments at 31 December - fair value 159,499 128,031 137,118Guarantees as shareholder 90,300 90,300 90,300Commitments to invest at 31 December 29,354 29,354 29,354Dividends received during the year 4,011 4,177 612


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26 CAPITAL ADEQUACY

The risk asset ratio at 31 December 2002, calculated in accordance with the capital adequacy guidelines of the Basle Committeeon Banking Supervision, is as follows:

US$ 000 2002 2001 2000Carrying values On-balance sheet assets (as page 26) 1,872,041 1,584,095 1,562,854 Off-balance sheet exposures (see note 22) 609,625 611,417 460,568

2,481,666 2,195,512 2,023,422

Risk-weighted exposures On-balance sheet assets 1,438,991 1,270,601 1,274,791 Off-balance sheet exposures 594,948 596,740 422,159

Total risk-weighted exposures 2,033,939 1,867,341 1,696,950

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) 688,127 664,218 663,471

Capital adequacy ratio 33.8% 35.6% 39.1%

27 EFFECTIVE INTEREST RATESThe effective interest rates of the Corporation's financial instruments at the balance sheet date were:

2002 2001 2000Interest-bearing financial assetsDeposits placed with banks - weighted average 1.49% 2.00% 6.59%Fixed-rate bonds - weighted average 2.33% 8.03% 7.86%Floating-rate bonds - weighted average 3.00% 3.84% 7.45%Syndicated and direct loans - weighted average 2.60% 3.36% 7.56% US dollar denominated 2.46% 3.35% 7.59% Non-dollar - mainly denominated in euros 4.33% 4.48% 5.55%

Interest bearing financial liabilitiesDeposits from banks - weighted average 1.94% 2.86% 6.76% US dollar denominated 1.64% 2.66% 6.75% Non-dollar - mainly denominated in Saudi riyals and euros 2.84% 3.49% 6.81%Term financing - weighted average 2.16% 2.43% 7.06%

US$ LIBOR at 31 December was: One-month 1.30% 1.74% 6.49% Three-month 1.28% 1.76% 6.38% Six-month 1.30% 1.87% 6.20%

28 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.

APICORPís financial assets are principally trading securities (note 10), available-for-sale securities (note 11), deposits placed with banks (note 13), syndicated and direct loans (note 14), direct equity investments (note 15) and certain other assets (note 17).

Financial liabilities consist of commitments to lend (note 14) and invest (note 15), deposits from banks (note 18), term financing (note 19), other liabilities (note 20), and guarantees (note 22).



28 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

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 the Assets and Liabilities Committee and are also subject to a framework of Board-approved currency, industry and geographical limits and ratings by agencies including Standard & Poors.

Interest rate risk: Syndicated and direct loans are normally denominated in United States dollars, as is the Corporation’s funding, and interest rates for both are normally linked to LIBOR.

Exposure to interest rate risk is restricted by permitting only a limited mismatch between the repricing of the main components of the Corporation’s assets and liabilities. The repricing profile of assets and liabilities is set out in note 30.

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 31.

Credit risk managementCredit risk is the risk that a borrower or counter-party of APICORP’s 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 being reviewedby the Credit Committee (consisting of the General Manager and senior managers), which makes appropriate recommendations tothe Board of Directors, who have the ultimate authority to sanction commitments.These procedures, plus the fact that most of theloans are backed by sovereign guarantees and export credit agency cover, limit APICORP’s exposure to excessive credit risk.

The Corporation faces a credit risk on undrawn commitments because it is potentially exposed to loss in an amount equal to thetotal unused commitments. However the eventual loss, if any, will be considerably less than the total unused commitments, sincemost 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 be detectedearly 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.

Treasury activities are controlled by means of a framework of limits and credit ratings. Dealing in marketable securities is primarilyrestricted to United States and major European stock exchanges. Dealings are only permitted with approved internationally ratedbanks, brokers and other counter-parties. Securities portfolios and investing policies are reviewed from time to time by the Assetsand 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 times tomeet the funding requirements of the Corporation.

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28 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

APICORP’s liquidity management policies are designed to ensure that even under adverse conditions the Corporation has access toadequate funds to meet its obligations, and to service its core investment and lending functions. This is achieved by the applicationof prudent but flexible controls, which provide security of access to liquidity without undue exposure to increased costs from theliquidation of assets or the need 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 29.

