FIH Mobile Limited - Proxy Solicitation & Information Statement 2002

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 adviser.

If you have sold or transferred all your shares in PetroChina Company Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims 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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PETROCHINA COMPANY LIMITED

(A Joint Stock Company limited by shares incorporated in the People’s Republic of China)

ONGOING CONNECTED TRANSACTIONS ELECTION OF DIRECTORS AND SUPERVISORS FOR THE NEXT TERM

Independent Financial Adviser to the Independent Board Committee

A letter from the Independent Board Committee is set out on page 17 of this circular. A letter from ICEA Capital Limited, the independent financial advisor, containing its advice to the Independent Board Committee is set out on pages 18 to 32 of this circular.

A brief biography of directors and supervisors to be elected for the next term is set out on pages 37 to 40 of this circular.

An extraordinary general meeting of PetroChina Company Limited is to be held at Kempinski Hotel, No. 50 Liangmaqiao Road, Chaoyang District, Beijing, People’s Republic of China at 9: 00 a.m. on 19 November 2002. A copy of the notice convening such extraordinary general meeting, which was dispatched on 3 October 2002, is set out on pages 36 to 40 of this circular for ease of reference. Whether or not you are able to attend the meeting, you are requested to complete and return the form of proxy, despatched together with this circular, in accordance with the instructions printed thereon as soon as possible to the registered office of PetroChina Company Limited at World Tower, 16 Andelu, Dongcheng District, Beijing, PRC in any event not less than 24 hours before the time appointed for holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting should you so desire.

17 October 2002

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
2.	Ongoing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
3.	Reason and Benefit of the Ongoing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
4.	Disclosure requirement and waiver sought . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
5.	Approval by Independent Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
6.	EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
7.	Factors to consider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
8.	Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
9.	Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		17
Letter from ICEA Capital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		18
Appendix — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		33
Notice of	Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36

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DEFINITIONS

In this circular, the following expressions have the following meanings unless the context requires otherwise:

‘‘Acquisition Agreement’’	the acquisition agreement entered into between the Company and CNPC on
	26 September 2002, pursuant to which the Company acquired the assets and
	liabilities of CNPC’s unlisted sales enterprises for a cash consideration of
	RMB3,200 million (approximately HK$3,015 million), details of which
	were set out in the relevant announcement made by the Company on 27
	September 2002
‘‘Acquisition	the announcement made by the Company on 27 September 2002 in
Announcement’’	connection with the Acquisition Agreement
‘‘Board’’	the board of Directors of the Company, including the independent non-
	executive directors
‘‘Chairman’’	the chairman of the Board
‘‘Circular’’	this circular issued by the Company to its shareholders dated 17 October
	2002 in respect of the New Waiver for the Ongoing Connected Transactions
‘‘CNPC’’	entered into between the Group and the CNPC Group (China National Petroleum Corporation), a State- owned enterprise incorporated under the laws of PRC, and the controlling
	shareholder of the Company, holding approximately 90% of the issued share
	capital of the Company
‘‘CNPC Group’’	CNPC and, following the Restructuring, its subsidiaries and affiliates,
‘‘Company’’	excluding the Group (PetroChina Company Limited), a joint stock company limited by shares incorporated in the PRC on 5 November 1999
	under the Company Law of PRC, and listed on the Stock Exchange with
	American depository shares listed on the New York Stock Exchange
‘‘Director(s)’’	the director(s) of the Company
‘‘EGM’’	an extraordinary general meeting of the Company to be held to approve,
	inter alia, the Ongoing Connected Transactions
‘‘Existing Waiver’’	the waiver granted by the Stock Exchange on 7 April 2000 to the Company
	in respect of the Ongoing Connected Transactions between the Group and
	the CNPC Group, subject to the conditions set out in the waiver as well as a
	letter from the Stock Exchange dated 13 October 2000 with respect to the
	change of one of the waiver conditions
‘‘Group’’	the Company and its subsidiaries
‘‘HK$’’	Hong Kong dollars, the lawful currency of Hong Kong
‘‘ICEA’’	ICEA Capital Limited

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DEFINITIONS

‘‘Independent the shareholders of the Company other than CNPC Shareholders’’
‘‘Independent Board the independent committee of the Board, comprising Messrs. Chee-Chen Committee’’ Tung, Wu Jing Lian and Franco Bernabe, established on 26 September 2002 for the purpose of reviewing and advising Independent Shareholders in respect of the Ongoing Connected Transactions
‘‘IPO’’ the Initial Pubic Offering by the Company’s H Shares in the year 2000
‘‘Latest Practicable Date’’ 14 October, 2002, being the latest practicable date before the printing of this circular for ascertaining certain information for the purpose of inclusion in this circular
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘New Waiver’’ the waiver submitted to the Stock Exchange by the Company applying for a waiver from strict compliance of the Listing Rules in respect of the Ongoing Connected Transactions
‘‘Ongoing Connected transactions which are and will continue to be entered into between the Transactions’’ Group and the CNPC Group, comprising the connected transactions which were the subject of the Existing Waiver and the additional connected transactions as described in the paragraph headed ‘‘Supplemental Building Leasing Agreement’’ of the Letter from the Board in this circular
‘‘PRC’’ the People’s Republic of China ‘‘Prospectus’’ the prospectus dated 27 March 2000 issued by the Company relating to its IPO and the listing of its H shares on the Stock Exchange
‘‘Restructuring’’ the restructuring of the CNPC Group of companies now comprised within the Group and their respective businesses, effective 5 November 1999 and as detailed in the Prospectus
‘‘RMB’’ Renminbi, the lawful currency of the PRC ‘‘SDI Ordinance’’ Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong)
‘‘Shareholder(s)’’ the holder(s) of shares of the Company ‘‘Stock Exchange’’ the Stock Exchange of Hong Kong Limited

For the purpose of this circular, unless otherwise indicated, the exchange rates at HK$1.00 = RMB$1.06 have been used, where applicable, for purpose of illustration only and not constitute a representation that any amount have been, could have been or may be exchanged.

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LETTER FROM THE BOARD

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PETROCHINA COMPANY LIMITED

(A Joint Stock Company limited by shares incorporated in the People’s Republic of China)

Board of Directors Ma Fu Cai (Chairman) Yan San Zhong Huang Yan Wu Yao Wen Ren Chuan Jun Chen Geng Zheng Hu Gong Hua Zhang Wang Fu Cheng Zou Hai Feng Chee-Chen Tung Wu Jing Lian Franco Bernabe*

Legal Address World Tower, 16 Andelu Dongcheng District Beijing People’s Republic of China

Independent non-executive Director

17 October 2002

To the Shareholders

Dear Sir or Madam,

ONGOING CONNECTED TRANSACTIONS

1. INTRODUCTION

As you would no doubt be aware, the Company is a subsidiary of CNPC with CNPC directly owning approximately 90% of the issued share capital of the Company. Accordingly, transactions between CNPC and the Company constitute connected transactions for the Company for the purpose of the Listing Rules.

On 22 March 2000, the Company made an application for a waiver to the Stock Exchange from strict compliance with the relevant requirements of the Listing Rules in respect of the Ongoing Connected Transactions between CNPC and the Company. Subsequently, the Stock Exchange, on 7 April 2000, granted the Existing Waiver to the Company subject to, inter alia, the conditions set out in the Prospectus as well as a letter from the Stock Exchange dated 13 October 2000 with respect to the change of one of the waiver conditions. The Existing Waiver will expire on 31 December 2002 and the Company has applied to the Stock Exchange for the New Waiver, which will cover additional Ongoing Connected Transactions as described in the paragraph headed ‘‘Supplemental Buildings Leasing Agreement’’ of this letter.

The Company is currently proposing to reduce the annual limits of certain categories of Ongoing Connected Transactions in its New Waiver as compared with the annual limits in the Existing Waiver, further details of which are set out in the paragraphs headed ‘‘Disclosure Requirement and Waiver Sought’’ of this letter.

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LETTER FROM THE BOARD

The main purposes of this circular are (i) to provide you with detail information relating to the Ongoing Connected Transactions; (ii) to set out the letter of advice from ICEA to the Independent Board Committee and recommendation and opinion of the Independent Board Committee as advised by ICEA in relation to the Ongoing Connected Transactions; (iii) to seek your approval at the EGM of the ordinary resolution in relation to the Ongoing Connected Transactions; and (iv) to set out particulars of the directors and supervisors to be elected by the Shareholders at the EGM.

2. ONGOING CONNECTED TRANSACTIONS

The connected transaction agreements listed below were entered into between the Company and CNPC at the time of the Company’s IPO in the year 2000. In addition, in September 2002, a Supplemental Buildings Leasing Agreement was entered into between the Company and CNPC, which constitutes new connected transactions between CNPC and the Company for which a waiver from strict compliance with the Listing Rules is now being sought. The Board expects that, the Company and the Group will continuously enter into transactions with CNPC and CNPC Group as stated in the following agreements, which will constitute Ongoing Connected Transactions:

. Comprehensive Products and Services Agreement, and from time to time and as necessary, various Product and Service Implementation Agreements;
. Land Use Rights Leasing Contract;
. Buildings Leasing Contract;
. Intellectual property licensing contracts being the Trademark Licensing Contract, the Patent and Know-how Licensing Contract and the Computer Software Licensing Contract;
. Contract for the Transfer of Rights under Production Sharing Contracts; and
. Guarantee of Debts Contract.

For your information, the Contract for the Supervision of Certain Sales Enterprises between the Company and CNPC as described in the Prospectus, the transactions entered into according to which used to constitute one category of the Ongoing Connected Transactions, has been terminated. This is because the assets and liabilities of CNPC’s unlisted sales enterprises have been acquired by the Company pursuant to the Acquisition Agreement entered into between the Company and CNPC on 26 September 2002. For details of this acquisition, please refer to the Acquisition Announcement made by the Company on 27 September 2002.

Comprehensive Products and Services Agreement

The Company and CNPC entered into the Comprehensive Products and Services Agreement on 10 March 2000 for the provision (1) by the Group to the CNPC Group and (2) by the CNPC Group to the Group, of a range of products and services which may be required and requested from time to time by either party and/or its subsidiary companies and affiliates.

(A) Products and Services to be provided by the Group to the CNPC Group

Under the Comprehensive Products and Services Agreement, products and services to be provided by the Group to the CNPC Group include those relating to refined oil products, chemical products, natural gas, crude oil, supply of water, electricity, gas, heating, quantifying and measuring, quality inspection and other products and services as may be requested by the CNPC Group for its own consumption, use or sale from time to time.

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LETTER FROM THE BOARD

(B) Products and Services to be provided by the CNPC Group to the Group

The products and services to be provided by the CNPC Group to the Group are expected to be more numerous, both in terms of quantity and variety, than those to be provided by the Group to the CNPC Group. They have been grouped together and categorized according to the following types of products and services:

. Construction and technical services, including but not limited to exploration technology service, downhole operation service, oilfield construction service, oil refinery construction service and engineering and design service;
. Production services, including but not limited to water supply, electricity generation and supply, gas supply and communications;
. Supply of materials services, including purchase of materials, quality control, storage of materials and delivery of materials;
. Social services, including but not limited to security services, education and hospitals;
. Ancillary services, including but not limited to property management, training centers and guesthouses; and
. Financial services, including loans and deposits services.

