Netjoy Holdings Limited — Proxy Solicitation & Information Statement 2006

Apr 3, 2006

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 obtain independent professional advice.

If you have sold or transferred all your shares in Huaneng Power International, Inc., you should at once hand this circular and where applicable, the form of proxy and reply slip to the purchaser or transferee or to the bank, or a licensed securities dealer or other agent through whom the sale or transfer was effected for 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.

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(a sino foreign joint stock limited company incorporated in the People’s Republic of China) (Stock Code: 902)

DISCLOSEABLE AND CONTINUING CONNECTED TRANSACTIONS

Independent Financial Advisor to the Independent Board Committee and the Independent Shareholders of Huaneng Power International, Inc.

A letter from the board of Directors of Huaneng Power International, Inc. is set out on pages 3 to 9 of this circular. A letter from the independent board committee of Huaneng Power International, Inc. is set out on pages 10 and 11 of this circular. A letter from DBS Asia containing its advice to the Independent Board Committee and the independent shareholders of Huaneng Power International, Inc. is set out on pages 12 to 17 of this circular.

As and when the Company decides on the date, time and place for convening the Annual General Meeting in which, among other things, the Continuing Connected Transactions and the Proposed Cap will be considered by the Independent Shareholders, the Company shall according to the requirements under the articles of association of the Company issue a notice for convening the annual general meeting together with a reply slip and a form of proxy to you.

If you intend to attend the annual general meeting, you should complete and return the reply slip in accordance with the instructions printed thereon as soon as possible.

Whether or not you are able to attend, you should complete and return the form of proxy in accordance with the instructions printed thereon and return it to Hong Kong Registrars Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event by not later than 24 hours before the time appointed for holding such meeting or any adjournment thereof.

Completion and return of the form of proxy will not preclude you from attending and voting at the Annual General Meeting should you so wish.

31st March 2006

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from DBS Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Appendix — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18

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DEFINITIONS

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

“A Shares”	domestic tradable shares in the ordinary share capital of the
	Company with a nominal value of RMB1.00 each, which are
	listed on the Shanghai Stock Exchange
“ADSs”	American Depositary Shares, each representing the ownership
	of 40 H Shares, which are listed on New York Stock Exchange
	Inc.
“Annual General Meeting”	the annual general meeting of the Company to be held before
	mid June 2006 or any adjournment thereof for, among other
	things, considering and, if appropriate, approving the
	Continuing Connected Transactions and the Proposed Cap
“associates”	has the meaning ascribed to it in the Hong Kong Listing Rules
“Board” “Company”	the board of Directors Huaneng Power International, Inc., a
	Sino foreign joint stock limited company incorporated in the
	PRC and the H Shares, ADSs and A Shares of which are listed
	on the Hong Kong Stock Exchange, New York Stock
	Exchange Inc. and the Shanghai Stock Exchange, respectively
“CRBC”	China Banking Regulatory Commission
“connected persons”	has the meaning ascribed to it in the Hong Kong Listing Rules
“Continuing Connected	the cash deposit transactions pursuant to the Framework
Transactions”	Agreement entered into on a continuing basis between the
	Company and Huaneng Finance
“DBS Asia”	DBS Asia Capital Limited, being the independent financial
	advisor to the Independent Board Committee and the
	Independent Shareholders in respect of the 2004 Deposit
	Transactions, the Continuing Connected Transactions
	contemplated under the Framework Agreement and the
	Proposed Cap, and a licensed corporation for Types 1 (dealing
	in securities), 4 (advising on securities) and 6 (advising on
	corporate finance) regulated activities under the SFO
“Director(s)”	the director(s) of the Company
“Framework Agreement”	the framework agreement dated 7th March 2006 entered into
	between the Company and Huaneng Finance

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DEFINITIONS

“H Shares”	overseas listed foreign shares in the ordinary share capital of
	the Company with a nominal value of RMB1.00 each, which
	are listed on the Hong Kong Stock Exchange
“HIPDC”	Huaneng International Power Development Corporation
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Hong Kong Listing Rules”	the Rules Governing the Listing of Securities on the Hong
	Kong Stock Exchange
“Hong Kong Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Huaneng Finance”	China Huaneng Finance Corporation Limited
“Huaneng Group”	China Huaneng Group
“Independent Board Committee”	a committee of the Board established for the purpose of
	considering the terms of the Continuing Connected
	Transactions and the Proposed Cap, comprising independent
	non-executive Directors who are independent in respect of the
	Continuing Connected Transactions
“Independent Shareholders”	Shareholders other than Huaneng Group, Huaneng Finance
	and their respective associates, and who are not involved in,
	or interested in the Continuing Connected Transactions
“Latest Practicable Date”	24th March 2006, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained herein
“PBOC”	People’s Bank of China
“Proposed Cap”	the limit within which the amount of the Continuing
	Connected Transactions shall not exceed during the term of
	the Framework Agreement
“PRC”	the People’s Republic of China
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
“Shanghai Stock Exchange”	Laws of Hong Kong) (Shanghai Stock Exchange)
“Shareholders”	the shareholders of the Company
“subsidiaries”	has the meaning ascribed to it in the Hong Kong Listing Rules
“2004 Deposit Transactions”	the deposit of cash by the Company with Huaneng Finance in
	2004, details of which are set out in paragraph 3 of the “Letter
	from the Board” of this circular

