Hongxing Coldchain (Hunan) Co., Ltd. — Proxy Solicitation & Information Statement 2004

Jan 5, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult your stockbroker or other licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in GeoMaxima Energy Holdings Limited, you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected from transmission to the purchaser or 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.

GeoMaxima Energy Holdings Limited

(incorporated in Bermuda with limited liability)

ONGOING CONNECTED TRANSACTION

Independent financial adviser to

the independent board committee of GeoMaxima Energy Holdings Limited

ALTUS CAPITAL LIMITED

5 January 2004

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from Altus Capital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16

DEFINITIONS

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

• “Altus”

Altus Capital Limited, a deemed licensed corporation under the SFO and the independent financial adviser to the Independent Board Committee

• “associates”

has the meaning ascribed to it in the Listing Rules

• “Board”

the board of Directors

• “Company”

GeoMaxima Energy Holdings Limited, a company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the main board of the Stock Exchange

“CNSP”

China National Star Petroleum Corporation, a company established in the PRC in 1996 and, save for its 20% equity interest in Xingmei, an independent third party not connected with the directors, chief executive and substantial shareholders of the Company and its subsidiaries or any of their respective associates

• “Director(s)” director(s) of the Company

• “Existing Waiver”

the waiver dated 14 March 2001 granted to the Company by the Stock Exchange from strict compliance with the disclosure and the shareholders’ approval requirements prescribed in the Listing Rules in respect of the Ongoing Connected Transaction for three years up to and including 31 December 2003

• “Group”

the Company and its subsidiaries

• “Hong Kong”

the Hong Kong Special Administrative Region of the PRC

• “Independent Board Committee”

an independent committee of the Board comprising Mr. Yu En Guang, Mr. Zhang Xue Min and Mr. Yip Ching Shan who are the independent non-executive Directors

• “Latest Practicable Date”

• 31 December 2003, being the latest practicable date for the purpose of ascertaining certain information contained in this circular

• “Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

– 1 –

DEFINITIONS

“New Waiver”	the waiver application submitted to the Stock Exchange by the
	Company applying for a renewal of the waiver from strict
	compliance with the disclosure and the shareholders’ approval
	requirements prescribed in the Listing Rules in respect of the
	Ongoing Connected Transaction for a further three years up to
	and including 31 December 2006
“Ongoing Connected Transaction”	the ongoing transaction which is and/or will continue to be
	conducted between Xingmei and CNSP under the Transportation
	Agreement
“PRC”	the People’s Republic of China (which for the purpose of this
	circular excludes Hong Kong, the Macau Special Administrative
	Region and Taiwan)
“SFO”	the Securities and Futures Ordinance (Cap. 571 of the Laws of
	Hong Kong)
“Share(s)”	share(s) of HK$0.01 each in the share capital of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Transportation Agreement”	the transportation and storage agreement dated 25 November 1999
	entered into between Xingmei and CNSP governing the use of oil
	pipeline operated by Xingmei for a term of 20 years
“Xingmei”	Xinjiang Xingmei Oil Pipeline Co. Ltd., a Chinese-foreign equity
	joint venture established in the PRC in which the Group is
	interested in 80% of its registered capital and CNSP is interested
	in 20% of its registered capital
“RMB”	Renminbi, the lawful currency of the PRC
“%”	per cent.

– 2 –

LETTER FROM THE BOARD

GeoMaxima Energy Holdings Limited

(incorporated in Bermuda with limited liability)

Directors:

Mr. Zhu Jia Zhen (Chairman) Mr. Sun Tian Gang Mr. Guo Ting Mr. Zhao Xin Xian

Mr. Yu En Guang*

Mr. Zhang Xue Min*

Head office and principal place of business in Hong Kong: Room 2301, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

• Mr. Yip Ching Shan*

* Independent non-executive Directors

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

5 January 2004

To the Shareholders

Dear Sir and Madam,

ONGOING CONNECTED TRANSACTION

Introduction

The Company announced on 23 December 2003 that an application has been made to the Stock Exchange for the New Waiver.