(C) General Principles, Price and Terms

The Comprehensive Products and Services Agreement requires, in general terms that, (1) the quality of products and services to be provided should be satisfactory to the recipient; (2) the price at which such products and services are to be provided must be fair and reasonable; and (3) the terms and conditions on which such products and services are to be provided should be no less favorable than those offered by independent third parties.

(D) Price Determination

The Comprehensive Products and Services Agreement details specific pricing principles for the products and services to be provided pursuant to the Comprehensive Products and Services Agreement. If, for any reason, the specific pricing principle for a particular product or service ceases to be applicable, whether due to a change in circumstances or otherwise, such product or service must then be provided in accordance with the following general pricing principles:

(a) state-prescribed prices (at present, this applies to products and services such as refined oil products, natural gas, oil refinery construction, engineering and design, project monitoring and management) ;
(b) where there is no state-prescribed price, then according to relevant market prices, whichever of the following market prices are applicable:
(i) the local market price and the market price of nearby areas, at which the same type of products or services are provided by independent third parties in the ordinary course of business; or

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LETTER FROM THE BOARD

(ii) the national market price, at which the same type of products or services are provided by independent third parties in the ordinary course of business;

(at present, this applies to products and services such as asset leasing, repair of machinery, transportation, purchase of material, and regional facilities); or

(c) where neither (a) nor (b) is applicable, then according to:
(i) the actual cost incurred (at present, this applies to products and services such as library information and filing, maintenance of roads, retirement administration and re-employment training); or
(ii) the agreed contractual price, being the actual cost for the provision of such product or service plus an additional margin of not more than:
- (xx) 15 per cent. (which includes finance costs, general and administrative expenses and a profit margin) for certain construction and technical services (at present, this applies to products and services such as geological surveying, drilling, well cementing, logging, mud logging, well testing and oilfield construction) provided that, such agreed contractual price shall not be higher than the prices available for the provision of such products and services in the international market; and
- (yy) 3 per cent. for all other types of products and services priced in accordance with the agreed contractual price (at present, this applies to products and services such as downhole operations, technology research, equipment repairing and supporting, equipment antiseptic testing, communications, fire fighting, quality inspection, storage of materials, delivery of materials and training centers).

The definitions of cost price and agreed contractual price include a provision that the aggregate value, in each future financial year, of all products and services which are required to be priced at cost or at agreed contractual prices to be provided under the Comprehensive Products and Services Agreement, shall not exceed the aggregate value, calculated on a pro-forma adjusted basis as if the Comprehensive Products and Services Agreement had been in effect during the year ended 31 December 1998, of all products and services which were required to be priced at cost or at agreed contractual prices during the year ended 31 December 1998, being RMB36.9 billion (the ‘‘1998 Amount’’), subject to any necessary adjustment for inflation or deflation, as appropriate, for the relevant year.

However, if in any future financial year, the Company, due to any events or factors beyond the control of the Company (e.g. natural disasters) or the development of new projects, is required to purchase additional products and services required to be priced at cost or at agreed contractual prices exceeds the 1998 Amount (as adjusted for inflation or deflation as appropriate), then that decision to purchase such additional products or services should be authorized by the Board of Directors (with affirmative votes form the independent non-executive directors) and the management of the Company on the basis of any revised business plan and comprehensive financial analysis, to ensure that such purchases will allow for a reasonable return to the Company’s shareholders.

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LETTER FROM THE BOARD

(E) Coordination of annual demand of products and services

Two months prior to the end of each financial year, both parties are required to prepare and submit to each other an annual plan detailing the estimated demand for products and services to be rendered in accordance with the Comprehensive Products and Services Agreement for the forthcoming financial year.

(F) Rights and Obligations

Both the Group and the CNPC Group retain the right to choose to receive products and services, as contemplated under the Comprehensive Products and Services Agreement, from independent third parties where the terms and conditions as to price or quality of products or services offered by such third parties may be superior to those offered by either of the Group or the CNPC Group, as appropriate.

In addition, the provision of products and services by either party is on a non-exclusive basis and each party may provide products and services to other third parties, subject always to the obligation that each party must be able to provide those products and services which may be required to be provided in accordance with the Comprehensive Products and Services Agreements and the annual plan then in force.

(G) Term and Termination

The term of the Comprehensive Products and Services Agreement is 10 years starting from the date when the Company’s business license was issued.

During the 10-year term of the Comprehensive Products and Services Agreement, termination of the product and service implementation agreements described below may be effected from time to time by the parties to the product and service implementation agreements providing at least 6 months’ written notice of termination in relation to any one or more categories of products or services. Further, in respect of any products or services already contracted to be provided, termination may not take place until after such products and services have been provided.

In the event that CNPC proposes to terminate the provision of any products or services, and the Company is unable to find an alternative product or service provider (which fact shall be communicated by the Company to CNPC from time to time), then unless permitted by the Company, CNPC must continue to provide such products or services in accordance with the terms of the Comprehensive Products and Services Agreement.

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LETTER FROM THE BOARD

The following table sets forth the historical revenues and expenditures in relation to the provision of the products and services which are the subject matters of the Comprehensive Products and Services Agreement between the Company and CNPC for the financial year ended 31 December 2000 and 31 December 2001 as well as the period between 1 January 2002 to 30 June 2002:

As at 31 December As at 30 June 2000 2001 2002 RMB HK$ RMB HK$ RMB HK$ (in millions except percentages) 23,421.69 22,095.93 18,628.22 17,573.79 3,259.36 3,074.86 9.68% 9.68% 7.80% 7.80% 3.02% 3.02% 36,459.84 34,396.08 35,162.81 33,172.46 14,264.91 13,457.46 15,007.30 14,157.83 15,581.41 14,699.44 7,149.79 6,745.08 1,086.95 1,025.43 976.95 921.65 319.04 300.98 3,496.50 3,298.63 3,347.38 3,157.91 1,517.24 1,431.36 898.04 847.21 1,086.05 1,024.58 465.74 439.38 56,948.68 53,725.18 56,154.60 52,976.04 23,716.72 22,374.26 16.88% 16.88% 15.43% 15.43% 14.40% 14.40% 6.95% 6.95% 6.84% 6.84% 7.22% 7.22% 0.50% 0.50% 0.43% 0.43% 0.32% 0.32%	As at 30 June	As at 30 June
	2002
RMB 23,421.69 9.68% 36,459.84 15,007.30 1,086.95 3,496.50 898.04 56,948.68 16.88% 6.95% 0.50%		HK$ 3,074.86 3.02%
		13,457.46 6,745.08 300.98 1,431.36 439.38
		22,374.26 14.40% 7.22% 0.32%

(1) Denotes revenues derived by the Group in respect of the provision of products and services to the CNPC Group.

(2) Denotes expenditures incurred by the Group in respect of products and services provided by the CNPC Group to the Group.

(3) As disclosed in the Company’s annual report, before 5 November 1999, these transactions represent procurement of materials and related services for operations directly related to the Group. With effect from 5 November 1999, CNPC purchased materials on behalf of the Company and charged commission thereon. The commission is calculated at rates ranging from 1% to 5% of the goods purchased.
(4) These figures do not include the principal amounts of loans or deposits, but only include the amounts of interest expense in respect of the loans less the amounts of interest received in respect of the deposits. The amounts of interest expense in respect of the loans in the relevant periods set out in the table amounted to RMB940.36 million, RMB1,111.82 million and RMB478.58 million respectively, and the amounts of interest received in respect of the deposits amounted to RMB42.32 million, RMB25.77 million and RMB12.84 million respectively, in the same periods.

Product and Service Implementation Agreements

It is envisaged that from time to time and as required, individual product and service implementation agreements will be entered into between the relevant service companies and affiliates of the CNPC Group or the Group, as appropriate, providing the relevant products or services and the relevant members of the Group or the CNPC Group, as appropriate, requiring such products or services.

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LETTER FROM THE BOARD

Each product and service implementation agreement will set out the specific products and services requested by the relevant party and any detailed technical and other specifications which may be relevant to those products or services. The product and service implementation agreements may only contain provisions which are in all material respects consistent with the binding principles and guidelines and terms and conditions in accordance with which such products and services are required to be provided as contained in the Comprehensive Products and Services Agreement.

As the product and service implementation agreements are simply further elaborations on the provision of products and services as contemplated by the Comprehensive Products and Services Agreement, as such, they do not constitute new categories of connected transactions.

Land Use Rights Leasing Contract

The Company entered into the Land Use Rights Leasing Contract with CNPC on 10 March 2000 under which CNPC has leased a total of 42,476 parcels of land in connection with and for the purpose of all aspects of the operations and business of the Group covering an aggregate area of approximately 1,145 million square meters, located throughout the PRC, to the Company for a term of 50 years at an annual fee of RMB2,000 million. The total fee payable for the lease of all such property may, after the expiration of 10 years from the date of the Land Use Rights Leasing Contract, be adjusted (to reflect market conditions prevalent at such time of adjustment, including current market prices, inflation or deflation, as appropriate, and such other pertinent factors as may be reasonably considered in negotiating and agreeing to any such adjustment) by agreement between the Company and CNPC. In addition, any governmental, legal or other administrative taxes and fees required to be paid in connection with the leased properties will be borne by CNPC. However, any additional amount of such taxes payable as a result of changes in the PRC Government policies after the date of the contract shall be shared proportionately on a reasonable basis between CNPC and the Company.

Chesterton Petty Limited, the independent valuer, has reviewed the Land Use Rights Leasing Contract and has confirmed that the current aggregate payment payable by the Company to CNPC is fair and reasonable to the Company.

Buildings Leasing Contract

The Company entered into the Buildings Leasing Contract with CNPC on 10 March 2000 pursuant to which the CNPC Group has leased to the Company a total of 191 buildings covering an aggregate area of 269,770 square meters, located throughout the PRC for the use by the Company for its business operation including the exploration, development and production of crude oil, the refining of crude oil and petroleum products, the production and sale of chemicals, etc.

The 191 buildings were leased at a price of RMB145 per square meter per year, that is, at an aggregate annual fee of RMB39,116,650, for a term of 20 years. The Company is responsible for the payment of any governmental, legal or others administrative taxes and maintenance charges required to be paid in connection with these 191 leased buildings. The Buildings Leasing Contract details the particulars of the buildings leased by members of the CNPC Group to the Company.

Members of the CNPC Group which own one or more of the leased buildings will enter into individual building leasing contracts with the Company. The individual building leasing contracts may only contain provisions which are consistent with the terms and conditions of the Buildings Leasing Contract.

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LETTER FROM THE BOARD

One month prior to the end of each financial year, CNPC and the Company shall make and agree upon a rental fee distribution plan setting out specific prices for the buildings according to their geographical locations and conditions.

Supplemental Buildings Leasing Agreement

Further to the Buildings Leasing Contract mentioned above, the Company entered into a Supplemental Buildings Leasing Agreement (the ‘‘Supplemental Buildings Agreement’’) with CNPC on 26 September 2002 under which CNPC Group agreed to lease another 404 buildings to the Group in connection with and for the purpose of the operation and business of the Group covering an aggregate of approximately 442,730 square meters. Leasing of the units in the Supplemental Building Agreement is mainly attributable to the expansion of the Company’s operations in the areas of oil and natural gas exploration, the West-East natural gas pipeline project and the construction of the Northeast refineries and chemical operation base. The annual fee payable under the Supplemental Buildings Agreement amounts to RMB157,439,540. The Company and CNPC will, based on their needs for production and operation or the changes of the market prices of the buildings, adjust the scale and the amount of all such buildings under the Buildings Leasing Contract as well as the Supplemental Buildings Agreement every three years. The Supplemental Buildings Agreement will become effective on 1 January 2003 (subject to the condition set out below) and will expire at the same time as the Buildings Leasing Contract. The terms and conditions of the Buildings Leasing Contract will, to the extent applicable, apply to the Supplemental Buildings Agreement.

