THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this 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 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 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 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)

CONTINUING CONNECTED TRANSACTION – (1) RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT;

CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTIONS – (2) FINANCIAL SERVICES FRAMEWORK AGREEMENT; AND (3) DEPOSIT SERVICES UNDER THE RENEWED FINANCIAL SERVICES AGREEMENT AND NOTICE OF THE EGM

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

Trinity Corporate Finance Limited

A letter from the Board is set out on pages 1 to 39 of this circular. A letter from the Independent Board Committee is set out on pages 40 to 41 of this 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 42 to 88 of this circular.

The EGM will be held at 4:00 p.m. on Friday, 24 December 2021 at No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC. The notice of the EGM is set out on pages 99 to 101 of this circular.

The proxy form for use at the EGM is enclosed with this circular and such 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 proxy form in accordance with the instructions printed thereon. For holders of H Shares, the proxy form should be returned to the H Share Registrar and for holders of Domestic Shares, the 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 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.

For identification purposes only

8 December 2021

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . .	40
LETTER FROM TRINITY CORPORATE FINANCE LIMITED. . . . . . . . . . . . . . . . . . . . . . . .	42
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . . . . . . . . . . .	89
APPENDIX II – GENERAL INFORMATION OF THE GROUP. . . . . . . . . . . . . . . . . . . . . .	92
NOTICE OF THE EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	99

– i –

DEFINITIONS

Unless the context otherwise requires, the following expressions shall have the following meanings in this 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
“CA”	certificate authority
“CBIRC”	China Banking and Insurance Regulatory Commission（中國銀行
	保險業監督管理委員會）
“China” or “PRC”	the People’s Republic of China excluding, for the purpose of this
	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 state-
	owned 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(s)”	has the meaning ascribed under the Listing Rules
“continuing connected transaction(s)”	has the meaning ascribed under the Listing Rules

“Continuing Connected the connected transactions under the Renewed Integrated Product Transaction(s)” and Service Framework Agreement, the Financial Services Framework Agreement and the Deposit Services under the Renewed Financial Services Agreement

“controlling shareholder”

has the meaning ascribed under the Listing Rules

– ii –

DEFINITIONS

“Datang Capital”

China Datang Group Capital Holding Co., Ltd.（中國大唐集團資本控股有限公司），a company established on 30 November 2011 in accordance with the PRC laws, and a subsidiary of China Datang and the controlling shareholder of the Company
“Datang Finance” China Datang Finance Co., Ltd. （中國大唐集團財務有限公司）, a company incorporated in the PRC with limited liability, and a non-wholly owned subsidiary of China Datang
“Deposit Services” deposit services to be provided by Datang Finance to the Group under the Renewed Financial Services Agreement
“Director(s)” director(s) of the Company
“Domestic Share(s)” 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, 24 December 2021 at No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC
“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 15 November 2018, which will expire on 31 December 2021

“Financial Services Framework Agreement”

the financial services framework agreement entered into by Datang Capital and the Company on 3 December 2021

“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

– iii –

DEFINITIONS

“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”
Trinity Corporate Finance Limited, a corporation licensed to conduct type 6 (advising on corporate finance) regulated activities under the 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 Financial Services Framework Agreement, the Deposit Services under the Renewed Financial Services 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 resolutions with respect to the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement and the Deposit Services under the Renewed Financial Services Agreement, the transactions contemplated thereunder and the relevant annual caps
“Latest Practicable Date” 7 December 2021, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“NDRC” the National Development and Reform Commission of the PRC or its local counter parts
“MEE”
the Ministry of Ecology and Environment （中華人民共和國生態環境部）

– iv –

DEFINITIONS

“Other Financial Services” other financial services which may be provided by Datang Finance to the Group in addition to loan services and the Deposit Services, including financial and financing consultation and training services, transfer and settlement services, insurance agency services, entrustment loan and entrustment investment services, note financing services, guarantee services and underwriting services for the issuance of corporate bonds to the Group

“PBOC”	the People’s Bank of China（中國人民銀行）
“Preceding Financial	the financial services agreement entered into by Datang Capital
Services Agreement”	and the Company on 14 June 2018, which expired on 31 December
	2020
“Previous Financial Services	the financial services agreement entered into by Datang Finance
Agreement”	and the Company on 15 October 2019
“Renewed Financial Services	the renewed financial services agreement entered into between
Agreement”	Datang Finance and the Company on 3 December 2021
“Renewed Integrated Product and	the renewed integrated product and service framework agreement
Service Framework Agreement”	entered into by China Datang and the Company on 3 December
	2021 which will take effect from 1 January 2022 and expiring on
	31 December 2024
“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
“%”	per cent

– v –

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)

Executive Directors: Mr. Wang Yanwen Mr. Tian Dan

Non-executive Directors:

Mr. Wang Junqi Mr. Wu Daqing Mr. Chen Kan Mr. Song Yunpeng

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

8 December 2021

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION – (1) RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT;

CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTIONS –

(2) FINANCIAL SERVICES FRAMEWORK AGREEMENT; AND (3) DEPOSIT SERVICES UNDER THE RENEWED FINANCIAL SERVICES AGREEMENT AND NOTICE OF THE EGM

– 1 –

LETTER FROM THE BOARD

INTRODUCTION

Reference is made to the announcement of the Company dated 3 December 2021 (the “ Announcement ”), in relation to the continuing connected transactions and major transactions. Details of relevant continuing connected transactions and major transactions (including annual caps) are set out in this circular.

The purposes of this circular are to provide you with, among other things: (i) further details of the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement, the Deposit Services under the Renewed Financial Services Agreement and the respective proposed annual caps; (ii) a letter of recommendation from the Independent Board Committee to the Independent Shareholders 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 notice of the EGM; and (v) other matters mentioned above and other information as required under the Listing Rules.

I. RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT

Introduction

As the Existing Integrated Product and Service Framework Agreement will expire on 31 December 2021, and the Company will continue to conduct the transactions under the Existing Integrated Product and Service Framework Agreement for 2022 to 2024. Therefore, the Company entered into the Renewed Integrated Product and Service Framework Agreement with China Datang on 3 December 2021 in order to renew the relevant continuing connected transactions. Both parties agreed that such agreement shall be effective from 1 January 2022 and expiring on 31 December 2024. Details of the Renewed Integrated Product and Service Framework Agreement are set out as follows.

Date:

3 December 2021

Parties: (1) China Datang; and

(2) the Company

Term:

Effective from 1 January 2022 and expiring on 31 December 2024, and could be extended or renewed for three years as agreed by both parties within three months prior to expiry and subject to compliance with the relevant laws, regulations, regulatory documents and the Listing Rules.

– 2 –

LETTER FROM THE BOARD

Principal terms:

According to the Renewed Integrated Product and Service Framework Agreement, (i) the Group provides China Datang Group with products and services including service provision business such as environmental protection facility concession operation, water treatment operation and energy management contracting business, product business such as the denitrification catalyst business, and engineering business such as environmental protection facilities engineering business, renewable energy engineering and other services; and (ii) the products and services procured by the Group from China Datang Group include service procurement business such as operational ancillary business, technology and information service, and other services and equipment and raw material procurement business such as supply of water, electricity and steam, procurement of equipment and raw materials and other products and services.

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.

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 2022, 31 December 2023 and 31 December 2024 are as follows:

		Proposed	annual caps for the year ending	annual caps for the year ending
			31 December
	Type of transactions	2022	2023	2024
			(RMB ’000)
Provided by the Group	Service provision business(1)	4,132,000	4,086,000	4,029,000
to China Datang Group
	Product business(2)	270,000	271,000	272,000

– 3 –

LETTER FROM THE BOARD

		Proposed	annual caps for the year ending	annual caps for the year ending
			31 December
	Type of transactions	2022	2023	2024
			(RMB ’000)
	Engineering business(3)	3,691,000	4,005,000	4,346,000
Procured by the Group	Service procurement business(4)	437,000	464,000	481,000
from China Datang Group
	Equipment and raw material	2,054,000	2,088,000	2,197,000
	procurement business(5)

Notes:

(1) Service provision business mainly includes environmental protection facility concession operation, water treatment operation and energy management contracting business. The proposed annual caps of this transaction are renamed and re-categorized from environmental protection and energy conservation solutions under the Existing Integrated Product and Service Framework Agreement.
(2) Product business mainly includes denitrification catalyst business. The proposed annual caps of this transaction are renamed and re-categorized from environmental protection and energy conservation solutions under the Existing Integrated Product and Service Framework Agreement.
(3) Engineering business mainly includes environmental protection facilities engineering business, renewable energy engineering and other services. The proposed annual caps of this transaction are renamed and re-categorized from renewable energy engineering and thermal power engineering under the Existing Integrated Product and Service Framework Agreement.
(4) Service procurement business includes operational ancillary business, information and technology service and other services. The proposed annual caps of this transaction are renamed and re-categorized from operational ancillary service and technology and information service and other services under the Existing Integrated Product and Service Framework Agreement.
(5) Equipment and raw material procurement business includes supply of water, electricity and steam, raw materials and other products. The proposed annual caps of this transaction are renamed and recategorized from supply of water, electricity and equipment and raw material procurement service under the Existing Integrated Product and Service Framework Agreement.

In determining the abovementioned proposed annual caps for 2022 to 2024, the Board has taken into account the following factors:

Basis for the calculation of proposed annual caps: In determining the above proposed 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.

– 4 –

LETTER FROM THE BOARD

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

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

Service provision business

The service provision business of the Group mainly includes environmental protection facility concession operation, water treatment operation and energy management contracting business.

In terms of environmental protection facility concession operation, the cumulative installed capacity in operation for desulfurization and denitrification concession operations of the Group as of 31 December 2020 reached 48,000MW and 40,550MW, respectively. The Group’s business segments developed steadily, with its environmental protection facility concession operation business consolidating its leading position in the industry. Based on the cumulative operating unit capacity as of 31 December 2020, the Group continued to maintain its position as the largest flue gas desulfurization and denitrification concession operator in China. All of the Group’s desulfurization concession operation and denitrification concession operation projects under construction have transferred into operational stage in respect of the environmental protection facility concession operation business. While consolidating its leading position in the environmental protection field of thermal power segment, the Group actively developed environmental protection and management businesses in steel, cement, metallurgy and other non-electric fields to grow the environmental protection market and expand its business influence.

In terms of water treatment operation, it is expected that the transaction amounts between the Group and China Datang Group in the next three years will maintain a similar level compared with that in 2020, while its percentage in the total operating income of the Group will still be relatively low.

In terms of energy management contracting business, it is expected that the transaction amounts between the Group and China Datang Group in the next three years will maintain a similar level as compared with that in 2020. It is a business model that the energy conservation companies provide energy-conservation services to customers according to the energy conservation service contracts entered into with customers, and recover the investment and gain profit from the energy efficiency achieved upon the completion of energy conservation facilities refurbishment.

– 5 –

LETTER FROM THE BOARD

The proposed annual caps of the service provision business mainly include the ones of environmental protection facility concession operation, water treatment operation and energy management contracting business. The environmental protection facility concession operation is estimated to remain at a constant rate for the three years ending 31 December 2024, where its proposed annual caps are calculated on the basis of an annual reduction by 3% in the coal-fired power generation output in the PRC. In addition, it is expected that there will be two additional projects for water treatment operation each year starting from 2023, where each project could contribute approximately RMB25 million to RMB35 million, yielding approximately 2% growth in the annual transaction amount. Similarly, with the existing projects in energy management contracting business, the estimated transactions value will remain the same for the three years ending 31 December 2024.

Product business

The product business mainly includes denitrification catalyst business.

Engineering business

The engineering business mainly includes environmental protection facilities engineering business, renewable energy engineering and other services. The Directors believe that the proposed annual caps will have a steady growth.

In terms of environmental protection facilities engineering business, although it is expected that the number of construction projects of desulfurization and denitrification to be undertaken by the Group in the future three years will decrease due to the overall situation of the industry, given the influence of national policies that were recently introduced to strengthen pollution prevention and control as well as develop circular economy, it is expected that the number of construction projects such as dust control, water treatment, sludge disposal, noise control and environmental restoration to be undertaken by the Group in the future three years will steadily increase.

– 6 –

LETTER FROM THE BOARD

At the same time, impacted by the goal of “emission peak and carbon neutrality” and the supporting national policies recently introduced, China Datang Group is vigorously developing wind power, photovoltaic and other renewable energy projects, so as to enhance its installed capacity of renewable energy in the coming years and meet the policy requirements of emission peak and carbon neutrality. 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 will increase significantly in coming years. The proposed annual caps for this business segment were determined based on the market share held by China Datang Group with its overall business volume and future development plan. The Group expected that in 2022, 2023 and 2024, it will undertake 50MW, 50MW and 50MW wind power projects and 400MW, 500MW and 600MW photovoltaic power generation projects from China Datang Group, respectively.

The proposed annual caps of engineering business mainly include the ones of water engineering business, environmental protection facilities engineering business, industrial site dust management, renewable energy engineering business and thermal power engineering. In determining the proposed annual caps for the three years ending 31 December 2024, the Board has taken into account the following factors:

(i) the expected amount to be generated from seven to nine projects regarding the water engineering business per year at the estimated value of RMB25 million each;
(ii) the expected amount to be generated from three to four new projects in the coming three years regarding the environmental protection facilities engineering business;
(iii) the expected amount to be generated from industrial site dust management which includes the upgrade engineering of estimated five bucket wheel excavators per year at RMB9 million each and three to four industrial site dust management projects per year at RMB60 million each;
(iv) the expected amount to be generated from estimated six to eight photovoltaic projects regarding the renewable energy engineering business per year at RMB100 million each;
(v) the expected amount to be generated from one to two projects of engineering procurement construction services regarding the thermal power engineering business per year; and
(vi) the expected amount to be generated from soil restoration, mine rehabilitation and energy storage etc.

– 7 –

LETTER FROM THE BOARD

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

Service procurement business

Service procurement business includes operational ancillary business, information and technology service and other services.

The technology and information service to be procured by the Group from China Datang Group for the next three years mainly includes the feasibility study, design, completion acceptance, settlement, assessment and relevant technical services of projects, software design, construction of information system and relevant information service. For the technology and information service to be procured by the Group from China Datang Group, the Directors expect that the transaction amounts since 2022 will increase steadily along with the increasing demand for such service by the Group.

Other services to be procured by the Group from China Datang Group for the next three years include bidding services, conference service and training and relevant services. For other products and services to be procured by the Group from China Datang Group, the Directors expect that the transaction amounts will have a steady increase for the next three years due to the expected steady increase of such services by the Group.

The proposed annual caps of the service procurement business are highly correlated to the transaction value under the service provision business, the product business and the engineering business.

Equipment and raw material procurement business

Equipment and raw material procurement business includes supply of water, electricity and steam, procurement of equipment and raw materials and other products.

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 and steadily increase as the demand for water and electricity arising from the business operation of the Group.

– 8 –

LETTER FROM THE BOARD

The transaction amount of procurement of equipment and raw materials is mainly determined based on the scale of the abovementioned environmental protection facilities engineering, water treatment operation, energy management constructing business, renewable energy 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 steadily, it is expected that the procurement 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.

Other products and services to be procured by the Group from China Datang Group for the next three years include office supplies and chemicals supplies in relation to water treatment operation. For other products and services to be procured by the Group from China Datang Group, the Directors expect that the transaction amounts will have steady increase for the next three years due to the expected steady increase of such services by the Group.

The proposed annual caps of the equipment and raw material procurement business are highly correlated to the transaction value under the service provision business, the product business and the engineering business.