Xingmei, a 80% owned subsidiary of the Company, is a PRC equity joint venture principally engaged in the construction and operation of transportation and storage facilities for crude oil exploited from the Ta He Oil Field in Xinjiang Autonomous Region, the PRC. The facilities consist of an oil pipeline of approximately 70 kilometers, stretching from the Ta He Oil Field to Lun Tai railway station, eight oil tanks and other ancillary facilities including heat pump station and loading bays to facilitate the operation of the oil pipeline. The remaining 20% of the equity interest of Xingmei is owned by CNSP.

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LETTER FROM THE BOARD

CNSP is the sole operator of the Ta He Oil Field in Xinjiang Autonomous Region, the PRC. On 25 November 1999, the Transportation Agreement was entered into between Xingmei and CNSP, particulars of which are set out below:

THE TRANSPORTATION AGREEMENT DATED 25 NOVEMBER 1999

Parties

• (i) Xingmei a PRC equity joint venture which is owned as to 80% by the Group; and

• (ii) CNSP a company incorporated in the PRC, which owns 20% of the equity interest of Xingmei. Save for its 20% equity interest in Xingmei, CNSP and its shareholders are independent of and not connected with the directors, chief executive and substantial shareholders of the Company and any of its subsidiaries or any of their respective associates.

Terms

Under the Transportation Agreement, CNSP has agreed to use the oil pipeline operated by Xingmei for a term of 20 years commencing from 25 November 1999. The oil pipeline is approximately 70 kilometers in length starting from the Ta He Oil Field and ending in Lun Tai railway station in Xinjiang Autonomous Region, the PRC. In addition, Xingmei also operates other ancillary facilities such as heat pump station, oil tanks and loading bays that facilitate the operation of the oil pipeline. CNSP has agreed not to use the oil pipelines operated by other companies to transport the crude oil extracted from the Ta He Oil Field during the term of the Transportation Agreement. In using the oil pipeline and storage facilities, CNSP is required to pay Xingmei according to the rates set out below:

Transportation fee (by oil pipeline) – RMB0.23 per tonne per kilometer

Loading fee – RMB27 per tonne

Storage fee – RMB5 per tonne per annum

The above rates had been agreed between Xingmei and CNSP after arm’s length negotiations and taking into account, among other things, the costs of construction and operation of the oil pipeline and other peripherals such as heat pump station, oil tanks and loading bays. The Board considers that the above rates are on normal commercial terms and are fair and reasonable so far as the Company and the Shareholders as a whole are concerned.

For each of the two years ended 31 December 2002, annual turnover derived from the Ongoing Connected Transaction amounted to approximately RMB58.7 million and RMB79.4 million, representing approximately 28.9% and 44.0% of the Group’s turnover respectively or approximately 18.8% and 18.9% of the Group’s net tangible asset value as at 31 December 2001 and 2002 respectively. For the six months ended 30 June 2003, turnover derived from the Transportation Agreement amounted to approximately RMB43.6 million, representing approximately 43.2% of the Group’s turnover for the period and approximately 9.9% of the Group’s net tangible asset value as at 30 June 2003.

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LETTER FROM THE BOARD

As CNSP is a substantial shareholder of Xingmei, CNSP is therefore a connected person of the Company under the Listing Rules. Accordingly, any transaction between the Group and CNSP constitutes a connected transaction of the Company subject to the disclosure and shareholders’ approval requirements under Chapter 14 of the Listing Rules for each transaction. In view of the ongoing nature of the Ongoing Connected Transaction, the Existing Waiver was granted and the same will expire on 31 December 2003.

APPLICATION FOR THE NEW WAIVER

Upon the expiry of the Existing Waiver, the Company will have to comply with the Listing Rules pursuant to which disclosure by way of press announcement and approval by the independent Shareholders at general meeting is required for the Ongoing Connected Transaction.

As mentioned above, CNSP is the sole operator of the Ta He Oil Field in Xinjiang Autonomous Region, the PRC. The Directors regard CNSP as a valuable strategic partner for the Group’s oil pipeline operation. Pursuant to the Transportation Agreement, CNSP is bound to use the oil pipeline operated by Xingmei to transport the crude oil extracted from the Ta He Oil Field for a term of 20 years. In the event that CNSP breaches the Transportation Agreement, it will be liable to compensate Xingmei for all the losses arising therefrom. As such, the Transportation Agreement provides reasonable protection to the Group’s investment and the future profitability that would be generated from the Transportation Agreement. On this basis, the Board considers that it is beneficial to and in the interests of, the Company and the Shareholders as a whole to continue the Ongoing Connected Transaction. As the Ongoing Connected Transaction is conducted in the normal and usual course of business of the Group, the Board considers that strict compliance with the disclosure and shareholders’ approval requirements on each occasion the Ongoing Connected Transaction arises after the expiry of the Existing Waiver would be impractical and unduly onerous on the part of the Company. Accordingly, the Company has made an application to the Stock Exchange for the grant of the New Waiver for a further three financial years ending 31 December 2006 on the following conditions:

1. the Ongoing Connected Transaction shall be:

2. (i) entered into in the ordinary and usual course of business of the Group;

3. (ii) conducted on normal commercial terms and on terms that are fair and reasonable so far as the Shareholders as a whole are concerned; and

4. (iii) entered into in accordance with the terms of the Transportation Agreement;

5. the annual amount in respect of the Ongoing Connected Transaction shall not exceed the higher of either (i) 45% of the consolidated turnover of the Group for each of the financial years up to and including 31 December 2006 or (ii) 20% of the consolidated net tangible assets of the Group in its published audited accounts made up to 31 December 2004, 31 December 2005 or 31 December 2006;

6. the independent non-executive Directors shall review the Ongoing Connected Transaction annually and confirm in the Company’s next annual report that these were conducted in the manner as stated in conditions 1 and 2 above;

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LETTER FROM THE BOARD

1. the Company’s auditors shall review the Ongoing Connected Transaction annually and confirm in writing to the Board (a copy of which will be provided to the Listing Division of the Stock Exchange) that:

2. (i) the Ongoing Connected Transaction has received the approval from the Board;

3. (ii) the Ongoing Connected Transaction is entered into in accordance with the terms of the Transportation Agreement;

4. (iii) the consideration in respect of the Ongoing Connected Transaction has not exceeded the annual cap mentioned in condition 2 above; and

5. (iv) the Ongoing Connected Transaction is in accordance with the pricing policies as stated in the Transportation Agreement (or where there is no such agreement, on terms no less favourable than those to or from independent third parties);

6. details of the Ongoing Connected Transaction in each financial year shall be disclosed as required under Rule 14.25(1)(A) to (D) of the Listing Rules in the annual report of the Company for that financial year; and

7. the Company shall undertake to the Stock Exchange that the auditors of the Company will be granted access to the records of the Group for the purpose of the auditors’ review of the Ongoing Connected Transaction referred to in condition 4 above.

If the annual cap referred to in condition 2 above is exceeded, or if any member of the Group enters into new arrangements with CNSP in the future, the Company will comply with the provisions of Chapter 14 of the Listing Rules governing connected transactions, unless it applies for and obtains a separate waiver from the Stock Exchange.

The Company will continue to abide by the requirements under Chapter 14 of the Listing Rules in respect of the Ongoing Connected Transaction after the expiry of the Existing Waiver until the New Waiver or an approval from the Stock Exchange is granted.

BASIS OF THE CAP

The annual cap referred to in condition 2 under the paragraph headed “Application for the New Waiver” above is based on the past annual turnover derived from the Ongoing Connected Transaction attributable to the Group’s turnover and net tangible asset as mentioned in the paragraph headed “The Transportation Agreement dated 25 November 1999” above.

Under the Existing Waiver, the annual cap was set for the total transportation volume at 3.5 million tonnes per annum, equivalent to approximately RMB169 million per annum. The Company confirms that it has complied with all the conditions set out in the Existing Waiver.

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LETTER FROM THE BOARD

WAIVER FOR CONVENING SHAREHOLDERS’ MEETING

The ongoing nature of the Ongoing Connected Transaction and the New Waiver are subject to the approval of the independent Shareholders. The Company has obtained a written certificate issued by China GeoMaxima Co., Ltd. approving the Ongoing Connected Transaction and the New Waiver. China GeoMaxima Co., Ltd., which is the controlling Shareholder interested in approximately 54.85% of the issued Shares, has confirmed that it has no interest in CNSP, Xingmei and the Ongoing Connected Transaction (save and except its equity interest in the Company which is the same as the other Shareholders) and will vote for the Ongoing Connected Transaction and the New Waiver in the general meeting to be convened if necessary.

In view of the above, the Company has made an application to and was granted by the Stock Exchange for a waiver from the requirement to convene a general meeting on the ground that approval in respect of the Ongoing Connected Transaction and the New Waiver has been obtained from the independent Shareholder.