The Supplemental Buildings Agreement has been approved by the Board but its effectiveness is conditional upon the passing of resolutions by the Independent Shareholders approving the Ongoing Connected Transactions.

Chesterton Petty Limited, the independent valuer, has reviewed the Supplemental Buildings Agreement and has confirmed that the rental payable by the Company to CNPC is fair and reasonable to the Company.

The transactions under the Supplemental Buildings Agreement will constitute additional Ongoing Connected Transactions not covered by the Existing Waiver. The Board expects that, in the period up to 31 December 2005, the annual total expenditure of the Company in relation to the buildings leasing under the Buildings Leasing Contract as well as the Supplemental Buildings Agreement will not exceed RMB200 million.

Intellectual Property Licensing Contracts

CNPC and the Company entered into three intellectual property licensing agreements on 10 March 2000, being the Trademark Licensing Contract, the Patent and Know-how Licensing Contract and the Computer Software Licensing Contract. Pursuant to these licensing contracts, CNPC has granted the Company the right to use certain trademarks, patents, know-how and computer software of CNPC at no cost. These intellectual property rights relate to the assets and businesses of CNPC which were transferred to the Company pursuant to the Restructuring.

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LETTER FROM THE BOARD

CNPC retains the right to use the intellectual property, detailed in each of the Trademark Licensing Contract, the Patent and Know-how Licensing Contract and the Computer Software Licensing Contract, including any improvement which the Company makes to the computer software, patents and know-how licensed but subject to CNPC reimbursing the Company on the reasonable costs incurred by the Company in developing such improvements, but such reimbursement obligation does not extend to improvements made to the financial information management software.

The Trademark Licensing Contract is of no fixed term. The Company is licensed to use a number of trademarks of CNPC until the registration of such trademark or trademarks expires and they are no longer protected by law.

The Patent and Know-how Licensing Contract has no fixed term. The Company is licensed to use a number of patents and certain know-how of CNPC until the term of patent rights of such patents expires or such know-how becomes public information, and they are no longer protected by law.

The Computer Software Licensing Contract is for a term of 10 years from the date of the Company’s business licence. Upon the expiration of the term, the Company can negotiate with CNPC for an extension.

Contract for the Transfer of Rights under Production Sharing Contracts

The Company does not have the capacity to enter into production sharing contracts directly with foreign oil and gas companies under existing PRC law. Accordingly, CNPC and the Company have agreed under the Undertaking that after signing a production sharing contract, CNPC will, subject to approval of the MOFTEC, assign to the Company its commercial and operational rights and obligations under the production sharing contract on the same terms as reflected in the Contract for the Transfer of Rights under Production Sharing Contracts, except for the rights and obligations relating to CNPC’s supervisory functions.

CNPC and the Company continue to implement the Contract for the Transfer of Rights under Production Sharing Contracts dated 10 March 2000. Under this contract, CNPC transferred to the Company relevant rights and obligations under 23 production sharing contracts with a number of international oil companies, except for the rights and obligations relating to CNPC’s supervisory functions.

Guarantee of Debts Contract

The Company entered into a Guarantee of Debts Contract with CNPC on 10 March 2000 pursuant to which all of the debts of CNPC relating to assets transferred to the Company in the restructuring were also transferred to, and assumed by, the Company as part of the Company’s preIPO restructuring.

In the Guarantee of Debts Contract entered into by CNPC and the Company, CNPC has agreed to guarantee certain of the debts of the Company. As of the end of 2001, bank loans guaranteed by CNPC and its subsidiaries amounted to RMB1,697 million.

3. REASONS FOR AND BENEFIT OF THE ONGOING CONNECTED TRANSACTIONS

Prior to the Restructuring of CNPC and establishment of the Company, the members of the CNPC Group and the Group operated as an integrated organization which undertook numerous intra-group transactions each year. As a consequence of the Restructuring and upon the listing of the Company’s H

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LETTER FROM THE BOARD

Shares on the Stock Exchange, a number of transactions which have been entered into and which are to be entered into between the Company and the Group and the CNPC Group, would constitute connected transactions for the Company and the Group under the Listing Rules.

The Ongoing Connected Transactions as referred to in the Circular are and will be conducted in the ordinary and usual course of business of the Group. These transactions will continue to be agreed on an arm’s length basis with terms that are fair and reasonable to the Company. Due to the long-term relationships between the Group and CNPC Group, the Board considers it to be beneficial to the Company to continue the Ongoing Connected Transactions with CNPC Group as these transactions have facilitated and will continue to facilitate the operation of the Group’s business.

4. DISCLOSURE REQUIREMENT AND WAIVER SOUGHT

Under the Listing Rules, the Ongoing Connected Transactions as stated in Part 2 above would normally require full disclosure and/or prior Independent Shareholders’ approval. However, as such transactions have been, and/or will continue to be carried out in the ordinary and usual course of business and occur on a regular basis on normal commercial terms and on terms that are fair and reasonable so far as the Shareholders are concerned, the Directors considered that it would not be practical to make disclosure or if necessary, obtain Shareholders’ approval for each transaction as it arises. Accordingly, the Company has applied to the Stock Exchange to grant a waiver for a period of three years up to 31 December 2005 from the relevant requirements of the Listing Rules in respect of the Ongoing Connected Transactions as described above and matters arising out or in connection with such Ongoing Connected Transactions on the conditions that:

i. details of the Ongoing Connected Transactions, including the date, the identity of the parties, a brief description of the transactions and their purposes, the consideration, the nature of the parties’ relationship and the extent of interest of the connected persons, as set out in Rule 14.25(1)(A) to (D) of the Listing Rules will be disclosed in the Company’s annual report;
ii. the Company’s independent non-executive directors will review annually any continued transactions as provided in (iii) and (iv) below and confirm in the Company’s annual report of the relevant financial year that the Ongoing Connected Transactions have been entered into:
a. in the ordinary and usual course of the business of the Company;
b. on terms that are fair and reasonable so far as the Shareholders of the Company are concerned;
c. on normal commercial terms either (1) in accordance with the terms of the agreements governing such transactions, or (2) (where there is no such agreement) on terms no less favorable than terms available to independent third parties;
d. where applicable, within the proposed limits stated in condition (v) below;
iii the management of the Company will review annually the Ongoing Connected Transactions, details of which shall be set forth in the Company’s annual report and confirm in the Company’s next annual report as well as provide the Company’s independent non-executive directors with a letter demonstrating that the Ongoing Connected Transactions have been conducted in the manner as stated in paragraph (ii) (a) and (b) above;

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LETTER FROM THE BOARD

iv. the auditors of the Company will review annually the Ongoing Connected Transactions, details of which shall be set forth in the Company’s annual report and accounts and confirm in the Company’s next annual report as well as provide the board of Directors with a letter stating that:
a. the Ongoing Connected Transactions have received approval of the Directors;
b. the Ongoing Connected Transactions have been conducted in the manner as stated in paragraph (ii) (c) and (d) above;

For the purpose of the above review by the Company’s auditors, CNPC has undertaken to the Company that it will provide the auditors with access to its relevant accounting records;

v. in relation to the products and services contemplated under (a) the Comprehensive Products and Services Agreement; and (b) Buildings Leasing Contract and Supplemental Buildings Agreement, the total annual revenue or expenditure in respect of each category of products and services will not exceed the proposed annual limits set out in the following table:

Category of Products	Category of Products	Annual limit in the	Proposed annual limit in
and	Services	Existing Waiver	the New Waiver
(i)	Products and services to	12 per cent. of the sales	10 per cent. of the sales
	be provided by the Group	revenue of the Group	revenue of the Group
	to the CNPC Group
(ii)	Products and services to
	be provided by the CNPC
	Group to the Group
	Construction and technical	27 per cent. of the total	20 per cent. of the total
	services	operating expenses and	operating expenses and
		capital expenditure of the	capital expenditure of the
		Group	Group
	Production services	10 per cent. of the total	Unchanged
		operating expenses and
		capital expenditure of the
		Group
	Commission expense and	8 per cent. of the total	2 per cent. of the total
	other charges1	operating expenses and	operating expenses and
		capital expenditure of the	capital expenditure of the
		Group	Group
	Social and ancillary	RMB5,607 million	RMB5,000 million
	service	(approximately HK$5,290	(approximately HK$4,717
		million)	million)

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LETTER FROM THE BOARD

Category of Products	Category of Products	Annual limit in the	Proposed annual limit in
and Services		Existing Waiver	the New Waiver
Financial Services
Aggregate of
(a)	the average daily
	outstanding principal
	of loans; and
(b)	the total amount of	RMB52,500 million	Unchanged
	interest paid in	(approximately HK$49,528
	respect of these	million)
	loans
Aggregate of
(a)	the average daily
	amount of deposits;
	and
(b)	the total amount of	RMB4,500 million	Unchanged
	interest receipts in	(approximately HK$4,245
	respect of these	million)
	deposits
Rental for buildings paid		RMB39,116,650	RMB200 million
by the Company to CNPC		(approximately	(approximately HK$187
		HK$36,902,500)	million)

(1) As disclosed in the Company’s annual report, before 5 November 1999, these transactions represent procurement of materials and related services for operations directly related to the Group. With effect from 5 November 1999, CNPC purchased materials on behalf of the Company and charged commission thereon. The commission is calculated at rates ranging from 1% to 5% of the goods purchased.
vi. in relation to the products and services contemplated under other agreements including but not limited to the Land Use Rights Leasing Contract and the Intellectual Property Licensing Contracts, the total expenditure in respect of each category of products and services will be the amount specified in the Prospectus.
vii. the Company’s annual report and accounts shall contain a statement that, in the opinion of the Directors, the arrangement has been entered into in the manner as stated in the tables above.

5. APPROVAL BY INDEPENDENT SHAREHOLDERS

As CNPC directly owns an aggregate of approximately 90% of the issued share capital of the Company, transactions between CNPC and the Company constitute connected transactions for the Company under the Listing Rules and are subject to approval from the Independent Shareholders.

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LETTER FROM THE BOARD

In view of the interests of CNPC, CNPC will abstain from voting in relation to the shareholders resolution necessary to approve the Ongoing Connected Transactions. An Independent Board Committee of the Company (comprising Messrs. Chee-Chen Tung, Wu Jing Lian and Franco Bernabe) has been appointed to advise the Independent Shareholders on whether or not the terms of the Ongoing Connected Transactions are in the interest of the Company and are fair and reasonable so far as the Independent Shareholders are concerned. An Independent Financial Advisor, ICEA, has been appointed to advise the Independent Board Committee of the Company regarding the terms of the Ongoing Connected Transactions. A letter from ICEA containing its advice to the Independent Board Committee is set out on pages 18 to 32 of this Circular.