29 MATURITY PROFILE OF ASSETS AND LIABILITIES

The maturity profile of the Corporation's assets and liabilties as at 31 December, based on contractual repayment arrangements, isset out below. The apparent significant short-term mismatch between maturities of assets and liabilities is substantially reducedin practice because the majority of deposits from banks are routinely rolled over on maturity.

US$ 000 Up to 3 months 1 year 5 years 20023 months to 1 year to 5 years and over Total

ASSETSCash and cash equivalents 10,207 - - - 10,207Trading securities - 617 2,121 77,183 79,921Available for sale securities 30,228 34,753 230,157 3,999 299,137Deposits placed with banks 186,866 - - - 186,866Syndicated and direct loans (8,007) (24,019) 693,611 402,467 1,064,052Direct equity investments - - - 168,323 168,323Property and equipment - - - 46,632 46,632Other assets 8,755 2,280 5,248 620 16,903

Total assets 228,049 13,631 931,137 699,224 1,872,041

LIABILITIES AND EQUITYDeposits from banks 635,053 90,103 - - 725,156Term financing - - 423,019 - 423,019Other liabilities 5,650 1,349 28,740 - 35,739Shareholders' equity - - - 688,127 688,127

Total liabilities and equity 640,703 91,452 451,759 688,127 1,872,041

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 47,579 590,728 621,579 1,584,095Total liabilities and equity 407,780 314,541 227,556 634,218 1,584,095Maturity gap (83,571) (266,962) 363,172 (12,639) -

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

31 December 2000Total assets 286,900 106,528 652,883 516,343 1,562,654Total liabilities and equity 507,472 123,623 299,462 632,097 1,562,654Maturity gap (220,572) (17,095) 353,421 (115,754) -

Cumulative maturity gap (220,572) (237,667) 115,754 -



30 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 2002 Up to Between Between Between Morethan interest Total 3 months 3 months 1 year 2 years 5 years

rate and 1 year and 2 years and 5 years ASSETSAvailable for sale securities

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

Deposits placed with banks 1.49% 186,866 186,866 - - - -Syndicated and direct loans

US$ denominated 2.46% 962,974 670,959 292,015 - - -Euro denominated 4.33% 81,475 77,998 3,477 - - -

LIABILITIESDeposits from banks

US$ denominated 1.64% (541,957) (451,854) (90,103) - - -Euro and Saudi riyal 2.84% (183,199) (183,199) - - - -

Term financing 2.16% (425,000) (425,000) - - - -

Interest rate sensitivity gap 378,271 (60,201) 228,347 94,455 115,670 -

ASSETS 2001Available for sale securities

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


US$ denominated 3.35% 837,998 560,414 277,584 - - - Euro denominated 4.48% 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% (425,000) (425,000) - - - -

Interest rate sensitivity gap 373,326 75,195 233,571 9,278 36,466 18,816 -

ASSETS 2000Investment securities

Fixed-rate bonds 7.86% 130,577 499 11,203 23,200 52,027 43,648 Floating-rate bonds 7.45% 51,462 51,462 - - - -


US$ denominated 7.59% 838,865 642,683 196,182 - - - Euro denominated 5.55% 14,907 11,337 3,570 - - -


US$ denominated 6.75% (465,173) (372,403) (92,770) - - - Euro and Saudi riyal 6.81% (118,210) (114,640) (3,570) - - -

Term financing 7.06% (275,000) (200,000) (75,000) - - -

Interest rate sensitivity gap 384,846 226,356 39,615 23,200 52,027 43,648 -

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31 CURRENCY EXPOSURESThe Corporation's currency exposures at 31 December were as follows:

US$ 000 2002 2002 2002 2001 2000assets liabilities net net net

and equity exposure exposure exposureASSETS, LIABILITIES AND EQUITYUnited States dollars 1,634,036 (1,684,656) (50,620) (46,806) (25,292)Euro (see below) 88,785 (87,512) 1,273 (953) 534Other OECD currencies (see below) 8,307 (7,291) 1,016 167 176Arab currencies

GCC (see below) 121,021 (89,383) 31,638 30,079 12,095Other Middle East 2,038 (501) 1,537 2,273 2,466Egypt and North Africa 17,854 (2,698) 15,156 15,240 10,021

1,872,04 (1,872,041) - - -

COMMITMENTS AND GUARANTEESUnited States dollars 556,096 596,599 415,687Euro (see below) 48,862 9,030 20,232Arab currencies

GCC (see below) 4,667 5,788 9,649Egypt and North Africa - - -

609,625 611,417 445,568

EMU legacy currenciesThe eleven European Monetary Union countries that adopted the euro in place of their previous (legacy) currencies in January 1999 are:Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.