Historical Transaction Amounts

The historical transaction amounts of each transaction under the Renewed Integrated Product and Service Framework Agreement for the last two years ended 31 December 2020 and six months ended 30 June 2021 are as follows:

		Historical transaction amounts	Historical transaction amounts	Historical transaction amounts
		For the	For the	For the
		year ended	year ended	six months ended
		31 December	31 December	30 June
	Type of transactions	2019	2020	2021
			(RMB ’000)
Provided by the	Environmental protection and	5,080,257	4,438,787	1,907,153
Group to China	energy conservation solutions(1)
Datang Group
	Renewable energy engineering(2)	677,775	1,773,369	39,419
	Thermal power engineering(3)	113,597	1,135	–
	Other services	45,334	9,177	–

– 9 –

LETTER FROM THE BOARD

		Historical transaction amounts	Historical transaction amounts	Historical transaction amounts
		For the	For the	For the
		year ended	year ended	six months ended
		31 December	31 December	30 June
	Type of transactions	2019	2020	2021
			(RMB ’000)
Procured by the	Operational ancillary service(4)	131,218	84,801	108,956
Group from China
Datang Group	Supply of water, electricity and	859,643	796,908	400,109
	steam(5)
	Technology and information	92,758	65,108	14,256
	service and other services(6)
	Equipment and raw material	403,658	1,346,098	67,901
	procurement service(7)

Notes:

(1) Environmental protection and energy conservation business mainly includes flue gas desulfurization and denitrification facility concession operation for coal-fired power plants, the manufacture and sale of denitrification catalysts, engineering for coal-fired power plants, and energy conservation including energy conservation facility engineering and energy management contracting. It is renamed and recategorized as and included in part of the service provision business, part of the product business and part of the engineering business under the Renewed Integrated Product and Service Framework Agreement.
(2) Renewable energy engineering business mainly includes the engineering general contract for newlybuilt wind power plants, biomass power plants and photovoltaic power plants. It is renamed and recategorized as and included in part of the engineering business under the Renewed Integrated Product and Service Framework Agreement.
(3) Thermal power engineering mainly includes the engineering procurement construction services for thermal power plants. It is renamed and re-categorized as and included in part of the engineering business under the Renewed Integrated Product and Service Framework Agreement.
(4) Operational ancillary service is renamed and re-categorized as and included in part of the service procurement business under the Renewed Integrated Product and Service Framework Agreement.
(5) Supply of water, electricity and steam is renamed and re-categorized as and included in part of the equipment and raw material procurement business under the Renewed Integrated Product and Service Framework Agreement.
(6) Technology and information service and other services are renamed and re-categorized as and included in part of the service procurement business under the Renewed Integrated Product and Service Framework Agreement.
(7) Equipment and raw material procurement service is renamed and re-categorized as and included in part of the equipment and raw material procurement business under the Renewed Integrated Product and Service Framework Agreement.

– 10 –

LETTER FROM THE BOARD

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.

The pricing policy for service provision business under the concession operations (desulfurization and denitrification) services: The Measures for the Supervision and Administration of Prices of Electricity from Coal-Fired Generating Units with Environmental Protection Facilities and the Operation of the Environmental Protection Facilities (《燃煤發電機組環保電價及環保設施運行監管辦法》) issued by the NDRC and the Ministry of Environmental Protection of the PRC (中華人民共和國環境保護部) on 28 March 2014 specify that environmental price-increasing policies are implemented to the newly-built or retrofitted environmental protection facilities of the coal-fired generating units. In addition, The Opinions on Promoting the Third-Party Treatment of Environmental Pollution (《關於推行環境污染第三方治理的意見》) issued by the General Office of the State Council on 27 December 2014 specify the comprehensive implementation of environmental electricity tariffs of desulfurization, denitrification and dust removal for all coal-fired generating units. In order to implement the supportive policies on electric tariff of “promoting the refurbishment of ultra-low emission of coal-fired power plants”, the NDRC, MEP (the Ministry of Environmental Protection), currently known as MEE and NEA (the National Energy Administration) promulgated the Notice on the Implementation of Coal-fired Power Plants Ultra-low Emission Tariff Supportive Policy Related Issues (《關於實行燃煤電廠超低排放電價支持政策有關問題的通知》) on 2 December 2015, and the policy became effective on 1 January 2016. Thus, the tariff for desulfurized and denitrified electricity under the concession operation services shall be determined based on government-prescribed price, which shall be formulated and adjusted by the NDRC. Provincial environmental protection administrative department shall send written document to the provincial pricing department to implement environmental electricity tariffs on the coal-fired generating companies installed with environmental protection facilities from the approval date of acceptance check on the facilities. Benchmarking prices including environmental electricity process issued by the NDRC are implemented for the entities with synchronized constructions of new coal-fired generating units and environmental protection facilities. The price of by-products shall be determined based on market price (which is obtained through quotations from public market

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and three 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).

The pricing policy for other service provision business: 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 with 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.

Only in exceptional circumstances, such as in case of reoccurrence of lack of sufficient number of bidders attending the bidding procedure and urgent procurement demand by China Datang Group, bidding procedures can be skipped by China Datang Group where 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 the Chinese government to ascertain the price.

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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, three 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.

Pricing policy for product business: 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.

Only in exceptional circumstances, such as in case of reoccurrence of lack of sufficient number of bidders attending the bidding procedure and urgent procurement demand by China Datang Group, bidding procedures can be skipped by China Datang Group where 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 the Chinese government to ascertain the price.

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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, three 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.

Pricing policy for engineering business: 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 and 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.

Only in exceptional circumstances, such as in case of reoccurrence of lack of sufficient number of bidders attending the bidding procedure and urgent procurement demand by China Datang Group, bidding procedures can be skipped by China Datang Group where 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 the Chinese government to ascertain the price.

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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, three 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.

(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 service procurement business: 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 purchasing 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.
The pricing policy for other service businesses: In most circumstances where the Group purchases services from China Datang Group, bidding procedures shall be applied for the determination of prices. Only in exceptional circumstances, 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.

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The 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 actual costs which reflect the market price of water and power for the supply of water and power by power plants to third-party desulfurization and denitrification concession operation service providers per the government’s prescribed requirements.
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. China Datang Group will charge a fee (the “ Service Fee ”) not exceeding 6% of the purchasing price, which shall be determined on the basis of the actual scope of services provided by an independent third party service provider and the pricing standard of the relevant services and materials. The Service Fee shall be fairly agreed between the parties and shall not exceed the fee charged for similar services provided by China Datang Group to an independent third party or its affiliated entities. Upon the execution of the relevant procurement contract, the Materials Management Department (物資管理部) will review and approve the Service Fee and ensure that it will not exceed 6% of the relevant purchasing price. Only in exceptional circumstances, such as in case of urgent procurement demand of 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.

Reasons for and Benefits of entering into 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 its current and future business operations.

Based on the previous experience in business dealings with China Datang Group, the Company believes 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 the Shareholders as a whole.

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Based on the above, the Directors (including independent non-executive Directors) are of the view that the terms of the Renewed Integrated Product and Service Framework Agreement and the transactions thereunder are entered into based on arm’s length negotiations, in the ordinary and usual course of business of the Group and on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

In addition, we believe that the Renewed Integrated Product and Service Framework Agreement would not give rise to reliance issue of the Company with its connected persons and controlling shareholder in that (i) deriving the majority of revenue from the holding company is in line with the general market practice of other leading market players of concession operations in the environmental protection industry; (ii) the historical transaction amounts of the environmental protection and energy conservation solution which composed of the major part of the re-categorized service provision business have been decreasing from RMB5,080.26 million (representing approximately 79.20% of total revenue) for the year ended 31 December 2019 to RMB4,438.79 million (representing approximately 65.07% of total revenue) for the year ended 31 December 2020, and further down to RMB1,907.15 million (representing approximately 86.82% of total revenue) for the six months ended 30 June 2021, where as the relevant proportions to the total revenue were floating within a range of 65% to 87%; (iii) the historical transaction amounts of the renewable energy engineering and thermal power engineering which composed of the major part of the re-categorized engineering business increased from RMB791.37 million (representing approximately 12.34% of total revenue) for the year ended 31 December 2019 to RMB1,774.50 million (representing approximately 26.01% of total revenue) for the year ended 31 December 2020, but down to only RMB39.42 million (representing approximately 1.79% of total revenue) for the six months ended 30 June 2021; (iv) the steadily decreasing proposed annual caps of the service provision business from RMB4,132 million for the year ending 31 December 2022 to RMB4,086 million for the year ending 31 December 2023 and RMB4,029 million for the year ending 31 December 2024 reflects the Company’s intention not to further increase its transactions with China Datang Group; and (v) the steadily increasing proposed annual caps of the engineering business from RMB3,691 million for the year ending 31 December 2022 to RMB4,005 million for the year ending 31 December 2023 and RMB4,346 million for the year ending 31 December 2024 results from the general thriving market opportunities in the environmental protection industry, driven by favourable state policies.

The Group has been actively expanding its client base. For example, during January to June 2021, the Group entered into contracts in the amount of RMB153 million with clients other than China Datang Group, representing 18.18% of the total contracts entered into during January to June 2021. In the second half of 2021, the Group has been engaged by independent third party clients for four new photovoltaic power generation projects. The Group expects to continue to diversity our revenue source in the future.

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The revenue ratios, under the Listing Rules, of the service provision business for the three years ending 31 December 2024 are in the range of 59% to 61%. The revenue ratios are based on the historical figure of revenue for the year ended 31 December 2020. Thus, with the estimated increase in the share of the transactions with independent third party clients in the coming three years, we expect the revenue ratios (if forward revenue amount were to be considered instead) of the service provision business to fall below 50%. Similarly, the revenue ratios of the engineering business for the three years ending 31 December 2024 are in the range of 54% to 64%. Thus, with the estimated increase in the share of the transactions with independent third party clients, we expect the revenue ratios (if forward revenue amount were to be considered instead) of the engineering business to fall below 50%.

Based on the above, the Directors (including independent non-executive Directors) are of the view that the transactions contemplated under the Renewed Integrated Product and Service Framework Agreement will not result in any undue reliance by the Company on its connected persons or controlling shareholder.

Relevant Internal Control Measures of the Renewed Integrated Product and Service Framework Agreement

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 2022, 2023 and 2024, which were proposed by the Securities and Capital Department (證券資本部) 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 Securities and Capital 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 Securities and Capital 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.

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Business contracts of the Group are negotiated by the relevant business departments which are subject to review and approval by the Market Development Department (市場發展部) before execution. Before submitting any new business contract to the Market Development Department, the relevant business department is required to check the identity of each party to such contract against the latest list of connected persons of the Group. If any party is the 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 Market Development Department for review and approval. In addition, the Materials Management Department (物資管理部) and the Market Development Department will screen the Connected Transaction Identification Process and ensure all connected transactions will be submitted to the Market Development Department for approval. The Market Development 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 Market Development Department’s planning, usually such contract can proceed to execution. If there exists significant difference between the annual caps and the value of proposal contract, the Market Development Department will check against the monthly report provided by the Finance 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. 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 Market Development 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 Market Development Department considers such transaction 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.
The Securities and Capital 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, among others, (i) the amount of connected transactions occurred in the previous months; (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 accumulative connected transaction amount occurred together with the expected transaction amount for the rest of the year will exceed the annual caps, the relevant member or department of the Group is required to report to the Securities and

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Capital Department the reasons for deviation and the proposed rectification measures. Subsequently, the Securities and Capital Department will notify the Market Development Department of such deviation or potential deviation by relevant member or department, and the Market Development Department will closely monitor and control the approval of new business contracts for relevant member or department.

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.
The independent non-executive Directors and the Company’s auditors will review annually the enforcement of relevant continuing connected transactions under the Renewed Integrated Product and Service Framework Agreement and provide annual confirmations in accordance with the Listing Rules that relevant continuing connected transactions are conducted in accordance with the terms of the Renewed Integrated Product and Service Framework Agreement, on normal commercial terms and are in the interest of the Company and the Shareholders as a whole.

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 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, 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 with approximately 9% of market share in terms of cumulative installed capacity as of 2020. 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

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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 that 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.

• 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

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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 MEE. 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 40.80%, 41.27% and 38.26%, respectively, of the Group’s total revenue for each of the three years ended 31 December 2018, 2019 and 2020, 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’s umbrella who were the Group’s 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 2018, 2019 and 2020, revenue from the top five customers accounted for approximately 21%, 21% and 32% of the total revenue of the Group, respectively.

• 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 2020, the total value of products and services provided by the Group to China Datang Group (other than concession operations) was approximately RMB2,598.94 million, representing only approximately 38% of the total revenue of the Group. For the year ended 31 December 2020, the total value of the services provided by the Group to China Datang Group under the concession operations (desulfurization and denitrification) was approximately RMB3,516.54 million, representing only approximately 51.2% of the total revenue of the Group.

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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 RMB347 million, representing an increase of 28.4% 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, 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.

In addition, the Company has also adopted a series of the Code on Corporate Governance Practices, such as the Rules of Procedures 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 the Group can operate its business independently from China Datang Group.

Listing Rules Implications

As China Datang directly held approximately 78.96% 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 a connected person of the Company. Accordingly, the Renewed Integrated Product and Service Framework Agreement and the transactions contemplated thereunder 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 are more than 5%, the Renewed Integrated Product and Service Framework Agreement, the transactions contemplated thereunder 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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Mr. Wang Junqi, Mr. Wu Daqing and Mr. Chen Kan 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, and the transactions contemplated thereunder. 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.

II. FINANCIAL SERVICES FRAMEWORK AGREEMENT

Introduction

On 3 December 2021, the Company entered into the Financial Services Framework Agreement with Datang Capital, which renews the financial leasing service and commercial factoring service of the Preceding Financial Services Agreement and include certain new services. According to the Financial Services Framework Agreement, Datang Capital agreed to provide the Company with commercial factoring service, asset securitization service, financial leasing, sales and leaseback service, entrusted loan service, operating lease, brokerage and consultation service in relation to transfer of property rights and assets and bespoke financial service solution (collectively, the “ Financial Framework Services ”). Both parties agreed that such agreement shall be effective from 1 January 2022 and expiring on 31 December 2024. Details of the Financial Services Framework Agreement are set out as follows.

Date:

3 December 2021

Parties: (1) Datang Capital; and

(2) the Company

Term: From the 1 January 2022 until 31 December 2024

Principal terms:

According to the Financial Services Framework Agreement, Datang Capital agreed to provide the Company with commercial factoring service, asset securitization service, financial leasing, sales and leaseback service, entrusted loan service, operating lease, brokerage and consultation service in relation to transfer of property rights and assets and bespoke financial service solution.

In respect of the abovementioned transactions under the Financial Services Framework Agreement, the Company and/or its subsidiaries and Datang Capital and/or its subsidiaries may enter into separate specific contract in compliance with the Financial Services Framework Agreement as stipulated in the Financial Services Framework Agreement.

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Proposed Annual Caps

Commercial Factoring

The proposed annual caps of commercial factoring service under the Financial Services Framework Agreement for each of the years ending 31 December 2022, 31 December 2023 and 31 December 2024 are RMB2,000 million, RMB2,000 million and RMB2,000 million respectively.

Financing Leasing

The proposed annual caps of financial leasing service under the Financial Services Framework Agreement for each of the year ending 31 December 2022, 31 December 2023 and 31 December 2024 are as follows:

	Proposed annual caps for the year ending 31 December	Proposed annual caps for the year ending 31 December	Proposed annual caps for the year ending 31 December
	2022	2023	2024
		(RMB’000)
Maximum daily balances of leasing principal	1,000,000	1,000,000	1,000,000
Annual interests and other payments:
Outstanding interest fee and handling fee	60,000	60,000	60,000

Entrusted Loan Service

The proposed annual caps of entrusted loan service under the Financial Services Framework Agreement for each of the years ending 31 December 2022, 31 December 2023 and 31 December 2024 are RMB1,000 million, RMB1,000 million and RMB1,000 million respectively.

As of 30 June 2021, the payable principal and interests of bank loans of the Group due within 1 year amounted to approximately RMB1,744 million in aggregate, and the payable principal and interests of bank loans of the Group due between 1–2 years amounted to approximately RMB465 million in aggregate. The total amount of banks loans due within 1 year and between 1–2 years will be approximately RMB2,209 million. Upon maturity of such bank loans, the Group expects to perform refinancing to cover the abovementioned bank loans as well as the fresh working capital for expanding the business of the Group. As the Group is gradually promoting business transformation with its capital expenditure growing rapidly, it needs to expand financing channels to meet its financing needs.

The rest of the services under the Financial Services Framework Agreement, namely, asset securitization service, sales and leaseback service, operating lease, brokerage and consultation service in relation to transfer of property rights and assets and financial service solution (the “ Other FSFA Financial Services ”) will have proposed annual caps with relevant applicable percentage less than 0.1%.

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LETTER FROM THE BOARD

Given the above, taking into account (i) the abovementioned amount of principal and interests to be repaid upon maturity of the bank loans of the Group; (ii) the expected decreasing amount of bank loans and higher interest rate level to be obtained by the Group in the future for refinancing the abovementioned bank loans and for the expanding business of the Group; and (iii) the relevant terms of the Financial Framework Services provided by Datang Capital to accommodate the Group’s need for financing, the Group has determined the proposed annual caps of the Financial Framework Services under the Financial Services Framework Agreement, respectively.

Historical Transaction Amounts

The Financial Services Framework Agreement renews the financial leasing service and commercial factoring service under the Preceding Financial Services Agreement. The historical transaction amounts of each transaction under the Preceding Financial Services Agreement for the years ended 31 December 2018, 2019 and 2020 are as follows:

	Historical	transaction amounts	transaction amounts
	For the year	For the year	For the year
	ended 31	ended 31	ended 31
	December	December	December
Type of transactions	2018	2019	2020
		(RMB’000)
Financial leasing service
– Actual maximum daily balances of
leasing principal	265,000	135,000	394,000
– Outstanding interest fee and handling
fee	2,200	19,000	600
Commercial factoring service
– Service fee	161,400	106,000	73,000

There was no historical transaction amount between the Company and Datang Capital for the entrusted loan service under the Preceding Financial Services Agreement.

