Rego Interactive Co., Ltd - Proxy Solicitation & Information Statement 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Tianjin Capital Environmental Protection Company Limited, you should at once hand this circular to the purchaser or the transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee(s).

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 joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1065)

DISCLOSEABLE TRANSACTION IN RESPECT OF THE HANGZHOU QIGE SEWAGE WATER TREATMENT PLANT AND CONNECTED TRANSACTION IN RESPECT OF THE GUARANTEE PROVIDED BY THE COMPANY AND SUPPLEMENTAL NOTICE OF THE EGM

Independent financial adviser to the Independent Board Committee and the Independent Shareholders of Tianjin Capital Environmental Protection Company Limited in respect of the Guarantee

A supplemental notice of the extraordinary general meeting (the “ EGM ”) of the Company to be held at 10:30 a.m. on 19 December 2006 at the conference room of the Company at 5th Floor, TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC is set out on pages 31 to 33 of this circular.

A supplemental form of proxy for use in connection with at the EGM (as defined herein) is enclosed. Whether or not you are able to attend the EGM in person, you are requested to complete and return the enclosed supplemental proxy form in accordance with the instructions printed thereon to the Company’s principal office address at TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC, as soon as possible but in any event not less than 24 hours before the time scheduled for the holding of the EGM or any adjournments thereof. Completion and return of the supplemental proxy form will not preclude you from attending and voting in person at the EGM or any adjournments thereof should you so wish.

5 December 2006

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Letter from Baron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Supplemental Notice of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Appendix I — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34

— i —

DEFINITIONS

In this circular, the following expressions shall have the meanings set out below unless the content requires otherwise:

“A Shares”	renminbi-denominated domestic shares of nominal value of
	RMB1.00 each in the ordinary share capital of the Company
“Acquisition”	the acquisition of all rights and interests of the Hangzhou
	Qige Sewage Water Treatment Plant, together with all
	relevant menus, summaries, memorandums, plans and
	documents and technical information required for the
	operation and management of the Hangzhou Qige Sewage
	Water Treatment Plant by the Project Company from HCPO at
	the Consideration as contemplated under the Assets Transfer
	Agreement
“Assets Transfer Agreement”	an assets transfer agreement entered into between the Project
	Company and HCPO on 20 November 2006, in relation to the
	Acquisition
“associates”	has the same meaning ascribed to it in the Listing Rules
“Baron”	Baron Capital Limited, a licensed corporation to carry out
	type 1 and 6 regulated activities (dealing in securities and
	advising on corporate finance) under the SFO, the
	independent financial adviser to the Independent Board
	Committee and the Independent Shareholders in relation to
	the Guarantee
“Board”	the board of Directors
“City Management Office”	(City Management Office of the
	People’s Government of Hangzhou City), a governmental
	department of the city management of the People’s
	Government of Hangzhou City established in June 2003
“Committee”	the Guidance Committee of Tender Invitation for the
	Hangzhou Project
“Company”	Tianjin Capital Environmental Protection Company Limited,
	a joint stock limited company established in the PRC whose
	A Shares and H Shares are listed on the Shanghai Stock
	Exchange and the Stock Exchange respectively
“connected person”	has the same meaning ascribed to it in the Listing Rules
“Consideration”	consideration of the Acquisition in the total amount of
	RMB858,150,000, of which RMB516,450,000 is for Sewage
	Water Treatment Plant Phase I and RMB341,700,000 is for
	Sewage Water Treatment Plant Phase II

— 1 —

DEFINITIONS

“Delegation and Operating	a delegation and operating agreement entered into between
Agreement”	the Project Company and Hangzhou Sewage Water Company
	on 20 November 2006 in relation to the provision of sewage
	water processing services to Hangzhou Sewage Water
	Company
“Directors”	the directors of the Company
“EGM”	the extraordinary general meeting of the Company to be held
	at 10:30 a.m. on 19th December 2006 at the conference room
	of the Company at 5th Floor, TCEP Building, 76 Weijin South
	Road, Nankai District, Tianjin, the PRC
“Effective Date”	the date on which the Licensed Operation Agreement, the
	Assets Transfer Agreement and the Sewage Water Processing
	Agreement are entered into between the relevant parties.
“Facility Agreement”	loan facility agreement to be entered into between the Project
	Company and the Industrial and Commercial Bank of China,
	Zhejiang Province Branch, in relation to the loan in the
	principal amount of RMB600,000,000 granted to the Project
	Company
“Group”	the Company and its subsidiaries
“Guarantee”	guarantee to be entered into by the Company in favour of the
	Industrial and Commercial Bank of China, Zhejiang Province
	Branch for securing the full amount of the loan granted to the
	Project Company in the principal amount of RMB600,000,000
	under the Facility Agreement
“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 Stock Exchange
“Hangzhou Project”	a project in relation to the grant of an operation licence to the
	Project Company for the exclusive rights to acquire, operate
	and manage the Hangzhou Qige Sewage Water Treatment
	Plant and the provision of sewage water processing services
	to Hangzhou Sewage Water Company
“Hangzhou Qige Sewage Water	the Sewage Water Treatment Plant (Phases I and II), both
Treatment Plant”	situated at No. 525 Zhi Sha Road, Hangzhou City, together
	with all buildings, constructions, equipments, facilities and
	other assets constructed thereon, which shall be owned by the
	Project Company after the Acquisition, and be handed over to
	the City Management Office or its specified authority in
	normal operation condition at nil consideration upon the
	expiry of the Licensed Period