6. EGM

The Notice convening the EGM to be held at Kempinski Hotel, No. 50 Liangmaqiao Road, Chaoyang District, Beijing, People’s Republic of China on 19 November 2002 at 9: 00 a.m. was published on 27 September 2002 and despatched to H shareholders of the Company on 3 October 2002 pursuant to the Articles of Association of the Company. A notice of attendance was also enclosed. The EGM will be held for the purpose of considering and, if deemed appropriate, approving, among others, the Ongoing Connected Transactions.

A form of proxy for use at the EGM is enclosed herewith. Whether or not you are able to attend the EGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the registered office of the Company at World Tower, 16 Andelu, Dongcheng District, Beijing, People’s Republic of China as soon as possible but in any event no later than 24 hours before the time appointed for the holding of EGM. Completion and return of the form of proxy will not preclude you from attending and voting at the EGM should you wish.

In accordance with the Listing Rules, CNPC, the controlling shareholder of the Company, will abstain from voting in respect of the ordinary resolutions to approve the Ongoing Connected Transactions at the EGM because of their interest in these transactions.

7. FACTORS TO CONSIDER

In considering the proposed resolution, we would request that Independent Shareholders take into account the following factors:

. ICEA, the independent financial advisor to the Independent Board Committee, has concluded that, from a financial perspective, the terms and implementation of the Ongoing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned; and
. The Independent Board Committee believes that, from a financial point of view, the terms of the Ongoing Connected Transactions are fair and reasonable insofar as the Independent Shareholders are concerned and that the Ongoing Connected Transactions are in the interests of the Company and Shareholders as a whole, and has recommended that Independent Shareholders vote in favour of the resolutions at the Extraordinary General Meeting.

8. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee to the Independent Shareholders, which is set out on page 17 of this circular, and which contains their recommendation in respect of the terms of the Ongoing Connected Transactions.

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LETTER FROM THE BOARD

The advice of ICEA to the Independent Board Committee on the fairness and reasonableness of the terms of the Ongoing Connected Transactions are set out in pages 18 to 32 of this Circular.

9. ADDITIONAL INFORMATION

Your attention is drawn to the general information set out in the Appendix to this Circular.

Yours faithfully, By order of the Board PetroChina Company Limited Ma Fu Cai Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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PETROCHINA COMPANY LIMITED

(A Joint Stock Company limited by shares incorporated in the People’s Republic of China)

Independent Board Committee

Chee-Chen Tung Wu Jing Lian Franco Bernabe

17 October 2002

To the Independent Shareholders

Dear Sir or Madam,

RENEWAL OF WAIVER FOR

ONGOING CONNECTED TRANSACTIONS

We refer to the Circular dated 17 October 2002 of the Company of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context requires otherwise.

As CNPC directly own an aggregate of approximately 90% of the issued share capital of the Company, transactions between the Company and the Group and the CNPC Group constitute connected transactions for the Company and the Group under the Listing Rules and are subject to approval from the Independent Shareholders.

In view of the interest of Independent Shareholders, we have been appointed by the Board to constitute the Independent Board Committee to consider and advise the Independent Shareholders as to the fairness and reasonableness in relation to the Ongoing Connected Transactions entered into between the Group and the CNPC Group, details of which are set out in the Letter from the Board in the Circular to the Shareholders. ICEA has been retained as the independent financial advisor to advise the Independent Board Committee in this respect. We wish to draw your attention to the letter from ICEA as set out on pages 18 to page 32 of this Circular.

Having taken into account the information set out in the letter from the Board, and the principal factors, reasons and recommendations set out in the letter from ICEA, we consider the terms of the Ongoing Connected Transactions to be fair and reasonable from a financial point of view insofar as the Independent Shareholders are concerned and believe that the Ongoing Connected Transactions are in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend that the Independent Shareholders should vote in favour of the resolutions to be proposed at the EGM to approve the Ongoing Connected Transactions.

Yours faithfully, Chee-Chen Tung Wu Jing Lian Franco Bernabe Independent Board Committee

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LETTER FROM ICEA CAPITAL LIMITED

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17 October 2002

To the Independent Directors of PetroChina Company Limited

Dear Sirs,

ONGOING CONNECTED TRANSACTIONS

We refer to our engagement under which ICEA Capital Limited (‘‘ICEA’’) has been appointed to advise the Independent Board Committee in respect of the Ongoing Connected Transactions. Pursuant to the Listing Rules, the Ongoing Connected Transactions constitute connected transactions for the Company and are subject to applicable disclosure and/or Independent Shareholder’s approval. Details of Ongoing Connected Transactions are contained in the Letter from the Board of Directors in the Circular issued to the Shareholders dated 17 October 2002. This letter has been prepared for inclusion in the Circular and terms used in this letter have the same meanings as defined elsewhere in the Circular unless the context requires otherwise.

In our capacity as an independent financial adviser to the Independent Board Committee, our role is to give an independent opinion as to whether the terms of the Ongoing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned. In formulating our opinion, we have relied on information, opinions, facts and representations made and supplied to us by the Directors and representatives of the Group, and have assumed that all such information, opinions, facts and representations are true, accurate and may be relied upon in all respects. We have also relied on the appraisals, opinions and reports made by the independent valuer Chesterton Petty Limited in connection with land use rights leasing and buildings Leasing. Further, we have relied on the representations of the Directors that they accept full responsibility for the accuracy of the information contained in the Circular relating to the Group and they have made all reasonable inquiries, and to the best of their knowledge and belief, that there are no other facts, the omission of which would make any statement contained in the Circular untrue or misleading. We have assumed that the statements and representations made or referred to in this Circular were accurate at the time they were made and will continue to be accurate on the respective dates of the despatch of the Circular.

We consider that we have reviewed sufficient information to reach an informed view concerning the Ongoing Connected Transactions and to provide us with a reasonable basis for our opinion. We have not, however, conducted any independent investigation into the business and affairs of the Company, and it is not within our terms of reference to comment on the commercial feasibility of the Ongoing Connected Transactions, which remains the responsibility of the Directors. As the independent financial advisor to the Independent Board Committee, we have not been involved in the negotiations and implementation in respect of the terms of the Ongoing Connected Transactions. Our opinion with regard to the terms thereof has been made on the assumption that all obligations to be performed by each of the parties to the Ongoing Connected Transactions will be fully performed in accordance with the terms thereof.

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LETTER FROM ICEA CAPITAL LIMITED

Where amounts of Hong Kong dollars contained in this letter have been derived from Renminbi, such translations are for the convenience of the readers only, and except as otherwise indicated, have been made at a rate of RMB1.06 to HK$1.00. No representation is made that Renminbi amounts could have been or could be converted into Hong Kong dollars at this rate or at all.

ICEA is a registered dealer under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong). ICEA and its affiliates, whose ordinary businesses involve the trading of and dealing in securities, may involve in the trading of, dealing in, and holding of the securities of the Company for own and client accounts.

PRINCIPAL FACTORS CONSIDERED

In formulating our opinion relating to the Ongoing Connected Transactions, we have taken into consideration, inter alia, the following principal factors:

1. Background of the Ongoing Connected Transactions and the grant of the Existing Waiver

As indicated in the Prospectus, prior to the Restructuring of CNPC and establishment of the Company, the members of the CNPC Group and the Group operated as an integrated organization which undertook numerous intra-group transactions each year. As a consequence of the Restructuring and upon the listing of the H shares of the Company on the Stock Exchange, a number of transactions which had been entered into and which were to be entered into between the Group and the CNPC Group constituted connected transactions for the Company and the Group under the Listing Rules.

Under the Listing Rules, the Ongoing Connected Transactions as stated above would normally require full disclosure and/or prior Independent Shareholders’ approval. At the time of the IPO, the Directors considered that it would not be practical to make disclosure or if necessary, obtain Shareholders’ approval for each transaction as it arises as such transactions would be conducted in the ordinary and usual course of business and occur on a regular basis on normal commercial terms that were considered fair and reasonable so far as the Shareholders were concerned. Accordingly, the Company applied for a waiver to the Stock Exchange and was granted on 7 April 2000 to waive from strict compliance with the disclosure and/or Independent Shareholder’s approval requirements under Chapter 14 of the Listing Rules in connection with the Ongoing Connected Transactions on a series of conditions (‘‘the Existing Waiver’’). A letter from the Stock Exchange dated 13 October 2000 further required the change of one of the waiver conditions. The Existing Waiver will expire on 31 December 2002.

2. Nature and terms of the Ongoing Connected Transactions

As disclosed in the Prospectus, on 10 March 2000 the following connected transaction agreements had been entered into between the Company and CNPC:

. Comprehensive Products and Services Agreement, (and from time to time and as necessary, various Product and Service Implementation Agreements);
. Land Use Rights Leasing Contract;
. Buildings Leasing Contract;
. Intellectual property licensing contracts being the Trademark Licensing Contract, the Patent and Know-how Licensing Contract and the Computer Software Licensing Contract;

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LETTER FROM ICEA CAPITAL LIMITED

. Contract for the Transfer of Rights under Production Sharing Contracts;
. Guarantee of Debts Contract; and
. Contract for the Supervision of Certain Sales Enterprises.

In addition, on 26 September 2002, a Supplemental Buildings Leasing Agreement was entered into between the Company and CNPC, which constituted a new connected transaction between CNPC and the Company.

Pursuant to the Acquisition Agreement entered into between the Company and CNPC, the Contract for the Supervision of Certain Sales Enterprises has been terminated.

Details of the above-mentioned connected transactions can be found in the Letter from the Board in this Circular.

2.1 Comprehensive Products and Services Agreement

Under the Comprehensive Products and Services Agreement, the Group and the CNPC Group will provide each other a range of products and services which may be required and requested from time to time by either party and/or its subsidiary companies and affiliates.

Products and services to be provided by the Group to the CNPC Group include those relating to refined oil products, chemical products, natural gas, crude oil, supply of water, electricity, gas, heating, quantifying and measuring, quality inspection and other products and services as may be requested by the CNPC Group for its own consumption, use or sale from time to time.

Products and services to be provided by the CNPC Group to the Group have been grouped together and categorized as:

. Construction and technical services;
. Production services;
. Supply of materials services;
. Social services;
. Ancillary services; and
. Financial services.

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LETTER FROM ICEA CAPITAL LIMITED

The Comprehensive Products and Services Agreement also details specific pricing principles for the products and services to be provided. If, for any reason, the specific pricing principle for a particular product or service ceases to be applicable, whether due to a change in circumstances or otherwise, such product or service must then be provided in accordance with the following general pricing principles:

(a) State-prescribed prices;
(b) where there is no State-prescribed price, then relevant market prices; or
(c) where neither (a) nor (b) is applicable, then
(i) the actual cost incurred; or
(ii) the agreed contractual price, being the actual cost for the provision of such product or service plus a margin of not more than:
- (xx) 15% (which includes finance costs, general and administrative expenses and a profit margin) for certain construction and technical services provided that, such agreed contractual price shall not be higher than the prices available for the provision of such products and services in the international market; and
- (yy) 3% for all other types of products and services priced in accordance with the agreed contractual price.

Both the Group and the CNPC Group retain the right to choose to receive products and services from independent third parties where the terms and conditions as to price or quality of products or services offered by such third party may be superior. In addition, the provision of products and services by either party is on a non-exclusive basis.

The term of the Comprehensive Products and Services Agreement is 10 years starting from the date when the Company’s business license was issued.