Pricing Policy

(1) Commercial factoring service under the Financial Services Framework Agreement

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LETTER FROM THE BOARD

(2) Financial leasing service under the Financial Services Framework Agreement

(3) Entrusted loan service under the Financial Services Framework Agreement

Reasons for and Benefits of the Transactions under the Financial Services Framework Agreement

(1) Commercial factoring service and asset securitization service

The transactions under the commercial factoring service and asset securitization service will help the Company optimize its asset structure, accelerate the efficiency of asset turnover, save costs, improve the efficiency of capital use, broaden the financing channels, and reduce financing costs, which is in line with the overall development strategies of the Company and is in the interests of the Company and the Shareholders as a whole.

(2) Financial leasing service, sales and leaseback service, entrusted loan service and operating lease service

Datang Capital is a professional financial leasing service, sales and leaseback service, entrusted loan service and operating lease service provider. Based on the needs of business operations, the Group negotiated with Datang Capital in respect of the abovementioned service arrangements on normal commercial terms.

(3) Brokerage and consultation service in relation to the transfer of property rights and assets and bespoke financial service solution service

Datang Capital provides professional brokerage and consultation service in relation to the transfer of property rights and assets and financial service solution. Based on the needs of business operations, the Group negotiated with Datang Capital in respect of the abovementioned service arrangements on normal commercial terms.

Based on the above, the Directors (including independent non-executive Directors) are of the view that the terms of the Financial Services Framework Agreement and the transactions contemplated thereunder are entered into based on arm’s length negotiations, in the ordinary and usual course of business of the Group and on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Relevant Internal Control Measures of Continuing Connected Transactions

For the Company’s internal control procedures that implemented to closely monitor and manage new and on-going connected transactions with China Datang Group, please refer to the information provided under the subsection headed “Relevant Internal Control Measures of the Renewed Integrated Product and Service Framework Agreement” on page 18 of this circular.

Listing Rules Implications

As China Datang directly held approximately 78.96% of the issued share capital of the Company as at the Latest Practicable Date, it is a controlling shareholder of the Company. Datang Capital is a wholly-owned subsidiary of China Datang. Pursuant to Chapter 14A of the Listing Rules, Datang Capital is therefore a connected person of the Company. Accordingly, the Financial Services Framework Agreement and the transactions thereunder 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 (including financial leasing service and commercial factoring service) calculated with reference to the relevant proposed annual caps under the Financial Services Framework Agreement are more than 5%, the Financial Services Framework Agreement, the transactions thereunder and the proposed annual caps thereunder are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Further, given that one or more of the relevant percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the transactions (including commercial factoring service, financial leasing service and entrusted loan service) calculated with reference to the relevant proposed annual caps under the Financial Services Framework Agreement exceed 25% but less than 100%, the transactions contemplated under the Financial Services Framework Agreement constitute a major transaction of the Company under Chapter 14 of the Listing Rules.

The Other FSFA Financial Services to be provided by Datang Capital to the Group, each of the percentage ratio(s) is below the de minimis threshold set out in Rule 14A.76 of the Listing Rules, therefore the provision of the Other FSFA Financial Services by Datang Capital to the Group is exempt from the reporting, announcement and Independent Shareholders’ approval requirements of the Listing Rules. The Company will comply with the reporting, announcement and Independent Shareholders’ approval requirements of the Listing Rules, where applicable, if the transaction amount of the Other FSFA Financial Services to be provided by Datang Capital to the Group under the Financial Services Framework Agreement exceeds the de minimis threshold stipulated in Rule 14A.76 of the Listing Rules.

– 28 –

LETTER FROM THE BOARD

Mr. Wang Junqi, Mr. Wu Daqing and Mr. Chen Kan are holding positions in China Datang or its subsidiaries and therefore have abstained from voting at relevant Board meeting approving the Financial Services Framework Agreement and the transactions thereunder. Save as mentioned above, all Directors have confirmed that they have no material interests in the Financial Services Framework Agreement and the transactions thereunder.

III. DEPOSIT SERVICES UNDER THE RENEWED FINANCIAL SERVICES AGREEMENT

The Company and Datang Finance entered into the Renewed Financial Services Agreement on 3 December 2021, with a term commencing from 1 January 2022 and ending on 31 December 2024. Deposit Services contemplated under the Renewed Financial Services Agreement constitute continuing connected transactions and a major transaction of the Company and are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14 and Chapter 14A of the Listing Rules. Details of the Renewed Financial Services Agreement are set out as follows.

Date:

3 December 2021

Parties: (1) Datang Finance; and

(2) the Group

Term: From 1 January 2022 to 31 December 2024

Nature of Transaction:

The services to be provided by Datang Finance to the Group include loan services, the Deposit Services, and the Other Financial Services including financial and financing consultation and training services, transfer and settlement services, insurance agency services, entrustment loan and entrustment investment services, bill acceptances and discounting services and underwriting services for the issuance of corporate bonds to the Group. Datang Finance has agreed to provide financial services to the Group at the Company’s request or instruction provided that Datang Finance has obtained the relevant approval from the CBIRC. Datang Finance shall ensure the stable operation of fund management system to safeguard the fund, and to supervise the credit risk so as to satisfy the payment demands of the Group. The Group, with information of market rates and in view of its own interests, has the discretion to determine whether or not to maintain business relationship with Datang Finance, or to obtain financial services from other financial institutions in the meanwhile.

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LETTER FROM THE BOARD

Scope of Service:

i. loan services;
ii. Deposit Services; and
iii. Other Financial Services.

Pricing Policy:

Datang Finance has undertaken to provide the aforementioned financial services to the Group based on the following pricing principles:

i. Loan services – Datang Finance, based on the interest rate quotation of the loan market and taking into comprehensive considerations of the factors such as the terms, classifications and industrial policies, determines the pricing. Under the same condition, the loan interest rate shall not be higher than the applicable interest rate for the same type of loan service provided by state owned banks to the Group;
ii. Deposit Services – Under the same condition, the deposit interest rate provided by Datang Finance to the Group shall not be lower than the interest rate for the same type of deposit placed in state-owned banks by the Group; and
iii. Other Financial Services – Datang Finance provides other financial services to the Group at the rates which shall not be higher than those charged by other financial institutions in the PRC for the same or similar financial services.

Capital Risk Control Measures

Pursuant to the Renewed Financial Services Agreement, Datang Finance undertakes to take the following measures to control the capital risks:

i. Datang Finance will ensure the safe and stable operation of the fund management information system, which has undergone the security test in respect of connection to the online commercial banking and has reached the national security standards for commercial banks. The system is equipped with the model awarded with CA safety certificate to secure the funds of the Group;
ii. Datang Finance will ensure that it is in strict compliance with the risk monitoring indicators for financing companies issued by the CBIRC and that its major regulatory indicators such as gearing ratio and liquidity ratio will also comply with the requirement of the CBIRC; and

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LETTER FROM THE BOARD

iii. Any balance in the Group’s deposits (after deducting the amount used for making entrusted loans and the loans made to the Group by Datang Finance) will be redeposited into one or more commercial banks in the PRC. The interests for the Group’s call deposits will be settled at the negotiated savings interest rate as announced by the PBOC, which is higher than the interest rate for call deposits that the Group currently secures from other PRC commercial banks.

The Company will also adopt, among others, the following internal control and risk management measures to mitigate the financial risks which may be exposed to the Company under the Renewed Financial Services Agreement:

i. Before entering into any transactions with Datang Finance, the Company will obtain and review quotes (i.e. savings interest rate, loan interest rate or fee quotes for the other financial services) from at least four other independent financial institutions and the then savings interest rate, negotiated savings interest rate or loan interest rate as published by the PBOC.

For the Deposit Services, in the event that the Company notes the then negotiated savings interest rate as announced by the PBOC is less than the then savings interest rate as published by the PBOC or the then savings interest rate as offered by other independent financial institutions in the PRC, the Company will enter into an agreement with Datang Finance to ensure the deposit interest rate of the Deposit Services will be no less favourable than the then savings interest rate as published by the PBOC or offered by any other independent financial institution in the PRC. In the event that the Company notes that the actual deposit interest rate of the Deposit Services is less than the then negotiated savings interest rate as announced by the PBOC or offered by any other independent financial institution in the PRC, the Company will require Datang Finance to compensate the differences to the Company.

For the loan services provided by Datang Finance to the Group under the Renewed Financial Services Agreement, in the event that the Company notes that the actual loan interest rate of such loan services is higher than the then loan interest rate as announced by the PBOC or charged by any other independent financial institution in the PRC, the Company will require Datang Finance to compensate the differences to the Company.

For the Other Financial Services, in the event that the Company notes that the actual fee standards charged for provision of such services are higher than the then fee standards as offered by other independent financial institutions in the PRC, the Company will require Datang Finance to compensate the differences to the Company.

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LETTER FROM THE BOARD

ii. Before placing deposit, the finance department of the Company will check the outstanding daily balance of the deposits placed with Datang Finance to avoid exceeding the proposed annual caps for the Deposit Services.

Before making any loan, the finance department of the Company will check with Datang Finance to ensure that no security over the assets of the Group will be granted in respect of the loan services provided by Datang Finance to the Group under the Renewed Financial Services Agreement.

Before provision of any of the Other Financial Services by Datang Finance, the finance department of the Company will check the transaction amount of the other financial services. The Company will comply with the reporting, announcement and independent shareholders’ approval requirements of the Listing Rules, where applicable, if the transaction amount of the other financial services to be provided by Datang Finance to the Group exceeds the minimum amount under Rule 14A.76 of the Listing Rules.

iii. On a monthly basis, the finance department of the Company will report to the management of the Company of any updates in relation to the continuing connected transactions. Such report principally covers (1) deposit balance and loan balance as of the end of the previous month; (2) new deposit and loan interest of the previous month; (3) plans and use of the deposit of this month; and (4) loan repayment of principal and interest of this month and the source of funds; and
iv. The independent non-executive Directors and the Company’s auditors will review annually the enforcement of relevant continuing connected transactions under the Renewed Financial Services Agreement and provide annual confirmations in accordance with the Listing Rules that relevant continuing connected transactions are conducted in accordance with the terms of the Renewed Financial Services Agreement, on normal commercial terms and are in the interest of the Company and the Shareholders as a whole.

The Directors (excluding the Directors who are required to abstain, but including the independent non-executive Directors) consider that the above capital risk control measures are adequate to cover the risks involved in relevant continuing connected transactions with Datang Finance.

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LETTER FROM THE BOARD

Proposed annual caps and the basis thereof

Loan Services:

In view of the loan services provided by Datang Finance to the Group are on normal commercial terms which are similar to or more favourable than those offered by independent third parties for comparable services in the PRC, and that no security over the assets of the Group will be granted in respect of the loan services, the loan services are exempt from reporting, announcement and Independent Shareholders’ approval requirements under Rule 14A.90 of the Listing Rules. As such, no cap has been set for such services.

Deposit Services:

The Company estimates that the proposed annual caps for the Deposit Services for the maximum daily deposit balance (including any relevant interest accrued therefrom) with Datang Finance for each of the years ending 31 December 2022, 2023 and 2024 is RMB4,000 million, after taking into account of the following factors:

The balance of cash and cash equivalents of the Group amounted to RMB671.28 million as of 30 June 2021;
The Company has applied to the National Association of Financial Market Institutional Investors for registration and issuance of ultra short-term financing bonds of no more than RMB3,000 million. The balance of deposit is expected to be close to the proposed annual caps for the Deposit Services of RMB4,000 million if the Company issues one-off ultra short-term financing bonds of more than RMB2,400 million and temporarily places all the proceeds into the Group’s deposit account opened at Datang Finance;
The balance of trade, bills receivables and contract assets of the Group amounted to RMB9,268.70 million as of 30 June 2021. The balance of deposit may also experience significant increase within a short term and will be close to the proposed annual caps for the Deposit Services of RMB4,000 million if the Group recovers a large amount of trade, bills receivables and contract assets within a short term and places the receivables and contract assets into the Group’s deposit account opened at Datang Finance.

In view of the above, the maximum daily deposit balance with Datang Finance of RMB4,000 million is a reasonable cap.

– 33 –

LETTER FROM THE BOARD

Other Financial Services:

The Company expects that each of the percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the total fees payable by the Group to Datang Finance in respect of the Other Financial Services will fall within the de minimis threshold as stipulated under Rule 14A.76 of the Listing Rules, for which the other financial services are exempt from reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. As such, no cap has been set for such services. The Company will comply with the reporting, announcement and Independent Shareholders’ approval requirements of the Listing Rules, where applicable, if the transaction amount of the other financial services to be provided by Datang Finance to the Group under the Renewed Financial Services Agreement exceeds the de minimis threshold as stipulated under Rule 14A.76 of the Listing Rules. Among the Other Financial Services, Datang Finance will provide settlement services to the Group, free of charge. The Company confirms that there will not be any provision of financial assistance by the Company to Datang Finance under this arrangement. The Other Financial Services to be provided under the Renewed Financial Services Agreement will be on normal commercial terms and on terms comparable to or better than those for similar services provided by independent third parties in the PRC.

Historical transaction amounts

The Renewed Financial Services Agreement renews the loan services, the Deposit Services and the Other Financial Services under the Previous Financial Services Agreement. The historical transaction amounts of the Deposit Services under the Previous Financial Services Agreement for the years ended 31 December 2018, 2019 and 2020 are RMB1,444 million, RMB1,478 million and RMB1,478 million respectively.

Reasons for and Benefits of Entering into the Renewed Financial Services Agreement

Relevant continuing connected transactions will be conducted in the ordinary and usual course of business of the Company on normal commercial terms and on terms similar to or even more favourable than those available to the Company from independent third parties in the PRC. The Directors (including the independent non-executive Directors) are of the view that such transactions are beneficial to the Group and furthermore, the Group can earn interests or enjoy benefits through such transactions at the terms not less favourable to independent third parties.

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LETTER FROM THE BOARD

Furthermore, due to the long-term relationship the Group and China Datang Group, the Directors (including the independent non-executive Directors) consider that it is beneficial to the Company to enter into continuing connected transactions with companies affiliated to China Datang. They are familiar with the Group’s operations and requirement on the products and services, and will be able to respond more quickly and in a more cost efficient manner to the requirements that the Group may have as compared with other financial institutions unrelated to China Datang Group.

In addition, as the customers of Datang Finance are limited to entities affiliated to China Datang and its subsidiaries under applicable laws and regulations, it reduces default risk and liquidity the risks that Datang Finance may otherwise be exposed to if its customers include entities unrelated to China Datang. Moreover, the aforementioned risk control measures adopted by Datang Finance are adequate to mitigate default risk and liquidity risk involved in receiving financial services from Datang Finance. Security of capital of the Group may be undermined in case of breach of contract or illiquidity of Datang Finance as the Group plans to place cash into its deposit account opened at Datang Finance. As such, Datang Finance’s effective control over the breach of contract and liquidity risk will be conducive to the reduction of the Group’s capital risk.

Therefore, the Directors (excluding the Directors who are required to abstain, but including the independent non-executive Directors) are of the view that the terms of the Renewed Financial Services Agreement and the transactions contemplated thereunder are entered into based on arm’s length negotiations, in the ordinary course of business and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Relevant Internal Control Measures of Continuing Connected Transactions

For our internal control procedures that implemented to closely monitor and manage new and ongoing connected transactions with China Datang Group, please refer to the information provided under the subsection headed “Relevant Internal Control Measures of Continuing Connected Transactions” on page 28 of this circular.

Listing Rules Implications

As China Datang directly held approximately 78.96% of the issued share capital of the Company as at the Latest Practicable Date, it is a controlling shareholder of the Company. Datang Finance is a subsidiary of China Datang, and is therefore a connected person of the Company. Accordingly, the Renewed Financial Services Agreement and the transactions contemplated thereunder constitute continuing connected transactions of the Company under the Listing Rules.

– 35 –

LETTER FROM THE BOARD

Loan services

The loan services to be provided by Datang Finance to the Group will constitute financial assistance to be provided by a connected person for the benefit of the Group. As such services are on normal commercial terms which are similar to or more favourable than those offered by independent third parties for comparable services in the PRC, and no security over the assets of the Group will be granted in respect of the loan services, the loan services are exempt from reporting, announcement and Independent Shareholders’ approval requirements under Rule 14A.90 of the Listing Rules.

Deposit Services

Further, given that one or more of the relevant percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the Deposit Services under the Renewed Financial Services Agreement calculated with reference to the relevant proposed annual caps under the Financial Services Framework Agreement is more than 100%, the Deposit Service under the Renewed Financial Services Agreement is not a very substantial acquisition but constitutes a major transaction of the Company under Chapter 14 of the Listing Rules.