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LETTER FROM THE BOARD

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(a sino foreign joint stock limited company incorporated in the People’s Republic of China) (Stock Code: 902)

Directors:

Li Xiaopeng Huang Yongda Na Xizhi Huang Long Wu Dawei Shan Qunying Ding Shida Xu Zujian Liu Shuyuan

Legal Address: West Wing, Building C Tianyin Mansion No. 2C Fuxingmennan Street Xicheng District Beijing 100031 PRC

Independent Non-executive Directors:

Qian Zhongwei Xia Donglin Liu Jipeng Wu Yusheng Yu Ning

31st March 2006

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONTINUING CONNECTED TRANSACTIONS

1. INTRODUCTION

On 11th March 2006, the Board made an announcement (“Announcement”) regarding its cash deposits with Huaneng Finance in years 2004, 2005 and the proposed on-going cash deposits arrangements in years 2006, 2007 and 2008. As stated in the Announcement, the Company shall issue a circular to its shareholders containing information of such cash deposits arrangements and will convene a general meeting pursuant to Rule 14A.43 of the Hong Kong Listing Rules for obtaining the Independent Shareholders’ approval for the conduct of the Continuing Connected Transactions and the Proposed Cap.

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LETTER FROM THE BOARD

The Independent Board Committee has been formed to consider the terms of the Continuing Connected Transactions and the Proposed Cap, and the letter from the Independent Board Committee to the Independent Shareholders is included in this circular. DBS Asia has been appointed as the independent financial advisor to opine on the fairness and reasonableness of the 2004 Deposit Transactions and further advise the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions and the Proposed Cap. The letter of advice of DBS Asia to the Independent Board Committee and the Independent Shareholders is included in this circular.

The purposes of this circular are:

• (i) to provide you with further information in relation to the 2004 Deposit Transactions, the Continuing Connected Transactions and the Proposed Cap;

• (ii) to set out the letter of advice from DBS Asia to the Independent Board Committee and the Independent Shareholders and the recommendation of the Independent Board Committee as advised by DBS Asia; and

• (iii) to seek your approval of the ordinary resolutions in relation to the Continuing Connected Transactions and the Proposed Cap, to be set out in the notice of the Annual General Meeting.

2. BACKGROUND

Business of the Company and Huaneng Finance

The Company and its subsidiaries develop, construct, operate and manage large-scale power plants throughout China. It is the largest listed power producer in China and owns a total generation capacity of 23,549 MW on an equity basis.

Huaneng Finance is a non-bank financial institution in the PRC. The principal business of Huaneng Finance includes deposit-taking, loans handling, acceptance and discounting of bills, inter-bank borrowing and foreign investment.

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LETTER FROM THE BOARD

Relationship with Huaneng Finance

The relationship between the Company and Huaneng Finance is as follows:

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----- Start of picture text -----

Huaneng Group
51.98%
51%
HIPDC
42.78%
20%
the Company
Huaneng Finance
----- End of picture text -----

Huaneng Group is the ultimate controlling shareholder of the Company, holding approximately 51.98% interests in HIPDC. Currently, HIPDC holds approximately 42.78% of the total issued share capital of the Company. As Huaneng Group and the Company holds 51% and 20% equity interests in Huaneng Finance respectively, transactions between the Company and Huaneng Finance constitute connected transactions of the Company under the Listing Rules.

3. DEPOSITS WITH HUANENG FINANCE

The Company had placed deposits with Huaneng Finance. For the years 2004 and 2005, the maximum outstanding balances of the deposits placed by the Company with Huaneng Finance were RMB2,248 million and RMB1,768 million respectively. Such transactions between the Company and Huaneng Finance constitute continuing connected transactions of the Company under the Listing Rules.

Pursuant to a waiver given by the Stock Exchange to the Company on 28th March 1998, the deposits placed by the Company with Huaneng Finance are exempted from strict compliance with the relevant disclosure and approval requirements for an indefinite period. After the implementation of the amended Listing Rules on 31st March 2004, the Company is required to take appropriate steps to ensure compliance with the amended Listing Rules as soon as practicable.

The placing of deposits met with the conditions of waiver granted by the Stock Exchange in 1998. The interest rates on deposits given by Huaneng Finance to the Company were no less favourable than the interest rates available from an independent third party. The maximum outstanding balance of the deposits in 2004 exceeded 2.5% of all applicable percentage ratios as calculated pursuant to Rule 14.07 of the Listing Rules. The transactions are therefore subject to reporting, announcement and independent shareholders’ approval requirements set out in Rules 14A.45 to 14A.48 of the Listing Rules. The maximum outstanding balance of the deposits in 2005 did not exceed 2.5% of all applicable percentage ratios as calculated pursuant to Rule 14.07 of the Listing Rules. The transactions therefore are only subject to reporting and announcement requirements set out in Rules 14A.45 and 14A.47 of the Listing Rules and are exempted from the independent shareholders’ approval requirements.