2.2 Product and Service Implementation Agreements

From time to time and as required, individual product and service implementation agreements have been and will continue to be entered into between the relevant service companies and affiliates of the CNPC Group or the Group, as appropriate, providing the relevant products and services to the relevant members of the Group and the CNPC Group, as appropriate, requiring such products and services. Each agreement will set out the specific products and services requested by the relevant party and any detailed technical and other specifications which may be relevant to those products and services. As these agreements are simply further elaborations on the provision of products and services as contemplated by the Comprehensive Products and Services Agreement, as such, they do not constitute new categories of connected transactions.

2.3 Land Use Rights Leasing Contract

Under the Land Use Rights Leasing Contract, CNPC has leased a total of 42,476 parcels of land covering an aggregate area of approximately 1,145 million square meters, located throughout the PRC, to the Company for a term of 50 years at an annual fee of RMB2,000 million (approximately HK$1,887 million). The total fee payable for the lease of all such property may, after the expiration of

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LETTER FROM ICEA CAPITAL LIMITED

10 years from the effective date of the Land Use Rights Leasing Contract (5 November 1999), be adjusted by agreement between the Company and CNPC. Any government, legal or other administrative taxes and fees required to be paid in connection with leased properties will be borne by CNPC.

2.4 Buildings Leasing Contract

Under the Buildings Leasing Contract, the CNPC Group has leased a total of 191 buildings covering an aggregate area of 269,770 square meters, located throughout the PRC to the Company. The 191 buildings were leased at a price of RMB145 (approximately HK$137) per square meter per year, that is, at an aggregate annual fee of RMB39,116,650 (approximately HK$36,902,500) for a term of 20 years. The Company is responsible for the payment of any governmental, legal or others administrative taxes and maintenance charges required to be paid in connection with these 191 leased buildings.

2.5 Supplemental Buildings Leasing Agreement

Under the Supplemental Buildings Leasing Agreement (the ‘‘Supplemental Buildings Agreement’’), the CNPC Group agreed to lease another 404 buildings to the Group in connection with and for the purpose of the operation and business of the Group covering an aggregate of approximately 442,730 square meters. The annual fee payable under the Supplemental Buildings Agreement amounts to RMB157,439,540 (approximately HK$148,527,868).

The Supplemental Buildings Agreement will become effective on 1 January 2003 (subject to the condition set out below) and will expire at the same time as the Buildings Leasing Contract. The terms and conditions of the Buildings Leasing Contract will, to the extent applicable, apply to the Supplemental Buildings Agreement.

2.6 Intellectual Property Licensing Contracts

Pursuant to the three intellectual property licensing agreements, being the Trademark Licensing Contract, the Patent and Know-how Licensing Contract and the Computer Software Licensing Contract, CNPC has granted the Company the right to use certain trademarks, patents, know-how and computer software of CNPC at no cost. The Trademark Licensing Contract and The Patent and Knowhow Licensing Contract have no fixed term, and the Company is licensed to use a number of trademarks, patents and certain know-how of CNPC until the registration of such trademarks and the term of such patent rights expires or such know-how becomes public information, and they are no longer protected by law. The Computer Software Licensing Contract is for a term of 10 years from the date of the Company’s business license. Upon the expiration of the term, the Company can negotiate with CNPC for an extension.

2.7 Contract for the Transfer of Rights under Production Sharing Contracts

Under the Transfer of Rights under Production Sharing Contracts, CNPC transferred to the Company relevant rights and obligations under 23 production sharing contracts with a number of international oil companies, except for the rights and obligations relating to CNPC’s supervisory functions. The Company does not have the capacity to enter into production sharing contracts directly

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LETTER FROM ICEA CAPITAL LIMITED

with foreign oil and gas companies under existing PRC law. Accordingly, CNPC and the Company have agreed that after signing a production sharing contract, CNPC will, subject to approval of the MOFTEC, assign to the Company its commercial and operational rights and obligations (except for the rights and obligations relating to CNPC’s supervisory functions) under the production sharing contract under the same terms as reflected in the Contract for the Transfer of Rights under Production Sharing Contracts, except for the rights and obligations relating to CNPC’s supervisory functions.

2.8 Guarantee of Debts Contract

Under the Guarantee of Debts Contract, CNPC has agreed to guarantee certain of the debts of the Company at no cost. As of the end of 2001, bank loans guaranteed by CNPC and its subsidiaries amounted to RMB1,697 million (approximately HK$1,601 million).

3. Implementation of Ongoing Connected Transactions Under the Existing Waiver

Under the Existing Waiver, the relevant amount of the Ongoing Connected Transactions should be calculated in accordance with the basis stated or the terms of the relevant agreements. In relation to whether every connected transaction was entered into in terms that are not less favorable than terms available to/ from independent third parties, we have made specific inquiries to the independent directors and the auditors, none of them can confirm that they had, in fulfilling their duties reviewing annually the terms of the connected transactions, compared each of them with that available from the third parties. The management of the Company, however, did provide some evidences demonstrating that some of the transactions were provided in terms that were no worse than what the third parties can provide.

We note in the conditions set out in the Existing Waiver provided by HKSE, the independent directors and the auditors were required the ensure that the ongoing connected transactions were entered into either (1) in accordance with the terms of the agreements; or (2) (where there is no such agreement) on terms no less favorable than that available from independent third parties. According to the management, the auditors have duly examined supporting invoices and other relevant documents relating to the prior ongoing connected transactions and compared the terms therein with the terms of the agreements governing such transactions, and determined that all relevant transactions were covered in the agreements enumerated in the Prospectus of the Company. On the basis of this and what has been disclosed in the Company’s annual reports, we decided that the Company has complied with the requirements set out in the Existing Waiver.

Set out below are details of actual implementation of different categories of Ongoing Connected Transactions for the financial years 2000 and 2001 and first half of 2002 (the ‘‘Relevant Period’’) provided by the Company as compared with the annual limits set out in the Existing Waiver.

			As at
	As at 31	December	30 June	Annual limits in the
Category of Products and Services	2000	2001	2002	Existing Waiver
Products and services to be provided	9.68%	7.80%	3.02%	12.0% of the sales revenue
by the Group to the CNPC Group				of the Group
Products and services to be provided
by the CNPC Group to the Group
Construction and technical services	16.88%	15.43%	14.40%	27.0% of the total operating
				expenses and capital
				expenditure of the Group

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LETTER FROM ICEA CAPITAL LIMITED

			As at
	As at 31	December	30 June	Annual limits in the
Category of Products and Services	2000	2001	2002	Existing Waiver
Production services	6.95%	6.84%	7.22%	10.0% of the total operating
				expenses and capital
				expenditure of the Group
Commission expense and other	0.50%	0.43%	0.32%	8.0% of the total operating
charges1				expenses and capital
				expenditure of the Group

(1) As disclosed in the Company’s annual report, before 5 November 1999, these transactions represent procurement of materials and related services for operations directly related to the Group. With effect from 5 November 1999, CNPC purchased materials on behalf of the Company and charged commission thereon. The commission is calculated at rates ranging from 1% to 5% of the goods purchased.

4. The Application for the New Waiver

The Directors considered that the Ongoing Connected Transactions will continue to be conducted in the ordinary and usual course of business and occur on a regular basis on normal commercial terms and on terms that are fair and reasonable so far as the Shareholders are concerned, and that it would not be practical to make disclosure or if necessary, obtain Shareholders’ approval for each transaction as it arises. Accordingly, the Company has applied to the Stock Exchange to grant a waiver for a period of three years up to 31 December 2005 (the ‘‘New Period’’) from the relevant requirements of the Listing Rules in respect of the Ongoing Connected Transactions as described above and matters arising out or in connection with such Ongoing Connected Transactions on the following conditions:

i. details of the Ongoing Connected Transactions, including the date, the identity of the parties, a brief description of the transactions and their purposes, the consideration, the nature of the parties’ relationship and the extent of interest of the connected persons, as set out by Rule 14.25(1)(A) to (D) of the Listing Rules will be disclosed in the Company’s annual report;
ii. the Company’s independent non-executive directors will review annually any continued transactions as provided in (iii) and (iv) below and confirm in the Company’s annual report of the relevant financial year that the Ongoing Connected Transactions have been entered into:
(a) in the ordinary and usual course of the business of the Company;
(b) on terms that are fair and reasonable so far as the Shareholders of the Company are concerned;
(c) on normal commercial terms either (1) in accordance with the terms of the agreements governing such transactions, or (2) (where there is no such agreement) on terms no less favorable than terms available to independent third parties;
(d) where applicable, within the proposed limits stated in condition (v) below;

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LETTER FROM ICEA CAPITAL LIMITED

iii. the management of the Company will review annually the Ongoing Connected Transactions, details of which shall be set forth in the Company’s annual report and confirm in the Company’s next annual report as well as provide the Company’s independent non-executive directors with a letter demonstrating that the Ongoing Connected Transactions have been conducted in the manner as stated in paragraph (ii) (a) and (b) above;
iv. the auditors of the Company will review annually the Ongoing Connected Transactions, details of which will be set forth in the Company’s annual report and accounts and confirm in the Company’s next annual report as well as provide the board of Directors with a letter stating that:
(a) the Ongoing Connected Transactions have received approval of the Directors; and
(b) the Ongoing Connected Transactions have been conducted in the manner as stated in paragraph (ii) (c) and (d) above;

For the purpose of the above review by the Company’s auditors, CNPC has undertaken to the Company that it will provide the auditors with access to its relevant accounting records;

v. in relation to the products and services contemplated under (a) the Comprehensive Products and Services Agreement; and (b) Buildings Leasing Contract and Supplemental Buildings Agreement, the total annual revenue or expenditure in respect of each category of products and services will not exceed the proposed annual limits set out in the following table:

Category of Products Annual limit in the Proposed annual limit in and Services Existing Waiver the New Waiver (i) Products and services to 12% of the sales revenue of 10% of the sales revenue of be provided by the the Group the Group Group to the CNPC Group (ii) Products and services to be provided by the CNPC Group to the Group Construction and 27% of the total operating 20% of the total operating technical services expenses and capital expenses and capital expenditure of the Group expenditure of the Group Production services 10% of the total operating Unchanged expenses and capital expenditure of the Group Commission expense and 8% of the total operating 2% of the total operating other charges expenses and capital expenses and capital expenditure of the Group expenditure of the Group Social and ancillary RMB5,607 million RMB5,000 million service (approximately HK$5,290 (approximately HK$4,717 million) million)

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LETTER FROM ICEA CAPITAL LIMITED

Category of Products	Annual limit in the	Proposed annual limit in
and Services	Existing Waiver	the New Waiver
Financial Services
Aggregate of
(i) the average daily	RMB52,500 million	Unchanged
outstanding principal	(approximately HK$49,528
of loans; and	million)
(ii) the total amount of
interest paid in
respect of these
loans
Aggregate of
(i) the average daily	RMB4,500 million	Unchanged
amount of deposits;	(approximately HK$4,245
and	million)
(ii) the total amount of
interest receipts in
respect of these
deposits
Rental for buildings paid	RMB39,116,650	RMB200 million
by the Company to	(approximately	(approximately HK$187
CNPC	HK$36,902,500)	million)

vi. in relation to the products and services contemplated under other agreements including but not limited to the Land Use Rights Leasing Contract and the Intellectual Property Licensing Contracts, the total expenditure in respect of each category of products and services will be the amount specified in the Prospectus.
vii. the Company’s annual report and accounts shall contain a statement that, in the opinion of the Directors, the arrangement has been entered into in the manner as stated in the tables above.