Other Financial Services

In respect of the Other Financial Services to be provided by Datang Finance to the Group, each of the percentage ratio(s) is below the de minimis threshold set out in Rule 14A.76 of the Listing Rules, therefore the provision of Other Financial Services by Datang Finance to the Group is exempt from the reporting, announcement and Independent Shareholders’ approval requirements of the Listing Rules. The Company will comply with the reporting, announcement and Independent Shareholders’ approval requirements of the Listing Rules, where applicable, if the transaction amount of the Other Financial Services to be provided by Datang Finance to the Group under the Renewed Financial Services Agreement exceeds the de minimis threshold stipulated in Rule 14A.76 of the Listing Rules.

– 36 –

LETTER FROM THE BOARD

Opinions of the Directors

Mr. Wang Junqi, Mr. Wu Daqing and Mr. Chen Kan, being the Directors holding positions with China Datang, have abstained from voting on the resolutions regarding the Renewed Financial Services Agreement and relevant continuing connected transactions at the Board meeting. Save as disclosed above, none of the Directors has any material interest in relevant continuing connected transactions.

In view of the interests of China Datang, which directly held approximately 78.96% of the issued share capital of the Company as at the Latest Practicable Date and thus is a connected person of the Company, in the continuing connected transactions, China Datang and its associates (including Datang Capital) are required to abstain from voting on the resolution to be proposed at the EGM to approve the Deposit Services. As at the Latest Practicable Date, to the best knowledge, information and belief of the Directors, save as disclosed in this circular, no other Shareholders will be required to abstain from voting in respect of the relevant resolutions.

GENERAL INFORMATION

Information on the Company

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 (5) 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.

Information on China Datang

China Datang is a state-owned enterprise established in the PRC in April 2003 and is the controlling shareholder of the Company and Datang Finance. China Datang is primarily engaged in the development, investment, construction, operation and management of power energy; organisation 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 export of the goods and technology are restricted or prohibited by national laws and regulations.

– 37 –

LETTER FROM THE BOARD

Information on Datang Capital

Datang Capital was established on 30 November 2011, and is a subsidiary of China Datang, the controlling shareholder of the Company. The main business scope is: investment management, asset management and investment consultation.

Information on Datang Finance

Datang Finance was officially established in the PRC as a non-bank financial institution in May 2005, and is a non-wholly owned subsidiary of China Datang. It is regulated by the CBIRC and in compliance with laws and regulations concerning the non-bank financial institutions. Its primary business scopes are as follows: providing consultancy and agency service in relation to financial advisory, credit, visa and related services; assisting intra-group members in realising receipt and payment of transaction amount; providing approved insurance agency services; serving as guarantees for loans of intra-group members; handling entrusted loan and entrusted investment between intra-group members; handling bill acceptances and discounting for intra-group members; conducting internal transfer settlement between intra-group members and designing of corresponding settlement and liquidation plan; absorbing deposits from intragroup members; dealing with loan and financial leasing for intra- group members; dealing with inter-bank offered credit; issuing finance company bonds upon approval, underwrite corporate bonds of intra-group members, equity investments in financial institutions; and investment in negotiable securities, etc.

V. THE EGM

The notice of the EGM is set out on pages 99 to 101 of this circular. The EGM will be held at 4:00 p.m. on Friday, 24 December 2021 at No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC.

Please refer to this circular and the notice of the EGM of the Company dated 8 December 2021 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 Continuing Connected Transactions must abstain from voting on the resolutions to approve the Continuing Connected Transactions (including the respective proposed annual caps).

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LETTER FROM THE BOARD

In view of the interests of China Datang, which directly held approximately 78.96% of the issued share capital of the Company as at the Latest Practicable Date and thus is a connected person of the Company, in the Continuing Connected Transactions, China Datang and its associates (including Datang Capital and Datang Finance) are required to abstain from voting on the resolutions to be proposed at the EGM to approve the Continuing Connected Transactions. As at the Latest Practicable Date, to the best knowledge, information and belief of the Directors, save as disclosed in this circular, no other Shareholders will be required to abstain from voting in respect of the relevant resolutions.

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 Continuing Connected Transactions and the transactions contemplated thereunder (including the respective proposed annual caps).

VI. RECOMMENDATION

The Board (excluding the Directors who are required to abstain, but including independent nonexecutive Directors) recommends the Shareholders to vote in favour of the relevant resolutions set out in the 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.* Wang Yanwen Chairman

For identification purposes only

– 39 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [46 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)

8 December 2021

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS – (1) RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT;

CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTIONS –

(2) FINANCIAL SERVICES FRAMEWORK AGREEMENT; AND (3) DEPOSIT SERVICES UNDER THE RENEWED FINANCIAL SERVICES AGREEMENT AND NOTICE OF THE EGM

We refer to the circular issued by the Company to the Shareholders dated 8 December 2021 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meaning in this letter unless the context otherwise requires.

Under the Listing Rules, the Continuing Connected Transactions constitute continuing connected transactions 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 Financial Services Framework Agreement, the Deposit Services under the Renewed Financial Services Agreement, the transactions contemplated thereunder 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 Financial Services Framework Agreement and the Deposit Services under the Renewed Financial Services Agreement, the transactions contemplated thereunder and the relevant 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 42 to 88 of the Circular.

– 40 –

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 Circular. Having considered the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement, the Deposit Services under the Renewed Financial Services Agreement, the transactions contemplated thereunder 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, the Financial Services Framework Agreement, the Deposit Services under the Renewed Financial Services Agreement and the transactions contemplated thereunder are in the ordinary and usual course of business of the Group and the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement, the Deposit Services under the Renewed Financial Services Agreement have 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 Financial Services Framework Agreement, the Deposit Services under the Renewed Financial Services Agreement, the transactions contemplated thereunder and the relevant 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, the Financial Services Framework Agreement, the Deposit Services under the Renewed Financial Services Agreement, the transactions contemplated thereunder 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

– 41 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

The following is the full text of the letter of advice from Trinity to the Independent Board Committee and the Independent Shareholders prepared for the purpose of inclusion in this circular.

Trinity Corporate Finance Limited

Unit 05, 29th Floor 50 Wong Chuk Hang Road Hong Kong

8 December 2021

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

Dear Sirs,

CONTINUING CONNECTED TRANSACTION –

(1) RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT;

CONTINUING CONNECTED TRANSACTIONS AND

MAJOR TRANSACTIONS –

(2) FINANCIAL SERVICES FRAMEWORK AGREEMENT; AND

(3) DEPOSIT SERVICES UNDER THE RENEWED FINANCIAL SERVICES AGREEMENT

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders of Datang Environment Industry Group Co., Ltd. (the “ Company ” and its subsidiaries, collectively the “ Group ”) in respect of the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement and the deposit services under the Renewed Financial Services Agreement (“ Deposit Services ”) details of which are set out in the Letter from the Board (the “ Letter from the Board ”) in the Company’s circular dated 8 December 2021 (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

– 42 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

As at the Latest Practicable Date, China Datang, which is the controlling shareholder of the Company, directly held approximately 78.96% of the issued share capital of the Company. Pursuant to Chapter 14A of the Listing Rules, China Datang is therefore a connected person of the Company. Datang Capital is a wholly-owned subsidiary of China Datang. Pursuant to Chapter 14A of the Listing Rules, Datang Capital is therefore a connected person of the Company. Datang Finance is a subsidiary of China Datang, and is therefore a connected person of the Company. Accordingly, the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement and the Deposit Services under the Renewed Financial Services Agreement and the respective transactions contemplated thereunder constitute continuing connected transactions of the Company under the Listing Rules.

As 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 relevant proposed annual caps under the Renewed Integrated Product and Service Framework Agreement are more than 5%, the Renewed Integrated Product and Service Framework Agreement, the transactions contemplated thereunder 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.

As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the transactions (including financial leasing service and commercial factoring service) calculated with reference to the relevant proposed annual caps under the Financial Services Framework Agreement are more than 5%, the Financial Services Framework Agreement, the transactions contemplated thereunder and the proposed annual caps are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. Further, given that one or more of the relevant percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the transactions (including commercial factoring service, financial leasing service and entrusted loan service) calculated with reference to the relevant proposed annual caps under the Financial Services Framework Agreement exceed 25% but less than 100%, the transactions contemplated under the Financial Services Framework Agreement constitute a major transaction of the Company under Chapter 14 of the Listing Rules.

As each of the percentage ratio(s) (as defined in Rule 14.07 of the Listing Rules) applicable to the Deposit Services is more than 5%, the Deposit Services are subject to the reporting, annual review, announcement, and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. Further, given that one or more of the relevant percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the Deposit Services under the Renewed Financial Services Agreement calculated with reference to the relevant proposed annual caps under the Financial Services Framework Agreement is more than 100%, the Deposit Services under the Renewed Financial Services Agreement is not a very substantial acquisition but constitutes a major transaction of the Company under Chapter 14 of the Listing Rules.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

The EGM will be convened to consider and, if thought fit, to approve, inter alia, (i) the continuing connected transactions and proposed annual caps contemplated under the Renewed Integrated Product and Service Framework Agreement; (ii) the continuing connected transactions and proposed annual caps contemplated under the Financial Services Framework Agreement; and (iii) the continuing connected transactions and proposed annual caps contemplated under the Deposit Services of the Renewed Financial Services Agreement (the “ Continuing Connected Transactions ”).

Mr. Wang Junqi, Mr. Wu Daqing and Mr. Chen Kan, being the Directors holding positions with China Datang, have abstained from voting on the respective resolutions regarding the Renewed Integrated Product and Service Framework Agreement, Financial Services Framework Agreement, Renewed Financial Services Agreement and the transactions contemplated thereunder. Save as mentioned above, all Directors have confirmed that they have no material interests in the Renewed Integrated Product and Service Framework Agreement, Financial Services Framework Agreement, Renewed Financial Services Agreement and the transactions thereof.

In view of the interests of China Datang, which directly held approximately 78.96% of the issued share capital of the Company as at the Latest Practicable Date and thus is a connected person of the Company, in the continuing connected transactions, China Datang and its associates (including Datang Capital) are required to abstain from voting on the resolution to be proposed at the EGM to approve the Deposit Services. As at the Latest Practicable Date, to the best knowledge, information and belief of the Directors, save as disclosed in the Circular, no other Shareholders will be required to abstain from voting in respect of the relevant resolutions in relation to the Continuing Connected Transactions and the transactions contemplated thereunder (including the respective proposed annual caps).

The Independent Board Committee comprising all of the independent non-executive Directors, namely Mr. Ye Xiang, Mr. Mao Zhuanjian and Mr. Gao Jiaxiang, has been formed to advise the Independent Shareholders in respect of the Continuing Connected Transactions. Trinity Corporate Finance Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the Continuing Connected Transactions.

As at the Latest Practicable Date, we did not have any relationships or interests with the Company, the Group, Datang Capital, Datang Finance or China Datang Group that could reasonably be regarded as relevant to our independence. In the last two years, there was no engagement between us and the Company, the Group, Datang Capital, Datang Finance or China Datang Group, except acting as independent financial adviser for Datang International Power Generation Co., Ltd. in connection with the discloseable transactions and continuing connected transactions in relation to 2020 factoring business cooperation agreement (details of which were set out in the circular of Datang International Power Generation Co., Ltd. dated 5 June 2020) and the revision of annual caps of continuing connected transactions (details of which were set out in the circular of Datang International Power Generation Co., Ltd. dated 30 October 2020). Apart from normal professional fees paid or payable to us in connection with this appointment, and the appointments relating to Datang International Power Generation Co., Ltd as

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

disclosed above as the independent financial adviser, no arrangements exist whereby we have received or will receive any fees or benefits from the Company, the Group, Datang Capital, Datang Finance or China Datang Group. Accordingly, we are qualified to give independent advice in respect of the Continuing Connected Transactions.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the statements, information, opinions and representations contained or referred to in the Circular, and the information and representations provided to us by the Company, the Directors and the management of the Company. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, the Directors and the management of the Company (and for which they are solely and wholly responsible), were true and accurate at the time when they were made and continue to be true as at the Latest Practicable Date and should there be any material changes to our opinion after the despatch of the Circular and up to the date of the EGM, Shareholders of the Company would be notified as soon as practicable.

All Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

We have not conducted any independent in-depth investigation into the business and affairs of the Group or any parties involved in the Continuing Connected Transactions. We have independently reviewed, inter alia, the 2020 annual report and 2021 interim report of the Company, the historical transaction amounts, the Letter from the Board, samples of contracts of the Company relating to the Existing Integrated Product and Service Framework Agreement, the Company’s prospectus dated 3 November 2016 and the Company’s circular dated 15 June 2021 in respect of the proposed issuance of super short-term commercial paper of up to RMB3 billion.

This letter is issued to the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement and the Deposit Services and the respective annual caps applicable thereto and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes other than our role as the Independent Financial Adviser, without our prior written consent.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the respective Continuing Connected Transactions, we have taken into account of the following principal factors and reasons:

I. INFORMATION OF THE COMPANY, CHINA DATANG, DATANG CAPITAL AND DATANG FINANCE

Information on the Company

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.

Customers of the Group spread over 30 provinces, autonomous regions and municipal cities in the PRC as well as eleven countries. As at 31 December 2020, the cumulative installed capacity in operation for desulfurization concession operations of the Group reached 48,000MW. The cumulative installed capacity in operation for denitrification concession operations reached 40,550MW and the installed capacity of the desulfurization entrusted operation projects reached 1,960MW.

In 2020, the Group sold 18,210m[3] of catalyst to customers other than China Datang Group and entered into 106 contracts, among which, 14 contracts were entered with overseas customers with the aggregate sales volume of 4,490m[3] , while 60 contracts were entered with customers from nonelectric industry such as glass and alumina sectors with the aggregate sales volume of 2,278m[3] . Meanwhile, the Group has made steady progress in the disposal of waste catalysts with a total amount of 9,038.7m[3] of waste catalysts being disposed in 2020.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Information on China Datang

Information on Datang Capital

Datang Capital was established on 30 November 2011, and is a subsidiary of China Datang and the controlling shareholder of the Company. The main business scope is: investment management, asset management and investment consultation.

Information on Datang Finance

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

II. RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT

As the Existing Integrated Product and Service Framework Agreement will expire on 31 December 2021 and the Company will continue to conduct the transactions under the Existing Integrated Product and Service Framework Agreement for 2022 to 2024. Therefore, the Company entered into the Renewed Integrated Product and Service Framework Agreement with China Datang on 3 December 2021 in order to renew the relevant continuing connected transactions. Both parties agreed that such agreement shall be effective from 1 January 2022 and expiring on 31 December 2024.

According to the Letter from the Board, details of the Renewed Integrated Product and Service Framework Agreement are set out as follows:

Date: 3 December 2021

Parties: (1) China Datang; and

(2) the Company

Term:

Principal terms:

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

We consider that this is fair and reasonable so far as the Independent Shareholders are concerned, as the Company will only prioritize the procurement of products and services to or from China Datang Group only if the terms and conditions of similar products and services provided by independent third parties are not more favorable than China Datang Group. In other words, terms of contracts entered into with China Datang will only be prioritized if it is on normal commercial terms or better and is beneficial to the Company and the Independent Shareholders as a whole.

Proposed Annual Caps

(RMB’000)	Type of transactions	Proposed annual caps for the year ending 31 December	Proposed annual caps for the year ending 31 December	Proposed annual caps for the year ending 31 December
		2022	2023	2024
Provided by the Group to	Service provision
China Datang Group	business(1)	4,132,000	4,086,000	4,029,000
	Product business(2)	270,000	271,000	272,000
	Engineering business(3)	3,691,000	4,005,000	4,346,000
Procured by the Group from	Service procurement
China Datang Group	business(4)	437,000	464,000	481,000
	Equipment and raw
	material procurement
	business(5)	2,054,000	2,088,000	2,197,000

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Notes:

(1) Service provision business mainly includes environmental protection facility concession operation, water treatment operation and energy management contracting business. The proposed annual caps of this transaction are renamed and re-categorized from environmental protection and energy conservation solutions under the Existing Integrated Product and Service Framework Agreement.
(2) Product business mainly includes denitrification catalyst business. The proposed annual caps of this transaction are renamed and re-categorized from environmental protection and energy conservation solutions under the Existing Integrated Product and Service Framework Agreement.
(3) Engineering business mainly includes environmental protection facilities engineering business, renewable energy engineering and other services. The proposed annual caps of this transaction are renamed and re-categorized from renewable energy engineering and thermal power engineering under the Existing Integrated Product and Service Framework Agreement.
(4) Service procurement business includes operational ancillary business, information and technology service and other services. The proposed annual caps of this transaction are renamed and recategorized from operational ancillary service and technology and information service and other services under the Existing Integrated Product and Service Framework Agreement.
(5) Equipment and raw material procurement business includes supply of water, electricity and steam, raw materials and other products. The proposed annual caps of this transaction are renamed and recategorized from supply of water, electricity and equipment and raw material procurement service under the Existing Integrated Product and Service Framework Agreement.

