Datang Environment Industry Group Co., Ltd. - Proxy Solicitation & Information Statement 2018

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this supplemental circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in Datang Environment Industry Group Co., Ltd., you should at once hand this supplemental circular together with the accompanying proxy form to the purchaser(s) or the transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this supplemental circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this supplemental circular.

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**Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司**

(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 1272)

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS, DOMESTIC REGISTRATION OF DEBT FINANCING INSTRUMENTS AND ISSUANCE OF SUPER SHORT-TERM COMMERCIAL PAPER AND PROPOSED APPOINTMENT OF EXECUTIVE DIRECTOR

AND SUPPLEMENTAL NOTICE OF THE EGM

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

This supplemental circular (“ Supplemental Circular ”) should be read in conjunction with the circular (“ Original Circular ”) of Datang Environmental Industry Group Co., Ltd. (the “ Company ”) dated 27 July 2018.

A letter from the Board is set out on pages 1 to 23 of this Supplemental Circular. A letter from the Independent Board Committee is set out on pages 24 to 25 of this Supplemental Circular. A letter from the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 26 to 52 of this Supplemental Circular.

The EGM will be held at 4:00 p.m. on Friday, 30 November 2018 at No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC. The supplemental notice of the EGM is set out on pages 60 to 62 of this Supplemental Circular.

The supplemental proxy form for use at the EGM is enclosed with this Supplemental Circular and such supplemental proxy form is also published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.dteg.com.cn).

If you intend to appoint a proxy to attend the EGM, you are required to complete and return the accompanying supplemental proxy form in accordance with the instructions printed thereon. For holders of H Shares, the supplemental proxy form should be returned to the H Share Registrar and for holders of Domestic Shares, the supplemental proxy form should be returned to the Company’s board office in the PRC in person or by post not less than 24 hours before the time fixed for holding the EGM or any adjourned meeting thereof. Completion and return of the supplemental proxy form will not preclude you from attending and voting in person at the EGM or at any other adjourned meeting should you so wish.

If you intend to attend the EGM in person or by proxy, you have been required to complete and return the reply slip (for holders of H Shares) to the H Share Registrar or (for holders of Domestic Shares) to the Company’s board office in the PRC on or before 10 November 2018.

For identification purposes only

15 November 2018

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . .	24
LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED. . . . . . . . . . . . . . . . . . . . . . .	26
APPENDIX I – GENERAL INFORMATION OF THE GROUP. . . . . . . . . . . . . . . . . . . . . . .	53
SUPPLEMENTAL NOTICE OF THE EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60

– i –

DEFINITIONS

Unless the context otherwise requires, the following expressions shall have the following meanings in this Supplemental Circular:

“Articles of Association” the articles of association of the Company (as amended, altered or otherwise supplemented from time to time)
“associate(s)” has the meaning ascribed under the Listing Rules “Board” the board of Directors of the Company “China” or “PRC” the People’s Republic of China excluding, for the purpose of this Supplemental Circular, Hong Kong, Macau Special Administrative Region and Taiwan
“China Datang” China Datang Corporation Ltd. (中國大唐集團有限公司), a stateowned enterprise established on 9 April 2003 in accordance with the PRC laws and the controlling shareholder and a promoter of the Company
“China Datang Group” China Datang and its subsidiaries (excluding the Group) “Company” Datang Environment Industry Group Co., Ltd.* (大唐環境產業集團股份有限公司), a joint stock company incorporated in the PRC with limited liability, the H Shares of which are listed on the Main Board of the Stock Exchange (stock code: 1272)
“connected person” has the meaning ascribed under the Listing Rules “continuing connected transaction(s)” has the meaning ascribed under the Listing Rules “controlling shareholder” has the meaning ascribed under the Listing Rules “Director(s)” director(s) of the Company “Domestic Shares” the ordinary shares in the share capital of the Company with a nominal value of RMB1.00 each, which are subscribed for and paid up in RMB and have not been listed on any stock exchanges
“EGM” the extraordinary general meeting of the Company to be held at 4:00 p.m. on Friday, 30 November 2018 at No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC

– ii –

DEFINITIONS

“EPC”

engineering, procurement and construction, a common form of contracting arrangement whereby the contractor is commissioned by the customer to carry out works, such as design, procurement, construction and trial operations, either through the contractor’s own employees or by subcontracting part or all of the works, and be responsible for the quality, safety, timely delivery and cost of the project

“Existing Integrated Product and Service Framework Agreement”

the integrated product and service framework agreement entered into by China Datang and the Company on 26 October 2016 which will take effect upon the listing of the H Shares on the Main Board of the Stock Exchange with an initial term of three years

“Group”

the Company and its subsidiaries

“H Share(s)”
the overseas listed foreign shares of the Company with a nominal value of RMB1.00 each, which are listed on the Main Board of the Stock Exchange
“H Share Registrar”
Computershare Hong Kong Investor Services Limited, the H Share registrar of the Company
“Hong Kong” or “HK”

Hong Kong Special Administrative Region of the PRC

“Independent Board Committee”

an independent committee of the Board comprising Mr. Ye Xiang, Mr. Mao Zhuanjian and Mr. Gao Jiaxiang, all being independent non-executive Directors

“Independent Financial Adviser” or Orient Capital (Hong Kong) Limited, a corporation licensed “Orient Capital” to carry out type 6 (advising on corporate finance) regulated activities under SFO, and is the independent financial adviser appointed for the purpose of advising the Independent Board Committee and the Independent Shareholders as to the Renewed Integrated Product and Service Framework Agreement, the transactions and the proposed annual caps thereof
“Independent Shareholders”
the Shareholders who are not required to abstain from voting at the EGM for the resolution with respect to the Renewed Integrated Product and Service Framework Agreement

– iii –

DEFINITIONS

“Latest Practicable Date”	12 November 2018, being the latest practicable date prior to
	the printing of this Supplemental Circular for the purpose of
	ascertaining certain information contained in this Supplemental
	Circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Prospectus”	the prospectus of the Company dated 3 November 2016 with
	respect to the listing of the Company on the Main Board of the
	Stock Exchange
“Renewed Integrated Product and	the renewed integrated product and service framework agreement
Service Framework Agreement”	entered into by China Datang and the Company on 15 November
	2018 which will take effect from 1 January 2019 and expiring on
	31 December 2021
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Share(s)”	Domestic Share(s) and/or H Share(s)
“Shareholder(s)”	holder(s) of Share(s) of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“subsidiaries”	has the meaning ascribed under the Listing Rules
“Supervisor(s)”	supervisor(s) of the Company
“Transactions”	the transactions contemplated under the Renewed Integrated
	Product and Service Framework Agreement, including the
	provision of products and services including environmental
	protection and energy conservation business, renewable energy
	engineering and thermal power engineering by the Company to
	China Datang; the procurement of products and services by the
	Company from China Datang including operational ancillary
	business, supply of water, electricity and steam and procurement
	of equipment and raw materials
“%”	per cent

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LETTER FROM THE BOARD

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**Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司**

(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 1272)

Non-executive Directors: Mr. Jin Yaohua Mr. Liu Chuandong Mr. Liu Guangming Mr. Li Yi

Executive Director: Mr. Deng Xiandong

Independent Non-executive Directors:

Mr. Ye Xiang Mr. Mao Zhuanjian Mr. Gao Jiaxiang

Registered Office and Head Office in the PRC: No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC

Principal Place of Business in Hong Kong: 31/F, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong

15 November 2018

To the Shareholders

Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS, DOMESTIC REGISTRATION OF DEBT FINANCING INSTRUMENTS AND ISSUANCE OF SUPER SHORT-TERM COMMERCIAL PAPER AND PROPOSED APPOINTMENT OF EXECUTIVE DIRECTOR AND SUPPLEMENTAL NOTICE OF THE EGM

I. INTRODUCTION

Reference is made to the Prospectus in relation to, among other things, the entering into the Existing Integrated Product and Service Framework Agreement between the Company and China Datang.

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LETTER FROM THE BOARD

Reference is made to the announcement of the Company dated 15 November 2018 (the “ Announcement ”), in relation to the renewal of continuing connected transactions. Details of relevant continuing connected transactions (including annual caps) are set out in this supplemental circular (the “ Supplemental Circular ”). Reference is also made to the announcements of the Company dated 15 November 2018 in relation to proposed appointment of executive Director and proposed domestic registration of debt financing instruments and issuance of super short term commercial papers.

This Supplemental Circular shall be read in conjunction with the circular of the Company dated 27 July 2018 (the “ Original Circular ”). Unless the context otherwise requires, the terms used in the Supplemental Circular shall have the same meaning as those defined in the Original Circular.

The purposes of this Supplemental Circular are to provide you with, among other things: (i) further details of the Renewed Integrated Product and Service Framework Agreement and the proposed annual caps; (ii) a letter of recommendation from the Independent Board Committee in relation to the matters set out in (i); (iii) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the matters set out in (i); (iv) a supplemental notice of the EGM; and (v) other matters mentioned above and other information as required under the Listing Rules.

II. RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT

Introduction

As the Existing Integrated Product and Service Framework Agreement became effective from the listing date of the Company for a term of 3 years, and the Company will continue to conduct the transactions under the Existing Integrated Product and Service Framework Agreement for 2019– 2021. Therefore, the Company entered into the Renewed Integrated Product and Service Framework Agreement on 15 November 2018 in order to renew the relevant continuing connected transactions for 2019–2021. Both parties agreed that such agreement shall be effective from 1 January 2019 and expiring on 31 December 2021. Details of the Renewed Integrated Product and Service Framework Agreement are set out as follows.

Date: 15 November 2018

Parties: (1) China Datang; and

(2) the Company.

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LETTER FROM THE BOARD

Term:

Principal terms:

Effective from 1 January 2019 and expiring on 31 December 2021, and could be extended or renewed for 3 years as agreed by both parties within 3 months prior to expiry and subject to compliance with the relevant laws, regulations, regulatory documents and the Listing Rules.

According to the Renewed Integrated Product and Service Framework Agreement, (i) the Group provides China Datang Group with products and services including environmental protection and energy conservation business, renewable energy engineering and thermal power engineering; and (ii) the products and services procured by the Group from China Datang Group include operational ancillary business, supply of water, electricity and steam and procurement of equipment and raw materials.

In respect of the abovementioned Transactions under the Renewed Integrated Product and Service Framework Agreement, the Company and/or its subsidiaries and China Datang and/or its subsidiaries may enter into separate specific contract in compliance with the Renewed Integrated Product and Service Framework Agreement as stipulated in the Renewed Integrated Product and Service Framework Agreement. If the terms and conditions of similar products and services provided by the independent third parties are not favorable than that provided by one of the parties, then another party shall prioritize the procurement of products and services needed from the counterparty.

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LETTER FROM THE BOARD

Proposed Annual Caps

The proposed annual caps of each transaction under the Renewed Integrated Product and Service Framework Agreement for each of the year ending 31 December 2019, 31 December 2020 and 31 December 2021 are as follows:

		Proposed	annual caps for the year ending	annual caps for the year ending
			31 December
	Type of Transactions	2019	2020	2021
			(RMB ’000)
Provided by the Group	Environmental protection and	7,000,000	7,200,000	7,600,000
to China Datang Group	energy conservation business
	Renewable energy	3,000,000	2,900,000	3,650,000
	engineering
	Thermal power	1,530,000	1,640,000	920,000
	engineering
Procured by the Group	Operational ancillary service	335,000	350,000	355,000
from China Datang Group
	Supply of water, electricity	920,000	920,000	955,000
	and steam
	Procurement of equipment	3,800,000	4,860,000	5,240,000
	and raw materials

In determining the abovementioned proposed annual caps for 2019 to 2021, the Board has taken into account the following factors:

Basis for the calculation of annual caps: In determining the above annual caps, the Directors have considered: (i) the terms of the existing purchase and sale agreements; (ii) the historical amounts of various purchase and sale transactions; (iii) outstanding contracts of the Group and new contracts to be entered into by the Group in the coming three years and the value of such new contracts; and (iv) the expected future market price of relevant products and services based on market condition.

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LETTER FROM THE BOARD

Specifically for various Transactions under the Renewed Integrated Product and Service Framework Agreement, the determination of respective annual caps are based on the followings:

(a) Products and services to be provided by the Group to China Datang Group

Environmental protection and energy conservation business

The environment protection and energy conservation business of the Group mainly includes environmental protection facility concession operation, denitrification catalysts business, environmental protection facilities engineering business and business related to water treatment and energy conservation.

In terms of environmental protection facility concession operation, the cumulative installed capacity under construction for desulfurization and denitrification concession operations of the Group as of 31 December 2017 was 12,700MW and 11,380MW, respectively. It is expected that such projects would successively commence operation during the next three years. In the meantime, the Company is undergoing preliminary discussion in respect of acquisitions of certain desulfurization and denitrification concession operation projects. Therefore, it is expected that the scale of the Group’s environmental protection facility concession operation will be further expanded by way of new construction and acquisition. As a result, the transaction amount between the Group and China Datang Group will record continuous growth accordingly in this business segment.

In terms of denitrification catalysts business, it is expected that the sale volume of denitrification catalysts of the Group to China Datang Group in the next three years will maintain a similar level as compared with that in 2017, with an annual sale volume of approximately 13,000 to 15,000 m[3] , while the unit sale price will also remain stable in general. In addition, it is expected that 3,500 to 4,500 m[3] of renewable catalysts will be sold by the Group to China Datang Group each year in the next three years with the unit sale price of renewable catalysts being approximately RMB7,500/m[3] .

In terms of environmental protection facilities engineering business, on one hand, as most of the coal-fired power plants of China Datang Group have completed desulfurization, denitrification and dust removal, it is expected that the number of construction projects of desulfurization, denitrification and dust removal to be undertaken by the Group in the next three years will be reduced noticeably. On the other hand, impacted by introduction of national and regional policies in respect of elimination of coloured smoke and rain, dust treatment of coal transmission system, it is expected that the number of construction projects in relation to the abovementioned policies to be undertaken by the Group in the future three years will increase significantly. The Group expects that, in 2019, 2020 and 2021, it will undertake polluted smoke and rain treatment construction projects with 200MW, 270MW

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LETTER FROM THE BOARD

and 340MW coal-fired power generation units and coal transmission system construction or coal stockyard enclosing construction with 13, 12 and 15 coal-fired power plants from China Datang Group, respectively.

In terms of business related to water treatment and energy conservation, it is expected that the transaction amount between the Group and China Datang Group will increase at a pace of 15 to 25% per year, while its percentage in the total operating income of the Group will still be relatively low.