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LETTER FROM ICEA CAPITAL LIMITED

The pricing of the products and services will be based on the principles described in paragraph 2.1 and will be consistent with the pricing principles as stated in the Comprehensive Products and Services Agreement under the Existing Waiver. We note that the Company has proposed to change certain annual limits of several categories of Ongoing Connected Transactions in its New Waiver application under the Comprehensive Products and Services Agreement, in an effort to reduce the amount of connected transactions between the two parties. We have been informed by the management of the Company that such changes in the annual limit of each category is based on the actual amounts for the Relevant Period.

				Annual limits in	Proposed annual
Category of Products	As at 31 December		As at 30 June	the Existing	limits in the New
and Services	2000	2001	2002	Waiver	Waiver	Comments
Products and services to	9.68%	7.80%	3.02%	12.0% of the sales	10% of the sales	During the Relevant Period, the maximum amount in this
be provided by the				revenue of the	revenue of the	category was 9.68% and the amount has been decreasing
Group to the CNPC				Group	Group	over the years. Based on this track record and projection
Group						of future needs of such products and services and
						availability of alternative providers of such products and
						services, the management believes that during the New
						Period the amount in this category will not exceed 10%
						of the sales revenues of the Group. Based on the above,
						we believe that the new limit provides sufficient
						flexibility to the Group for such transactions, will not
						negatively affect the operation of the Group, and is
						therefore fair and reasonable.
Products and services to
be provided by the
CNPC Group to the
Group
Construction and	16.88%	15.43%	14.40%	27.0% of the total	20% of the total	During the Relevant Period, the maximum amount in this
technical services				operating expenses	operating expenses	category was 16.88% and the amount has been
				and capital	and capital	decreasing over the years. Based on this track record and
				expenditure of the	expenditure of the	projection of future needs of such services and
				Group	Group	availability of alternative providers of such services, the
						management believes that during the New Period the
						amount in this category will not exceed 20% of the total
						operating expenses and capital expenditure of the Group.
						Based on the above, we believe that the new limit
						provides sufficient flexibility to the Group for such
						transactions, will not negatively affect the operation of
						the Group, and is fair and reasonable.
Production services	6.95%	6.84%	7.22%	10.0% of the total	Unchanged	During the Relevant Period, the maximum amount in this
				operating expenses		category was 7.22%. Although the amount increased
				and capital		slightly, based on projection of future needs of such
				expenditure of the		services and availability of alternative providers of such
				Group		services, the management believes that during the New
						Period the amount in this category will not exceed the
						existing limit of 10% of total operating expenses and
						capital expenditure of the Group. Based on the above, we
						believe that the limit provides sufficient flexibility to the
						Group for such transactions, and is fair and reasonable.
Commission expense	0.50%	0.43%	0.32%	8.0% of the total	2% of the total	During the Relevant Period, the maximum amount in this
and other charges				operating expenses	operating expenses	category was 0.50%, and has been decreasing. Based on
				and capital	and capital	this track record and projection of future needs of such
				expenditure of the	expenditure of the	services and availability of alternative providers of such
				Group	Group	services, the management believes that the existing limit
						of 8.0% would not be reached during the New Period and
						is therefore applying for adjustment of the limit to 2% of
						the total operating expenses and capital expenditure of
						the Group. Based on the above, we are of the view that,
						although 2% is still high relative to historical numbers,
						sufficient flexibility is necessary for the Group to
						operate, and the new limit is fair and reasonable.

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LETTER FROM ICEA CAPITAL LIMITED

					Annual limits in	Proposed annual
Category of Products		As at	31 December	As at 30 June	the Existing	limits in the New
and	Services	2000	2001	2002	Waiver	Waiver	Comments
Social and ancillary		RMB3,497	RMB3,347	RMB1,517	RMB5,607 million	RMB5,000 million	During the Relevant Period, the maximum amount in this
	service	million	million	million	(approximately	(approximately	category was RMB3,497 million, and the amount has
		(approximately	(approximately	(approximately	HK$5,290 million)	HK$4,717 million)	been quite consistent over the years. Based on these
		HK$3,299	HK$ 3,158	HK$1,431			transaction amounts and projection of future needs of
		million)	million)	million)			such services and availability of alternative providers of
							such services, the management believes that during the
							New Period the amount in this category will not exceed
							RMB5,000 million per year. Based on the above, we
							believe that the limit provides sufficient flexibility to the
							Group for such transactions, and is fair and reasonable.
Financial Services
Aggregate of
(i)	the average daily	RMB19,440	RMB23,357	NA	RMB52,500	Unchanged	During the Relevant Period, the maximum amount in this
	outstanding principal	million	million		million		category was RMB23,357 million. Although the existing
	of loans; and	(approximately	(approximately		(approximately		limit of RMB52,500 million is high compared to these
		HK$18,340	HK$22,035		HK$49,528		amounts, the management believes that it is beneficial to
(ii)	the total amount of	million)	million)		million).		the Group to maintain the existing limit, as this provides
	interest paid in						flexibility for the Group to increase its borrowing from
	respect of these						the CNPC Group when needed. Such borrowing has been
	loans						at more favourable terms than available from other
							sources. Based on the above, we are of the opinion that
							maintaining the existing limit is fair and reasonable.
Aggregate of
(i)	the average daily	RMB4,191	RMB2,416	NA	RMB4,500 million	Unchanged	During the Relevant Period, the maximum amount in this
	amount of deposits;	million	million		(approximately		category was RMB4,191 million, close to the existing
	and	(approximately	(approximately		HK$4,245		limit of RMB4,500 million. the management foresees
		HK$3,954	HK$2,279		million).		that during the New Period the Group may continue to
(ii)	the total amount of	million)	million)				maintain similar level of deposits with CNPC Group.
	interest receipts in						Based on the above, we are of the opinion that
	respect of these						maintaining the existing limit is fair and reasonable.
	deposits
Rental for buildings		NA	NA	NA	RMB39,116,650	RMB200 million	The increase of the limit is mainly due to the newly
	paid by the				(approximately	(approximately	signed Supplemental Buildings Agreement, as discussed
	Company to CNPC				HK$36,902,500).	HK$187 million).	in more details in Section 5. We are of the opinion that
							increasing the limit is necessary and beneficial for the
							operation of the Group, and is fair and reasonable.

NA-Not Available

5. Opinions provided by Chesterton Petty Limited and the newly entered Supplemental Buildings Leasing Agreement

We note that Chesterton Petty Limited, the independent valuer retained by the Company, has appraised the land use rights and buildings leased to the Company by CNPC pursuant to the Land Use Rights Leasing Contract and the Building Leasing Contract on 27 March 2000, and the buildings leased pursuant to the Supplemental Buildings Agreement on 26 September 2002, respectively, and confirmed that the payments payable by the Company to CNPC under these contracts and agreement are fair and reasonable to the Company.

We have made specific inquiries in order for us to understand the reasons for the Company to enter into the Supplemental Buildings Leasing Agreement with not insignificant increase of area of the leased buildings at higher unit rental compared with the existing Buildings Leasing Contract. We have been informed by the management of the Company that increase is mainly attributable to the expansion of the Company’s operation mainly in the areas for oil and natural gas exploration, the West to East natural gas

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LETTER FROM ICEA CAPITAL LIMITED

pipeline project and the construction of the northeast refineries and chemical operation base, and the difference of the unit rental between Supplemental Buildings Leasing Agreement and Buildings Leasing Contract reflected the fact that the newly leased buildings are mainly located in urban and suburban areas.

We have closely examined the full list of newly leased buildings provided by the Company, and categorized these as follows:

Category	Area	Percentage	Annual rental	Percentage
	(square metre)		(RMB)
Oilfields	254,345.14	57.45%	50,187,301	31.88%
Refineries & chemical plants	101,653.26	22.96%	22,256,886	14.14%
Sales companies	6,526.20	1.47%	6,310,954	4.01%
Pipeline companies	80,205.79	18.12%	78,684,400	49.98%
Total newly leased buildings	442,730.39	100.00%	157,439,540	100.00%

Generally, the statistics concurs with the explanation provided by the management of the Company. Based on all above-mentioned, we are of the view that the entering into the Land Use Rights Leasing Contract and the Building Leasing Contract and the buildings leased pursuant to the Supplemental Buildings Agreement on were conducted in the ordinary and usual course of business of the Group and on normal commercial terms, and are fair and reasonable.

6. Comparison of the scales of the Ongoing Connected Transactions with other listed PRC resource companies

We understand that ongoing connected transactions of similar nature have been a matter of common practice out of the restructuring and commercialization of large PRC State-owned enterprises. Resource companies with significant upstream operations, in particular, have demonstrated attributes that the parent companies and their listed subsidiaries continue to provide to or receive from each other services or supply of products mainly because there have been limited alternatives available after the early stage of the restructuring. We considered it informative and useful by comparing the scales of the Ongoing Connected Transactions the Company has entered into with those entered into by other listed PRC resource companies. Collectively, they provided a current and up to date assessment and indication of the environment in which these listed companies operated.

While every company has its own approach in measuring the limit of each category of transaction, for ease of comparison we have adopted a unified approach by measuring all the products and services provided by the listed company to its parent company (‘‘Connected Transaction as Sales’’) against revenue of the listed company, and measuring all the products and services provided by the parent company to its listed subsidiary (‘‘Connected Transaction as Expenses’’) against the total of the operating expenses and capital expenditure of the listed company.

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LETTER FROM ICEA CAPITAL LIMITED

(1) Percentage of Connected Transaction as Sales to the total sales revenue of the listed companies

	1999	2000	2001
Sinopec	10.2%*	12.8%	11.7%
Chalco	5.0%*	5.4%*	4.7%
Yanzhou coal	2.1%	1.9%	1.7%
Jiangxi copper	37.4%	28.8%	29.6%
Average	13.7%	12.2%	11.9%
Max	37.4%	28.8%	29.6%
Min	2.1%	1.9%	1.7%
PetroChina	7.8%*	9.7%	7.8%

Notes:

based on pro forma data provided by the IPO prospectus of each company
(2) Percentage of Connected Transaction as Expenses to the total operating expenses and capital expenditure of the listed companies

	1999	2000	2001
Sinopec	16.7%*	11.6%	12.1%
Chalco	23.8%*	35.4%*	29.5%
Yanzhou coal	16.9%	9.4%	9.8%
Jiangxi copper	28.2%	23.9%	23.7%
Average	21.4%	20.1%	18.8%
Max	28.2%	35.4%	29.5%
Min	16.7%	9.4%	9.8%
PetroChina	33.3%*	27.4%	25.6%

Notes:

based on pro forma data provided by the IPO prospectus of each company

We note in general that the percentages demonstrated by the Company according to its Ongoing Connected Transactions are within the ranges other PRC listed resource companies have demonstrated. Collectively, these companies still feature quite significant business relationship with their parent companies and in this respect, the Company is in general not lagging its peer group in resolving these arrangements.

