ENVIRONMENTAL CLEAN TECHNOLOGIES LIMITED. — Capital/Financing Update 2004

Oct 17, 2004

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD

WEBSITE: www.environ.com.au

PERTH OFFICE 21 TEDDINGTON ROAD PO RAY LLA BURSWOOD WA 6100 AUSTRALIA TELEPHONE: 61 8 9470 4004 FACSIMILE: 61 8 9355 0450

MELBOURNE OFFICE

SUITE 6, 28 YOUNG STREET MOONEE PONDS VIC 3039 TELEPHONE: 61 3 9326 2980 FACSINILE: 61-3-9326-2142

BRISBANE OFFICE

7 BAROONA ROAD, MILTON QLD 4064 PO Box 1974, MILTON QLD 4064 TELEPHONE: 61 7 3876 4011 FACSIMILE: 61 7 3876 4022

INVESTMENT IN ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED ("ESI") BY ZENON ENVIRONMENTAL INC ("ZENON")

The Board of Environmental Solutions International Limited is pleased to announce that, that subject to a formal agreement and ESI shareholders' approval, it has reached an agreement with ZENON Environmental Inc of Canada pursuant to which ZENON will invest in the company.

The proposal is:

• Upon approval by ESI shareholders ZENON will take an allotment of 35,000,000 shares at 7.5 cents per share which will raise \$2,625,000.
• ZENON will have the option exercisable within 12 months of subscribing for $\bullet$ 55,000,000 further shares at 8 cents per share.
• ZENON will have a further option exercisable within 2 years of subscribing for a further 50,000,000 at 9 cents per share.

In addition to providing a significant boost to working capital which will allow ESI to continue with its penetration of the Australian market with its leading SBR and anaerobic technology, ESI envisions a number of potential synergies resulting from working together with ZENON including:

• taking advantage of ZENON's preferred component purchasing arrangements. $\bullet$
• gaining access to ZENON's products and processes for water treatment including reverse osmosis systems, military systems, mobile systems and packaged commercial systems.
• better positioning ESI to grow into the Southeast Asian and other Asian markets
• becoming a global leader in the new membrane technologies in which ESI has particular skills and expertise.

Two members from ZENON management will join the Board of ESI.

ZENON is a world leader in providing advanced membrane products and services for water purification, wastewater treatment and water reuse to municipalities and industries worldwide.

18 October 2004

ASX ANNOUNCEMENT

The 2003 recipient of the prestigious Stockholm Industry Water Award, ZENON was selected as the award winner because of the company's innovative approach to the development of water and wastewater process technologies along with its contributions to environment improvement. ZENON is listed on the Toronto Stock Exchange and has a market capitalisation of in excess of \$650 million Canadian.

The Chairman of ESI Mr T E O'Connor QC said "The Board has flagged the need to recapitalise the Company following the recent disastrous losses. We are delighted at the association with ZENON which is a world leader in membrane technology. This proposal not only recapitalises the company but also brings other significant benefits because of the association with a strong and successful company with a first class reputation in the water business."

The company intends to call an Extraordinary General Meeting of shareholders to seek approval of the agreement.

For more information, please contact Mr T E O'Connor QC, Chairman, on Tel: (08) 9470 4004 or Fax: (08) 9355 0998 or email: lorna.forster@environ.com.au.