Renewable energy engineering service

Impacted by the national policies such as renewable energy quota system recently introduced, China Datang Group planned to vigorously develop wind power projects, and has formulated growth plan for installed capacity in each of the coming years. Due to the long-term business relationship between the Group and China Datang Group, it is expected that the number of renewable energy projects of the Group from China Datang Group will accordingly increase substantially in the coming years. The proposed annual caps for this business segment were determined based on the abovementioned development plan of China Datang Group and the market share held by the Group in the overall business volume of China Datang Group. The Group expected that in 2019, 2020 and 2021, it will undertake 40MW, 51MW and 61MW wind power projects from China Datang Group, respectively. Among which, approximately 25% of the projects which the Group expects to undertake in 2019 are the projects already obtained by the Group, while the projects which the Group expects to undertake in 2020 and 2021 are expected to be obtained over the coming years.

Thermal power engineering

For thermal power engineering business, the Directors consider that the proposed annual caps are in line with our expectation, which is mainly taken into consideration of the followings:

(i) The thermal power engineering service expected to be required for the engineering general contracting projects of the power plants operated by China Datang Group (Please refer to the circular of the Company dated 12 March 2018 for details); and
(ii) the engineering projects of gas-fired electricity generation which the Group may consider acquire.

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LETTER FROM THE BOARD

(b) Products and services to be procured by the Group from China Datang Group

Operational ancillary business

In respect of operational ancillary business to be procured by the Group from China Datang Group, the Directors believe that the proposed annual caps will have a significant growth as compared with historical results, which is expected to be in line with the significant increase in the volume of the desulfurization and denitrification concession operation business to be provided by the Group to China Datang Group for the next three years.

Supply of water, electricity and steam

In respect of water and electricity to be procured by the Group from China Datang Group, the Directors believe that the proposed annual caps for the next three years will continuously increase as the demand for water and electricity arising from the business operation of the Group increases.

Procurement of equipment and raw materials

The transaction amount of purchase of equipment and raw materials is mainly determined based on the scale of the abovementioned environmental protection facilities engineering, water treatment engineering, energy conservation engineering, renewable energy engineering, thermal power engineering and other engineering business. As it is expected that the overall scale of the abovementioned business segments of the Group in the coming years will increase significantly, it is expected that the purchase of equipment and raw materials will also increase accordingly. In the meantime, as China Datang Group is able to effectively reduce purchasing price of part of equipment and raw materials through centralized procurement and distribution process, the Group may also purchase part of the equipment and raw materials from China Datang Group through bidding process.

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LETTER FROM THE BOARD

Historical transaction amount

The historical transaction amounts of each transaction under the Renewed Integrated Product and Service Framework Agreement for the last two years ended 31 December 2017 and six months ended 30 June 2018 are as follows:

		Historical transaction amount	Historical transaction amount	Historical transaction amount
		for the year	for the year	for the	6 months
		ended	ended		ended
		31 December	31 December		30 June
	Type of Transactions	2016	2017		2018
			(RMB ’000)
Provided by the Group to	Environmental protection and	5,244,057	5,184,200		2,186,961
China Datang Group	energy conservation business
	Renewable energy engineering	775,111	534,268		134,000
	Thermal power engineering	0	0		172,530
Procured by the Group from	Operational ancillary service	77,764	110,374		46,960
China Datang Group
	Supply of water, electricity and	509,426	648,800		392,972
	steam
	Procurement of equipment and	214,971	184,187		267,378
	raw materials

Pricing policy

Under the Renewed Integrated Product and Service Framework Agreement, the pricing policy of various products and services are as follows:

(a) Products and services to be provided by the Group to China Datang Group

In most circumstances where China Datang Group purchases products and/or services from the Group, bidding procedures shall apply for the determination of prices. Only in exceptional circumstances, bidding procedures can be skipped by China Datang Group. These circumstances primarily include (a) reoccurrence of lack of sufficient number of bidders attending the bidding procedure and (b) urgent purchase by China Datang Group that does not allow the bidding procedure to be completed.

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LETTER FROM THE BOARD

Pricing policy for products: In accordance with the Renewed Integrated Product and Service Framework Agreement, the products, primarily denitrification catalysts, to be provided by the Group to China Datang Group will be determined based on the following pricing policy:

If a bidding procedure is conducted by China Datang Group, the bidding price offered by the successful bidder shall be implemented. Prior to the bidding procedures, China Datang Group will publish announcements on its bidding invitation on public websites. There must be at least three bidders attending the bidding procedure, otherwise the bidding will be cancelled. The review panel for any bidding consists of experts selected by China Datang Group who have no interest in the bidding, who will score the bids by categories where bidding price is an important but not the only factor to be considered (other factors include the requisite qualifications of production and operation of the bidders, the results and credentials of similar types of projects, overall technical capabilities, provision of technical plans, commercial goodwill). The bidder with the highest score comprehensively determined by the review panel wins and the bidding price offered by the bidder will be implemented. Therefore, only in the event that the Group wins the bidding with the highest score determined by the review panel, China Datang Group will enter into agreements with the Group under the Renewed Integrated Product and Service Framework Agreement.

If no bidding procedure is conducted, China Datang Group will search in its database for projects of a similar nature and make reference to recent bidding prices for comparable products. Usually the price is ascertained as the averaged amount of these recent bidding prices with reasonable fluctuations. However, if no recent bidding prices for comparable products can be found in its database, China Datang Group will make reference to prices of products of the similar nature published on official bidding websites operated by Chinese government to ascertain the price.

Meanwhile, if no bidding process is conducted, apart from making reference to prices on official bidding websites, the Group will also make reference to the price quotes offered by, or available from, third party customers so as to make relevant comparison with the price quotes offered by China Datang Group. The Group will consider providing relevant products to such third party customers if their terms are more favourable than that offered by China Datang Group after taking into account various factors including but not limited to price quotes, other commercial terms, level of synergy to be achieved and historical transactional records with such parties.

The pricing policy for services under the concession operations (desulfurization and denitrification) services: The tariff for desulfurized and denitrified electricity under the concession operation services shall be determined based on government-prescribed price. The price of by-products shall be determined based on market price (which is obtained through quotations from public market and independent service providers through bidding process

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LETTER FROM THE BOARD

and other negotiated prices through market mechanism in relation to provision of similar types of services in similar industries, having taken into account comparable conditions including but not limited to the technology and quality of the services).

The pricing policy for other services: The price of the services other than the concession operations (desulfurization and denitrification) to be provided by the Group to China Datang Group in accordance the Renewed Integrated Product and Service Framework Agreement shall be determined based on the following policy:

If a bidding procedure is conducted by China Datang Group, the bidding price offered by the successful bidder shall be implemented. Prior to the bidding procedures, China Datang will publish announcements on its bidding invitation on public websites. There must be at least three bidders attending the bidding procedure, otherwise the bidding will be cancelled. The review panel for any bidding consists of experts selected by China Datang who have no interest in the bidding, who will score the bids by categories where bidding price is an important but not the only factor to be considered (other factors include the requisite service qualifications of the bidders, the results and credentials of similar types of services, overall technical capabilities, provision of technical plans, commercial goodwill). The bidder with the highest score comprehensively determined by the review panel wins and the bidding price offered by the bidder will be implemented. Therefore, only in the event that the Group wins the bidding with the highest score determined by the review panel, China Datang Group will enter into agreements with the Group under the Renewed Integrated Product and Service Framework Agreement.

If no bidding procedure is conducted, China Datang Group will search in its database for projects of a similar nature and make reference to recent bidding prices for comparable services. Usually the price is ascertained as the averaged amount of these recent bidding prices with reasonable fluctuations. However, if no recent bidding prices for comparable services can be found in its database, China Datang Group will make reference to prices of services of the similar nature published on official bidding websites operated by Chinese government to ascertain the price.

Meanwhile, if no bidding process is conducted, apart from making reference to prices on official bidding websites, the Group will also make reference to the price quotes offered by, or available from, third party customers so as to make relevant comparison with the price quotes offered by China Datang Group. The Group will consider providing relevant services to such third party customers if their terms are more favourable than that offered by China Datang Group after taking into account various factors including but not limited to price quotes, other commercial terms, level of synergy to be achieved and historical transactional records with such parties.

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LETTER FROM THE BOARD

(b) Products and services to be procured by the Group from China Datang Group

In most circumstances where the Group purchases products and/or services from China Datang Group, bidding procedures shall apply for determination of the price. Only in exceptional circumstances, bidding procedures can be skipped by the Group. These circumstances primarily include (a) reoccurrence of lack of sufficient number of bidders attending the bidding procedure and (b) urgent purchase by the Group that does not allow the bidding procedure to be completed.

Pricing policy for products:

The pricing policy for operational ancillary services: In respect of the ancillary services under the concession operations of desulfurization and denitrification, the price shall be determined based on cost of human resources involved, the relevant management expenses and the maintenance fees of the equipment of relevant power plants after taking into account the average level of the industry. If no bidding process is conducted, apart from making reference to prices on official bidding websites, the Group will also make reference to the price quotes offered by, or available from, third party customers so as to make relevant comparison with the price quotes offered by China Datang Group. The Group will consider purchase relevant ancillary services from such third party customers if their terms are more favourable than that offered by China Datang Group after taking into account various factors including but not limited to price quotes, other commercial terms, level of synergy to be achieved and historical transactional records with such parties.
Pricing policy for supply of water, electricity and steam: In accordance with the Renewed Integrated Product and Service Framework Agreement, the products, primarily, water, electricity and steam supplied by power plants under China Datang Group to the Group, will be determined based on the government-prescribed prices, which are actual costs of water and power for the supply of water and power by power plants to third-party desulfurization and denitrification concession operation service providers.
The pricing policy for procurement of equipment and raw materials: In respect of the procurement of equipment and raw materials, in most circumstances, bidding procedures shall apply for determination of the price. Such price is the bidding price provided by the bid-winner. Only in exceptional circumstances, such as urgent purchase by the Group, bidding procedures can be skipped by the Group where the purchasing price shall be determined by experts of the Group based on fair market value and historical records of procurement price. If no bidding process is conducted, apart from making reference to prices on official bidding websites, the Group will also

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LETTER FROM THE BOARD

make reference to the price quotes offered by, or available from, third party customers so as to make relevant comparison with the price quotes offered by China Datang Group. The Group will consider purchase relevant equipment and raw materials from such third party customers if their terms are more favourable than that offered by China Datang Group after taking into account various factors including but not limited to price quotes, other commercial terms, level of synergy to be achieved and historical transactional records with such parties.

Reasons for and benefits of the Transactions under the Renewed Integrated Product and Service Framework Agreement

China Datang Group and the Group have a long-term, stable business relationship. The parties are mutually familiar with each other’s business demands and are able to supply the products and services needed by each other. The Directors believe that maintaining a stable and quality business relationship with China Datang Group will facilitate our current and future business operations. Desulfurization and denitrification concession operation is a new business model encouraged by the PRC government. Under such a business model, professional service providers invest in the construction and installation or acquisition of desulfurization and denitrification equipment of power plants in exchange for (i) on-grid tariff for electricity generated by the power plants based on the fixed rate of the grid operator, and (ii) revenue from the sales of by-products produced by the operation of desulfurization and denitrification equipment in light of a series of policies promulgated by NDRC and/or MEP. Consistent with the general market practice in the environmental protection and energy conservation industry, the Group has adopted such a business model in the provision of desulfurization and denitrification concession operation services to power plants affiliated to China Datang Group.

With regard to the ancillary services provided by China Datang Group to the Group under desulfurization and denitrification concession operations, the power plants shall be responsible for daily operations and equipment maintenance and other supportive services with regard to the desulfurization and denitrification equipment, water and power supply, as well as procurement of some raw materials and spares. The Group shall pay service fees to the power plants for ancillary services provided by China Datang Group to the Group. Under such an arrangement, (i) the cost of the Group will be lowered; (ii) the operational risks that the Group is exposed to will be reduced; and (iii) it is expected to improve the operational efficiency and synergy effect by making use of the manpower of power plants under the supervision of the management team dispatched by the Group.

Based on our previous experience in business dealings with China Datang Group, we believe that the Group and China Datang Group are capable of effectively satisfying each other’s stable and high-quality demands for relevant businesses, which is in the interests of the Group and our Shareholders as a whole.

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LETTER FROM THE BOARD

RELEVANT INTERNAL CONTROL MEASURES OF CONTINUING CONNECTED TRANSACTIONS

We have implemented the following internal control procedures to closely monitor and manage new and on-going connected transactions with China Datang Group:

The Board has approved the estimated annual caps of connected transactions with China Datang Group for each of its business segments for the three years ending 31 December 2019, 2020 and 2021, which were proposed by the Strategic Planning and Cost Management Department (計劃與成本管理部) and the Financial and Property Management Department (財務與產權管理部) based on the Group’s business demands and China Datang Group’s projects planning and their estimated completion time and progress.
At the beginning of each calendar year, the Financial and Property Management Department will issue an internal notice circulating the annual caps of connected transactions with China Datang Group for this particular year and remind each member and department of the Group to follow internal control procedures for the control of transaction value with China Datang Group in daily business operations.
The Financial and Property Management Department is responsible for maintaining and updating the list of connected persons of the Group. Such list will be circulated to members and relevant departments of the Group on a regular basis.
Business contracts of the Group are negotiated by the relevant business departments which are subject to review and approval by the Strategic Planning and Cost Management Department before execution. Before submitting any new business contract to the Strategic Planning and Cost Management Department (計劃與成本管理部), the relevant business department is required to check the identity of each party to such contract against the latest list of connected persons of our Group. If any party is identified as a connected person, the relevant business department will initiate special application procedures (“ Connected Transaction Identification Process ”) with required information of the proposed transaction to the Strategic Planning and Cost Management Department for review and approval. In addition, the Materials Management Department (物資管理部) and the Market Development Department (市場開發部) will screen the Connected Transaction Identification Process and ensure all connected transactions will be submitted to the Strategic Planning and Cost Management Department for approval. The Strategic Planning and Cost Management Department has adopted stringent control policies in reviewing and approving connected transactions, including, cross checking relevant information of the projects (e.g. transaction amounts, expected project completion date and progress) against the annual caps. If the proposed transaction is generally consistent with the Strategic Planning and Cost Management Department’s planning, usually such contract can proceed to execution.