RECOMMENDATION

Having reviewed the advice from Altus, the Independent Board Committee considers that the terms of the Ongoing Connected Transaction are fair and reasonable so far as the interests of the Shareholders are concerned and that the Ongoing Connected Transaction is in the interests of the Company and the Shareholders as a whole.

ADDITIONAL INFORMATION

The Group is principally engaged in the operation of transportation and storage facilities for crude oil and the operation of a natural gas pipeline network and refilling stations supplying natural gas and liquefied petroleum gas for vehicle use in the PRC.

Your attention is also drawn to the letter from the Independent Board Committee to the Shareholders in relation to the Ongoing Connected Transaction, the letter of advice from Altus to the Independent Board Committee in relation to the Ongoing Connected Transaction and the information set out in the appendix to this circular.

Yours faithfully, For and on behalf of GeoMaxima Energy Holdings Limited Sun Tian Gang Director

– 7 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Shareholders in relation to the Ongoing Connected Transaction:

GeoMaxima Energy Holdings Limited

(incorporated in Bermuda with limited liability)

5 January 2004

To the Shareholders

Dear Sir/Madam

ONGOING CONNECTED TRANSACTION WAIVER APPLICATION

We refer to the circular of the Company dated 5 January 2004, of which this letter forms part. Terms defined in the circular shall bear the same meanings when used herein unless the context requires otherwise.

We have been appointed to constitute the Independent Board Committee to consider the Ongoing Connected Transaction and to advise the independent Shareholders in respect of the Ongoing Connected Transaction. Altus has been appointed as the independent financial adviser to advise us in this respect.

Your attention is drawn to the letter from the Board and the letter from Altus containing its advice to us as set out on pages 3 to 7 and pages 9 to 15 of this circular respectively.

Taking into account the advice from Altus, we consider that the terms of the Ongoing Connected Transaction are fair and reasonable so far as the interests of the Shareholders are concerned and that the Ongoing Connected Transaction are in the interests of the Company and the Shareholders as a whole.

Yours faithfully, Yu En Guang Zhang Xue Min Yip Ching Shan Independent Board Committee

– 8 –

LETTER FROM ALTUS CAPITAL LIMITED

Set out below is the text of the letter from Altus to the Independent Board Committee prepared for inclusion in this Circular:

ALTUS CAPITAL LIMITED

8/F Hong Kong Diamond Exchange Building 8 Duddell Street, Central Hong Kong

5 January 2004

To the Independent Board Committee

GeoMaxima Energy Holdings Limited Room 2301, Office Tower, Convention Plaza 1 Harbour Road, Wanchai Hong Kong

Dear Sirs,

ONGOING CONNECTED TRANSACTION

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee in respect of the terms of the Ongoing Connected Transaction, particulars of which are set out in the “Letter from the Board” (the “Letter”) contained in the circular to the Shareholders dated 5 January 2004 (the “Circular”) and in which this letter forms part. Unless the context requires otherwise, terms used in this letter shall have the same meanings as given to them under the definitions section of the Circular.

The Ongoing Connected Transaction relates to the Transportation Agreement entered into between Xingmei, a subsidiary of the Company, and CNSP pursuant to which CNSP has agreed to use the oil pipeline operated by Xingmei for a term of 20 years commencing from 25 November 1999. As CNSP is a substantial shareholder of Xingmei, CNSP is therefore a connected person of the Company under the Listing Rules. Accordingly, any transaction between Xingmei and CNSP constitutes a connected transaction of the Company subject to the disclosure and/or shareholders’ approval requirements under Chapter 14 of the Listing Rules for each transaction.

As the Existing Waiver granted by the Stock Exchange from strict compliance with the relevant requirements of the Listing Rules in respect of the Ongoing Connected Transaction has expired on 31 December 2003, the Company has made an application to the Stock Exchange for the New Waiver for a further three financial years ending 31 December 2006.

BASIS OF OUR OPINION

In formulating our opinion, we have relied to a considerable extent on the information, statements, opinion and representations supplied to us by the Company and the Directors and we have assumed that

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LETTER FROM ALTUS CAPITAL LIMITED

all such information, statements, opinions and representations contained or referred to in the Circular were true and accurate and complete at the time they were made and continue to be true at the date of the Circular, and we have relied on the same. We have also assumed that all statements of belief, opinion and intention of the Directors as set out in the letter in the Circular were reasonably made after due and careful inquiry. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information provided and referred to in the Circular.