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LETTER FROM THE BOARD

Details of the 2004 Deposit Transactions were disclosed in the Company’s annual report of 2004 and the deposits transactions in 2005 will also be disclosed in the Company’s annual report of 2005. Other than complying with the reporting requirement, no announcement (in respect of the deposit transactions in 2004 and 2005) and independent shareholders’ approval (only in respect of the deposits transactions in 2004) regarding the deposits transactions with Huaneng Finance has been made or sought by the Company as required under the Listing Rules as, on the basis of the waiver relating to the placing of deposits with Huaneng Finance given by the Stock Exchange in 1998, the Company is not aware of the requirements for making an announcement (in respect of the deposit transactions in 2004 and 2005) and seeking independent shareholders’ approvals (only in respect of the deposits transactions in 2004) regarding the deposits transactions under the Listing Rules until recently. By way of the Announcement, the Company discloses the deposits transactions with Huaneng Finance for the years 2004 and 2005 to comply with the announcement requirement prescribed by Rule 14A.47 of the Listing Rules. The Independent Shareholders’ meeting, however, will not be convened as the deposits transactions took place in 2004 and given the passage of time and the change in the shareholders of the Company, it is impracticable to convene such Independent Shareholders’ meeting for approval of the deposits transactions took place in 2004. Notwithstanding the above, a separate letter from an independent financial advisor acceptable to the Stock Exchange is included in this circular to shareholders, stating whether or not, in the independent financial advisor’s opinion, the terms of the 2004 Deposit Transactions are fair and reasonable and such are in the interests of the shareholders as a whole. Furthermore, for the purpose of continuing to place with Huaneng Finance deposits and, in addition, utilizing the notes discounting services available from Huaneng Finance on an on-going basis, the Company entered into the Framework Agreement with Huaneng Finance on 7th March 2006. The Company therefore issues this circular and seeks Independent Shareholders’ approval with respect to its deposits transactions contemplated under the Framework Agreement.

4. FRAMEWORK AGREEMENT

Pursuant to the Framework Agreement, the Company will from time to time place deposits with Huaneng Finance at rates which are no less favourable than the rates available from an independent third party for similar services in the PRC. In addition, the Company will also utilize the notes discounting services provided by Huaneng Finance by paying it a service fee on terms more favourable than the service fees charged by an independent third party for similar services in the PRC.

The Framework Agreement is for a term of three years commencing on 1st January 2006. Subject to the applicable disclosure requirements under the Listing Rules, the parties may thereafter enter into further agreement or renew the Framework Agreement for further period to be agreed, unless terminated by either party giving a specified period of notice to the other party.

Huaneng Finance has been providing notes discounting services to the Company during the years of 2004 and 2005 with the total amounts of RMB71 million and RMB298 million respectively. The Company estimates that the total amounts of the notes discounting with Huaneng Finance during the term of the Framework Agreement will not exceed RMB1,850 million per annum. Given that the notes discounting services are provided by Huaneng Finance for the benefit of the Company on normal commercial terms that are comparable to or more favourable than those offered by independent third parties for similar services in the PRC and where no security over the assets of the Company is granted in respect of such services, the transactions for notes discounting services contemplated by the Framework Agreement are exempted from reporting, announcement and Independent Shareholders’ approval requiremenunder Rule 14A.65(4) of the Listing Rules.

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LETTER FROM THE BOARD

5. CAP FOR THE CONTINUING CONNECTED TRANSACTIONS

The Company estimates that the maximum outstanding balances for deposits placed with Huaneng Finance during the term of the Framework Agreement will not exceed RMB6,000 million from time to time.

The Proposed Cap for the deposits has taken into consideration (1) the increasing asset scale and the amount of deposits of the Company; (2) the increase in the daily outstanding balances of deposits arising from financing transactions such as the issuance of the asset-backed debt financing products and short-term debentures (as approved by its shareholders on 18th January 2006) in an aggregate principal amount up to RMB20 billion; and (3) the fact that the Company has acquired 20% equity interest in Huaneng Finance since December 2005, and the Company will generate a higher return deriving from a growth of profits at Huaneng Finance as a result of the Company’s support to Huaneng Finance. The Directors (including the Independent Non-executive Directors) are of the opinion that the Proposed Cap is fair and reasonable.

6. REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS

The Directors believe that the deposits and notes discounting are part of the daily operations of the Company and the rates offered by Huaneng Finance are more favourable than those offered by commercial banks in the PRC in general. The Directors are of the view that the deposit transactions do not have any effect on the assets and liabilities of the Company. Instead, the Company can earn interests out of the deposit transactions.

The Company considers that with the remaining cash deposited with a number of other independent financial institutions, the above-mentioned arrangement could help to diversify the Company’s risks in relation to its deposits.

In addition, Huaneng Finance tends to be more efficient in terms of provision of notes discounting services than other PRC banks that perform similar services for the Company as less time is required to process the transactions.

The Directors (including Independent Non-executive Directors) are of the opinion that the Framework Agreement was entered into: (1) in the ordinary and usual course of business of the Company; (2) on normal commercial terms (on arm’s length basis or on terms no less favorable to the Company than the terms available from an independent third party for similar services); and (3) on terms that are fair and reasonable and in the interests of the Company and its shareholders as a whole.