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LETTER FROM THE BOARD

However, if there exists significant difference, the Strategic Planning and Cost Management Department will check against the monthly report provided by the Financial and Property Management Department for assessment on whether the value of the proposed contract would potentially cause the actual total transaction value to exceed the annual caps of that year, taking into consideration of the actual amount of connected transactions that have already occurred. In the case that the proposed contract is expected to potentially cause the total actual transaction value to exceed the annual caps of that year, the Strategic Planning and Cost Management Department usually will not approve such contract to proceed to execution. In the case that any proposed transaction that may potentially cause the actual total transaction value to exceed the annual caps, if the Strategic Planning and Cost Management Department considers such transaction has great commercial value or other significant benefits to our Group, it may escalate to senior management of the Company or the Board for decision making by going through relevant corporate governance procedures in compliance with relevant rules and regulatory requirements. In the event that the Company decides to proceed with the proposed transactions, it would be required to seek Shareholders’ approval for revision of the annual caps in accordance with the requirements under the Listing Rules. In addition, any amendment of existing connected transaction contract will follow the same procedures as execution of new business contracts.

The Financial and Property Management Department has set up a monthly reporting system for connected transactions, where it requires all members and departments of the Group to report in the beginning of each month (i) the amount of connected transactions occurred in the previous month; (ii) the accumulative connected transaction amount occurred in that year; and (iii) the expected transaction amount for the rest of the year. If the accumulative connected transaction amount has proportionately exceeded the annual caps of the year in a substantial manner or if the amount of the connected transactions occurred together with the expected transaction amount for the rest of the year will exceed the annual caps, the relevant member or department of our Group is required to report to the Financial and Property Management Department the reasons for deviation and the proposed rectification measures. Subsequently, the Financial and Property Management Department will notify the Strategic Planning and Cost Management Department of such deviation or potential deviation by relevant member or department, and the Strategic Planning and Cost Management Department will closely monitor and control the approval of new business contracts for relevant member or department.

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LETTER FROM THE BOARD

For all the on-going projects, if the relevant business departments is aware of any material change in relation to transaction amounts or expected timing that could potentially cause the actual total transaction value to exceed the annual caps of that year, such change is required to be promptly reported to the Financial and Property Management Department for approval, who will cross check with annual planning and monthly report for assessment. In the case that such material change is likely to cause the actual total transaction value to exceed the annual caps of that year, the Financial and Property Management Department usually will not approve such material change. Despite the above, if the Financial and Property Management Department considers such material change has great commercial value or other significant benefits to the Group, it may escalate to senior management of the Company or the Board for decision making by going through relevant corporate governance procedures in compliance with relevant rules and regulatory requirements. In the event that the Company decides to proceed with the proposed transactions, it would be required to seek Shareholders’ approval for revision of the annual caps in accordance with the requirements under the Listing Rules.
Furthermore, the Group has adopted relevant assessment standards in its employee performance evaluation system, where each department and employee will be evaluated on their contribution in terms of exploring independent contracts and controlling the amount and ratio of connected transactions, which has direct impact on their remuneration.

INDEPENDENCE OF BUSINESS OPERATIONS OF THE GROUP

The Group possesses sufficient capital, property, equipment, technology and human resources to operate its business independently, and holds qualifications that are necessary for the Group’s principal businesses.

As stated in this Supplemental Circular, the Group conducted certain continuing connected transactions with China Datang Group. In addition, we expect that the Group will continue to carry out certain continuing connected transactions with China Datang Group in the future. Notwithstanding such continuing connected transactions between the Group and China Datang Group, the Directors believe that the Group is able to operate independently from China Datang Group and the Company should continue to maintain a strong relationship with China Datang Group for the following reasons:

• Industry landscape/mutual and complementary relationship

In the area of environmental protection and energy conservation solutions, the Group’s customers are mainly large-size state-owned power groups in the coal-fired power industry. In China market, the coal-fired power industry is highly concentrated, with the top five power groups (“ Big Five ”), contributing more than 50% of the total market share in terms of accumulated installed capacity, and China Datang Group ranked the fourth largest company

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LETTER FROM THE BOARD

with approximately 10% of market share in terms of cumulative installed capacity as of 2017. It is common for the Big Five to establish their own affiliates engaging in concession operations, EPC services and other environmental protection and energy conservation services to perform activities within their respective groups. For example, among the Big Five, China Huadian Corporation (中國華電集團公司), China Power Investment Corporation (中國電力投資集團公司) and China Guodian Corporation (中國國電集團公司) have all established their own affiliates engaging in concession operations, EPC services and other environmental protection and energy conservation services which primarily transacted with entities within their respective groups. Therefore, China Datang Group is one of the largest potential customers in the industry that the Group is operating in. On the other hand, the Group is a leading environmental protection and energy conservation solutions provider in the PRC. Therefore, the historical amounts of connected transactions between the Group and China Datang Group reflect the market position of both parties in the respective industries and it is important that the Group continues to maintain a healthy business relationship with China Datang Group given its market position as one of the leading groups in its industry in China.

Furthermore, coal-fired power plants have increasing demands for environmental protection and energy conservation services from market players, primarily large-size state-owned power groups in the coal-fired power industry including China Datang Group, along with the more and more stringent standards for target emission in the environmental protection and energy conservation industry established by the Chinese government. Given the Group’s established relationship with China Datang Group, its experience with the quality of the Group’s services and market position of the Group in the environmental protection and energy conservation solutions industry, the Company believes that it is commercially sensible for China Datang Group to continue to purchase products and services from the Group. Also, as China Datang Group is one of the largest customers in the industry of environmental protection and energy conservation solutions, the Company believes it would not be commercially sensible for the Group to reduce its amount of products and services provided to China Datang Group.

Therefore, the business relationship between China Datang Group and the Group is a mutually beneficial arrangement.

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LETTER FROM THE BOARD

• Nature of business

The Group’s entire revenue under the desulfurization and denitrification concession operations was derived from transactions with China Datang Group since its listing, which is in line with the general market practice of other leading market players of concession operations in the environmental protection industry. Further, the Big Five occupied more than 50% of coal-fired power industry in terms of accumulated installed capacity and have their own subsidiary companies to conduct the concession operation business, which has become the market practice in this industry as few projects are being operated by independent third party companies. Furthermore, the business model of concession operations has been encouraged by national policies in the PRC. Under such a business model, professional service providers invest in the construction and installation or acquisition of desulfurization and denitrification equipment of power plants in exchange for (i) on-grid tariff for electricity generated by the power plants based on the fixed rate of the grid operator, and (ii) revenue from the sales of by-products produced by the operation of desulfurization and denitrification equipment in light of a series of policies promulgated by NDRC and/or MEP. Under the unique business model of concession operations, according to the relevant policies, on-grid tariff subsidies for the electricity generated by the power plant are government-prescribed prices paid by the power grid operator to the Group through the power plant. Consistent with the general market practice in the environmental protection and energy conservation industry, the Group has adopted such a business model in the provision of desulfurization and denitrification concession operation services to power plants affiliated to China Datang Group. Given the unique business model of concession operations which differentiates from other connected transactions, if not taking into account of revenue generated from the concession operations, the Group’s revenue generated from transactions with China Datang Group represented approximately 51.3%, 45.9% and 35.8%, respectively, of the Group’s total revenue for each of the three years ended 31 December 2015, 2016 and 2017, respectively.

• Largest customer on an aggregated basis

Although the Company has aggregated the revenue derived from transactions with China Datang Group, there were actually more than 250 different legal entities under the China Datang Group umbrella who were our customers. Multiple subsidiaries or power plants of China Datang Group select their own suppliers independently by going through their own internal evaluation and bidding procedures. For the years ended 31 December 2015, 2016 and 2017, revenue from our top five customers accounted for approximately 33.5%, 25% and 24% of our total revenue, respectively.

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LETTER FROM THE BOARD

• Expansion of customer base

The Group has established its own marketing capabilities to focus on building and reinforcing its image and reputation in the industry for a larger market share and has independent access to customers which are independent third parties through its own marketing network and has achieved continuous success in exploring independent third party customers.

For the year ended 31 December 2017, the total value of products and services provided by the Group to China Datang Group (other than concession operations) were approximately RMB2,874.8 million, representing only approximately 35.8% of the total revenue of the Group. For the year ended 31 December 2017, the total value of the services provided by the Group to China Datang Group under the concession operations (desulfurization and denitrification) were approximately RMB3,189.2 million, representing only approximately 39.7% of the total revenue of the Group.

In addition, the Group has been actively expanding its independent third party customer base. For instance, during 2017, the Group has entered into contracts with customers other than China Datang Group, amounting to RMB3.86 billion, representing an increase of 24.4% compared with 2016. The Group has also made significant progress in developing and expanding overseas business.

• Diversification of business and adaptability of business model

The Group has four business segments, and products and services provided by the Group to China Datang Group cover all these business segments. As a result, the diversification of business lowers the Group’s customer concentration risk. In addition, the Group’s business model has been adapted to accommodate business dealings with independent customers. For instance, in environmental protection and energy conservation industries in the PRC, independent customers increasingly consider suppliers’ professional expertise, technological capabilities and quality of comprehensive services. We believe that the Group has built up its own brand name and market position in the industries it conducts business, with its research and development abilities, technology support, quality and reputation of products and services, as well as marketing capabilities, which would facilitate the Group to continue to source independent customers.

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LETTER FROM THE BOARD

• Increasing overall market demand

Chinese government has continued to promulgate a series of policies to encourage the development of energy conservation and environmental protection industries. For instance, the General Office of the State Council issued a guidance letter in December 2014 to encourage pollutant dischargers to engage in third-party environmental protection service providers. In addition, the NDRC, the MEP and their local counterparts have also issued various rules at national and local levels, pursuant to which environmental protection service providers are entitled to preferential electricity rates. Further, in December 2015, the NDRC, MEP and NEA jointly issued new supportive policies on coal-fired power plants ultra-low emission tariff for the existing and newly-built power generation units. In addition, the total output of Chinese environmental protection and energy conservation industry is expected to increase from RMB4.6 trillion in 2015 to RMB9.2 trillion in 2020.

In addition, the Company has also adopted a series of the Code on Corporate Governance Practices, such as the Rule of Procedure of Shareholders Meeting, Rules of Procedures for the Board Meeting, Rules of Procedures for the Supervisory Committee’s Meeting and the management system for connected transactions and others.

Based on the foregoing grounds, the Directors are of the belief that, as there are certain continuing connected transactions as stated in this Supplement Circular, the Group can operate its business independently from China Datang Group.

LISTING RULES IMPLICATIONS

As China Datang directly held approximately 78.17% of the issued share capital of the Company as at the Latest Practicable Date, it is a controlling shareholder of the Company. Pursuant to Chapter 14A of the Listing Rules, China Datang is therefore connected person of the Company. Accordingly, the Renewed Integrated Product and Service Framework Agreement and the Transactions constitute continuing connected transactions of the Company under the Listing Rules.

Given that one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the Transactions calculated with reference to the proposed annual caps is more than 5%, the Renewed Integrated Product and Service Framework Agreement, the Transactions and the proposed annual caps are subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

Mr. Jin Yaohua, Mr. Liu Chuandong, Mr. Liu Guangming and Mr. Li Yi are holding positions in China Datang or its subsidiaries and therefore have abstained from voting at relevant Board meeting approving the Renewed Integrated Product and Service Framework Agreement, the Transactions. Save as mentioned above, all Directors have confirmed that they have no material interests in the Renewed Integrated Product and Service Framework Agreement and the Transactions thereof.

GENERAL INFORMATION

The Company is a non-wholly-owned subsidiary of China Datang, and is the sole platform for the development of environmental protection and energy conservation business under China Datang Group, one of the five major state wholly-owned power generation groups in the PRC. The principal business of the Group includes environmental protection facility concession operation, denitrification catalysts, environmental protection facilities engineering, water treatment business, energy conservation business and renewable energy engineering business.

China Datang is a state-owned enterprise established in the PRC in April 2003 and is the controlling shareholder of the Company. China Datang is primarily engaged in the development, investment, construction, operation and management of power energy; organization of power (thermal) production and sales; manufacture, maintenance and commissioning of electric power equipment; power technology development and consultation; contracting and consulting of electric power engineering and environmental protection projects; development of renewable power; and selfoperating and being an agent for import and export of any kind of goods and technology save for those where the import or export of the goods and technology are restricted or prohibited by national laws and regulations.

III. DOMESTIC REGISTRATION OF DEBT FINANCING INSTRUMENTS AND THE ISSUANCE OF SUPER SHORT-TERM COMMERCIAL PAPER

In order to expand financing channels and to satisfy capital requirements, the Company intends to apply to National Association of Financial Market Institutional Investors (“ NAFMII ”) for registration for issuance of Super Short-term Commercial Paper (“ SCP ”), Short-term Commercial Paper and Medium Term Note and for issuance of SCP in tranches during the registration period, which will depend on subsequent capital requirements and market conditions. In accordance with the Company Law and the Guidelines on the Issuance of Non-Financial Enterprises Super and Short Commercial Paper in the Interbank Bond Market (Trial), the specific plan is set out as below:

Registration size: SCP of no more than RMB3 billion, and Short-term Commercial Paper and Medium Term Note of, as aggregated, no more than RMB3 billion and not exceeding 40% of net asset of the Group;
Issuance size: SCP of no more than RMB3 billion;

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LETTER FROM THE BOARD

Issuance period: The issuance period of each tranche of SCP is 270 days from the issue date, with specific period subject to actual issuance; and
Use of proceeds: Proceeds raised will be used to replenish working capital and refinance bank loans of the Company (including its subsidiaries) which fall due and payable.

The following matters will be put to the EGM for consideration and approval:

approve the Company to register with NAFMII for issuance of SCP of no more than RMB3 billion and for issuance of Short-term Commercial Paper and Medium Term Note of, as aggregated, no more than RMB3 billion and not exceeding 40% of net asset of the Group within 24 months after the date of approval by the general meeting, and to issue SCP in tranches during the registration period; and
authorise the Board, which then sub-authorise the senior management of the Company, to deal with all matters related to this registration and issuance as they deem appropriate.

IV. PROPOSED APPOINTMENT OF EXECUTIVE DIRECTOR

Reference is made to the Company’s announcement dated 15 November 2018 in relation to the proposed appointment of Mr. Shen Zhen as an executive Director.

Mr. Shen Zhen (申鎮) (“ Mr. Shen ”) has been nominated as a candidate for executive Director and his appointment is subject to the approval by Shareholders at the general meeting of the Company. His term of office will commence on the date when the approval of the Shareholders at the general meeting is obtained and will end on the expiration of the term of the current session of the Board.