We consider that we have been provided with, and we have reviewed, all currently available information and documents which are available under present circumstances to enable us to reach an informed view regarding the Ongoing Connected Transaction and to justify reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis of our opinion. We have no reason to suspect that any material facts or information (which is known to the Company) have been omitted or withheld from the information supplied or opinions expressed in the Circular nor to doubt the truth and accuracy of the information and facts, or the reasonableness of the opinions expressed by the Company and the Directors which have been provided to us. We have not, however, carried out any independent verification on the information provided to us by the Directors, nor have we conducted an independent in-depth investigation into the business and affairs of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation in respect of the terms of the Ongoing Connected Transaction, we have taken the following principal factors and reasons into consideration:

1. Background of the Ongoing Connected Transaction

The principal activities of the Group are the provision of crude oil transportation, storage and unloading services, operation of natural gas pipeline network and refilling stations supplying natural gas and liquefied petroleum gas (“LPG”) for vehicle use and sale of canned LPG.

CNSP is the sole operator of the Ta He Oil Field which is located in Xinjiang Autonomous Region, the PRC and engages in the exploration and production of crude oil and natural gas.

The Company acquired an 80% interest in Xingmei in 2001. Xingmei is a PRC equity joint venture currently owned as to 80% by the Company and 20% by CNSP and is principally engaged in construction and operation of transportation and storage facilities for crude oil extracted from the Ta He Oil Field. The pipeline and storage facilities consist of an oil pipeline of approximately 70 kilometers, stretching from Ta He Oil Field to Lun Tai railway station, eight oil tanks and other ancillary facilities including heat pump station and loading bays to facilitate the operation of the oil pipeline.

The Stock Exchange has granted a waiver to the Company from strict compliance with Chapter 14 of the Listing Rules in respect of the Ongoing Connected Transactions for three financial years ended on 31 December 2003 with the conditions stated in the circular of the Company dated 14 March 2001 (the “Previous Circular”) and a cap amount (“Cap”) not exceeding 3.5 million tonnes per annum, representing a maximum annual amount of approximately RMB169 million.

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LETTER FROM ALTUS CAPITAL LIMITED

As stipulated in the Previous Circular, the Existing Waiver granted by the Stock Exchange to the Company was subject to a number of conditions, among others, the annual review by the auditors of the Company (the “Auditors”) as to whether (i) the Ongoing Connected Transactions have been entered into accordance with the pricing policies as stated in the Transportation Agreement; (ii) the Ongoing Connected Transactions have been entered into accordance with the terms of the Transportation Agreement; (iii) the Ongoing Connected Transaction have received approval from the Board; and (iv) the Cap has not been exceeded. We have reviewed letters issued by the Auditors to the Company in relation to the Ongoing Connected Transactions (the “Auditors’ Letters”) confirming that the Auditors have reviewed the prices for the provision of services to CNSP on a sample basis to the pricing policies stated in the Transportation Agreement. It was stated in the Auditors’ Letters that the Board approved the Ongoing Connected Transaction and that the Auditors confirmed with the Board that nothing has come to their attention that caused them to believe that the Ongoing Connected Transactions were not in accordance with the pricing policies and the terms of the Transportation Agreement and the Cap has not been exceeded.

In view of the above, it can be demonstrated that Company has strictly fulfilled the requirements and conditions stipulated in the Existing Waiver.

2. Major terms of the Ongoing Connected Transaction

Xingmei entered into the Transportation Agreement with CNSP on 25 November 1999 (details of which have been set out in the Letter) pursuant to which CNSP was bound to use Xingmei’s oil pipeline as well as its storage facilities to transport crude oil extracted from Ta He Oil Field to Lun Tai railway station for a term of twenty years. The Directors advised that the Company was not involved in the negotiations of the Transportation Agreement as the Transportation Agreement was entered into before Xingmei became a subsidiary of the Company in March 2001 and hence it has no record of or details on how the terms of the Transportation Agreement, including but not limited to, the bases for the charge rates, were determined between Xingmei and CNSP. Nevertheless, the Directors confirmed that in the event that CNSP breaches the Transportation Agreement, CNSP would be liable to compensate the Company for all the losses arising therefrom. On this basis, the Directors consider that the Transportation Agreement provides reasonable protection to Xingmei’s investment and to the potential profitability that would be generated from the Transportation Agreement.