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LETTER FROM THE BOARD

7. GENERAL

As the transactions regarding the deposits contemplated under the Framework Agreement constitute continuing connected transactions for the Company under the Listing Rules, pursuant to the Listing Rules such transactions require the approval of the Independent Shareholders. As the Proposed Cap of the Continuing Connected Transactions also exceed 5% of all applicable percentage ratios as calculated pursuant to Rule 14.07 of the Hong Kong Listing Rules, the Continuing Connected Transactions also constitute a disclosure transaction under Chapter 14 of the Hong Kong Listing Rules.

The deposit transactions contemplated under the Framework Agreement also impose a general disclosure obligation on the Company under Rule 13.13 of the Hong Kong Listing Rules as the Proposed Cap of the deposits transactions exceed 8% in respect of the relevant percentage ratios as defined under Rule 14.07 of the Hong Kong Listing Rules. With respect to the deposits transactions, no collateral has been provided by the Company nor Huaneng Finance. The Company will comply with Rule 13.20 of the Hong Kong Listing Rules.

Until the deposits transactions with Huaneng Finance and the Proposed Cap contemplated under the Framework Agreement have been approved by the Independent Shareholders at the Annual General Meeting, the Company will continue to maintain the amounts of deposits with Huaneng Finance below 2.5% of all applicable percentage ratios as calculated pursuant to Rule 14.07 of the Hong Kong Listing Rules.

8. THE ANNUAL GENERAL MEETING

Pursuant to Rule 14A.43 of the Hong Kong Listing Rules, the Company shall obtain the Independent Shareholders’ approval for the conduct of the Continuing Connected Transaction and the Proposed Cap. The Annual General Meeting for 2005 will be held for, among other things, considering and approving by the Independent Shareholders by separate resolutions the Continuing Connected Transactions and the Proposed Cap in respect thereof. Huaneng Group, Huaneng Finance and its associates will abstain from voting at the Annual General Meeting, at which the proposed resolutions will be passed by way of ordinary resolutions and voting will be by way of poll in accordance with the requirements of the Hong Kong Listing Rules.

As and when the Company decides on the date, time and place for convening Annual General Meeting, the Company shall, in accordance with the requirements under the articles of association of the Company, issue a notice for convening the Annual General Meeting together with a reply slip and a form of proxy to you. If you intend to attend the Annual General Meeting, you should complete and return the reply slip and the proxy form in accordance with the instructions printed thereon as soon as possible. Completion and return of the form of proxy will not preclude you from attending and voting at the Annual General Meeting should you so wish.

9. RECOMMENDATIONS

Your attention is drawn to the letter from the Independent Board Committee to the Independent Shareholders of the Company, which is set out on pages 10 to 11 of this circular, and which contains their recommendation in respect of the terms of the Continuing Connected Transactions and the determination of the Proposed Cap.

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LETTER FROM THE BOARD

The letter of advice of DBS Asia to the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms of the Continuing Connected Transactions and the determination of the Proposed Cap is set out on pages 12 to 17 of this circular.

The Independent Board Committee, having taken into account the advice of DBS Asia, considers that the terms of the Continuing Connected Transactions under the Framework Agreement and the Proposed Cap in respect thereof are fair and reasonable in so far as the Independent Shareholders are concerned. Accordingly, it recommends that the Independent Shareholders vote in favour of the resolutions to approve the conduct of the cash deposit transactions under the Framework Agreement and the Proposed Cap in respect thereof.

10. 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 Huaneng Power International, Inc. Huang Long Vice Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(a sino foreign joint stock limited company incorporated in the People’s Republic of China) (Stock Code: 902)

Legal Address:

West Wing, Building C Tianyin Mansion No. 2C Fuxingmennan Street Xicheng District Beijing 100031 PRC

31st March 2006

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company to the Shareholders dated 31st March 2006 (“Circular”), of which this letter forms part. Terms defined therein shall have the same meanings when used in this letter unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise you as to whether, in our opinion, the terms of the Continuing Connected Transactions under the Framework Agreement and the Proposed Cap in respect thereof are fair and reasonable in so far as the Independent Shareholders are concerned.

DBS Asia has been appointed by the Company as the independent financial advisor to advise the Independent Board Committee on the fairness and reasonableness of the terms of the 2004 Deposit Transactions, the Continuing Connected Transactions and the determination of the Proposed Cap in respect thereof. Details of DBS Asia’s advice, together with the principal factors taken into consideration in arriving at such advice, are set out in its letter on pages 12 to 17.

Your attention is also drawn to the “Letter from the Board” set out on pages 3 to 9 and the additional information set out in the Appendix.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the terms of the Continuing Connected Transactions and the Proposed Cap in respect thereof, and having considered the interests of the Independent Shareholders and the advice of DBS Asia, we consider that the terms of the Continuing Connected Transactions under the Framework Agreement and the Proposed Cap in respect thereof are fair and reasonable in so far as the Independent Shareholders are concerned. Accordingly, we recommend that the Independent Shareholders vote in favour of the resolutions approving the Continuing Connected Transactions and the Proposed Cap in respect thereof.