Biographical details of Mr. Shen are set out as follows:

Mr. Shen Zhen, aged 46, was the general manager of the environmental protection branch of the Company from November 2010 to January 2015 and has been serving as a deputy general manager of the Company since January 2015. He has also been serving as a secretary to the party committee of the Company since July 2018. Mr. Shen had approximately 20 years of extensive experience in the power industry. From September 2004 to November 2010, Mr. Shen served successively as the manager of the engineering and project management department, deputy general manager of the desulfurization business department, deputy general manager of cooling technology business department, deputy director (in charge) of the general manager’s working department and director of the engineering management department at China Datang Technologies and Engineering Co., Ltd. (中國大唐集團科技工程有限公司). Prior to joining the Company, Mr. Shen was a specialized engineer at Boiler Company of Beijing Electric Power Construction Company (北京電力建設公司鍋爐專業公司) from July 1995 to April 2000 and was appointed as the manager of the engineering

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LETTER FROM THE BOARD

management department of Guohua Ebara Environmental Engineering Co., Ltd. (國華荏原環境工程有限責任公司) from April 2000 to September 2004. Mr. Shen graduated from Southeast University (東南大學) with a bachelor’s degree in thermal power engineering in 1995. He further obtained an MBA degree from Tsinghua University (清華大學) in 2007. Mr. Shen is an accredited grade-one constructor (一級建造師) recognized by the Ministry of Construction (國家建設部) in March 2005 and a senior engineer recognized by the Beijing Senior Specialized Technique Titles Evaluation Committee (北京市高級專業技術資格評審委員會) of Personnel in October 2007.

Save as disclosed above, as at the Latest Practicable Date, Mr. Shen (i) has no relationship with any Directors, senior management, substantial or controlling shareholders of the Company; (ii) does not hold any other directorships of any listed companies in the last three years; (iii) does not hold any other position with the Company or any of its subsidiaries; and (iv) has no interest in any Shares within the meaning of Part XV of the SFO.

According to the Articles of Association, Mr. Shen is eligible for re-election and re-appointment upon expiry of his terms.

Mr. Shen receives emolument from the Company, including salary, bonus, social security plan, housing provident fund plan and other benefits. Mr. Shen will enter into a service contract with the Company after his appointment becomes effective. Mr. Shen’s emolument shall be submitted by the Board to the Shareholders’ general meeting for approval and will become effective thereafter.

Save as disclosed above, there are no other matters relating to the above appointment that need to be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Listing Rules or brought to the attention of the Shareholders.

THE EGM

The supplemental notice of EGM is set out on pages 60 to 62 of this Supplemental Circular. The EGM will be held at 4:00 p.m. on Friday, 30 November 2018 at No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC.

Please refer to the Original Circular and the notice of the EGM dated 27 July 2018 for details of other resolutions to be considered at the EGM, qualification for attendance of the EGM, registration procedures, closure of register of members, voting and other related matters.

In accordance with the Listing Rules, any connected person or Shareholder and its associates with a material interest in the Renewed Integrated Product and Service Framework Agreement and the Transactions must abstain from voting on the resolutions to approve the Renewed Integrated Product and Service Framework Agreement and the Transactions (including the respective proposed annual caps) at the EGM.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, China Datang and its associates are required to abstain from voting on the relevant resolutions to be proposed at the EGM, and no other Shareholders are required to abstain from voting on the ordinary resolutions in relation to the Renewed Integrated Product and Service Framework Agreement and the Transactions (including the respective proposed annual caps). No Shareholders are required to abstain from voting on the proposed appointment of Mr. Shen Zhen as an executive Director and the domestic registration of debt financing instruments and issuance of super short-term commercial paper of the Company to be proposed at the EGM.

RECOMMENDATION

The Board (excluding the Directors who are required to abstain, but including independent non-executive Directors) recommends the Shareholders to vote in favour of the relevant resolutions set out in the notice and supplemental notice of the EGM as they are in the interests of the Company and the Shareholders as a whole.

Yours faithfully,

By order of the Board

Datang Environment Industry Group Co., Ltd.*

Jin Yaohua

Chairman

For identification purposes only

– 23 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [47 x 48] intentionally omitted <==

**Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司**

(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 1272)

15 November 2018

To the Independent Shareholders

Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

We refer to the supplemental circular issued by the Company to the Shareholders dated 15 November 2018 (the “ Supplemental Circular ”) of which this letter forms part. Terms defined in the Supplemental Circular shall have the same meaning in this letter unless the context otherwise requires.

Under the Listing Rules, the Transactions constitute continuing connected transaction for the Company and are subject to the approval of the Independent Shareholders at the EGM.

We have been appointed by the Board as the members of the Independent Board Committee to advise the Independent Shareholders as to whether, in our opinion, the terms of the Renewed Integrated Product and Service Framework Agreement, the Transactions and the relevant proposed annual caps are fair and reasonable so far as the Independent Shareholders are concerned. The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the fairness and reasonableness of the terms of the Renewed Integrated Product and Service Framework Agreement, the Transactions and the proposed annual caps. Details of its advice, together with the principal factors taken into consideration in arriving at such, are set out in its letter set out on pages 26 to 52 of the Supplemental Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the Letter from the Board and the Letter from the Independent Financial Adviser as set out in the Supplemental Circular. Having considered the Renewed Integrated Product and Service Framework Agreement, the Transactions and the relevant proposed annual caps, and taken into account the advice of the Independent Financial Adviser, we consider that the Renewed Integrated Product and Service Framework Agreement and the Transactions are in the ordinary and usual course of business of the Group and the Renewed Integrated Product and Service Framework Agreement has been negotiated on an arm’s length basis and on normal commercial terms and that the terms of the Renewed Integrated Product and Service Framework Agreement, the Transactions and the proposed annual caps are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

Accordingly, we advise the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Renewed Integrated Product and Service Framework Agreement and the Transactions and the relevant proposed annual caps.

Yours faithfully,

for and on behalf of

Independent Board Committee

Datang Environment Industry Group Co., Ltd.*

Mr. Ye Xiang Mr. Mao Zhuanjian Mr. Gao Jiaxiang Independent non-executive Independent non-executive Independent non-executive Director Director Director

For identification purposes only

– 25 –

LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

The following is the full text of the letter of advice from Orient Capital to the Independent Board Committee and the Independent Shareholders in respect of the Renewed Integrated Product and Service Framework Agreement, the Transactions and the proposed annual cap for the purpose of incorporation in this circular.

==> picture [206 x 31] intentionally omitted <==

香港中環皇后大道中100號28樓-29樓 28/F-29/F, 100 Queen’s Road Central, Hong Kong Tel: (852) 3519 1188 Fax: (852) 2259 9211 Website: www.dfzq.com.hk 證監會持牌法團編號 CE No.: BDN128

15 November 2018

To: the Independent Board Committee and the Independent Shareholders of Datang Environment Industry Group Co., Ltd.

Dear Sirs/Madams,

RENEWAL OF CONTINUING CONNECTED TRANSACTION

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the fairness and reasonableness of the term of the Renewed Integrated Product and Service Framework Agreement, the Transactions and the proposed annual cap, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the supplemental circular dated 15 November 2018 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

According to the Board Letter, as mentioned in the “Connected Transactions” section of the Prospectus, the Company entered into the Existing Integrated Product and Service Framework Agreement with China Datang on October 26, 2016 which took effect upon the Listing with an initial term of three years. Pursuant to this agreement, the products and services to be provided by the Group to the China Datang Group include: Environmental protection and energy conservation solutions, Renewable energy engineering services, EPC for thermal power plants and others. And the products and services to be procured by the Group from the China Datang Group include: water and power supply, ancillary services under the business model of concession operations (desulfurization and denitrification), logistics services, such as bidding services, conference services and training, and procurement of equipment. On 12 March 2018, the Company entered into the Supplemental Agreement to Integrated Product and Service Framework Agreement with China Datang to revise certain terms of the Integrated Product and Service Framework Agreement. For further details of the Integrated Product and Service Framework Agreement, please refer to “Connected Transactions” section of the Prospectus and the relevant circular of the Company dated 12 March 2018.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

As the Existing Integrated Product and Service Framework Agreement is effective from the listing date of the Company for a term of 3 years, and the Company will continue the transaction in accordance with the Existing Integrated Product and Service Framework Agreement in 2019. Therefore, as disclosed in the Announcement, the Company entered into the Renewed Integrated Product and Service Framework Agreement on 15 November 2018. Such agreement will be effective from 1 January 2019 and expire on 31 December 2021, and could be extended or renewed for 3 years as agreed by both parties within 3 months prior to expiry and subject to compliance with the relevant laws, regulations, regulatory documents and the Listing Rules.

As China Datang directly held approximately 78.17% of the issued share capital of the Company as at the Latest Practicable Date, it is a controlling shareholder of the Company. Pursuant to Chapter 14A of the Listing Rules, China Datang is therefore connected persons of the Company. Accordingly, the Renewed Integrated Product and Service Framework Agreement and the Transactions and the Transactions constitute continuing connected transactions of the Company under the Listing Rules.

Given that one or more of the relevant percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the Transactions calculated with reference to the proposed annual cap is more than 5%, the Renewed Integrated Product and Service Framework Agreement, the Transactions and the proposed annual cap are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. China Datang and its associates shall abstain from voting at the EGM on resolutions to approve the Renewed Integrated Product and Service Framework Agreement and the Transactions and the transactions contemplated thereunder.

An Independent Board Committee, comprising Mr. Ye Xiang, Mr. Mao Zhuanjian and Mr. Gao Jiaxiang, has been appointed by the Board to advise the Independent Shareholders as to whether, in their opinion, the terms of the Renewed Integrated Product and Service Framework Agreement, the Transactions and the relevant proposed annual cap are fair and reasonable so far as the Independent Shareholders are concerned. We, Orient Capital (Hong Kong) Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

Orient Capital is a licensed corporation to carry out regulated activities of advising on corporate finance under the SFO. Orient Capital and its affiliates, whose ordinary business involves the trading of, dealing in and the holding of securities, may be involved in the trading of, dealing in, and the holding of the securities of the Company for client accounts. During the past two years, Orient Capital was appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of (1) the Financial Services Agreement entered between the Company and China Datang Finance Co., Ltd and the transactions thereunder in 2017; (2) the Supplemental Agreement to Integrated Product and Service Framework Agreement entered between the Company and China Datang and the transactions thereunder in 2018; and (3) the Financial Services Agreement entered between the Company and China Datang Group Capital Holding Co., Ltd. and the transactions thereunder in 2018. The Orient Capital had no past engagement with the Group or any relationship or interest with the Group or

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

any other parties that could reasonably be regarded as relevant to the independence of Orient Capital as the Independent Financial Adviser. As at the Latest Practicable Date, we were independent from and not connected with the Group under Rule 13.84 of the Listing Rules, and accordingly, are qualified to give independent advice to the Independent Board Committee and the Independent Shareholders in respect of the Supplemental Agreement and the transactions contemplated thereunder.

BASIS OF OUR OPINION

In formulating our opinion and recommendation, we have reviewed, among other things: (i) the Existing Integrated Product and Service Framework Agreement; (ii) the Supplemental Agreement to Integrated Product and Service Framework Agreement; (iii) the Renewed Integrated Product and Service Framework Agreement; (iv) the Announcement with respect to the Renewed Integrated Product and Service Framework Agreement; (v) the annual report of the Company for the year ended 31 December 2016 (the “ 2016 Annual Report ”); (vi) the annual report of the Company for the year ended 31 December 2017 (the “ 2017 Annual Report ”); (vii) prospectus of the Company dated 3 November 2016 (the “ Prospectus ”) and (viii) the relevant internal documents of the Group prepared by its key personnel. We have relied, without assuming any responsibility for independent verification, on the information, opinions and facts supplied and representations made to us by the Company, who has assumed full responsibility for the accuracy of the information contained in the Circular and that any information and representations made to us are true, accurate and complete in all material respects as at the date hereof and that they may be relied upon. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company. We have discussed with the management of the Company (the “ Management ”) regarding their plans and prospects of the Company. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable, and we have not independently verified the accuracy of such information. We have also assumed that statements and representations made or referred to in the Supplemental Circular were accurate at the time they were made and continue to be accurate up to the date of the EGM. We consider that we have reviewed sufficient information to reach an informed view in order to provide a reasonable basis for our advice. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the business, affairs of future prospects of the Company. Our advice was necessarily based on financial, economic, market and other conditions in effect, and the information made available to us, as at the Latest Practicable Date. As the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, we have not been involved in the negotiations in respect of the terms of the Renewed Integrated Product and Service Framework Agreement.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

PRINCIPAL FACTORS AND REASONS CONSIDERED

The principal factors and reasons we have taken into account in assessing the fairness and reasonableness of the term of the Renewed Integrated Product and Service Framework Agreement, the Transactions and the proposed annual cap contemplated thereunder in giving our recommendation to the Independent Board Committee and the Independent Shareholders are set out below:

I. Background of the Company and China Datang

According to the Board Letter, the Company is a non-wholly-owned subsidiary of China Datang, and is the sole platform for the development of environmental protection and energy conservation business under China Datang Group, one of the five major state wholly-owned power generation groups in the PRC. The principal business of the Group includes environmental protection facility concession operation, denitrification catalysts, environmental protection facilities engineering, water treatment business, energy conservation business and renewable energy engineering business.

China Datang is a state-owned enterprise established in the PRC in April 2003 and is the controlling shareholder of the Company. China Datang is primarily engaged in the development, investment, construction, operation and management of power energy; organization of power (thermal) production and sales; manufacture, maintenance and commissioning of electric power equipment; power technology development and consultation; contracting and consulting of electric power engineering and environmental protection projects; development of renewable power; and self-operating and being an agent for import and export of any kind of goods and technology save for those where the import or explore of the goods and technology are restricted or prohibited by national laws and regulations.

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II. Financial Performance of the Company

Set forth below are the operating results of the Group’s financial information for the tree years ended 31 December 2017 prepared in accordance with the International Financial Reporting Standards (the “ IFRS ”) extracted from the annual report of the Company for the year ended 31 December 2017 and 2016, and the Prospectus.

	For the year	For the year	For the
	ended 31	ended 31	year ended
	December	December	31 December
	2017	2016	2015
	RMB’000	RMB’000	RMB’000
	(audited)	(audited)	(audited)
Revenue	8,024,494	8,156,469	8,609,588
– Environmental protection and energy
conservation business	5,786,528	6,008,992	5,453,813
– Renewable energy Engineering	1,842,955	1,919,564	2,674,166
– Thermal power engineering	–	–	147,538
– Other businesses	413,011	227,913	334,071
Profit	914,912	1,084,730	750,309
	As at 31	As at 31	As at 31
	December 2017	December 2016	December 2015
	RMB’000	RMB’000	RMB’000
	(audited)	(audited)	(audited)
Total Assets	18,161,452	17,935,540	13,978,827
Total Equity	6,926,361	6,415,354	3,627,071

As depicted by the above table, the Group’s revenue decreased from RMB8,610 million for the year ended 31 December 2015 to RMB8,156 million for the year ended 31 December 2016, representing a decrease of 5.3%. The Group recorded revenue of RMB8,024 million for the year ended 31 December 2017, representing a slight decrease of 1.6% as compared to that for the same period of 2016.