We have attempted to verify the fact that Xingmei’s oil pipeline is the only oil pipeline operating within the vicinity of Ta He Oil Field; however, no such information was available and no other companies engaged in similar operations could be found for comparison purposes. Nevertheless, the Directors consider that even if such comparable oil pipeline operating companies in other areas in the PRC were found, it would not be appropriate to use charge rates adopted by them as benchmarks for assessing the terms of the Transportation Agreement because the costs of construction, operation and/or maintenance of oil pipelines can vary significantly due to differences in climate, locations and geographical settings of the oil fields. As stated in the Letter, the turnover with respect to the Ongoing Connected Transaction were about RMB58.7 million, RMB79.4 million and RMB43.6 million respectively for the two years ended 31 December 2002 and the six months ended 30 June 2003. In this regard, we are of the view that since CNSP is the sole operator of Ta He Oil Field and is bound by the Transportation Agreement for a term of twenty years, the Transportation Agreement has the benefit of allowing Xingmei to secure business for its facilities and protecting Xingmei should CNSP breach the Transportation Agreement.

– 11 –

LETTER FROM ALTUS CAPITAL LIMITED

Despite the lack of information for comparison purposes, we have taken into consideration that:

• (i) the Transaction Agreement was entered into on normal commercial terms, at arm’s length basis and in the ordinary course of business of the Group and offers protection against any possible losses that may arise should CNSP commit any breach and provides reasonable protection to the Group’s investment and future profitability;

• (ii) CNSP is bound to use the oil pipeline operated by Xingmei to transport crude oil extracted from Ta He Oil Field for a terms of twenty years;

• (iii) the confirmation from the Directors, who are familiar with the operations of Xingmei and the oil transportation business, that the terms of the Transportation Agreement are fair and reasonable to the Company and Shareholders as a whole; and

• (iv) the turnover attributable to the Ongoing Connected Transaction is significant to the Group’s overall financial performance.

Based on the above, we are of the view that it is in the interest of the Company to continue carrying out the Ongoing Connected Transaction which is subject to the terms of the Transportation Agreement.

3. The New Waiver

The Existing Waiver granted by the Stock Exchange has expired on 31 December 2003 and since the Ongoing Connected Transaction is in the normal course of the Group’s business and of a regular and continuing nature, the Directors consider that strict compliance with the disclosure and shareholders’ approval requirements on each occasion the Ongoing Connected Transaction arises after the expiry of the Existing Waiver would be onerous on the part of the Company. As such, the Company has made an application to the Stock Exchange to grant the New Waiver for a further three financial years ending 31 December 2006.

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LETTER FROM ALTUS CAPITAL LIMITED

The following table sets out the historical amounts of the turnover derived from the Ongoing Connected Transaction for the two years ended 31 December 2002 and the six months ended 30 June 2003 as a percentage of the Group’s audited/unaudited consolidated turnover and net tangible asset value (“Historical Percentage(s)”) and the proposed caps under the New Waiver (“Proposed Caps”):

	Year ended 31 December	Year ended 31 December	6 months ended	Proposed Cap
	2001	2002	30 June 2003	(note)
Turnover with respect to the
Ongoing Connected Transaction
(RMB’000)	58,727	79,401	43,613
As % of consolidated turnover	28.9%	44.0%	43.3%	45.0%
As % of net tangible asset value	18.8%	18.9%	9.9%	20.0%

Note: The annual amount of the Ongoing Connected Transaction will be subject to the higher of the two Proposed Caps.

We have discussed with the management of the Company in respect of the basis of the Cap under the Existing Waiver and the Proposed Caps under the New Waiver. We were informed that the Cap under the Existing Waiver was obtained with reference to Xingmei’s maximum transportation capacity of 3.5 million tonnes per annum because Xingmei’s oil pipeline had only begun commercial operation at the time when the application for the Existing Wavier was made and the estimated maximum capacity was the most relevant benchmark available. However, having assessed the operating performance of the pipeline and facilities for the two years ended 31 December 2002 and the six months ended 30 June 2003, the Directors consider that, for the purpose of the New Waiver, the Proposed Caps which are based on the Group’s consolidated turnover of the current corresponding year and net tangible asset value would provide a more realistic and fair representation of the value of the Ongoing Connected Transaction.