Yours faithfully,

Huaneng Power International, Inc. Qian Zhongwei Xia Donglin Liu Jipeng Wu Yusheng Yu Ning Independent Board Committee

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LETTER FROM DBS ASIA

The following is the text of the letter of advice dated 31st March 2006 from DBS Asia to the Independent Board Committee and Independent Shareholders for the purpose of incorporation into this circular.

31st March 2006

To the Independent Board Committee and Independent Shareholders of Huaneng Power International, Inc.

Dear Sirs,

DISCLOSEABLE AND CONTINUING CONNECTED TRANSACTIONS INVOLVING CASH DEPOSITS WITH HUANENG FINANCE

We refer to our engagement as the independent financial adviser to the Independent Board Committee and Independent Shareholders in relation to the Continuing Connected Transactions, details of which are set out in the letter from the Board as set out in the circular (the “Circular”) to the shareholders of the Company dated 31st March 2006, of which this letter forms part. Expressions used in this letter shall have the same meanings as defined in the Circular.

On 11th March 2006, the Board made an announcement regarding cash deposits placed with Huaneng Finance for the financial years ended 31st December 2004 and 2005 and the proposed on-going cash deposit arrangements for the financial years ending 31st December 2006, 2007 and 2008.

Huaneng Group is the ultimate controlling shareholder of the Company, holding approximately 51.98% interests in HIPDC. Currently, HIPDC holds approximately 42.78% of the total issued share capital of the Company. As Huaneng Group and the Company holds 51% and 20% equity interests in Huaneng Finance respectively, transactions between the Company and Huaneng Finance constitute connected transactions of the Company under the Listing Rules. As disclosed in the letter from the Board in the Circular (“Letter from the Board”), the Continuing Connected Transactions and the 2004 Deposit Transactions are subject to disclosure and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Our scope of work under this engagement is to assess the fairness and reasonableness of the terms of the Continuing Connected Transactions and the 2004 Deposit Transactions insofar as the Independent Shareholders are concerned and whether from this perspective the Continuing Connected Transactions and the 2004 Deposit Transactions are in the interest of the Company and its shareholders as a whole, and to advise the Independent Shareholders on how to vote in respect of the Continuing Connected Transactions. It is not within our scope of work to opine on any other aspects of the Continuing Connected Transactions and the 2004 Deposit Transactions. In particular, the notes discounting services contemplated by the Framework Agreement is exempted from reporting,

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LETTER FROM DBS ASIA

announcement and Independent Shareholders’ approval requirements under Rule 14A.65(4) of the Listing Rules. In addition, it is not within our scope of work to comment on the commercial merits of the Continuing Connected Transactions and the 2004 Deposit Transactions which is the responsibility of the Directors.

In arriving at our opinion, we have relied on the information, opinions and facts supplied, and representations made to us, by the Directors, and advisers and representatives of the Company (including those contained or referred to in the Circular). We have assumed that the information and representations contained or referred to in the Circular were true and accurate in all respects at the time they were made and continue to be so at the date of the dispatch of the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable, and have not independently verified the accuracy of such information. We have been advised by the Directors and believe that no material facts have been omitted from the Circular.

We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs or the prospects of the Company or any of its respective subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED:

In arriving at our opinion with regard to the terms of the Continuing Connected Transactions and the 2004 Deposit Transactions, we have considered the principal factors and reasons set out below.

1. Framework Agreement

Pursuant to the Framework Agreement, the Company will from time to time place deposits with Huaneng Finance at rates which are no less favourable than the rates available from an independent third party for similar services in the PRC.

The Framework Agreement is for a term of three years commencing on 1st January 2006. Subject to the applicable disclosure requirements under the Listing Rules, the parties may thereafter enter into further agreement or renew the Framework Agreement for further periods to be agreed, unless terminated by either party giving a specified period of notice to the other party.

The Directors (including independent non-executive Directors) have reviewed the terms of the Framework Agreement and are of the opinion that the Framework Agreement was entered into: (1) in the ordinary and usual course of business of the Company; (2) on normal commercial terms (on arm’s length basis or on terms no less favorable to the Company than the terms available from an independent third party for similar services); and (3) on terms that are fair and reasonable and in the interests of the Company and its shareholders as a whole.

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LETTER FROM DBS ASIA

We understand that the Framework Agreement does not preclude the Company from using similar services provided by other commercial banks or non-bank financial institutions in the PRC. The Framework Agreement also provides that Huaneng Finance will provide relevant services to the Company on normal commercial terms, and on terms no less favourable than those available to the Company from independent third parties.

2. Background of Huaneng Finance

Huaneng Finance is a non-bank financial institution in the PRC. The principal business of Huaneng Finance includes deposit-taking, loans handling, acceptance and discounting of bills, inter-bank borrowing and foreign investment.

According to the Directors, Huaneng Finance was incorporated in October 1987 and is regulated by the CBRC. Huaneng Finance’s current registered and paid-up capital is RMB1,200 million. Huaneng Group and the Company are the major and second largest shareholder of Huaneng Finance respectively. The other shareholders of Huaneng Finance are mainly enterprises within the Huaneng Group.