The profit of the Group for the year ended 31 December 2016 increased approximately RMB334 million, or approximately 44.6% as compared to that for the year ended 31 December 2015. The profit of the Group for the year ended 31 December 2017 decreased approximately RMB170 million, or approximately 15.7% as compared to that for the year ended 31 December 2016.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

The total asset of the Group as at 31 December 2016 increased approximately RMB3,957 million, or approximately 28.3% as compared to that as at 31 December 2015. The total asset of the Group as at 31 December 2017 was further increased approximately RMB226 million, or approximately 1.3% as compared to that as at 31 December 2016.

The total equity of the Group as at 31 December 2016 increased approximately RMB2,788 million, or approximately 76.9% as compared to that as at 31 December 2015. The total equity of the Group as at 31 December 2017 was approximately RMB6,926 million, which increased approximately RMB511 million, or approximately 8.0% as compared to that as at 31 December 2016.

The revenue of the Group derived from sales of goods and rendering of services to China Datang Group for the year ended 31 December 2015, 2016 and 2017 were approximately RMB7,733 million, RMB6,204 million, RMB6,064 million respectively.

The transaction amount of purchases of goods and receiving of services from China Datang Group by the Group for the year ended 31 December 2015, 2016 and 2017 were approximately RMB2,052 million, RMB912 million, RMB1,052 million respectively.

III. Renewed Integrated Product and Service Framework Agreement

A. Principal Terms of the Renewed Integrated Product and Service Framework Agreement

As mentioned in the Board Letter, the Company entered into the Renewed Integrated Product and Service Framework Agreement with China Datang on 15 November 2018.

A.1 Subject Matter

According to the Renewed Integrated Product and Service Framework Agreement, the Group agreed to provide China Datang Group with products and services including environmental protection and energy conservation business, renewable energy engineering and thermal power engineering. The Group agreed to procure the products and services from China Datang Group include operational ancillary business, supply of water, electricity and steam and procurement of equipment and raw materials.

In respect of the abovementioned transaction under the Renewed Integrated Product and Service Framework Agreement, the Company and/or its subsidiaries and China Datang and/or its subsidiaries may enter into separate specific contract in compliance with the Renewed Integrated Product and Service Framework Agreement as stipulated in the Renewed Integrated Product and Service Framework Agreement. If the terms and conditions of similar products and services provided by the independent third parties are not favorable than that provided by one of the parties, then another party shall prioritize the procurement of products and services needed from the counterparty.

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A.2 Term

Effective from 1 January 2019 and expire on 31 December 2021, and could be extended or renewed for 3 years as agreed by both parties within 3 months prior to expiry and subject to compliance with the relevant laws, regulations, regulatory documents and the Listing Rules.

A.3 Consideration/Pricing Policy

A.3.1 Products and services to be provided by the Group to China Datang Group

In most circumstances where China Datang Group purchases products and/or services from the Group, bidding procedures shall apply for the determination of prices. Only in exceptional circumstances, bidding procedures can be skipped by China Datang Group. These circumstances primarily include (i) reoccurrence of lack of sufficient number of bidders attending the bidding procedure and (ii) urgent purchase by China Datang Group that does not allow the bidding procedure to be completed.

(a) Pricing policy for products

In accordance with the Renewed Integrated Product and Service Framework Agreement, the products, primarily denitrification catalysts, to be provided by the Group to China Datang Group will be determined based on the following pricing policy:

If a bidding procedure is conducted by China Datang Group, the bidding price offered by the successful bidder shall be implemented. Prior to the bidding procedures, China Datang Group will publish announcements on its bidding invitation on public websites. There must be at least three bidders attending the bidding procedure, otherwise the bidding will be cancelled. The review panel for any bidding consists of experts selected by China Datang Group who have no interest in the bidding, who will score the bids by categories where bidding price is an important but not the only factor to be considered. The bidder with the highest score comprehensively determined by the review panel wins and the bidding price offered by the bidder will be implemented. Therefore, only in the event that the Group wins the bidding with the highest score determined by the review panel, China Datang Group will enter into agreements with the Group under the Renewed Integrated Product and Service Framework Agreement.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

(b) The pricing policy for services under the concession operations (desulfurization and denitrification) services:

The tariff for desulfurized and denitrified electricity under the concession operations services shall be determined based on government-prescribed price. The price of by-products shall be determined based on market price (which is obtained through quotations from public market and independent service providers through bidding process and other negotiated prices through market mechanism in relation to provision of similar types of services in similar industries, having taken into account comparable conditions including but not limited to the technology and quality of the services).

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If a bidding procedure is conducted by China Datang Group, the bidding price offered by the successful bidder shall be implemented. Prior to the bidding procedures, China Datang will publish announcements on its bidding invitation on public websites. There must be at least three bidders attending the bidding procedure, otherwise the bidding will be cancelled. The review panel for any bidding consists of experts selected by China Datang who have no interest in the bidding, who will score the bids by categories where bidding price is an important but not the only factor to be considered. The bidder with the highest score comprehensively determined by the review panel wins and the bidding price offered by the bidder will be implemented. Therefore, only in the event that the Group wins the bidding with the highest score determined by the review panel, China Datang Group will enter into agreements with the Group under the Renewed Integrated Product and Service Framework Agreement.

Meanwhile, if no bidding process is conducted, apart from making reference to prices on official bidding websites, the Group will also make reference to the price quotes offered by, or available from, third party customers so as to make relevant comparison with the price quotes offered by China Datang Group. The Group will consider providing relevant services to such third party customers if their terms are more favourable than that offered by China Datang Group after taking into account various factors including but not limited to price quotes, other commercial terms, level of synergy to be achieved and historical transactional records with such parties.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

For the transaction with China Datang by the Group involving the bidding procedure, (i) we have been suggested by the Management, the above comprehensive tender assessment is based on the Law of the PRC on Bid Invitation and Bidding (《中華人民共和國招標投標法》) and the Regulation on the Implementation of the Law of the PRC on Bid Invitation and Bidding (《中華人民共和國招標投標法實施條例》) and (ii) we have obtained the tender records for the transactions under the Existing Integrated Product and Service Framework Agreement. For the year ended 31 December 2016, the year ended 31 December 2017 and the six months ended 30 June 2018, the Group has submitted 134, 75 and 32 tenders for the transactions of provision of products and services to China Datang Group respectively. We randomly selected 2 tenders for the each year of 2016, 2017 and 6 months ended 30 June 2018, respectively as the samples (totally 6 samples). The selected samples have covered all the types of transactions in each year required to involve a bidding procedures under the Renewed Integrated Product and Service Framework Agreement, i.e. the products and the services (other than the concession operations), provided to China Datang Group by the Group. It is believed the selected samples are sufficient and representative. We reviewed the selected samples of tender documents of the public tender in relation to the procurement of the products and services from the China Datang Group, which contains details of assessment criteria, such as the technical characters, professional qualifications, the bid price and other specific requirement of such project, we concur with the Company that (i) the terms of the Renewed Integrated Product and Service Framework Agreement have no material difference with those of Existing Integrated Product and Service Framework Agreement; and (ii) the products and services suppliers and the prices to be determined through public tender are fair and reasonable, and the terms from the China Datang Group are on normal commercial terms or better.

For the transaction with the China Datang Group by the Group not involving the bidding procedure, (i) we are suggested by the Management that only under exceptional circumstances, primarily including reoccurrence of lack of sufficient number of bidders attending the bidding procedure and urgent purchase by China Datang Group, the bidding procedure will not be involved; (ii) we discussed with the Management the details of price determination method, where the historical bidding prices of the Company or the bidding prices published on official websites operated by the Chinese government, or recent bidding prices for comparable products or services can be found in their database and (iii) the Group will also make reference to the price quotes offered by, or an available from, third party customers so as to make relevant comparison with the price quotes offered by China Datang Group. As

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confirmed by the Management, to the Latest Practical Date, no such exceptional circumstance has taken place and such price determination method has not been used so far. Nevertheless, we noted that the price determined by such price determination method will not be less favorable than the market price or the price offered by or available from third party customers after taking into account various factors including but not limited to price quotes, other commercial terms, level of synergy to be achieved and historical transactional records with such parties. We concur with the Company that (i) the terms of the Renewed Integrated Product and Service Framework Agreement have no material difference with those of Existing Integrated Product and Service Framework Agreement; and (ii) the prices are fairly and reasonably determined under such exceptional circumstances, and the terms from the China Datang Group are on normal commercial terms or better.

A.3.2 Products and services to be procured by the Group from China Datang Group

In most circumstances where the Group purchases products and/or services from the China Datang Group, bidding procedures shall apply for determination of the price. Only in exceptional circumstances, bidding procedures can be skipped by the Group. These circumstances primarily include (i) reoccurrence of lack of sufficient number of bidders attending the bidding procedure and (ii) urgent purchase by the Group that does not allow the bidding procedure to be completed.

(a) The pricing policy for operational ancillary services:

In respect of the ancillary services under the concession operations of desulfurization and denitrification, the price shall be determined based on cost of human resources involved, the relevant management expenses and the maintenance fees of the equipment of relevant power plants after taking into account the average level of the industry.

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Since no bidding process is conducted, apart from making reference to prices on official bidding websites, the Group will also make reference to the price quotes offered by, or available from, third party customers so as to make relevant comparison with the price quotes offered by China Datang Group. The Group will consider purchase relevant ancillary services from such third party customers if their terms are more favourable than that offered by China Datang Group after taking into account various factors including but not limited to price quotes, other commercial terms, level of synergy to be achieved and historical transactional records with such parties.

(b) Pricing policy for supply of water, electricity and steam:

In accordance with the Renewed Integrated Product and Service Framework Agreement, the products, primarily, electricity and steam supplied by power plants under China Datang Group to the Group, will be determined based on the government-prescribed prices, which are actual costs of water and power for the supply of water and power by power plants to third-party desulfurization and denitrification concession operations service providers.

In respect of the procurement of equipment and raw materials, in most circumstances, bidding procedures shall apply for determination of the price. Such price is the bidding price provided by the bid-winner. Only in exceptional circumstances, such as urgent purchase by the Group, bidding procedures can be skipped by the Group where the purchasing price shall be determined by experts of the Group based on fair market value and historical records of procurement price. If no bidding process is conducted, apart from making reference to prices on official bidding websites, the Group will also make reference to the price quotes offered by, or available from, third party customers so as to make relevant comparison with the price quotes offered by China Datang Group. The Group will consider purchase relevant equipment and raw materials from such third party customers if their terms are more favourable than that offered by China Datang Group after taking into account various factors including but not limited to price quotes, other commercial terms, level of synergy to be achieved and historical transactional records with such parties.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

For the pricing policy for operational ancillary services, we have discussed with the Management the method of calculation of cost of human resources required, the relevant management expenses, and the maintenance fees of the equipment of relevant power plants. For the pricing policy for supply of water, electricity and steam, we have suggested by the Management that such prices are prescribed by the government and will be made on no less favorable terms to the Group. For the pricing policy for procurement of equipment and raw materials, we have obtained the tender records for the transactions under the Existing Integrated Product and Service Framework Agreement. For the year ended 31 December 2016, the year ended 31 December 2017 and the six months ended 30 June 2018, China Datang Group has won 170, 138 and 167 tenders for the transactions of provision of equipment and raw materials to the Group, and we randomly selected 1 tender for the each year of 2016, 2017 and 6 months ended 30 June 2018, respectively as the samples (totally 3 samples). The selected samples has covered the type of transaction in each year required to involve a bidding procedures under the Renewed Integrated Product and Service Framework Agreement, i.e. the equipment and raw material procured by the Group from China Datang Group. It is believed the selected samples are sufficient and representative. We have reviewed tender documents on sampling basis, which contains details of assessment criteria, such as the technical characters, professional qualifications, the bid price and other specific requirement of the equipment and raw materials. As advised by the Management, during the review of tenders, the review panel for any bidding consists of some experts from the Group and randomly selected experts from the specific fields to the tender from the expert pool, which comprised more than 10,000 experts in all relevant fields and competent authorities, such as institutions, universities, large enterprise and etc.. All of these experts shall have no interest in the bidding and the experts from the Group shall not be formed more than 50% of the review panel. The review of bidding will be commenced only if all selected experts attends and such experts will be informed prior the review. If any of them cant not attend, the review shall postpone or reselect. During the review of bidding, those experts will give score based on the requirements of the criteria set out in the bidding invitation. The comprehensive score of the bidder will be then calculated based on the calculation set out in the bidding invitation. Typically the project will be awarded to the bidder with highest comprehensive score. We consider the public tender arrangement is a fair assessment to all bidders, including Datang Group.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

For the operational ancillary services and the equipment and raw material provided by the China Datang Group to the Group not involving the bidding procedure, (i) we are suggested by the Management that only under exceptional circumstances, primarily including reoccurrence of lack of sufficient number of bidders attending the bidding procedure and urgent purchase by the Group, the bidding procedure will not be involved; (ii) we discussed with the Management the details of price determination method, where the bidding prices published on official websites operated by the Chinese government, or recent bidding prices for comparable services can be found in their database and (iii) the Group will also make reference to the price quotes offered by, or an available from, third party customers so as to make relevant comparison with the price quotes offered by China Datang Group. As confirmed by the Management, to the Latest Practical Date, no such exceptional circumstance has taken place and such price determination method has not been used so far. Nevertheless, we noted that the price determined by such price determination method will not be less favorable than the market price or the price offered by or available from third party supplier after taking into account various factors including but not limited to price quotes, other commercial terms, level of synergy to be achieved and historical transactional records with such parties. Therefore, we consider the pricing policy is fair and reasonable, and the terms from the China Datang Group are on normal commercial terms or better.