Other OECD currenciesThe other member countries of the Organisation for Economic Co-operation and Development, excluding the United States and theeleven EMU 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 Arab Emirates.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:

2002 2001 2000Euro EUR 1 = US$ 1.0488 0.8844 0.9416Saudi riyal US$ 1 = SAR 3.7500 3.7500 3.7500Swiss franc US$ 1 = CHF 1.3863 1.6745 1.6106Egyptian pound US$ 1 = EGP 4.5000 4.5600 3.4000



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

US$ 000 2002 2001 2000ASSETSPetroleum and petrochemicals

Refineries 40,566 39,433 41,785Oilfield production development and services 82,354 71,186 107,982Floating production, storage and offloading facilities 14,390 21,897 9,770Pipelines and distribution 37,814 30,483 27,918Liquefied natural gas plants 174,117 99,245 115,085Petrochemical plants 541,888 410,748 422,294Fertiliser plants 97,231 90,309 103,102Maritime transportation 49,221 47,993 34,484Trade finance 96,467 129,002 120,151Power generation 28,588 5,101 -Other petroleum 76,414 102,792 47,828

Total petroleum and petrochemicals 1,239,050 1,048,189 1,030,399

Banks and financial institutions 371,115 306,755 250,381Banks and financial institutions - managed funds 76,583 88,861 65,837Other industries 90,408 119,505 183,990Governments 94,885 20,785 32,047

Total assets 1,872,041 1,584,095 1,562,654

LIABILITIES AND EQUITYBanks and financial institutions 1,152,804 887,066 872,984Other industries 2,370 4,332 4,737Shareholders 716,867 692,697 684,933

Total liabilities and equity 1,872,041 1,584,095 1,562,654

COMMITMENTS AND GUARANTEESPetroleum and petrochemicals

Refineries 13,301 101 5,725Oilfield production development and related services 90,422 1,960 5,451Floating production, storage and offloading facilities 5,117 11,000 -Pipelines and distribution 11,422 14,000 195Liquefied natural gas plants 4,674 169,108 67,366Petrochemical plants 213,862 173,316 109,782Fertiliser plants 51,101 44,755 19,487Maritime transportation 5,813 2,722 -Trade finance 98,306 78,720 67,979Power generation 25,223 14,925 -Other petroleum - 8,521 74,283

Total petroleum and petrochemicals 519,241 519,128 350,268

Banks and financial institutions 90,300 90,300 90,300Other industries 84 1,989 5,000

Total commitments and guarantees 609,625 611,417 445,568

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

US$ 000 2002 2001 2000ASSETSKingdom of Saudi Arabia 538,401 420,879 412,985State of Qatar 249,580 196,518 193,899Other Gulf Cooperation Council states 219,276 264,522 172,132Other Middle East states 56,397 70,775 49,109Egypt and North Africa 209,172 182,951 182,075

Total Arab World 1,272,826 1,135,645 1,010,200

Western Europe 277,561 182,020 182,948Eastern Europe - 12,447 16,355India and Pakistan 12,780 46,995 51,282Asia Pacific Rim 44,782 73,683 71,458United States 262,445 102,232 194,453Other North and South America 1,647 31,073 35,958

Total assets 1,872,041 1,584,095 1,562,654

LIABILITIES AND EQUITYKingdom of Saudi Arabia 291,706 352,047 331,158State of Qatar 97,760 86,297 73,847Other Gulf Cooperation Council states 591,209 432,327 422,903Other Middle East states 215,512 164,064 136,554Egypt and North Africa 203,188 171,201 186,938

Total Arab World 1,399,375 1,205,936 1,151,400

Western Europe 398,747 293,174 328,441Asia Pacific Rim 64,885 84,985 81,186United States 9,034 - 1,627

Total liabilities and equity 1,872,041 1,584,095 1,562,654

COMMITMENTS AND GUARANTEESKingdom of Saudi Arabia 239,098 235,252 178,223State of Qatar 42,353 64,560 63,835Other Gulf Cooperation Council states 145,262 138,859 44,826Other Middle East states 24,705 24,705 24,900Egypt and North Africa 69,574 69,740 79,749

Total Arab World 520,992 533,116 391,533

Western Europe 71,915 44,591 29,276Asia Pacific Rim 16,718 33,690 11,000United States - - 13,759

Total commitments and guarantees 609,625 611,397 445,568

dammam 31423, - apicorp · dino roy moretto senior manager hesham farid portfolio manager faiq...

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