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Date Posted: 13:55:45 03/26/03 Wed
Author: net asset backing of your shareholding.
Subject: we have agreed terms that preserve and even enhance the

Part 1 of 4

KEY DATES

The key dates and events for the implementation of the
Recapitalisation Proposal are subject to a number of factors which
are outside the control of ERG. Accordingly the dates below, other
than the date for return of proxy forms and the date of the
shareholder meeting, are indicative only and may be changed without
notice:

ACTION/EVENT INDICATIVE DATE*

Meeting of Noteholders 10.30am 28 March 2003
Adjourned meeting of Noteholders
(if required) 10.30am 16 April 2003
Shareholder proxy form due at
Computershare 10.30am 28 April 2003
Meeting of Shareholders 10.30am 30 April 2003
Announcement of proposed Note
Conversion Date 30 April 2003
Cessation of Note trading at close
of business on ASX 9 May 2003
Announcement of Rights Issue
timetable ** 9 May 2003
Commencement of trading of new
Shares on ASX (deferred delivery) 12 May 2003
Record date for conversion of Notes
to Shares 5.00pm Sydney time 16 May 2003
Last date for issue of Shares on
conversion of Notes 23 May 2003

* Unless otherwise indicated, all references to time are references
to time in Perth, Western Australia.

** The announcement of the Rights Issue timetable will depend on
whether or not the Directors decide to proceed with the Rights
Issue.

LETTER FROM THE CHAIRMAN

We present to you a proposal to reconstruct the capital and debt of
ERG Limited ("ERG", the "Company" or the "Group"), which if approved
will significantly strengthen the financial position of the Company.

ERG's technology has a proven track record with multiple operational
reference sites around the world. The Company continues to have
excellent commercial prospects for its technology; however, we must
ensure we have an appropriate balance sheet structure to support our
business and sustain growth. Should the Recapitalisation Proposal
proposed in this document proceed in full, the net asset and debt
position of the Company will be significantly improved and the
Company will have access to additional cash resources. These are
tangible benefits that we expect to go a long way to alleviate
concerns regarding our financial position and allow us to meet the
performance bond requirements of our immediate operational prospects.

In this regard it is worth noting that the Group has recently
finalised or been awarded contracts in Washington DC, Sydney and
Seattle and is continuing delivery of operations in Gothenburg,
Manchester, Melbourne, Oslo, Rome and San Francisco. The collective
revenue from these projects over the life of those contracts is over
$1 billion.

The Directors and the Company's advisors, Babcock & Brown, believe
the Recapitalisation Proposal in this document will position ERG to
maximise the returns available to the Company. The Directors have
engaged Ernst & Young Corporate Finance Pty Ltd (EYCF) to prepare a
report for Shareholders on the proposal. EYCF has concluded that the
issue of securities by ERG to the Ingot Entities under the
Recapitalisation Proposal is fair and reasonable. The Directors
recommend you vote in favour of the proposal.

The Recapitalisation Proposal is a staged process that initially
requires a meeting of Noteholders to be held on 28 March 2003 to
consider the first stage in this process, converting their
Noteholdings into ERG Shares. This first stage is fundamental to the
proposal as a whole. In effect, we are proposing to issue Noteholders
93.375 Shares in exchange for the face value of each note held and
the interest accumulated on it. This figure has been calculated using
the $13.50 face value of the Notes, plus accrued interest to 31 March
2003 of $0.50625 and a conversion price of $0.15 per Share.

In negotiating these terms, we have made every endeavour to strike a
balance between the needs of Shareholders and Noteholders. The
Noteholders are being asked to forego $46.9 million in interest
payments that would have been made to them were the Notes to remain
in place until maturity in October 2005. Additionally the Noteholders
would no longer be entitled to the cash redemption of the face value
of their notes at maturity that would amount to $250 million. While
the conversion will result in the issue of a significant number of
new Shares, we have agreed terms that preserve and even enhance the
net asset backing of your shareholding. It is important to appreciate
the conversion of the Notes removes a substantial liability from the
ERG balance sheet, which has a correspondingly positive impact on the
net asset position. In other words, while the percentage of the
Company owned by the current Shareholders will reduce, the net asset
value of the Company is expected to increase by a proportionately
larger percentage if the Recapitalisation Proposal proceeds in full.

After the meeting of Noteholders, we will then conduct a meeting of
Shareholders, and, if your approval is received, we expect to proceed
with the full Recapitalisation Proposal that includes both a Share
Consolidation and possibly a Rights Issue. There are a number of
resolutions you will be asked to consider in relation to these
matters that will facilitate the proposal proceeding.

The Shareholder Meeting will be conducted on 30 April 2003 at the
Hyatt Regency Perth, 99 Adelaide Terrace, Perth, Western Australia.
We urge you to vote in person or by proxy at this meeting. This is
the only immediate action you must take as a result of this document.

The Recapitalisation Proposal is quite complex and there are a number
of potential outcomes and so I urge you to carefully read the
attached explanatory materials and if you have any questions, seek
advice from you financial adviser. I also suggest you read the
opinion on page 4 of the attached Independent Expert's Report.

We look forward to your support for this proposal, and once again
strongly encourage you to have your say by voting at the Shareholder
Meeting.

A S Murdoch
CHAIRMAN

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