B. Historical Transaction Amount

The annual caps of each transaction under the Integrated Product and Services Framework Agreement for the year ended 31 December 2015, 2016 and 2017 are set out as follows:

		Annual cap for	the year ended 31 December	the year ended 31 December
Type of transaction	Business segment	2016	2017	2018
			RMB’000
Provision by	Environmental protection	6,431,000	7,776,000	9,166,000
the Group to	and energy conservation
China Datang	business
Group	Renewable energy	2,708,000	2,650,000	2,009,000
	engineering
	Thermal power engineering	0	0	1,200,000
Procurement by the	Operational ancillary	100,000	120,000	220,000
Group to China	Supply of water, electricity	570,000	690,000	900,000
Datang Group	and steam
	Procurement of equipment	1,450,000	1,461,000	1,281,000
	and raw materials

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

The historical transaction amounts and respective utilization rates of each transaction under the Integrated Product and Services Framework Agreement for the year ended 31 December 2015, 2016 and 2017 are set out as follows:

		The historical transaction amounts	The historical transaction amounts	The historical transaction amounts
		and respective utilization rates
				for the
		for the year	for the year	6months
		ended 31	ended 31	ended 30
Type of transaction	Business segment	December 2016	December 2017	June 2018
			RMB ’000
			(utilization rate)
Provision by the	Environmental protection	5,244,057	5,184,200	2,186,961
Group to China	and energy conservation	(81.5%)	(66.7%)	(23.9%)
Datang Group	business
	Renewable energy	775,111	534,268	134,000
	engineering	(28.6%)	(20.2%)	(6.7%)
	Thermal power engineering	0	0	172,530
		(N/A)	(N/A)	(14.38%)
Procurement by the	Operational ancillary	77,764	110,374	46,960
Group to China		(77.8%)	(92.0%)	(21.4%)
Datang Group	Supply of water, electricity	509,426	648,800	392,972
	and steam	(89.4%)	(94.0%)	(43.7%)
	Procurement of equipment	214,971	184,187	267,378
	and raw materials	(14.8%)	(12.6%)	(20.9%)

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

C. Proposed annual caps

The proposed annual caps of each transaction under the Renewed Integrated Product and Service Framework Agreement for the three years ending 31 December 2021 are as follows:

		Annual cap for	the year ended 31 December	the year ended 31 December
Type of transaction	Business segment	2019	2020	2021
			RMB ’000
Provision by the	Environmental protection	7,000,000	7,200,000	7,600,000
Group to China	and energy conservation
Datang Group	business
	Renewable energy	3,000,000	2,900,000	3,650,000
	engineering
	Thermal power engineering	1,530,000	1,640,000	920,000
Procurement by the	Operational ancillary	335,000	350,000	355,000
Group to China	Supply of water, electricity	920,000	920,000	955,000
Datang Group	and steam
	Procurement of equipment	3,800,000	4,860,000	5,240,000
	and raw materials

According to the Board Letter, each of the annual caps for the year ending 31 December 2019, 2020 and 2021 as set out above has been determined by reference to the following factors: (i) the terms of the existing purchase and sale agreements; (ii) the historical amounts of various purchase and sale transactions; (iii) outstanding contracts of the Group and new contracts to be entered into by the Group in the coming three years and the value of such new contracts; and (iv) the expected future market price of relevant products and services based on market condition.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

Products and services to be provided by the Group to China Datang Group

(a) Environmental protection and energy conservation business

With reference to the Board Letter, to determine the proposed annual caps for the environmental protection and energy conservation business, the Board has specially considered:

In term of environmental protection facility concession operation, (i) the cumulative installed capacity under construction for desulfurization and denitrification concession operations of the Group as of 31 December 2017 was 12,700 MW and 11,380 MW, respectively. It is expected that such projects would successively commence operation during the next three years; (ii) the business in this sector experienced a fast and steady growth during the past three years and is expected to continue to grow steadily in the following three years; (iii) the Board expects that the PRC national policies on pollutant emission of power plants are inclined to become more stringent; (iv) supported and encouraged by relevant policies, the concession operation business and environmental protection engineering business will be further expanded through new construction and acquisition. The Company is undergoing preliminary discussion in respect of acquisitions of certain desulfurization and denitrification concession operation projects.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

As depicted from the tables above, we note that the relevant utilization rates of the previous annual caps are approximately 81.5% and 66.7% for the year ended 31 December 2016 and 2017 respectively. The caps were moderately utilized. We also noted that the proposed annual cap for the year ending 31 December 2019, 2020 and 2021 represented a decrease of approximately 17% – 24% as compared to the historical annual cap for the year ending 31 December 2018, which nonetheless still represents an increase of approximately 35% – 47% as compared to the historical transaction amount for the year ended 31 December 2017.

For our due diligence purpose, (i) we have reviewed the business plans of each subsidiaries of the Company prepared by key personnel of the subsidiaries, including but not limit to the unit prices of desulfurization and denitrification concession operations, the denitrification catalysts, renewable catalyst, and environmental protection facilities construction and the expected amount of demands with basis. After the calculation, we noted this segment is expected to grow fast in the following three years; and (ii) we also noticed that PRC national policies on pollutant emission become more stringent during the years. Notably, it was pointed out in the Report of the 19th Session of National Congress of the Communist Party of China that the PRC shall continue to promote green development, expand the energy conservation and environmental protection industry, carry out air pollution prevention and control on an on-going basis to fight for a better environment, accelerate the prevention and

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control of water pollution, strengthen the control of soil pollution and rehabilitation of polluted soil, and construct beautiful countryside. Such polices may encourage the development of the business of environmental protection and energy conservation business of the Group, which is in line with the expected steady growth of this segment by the Management. During our due diligence process, we have not identified any major factor which caused us to doubt the reasonableness of the estimation of the transaction amount of environmental protection and energy conservation business between the Group and Datang Group; therefore, we consider the proposed annual cap for environmental protection and energy conservation business under the Renewed Integrated Product and Service Framework Agreement for the year ending 31 December 2019, 2020 and 2021 is fair and reasonable.

(b) Renewable energy engineering

With reference to the Board Letter, to determine the proposed annual caps for the renewable energy engineering, the Board has specially considered the following factors: (i) the changes in the renewable energy engineering business sector are primarily attributed to the periodic fluctuations in the industry and the development of the business; (ii) in light of the efficient promotion of wind power construction supported by the recent national policy on Renewable Portfolio Standard, the average cycle of wind power construction and the government’s approval in recent years, there had been a significant growth in the wind power business sector in recent years; (iii) the Group’s estimated substantial growth of the renewable energy engineering business from China Datang Group in the next three years. The Group expected that in 2019, 2020 and 2021, it will undertake 40MW, 51MW and 61MW wind power projects from China Datang Group, respectively according to the development plan of China Datang Group. Among which, approximately 25% of the projects which the Group expects to undertake in 2019 are the projects already obtained by the Group, while the projects which the Group expects to undertake in 2020 and 2021 are expected to be obtained over the coming years.

As depicted from the tables above, we note that the relevant utilization rates of the previous annual caps are approximately 28.6% and 20.2% for the year ended 31 December 2016 and 2017 respectively. We also noted that the proposed annual cap for the year ending 31 December 2019, 2020 and 2021 represented an increase of approximately 44% – 82% as compared to the historical annual cap for the year ending 31 December 2018 and an increase of approximately 443% – 583% as compared to the historical transaction amount for the year ended 31 December 2017.

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For our due diligence purpose, (i) we have discussed with the Management regarding reasons for the low utilization rate for the year ended 31 December 2016 and 2017. As suggested by the Management that the low utilization rate for the year ended 31 December 2016 and 2017 mainly attributed to the periodic fluctuations in the industry and the development of the business that several wind power projects of China Datang Group in Xinjiang and Ningxia have been suspended or postponed; (ii) we have reviewed the business plan prepared by each key personnel of the Group, which indicates the segment is expected to grow fast in the following three years because the wind power projects of China Datang Group, suspended or postponed in the last several years, are expected to commence the construction in 2019 and the Company are expected to obtain other EPC projects of wind power from China Datang Group; (iii) we also noticed that the PRC government inclines to promote the development of clean energy, including the wind power, by increase in tariff and accelerate the government’s approval in recent years, which will continue to encourage the development of wind power, such as Measures for Resolving Curtailment of Hydro, Wind and PV Power Generation (《解決棄水棄風棄光問題實施方案》), Comprehensively Deepening the Reform of the Pricing Mechanism (《關於全面深化價格機制改革的意見》) and others; and (iv) due to the business nature of the Group, we understand that the Group’s project is quite large and hence a more optimistic estimation of proposed annual caps can provide the Group with more flexibility and time-saving when the Group proposes to bid China Datang Group’s projects to avoid missing any project with good quality. During our due diligence process, we have not identified any major factor which caused us to doubt the reasonableness of the estimation of the transaction amount of the renewable energy engineering between the Group and China Datang Group; therefore, we consider the proposed annual cap for the renewable energy engineering under the Renewed Integrated Product and Service Framework Agreement for the year ending 31 December 2019, 2020 and 2021 is fair and reasonable.

(c) Thermal power engineering

With reference to the Board Letter, to determine the proposed annual caps for the thermal power engineering, the Board has specially considered: (i) the thermal power engineering service expected to be required for the engineering general contracting projects of the power plants operated by China Datang Group (Please refer to the circular of the Company dated 12 March 2018 for details); and (ii) the information about the engineering projects of gas-fired electricity generation which the Group may consider to acquire

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

As depicted from the tables above, we note that the historical annual caps of thermal power engineering are zero for the year ended 31 December 2016 and 2017 respectively, because the Management did not expect to provide any EPC service of thermal power plant at the time of the listing. However, the Group has won the tender of an EPC project of thermal power plant from China Datang Group in Xinjiang in 2018, and the construction will be commenced in 2018 and finished in the end of 2019. Furthermore, as suggested by the Management, the Group expects to undertake three EPC projects of thermal power plants for China Datang in 2020 and 2021 and to recognize the corresponding revenue based on the expected construction budget and progress of the construction. Due to the business nature of the EPC projects of thermal power plant, we understand that the Group’s project is quite large and hence a more optimistic estimation of proposed annual caps can provide the Group with more flexibility and time-saving when the Group proposes to bid China Datang Group’s projects to avoid missing any opportunity of undertaking of the EPC projects. During our due diligence process, we have not identified any major factor which caused us to doubt the reasonableness of the estimation of the transaction amount and the business plan of the thermal power engineering between the Group and China Datang Group; therefore, we consider the proposed annual cap for the thermal power engineering under the Renewed Integrated Product and Service Framework Agreement for the year ending 31 December 2019, 2020 and 2021 is fair and reasonable.

Products and services to be provided by the Group to China Datang Group

(a) Operational ancillary business

With reference to the Board Letter, to determine the proposed annual caps for the operational ancillary business, the Board has expected that the proposed annual caps will have a significant growth as compared with historical results, which is considered to be in line with the significant increase in the volume of the desulfurization and denitrification concession operation to be provided by the Group to China Datang Group for the next three years.

As depicted from the tables above, we note that the relevant utilization rates of the previous annual caps are approximately 77.8% and 92.0% for the year ended 31 December 2016 and 2017 respectively. We also noted that the proposed annual cap for the year ending 31 December 2019, 2020 and 2021 represented an increase of approximately 52% – 61% as compared to the historical annual cap for the year ending 31 December 2018 and an increase of approximately 204% – 222% as compared to the historical transaction amount for the year ended 31 December 2017.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

For our due diligence purpose, (i) we have reviewed the business plan prepared by each key personnel of the Group, including the volume of desulfurization and denitrification concession operation of each projects of the Group in the future three years, which indicates the segment is expected to grow significantly in the following three years; and (ii) we also made reference to the historical transaction amount and the historical utilization rate. The transaction amount of service of operational ancillary business procured from China Datang Group by the Group increased 41.9% for the year ended 31 December 2017 as compared to that of the year ended 31 December 2016, which is in line with the expected fast growth of the segment by the Management; therefore, the utilization rate was high for the year ended 31 December 2017. Having considered the factors mentioned above, we consider the proposed annual cap for the operational ancillary business under the Renewed Integrated Product and Service Framework Agreement for the year ending 31 December 2019, 2020 and 2021 is fair and reasonable.

(b) Supply of water, electricity and steam

With reference to the Board Letter, to determine the proposed annual caps for the supply of water, electricity and steam, the Board has specially considered that the proposed annual caps for the next three years will continuously increase as the demand for water and electricity arising from the business operation of the Group increases.

As depicted from the tables above, we note that the relevant utilization rates of the previous annual caps are approximately 89.4% and 94.0% for the year ended 31 December 2016 and 2017 respectively. We also noted that the proposed annual cap for the year ending 31 December 2019, 2020 and 2021 represented an increase of approximately 2% – 6% as compared to the historical annual cap for the year ending 31 December 2018 and an increase of approximately 42% – 47% as compared to the historical transaction amount for the year ended 31 December 2017

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

For our due diligence purpose, (i) we have reviewed the business plan prepared by each key personnel of the Group, including the calculation of water and electricity demand of each projects of the Group for the future three years, which indicates the segment is expected to grow steadily in the following three years; and (ii) we also made reference to the historical transaction amount and the historical utilization rate. The service of operational ancillary business procured from China Datang Group by the Group increased 27.4% for the year ended 31 December 2017 as compared to that of the year ended 31 December 2016, which is in line with the business plan prepared by the Management and the utilization rate was high for the year ended 31 December 2017. Having considered the factors mentioned above, we consider the proposed annual cap for the supply of water, electricity and steam business under the Renewed Integrated Product and Service Framework Agreement for the year ending 31 December 2019, 2020 and 2021 is fair and reasonable.

(c) Procurement of equipment and raw materials

With reference to the Board Letter, to determine the proposed annual caps for the procurement of equipment and raw materials, the Board has specially considered that the proposed annual caps will be based on the scale of the abovementioned environmental protection facilities engineering, water treatment engineering, energy conservation engineering, renewable energy engineering, thermal power engineering and other engineering business. As it is expected that the overall scale of the abovementioned business segments of the Group in the coming years will increase significantly, it is expected that the purchase of equipment and raw materials will also increase accordingly. In the meantime, as China Datang Group is able to effectively reduce purchasing price of part of equipment and materials through centralized procurement and distribution process, the Group may also purchase part of the equipment and raw materials from China Datang Group through bidding process.

As depicted from the tables above, we note that the relevant utilization rates of the previous annual caps are approximately 14.8% and 12.6% for the year ended 31 December 2016 and 2017 respectively. We also noted that the proposed annual cap for the year ending 31 December 2019, 2020 and 2021 represented an increase of approximately 197% – 309% as compared to the historical annual cap for the year ending 31 December 2018 and an increase of approximately 1963% – 2745% as compared to the historical transaction amount for the year ended 31 December 2017.