3. Reasons for and benefits of depositing with Huaneng Finance

As stated in the Letter from the Board, the deposits are part of the daily operations of the Company and the rates offered by Huaneng Finance are more favourable than those offered by commercial banks in the PRC in general. The rates offered by Huaneng Finance are subject to PBOC guidelines and as such are on normal commercial terms and are no less favourable than those offered by independent third parties for similar services in the PRC. The Company advised us that it had compared the deposit rates offered by Huaneng Finance to the Company with the deposit rates published by the PBOC. The deposit rates offered by Huaneng Finance to the Company represent the highest published PBOC deposit rates. We have performed a review on the deposit rates published by the PBOC for the period from 1st January 2004 (the year when the 2004 Deposit Transactions commenced) to the Latest Practicable Date and are satisfied that such representation of the Company is correct.

Since most members of the Huaneng Group maintain accounts at Huaneng Finance, the Company considers that Huaneng Finance tends to be more efficient in terms of processing transactions and providing settlement services than other banks and financial institutions that perform similar services for the Company as less time is required to settle funds between the accounts of members of the Huaneng Group. As an intra-group service provider, Huaneng Finance generally has better and more efficient communication with members of the Huaneng Group, including the Company, compared with other banks and financial institutions.

Further, the Company considers that with the remaining cash deposited with a number of other independent financial institutions, the deposits with Huaneng Finance could help to diversify the Company’s risks in relation to its deposits.

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LETTER FROM DBS ASIA

4. Assessment on the financial risks on the deposits with Huaneng Finance

Since Huaneng Finance is not as sizable as the major commercial banks in the PRC, the Directors have assessed the financial risks involved in placing deposits with Huaneng Finance. The Company will have some control over the lending or other use of its deposits with Huaneng Finance and the terms on which such funds may be lent or otherwise made available to the Huaneng Group and its subsidiaries and investees other than the Company. In assessing the financial risks involved in placing deposits with Huaneng Finance, we understand that the Directors have taken into account the following factors:

• (a) Huaneng Finance is regulated by the CBRC. Pursuant to the Administrative Rules Governing Corporate Financial Institutions ( ) promulgated by the CBRC on 27th July 2004, group finance companies, such as Huaneng Finance, are not allowed to engaged in (1) offshore business (except for assisting member companies in settling trade payables and receivables); or (2) non-financial services business including property investments or trading; and, in addition, such companies’ business shall be conducted in compliance with the following gearing ratio requirements: (i) the capital adequacy ratio shall not be lower than 10%, (ii) the inter-bank borrowing balances shall not be more than the total registered capital, (iii) the total amount of outstanding guarantees shall not be more than the total registered capital, (iv) the short-term securities investments to total equity amount ratio shall not be more than 40%, (v) the long-term investment to total equity ratio shall not be more than 30%, and (vi) the self-owned fixed assets to total equity ratio shall not be more than 20%;

• (b) Huaneng Finance has been in compliance with all the major financial services rules and regulations and maintained a sound internal control system;

• (c) the average capital adequacy ratio of Huaneng Finance for 2005 was not less than 14%;

• (d) Huaneng Finance will mainly apply the deposits to provide loans and invest in treasury bonds of the PRC and corporate bonds. According to the Administrative Rules Governing Corporate Financial Institutions ( ), Huaneng Finance is allowed to provide loans only to members of the Huaneng Group. The investments in equities by Huaneng Finance in 2005 represented only approximately 2.64% of the average loan and investment portfolio of Huaneng Finance. It is the intention of Huaneng Group that, going forward, Huaneng Finance will not be making investments in equities in the foreseeable future;

• (e) the Company holds 20% interest in Huaneng Finance and is able to appoint two directors to the board of Huaneng Finance. Huaneng Finance has also set up a risk management committee and the Company has nominated one member to that committee; and

• (f) according to the Articles of Association of Huaneng Finance, Huaneng Group is obliged to increase its contributed capital in Huaneng Finance when Huaneng Finance is in financial difficulties.

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LETTER FROM DBS ASIA

Given the above and the fact that Huaneng Finance is a member of the state-owned Huaneng Group, the Directors consider the financial risks involved in placing deposits with Huaneng Finance not to be significant. We have reviewed the Administrative Rules Governing Corporate Financial Institutions promulgated by the CBRC on 27th July 2004, the Articles of Association, the operating manual of the risk management committee and an internal notice relating to the investment policy of Huaneng Finance. Taking account of the factors considered by the Directors in their assessment, in particular that Huaneng Finance is regulated by the CBRC with clear risk management policies, we consider that the assessment of the Directors is based on reasonable grounds.

5. Proposed Cap for the deposits

The Company estimates that the maximum outstanding balances for deposits placed with Huaneng Finance during the term of the Framework Agreement will not exceed RMB6,000 million from time to time.