7. The procurement and pricing of construction and technical services

We note that under the Comprehensive Products and Services Agreement certain products or services can be provided at the agreed contractual price being the actual cost for the provision of such products or services plus a gross margin (defined as before finance cost, general and administration expenses and profit) of not more than 15%. We further note that according to the Company, fees for the exploration and production services under construction and technical services which were provided under the agreed contractual prices by CNPC Group amount RMB20,570 million (approximately HK$19,406 million) in 2001, constituting some 35% of the overall value of products and services provided by the CNPC Group. We have therefore closely examined the pricing mechanism by comparing the profitability of the CNPC Group in providing these services with those of international oil service companies.

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LETTER FROM ICEA CAPITAL LIMITED

We have selected eight comparable (featuring revenue not significantly lower than USD2 billion) companies constituting the Philadelphia Stock Exchange Oil Service Sector Index and calculated their gross profit margin in the last three years, as

Gross Profit Margin = (Sales revenue — Cost of goods sold)/Sales revenue

Company Name		Gross	Profit Margin
	1999	2000	2001	3 years average
Schlumberger Ltd	19.74%	23.30%	22.58%	21.88%
Weatherford International Ltd	27.92%	11.59%	18.36%	19.29%
Nabors Industries Ltd	18.78%	21.58%	29.90%	23.42%
Smith International Inc	25.91%	26.99%	29.45%	27.45%
BJ Services Co	15.71%	22.19%	31.96%	23.29%
Baker Hughes Inc	18.77%	23.39%	28.81%	23.66%
Transocean Inc	10.11%	12.81%	26.48%	16.47%
Halliburton Co	4.96%	5.38%	10.54%	6.96%
Max	27.92%	26.99%	31.96%	27.45%
Min	4.96%	5.38%	10.54%	6.96%
Average	17.74%	18.40%	24.76%	20.30%

Source: Bloomberg

We observe that the 15% margin on actual cost as agreed between the Company and the CNPC Group is in general lower than the international peers in the similar industry.

While margin constraints placed an artificial limit on the prices that the CNPC Group can possibly charge, there is no guarantee that the CNPC Group can operate efficiently and hence its cost base continues to be reasonable. A large number of transactions with a variety of operation specifications have also made it impractical to compare on a case by case basis whether each transaction is priced fairly. In international practice, oil and gas companies normally select their service providers through open bids and/or bilateral negotiations. Competitive biddings are usually considered as the most transparent in terms of reaching fair prices and are therefore usually preferred approach for larger transactions. According to the management of the Company, the Company is committed to gradually introducing bidding process for its selection of oil service providers. In the financial year 2001, over 56% of the Company’s procurement of services was conducted through open bidding. The Directors of the Company has also resolved that in three to five years from 2000, all the oil services business will be procured from the open market. We considered that the current approach is only transitional towards the open market mechanism which shall involve all the willing domestic and international competitors bidding for providing oil service functions to the Company. Nevertheless, based on our discussion with management we are of the view that the current procurement terms of such services from the CNPC Group reflect what can be practically achieved at this stage and therefore are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM ICEA CAPITAL LIMITED

RECOMMENDATION

Taking into account the above principal factors and reasons and the agreements of the Ongoing Connected Transactions (including the mechanism for determination of the prices), we consider that the terms and implementation of the Ongoing Connected Transactions, from a financial perspective, are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend that the Independent Shareholders vote in favor of ordinary resolutions as detailed in the notice of the Extraordinary General Meeting set out at the end of the Circular.

Yours faithfully, For and on behalf of ICEA Capital Limited Gary S K Sik Executive Director

— 32 —

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTEREST

As at the Latest Practicable Date:

(a) other than Zou Haifeng, a Director of the Company, who holds 3,550 A shares in Jilin Chemical Industrial Company Limited, a subsidiary of the Company, none of the Directors or chief executives had any interest in any shares or debentures of the Company or any associated corporation (within the meaning of SDI Ordinance), as recorded in the register required to be kept under Section 29 of SDI Ordinance, or as otherwise notified to the Company and the HKSE pursuant to the Model Code for Securities Transactions by Directors of Listed Companies;
(b) the Company has not granted its Directors, chief executive or their respective spouses or children below 18 any rights to subscribe for its equity securities or debt securities;
(c) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group since 31 December 2001, being the date to which the latest published audited financial statements of the Company were made up, and which was significant in relation to the business of the Group; and
(d) none of the Directors had any direct or indirect interest in any assets which had since 31 December 2001, being the date to which the latest published audited financial statements of the Company were made up, 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.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to, or can be ascertained after reasonable enquiry by, the Directors, the following persons were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

		Approximate
Name of substantial shareholder		percentage of the
of the Company	Number of shares	total issued shares
CNPC	158,241,758,000	90%

Save as disclosed herein, as at the Latest Practicable Date, so far as the Directors are aware, there was no person who was interested directly or indirectly in 10% or more of the nominal value of any class of the share capital carrying rights to vote in all circumstances at general meetings of any members of the Group.

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GENERAL INFORMATION

APPENDIX

4. EXPERTS’ QUALIFICATIONS AND CONSENTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Names

Qualifications

ICEA

Chesterton Petty

Registered dealer International Property Consultants

(a) None of ICEA and Chesterton Petty is beneficially interested in the share capital of any member of the Group and none of them has any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(b) ICEA and Chesterton Petty have given and have not withdrawn their respective written consents to the issue of this circular with inclusion of their opinions and letters, as the case may be, and the reference to its name included herein in the form and context in which they respectively appear.

5. LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and, so far as the Directors are aware, no litigation or arbitration of material importance is pending or threatened against the Company.

6. MATERIAL ADVERSE CHANGE

As at the Practicable Date, the Directors are not aware of any material adverse change in the financial or trading positions of the Company since 31 December 2001, the date to which the latest published audited financial statement of the Company were made up.

7. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had entered into any service contract with the Company or any member of the Group which will not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

8. GENERAL

(a) The secretary to the Board of the Company is Mr. Li Huaiqi.
(b) The registered office of the Company is at World Tower, 16 Andelu, Dongcheng District, Beijing, 100011, People’s Republic of China.
(c) The principal share register and transfer office is Hong Kong Registrars Limited, Room 1901–5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(d) In the event of inconsistency, the English language text of this circular shall prevail over the Chinese language text.

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GENERAL INFORMATION

APPENDIX

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the offices of Freshfields Bruckhaus Deringer at 11th Floor, Two Exchange Square, Central, Hong Kong from the date of this circular up to and including 19 November 2002:

(a) the articles of association of the Company;
(b) the connected transactions agreements entered into between the Company and CNPC;
(c) the letter of recommendation from the Independent Board Committee, the text of which is set out on page 17 of this circular;
(d) the letter issued by ICEA, the text of which is set out on pages 18 to 32 of this circular;
(e) the confirmation letter by Chesterton Petty;
(f) the written consent of ICEA and Chesterton Petty referred to paragraph 4 of this appendix; and
(g) the annual report of the Company for the year ended 31 December 2001.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [282 x 66] intentionally omitted <==

PETROCHINA COMPANY LIMITED

(A Joint Stock Company limited by shares incorporated in the People’s Republic of China)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the shareholders of PETROCHINA Company Limited (the ‘‘Company’’) will be held at Kempinski Hotel, No. 50 Liangmaqiao Road, Chaoyang District, Beijing, People’s Republic of China on 19th November 2002 at 9 am for the purpose of considering and, if deemed appropriate, passing, with or without modification, the following resolution as an Ordinary Resolution:

ORDINARY RESOLUTIONS

‘‘THAT the appointment of Mr. Ma Fucai as a director of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Wu Yaowen as a director of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Ren Chuanjun as a director of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Su Shulin as a director of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Gong Huazhang as a director of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Zou Haifeng as a director of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Chee-Chen Tung as an independent director of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Liu Hongru as an independent director of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Li Kecheng as a supervisor of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Chen Weizhong as a supervisor of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Wen Qingshan as a supervisor of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’

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NOTICE OF EXTRAORDINARY GENERAL MEETING

‘‘THAT the appointment of Mr. Bai Xinhe as a supervisor of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Zhang Youcai as an independent supervisor of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the appointment of Mr. Wu Zhipan as an independent supervisor of the Company which is to take effect immediately upon the close of this meeting, be and is hereby approved.’’
‘‘THAT the ongoing connected transactions as described in the Circular to shareholders issued by the Company dated 17 October 2002, which the Company expects to occur on a regular and continuous basis in the ordinary and usual course of business of the Company and its subsidiaries, as the case may be, be and are hereby generally and unconditionally approved and the directors of the Company are hereby authorised to do all such further acts and things and execute all such further documents and take all such steps which in their opinion may be necessary, desirable or expedient to implement and/or give effect to the terms of the ongoing connected transactions.’’

The particulars of each of the above proposed new directors and supervisors are set out in Note 2 below.

By Order of the Board Li Huaiqi Secretary to the Board

Beijing, 17th October 2002

Notes:

For your information, the term of office of nine of the Company’s thirteen directors shall expire in November 2002. Whilst the eight directors to be elected pursuant to the Ordinary Resolutions shall, if approved, fill most of the vacated posts, the remaining post of one director shall remain vacant until a further re-election by the shareholders of the Company in the future.
Set out below are brief particulars of the proposed directors and supervisors to be decided by the shareholders of the Company:

Ma Fucai, aged 56, is a senior engineer and graduated from Beijing Petroleum Institute. He has over 30 years’ experience in China’s oil and gas industry. From February 1990 to December 1996, Mr. Ma worked as a Deputy Director, Standing Deputy Director, and Director of Shengli Petroleum Administration Bureau, a subsidiary of CNPC. He worked as an Assistant President of CNPC from November 1996 to December 1996, as Vice President of CNPC from December 1996 to April 1998, and as Director of Daqing Petroleum Administration Bureau from June 1997 to November 1998. Mr. Ma has been President of CNPC since April 1998. Mr. Ma was appointed Chairman of the Company on 5 November 1999.

Wu Yaowen, aged 59, is a senior engineer and graduated from Beijing Petroleum Institute. He has over 30 years’ experience in China’s oil and gas industry. From 1983 to 1986, Mr. Wu worked as a Vice President of the Nanhuanghai Oil Company under the Ministry of Petroleum Industry. From 1986 to 1988, Mr. Wu was the Director of Qinghai Petroleum Administration Bureau. From 1988 to 1994, Mr. Wu worked as chief petroleum engineer of the Ministry of Energy, Head of the Energy Industry

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Department and Vice Director of the Preparatory Committee of the Communications and Energy Department under the State Planning Committee. He was appointed Director of International Cooperation Bureau of CNPC in May 1994, an Assistant President in March 1996, and a Vice President of CNPC in December 1996. He has been a Vice President of CNPC since April 1998. Mr. Wu has been a Director of the Company since 5 November 1999.

Ren Chuanjun, aged 58, is a senior economist and graduated from Hefei Industry University. He has over 30 years’ experience in China’s oil and gas and chemical fibres industries. Mr. Ren became a Deputy General Manager and General Manager of China Yizheng Fibre Industrial United Corporation in 1983. From 1994, he worked as a Vice Minister of China National Textile Council as well as a Vice Chairman of Yizheng Fibre United Corporation and Yizheng Fibre Company Limited. Mr. Ren has been a Vice President of CNPC since April 1998. Mr. Ren was appointed a Director and Senior Vice President of the Company on 5 November 1999.