– 48 –

LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

For our due diligence purpose, (i) we have discussed with the Management regarding reasons for the low utilization rate for the year ended 31 December 2016 and 2017. As suggested by the Management that the low utilization rate for the year ended 31 December 2016 and 2017 mainly because several wind power EPC projects were suspended or postponed during 2016 and 2017 and the Group procured most of the equipment and raw materials from the independent third parties; (ii) we have reviewed the calculation of demand for raw material and equipment for renewable energy engineering, thermal power projects and environmental protection and energy conservation business of the Group prepared by each key personnel of the Group, which is in line with expected fast growth of such segments in the next three years by the Management; (iii) due to the business nature of the Group, we understand that the Group’s project is quite large and hence a more optimistic estimation of proposed annual caps can provide the Group with more flexibility and time-saving when the Group proposes to procure the equipment and raw materials from China Datang Group to avoid delaying the progress of the projects; (iv) China Datang Group will commence procurement service, which will adopt centralized purchase and unified distribution to reduce the purchase price. The Group may procure a portion of raw materials and equipment through China Datang Group to reduce the cost of raw materials of the Group. During our due diligence process, we have not identified any major factor which caused us to doubt the reasonableness of the estimation of the transaction amount of the renewable energy engineering between the Group and China Datang Group; therefore, we consider the proposed annual cap for the procurement of equipment and raw materials under the Renewed Integrated Product and Service Framework Agreement for the three years ending 31 December 2019, 2020 and 2021 is fair and reasonable.

D. Reasons for and benefits of entering into the Renewed Integrated Product and Service Framework Agreement

As mentioned in the Board Letter, China Datang Group and the Group have a long-term, stable business relationship. The parties are mutually familiar with each other’s business demands and are able to supply the products and services needed by each other. The Management believes that maintaining a stable and quality business relationship with China Datang Group will facilitate the Group’s current and future business operations.

With regard to the services or products procured by China Datang Group from the Group under the Renewed Integrated Product and Service Framework Agreement, the Group will provide environmental protection and energy conservation, EPC service of wind power projects and EPC services of thermal power engineering under the terms not less favorable to ones provided by independent third parties. It is noted that in such fields, the Group’s customers are mainly large-size state-owned power groups in the coal-fired power industry.

– 49 –

LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

In China market, the coal-fired power industry is highly concentrated, with the top five power groups, or the “Big Five”, contributing more than 50% of the total market share in terms of accumulated installed capacity, and China Datang Group ranked the fourth largest company with approximately 10% of market share in terms of cumulative installed capacity as of 2017. It is common for the Big Five to establish their own affiliates engaging in concession operations, EPC services and other environmental protection and energy conservation services to perform activities within their respective groups. China Datang Group is one of the largest potential customers in the industry that the Group is operating in. On the other hand, the Group is a leading environmental protection and energy conservation solutions provider in the PRC. Therefore, it is important that the Group continues to maintain a healthy business relationship with China Datang Group given its market position as one of the leading groups in its industry in China. Such arrangement will generate the revenue and the profit of the Group, help the Group to gain project experience and promote the brand awareness.

With regard to the services or products provided by China Datang Group to the Group under the Renewed Integrated Product and Service Framework Agreement in relation to operations of power plants, China Datang Group shall be responsible for the daily operations and equipment maintenance, provision of other supportive services, supply of water and power, and procurement of some raw materials and spares for desulfurization and denitrification concession operations. Under such an arrangement, (i) the cost of the Group will be lowered or not higher than the cost of procurement from the independent third parties; (ii) the operational risks that the Group is exposed to will be reduced on the basis of the transaction scale and the relationship with China Datang Group; and (iii) it is expected to improve the operational efficiency and synergy effect by making use of the manpower of power plants under the supervision of the management team dispatched by the Group.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

With regard to the provision of equipment by China Datang Group to the Group under the Renewed Integrated Product and Service Framework Agreement in relation to renewable energy engineering projects, the Group expects to procure more wind turbine generators and other equipment from Hua Chuang and other subsidiaries of China Datang Group due to the broader market prospect stimulated by new PRC policies issued in March 2016. China Datang Group is able to provide equipment with required specifications within a short period of time at a price not less favorable than the one charged by independent third parties,

In this regard, we concur with the Management that that the Supplemental Agreement and the corresponding Renewed Annual Cap are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

III Internal Control Measures

The Group implemented the following internal control procedures to closely monitor and manage new and on-going connected transactions with China Datang Group:

The Board has approved the estimated annual caps of connected transactions with China Datang Group for each of its business segments for the three years ending December 31, 2019, 2020 and 2021, which were proposed by the Strategic Planning and Cost Management Department (計劃與成本管理部) and the Financial and Property Management Department (財務與產權管理部) based on the Group’s business demands and China Datang Group’s projects planning and their estimated completion time and progress.
At the beginning of each calendar year, the Financial and Property Management Department will issue an internal notice circulating the annual cap of connected transactions with China Datang Group for this particular year and remind each member and department of the Group to follow internal control procedures for the control of transaction value with China Datang Group in daily business operations.
The Financial and Property Management Department is responsible for maintaining and updating the list of connected persons of the Group. Such list will be circulated to members and relevant departments of the Group on a regular basis.
Business contracts of the Group are negotiated by the relevant business departments which are subject to review and approval by the Strategic Planning and Cost Management Department before execution. The Strategic Planning and Cost Management Department has adopted stringent control policies in reviewing and approving connected transactions, including, cross checking relevant information of the projects (e.g., transaction amounts, expected project completion date and progress) against the annual caps.

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LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

The Financial and Property Management Department has set up a monthly reporting system for connected transactions, where it requires all members and departments of the Group to report in the beginning of each month (i) the amount of connected transactions occurred in the previous month; (ii) the accumulative connected transaction amount occurred in that year; and (iii) the expected transaction amount for the rest of the year.
Furthermore, Group has adopted relevant assessment standards in its employee performance evaluation system, where each department and employee will be evaluated on their contribution in terms of exploring independent contracts and controlling the amount and ratio of connected transactions, which has direct impact on their remuneration.

In light of the above, we consider that the procedures and internal control measures to guarantee the transactions between the Company, China Datang Group, and Datang Capital were in place and are fair and reasonable so far as the Company and Independent Shareholders are concerned.

RECOMMENDATION

Having considered the above factors, we consider that the entering into the Renewed Integrated Product and Service Framework Agreement is in the ordinary and usual course of business of the Group. The terms of Renewed Integrated Product and Service Framework Agreement are on normal commercial terms and which, altogether with the relevant proposed annual cap are fair and reasonable, and the transactions contemplated under the Renewed Integrated Product and Service Framework Agreement are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favor of the resolutions to approve the Renewed Integrated Product and Service Framework Agreement at the EGM.

Yours faithfully,

For and on behalf of

Orient Capital (Hong Kong) Limited

Yang Peng

Associate Director

Mr. Yang Peng is a licensed person of the Securities and Future Commission of Hong Kong and a Responsible Officer of Orient Capital to carry out Type 6 (advising on corporate finance) regulated activity as defined under the Securities and Future Ordinance (Chapter 571 of the Laws of Hong Kong), and has over 7 years of experience in corporate finance in Hong Kong.

– 52 –

GENERAL INFORMATION OF THE GROUP

APPENDIX I

1. RESPONSIBILITY STATEMENT

This document, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this document is accurate and complete in all material aspects and not misleading or deceptive, and there are no other matters, the omission of which would make any statement herein or this document misleading.

2. DISCLOSURE OF INTERESTS AND CONFIRMATIONS

(1) as at the Latest Practicable Date, none of the Directors, Supervisors or senior management of the Company had any interest or short positions in the Shares, underlying Shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO), which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provision of the SFO); or are required pursuant to section 352 of the SFO to be entered in the register referred to therein, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers;
(2) the Company has not granted its Directors, Supervisors, senior management of the Company or their respective spouses or children below 18 any rights to subscribe for its equity securities or debt securities;
(3) as at the Latest Practicable Date, four (4) Directors held the following positions with China Datang: (a) Mr. Jin Yaohua held the position as a deputy general manager of China Datang; (b) Mr. Liu Chuandong held the position as the chief accountant of China Datang; (c) Mr. Liu Guangming held the position as the director of capital operation and property management department of China Datang; and (d) Mr. Li Yi held the position as non-executive director and director of the safety management and production department of China Datang Corporation Renewable Power Co., Ltd.. Save as disclosed above, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group since 31 December 2017, being the date to which the latest published audited annual financial statements of the Company were made up, and which was subsisting as at the Latest Practicable Date and significant in relation to the business of the Group;
(4) none of the Directors had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group, since 31 December 2017, being the date to which the latest published audited annual financial statements of the Company were made up;

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GENERAL INFORMATION OF THE GROUP

APPENDIX I

(5) save as disclosed in the section “Interest of Directors in Competing Business” of Appendix I to this Supplemental Circular, none of the Directors or, so far as is known to them, any of their respective associates was interested in any business (apart from the Group’s business) which competes or is likely to compete either directly or indirectly with the Group’s business (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder);
(6) save as disclosed in the announcement of the Company dated 5 March 2018, the Directors are not aware of any material adverse change in the financial or trading positions of the Company since 31 December 2017, the date to which the latest published audited annual financial statements of the Company were made up;
(7) none of the Directors had entered into any service contract with the Company or any member of the Group (excluding contracts expiring or terminable by the employer within one year without payment of compensation (other than statutory compensation)); and
(8) the Board confirms that, after making all reasonable enquires and to the best of their knowledge, information and belief, there are no voting trust or other agreement or arrangement or understanding (other than an outright sale) entered into by or binding upon any Shareholders, or any obligation or entitlement of any Shareholders as at the Latest Practicable Date, whereby such Shareholders have or may have temporarily or permanently passed control over the exercise of the voting right in respect of his Shares, either generally or on a case-by-case basis.

3. INTERESTS OF DIRECTORS IN COMPETING BUSINESS

Save as disclosed in this Supplemental Circular, the Directors confirm that, as of the Latest Practicable Date, none of the Directors or their close associates had any direct or indirect interest in any business which competes or might compete with our principal business.

– 54 –

GENERAL INFORMATION OF THE GROUP

APPENDIX I

4. SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS HOLDING DISCLOSABLE INTERESTS IN THE COMPANY

As at the Latest Practicable Date, to the best of the Directors’ knowledge, having made all reasonable enquiries, the following persons (other than the Directors, Supervisors or chief executive of the Company) had interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO and, which were entered in the register required to be kept by the Company pursuant to Section 336 of the SFO:

					Number of Shares/	Percentage in
					underlying Shares	the relevant	Percentage in
			Class of		directly or	class of Share	the total Share
Name of Shareholders			Shares	Capacity	indirectly held	capital (1)	capital (2)
					(Shares)	(%)	(%)
China Datang			Domestic	Beneficial owner	2,343,245,800	100	78.96
			Shares		(Long position)
Anbang Investment Holdings Co., Limited			H Shares	Beneficial owner	120,540,000	19.31	4.06
(安邦投資控股有限公司) (3)					(Long position)
Anbang Group Holdings Co., Limited			H Shares	Interest in controlled	120,540,000	19.31	4.06
(安邦集團控股有限公司) (3)				corporation	(Long position)
Anbang Life Insurance Co., Ltd.			H Shares	Interest in controlled	120,540,000	19.31	4.06
(安邦人壽保險股份有限公司)	(3)			corporation	(Long position)
Anbang Insurance Group Co., Ltd.			H Shares	Interest in controlled	120,540,000	19.31	4.06
(安邦保險集團股份有限公司)	(3)			corporation	(Long position)
China Chengtong Investment			H Shares	Beneficial owner	61,557,000	9.86	2.07
Company Limited (4)					(Long position)
China Chengtong Holdings Group Ltd.		(4)	H Shares	Interest in controlled	61,557,000	9.86	2.07
				corporation	(Long position)
China Energy Engineering Corporation			H Shares	Beneficial owner	61,557,000	9.86	2.07
Limited (中國能源建設集團有限公司)					(Long position)
State Grid International Development Limited			H Shares	Beneficial owner	61,467,000	9.85	2.07
(國家電網國際發展有限公司)	(5)				(Long position)
State Grid Corporation of China			H Shares	Interest in controlled	61,467,000	9.85	2.07
(國家電網公司) (5)				corporation	(Long position)
Three Gorges Capital Holdings Co., Ltd.			H Shares	Beneficial owner	59,506,000	9.53	2.01
(三峽資本控股有限責任公司)	(6)				(Long position)
China Three Gorges Corporation			H Shares	Interest in controlled	59,506,000	9.53	2.01
(中國長江三峽集團公司) (6)				corporation	(Long position)

– 55 –

GENERAL INFORMATION OF THE GROUP

APPENDIX I

						Number of Shares/	Percentage in
						underlying Shares	the relevant	Percentage in
				Class of		directly or	class of Share	the total Share
Name of Shareholders				Shares	Capacity	indirectly held	capital (1)	capital (2)
						(Shares)	(%)	(%)
China Huaneng Group Hong Kong Limited				H Shares	Beneficial owner	49,002,000	7.85	1.65
(中國華能集團香港有限公司) (7)						(Long position)
China Huaneng Group				H Shares	Interest in controlled	49,002,000	7.85	1.65
(中國華能集團公司) (7)					corporation	(Long position)
China Huadian Hong Kong Limited				H Shares	Beneficial owner	48,628,000	7.79	1.64
(中國華電香港有限公司) (8)						(Long position)
China Huadian Corporation				H Shares	Interest in controlled	48,628,000	7.79	1.64
(中國華電集團公司) (8)					corporation	(Long position)
Taiping General Insurance Co., Ltd.				H Shares	Beneficial owner	41,038,000	6.57	1.38
(太平財產保險有限公司) (9)						(Long position)
China Taiping Insurance Holdings Company				H Shares	Interest in controlled	41,038,000	6.57	1.38
Limited (中國太平保險控股有限公司)			(9)		corporation	(Long position)
China Taiping Insurance (HK)				H Shares	Interest in controlled	41,038,000	6.57	1.38
Company Limited					corporation	(Long position)
(中國太平保險集團（香港）有限公司)		(9)
China Taiping Insurance Group Ltd.				H Shares	Interest in controlled	41,038,000	6.57	1.38
(中國太平保險集團有限責任公司)	(9)				corporation	(Long position)
China Life Franklin Asset Management				H Shares	Beneficial owner	41,038,000	6.57	1.38
Co., Limited (中國人壽富蘭克林資產管						(Long position)
理有限公司) (10)
China Life Asset Management Company				H Shares	Interest in controlled	41,038,000	6.57	1.38
Limited (中國人壽資產管理有限公司)			(10)		corporation	(Long position)
China Life Insurance Company Limited				H Shares	Beneficial owner	20,519,000	3.29	0.69
(中國人壽保險股份有限公司) (10)						(Long position)
					Interest in controlled	41,038,000	6.57	1.38
					corporation	(Long position)
China Life Insurance (Group) Company				H Shares	Beneficial owner	41,038,000	6.57	1.38
(中國人壽保險（集團）公司) (10)						(Long position)
					Interest in controlled	20,519,000	3.29	0.69
					corporation	(Long position)
					Interest in controlled	41,038,000	6.57	1.38
					corporation	(Long position)

– 56 –

GENERAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(1) The calculation is based on the percentage of shareholding in a total of 2,343,245,800 Domestic Shares and a total of 624,296,200 H Shares respectively as at the Latest Practicable Date.
(2) The calculation is based on the percentage of shareholding in a total of 2,967,542,000 Shares as at the Latest Practicable Date.
(3) Anbang Investment Holdings Co., Limited is a wholly-owned subsidiary of Anbang Group Holdings Co., Limited. Anbang Group Holdings Co., Limited is a wholly-owned subsidiary of Anbang Life Insurance Co., Ltd., which is wholly-owned by Anbang Insurance Group Co., Ltd..
(4) China Chengtong Investment Company Limited is a wholly-owned subsidiary of China Chengtong Holdings Group Ltd..
(5) State Grid International Development Limited is a wholly-owned subsidiary of State Grid Corporation of China.
(6) Three Gorges Capital Holdings Co., Ltd. is the wholly-owned subsidiary of China Three Gorges Corporation.
(7) China Huaneng Group Hong Kong Limited is a wholly-owned subsidiary of China Huaneng Group.
(8) China Huadian Hong Kong Company Limited is a wholly-owned subsidiary of China Huadian Corporation.
(9) Taiping General Insurance Co., Ltd. is a subsidiary of China Taiping Insurance Holdings Company Limited. China Taiping Insurance Holdings Company Limited is a subsidiary of China Taiping Insurance (HK) Company Limited, which is a wholly-owned subsidiary of China Taiping Insurance Group Ltd..
(10) China Life Asset Management Company Limited is a controlling shareholder of China Life Franklin Asset Management Co., Limited. China Life Asset Management Company Limited is a subsidiary of China Life Insurance Company Limited, which is controlled by China Life Insurance (Group) Company.