We noted that the Historical Percentages stated in the table are within the Proposed Caps in each of the financial years 2001 and 2002 and the six months ended 30 June 2003 and, based on the discussion with the management, we consider the Proposed Caps to be reasonable as far as the Company and the Shareholders are concerned.

4. Reasons for the Ongoing Connected Transactions

As stated in the Letter, the Directors consider that the Ongoing Connected Transaction is conducted on normal commercial terms, negotiated at an arm’s length basis and in the ordinary and usual course of business of the Group. The Directors regard CNSP as a valuable strategic partner for the Group’s oil pipeline operation and are of the view that since Xingmei’s oil pipeline is the only pipeline operating from Ta He Oil Field to Lun Tai railway station and that CNSP is bound by the Transportation Agreement to use this pipeline to transport crude oil extracted from Ta He Oil Field for a term of twenty years and that CNSP has stated in a letter that it will continue to observe the terms and conditions of the Transportation Agreement, the Transportation Agreement provides reasonable protection to the Group’s investment and future profitability.

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LETTER FROM ALTUS CAPITAL LIMITED

Based on the above, we agree with the Directors that it is fair and reasonable and is in the interests of the Shareholders and the Company to continue carrying out the Ongoing Connected Transaction.

5. Conditions on the New Waiver

The application of the Company to the Stock Exchange for waiver from compliance with the disclosure and/or approval of Independent Shareholders requirement as required under Chapter 14 of the Listing Rules in respect of the Ongoing Connected Transaction is subject to the following conditions:

1. the Ongoing Connected Transaction shall be:

2. (i) entered into in the ordinary and usual course of business of the Group;

3. (ii) conducted on normal commercial terms and on terms that are fair and reasonable so far as the Shareholders as a whole are concerned; and

4. (iii) entered into in accordance with the terms of the Transportation Agreement;

5. the annual amount in respect of the Ongoing Connected Transaction shall not exceed the higher of either (i) 45% of the consolidated turnover of the Group for each of the financial years up to and including 31 December 2006 or (ii) 20% of the consolidated net tangible assets of the Group in its published audited accounts made up to 31 December 2004, 31 December 2005 or 31 December 2006;

6. the independent non-executive Directors shall review the Ongoing Connected Transaction annually and confirm in the Company’s next annual report that these were conducted in the manner as stated in conditions 1 and 2 above;

7. the Company’s auditors shall review the Ongoing Connected Transaction annually and confirm in writing to the Board (a copy of which will be provided to the Listing Division of the Stock Exchange) that:

8. (i) the Ongoing Connected Transaction has received the approval from the Board;

9. (ii) the Ongoing Connected Transaction is entered into in accordance with the terms of the Transportation Agreement;

10. (iii) the consideration in respect of the Ongoing Connected Transaction has not exceeded the annual cap mentioned in condition 2 above; and

11. (iv) the Ongoing Connected Transaction is in accordance with the pricing policies as stated in the Transportation Agreement (or where there is no such agreement, on terms no less favourable than those to or from independent third parties);

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LETTER FROM ALTUS CAPITAL LIMITED

1. details of the Ongoing Connected Transaction in each financial year shall be disclosed as required under Rule 14.25(1)(A) to (D) of the Listing Rules in the annual report of the Company for that financial year; and

2. the Company shall undertake to the Stock Exchange that the auditors of the Company will be granted access to its records of the Group for the purpose of the auditors’ review of the Ongoing Connected Transaction referred to in condition 4 above.

If the annual cap referred to in condition 2 above is exceeded, or if any member of the Group enters into new arrangements with CNSP in the future, the Company will comply with the provisions of Chapter 14 of the Listing Rules governing connected transactions, unless it applies for and obtains a separate waiver from the Stock Exchange.

On this basis, we consider that the Company has taken appropriate measures to govern itself in carrying out the Ongoing Connected Transaction, thereby safeguarding the interest of the Shareholders thereunder.

CONCLUSION AND RECOMMENDATION

Having considered the above principal factors, we are of the opinion that terms and conditions of the Ongoing Connected Transaction with CNSP and the New Waiver are in the interests of the Company and the Shareholders as a whole and are fair and reasonable insofar as the Shareholders are concerned.

