Marine Base Development

In 2005, through its subsidiary Balykshi LLP, Caspian Services Inc. acquired a five hectare (approximately 12 acre) parcel of undeveloped real estate in the port of Bautino, on the Caspian Sea. The property is a safe harbor for vessels in the winter months, when ice covers the north-east Caspian, and is an ideal location for a marine base. This base will offer support services to the vessels currently working the waters of the Kazakh sector of the Caspian Sea. The company completed feasibility studies, environmental and social impact surveys and facility designs for the base. These studies and surveys were all reviewed and approved by the relevant Kazakh authorities. In November 2007, the company received construction approvals for the first phase of works, including earth works, break water and dredging.

The Company has funded construction through a combination of debt and equity financing. In June 2007, the Company entered into a series of agreements with the European Bank for Reconstruction and Development (???EBRD???) under which EBRD agreed to provide $32 million of debt financing and make an equity investment in the marine base in the amount of $10 million in exchange for a 22% equity interest in Balykshi. The scope of the base was subsequently revised, which reduced anticipated base construction costs. The Company returned a portion of the funds borrowed from EBRD to reduce the amount of the EBRD loan to $18 million. We expect the total cost of the base to be approximately $71 million. Funds not raised from EBRD were provided by the Company.

Construction commenced in late November 2007.

ESIA Executive Summary

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