Save as disclosed above, as at the Latest Practicable Date, to the best knowledge of the Directors, the Directors were not aware of any persons who had interests and/or short positions in the Shares or underlying Shares which would be required to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO and which were entered in the register required to be kept by the Company pursuant to section 336 of the SFO.

– 57 –

GENERAL INFORMATION OF THE GROUP

APPENDIX I

5. QUALIFICATION EXPERT AND CONSENT

The following are the qualifications of the expert who has provided opinions or advice contained in this Supplemental Circular:

Name Qualification

Orient Capital (Hong Kong) A corporation licensed to conduct type 6 (advising on corporate Limited finance) regulated activities under the SFO

(1) As at the Latest Practicable Date, the expert listed above did not hold any beneficial interest in the share capital of any member of the Group, nor did it have the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(2) The expert listed above has given and has not withdrawn its written consent to the issue of this Supplemental Circular with inclusion of its letter (as the case may be) and the reference to its name included herein in the form and context in which they currently appear.
(3) As at the Latest Practicable Date, the expert listed above did not have any interest in any assets which have been, since 31 December 2017 (being the date to which the latest published audited annual accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.
(4) The letter and recommendation given by Orient Capital are given as of the date of this Supplemental Circular for incorporation herein.

6. LITIGATION

As at the Latest Practicable Date, save as disclosed in this Supplemental Circular, no member of the Group was engaged in any litigation, arbitration or claim of material importance and, so far as the Directors are aware, no litigation, arbitration or claim of material importance was pending or threatened against any member of the Group.

7. OTHER INFORMATION

(1) The joint company secretaries of the Company are Ms. Zhu Mei, who is the deputy general manager of the Company and the authorised representative of the Company, and Ms. Wong Sau Ping, who is a member of The Hong Kong Institute of Chartered Secretaries.

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GENERAL INFORMATION OF THE GROUP

APPENDIX I

(2) The registered office of the Company is No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC.
(3) The head office of the Company in the PRC is No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC, and the principal place of business in Hong Kong is 31/F, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong.
(4) H Share Registrar is Computershare Hong Kong Investor Services Limited at Shops 1712– 1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(5) The English text of this Supplemental Circular shall prevail over the Chinese text in the event of inconsistency.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hour at the Company’s principal place of business in Hong Kong at 31/F, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong from the date of this Supplemental Circular up to and including 29 November 2018:

(1) Articles of Association;
(2) the letter from the Independent Board Committee, full text of which is set out on pages 24 to 25 of this Supplemental Circular;
(3) the letter from the Independent Financial Adviser, full text of which is set out on pages 26 to 52 of this Supplemental Circular;
(4) the written consent of the expert referred to paragraph 5 of Appendix I;
(5) this Supplemental Circular; and
(6) the Existing Integrated Product and Service Framework Agreement and the Renewed Integrated Product and Service Framework Agreement.

– 59 –

SUPPLEMENTAL NOTICE OF THE EGM

==> picture [47 x 48] intentionally omitted <==

Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司 (A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 1272)

SUPPLEMENTAL NOTICE OF THE EGM

Reference is made to the notice of the extraordinary general meeting (the “ EGM ”) issued by Datang Environment Industry Group Co., Ltd. (the “ Company ”) on 27 July 2018, in which the resolutions to be considered by the Shareholders at the EGM to be convened at 4:00 p.m. on Friday, 30 November 2018 at No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC are set out. Unless otherwise specified, capitalised terms used in this supplemental notice shall have the same meanings as those defined in the Original Circular and Supplemental Circular of the Company dated 27 July 2018 and 15 November 2018, respectively.

SUPPLEMENTAL NOTICE IS HEREBY GIVEN that the EGM will be held as originally scheduled (i.e. on Friday, 30 November 2018). In addition to the resolutions set out in the notice of the EGM of the Company dated 27 July 2018, the following resolutions will also be considered and approved, if thought fit:

Ordinary Resolutions

(1) To consider and approve the Renewed Integrated Product and Service Framework Agreement entered into between the Company and China Datang and the continuing connected transactions on environmental protection and energy conservation business contemplated thereunder (including proposed annual caps);
(2) To consider and approve the Renewed Integrated Product and Service Framework Agreement entered into between the Company and China Datang and the continuing connected transactions on renewable energy engineering service contemplated thereunder (including proposed annual caps);
(3) To consider and approve the Renewed Integrated Product and Service Framework Agreement entered into between the Company and China Datang and the continuing connected transactions on thermal power engineering contemplated thereunder (including proposed annual caps);

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SUPPLEMENTAL NOTICE OF THE EGM

(4) To consider and approve the Renewed Integrated Product and Service Framework Agreement entered into between the Company and China Datang and the continuing connected transactions on operational ancillary business contemplated thereunder (including proposed annual caps);
(5) To consider and approve the Renewed Integrated Product and Service Framework Agreement entered into between the Company and China Datang and the continuing connected transactions on supply of water, electricity and steam contemplated thereunder (including proposed annual caps);
(6) To consider and approve the Renewed Integrated Product and Service Framework Agreement entered into between the Company and China Datang and the continuing connected transactions on procurement of equipment and raw materials contemplated thereunder (including proposed annual caps);
(7) To consider and approve the proposed appointment of Mr. Shen Zhen as an executive Director; and

Special Resolution

(2) To consider and approve matters in relation to the domestic registration of debt financing instruments and issuance of super short-term commercial paper of the Company.

The main texts and relevant details of resolutions at the EGM are set forth in the Original Circular and Supplemental Circular thereof, which are available on the website of the Stock Exchange (www.hkex.com. hk) and on the website of the Company (www.dteg.com.cn).

By order of the Board

Datang Environment Industry Group Co., Ltd.* Jin Yaohua Chairman

Beijing, the PRC, 15 November 2018

As of the date of this notice, the non-executive Directors are Mr. Jin Yaohua, Mr. Liu Chuandong, Mr. Liu Guangming and Mr. Li Yi; the executive Director is Mr. Deng Xiandong; and the independent non-executive Directors are Mr. Ye Xiang, Mr. Mao Zhuanjian and Mr. Gao Jiaxiang.

For identification purposes only

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SUPPLEMENTAL NOTICE OF THE EGM

Notes:

i. Saved as the resolutions newly proposed, there are no any other changes to the resolutions set out in the notice of the EGM dated 27 July 2018. For details of other resolutions and other related matters to be considered at the EGM, please refer to the notice and Original Circular of the EGM issued by the Company on 27 July 2018.
ii. As the proxy form enclosed in the Original Circular despatched by the Company on 27 July 2018 (the “ First Proxy Form ”) does not contain the newly added resolutions set out in this supplemental notice, a supplemental proxy form containing the above newly added resolutions (the “ Supplemental Proxy Form ”) has been prepared and is enclosed in this supplemental notice. The Supplemental Proxy Form is the supplemental proxy form applicable to the supplemental resolutions set out in this supplemental notice and only serves as a supplement to the First Proxy Form. The Supplemental Proxy Form will not affect the validity of the First Proxy Form duly completed and lodged with the H Share Registrar.
iii. If a Shareholder has duly completed and only submitted the First Proxy Form in accordance with the instructions set out therein, the appointed proxy will vote on the resolutions set out in the First Proxy Form per the Shareholder’s instruction and he is entitled to vote on or abstain from voting on, at his own discretion, the resolutions set out in the Supplemental Proxy Form. Similarly, if a Shareholder has duly completed and only submitted the Supplemental Proxy Form in accordance with the instructions set out therein, the appointed proxy will vote on the resolutions set out in the Supplemental Proxy Form per the Shareholder’s instruction and he is entitled to vote on or abstain from voting on, at his discretion, the resolutions set out in the First Proxy Form. If a Shareholder wishes to provide specific instruction to his proxy regarding the voting of all resolutions set out in the First Proxy Form and the Supplemental Proxy Form, the Shareholder shall, at the same time, duly complete and submit the First Proxy Form and the Supplemental Proxy Form in accordance with the instructions set out therein.
iv. Each Shareholder entitled to attend and vote at the EGM may, by completing the Supplemental Proxy Form of the Company, appoint one or more proxies to attend and vote at the EGM on its behalf. A proxy need not be a Shareholder. With respect to any Shareholder who has appointed more than one proxy, the proxy holders may only vote on a poll.
v. The Supplemental Proxy Form shall be signed by the appointer or his attorney duly authorised in writing or, in the case of a legal person, must be either executed under its common seal or under the hand of its directors or attorney duly authorised.
vi. To be valid, the Supplemental Proxy Form must be lodged with the H Share Registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (for holders of H Shares) or the Company’s board office in the PRC (for holders of Domestic Shares) within 24 hours prior to the holding of the EGM. If the Supplemental Proxy Form is signed by another person under a power of attorney or other authorisation documents given by the appointer, such power of attorney or other authorisation documents shall be notarised. The notarised power of attorney or other authorisation documents shall, together with the Supplemental Proxy Form, be deposited at the specified place at the time set out in such form. Completion and return of the Supplemental Proxy Form will not preclude Shareholders from attending and voting in person at the EGM or any adjourned meetings should you so wish.
vii. H Shareholders (in person or by proxy) who intend to attend the EGM have been required to complete and deliver the reply slips to H Share Registrar, Computershare Hong Kong Investor Services Limited on or before 10 November 2018 in person, by mail or by fax. Domestic Shareholders (in person or by proxy) who intend to attend the EGM have been required to deliver the said document to the Company’s board office in the PRC subject to the same time limit.
viii. With respect to the resolutions above, in view of the interests of China Datang in the proposed continuing connected transactions contemplated under the Renewed Integrated Product and Service Framework Agreement, China Datang and its associates are required to abstain from voting on the resolutions to be proposed at the EGM to approve such resolutions.

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AI assistant

Datang Environment Industry Group Co., Ltd. — Proxy Solicitation & Information Statement 2018

49815_rns_2018-11-15_3442e354-d220-4a54-acd8-6780f24a700f.pdf

Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS, DOMESTIC REGISTRATION OF DEBT FINANCING INSTRUMENTS AND ISSUANCE OF SUPER SHORT-TERM COMMERCIAL PAPER AND PROPOSED APPOINTMENT OF EXECUTIVE DIRECTOR

AND SUPPLEMENTAL NOTICE OF THE EGM

CONTENTS

DEFINITIONS

DEFINITIONS

Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司

I. INTRODUCTION

LETTER FROM THE BOARD

II. RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT

Introduction

Term:

Principal terms:

Proposed Annual Caps

(a) Products and services to be provided by the Group to China Datang Group

Renewable energy engineering service

Thermal power engineering

(b) Products and services to be procured by the Group from China Datang Group

Operational ancillary business

Supply of water, electricity and steam

Procurement of equipment and raw materials

Historical transaction amount

Pricing policy

(a) Products and services to be provided by the Group to China Datang Group

(b) Products and services to be procured by the Group from China Datang Group

LETTER FROM THE BOARD

Reasons for and benefits of the Transactions under the Renewed Integrated Product and Service Framework Agreement

RELEVANT INTERNAL CONTROL MEASURES OF CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

INDEPENDENCE OF BUSINESS OPERATIONS OF THE GROUP

• Industry landscape/mutual and complementary relationship

• Nature of business

•

Largest customer on an aggregated basis

• Expansion of customer base

•

Diversification of business and adaptability of business model

• Increasing overall market demand

LISTING RULES IMPLICATIONS

GENERAL INFORMATION

III. DOMESTIC REGISTRATION OF DEBT FINANCING INSTRUMENTS AND THE ISSUANCE OF SUPER SHORT-TERM COMMERCIAL PAPER

IV. PROPOSED APPOINTMENT OF EXECUTIVE DIRECTOR

LETTER FROM THE BOARD

THE EGM

LETTER FROM THE BOARD

RECOMMENDATION

Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

Yours faithfully,

Datang Environment Industry Group Co., Ltd.*

RENEWAL OF CONTINUING CONNECTED TRANSACTION

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

I. Background of the Company and China Datang

II. Financial Performance of the Company

III. Renewed Integrated Product and Service Framework Agreement

A. Principal Terms of the Renewed Integrated Product and Service Framework Agreement

A.1 Subject Matter

A.2 Term

A.3 Consideration/Pricing Policy

A.3.1 Products and services to be provided by the Group to China Datang Group

(a) Pricing policy for products

A.3.2 Products and services to be procured by the Group from China Datang Group

(b) Pricing policy for supply of water, electricity and steam:

B. Historical Transaction Amount

C. Proposed annual caps

(b) Renewable energy engineering

(c) Thermal power engineering

(a) Operational ancillary business

(b) Supply of water, electricity and steam

(c) Procurement of equipment and raw materials

D. Reasons for and benefits of entering into the Renewed Integrated Product and Service Framework Agreement

III Internal Control Measures

LETTER FROM ORIENT CAPITAL (HONG KONG) LIMITED

RECOMMENDATION

Datang Environment Industry Group Co., Ltd. Proxy Solicitation & Information Statement 2018

**Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司**

**Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司**

**Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司**