Yours faithfully, For and on behalf of

Altus Capital Limited Kevin Chan

Executive Director

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APPENDIX

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. 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 INTERESTS

As at the Latest Practicable Date, the interests of the Director and chief executive of the Company in the equity or debt securities of the Company or any associated corporation (within the meaning of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors are taken or deemed to have under such provisions of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange were as follows:

(i) The Company

				Approximate
		Number of		percentage of
Name of Director	Capacity	Shares held	Position	shareholding
Sun Tian Gang	Corporate	1,662,795,650	Long	54.85%
		(Note)
Sun Tian Gang	Personal	108,363,936	Long	3.57%
Guo Ting	Personal	3,000,000	Long	0.10%

Note: 1,662,795,650 Shares were owned by China GeoMaxima Co. Ltd., a company wholly owned by Mr. Sun Tian Gang.

(ii) Particulars of outstanding share options

Name of		Number	Date of	Exercise	Exercise price
Director	Issuer	of options	grant	period	per Share
					HK$
Zhu Jia Zhen	Company	28,000,000	29 July 2002	2 September 2002 to	0.698
				31 August 2007
Sun Tian Gang	Company	28,000,000	29 July 2002	2 September 2002 to	0.698
				31 August 2007
Guo Ting	Company	20,000,000	29 July 2002	2 September 2002 to	0.698
				31 August 2007

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APPENDIX

GENERAL INFORMATION

Save as disclosed in this circular, as at the Latest Practicable Date, none of Director and chief executive of the Company was interested in the equity or debt securities of the Company or any associated corporations (within the meaning of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors are taken or deemed to have under such provisions of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS

So far as is known to the Directors, the following parties, as at the Latest Practicable Date, other than a Director or chief executive of the Company, had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of the Division 2 and 3 of Part XV of the SFO, or who was, 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 other member of the Group:

				Approximate
				percentage
Name	Number of Shares	Position	of shareholding
China GeoMaxima Co. Ltd.	1,662,795,650	Long		54.85%
Hong Kong San Jiu Enterprises	210,000,000	Short		6.93%
Limited	(Note)
Hong Kong San Jiu Enterprises	27,000,000	Long		0.89%
Limited

Note: On 14 April 2003, Shenzhen Venture Capital (BVI) Company Limited (“Shenzhen Venture Capital”) reported that it has a security interest in 210,000,000 Shares, representing 6.93% of the issued share capital of the Company. Shenzhen Venture Capital is owned as to 50% by Mr. Mei Jian and 50% by Mr. Zhang Minlong.

Save as disclosed in this circular, the Directors are not aware of any person who, as at the Latest Practicable Date, was interested, directly or indirectly, 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.

4. EXPERT

Altus is a deemed licensed corporation to carry out types 1, 4, 6 and 9 of the regulated activities under the SFO.

Altus has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and reference to its name in the form and context in which it appears.

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APPENDIX

GENERAL INFORMATION

As at the Latest Practicable Date, Altus had no shareholding in any member of the Group or the right to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

5. SERVICE CONTRACTS

None of the Directors has any existing or proposed service contract with any member of the Group which is not expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

6. MISCELLANEOUS

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors were aware of any material adverse change in the financial or trading position of the Group since 31 December 2002, the date to which the latest published audited consolidated financial statements of the Group were made up.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors was materially interested in any contracts or arrangements which were subsisting at the Latest Practicable Date.

Save as disclosed herein, as at the Latest Practicable Date, none of Altus nor the Directors had any direct or indirect material interest in any assets acquired or disposed of by or leased to or by or proposed to be acquired or disposed of or leased to or by any member of the Group since 31 December 2002, the date to which the latest published audited consolidated financial statements of the Group were made up.

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the head office and the principal place of business of the Company in Hong Kong at Room 2301, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong up to and including 19 January 2004:

• (a) a copy of the Transportation Agreement;

• (b) the letter of advice from Altus to the Independent Board Committee, the text of which is set out in pages 9 to 15 in this circular;

• (c) the letter from the Independent Board Committee to the Shareholders, the text of which is set out in page 8 in this circular; and

• (d) the written consent from Altus as referred to in the paragraph headed “Expert” in this appendix.

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