According to the Letter from the Board, in determining the abovementioned proposed annual caps for 2022 to 2024, the Board has taken into account the following factors: (i) the terms of the existing purchase and sale agreements; (ii) the historical amounts of various purchase and sale transactions, the analysis of which is set out in the section headed “Historical Transaction Amounts and Utilisation Rates” below; (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 conditions.

Specifically for various transactions under the Renewed Integrated Product and Service Framework Agreement, the determination of the respective proposed annual caps are based on the following considerations:

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

Service provision business

We note that the proposed annual cap for service provision business is RMB4.132 billion for the year ending 31 December 2022 and gradually reducing to RMB4.086 billion and RMB4.029 billion for the two years ending 31 December 2024 respectively.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

The service provision business of the Group mainly includes environmental protection facility concession operation, water treatment operation and energy management contracting business.

We have reviewed the annual report of the Company for the year ended 31 December 2020 and it is stated that the Group continued to be the largest desulfurization and denitrification concession operator and the largest manufacturer of denitrification catalysts nationwide.

We have discussed with the Company and understand that based on the leading position of the Group as the largest flue gas desulfurization and denitrification concession operator in China and the active development of environmental protection and management business in steel, cement, metallurgy and other non-electric fields, the estimated provision of services for environmental protection facility concession operation by the Group to the Datang Group will remain high and constitute the majority of approximately 96.3% of the proposed annual cap of service provision business for the year ending 31 December 2022. We further understand that the gradual reduction in the proposed annual cap for the financial years ending 31 December 2023 and 31 December 2024 is a result of the estimated timing of the respective service contracts for environmental protection facility concession operation.

In terms of water treatment operation, it is expected that the transaction amounts between the Group and China Datang Group in the next three years will maintain a similar level as compared with that in 2020, while its percentage in the total operating income of the Group will still be relatively low.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

We have discussed with the Company and understand that the estimated provision of services for water treatment operation by the Group to the Datang Group will remain at similar levels compared to historical amounts for the year ended 31 December 2020 and constitute a minor portion of approximately 2.1% of the proposed annual cap of service provision business for the year ending 31 December 2022.

We have discussed with the Company and understand that the estimated provision of services for energy management contracting business by the Group to China Datang Group will remain at similar levels compared to historical amounts for the year ended 31 December 2020 and constitute a minor portion of approximately 1.5% of the proposed annual cap of service provision business for the year ending 31 December 2022.

According to the Letter from the Board, the proposed annual caps of the service provision business mainly include the ones of environmental protection facility concession operation, water treatment operation and energy management contracting business. The environmental protection facility concession operation is estimated to remain at a constant rate for the three years ending 31 December 2024, where its proposed annual caps are calculated on the basis of an annual reduction by 3% in the coal-fired power generation output in the PRC. In addition, it is expected that there will be two additional projects for water treatment operation each year starting from 2023, where each project could contribute approximately RMB25 million to RMB35 million, yielding approximately 2% growth in the annual transaction amount. Similarly, with the existing projects in energy management contracting business, the estimated transaction value will remain the same for the three years ending 31 December 2024.

As set out in the section headed “Historical Transaction Amounts and Utilisation Rates” below, the utilisation rate of the service provision business (being the comparison between the unaudited transaction amounts for the year ended 31 December 2020 and the proposed annual caps for the year ending 31 December 2022), for illustration purposes only, already reached approximately 87.6%. As the Company expects that the estimated transaction value for the two years of 2023 and 2024 will have a slight reduction by 3% in coal-fired power generation output in the PRC, we consider that the proposed annual caps of the service provision business for the three years ending 31 December 2024, with slight reduction of approximately 1-2% per annum from RMB4,132 million for the year ending 31 December 2022 to RMB4,086 million for the year ending 31 December 2023 and from RMB4,086 million for the year ending 31 December 2023 to RMB4,029 million for the year ending 31 December 2024, are therefore fair and reasonable.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Product business

We note that the proposed annual cap for product business is RMB270,000,000 for the year ending 31 December 2022 and gradually increasing by only RMB1 million per year to RMB271,000,000 and RMB272,000,000 for the years ending 31 December 2023 and 31 December 2024 respectively.

According to the Letter from the Board, the product business mainly includes denitrification catalyst business. We have discussed with the Company and understand that all product businesses for the annual caps for the three years ending 31 December 2024 are denitrification catalyst businesses.

It is expected that the sales 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 2020, with an annual sales volume of approximately 13,500 m[3] to 13,550 m[3] , while the unit sale price will also remain stable between RMB14,800/m[3] and RMB15,000/m[3] . In addition, it is expected that 8,002.06 m[3] to 8,012.42 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 RMB8,500/m[3] . We have discussed with the Company and understand that the gradual increase of the proposed annual cap for the three years ending 31 December 2024 is a result of the estimated gradual growth of sales volume for denitrification catalysts of the Group to China Datang Group due to the planned expansion of two production lines.

Engineering business

We note that the proposed annual cap for engineering business is RMB3.691 billion for the financial year ending 31 December 2022 and increasing by RMB314 million and RMB341 million for the years ending 31 December 2023 and 31 December 2024 respectively.

According to the Letter from the Board, the engineering business mainly includes environmental protection facilities engineering business, renewable energy engineering and other services. The Directors believe that the proposed annual caps will have a steady growth.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

We have discussed with the Company and agree that the expected steady growth for both environmental protection facilities engineering business and the increase in wind power projects for renewable energy projects is reflected in the proposed increase of RMB314 million and RMB341 million for the proposed annual caps for the years ending 31 December 2022 and 31 December 2023.

According to the Letter from the Board, the proposed annual caps of engineering business mainly include the ones of water engineering business, environmental protection facilities engineering business, industrial site dust management, renewable energy engineering business and thermal power engineering. In determining the proposed annual caps for the three years ending 31 December 2024, the Board has taken into account the following factors:

(i) the expected amount to be generated from seven to nine projects regarding the water engineering business per year at the estimated value of RMB25 million each;
(ii) the expected amount to be generated from three to four new projects in the coming three years regarding the environmental protection facilities engineering business;
(iii) the expected amount to be generated from industrial site dust management which includes the upgrade engineering of estimated five bucket wheel excavators per year at RMB9 million each and three to four industrial site dust management projects per year at RMB60 million each;
(iv) the expected amount to be generated from estimated six to eight photovoltaic projects regarding the renewable energy engineering business per year at RMB100 million each;

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

(v) the expected amount to be generated from one to two projects of engineering procurement construction services regarding the thermal power engineering business per year; and
(vi) the expected amount to be generated from soil restoration mine rehabilitation, and energy storage etc.

We have discussed with the Company and understand that the expected new projects as set out above in respect of the engineering business is the main underlying factor for the proposed increase in the annual caps of engineering business for the three years ending 31 December 2024. Accordingly, we confirm that the proposed annual caps of engineering business for the three years ending 31 December 2024, as supported by the projections for new projects and/or construction and other services, are therefore fair and reasonable.

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

We note that the annual cap of service procurement business for the year ending 31 December 2022 is RMB437 million and increasing to RMB464 million and RMB481 million for the two years ending 31 December 2024 respectively. This represents an increase of RMB27 million and RMB17 million for the two years ending 31 December 2024 respectively.

Service procurement business

According to the Letter from the Board, service procurement business includes operational ancillary business, information and technology service and other services.

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 steady and stable growth as compared with historical results, which is expected to be in line with the steady and stable 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. We have discussed with the Company and understand that the operational ancillary business makes up the majority of service procurement business and approximately 80.9% of the proposed annual cap for the year ending 31 December 2022. The technology and information service to be procured by the Group from China Datang Group for the next three years mainly includes the feasibility study, design, completion acceptance, settlement, assessment and relevant technical services of projects, software design, construction of information system and relevant information service. For the technology and information service to be procured by the Group from China Datang Group, the Directors expect that the transaction amounts since 2022 will increase steadily along with the increasing demand for such service by the Group.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

We have discussed with the Company and understand that the proposed increase of the annual cap of RMB27 million and RMB17 million for the two years ending 31 December 2024 respectively are a result of the steady increase for all the service procurement business set out above.

According to the Letter from the Board, the proposed annual caps of the service procurement business are highly correlated to the transaction value under the service provision business, the product business and the engineering business.

We have discussed with the Company and understand that the projections for service procurement business for the three years ending 31 December 2024 are based on the expected growth and number of projects for the service provision business, product business and the engineering business as set out above. Accordingly, we agree with the Directors that the proposed annual caps of the service procurement business for the three years ending 31 December 2024 are fair and reasonable.

Equipment and raw material procurement business

We note that the annual cap of equipment and raw material procurement business for the year ending 31 December 2022 is RMB2.054 billion and increasing to RMB2.088 billion and RMB2.197 billion for the two years ending 31 December 2024 respectively. This represents an increase of RMB34 million and RMB109 million for the two years ending 31 December 2024 respectively.

According to the Letter from the Board, equipment and raw material procurement business includes supply of water, electricity and steam, procurement of equipment and raw materials and other products.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

We have discussed with the Company and confirm that the proposed increase of annual cap of RMB34 million and RMB109 million for the two years ending 31 December 2024 respectively is mainly the result of the estimated increase in the scale of the abovementioned environmental protection facilities engineering, water treatment operation, energy management constructing business, renewable energy engineering and other engineering business, which constitutes approximately 49.58% of the proposed annual cap for the year ending 31 December 2022.

According to the Letter from the Board, the proposed annual caps of the equipment and raw material procurement business are highly correlated to the transaction value under the service provision business, the product business and the engineering business.

We have discussed with the Company and understand that the projections for equipment and raw material procurement business for the three years ending 31 December 2024 are based on the expected growth and number of projects for the service provision business, the product business and the engineering business as set out above. Accordingly, we agree with the Directors that the proposed annual caps of the equipment and raw material procurement business for the three years ending 31 December 2024 are fair and reasonable.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Historical Transaction Amounts and Utilisation Rates

The historical transaction amounts of each transaction under the Renewed Integrated Product and Service Framework Agreement for the last two years ended 31 December 2020 and the six months ended 30 June 2021 are as follows:

(RMB’000)	Type of transactions				Historical transaction amounts	Historical transaction amounts	Historical transaction amounts
					For the year ended	For the year ended	For the 6 months ended
					31 December 2019	31 December 2020	30 June 2021
Provided by the Group to	Environmental protection and				5,080,257	4,438,787	1,907,153
China Datang Group	energy conservation solutions			(1)
	Renewable energy engineering		(2)		677,775	1,773,369	39,419
	Thermal power engineering (3)				113,597	1,135	–
	Other services				45,334	9,177	–
Procured by the Group from	Operational ancillary service	(4)			131,218	84,801	108,956
China Datang Group	Supply of water, electricity and				859,643	796,908	400,109
	steam (5)
	Technology and information	service			92,758	65,108	14,256
	and other services (6)
	Equipment and raw material				403,658	1,346,098	67,901
	procurement service (7)

Notes:

(1) Environmental protection and energy conservation business mainly includes flue gas desulfurization and denitrification facility concession operation for coal-fired power plants, the manufacture and sale of denitrification catalysts, engineering for coal-fired power plants, and energy conservation including energy conservation facility engineering and energy management contracting. It is renamed and recategorized as and included in part of the service provision business, part of the product business and part of the engineering business under the Renewed Integrated Product and Service Framework Agreement.
(2) Renewable energy engineering business mainly includes the engineering general contract for newly built wind power plants, biomass power plants and photovoltaic power plants. It is renamed and re-categorized as and included in part of the engineering business under the Renewed Integrated Product and Service Framework Agreement.
(3) Thermal power engineering mainly includes the engineering procurement construction services for thermal power plants. It is renamed and re-categorized as and included in part of the engineering business under the Renewed Integrated Product and Service Framework Agreement.
(4) Operational ancillary service is renamed and re-categorized as and included in part of the service procurement business under the Renewed Integrated Product and Service Framework Agreement.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

(5) Supply of water, electricity and steam is renamed and re-categorized as and included in part of the equipment and raw material procurement business under the Renewed Integrated Product and Service Framework Agreement.
(6) Technology and information service and other services are renamed and re-categorized as and included in part of the service procurement business under the Renewed Integrated Product and Service Framework Agreement.
(7) Equipment and raw material procurement service is renamed and re-categorized as and included in part of the equipment and raw material procurement business under the Renewed Integrated Product and Service Framework Agreement.

We have discussed with the Company and understand that the proposed annual caps for the three financial years ending 31 December 2024 are proposed to be in different categorization from the historical transaction amounts set out above, which the Company considers to better reflect the respective products and services to be provided by the Group to China Datang Group and vice versa under the new categorization. Accordingly, in addition to our discussion and analysis of the proposed annual caps above, we are unable to perform a comparison based on the historical utilisation rate of the historical transaction amounts above.

For illustration purposes, based on the renamed and re-categorized proposed annual caps above, the unaudited historical transaction amounts for the year ended 31 December 2020, being the latest full financial year available, and the respective utilisation rates are set out as follows:

				Utilisation Rate (comparison
				between unaudited transaction
		Unaudited historical		amounts for the year ended
		transaction amounts for	Proposed annual caps for	31 December 2020 and the proposed
		the year ended	the year ending	annual caps for the year ending
(RMB’000)	Type of Transactions	31 December 2020	31 December 2022	31 December 2022)
				(%)
Provided by the Group to	Service provision business	3,620,225	4,132,000	87.6
China Datang Group	Product business	175,382	270,000	65.0
	Engineering business	2,426,861	3,691,000	65.8
Procured by the Group from	Service procurement business	149,819	437,000	34.3
China Datang Group	Equipment and raw material	2,143,006	2,054,000	104.3
	procurement business

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

As shown in the table above, for illustration purposes only, the utilisation rates of the service provision business, product business and engineering business provided by the Group to China Datang Group, expressed as a percentage of the unaudited historical amounts for the year ended 31 December 2020 compared to the proposed annual caps for the year ending 31 December 2022 (being the first year of the renamed and re-categorized items) are relatively high at approximately 87.6%, 65.0% and 65.8% respectively. Based on the high utilisation rate for service provision business, the expected growth as a result of the estimated gradual growth of sales volume for denitrification catalysts of the Group to China Datang Group due to the planned expansion of two production lines and the number of construction projects such as dust control, water treatment, sludge disposal, noise control and environmental restoration to be undertaken by the Group in the future three years will steadily increase (details of which are set out in the section “Proposed Annual Caps” above), we consider that the proposed annual caps for service provision business, product business and engineering business respectively are fair and reasonable.

Also, the utilisation rates on the same basis for the service procurement business and equipment and raw material procurement business procured by the Group from China Datang Group are approximately 34.3% and 104.3% respectively. As set out in section headed “Proposed Annual Caps” above and the notes to the proposed annual caps, the service procurement business is mainly re-categorized from operational ancillary business which the Directors believe will have a steady and stable growth as compared with historical results, which is expected to be in line with the steady and stable 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. We have discussed with the Company and understand that the operational ancillary business makes up the majority of service procurement business and approximately 80.9% of the proposed annual cap for the year ending 31 December 2022. Accordingly, we consider that although the utilisation rate of the unaudited historical amount for the year ended 31 December 2020 compared to the proposed annual cap for the year ending 31 December 2022 is only 34.3%, the proposed annual cap for service procurement business is fair and reasonable as it has taken into account of the growth in such services after the financial year ended 31 December 2020 and that operational ancillary business alone will constitute over 80% of the proposed annual cap for the year ending 31 December 2022.

Also, for illustration purposes, the utilisation rate for equipment and raw material procurement business is approximately 104.3% of the proposed annual cap for the year ending 31 December 2022, which is more than the proposed annual cap for the year ending 31 December 2022, and accordingly we consider that the proposed annual cap for equipment and raw material procurement business is fair and reasonable as the Company will continue to procure such services from China Datang Group on the basis of similar but slight reduced annual amounts.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Pricing Policy

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

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

According to the Letter from the Board, 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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determined based on market price (which is obtained through quotations from public market and three 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).

We consider that the pricing of tariff for desulfurized and denitrified electricity under the concession operation which is determined based on government-prescribed price will ensure that the terms will be on normal market terms or better. We have also discussed with the Company and understand that there have been no major changes in the regulatory environment for desulfurization and denitrification business since its listing in 2016 and details of the regulatory framework including the pricing of tariff can be found in its prospectus dated 3 November 2016. We have reviewed the relevant sections of the prospectus and confirm that the NDRC was responsible for issuing notices on the increase of on-grid denitrification tariffs. Also, the pricing of by-products by market price or bidding process will also ensure that the prices for by-products will be at market price or better and is fair and reasonable so far as the Independent Shareholders are concerned.