Su Shulin, aged 40, is a senior engineer and graduated from Daqing Petroleum Institute and Harbin Engineering University with a Master’s Degree. Mr. Su has many years’ experience in China’s oil and gas industry. From 1996, Mr. Su worked successively as an Assistant Director (concurrently, as the Director of the First Oil and Gas Development Department), Standing Deputy Director and Director of Daqing Petroleum Administration Bureau. On 5 November 1999, Mr. Su was appointed a Vice President of the Company and concurrently the Chairman and General Manager of Daqing Oilfield Company Limited, a subsidiary of the Company.

Gong Huazhang, aged 56, is a senior accountant and graduated from Yangzhou Business School. He has over 30 years’ experience in China’s oil and gas industry. Mr. Gong worked as Chief Accountant, Deputy Director and Director of Finance Bureau of CNPC form 1991. He has been Director of Finance and Assets Department of CNPC since October 1998 and has been General Accountant of CNPC since February 1999. Mr. Gong was appointed a Director of the Company on 5 November 1999.

Zou Haifeng, aged 56, is a senior engineer and graduated from Northeastern Industry Institute. He has almost 30 years’ experience in the petrochemical industry. Since 1994, Mr. Zou has been a Deputy Manager of Jilin Chemical Group Corporation, and a Director, Deputy Manager and Chairman of the Supervisory Committee of Jilin Chemical Industrial Company Limited. He has been a Deputy Manager of Jilin Chemical Industrial Company Limited, a subsidiary of the Company, since 1999. Mr. Zou was appointed a Director of the Company on 5 November 1999.

Chee-Chen Tung, aged 60, is the Chairman and Chief Executive Officer of Orient Overseas (International) Limited. Mr. Tung obtained a Bachelor of Science degree from the University of Liverpool, England, and a Master’s degree in Mechanical Engineering from the Massachusetts Institute of Technology in the United States. He served as Chairman of Hong Kong Shipowner’s Association between 1993 and 1995. He currently holds the positions of Chairman of the Hong Kong General Chamber of Commerce, non-executive director of Sing Tao Holdings Ltd. and Zhejiang Expressway Company Ltd, member of the Port Development Board, Council member of the Hong Kong Trade Development Council and International Councillor of the Centre for Strategic & International Studies. Mr. Tung is also the Chairman of the Hong Kong-America Centre, the Institute for Shipboard Education Foundation, and is a member of the Council and Advisory Committee of the Hong Kong Polytechnic University, the Board of Trustees of the University of Pittsburgh and the Board of Visitors of the School of Foreign Service, Georgetown University. Mr. Tung was appointed an independent non-executive director of the Company on 5 November 1999.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Liu Hongru, aged 72, graduated from the Economics Department of the University of Moscow in 1959 with an associate doctor’s degree. Mr. Liu was successively the Vice Governor of the China Agriculture Bank, Vice Governor of the People’s Bank of China, Deputy Director of the State Economic Restructuring Commission and Chairman of the China Securities Regulatory Commission. Mr. Liu is currently a Deputy Director of the Economic Committee of the China People’s Political Consultative Conference, Vice Chairman of China Finance Association, Vice Chairman of China Treasury Bond Association and President of Shanghai Finance and Law Research Institute. Mr. Liu is also a professor at Beijing University, Graduate School of the People’s Bank of China and City University of Hong Kong. Mr. Liu was appointed an independent supervisor of the Company in December 1999.

Li Kecheng, aged 58, is a senior engineer and graduated from Beijing Science and Technology University. He has over 30 years’ experience in China’s oil and gas industry. From 1986 to 1992, Mr. Li was the head of the Petroleum Pipeline Bureau and a senior executive of Northeastern Oil Transmission Administration Bureau. From November 1992, Mr. Li held several senior administrative positions at CNPC and the CNPC Group. Mr. Li was appointed the chairman of the supervisory committee of the Company on 5 November 1999.

Chen Weizhong, aged 58, is a senior auditor and graduated from Anhui Finance and Trade Institute. He has over 30 years’ experience in China’s oil and gas industry. He was a Deputy Director of the Auditing Office of CNPC from 1993 to 1998, and a Deputy Director of the Auditing Bureau of CNPC. Mr. Chen was a Deputy Director and Director of the Auditing Department of CNPC from October 1998. Mr. Chen was appointed a supervisor of the Company on 5 November 1999.

Wen Qingshan, aged 44, is a senior accountant and graduated from Jilin Yanbian University. Mr. Wen was appointed the Deputy Chief Accountant of the Finance and Asset Department of CNPC in November 1998. In May 1995, he was appointed the Deputy Head of the Financial and Asset Department of CNPC. In May 2002, he was appointed the head of the Finance and Asset Department of CNPC.

Bai Xinhe, aged 59, is a senior auditor and graduated from Central Finance Institute. He has over 30 years’ experience in China’s oil and gas industry. Mr. Bai was Chief Auditor of the Auditing Department of CNPC from August 1988 to April 1998; Chief Auditor of the Auditing Department of the CNPC Group from April 1998 to December 1998; and the Deputy General Manager and General Manager of the Auditing Department of the Company from January 1999 to December 2001, during which period he was concurrently the head of the office of the Supervisory Committee of the Company. He has been the head of the Office of the Supervisory Committee of the Company since December 2001. He was appointed a supervisor of the Company on 5 November 1999.

Zhang Youcai, aged 61, is an engineer and graduated from Nanjing Industrial University. He has over 30 years’ experience of enterprise management and financial work. Mr. Zhang was successively the General Manager of Nantong Fertilizer Factory, Deputy Director of Nantong Municipal Industry Bureau, Vice Chairman of Nantong Municipal Planning Committee and Vice Mayor of Nantong City. In April 1984, he was appointed Mayor of Nantong City. From December 1989 to July 2002, he was the Vice Minister of the Ministry of Finance of PRC. From May 1994 to July 1998, he was the Director General of the State Asset Administration Bureau of PRC.

Wu Zhipan, aged 45, acquired a Doctor in Laws degree from Beijing University School of Law in 1988, and was a visiting scholar at Harvard Law School from 1991 to 1992. Mr. Wu is a Vice President of Beijing University. He is concurrently an expert consultant of the Supreme People’s Court, an arbitrator on the Arbitrator Panel of China International Economic and Trade Arbitration

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Commission and a Deputy Director of China Civil and Economic Law Society. Mr. Wu is the author of a large number of legal publications and has extensive experience in legal work. Mr. Wu has been an independent supervisor of the Company since December 1999.

H-shareholders and holders of State-owned shares whose names are registered in the register of members of the Company on or before 20 October 2002 are entitled to attend and vote at the Extraordinary General Meeting. Persons holding the Company’s H-shares should note that the register of members of the Company’s H-shares will be closed from 20 October 2002 to 19 November 2002, both days inclusive, during which period no transfer of shares will be effected.
Shareholders who intend to attend the Extraordinary General Meeting are required to send the Notice of Attendance to the Secretariat of the Board of the Company by 30 October 2002. Please refer to the form of Notice of Attendance for details.
Any shareholder entitled to vote at the Extraordinary General Meeting is entitled to appoint one (1) or more proxies to attend and vote on his behalf. A proxy need not be a shareholder of the Company. Shareholders must appoint a proxy in writing. Such instrument should be signed by the person appointing the proxy or by such person’s authorised representative. If the form of proxy is signed by another person so authorised by the shareholder, the power of attorney or other authorising document must be certified by a notary. The notarially certified power of attorney or other authorising document together with the proxy form must be returned to the Secretariat of the Board of the Company not later than 24 hours prior to the commencement of the Extraordinary General Meeting. The completion and deposit of a form of proxy will not preclude any shareholder from attending and voting at the Extraordinary General Meeting.
Each shareholder (or his/her proxy) shall be entitled to one vote for each share held. If a shareholder has appointed more than one proxy to attend the meeting, the voting rights can only be exercised by way of poll.

Address of Secretariat of the Board of the Company:

Secretariat of Board of Directors of PetroChina Company Limited World Tower, 16 Andelu, Dongcheng District Beijing, 10011, P.R.China Tel: 8610-8488 6270 Fax: 8610-8488 6260

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FIH Mobile Limited — Proxy Solicitation & Information Statement 2002

50355_rns_2002-10-18_fd62f648-07e1-4ac8-b6d7-faa6f8d49aae.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

PETROCHINA COMPANY LIMITED

ONGOING CONNECTED TRANSACTIONS ELECTION OF DIRECTORS AND SUPERVISORS FOR THE NEXT TERM

CONTENTS

PETROCHINA COMPANY LIMITED

ONGOING CONNECTED TRANSACTIONS

1. INTRODUCTION

LETTER FROM THE BOARD

2. ONGOING CONNECTED TRANSACTIONS

Comprehensive Products and Services Agreement

(A) Products and Services to be provided by the Group to the CNPC Group

(B) Products and Services to be provided by the CNPC Group to the Group

(C) General Principles, Price and Terms

(D) Price Determination

(E) Coordination of annual demand of products and services

(F) Rights and Obligations

(G) Term and Termination

LETTER FROM THE BOARD

Product and Service Implementation Agreements

LETTER FROM THE BOARD

Land Use Rights Leasing Contract

Buildings Leasing Contract

Supplemental Buildings Leasing Agreement

Intellectual Property Licensing Contracts

Contract for the Transfer of Rights under Production Sharing Contracts

Guarantee of Debts Contract

3. REASONS FOR AND BENEFIT OF THE ONGOING CONNECTED TRANSACTIONS

4. DISCLOSURE REQUIREMENT AND WAIVER SOUGHT

5. APPROVAL BY INDEPENDENT SHAREHOLDERS

LETTER FROM THE BOARD

6. EGM

7. FACTORS TO CONSIDER

8. RECOMMENDATION

LETTER FROM THE BOARD

9. ADDITIONAL INFORMATION

PETROCHINA COMPANY LIMITED

RENEWAL OF WAIVER FOR

ONGOING CONNECTED TRANSACTIONS

To the Independent Directors of PetroChina Company Limited

ONGOING CONNECTED TRANSACTIONS

PRINCIPAL FACTORS CONSIDERED

1. Background of the Ongoing Connected Transactions and the grant of the Existing Waiver

2. Nature and terms of the Ongoing Connected Transactions

2.3 Land Use Rights Leasing Contract

2.4 Buildings Leasing Contract

2.5 Supplemental Buildings Leasing Agreement

2.8 Guarantee of Debts Contract

3. Implementation of Ongoing Connected Transactions Under the Existing Waiver

4. The Application for the New Waiver

LETTER FROM ICEA CAPITAL LIMITED

5. Opinions provided by Chesterton Petty Limited and the newly entered Supplemental Buildings Leasing Agreement

6. Comparison of the scales of the Ongoing Connected Transactions with other listed PRC resource companies

7. The procurement and pricing of construction and technical services

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTEREST

3. SUBSTANTIAL SHAREHOLDERS

4. EXPERTS’ QUALIFICATIONS AND CONSENTS

Names

Qualifications

ICEA

5. LITIGATION

6. MATERIAL ADVERSE CHANGE

7. SERVICE CONTRACT

8. GENERAL

9. DOCUMENTS AVAILABLE FOR INSPECTION

PETROCHINA COMPANY LIMITED

ORDINARY RESOLUTIONS

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FIH Mobile Limited Proxy Solicitation & Information Statement 2002