Cairn India II In 2004 Cairn India Limited and its subsidiaries (Cairn or the company) made a world-class discovery in its Rajasthan Block RJ-ON-90/1 in northwest India (the Rajasthan Block).   Cairn is currently focused on the development of the Rajasthan Block.  The proposed project will consist of:   - the development of Cairns discoveries in the Rajasthan Block including the construction of an oil processing facility; and,  - the development of an approximately 600km crude oil pipeline to transport oil from the Rajasthan Block to Gujarats western coast.  The development of discoveries in the Rajasthan Block was previously disclosed in connection with the debt facility IFC provided to Cairn in 2006. Since then, the company (as operator of the Rajasthan Block) has now taken on the responsibility to construct the pipeline.  Private investment and operation of the pipeline are seen by IFC as a positive step forward in the project, but requires additional financing. Fit with World Bank Groups Strategy:  The proposed IFC investment is consistent with the WBGs strategic priorities in India.  The current World Bank Group Country Assistance Strategy (CAS) for India focuses on improving government effectiveness; investing in people and empowering communities; and promoting private sector-led growth. The strategy for promoting private-sector led growth is further elaborated in the World Bank Groups Private Sector Development Strategy, appended to the CAS, which proposes that the World Bank and IFC work closely together to:   - facilitate greater competitiveness; - improve the quantity and quality of infrastructure through greater private participation; - promote the provision of private health services; and  - improve rural productivity and growth through greater private investment.   IFC will focus on providing firms with long-term debt and equity which may not be available from domestic financial markets; and on adding value in the areas of global best practices, creating international partnerships, entering new markets, environmental and social sustainability and corporate governance.   - Development Impact: Since the mid-1990s, India has implemented policy changes to encourage private investment in its upstream oil and gas sector. Although success remains modest, a number of foreign companies, such as Cairn, have successfully entered the sector. IFCs proposed investment reflects its continuing commitment to enhance the role of the private sector in the upstream hydrocarbons sector in India and help private companies meet the infrastructure challenges related to their activities. The proposed transaction will therefore build on the development impacts envisaged during our previous engagements with Cairn:   - Development of Fuel Transportation Infrastructure: Cairns construction of an approximately 600 km crude oil transportation pipeline will help bring the fuel from the large Rajasthan discoveries to market hubs where it can be refined and further distributed to meet Indias growing energy demand. The potential use of this pipeline can later extend beyond Cairns Rajasthan Block to other blocks in Rajasthan where exploration activities are ongoing.  - Enhancing Availability of Higher-Quality, Domestic Fuel: The Project is expected to reduce the reliance of Indias power sector and small industry on supplies of relatively inferior coal and more expensive naphtha, respectively.   - Benefits to Government:  It is expected that the governments of India will receive substantial fiscal receipts from royalties, production sharing and corporate taxes, generated by the oil production from the Project. A sizeable portion of these fiscal payments will accrue to the state government of Rajasthan in the form of royalties.  - Import Substitution:  At its currently projected production rate of more than 150,000 barrels per day, oil production from the Project would equate to approximately 18% of Indias indigenous oil production and 6% of Indias oil import volumes (both as of 2005/2006 fiscal year).   - Creation and Preservation of Direct and Indirect Employment:  The Project is expected to generate 450-500 jobs during peak operations (approximately 2,500 during the construction period), benefiting the local community through increased employment opportunities both directly and indirectly.  The Company encourages local hiring in its areas of operations to the extent possible.  - Supporting Growth of an Indian Private Oil & Gas Company: Following Cairns discovery of oil in Rajasthan, Cairn took the decision to introduce local shareholding to its Indian operations.  The outcome was the creation of a publicly traded Indian company that has Indian ownership and Indian management.  - Supporting Local Communities:   Cairn supports a wide range of community development activities in all its operations. Its work is concentrated in five main areas  health, education, local entrepreneurship development, environment and infrastructure  and benefits from effective co-ordination with local government, NGOs and media. Cairn is currently placing significant emphasis on meeting local community expectations for value-added employment opportunities, as well as further improvements of water infrastructure, medical services, health education, etc.    The key development indicators that are proposed to be monitored during the life of the IFC investment are:  - annual production of hydrocarbons, - direct employment levels, - production sharing and fiscal payments accruing to the governments of Rajasthan and India, and - implementation of community development programs.