During the period under review for the two financial years ended 31 December 2020 and the six months ended 30 June 2021, there were no new contracts for desulfurized and denitrified electricity under the concession operation in order for us to confirm whether the contracts were made pursuant to a bidding process with China Datang Group and/or its associates as all contracts were awarded under existing ongoing long-term contracts which commenced prior to the abovementioned period under review.

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 and 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

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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.

We consider that the pricing of other service provision business by bidding process, recent bidding price or market price from other sources as stated above will ensure that the prices for other service provision business will be on normal commercial terms or better and is fair and reasonable so far as the Independent Shareholders are concerned. Also, as the Group will consider providing the relevant services to other 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, we consider that it is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

During the period under review for the two financial years ended 31 December 2020 and the six months ended 30 June 2021, there were no new contracts for other service provision business in order for us to confirm whether the contracts were made pursuant to a bidding process with China Datang Group and/or its associates as all contracts were awarded under existing ongoing long-term contracts which commenced prior to the abovementioned period under review.

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The pricing policy for product business: 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:

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 and 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.

Only in exceptional circumstances, such as in case of reoccurrence of lack of sufficient number of bidders attending the bidding procedure and urgent procurement demand by China Datang Group, bidding procedures can be skipped by China Datang Group where 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 the 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, three 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.

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We consider that the pricing of product business by bidding process, recent bidding price or market price from other sources as stated above will ensure that the prices for product business will be on normal commercial terms or better and is fair and reasonable so far as the Independent Shareholders are concerned. Also, as the Group will consider providing relevant products to other 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, we consider that it is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

We have been provided with 2 samples of contracts for product business, which were dated 26 April 2021 and 8 May 2021 respectively, and confirmed that the 2 contracts were made pursuant to a bidding process with China Datang Group and/or its associates. The 2 samples were selected by the Company on a random basis and we noted that the terms of such contracts have been properly authorized by the Company. Accordingly, we consider that the above sample size is sufficient, fair and representative in concluding our view that the pricing policies were properly followed.

The pricing policy for engineering business: 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 and 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.

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Only in exceptional circumstances, such as in case of reoccurrence of lack of sufficient number of bidders attending the bidding procedure and urgent procurement demand by China Datang Group, bidding procedures can be skipped by China Datang Group where 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 the 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, three 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.

We consider that the pricing of engineering business by bidding process, recent bidding price or market price from other sources as stated above will ensure that the prices for engineering business will be on normal commercial terms or better and is fair and reasonable so far as the Independent Shareholders are concerned. As the Group will consider providing relevant products to other 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 we consider that it is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

We have been provided with 2 samples of contracts for engineering business, which were dated 14 January 2019 and 30 March 2021 respectively, and confirmed that the 2 contracts were made pursuant to a bidding process with China Datang Group and/or its associates. The 2 samples were selected by the Company on a random basis and we noted that the terms of such contracts have been properly authorized by the Company. Accordingly, we consider that the above sample size is sufficient, fair and representative in concluding our view that the pricing policies were properly followed.

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

According to the Letter from the Board, 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 service procurement business: 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 purchasing the 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.

We consider that the pricing of products by bidding process, recent bidding price or market price from other sources as stated above will ensure that the prices for products will be on normal commercial terms or better and is fair and reasonable so far as the Independent Shareholders are concerned. Also, as the Group will consider purchasing the relevant ancillary services from other 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, we consider it is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

We have been provided with 2 samples of contracts for products, which were dated 14 January 2019 and 12 July 2021 respectively, and confirmed that the 2 contracts were made pursuant to a bidding process with the best terms provided by China Datang and/or its associates. The 2 samples were selected by the Company on a random basis and we noted that the terms of such contracts have been properly authorized by the Company. Accordingly, we consider that the above sample size is sufficient, fair and representative in concluding our view that the pricing policies were properly followed.

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The pricing policy for other service businesses: In most circumstances where the Group purchases services from China Datang Group, bidding procedures shall be applied for the determination of prices. Only in exceptional circumstances, 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.

The 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 actual costs which reflect the market price of water and power for the supply of water and power by power plants to third-party desulfurization and denitrification concession operation service providers per the government’s prescribed requirement. We consider that it is fair and reasonable for the supply of water, electricity and steam to be determined based on government-prescribed prices as this will ensure that the terms are on normal commercial terms or better.

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. China Datang Group will charge a fee (the “ Service Fee ”) not exceeding 6% of the purchasing price, which shall be determined on the basis of the actual scope of services provided by an independent third party service provider and the pricing standard of the relevant services and materials. The Service Fee shall be fairly agreed between the parties and shall not exceed the fee charged for similar services provided by China Datang Group to an independent third party or its affiliated entities. Upon the execution of the relevant procurement contract, the Materials Management Department (物資管理部) will review and approve the Service Fee and ensure that it will not exceed 6% of the relevant purchasing price. Only in exceptional circumstances, such as in case of urgent procurement demand of the Group, can the bidding procedures 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.

We have discussed with the Company and understand that the centralized procurement of equipment and raw materials will enable the Company to secure the most competitive price through bulk purchase and the Company considers that the payment of a handling fee to China Datang Group, of not more than 6% of the purchase price, is fair and reasonable to the Company as the potential cost savings outweighs the handling fees. We consider that, on the basis the centralized procurement of equipment and raw materials will enable the Company to gain cost savings that outweigh the handling fees of not more than 6%, the terms for procurement of equipment and raw materials is fair and reasonable.

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Reasons for and Benefits of entering into of the Renewed Integrated Product and Service Framework Agreement

According to the Letter from the Board, based on the Company’s previous experience in business dealings with China Datang Group, the Company believes 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 the Shareholders as a whole.

We agree that the terms of the Renewed Integrated Product and Service Framework Agreement with China Datang Group are on normal commercial terms or better, which is generally made through a bidding process or by reference to market price, in the ordinary and usual course of business of the Group, and are beneficial to the Company and in the interests of the Company and the Shareholders as a whole as China Datang Group is familiar with the Company’s business and business demands.

In addition, according to the Letter from the Board, the Company believes that the Renewed Integrated Product and Service Framework Agreement would not give rise to reliance issue of the Company with its connected persons and controlling shareholder in that (i) deriving the majority of revenue from the holding company is in line with the general market practice of other leading market players of concession operations in the environmental protection industry; (ii) the historical transaction amounts of the environmental protection and energy conservation solution which composed of the major part of the re-categorized service provision business have been decreasing from RMB5,080.26 million (representing approximately 79.20% of total revenue) for the year ended 31 December 2019 to RMB4,438.79 million (representing approximately 65.07% of total revenue) for the year ended 31 December 2020, and further down to RMB1,907.15 million (representing approximately 86.82% of total revenue) for the six months ended 30 June 2021, where as the relevant proportions to the total revenue were floating within a range of 65% to 87%; (iii) the historical transaction amounts of the renewable energy engineering and thermal power engineering which composed of the major part of the re-categorized engineering business increased from RMB791.37 million (representing approximately 12.34% of total revenue) for the year ended 31 December 2019 to RMB1,774.50 million (representing approximately 26.01% of total revenue) for the year ended 31 December 2020, but down to only RMB39.42 million (representing approximately 1.79% of total revenue) for the six months ended 30 June 2021; (iv) the steadily decreasing proposed annual caps of the service provision business from RMB4,132 million for the year ending 31 December 2022 to RMB4,086 million for the year ending 31 December 2023 and RMB4,029 million for the year ending 31 December 2024 reflects the Company’s intention not to

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further increase its transactions with China Datang Group; and (v) the steadily increasing proposed annual caps of the engineering business from RMB3,691 million for the year ending 31 December 2022 to RMB4,005 million for the year ending 31 December 2023 and RMB4,346 million for the year ending 31 December 2024 results from the general thriving market opportunities in the environmental protection industry, driven by favourable state policies.

We noted from the reasons above, that the proposed annual caps of the service provision business reflect a decreasing trend (where as the relevant proportions to the total revenue were floating within a range of 65% to 87%) and the Company’s intention not to further increase its transactions with China Datang Group as well as the steadily increasing proposed annual caps of the engineering business that is the result of thriving market opportunities. We have also reviewed the Company’s initial public offering prospectus dated 3 November 2016 and noted that the Company is the sole platform for the development of environmental protection and energy conservation business under China Datang Group, which is one of the five major state wholly-owned power generation groups in the PRC. According to the Frost & Sullivan Report, in terms of cumulative contracted capacity by the end of 2015, the Company’s desulfurization and denitrification concession operations represented 21.6% and 38.2% of the domestic market, respectively, both ranking as the largest nationwide; in terms of the production volume in 2015, the Company’s share of nationwide plate-

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type denitrification catalysts market was 30.7%, ranking as the largest in China, and the Company is also the largest plate-type denitrification catalyst manufacturer in the world; the denitrification facilities engineering projects that the Company had completed then for coal-fired power plants accounted for 6.3% of the nationwide market, ranking as the third largest in the PRC.

With respect to the service provision business and engineering business, given the Group’s background of the leading market position in the PRC and the scale of operations involved as disclosed above, we consider it is reasonable that the Company will continue to have certain contractual relationships with China Datang Group, which is one of the five major state whollyowned power generation groups in the PRC, and is therefore in the interests of the Company and the Shareholders as a whole. Considering the reasons stated above, including that deriving the majority of revenue from the holding company is in line with the general market practice of other leading market players of concession operations in the environmental protection industry, we concur with the Directors that the transactions contemplated under the Renewed Integrated Product and Service Framework Agreement will not give rise to reliance issue of the Company with its connected persons and controlling shareholder and we are of the view that the measures adopted by the Company to prevent undue reliance on its connected persons and controlling shareholder as stated above are effective.

Relevant Internal Control Measures of the Renewed Integrated Product and Service Framework Agreement

According to the Letter from the Board, the Company has 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 2022, 2023 and 2024, which were proposed by the Securities and Capital Department (證券資本部) 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 Securities and Capital 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.

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The Securities and Capital 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 Market Development Department (市場發展部) before execution. Before submitting any new business contract to the Market Development Department, the relevant business department is required to check the identity of each party to such contract against the latest list of connected persons of the 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 Market Development Department for review and approval. In addition, the Materials Management Department (物資管理部) and the Market Development Department will screen the Connected Transaction Identification Process and ensure all connected transactions will be submitted to the Market Development Department for approval. The Market Development 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 Market Development Department’s planning, usually such contract can proceed to execution. If there exists significant difference between the annual caps and the value of proposal contract, the Market Development Department will check against the monthly report provided by the Finance 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. 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 Market Development 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 Market Development Department considers such transaction 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.

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The Securities and Capital 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, among others, (i) the amount of connected transactions occurred in the previous months; (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 accumulative connected transaction amount occurred together with the expected transaction amount for the rest of the year will exceed the annual caps, the relevant member or department of the Group is required to report to the Securities and Capital Department the reasons for deviation and the proposed rectification measures. Subsequently, the Securities and Capital Department will notify the Market Development Department of such deviation or potential deviation by relevant member or department, and the Market Development Department will closely monitor and control the approval of new business contracts for relevant member or department.
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.
The independent non-executive Directors and the Company’s auditors will review annually the enforcement of relevant continuing connected transactions under the Renewed Integrated Product and Service Framework Agreement and provide annual confirmations in accordance with the Listing Rules that relevant continuing connected transactions are conducted in accordance with the terms of the Renewed Integrated Product and Service Framework Agreement, on normal commercial terms and are in the interests of the Company and the Shareholders as a whole.

We have reviewed the latest letter issued by the external auditor of the Company to the Board to report on the continuing connected transactions of the Company in relation to the pricing policies and annual caps of the continuing connected transactions of the Company conducted during the preceding financial year pursuant to the Listing Rules, and accordingly, we consider that the pricing policies and internal control procedures set out above were properly followed and we are of the view that the above measures can effectively manage the potential risks relating to the Renewed Integrated Product and Service Framework Agreement and will ensure that the respective services will be conducted on normal commercial terms or better and are fair and reasonable so far as the Independent Shareholders are concerned.

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III. FINANCIAL SERVICES FRAMEWORK AGREEMENT

Date:

3 December 2021

Parties:

(1) Datang Capital; and

(2) the Company

Term:

From 1 January 2022 until 31 December 2024, and could be renewed as agreed by both parties.

Principal terms:

According to the Financial Services Framework Agreement, Datang Capital agreed to provide to the Company with commercial factoring service, asset securitization service, financial leasing, sales and leaseback service, entrusted loan service, operating lease, brokerage and consultation service in relation to transfer of property rights and assets and bespoke financial service solutions.

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Proposed Annual Caps

Commercial Factoring

Financial Leasing

The proposed annual caps of financial leasing service under the Financial Services Framework Agreement for each of the years ending 31 December 2022, 31 December 2023 and 31 December 2024 are as follows, with no proposed year-on-year increment:

(RMB’000)	Proposed annual caps for the year ending 31 December	Proposed annual caps for the year ending 31 December	Proposed annual caps for the year ending 31 December
	2022	2023	2024
Maximum daily balances of leasing
principal	1,000,000	1,000,000	1,000,000
Annual interests and other
payments:
Outstanding interest fee and
handling fee	60,000	60,000	60,000

Entrusted Loan Service

The proposed annual caps of entrusted loan service under the Financial Services Framework Agreement for each of the three years ending 31 December 2022, 31 December 2023 and 31 December 2024 are RMB1,000 million, RMB1,000 million and RMB1,000 million respectively, with no proposed year-on-year increment.

As of 30 June 2021, the payable principal and interests of bank loans of the Group due within 1 year amounted to approximately RMB1,744 million in aggregate, and the payable principal and interests of bank loans of the Group due between 1-2 years amounted to approximately RMB465 million in aggregate. According to the Company, the total amount of bank loans due within 1 year and between 1-2 years will be approximately RMB2,209 million. Upon maturity of such bank loans, the Group expects to perform refinancing to cover the abovementioned bank loans as well as the fresh working capital for expanding the business of the Group.

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According to the Letter from the Board, as the Group is gradually promoting business transformation with its capital expenditure growing rapidly, it needs to expand financing channels to meet its financing needs.

As stated by the Company above, as the total amount of bank loans due within 1 year and between 1-2 years will be approximately RMB2,209 million which is more than twice of the proposed annual cap of RMB1,000 million for the three financial years ending 31 December 2024, therefore, we consider that the Company’s plan to obtain lower levels of financing through bank loans and to increase financing through commercial factoring and other products as stated above is in the best interest of the Company and fair and reasonable so far as the Independent Shareholders are concerned and accordingly, we agree that the proposed annual caps are fair and reasonable.

The rest of the services under the Financial Services Framework Agreement, namely, asset securitization service, sales and leaseback service, operating lease, brokerage and consultation service in relation to transfer of property rights and assets and financial service solution will have proposed annual caps with relevant applicable percentage less than 0.1%.

According to the Letter from the Board, given the above, taking into account (i) the abovementioned amount of principal and interests to be repaid upon maturity of the bank loans of the Group; (ii) the expected decreasing amount of bank loans and higher interest rate level to be obtained by the Group in the future for refinancing the abovementioned bank loans and for the expanding business of the Group; and (iii) the relevant terms of the Financial Framework Services provided by Datang Capital to accommodate the Group’s need for financing, the Group has determined the proposed annual caps of the Financial Framework Services under the Financial Services Framework Agreement, respectively.

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Historical Transaction Amounts and Utilisation Rates

The Financial Services Framework Agreement renews the financial leasing service and commercial factoring service under the Preceding Financial Services Agreement. The historical transaction amounts for each transaction under the Preceding Financial Services Agreement for the three years ended 31 December 2018, 2019 and 2020 are as follows:

				Existing	Utilisation
(RMB’000)	Historical transaction amounts			annual caps	Rates
	For the year ended	For the year ended	For the year ended	For the year ended	For the year ended
	31 December	31 December	31 December	31 December	31 December
Type of transactions	2018	2019	2020	2020	2020
Financial leasing service
－Ac tual maximum daily balance of
leasing principal	265,000	135,000	394,000	910,000	43.3%
－Ou tstanding interest fee and
handling fee	2,200	19,000	600	90,000	0.7%
Commercial factoring service
－Service fee	161,400	106,000	73,000	500,000	1.4%

There was no historical transaction amount between the Company and Datang Capital for the entrusted loan service under the Preceding Financial Services Agreement.

The historical utilisation rates were 43.3%, 0.7% and 1.4% of the annual caps of the actual maximum daily balance of leasing principal, outstanding interest fee and handling fee and commercial factoring service fees for the year ended 31 December 2020 respectively.

Pricing Policy

(1) Commercial factoring service under the Financial Services Framework Agreement

The comprehensive interest rate relating to the commercial factoring service provided by Datang Capital to the Group shall be based on fair and reasonable market pricing and normal commercial terms. In particular, the rate shall not be higher than the interest rate level provided via email by independent third parties to the Group for the same type of service during the same period or the interest rate of the same type of service provided by Datang Capital to third parties with same credit rating. We consider that the interest rate for commercial factoring services are fair and reasonable at market pricing and shall not be higher than the interest rate provided by independent third parties is in the interests of the Company and the Independent Shareholders as a whole.