The Proposed Cap for the deposits has been determined by taking into consideration (1) the increasing asset scale and the amount of deposits of the Company; (2) the increase in the daily outstanding balances of deposits arising from financing transactions such as the issuance of the asset-backed debt financing products and short-term debentures (as approved by its shareholders on 18th January 2006) in an aggregate principal amount up to RMB20 billion; and (3) the fact that the Company has acquired 20% equity interest in Huaneng Finance since December 2005, and the Company will generate a higher return deriving from a growth of profits at Huaneng Finance as a result of the Company’s support to Huaneng Finance. The Directors (including the independent non-executive Directors) are of the opinion that the Proposed Cap is fair and reasonable.

According to the Circular, for the years 2004 and 2005, the maximum outstanding balances of the deposits placed with Huaneng Finance were RMB2,248 million and RMB1,768 million respectively. The Company expects an increase in the daily outstanding balance of deposits arising from financing transactions such as the issuance of up to RMB20 billion asset-backed debt financing products and short-term debentures (as approved by its shareholders on 18th January 2006). The Directors advised that the Proposed Cap which is set at RMB6,000 million is necessary to accommodate for the increase in bank deposits taking into account the implementation of the financing transactions. However, the timing for implementation of these financing transactions is subject to the relevant regulatory approvals.

We understand from the Directors that the deposits with Huaneng Finance is part of the daily operations of the Company, and the cap of RMB6,000 million is intended to be a maximum cap which might only be reached during certain periods during 2006 to 2008.

Based on our discussions with the Company on the expected future cashflow of the Company, and taking into account the factors and reasons discussed above, in particular, the fact that the Proposed Cap is necessary to accommodate the increase in bank deposits as a result of the increase in asset scale and the issuance of finance instruments already approved by shareholders of the Company in January 2006, we are of the view that the Proposed Cap is reasonably determined.

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LETTER FROM DBS ASIA

6. 2004 Deposit Transactions

The Company placed deposits with Huaneng Finance in 2004 up to a maximum outstanding balance of RMB2,248 million. According to the Company, the basis for these deposits are same as the transactions contemplated under the Continuing Connected Transactions. We have discussed with the management of the Company about and have reviewed some of such deposit transactions. We are satisfied that the basis for such deposit transactions are same as what has been disclosed in the Circular. In assessing the fairness and reasonableness of the terms of the 2004 Deposit Transactions, we have considered the factors discussed above.

OPINION

Having taken into account the above principal factors and reasons including the background of Huaneng Finance, the reasons for and benefits of depositing with Huaneng Finance, and the Directors’ assessment on the financial risks on the deposits with Huaneng Finance, we are of the opinion that the terms of the Continuing Connected Transactions and the 2004 Deposit Transactions are fair and reasonable insofar as the Independent Shareholders are concerned, and from this perspective the Continuing Connected Transactions and the 2004 Deposit Transactions are in the interests of the Company and its shareholders as a whole. Accordingly, we advise the Independent Shareholders to vote in favour of the Continuing Connected Transactions at the Annual General Meeting.

Yours faithfully, For and on behalf of DBS ASIA CAPITAL LIMITED Kelvin S.K. Lau Managing Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Hong Kong 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

(a) Directors and Supervisors of the Company

As at the Latest Practicable Date, none of the Directors, chief executive or Supervisors of the Company has interests or short positions in the shares and underlying shares of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO) or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Hong Kong Stock Exchange.

(b) Substantial Shareholders

As at the Latest Practicable Date, save as disclosed below, so far as is known to the Board, no persons (not being a Director, chief executive or Supervisor of the Company) had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

					Percentage in	Percentage
					the relevant	in total
Name of substantial	Class of	Number of		Type of	class of share	share
shareholder	shares	shares held	Capacity	interest	capital	capital
		(shares)
Huaneng International	Domestic	5,157,680,000(L)	Beneficial	Corporate	57.31%(L)	42.78%(L)
Power	Shares		owner
Development
Corporation
China Huaneng Group	Domestic	1,114,106,667(L)	Beneficial	Corporate	12.38%(L)	9.24%(L)
	Shares		owner
Hebei Provincial	Domestic	603,000,000(L)	Beneficial	Corporate	6.70%(L)	5.00%(L)
Construction	Shares		owner
Investment
Company

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GENERAL INFORMATION

APPENDIX

					Percentage in	Percentage
					the relevant	in total
Name of substantial	Class of	Number of		Type of	class of share	share
shareholder	shares	shares held	Capacity	interest	capital	capital
		(shares)
JP Morgan Chase	H Shares	203,857,132(L)	Interest of controlled	Corporate	6.67%(L)	1.69%(L)
& Co.		100,299,624(P)	corporation/		3.28%(P)	0.83%(P)
			Investment manager
			and custodian
			corporation/ Approved
			lending agent
UBS AG	H Shares	335,884,583(L)	Beneficial owner/	Corporate	10.99%(L)	2.79%(L)
		69,842,000(S)	Interest of controlled		2.29%(S)	0.58%(S)
			corporation/holder of
			security interest in
			shares
Credit Suisse Group	H Shares	243,740,491(L)	Interest of controlled	Corporate	7.98%(L)	2.02%(L)
		199,958,541(S)	corporation/Approved		6.54%(S)	1.66%(S)
		607,000(P)	lending agent		0.02%(P)	0.005%(P)
Hebei Provincial	H Shares	452,250,000(L)	Beneficial owner	Corporate	14.8%(L)	3.75%(L)
Construction
Investment
Company
J.P. Morgan Chase	H Shares	108,190,980(L)	Investment manager	Corporate	3.54%(L)	0.90%(L)
Bank			and custodian
J.P. Morgan Fleming	H Shares	83,918,000(L)	Investment manager	Corporate	2.75%(L)	0.70%(L)
Asset Management
(Asia) Inc.
J.P. Morgan Fleming	H Shares	83,198,000(L)	Investment manager	Corporate	2.72%(L)	0.69%(L)
Asset Management
Holding Inc.
JF Asset Management	H Shares	80,298,000(L)	Investment manager	Corporate	2.63%(L)	0.67%(L)
Limited
JP Morgan Chase &	H Shares	159,523,684(L)	Beneficial owner/	Corporate	5.22%(L)	1.32%(L)
Co.		59,530,000(P)	Investment manager/		1.95%(P)	0.49%(P)
			Custodian corporation/
			Approved leading
			agent
Jiangsu Provincial	H Shares	312,375,000(L)	Beneficial owner	Corporate	10.22%(L)	2.60%(L)
International
Investment
Company