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The Financial and Property Management Department of the Company will be responsible for the adoption and implementation of the pricing policies in relation to the commercial factoring services under the Financial Services Framework Agreement. Before entering into commercial factoring transactions, the Financial and Property Management Department will seek, obtain and refer to the price quotes and business proposals from at least three third party providers independent from Datang Capital. It will then compare such quotes and proposals with the price quotes and proposals offered by Datang Capital, taking into consideration of various factors such as price quotes, other commercial terms, level of synergy to be achieved, historical transactional records with such party, etc.. The Group will enter into commercial factoring transactions with such third party providers if their terms are more favourable than that offered by the Datang Capital as a result of the aforesaid comparison and consideration.

We are informed by the Company that were no samples of commercial factoring transactions whereby the Financial Management Department has obtained price quotes and business proposals from at least three third party providers independent from Datang Capital, prior to entering into transactions with Datang Capital as the only transaction entered was with a subsidiary which was unable to obtain similar services from other independent third parties. In the circumstances, the terms provided by Datang Capital after arm’s length negotiations was the best terms and conditions available to that subsidiary.

(2) Financial leasing service under the Financial Services Framework Agreement

The rent paid by the Group to Datang Capital includes (i) procurement costs; and (ii) interests. The relevant interests are determined based on the benchmark interest rates for loan as implemented by the PBOC. We consider that the pricing determined based on the benchmark interest rates for loans implemented by the PBOC is fair and reasonable.

The Financial and Property Management Department of the Company will be responsible for the adoption and implementation of the pricing policies in relation to the financial leasing service under the Financial Services Framework Agreement. Before entering into financial leasing transactions, the Financial and Property Management Department will seek, obtain and refer to the price quotes and business proposals from at least three third party providers independent from Datang Capital. It will then compare such quotes and proposals with the price quotes and proposals offered by Datang Capital, taking into consideration of various factors such as price quotes, other commercial terms, level of synergy to be achieved, historical transactional records with such party, etc.. The Group will enter into financial leasing transactions with such third party providers if their terms are more favourable than that offered by Datang Capital as a result of the aforesaid comparison and consideration.

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LETTER FROM TRINITY CORPORATE FINANCE LIMITED

We are informed by the Company that were no samples of financial leasing transactions whereby the Financial Management Department has obtained price quotes and business proposals from at least three third party providers independent from Datang Capital, prior to entering into transactions with Datang Capital as the only transaction entered was with a subsidiary which was unable to obtain similar services from other independent third parties. In the circumstances, the terms provided by Datang Capital after arm’s length negotiations was the best terms and conditions available to that subsidiary.

(3) Entrusted loan service under the Financial Services Framework Agreement

The entrusted loan interest paid by the Group to Datang Capital includes (i) procurement costs; and (ii) interests. The relevant interests are determined based on the benchmark interest rates for loan as implemented by the PBOC. We consider that the pricing determined based on the benchmark interest rates for loans implemented by the PBOC is fair and reasonable.

The Financial and Property Management Department of the Company will be responsible for the adoption and implementation of the pricing policies in relation to the entrusted loan service under the Financial Services Framework Agreement. Before entering into entrusted loan transactions, the Financial and Property Management Department will seek, obtain and refer to the price quotes and business proposals from at least three third party providers independent from Datang Capital. It will then compare such quotes and proposals with the price quotes and proposals offered by Datang Capital, taking into consideration of various factors such as price quotes, other commercial terms, level of synergy to be achieved, historical transactional records with such party, etc.. The Group will enter into entrusted loan transactions with such third party providers if their terms are more favourable than that offered by Datang Capital as a result of the aforesaid comparison and consideration.

As this is a new service under the Financial Services Framework Agreement, there are no samples available of entrusted loan transactions to confirm that the Financial and Property Management Department has obtained price quotes and business proposals from at least three third party providers independent from Datang Capital, prior to entering into transactions with Datang Capital.

– 79 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Reasons for and Benefits of the Transactions under the Financial Services Framework Agreement

(1) Commercial factoring service and asset securitization service

The Board considers that the transactions under the commercial factoring service and asset securitization service will help the Company optimize its asset structure, accelerate the efficiency of asset turnover, save costs, improve the efficiency of capital use, broaden the financing channels, and reduce financing costs, which is in line with the overall development strategies of the Company and is in the interests of the Company and the Shareholders as a whole. We agree with the Board that the above pricing policies and potential cost savings and more efficient use of capital are in the interests of the Company and the Independent Shareholders as a whole.

(2) Financial leasing service, sales and leaseback service, entrusted loan service and operating lease service

Datang Capital is a professional financial leasing service, sales and leaseback service, entrusted loan service and operating lease service provider. According to the Company, based on the needs of business operations, the Group negotiated with Datang Capital in respect of the abovementioned service arrangements on normal commercial terms. We agree with the Company that it is fair and reasonable for the Company for service arrangements to be negotiated on normal commercial terms basis.

(3) Brokerage and consultation service in relation to the transfer of property rights and assets and bespoke financial service solution service

Based on the above, we concur with the Directors of the Company that the terms of the Financial Services Framework Agreement and the transactions contemplated thereunder are entered into based on arm’s length negotiations, in the ordinary and usual course of business of the Group and on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 80 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Relevant Internal Control Measures of Continuing Connected Transactions

For the Company’s internal control procedures that are implemented to closely monitor and manage new and ongoing connected transactions with China Datang Group, please refer to the information provided under the subsection headed “Relevant Internal Control Measures of the Renewed Integrated Product and Service Framework Agreement” as set out in the Letter from the Board.

We have reviewed the latest letter issued by the external auditor of the Company to the Board to report on the continuing connected transactions of the Company in relation to the pricing policies and annual caps of the continuing connected transactions of the Company conducted during the preceding financial year pursuant to the Listing Rules, and accordingly, we consider that the pricing policies and internal control procedures set out above were properly followed and we are of the view that the above measures can effectively manage the potential risks relating to the Financial Services Framework Agreement and will ensure that the respective services will be conducted on normal commercial terms or better and are fair and reasonable so far as the Independent Shareholders are concerned.

IV. DEPOSIT SERVICES UNDER THE RENEWED FINANCIAL SERVICES AGREEMENT

Details of the Deposit Services contemplated under the Renewed Financial Services Agreement are set out as follows:

Date: 3 December 2021

Parties: (1) Datang Finance; and (2) the Group

Term: From 1 January 2022 to 31 December 2024

– 81 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Nature of Transaction:

Scope of Service:

i. Loan Services;

ii. Deposit Services; and

iii. Other Financial Services.

Pricing Policy:

Datang Finance has undertaken to provide the Deposit Services to the Group based on the following pricing principles:

Deposit Services – Under the same condition, the deposit interest rate provided by Datang Finance to the Group shall not be lower than the interest rate for the same type of deposit placed in stateowned banks by the Group. We consider that the interest rate to be provided by Datang Finance for the Group’s deposits shall not be lower than the equivalent deposit rate as provided by the stateowned banks in the PRC is fair and reasonable.

– 82 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Capital Risk Control Measures

Pursuant to the Renewed Financial Services Agreement, Datang Finance undertakes to take, inter alia, the following measures to control the capital risks:

i. Datang Finance will ensure the safe and stable operation of the fund management information system, which has undergone the security test in respect of connection to the online commercial banking and has reached the national security standards for commercial banks. The system is equipped with the model awarded with CA safety certificate to secure the funds of the Group;
ii. Datang Finance will ensure that it is in strict compliance with the risk monitoring indicators for financing companies issued by the CBIRC and that its major regulatory indicators such as gearing ratio and liquidity ratio will also comply with the requirement of the CBIRC; and
iii. Any balance in the Group’s deposits (after deducting the amount used for making entrusted loans and the loans made to the Group by Datang Finance) will be redeposited into one or more commercial banks in the PRC. The interests for the Group’s call deposits will be settled at the negotiated savings interest rate as announced by the PBOC, which is higher than the interest rate for call deposits that the Group currently secures from other PRC commercial banks.

i. Before entering into any transactions with Datang Finance, the Company will obtain and review quotes (i.e. savings interest rate, loan interest rate or fee quotes for the other financial services) from at least four other independent financial institutions and the then savings interest rate, negotiated savings interest rate or loan interest rate as published by the PBOC.

– 83 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

We have been provided with 2 samples of internal memos or records confirming that before entering into any Deposit Service transactions with Datang Finance, the Company has obtained and reviewed quotes for savings interest from at least four other independent financial institutions and the then savings interest rate as published by the PBOC;

ii. Before placing deposit, the finance department of the Company will check the outstanding daily balance of the deposits placed with Datang Finance to avoid exceeding the proposed annual caps for the Deposit Services;
iii. On a monthly basis, the finance department of the Company will report to the management of the Company of any updates in relation to the continuing connected transactions. Such report principally covers (1) deposit balance and loan balance as of the end of the previous month; (2) new deposit and loan interest of the previous month; (3) plans and use of the deposit of the current month; and (4) loan repayment of principal and interest of the current month and the source of funds; and
iv. The independent non-executive Directors and the Company’s auditors will review annually the enforcement of relevant continuing connected transactions under the Renewed Financial Services Agreement and provide annual confirmations in accordance with the Listing Rules that relevant continuing connected transactions are conducted in accordance with the terms of the Renewed Financial Services Agreement, on normal commercial terms and are in the interest of the Company and the Shareholders as a whole.

We concur with the Directors and consider that the above capital risk control measures are adequate to cover the risks involved in relevant continuing connected transactions with Datang Finance and will ensure that the terms, especially the interest rates, will be on normal commercial terms or better than the other independent PRC commercial banks.

Proposed annual caps of the Deposit Services and the basis thereof

Deposit Services: The Company estimates that the proposed annual caps for the Deposit Services for the maximum daily deposit balance (including any relevant interest accrued therefrom) with Datang Finance for each of the years ending 31 December 2022, 2023 and 2024 is RMB4,000 million, after taking into account of the following factors:

The balance of cash and cash equivalents of the Group amounted to RMB671.28 million as of 30 June 2021;

– 84 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

The Company has applied to the National Association of Financial Market Institutional Investors for registration and issuance of ultra short-term financing bonds of no more than RMB3,000 million. The balance of deposit is expected to be close to the proposed annual caps for the Deposit Services of RMB4,000 million if the Company issues one-off ultra short-term financing bonds of more than RMB2,400 million and temporarily places all the proceeds into the Group’s deposit account opened at Datang Finance;
The balance of trade, bills receivables and contract assets of the Group amounted to RMB9,268.70 million as of 30 June 2021. The balance of deposit may also experience significant increase within a short term and will be close to the proposed annual caps for the Deposit Services of RMB4,000 million if the Group recovers a large amount of trade, bills receivables and contract assets within a short term and places the receivables and contract assets into the Group’s deposit account opened at Datang Finance.

We have reviewed the Company’s circular dated 15 June 2021, in respect of the proposed issuance of super short-term commercial paper (“ SCP ”) of up to RMB3 billion, within 24 months after the date of shareholder’s approval, and noted that the proceeds raised was intended to replenish the working capital and refinance bank loans of the Group which fall due and payable. Shareholder’s approval for the SCP was obtained at the Company’s annual general meeting on 30 June 2021. We also noted from the Company’s announcement dated 6 July 2021 that a tranche of SCP in the amount of RMB500 million was issued on 5 July 2021.

Subject to the timing of the issuance of the remaining RMB2.5 billion of SCP and the timing of recovery of the trade, bills receivables and contract assets, the total short-term cash balance of the Company can be as high as over RMB12.4 billion, which is more than 3 times above the proposed annual cap of RMB4 billion.

In view of the above, we concur with the Directors that the maximum daily deposit balance with Datang Finance of RMB4,000 million for each of the three years ending 31 December 2024 is fair and reasonable.

Historical Transaction Amounts

– 85 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

The historical utilisation rate represents approximately 36.95% of the existing annual cap for the year ended 31 December 2020 of RMB4 billion. Despite the relatively low historical utilisation rate, we have discussed with the Company the reasons set out above for maintaining the same proposed annual cap of RMB4 billion for each of the three years ending 31 December 2024 and consider such proposed annual caps are fair and reasonable.

Reasons for and Benefits of Entering into the Renewed Financial Services Agreement

The Deposit Services will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms similar to or even more favourable than those available to the Company from independent third parties in the PRC. As noted above, the interests for the Group’s call deposits will be settled at the negotiated savings interest rate as announced by the PBOC, which is higher than the interest rate for call deposits that the Group currently secures from other PRC commercial banks and accordingly, we confirmed that such transactions are beneficial to the Group and furthermore, the Group can earn interests or enjoy benefits through such transactions at terms no less favourable to independent third parties.

Furthermore, due to the long-term relationship between the Group and China Datang Group, the Directors consider that it is beneficial to the Company to enter into continuing connected transactions with companies affiliated to China Datang. They are familiar with the Group’s operations and requirement on the products and services, and will be able to respond more quickly and in a more cost efficient manner to the requirements that the Group may have as compared with other financial institutions unrelated to China Datang Group.

In addition, as the customers of Datang Finance are limited to entities affiliated to China Datang and its subsidiaries under applicable laws and regulations, it reduces default risk and liquidity risks that Datang Finance may otherwise be exposed to if its customers include entities unrelated to China Datang. Moreover, the aforementioned risk control measures adopted by Datang Finance are adequate to mitigate default risk and liquidity risk involved in receiving financial services from Datang Finance. Security of capital of the Group may be undermined in case of breach of contract or illiquidity of Datang Finance as the Group plans to place cash into its deposit account opened at Datang Finance. As such, Datang Finance’s effective control over the breach of contract and liquidity risk will be conducive to the reduction of the Group’s capital risk.

We concur with the Directors that the Deposit Services under the Renewed Financial Services Agreement and the proposed annual caps are on normal commercial terms, conducted in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 86 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

Relevant Internal Control Measures of the Deposit Services

For the Company’s internal control measures that are implemented to closely monitor and manage new and ongoing connected transactions with China Datang Group, please refer to the information provided under the subsection “Relevant Internal Control Measures of Continuing Connected Transactions” as set out in the Letter from the Board.

We have reviewed the latest letter issued by the external auditor of the Company to the Board to report on the continuing connected transactions of the Company in relation to the pricing policies and annual caps of the continuing connected transactions of the Company conducted during the preceding financial year pursuant to the Listing Rules, and accordingly, we consider that the pricing policies and internal control procedures set out above were properly followed and we are of the view that the above measures can effectively manage the potential risks relating to the Deposit Services and will ensure that the Deposit Services will be conducted on normal commercial terms or better and are fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION

Having considered the principal factors and reasons referred to above, in particular:

(1) the pricing principles and internal control measures under the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement and the Deposit Services as set out above;
(2) the reasons for the respective proposed annual caps of the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement and the Deposit Services as set out above; and
(3) the benefits brought about to the Group by the respective services contemplated under the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement and the Deposit Services as set out above;

– 87 –

LETTER FROM TRINITY CORPORATE FINANCE LIMITED

we are of the opinion that the terms of the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement and the Deposit Services are in the ordinary and usual course of business of the Group, are conducted on normal commercial terms (or better), and are fair and reasonable so far as the Independent Shareholders are concerned, and the said terms and the Continuing Connected Transactions are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we would advise the Independent Shareholders and the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolutions to approve the continuing connected transactions under the Renewed Integrated Product and Service Framework Agreement, the Financial Services Framework Agreement and the Deposit Services together with the proposed annual caps applicable thereto at the EGM.

Yours faithfully,

For and on behalf of Trinity Corporate Finance Limited Joanne Pong Responsible Officer

Ms. Joanne Pong is a licensed person registered with the Securities and Futures Commission and a responsible officer of Trinity Corporate Finance Limited, which is licensed under the SFO to carry out Type 6 (advising on corporate finance) regulated activities. Ms. Joanne Pong has participated in the provision of independent financial advisory services for various transactions involving companies listed in Hong Kong and has over 18 years of experience in the corporate finance industry.

– 88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The audited consolidated financial statements of the Group for each of the three years ended 31 December 2018, 31 December 2019 and 31 December 2020 respectively, with no qualified audit opinion expressed on the financial statements of the Group for the three years ended 31 December 2018, 2019 and 2020, and the unaudited consolidated financial statements of the Group for the six months ended 30 June 2021, together with the relevant notes thereto are disclosed in the following documents, which were published on both the Stock Exchange’s website ( http://www.hkexnews.hk ) and the Company’s website ( http://www.dteg.com.cn ):

the annual report of the Company for the year ended 31 December 2018 published on 29 April 2019 at

https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0429/ltn201904291835.pdf ;

the annual report of the Company for the year ended 31 December 2019 published on 28 April 2020 at

https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0428/2020042801500.pdf ;

the annual report of the Company for the year ended 31 December 2020 published on 19 April 2021 at

https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0419/2021041901250.pdf ;

and

the interim report of the Company for the six months ended 30 June 2018 published on 29 September 2021 at

https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0929/2021092900582.pdf .

2. INDEBTEDNESS

The Group’s borrowings amounted to RMB5,122.00 million, RMB95.75 million of which was secured or guaranteed, as at 31 October 2021, being the latest practicable date for the purpose of the indebtedness statement prior to the printing of this circular. Save as disclosed above and apart from intra-group liabilities, the Group did not have any outstanding debt securities issued and outstanding or authorised or otherwise created but unissued, term loans, other borrowings or indebtedness in the nature of borrowing including bank overdrafts, liabilities under acceptances (other than normal trade bills), acceptance credits, material hire purchase commitments, mortgages and charges, material contingent liabilities and guarantees outstanding. The Directors confirm that there was no material change in the indebtedness of the Group since 31 October 2021 up to the date of this circular.

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. WORKING CAPITAL

Taking into account the financial resources available to the Group, including cash and cash equivalents, cash generated from operations and unutilised financial facilities, the Directors are of the view that, the Group will have sufficient working capital for its present requirements, which is for at least 12 months from the date of this circular.

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group plans to focus on the four aspects in the next stage of development:

First, we will unswervingly strive for high quality development. Currently, the Group is experiencing a period of development transformation, from a stage of rapid development into a stage of high quality development. Such transformation meets the general outlook of national reform and development as well as industry development trend. For us, we should take an efficiency-oriented approach and improve our core competitiveness through hard work while striving for high quality development. That is to say, we should, with the attitude of being responsible for clients, improve our management capability and service standard in all aspects including safety, quality, construction period, reputation and customer satisfaction with service. In respect of concession operation business, we will further improve intensive management level as well as value contribution to power generation enterprises and service guarantee efficiency, in order to maintain its dominant position in the industry in terms of key production indicators. In respect of denitrification catalysts business, we will accelerate upgrading and updating of products and improve product performance and quality, in order to meet international leading standard. In respect of environmental protection facility business, we will build a standard project management system, develop a high quality core project management team that is competent in, skilled at and capable of management, in order to further enhance profitability.

Second, we will channel every effort to explore in various markets. The Group will continue to develop existing business in potential electric power environmental protection market, and intensively explore non-electric power environmental protection market, facilitate sound development of enterprises, and continue to make great effort to develop international businesses by taking the opportunity of the “Belt and Road”. Currently, the Group is coping with difficulties in market development, and the cause lies in insufficient core competitiveness, poor analysis on market condition and insufficient technological upgrade and reserve. In the future, industry segments of the Group will, in the light of their actual conditions, focus on target markets and main directions, accelerate business transformation and upgrading, and establish new competitive advantages. The Company will focus on priorities during development as well as project profitability and risk prevention and control, improve screening of projects and tracking management of key businesses and projects, in an effort to achieve market breakthroughs in key areas.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Third, we will deepen the reform of institutional mechanisms in all aspects. The Group will deepen the reform of institutional mechanisms in all aspects by focusing on two core corporate positions of “technology” and “environmental protection” as well as corporate development perspectives. Next, the Group will, by taking the opportunity of “Double Hundred Actions”, further optimize organization, and build a market-oriented operation mechanism. Business segments will continue to “focus on major businesses, and highlight speciality” and further reinforce its major businesses. Meanwhile, we will continue to advance work on business management and market development, properly integrate reform and development by making overall arrangement, so as to enjoy the benefits brought by the reform.

Fourth, we will continue to improve technological innovation. Over recent years, the Company has developed and introduced a number of high quality and highly educated technical talents by building post-doctoral research centers. The Company continued to increase investment in technology development, but was subject to poor performance in transferring research achievements into productivity and lacking of core technologies with market competitiveness in areas other than air pollution control. Next, the Company will increase its efforts in developing industrializable technology and absorb and innovate on existing technologies through both introduction and independent research and development, to accelerate completion of technology reserve. The Company will focus on the research on manufacture of products relating to environmental protection industry and facilitate the development of emerging markets. The Company will fully utilize its brand advantage as a central enterprise to promote cooperation with domestic and international scientific research institutions and colleges and universities, improve research on cutting-edge technologies and transformation of research achievements, and control the commanding height of the industry.

Looking forward, the Group will unswervingly strive for high quality development, make every effort to advance each task, continue to provide clients with quality and efficient package of environmental protection solutions, and make arduous efforts to develop the Group into a worldclass technology-based environmental protection enterprise!

5. EFFECT OF THE DEPOSIT SERVICES ON THE EARNINGS AND ASSETS AND LIABILITIES OF THE GROUP

The Group expects that the Deposit Services under the Renewed Financial Services Agreement will not have any material effect on its earnings, assets or liabilities.

– 91 –

GENERAL INFORMATION OF THE GROUP

APPENDIX II

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, three Directors held the following positions with China Datang Group: (a) Mr. Wang Junqi served as a director of China Datang Energy Investment Limited Liability Company (中國大唐集團能源投資有限責任公司) and Datang Huayin Electric Power Co., Ltd. (大唐華銀電力股份有限公司); (b) Mr. Wu Daqing served as a director of China Datang Energy Investment Limited Liability Company; and (c) Mr. Chen Kan served as a director of China Datang Energy Investment Limited Liability Company. 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 2020, 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;

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GENERAL INFORMATION OF THE GROUP

APPENDIX II

(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 2020, being the date to which the latest published audited annual financial statements of the Company were made up;
(5) save as disclosed in the section headed “Interest of Directors in Competing Business” below, 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 3 December 2021, the Directors are not aware of any material adverse change in the financial or trading positions of the Company since 31 December 2020, the date to which the latest published audited annual financial statements of the Company were made up;
(7) none of the Directors has entered into a service contract with any member of the Group which does not expire or which is not determinable 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.

– 93 –

GENERAL INFORMATION OF THE GROUP

APPENDIX II

3. INTERESTS OF DIRECTORS IN COMPETING BUSINESS

Save as disclosed in this 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.

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)
Dajia Life Insurance Co., Ltd.			H Shares	Interest in controlled	120,540,000	19.31	4.06
(大家人壽保險股份有限公司)	(3)			corporation	(Long position)
Dajia Insurance Group Co., Ltd.			H Shares	Interest in controlled	120,540,000	19.31	4.06
(大家保險集團有限責任公司)	(3)			corporation	(Long position)
China Chengtong Hong Kong Company			H Shares	Beneficial owner	61,557,000	9.86	2.07
Limited (中國誠通香港有限公司)		(4)			(Long position)
China Chengtong Holdings Group Ltd.			H Shares	Interest in controlled	61,557,000	9.86	2.07
(中國誠通控股集團有限公司)	(4)			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)

– 94 –

GENERAL INFORMATION OF THE GROUP

APPENDIX II

					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)	(%)	(%)
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)
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 Company	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) Company			H Shares	Interest in controlled	41,038,000	6.57	1.38
Limited (中國太平保險集團（香港）有限				corporation	(Long position)
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 Co.,			H Shares	Beneficial owner	41,038,000	6.57	1.38
Limited (中國人壽富蘭克林資產管理有限					(Long position)
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)

– 95 –

GENERAL INFORMATION OF THE GROUP

APPENDIX II

			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)	(%)	(%)
		Interest in controlled	41,038,000	6.57	1.38
		corporation	(Long position)

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 Dajia Life Insurance Co., Ltd., which is wholly-owned by Dajia Insurance Group Co., Ltd..
(4) China Chengtong Hong Kong 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.

– 96 –

GENERAL INFORMATION OF THE GROUP

APPENDIX II

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.

5. QUALIFICATION OF EXPERT AND CONSENT

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

Name Qualification

Trinity Corporate A corporation licensed to conduct type 6 (advising on corporate Finance 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 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 2020 (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 Trinity Corporate Finance Limited are given as of the date of this circular for incorporation herein.

6. MATERIAL CONTRACTS

No contracts, not being contracts entered into in ordinary course of business carried on or intended to be carried on by the Group, have been entered into by the members of the Group within two years preceding the Latest Practicable Date and up to the Latest Practicable Date and which are, or maybe, material.

– 97 –

GENERAL INFORMATION OF THE GROUP

APPENDIX II

7. LITIGATION

As at the Latest Practicable Date, save as disclosed in this 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.

8. OTHER INFORMATION

(1) The joint company secretaries of the Company are Ms. Wong Sau Ping, who is a fellow member of The Hong Kong Chartered Governance Institute, and Mr. Liang Xiuguang, who is the deputy general manager and the authorised representative of the Company.
(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 circular shall prevail over the Chinese text in the event of inconsistency.

9. DOCUMENTS ON DISPLAY

Copies of the following documents will be displayed on the websites of the Stock Exchange at http://www.hkexnews.hk and the Company at www.dteg.com.cn for 14 days from the date of this circular:

(1) the letter from the Independent Board Committee, full text of which is set out on pages 40 to 41 of this circular;
(2) the letter from the Independent Financial Adviser, full text of which is set out on pages 42 to 88 of this circular;
(3) the written consent of the expert referred to paragraph 5 of Appendix II; and
(4) this circular.

– 98 –

NOTICE OF THE EGM

==> picture [46 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)

NOTICE OF THE EGM

NOTICE IS HEREBY GIVEN that the extraordinary general meeting of Datang Environment Industry Group Co., Ltd. (the “ Company ”) will be convened at 4:00 p.m. on Friday, 24 December 2021 at No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC, for the purpose of considering an, if thought fit, passing the following matters (whether amended or not). Unless otherwise specified, capitalised terms used in this notice shall have the same meanings as those defined in the circular of the Company dated 8 December 2021 (the “ Circular ”).

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 the service provision business contemplated therein (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 the product business contemplated therein (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 the engineering business contemplated therein (including proposed annual caps);
(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 the service procurement business contemplated therein (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 the equipment and raw material procurement business contemplated therein (including proposed annual caps);

– 99 –

NOTICE OF THE EGM

(6) To consider and approve the Financial Services Framework Agreement entered into between the Company and Datang Capital and the continuing connected transactions on the commercial factoring service contemplated therein (including proposed annual caps);
(7) To consider and approve the Financial Services Framework Agreement entered into between the Company and Datang Capital and the continuing connected transactions on the financial leasing service contemplated therein (including proposed annual caps);
(8) To consider and approve the Financial Services Framework Agreement entered into between the Company and Datang Capital and the continuing connected transactions on the entrusted loan service contemplated therein (including proposed annual caps); and
(9) To consider and approve the Renewed Financial Services Agreement entered into between the Company and Datang Finance and the continuing connected transactions on the Deposit Services contemplated therein (including proposed annual caps).

The main texts and relevant details of resolutions at the EGM are set forth in the 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.* Wang Yanwen Chairman

Beijing, the PRC, 8 December 2021

As of the date of this notice, the executive Directors are Mr. Wang Yanwen and Mr. Tian Dan; the nonexecutive Directors are Mr. Wang Junqi, Mr. Wu Daqing, Mr. Chen Kan and Mr. Song Yunpeng; and the independent non-executive Directors are Mr. Ye Xiang, Mr. Mao Zhuanjian and Mr. Gao Jiaxiang.

For identification purposes only

– 100 –

NOTICE OF THE EGM

Notes:

i. In order to ascertain the entitlements of the Shareholders to attend and vote at the EGM, the register of members of the Company will be closed from Tuesday, 21 December 2021 to Friday, 24 December 2021 (both days inclusive), during which period no transfer of Shares will be effected. Shareholders whose names appear on the register of members of the Company on Friday, 24 December 2021 are entitled to attend and vote at the EGM.

To be eligible to attend and vote at the EGM, all transfer documents must be lodged with the H Share Registrar, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th 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 at No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC, 100097 (for holders of Domestic Shares), no later than 4:30 p.m. on Monday, 20 December 2021.

ii. Each Shareholder entitled to attend and vote at the EGM may, by completing the form of proxy 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.
iii. The instrument to appoint a proxy 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.
iv. To be valid, the form of proxy 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 such instrument 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 instrument appointing the proxy, be deposited at the specified place at the time set out in such instrument. Completion and return of the proxy form will not preclude Shareholders from attending and voting in person at the EGM or any adjourned meetings should you so wish.
v. Shareholders shall produce their identity documents and supporting documents in respect of Shares held when attending the EGM. If corporate Shareholders appoint authorised representative to attend the EGM, the authorised representative shall produce his/her identity documents and a notarised certified copy of the relevant authorised documents signed by the Board or other authorised parties of the Shareholders or other notarised certified documents allowed by the Company. Proxies shall produce their identity documents and the proxy forms signed by the Shareholders or their attorney when attending the EGM.
vi. The Company has the rights to request a proxy who attends the EGM on behalf of a Shareholder to provide proof of identity.
vii. The EGM is expected to be held for less than half a day. Shareholders who intend to attend the EGM shall bear their own transportation and accommodation expenses.
viii. In case of joint Shareholders, the vote of the most senior one (in person or by proxy) will be accepted to the exclusion of the votes of other joint Shareholders, and for this purpose, the seniority shall be determined by the order in which the names of such joint Shareholders stand in the register of members of the Company.
ix. H Share Registrar, Computershare Hong Kong Investor Services Limited, is situated at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, and with the fax number: +852 2865 0990.
x. The contact details of the Company’s board office in the PRC are as follows: Address: No. 120 Zizhuyuan Road, Haidian District, Beijing, the PRC, 100097 Fax number: +86 10 5838 9860

– 101 –

AI assistant

Datang Environment Industry Group Co., Ltd. — Proxy Solicitation & Information Statement 2021

49815_rns_2021-12-07_fc69db55-c2fb-4f24-b5a4-dd992bd9c2f3.pdf

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

CONTINUING CONNECTED TRANSACTION – (1) RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT;

CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTIONS – (2) FINANCIAL SERVICES FRAMEWORK AGREEMENT; AND (3) DEPOSIT SERVICES UNDER THE RENEWED FINANCIAL SERVICES AGREEMENT AND NOTICE OF THE EGM

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

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

CONTINUING CONNECTED TRANSACTION – (1) RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT;

CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTIONS –

(2) FINANCIAL SERVICES FRAMEWORK AGREEMENT; AND (3) DEPOSIT SERVICES UNDER THE RENEWED FINANCIAL SERVICES AGREEMENT AND NOTICE OF THE EGM

INTRODUCTION

I. RENEWED INTEGRATED PRODUCT AND SERVICE FRAMEWORK AGREEMENT

Introduction

Date:

Principal terms:

Proposed Annual Caps

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

LETTER FROM THE BOARD

Product business

Engineering business

LETTER FROM THE BOARD

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

Historical Transaction Amounts

Pricing Policy

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

LETTER FROM THE BOARD

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

Pricing policy for products:

LETTER FROM THE BOARD

Reasons for and Benefits of entering into the Renewed Integrated Product and Service Framework Agreement

LETTER FROM THE BOARD

Relevant Internal Control Measures of the Renewed Integrated Product and Service Framework Agreement

LETTER FROM THE BOARD

Independence of Business Operations of the Group

• Industry landscape/mutual and complementary relationship

LETTER FROM THE BOARD

• Nature of business

• Largest customer on an aggregated basis

•

Expansion of customer base

• Diversification of business and adaptability of business model

Listing Rules Implications

LETTER FROM THE BOARD

II. FINANCIAL SERVICES FRAMEWORK AGREEMENT

Introduction

Date:

Principal terms:

Proposed Annual Caps

Commercial Factoring

Financing Leasing

Entrusted Loan Service

Historical Transaction Amounts

Pricing Policy

(1) Commercial factoring service under the Financial Services Framework Agreement

(2) Financial leasing service under the Financial Services Framework Agreement

(3) Entrusted loan service under the Financial Services Framework Agreement

Reasons for and Benefits of the Transactions under the Financial Services Framework Agreement

(1) Commercial factoring service and asset securitization service

(2) Financial leasing service, sales and leaseback service, entrusted loan service and operating lease service

(3) Brokerage and consultation service in relation to the transfer of property rights and assets and bespoke financial service solution service

Relevant Internal Control Measures of Continuing Connected Transactions

Listing Rules Implications

LETTER FROM THE BOARD

III. DEPOSIT SERVICES UNDER THE RENEWED FINANCIAL SERVICES AGREEMENT

Date:

Scope of Service:

Pricing Policy:

Capital Risk Control Measures

LETTER FROM THE BOARD

Proposed annual caps and the basis thereof

Deposit Services:

Other Financial Services:

Historical transaction amounts

Reasons for and Benefits of Entering into the Renewed Financial Services Agreement

LETTER FROM THE BOARD

Relevant Internal Control Measures of Continuing Connected Transactions

Datang Environment Industry Group Co., Ltd. Proxy Solicitation & Information Statement 2021

**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**