Note: The letter “L” denotes a long position. The letter “S” denotes a short position. The letter “P” denotes interest in a lending pool.

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GENERAL INFORMATION

APPENDIX

3. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31st December 2005, being the date to which the latest published audited accounts of the Group were made up to.

4. LITIGATION

Save as disclosed, none of the Company and its subsidiaries was at present engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company and its subsidiaries as at the Latest Practicable Date.

5. CONSENTS OF EXPERTS

The following expert has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter or statements and references to its name in the form and context in which they appear:

Names Qualifications DBS Asia Licensed corporation under the SFO to engage in Types 1 (dealing securities), 4 (advising on securities) and 6 (advising on corporate finance) regulated activities

As at the Latest Practicable Date, the above expert was not beneficially interested in the share capital of the Company and its subsidiaries nor did it have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, the above expert did not have any direct or indirect interest in any assets which have been since 31st December 2005 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by or leased to the Company and its subsidiaries, or were proposed to be acquired or disposed of by or leased to the Company and its subsidiaries.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into, or proposed to enter into, a service contract with the Company or its subsidiaries which does not expire or is not terminable by the Company and its subsidiaries within one year without payment of compensation, other than statutory compensation.

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GENERAL INFORMATION

APPENDIX

7. DIRECTORS’ INTERESTS IN THE COMPANY AND ITS SUBSIDIARIES’ ASSETS OR CONTRACTS

As at the Latest Practicable Date, none of the Directors, Supervisors, proposed directors or proposed supervisors of the Company had any interest in any assets which have been since 31st December 2005 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by or leased to the Company and its subsidiaries, or were proposed to be acquired or disposed of by or leased to the Company and its subsidiaries.

As at the Latest Practicable Date, none of the Directors or supervisors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Company.

8. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or their respective associates has interests in the businesses, other than being a Director, which compete or are likely to compete, either directly or indirectly, with the businesses of the Company (as would be required to be disclosed under Rule 8.10 of the Hong Kong Listing Rules if each of them were a controlling shareholder).

9. PROCEDURE FOR DEMANDING A POLL BY SHAREHOLDERS

Pursuant to Article 66 of the articles of association of the Company, at any shareholders’ general meeting, a resolution shall be decided on a show of hands unless a poll is demanded:

• (a) by the chairman of the meeting;

• (b) by at least two (2) shareholders present in person or by proxy entitled to vote thereat;

• (c) by one (1) or more shareholders present in person or by proxy and representing 10 % or more of all shares carrying the right to vote at the meeting,

before or after a vote is carried out by a show of hands.

The demand for a poll may be withdrawn by the person who demands the same.

10. MISCELLANEOUS

• (a) Mr. Huang Long is the Company Secretary and Board Secretary of the Company.

• (b) Pursuant to the waiver granted by the Hong Kong Stock Exchange to the Company from strict compliance with Rule 3.24 of the Hong Kong Listing Rules in relation to the appointment of a qualified accountant to the Company dated 9th June 2005, the Company has arranged Mr. Zhang Xinmin, a fellow memeber of the Association of Chartered Certified Accountants, to provide assistance to Mr. Huang Jian in the discharge of his duties as a qualified accountant under the Hong Kong Listing Rules.

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GENERAL INFORMATION

APPENDIX

• (c) The head office and legal address of the Company is West wing, Building C, Tianyin Mansion, No. 2C, Fuxingmennan Street, Xicheng District, Beijing, PRC. The H Share registrar of the Company in Hong Kong is Hong Kong Registrars Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (d) In the case of any discrepancy, the English text of this circular and form of proxy shall prevail over the Chinese text.

11. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Herbert Smith at 23/F., Gloucester Tower, 11 Pedder Street, Central, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including 14th April 2006:

• (a) the Articles of Association of the Company;

• (b) the letter from the Independent Board Committee as set out in this circular;

• (c) the letter from DBS Asia, the independent financial advisor, as set out in this circular;

• (d) the written consent of DBS Asia referred to in this appendix; and

• (e) the Framework Agreement.

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