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DEFINITIONS

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|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|“Hangzhou|Sewage|Water|Hangzhou|Sewage|Water|Company|Limited|
|Company”|(|),|a|state-owned|enterprise|established|in|
|accordance|with|the|laws|of|the|PRC|in|October|1993|
|“HCPO”|(Hangzhou|City|Construction|
|Property|Operation|Company|Limited),|a|state-owned|
|enterprise|established|in|accordance|with|the|laws|of|the|PRC|
|“Hong|Kong”|the|Hong|Kong|Special|Administrative|Region|of|the|PRC|
|“Independent|Board|Committee”|an|independent|committee|established|by|the|Board|
|comprising|all|the|independent|non-executive|Directors|
|(namely|Mr.|Wang|Xiangfei,|Mr.|Gao|Zongze|and|Mr.|Ko|
|Poming)|to|advise|the|Independent|Shareholders|
|“Independent|Shareholders”|the|Shareholders|other|than|any|connected|persons|having|an|
|interest|in|the|Guarantee|
|“Joint|Venture|Agreement”|a|joint|venture|agreement|entered|into|between|the|Company|
|and|HCPO|on|15|March|2006,|in|relation|to|the|formation|of|
|the|Project|Company|
|“Joint|Venture|Articles”|the|articles|of|association|of|the|Project|Company|entered|into|
|between|the|Company|and|HCPO|on|15|March|2006|
|“Latest|Practicable|Date”|4|December|2006,|being|the|latest|practicable|date|prior|to|the|
|printing|of|this|circular|for|ascertaining|information|
|contained|herein|
|“Licensed|Period”|a|period|of|25|years,|commencing|from|the|date|of|signing|of|
|the|Licensed|Operation|Agreement|
|“Licensed|Operation|Agreement”|a|licensed|operation|agreement|entered|into|between|the|City|
|Management|Office|and|the|Project|Company|on|20|
|November|2006|in|relation|to|the|Hangzhou|Project|
|“Listing|Rules”|the|Rules|Governing|the|Listing|of|Securities|on|the|Stock|
|Exchange|
|“Operation|Period”|a|period|commencing|from|the|date|of|transfer|of|Sewage|
|Water|Treatment|Plant|(Phase|I)|to|the|end|of|the|Licensed|
|Period|
|“percentage|ratios”|has|the|meaning|ascribed|to|it|under|the|Listing|Rules,|as|
|application|to|a|transaction|
|“PRC”|the|People’s|Republic|of|China|

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DEFINITIONS

“Project Company” (Hangzhou Tianjin Capital Water Company Limited), the joint venture enterprise established in the PRC pursuant to the Joint Venture Agreement by the Company and HCPO, with the registered capital of RMB257,445,000, of which RMB180,211,500, representing 70% of the registered capital was contributed by the Company through its internal resources, and RMB77,233,500, representing 30% of the registered capital was contributed by HCPO. The Project Company is a non-wholly owned subsidiary of the Company “RMB” Renminbi, the lawful currency of the PRC “Sewage Water Processing a sewage water processing agreement entered into between Agreement” the Project Company and Hangzhou Sewage Water Company on 20 November 2006 in relation to the provisions of sewage water processing services to Hangzhou Sewage Water Company “Sewage Water Treatment Plant sewage water treatment plant, which began to operate in 2005, (Phase I)” with a sewage water processing capability of 400,000 cubic meter per day (equipments with a sewage water processing capability of 50,000 cubic meter per day are pending for installation), together with all buildings, constructions, equipments facilities and other assets constructed thereon “Sewage Water Treatment Plant sewage water treatment plant with a sewage water processing (Phase II)” capability of 200,000 cubic meter per day, which was constructed and is expected to operate in the first half year of 2007, together with all buildings, constructions, equipments, facilities and other asset constructed thereon “SFO” Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong)

“RMB”

“Shareholders”

holders of Shares

“Shares”

A Shares and H Shares

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Substantial Shareholder”

has the same meaning ascribed to it in the Listing Rules

“Warranty Period (Phase I)”

a period of 12 months, commencing from the date of transfer of Sewage Water Treatment Plant (Phase I)

“Warranty Period (Phase II)”

a period of 12 months, commencing from the date of transfer of Sewage Water Treatment Plant (Phase II)

“%”

per cent

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LETTER FROM THE BOARD

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1065)

Executive Directors:

Ms. Ma Baiyu (Chairman) Mr. Gu Qifeng (Vice Chairman) Mr. An Pindong Mr. Wang Zhanying Mr. Tan Zhaofu Ms. Fu Yana

Registered address: No. 45 Guizhou Road Heping District Tianjin, the PRC Postal Code: 300051

Independent non-executive Directors:

Mr. Wang Xiangfei Mr. Gao Zongze Mr. Ko Poming

5 December 2006

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION IN RESPECT OF THE HANGZHOU QIGE SEWAGE WATER TREATMENT PLANT AND CONNECTED TRANSACTION IN RESPECT OF THE GUARANTEE PROVIDED BY THE COMPANY AND SUPPLEMENTAL NOTICE OF THE EGM

INTRODUCTION

In order to speed up the commercialization of municipal public utilities, and to enhance the operation efficiency of municipal public utilities, the People’s Government of Hangzhou City decided to transfer the ownership of assets in respect of the Hangzhou Qige Sewage Water Treatment Plant (which consists of Sewage Water Treatment Plant (Phase I) and Sewage Water Treatment Plant (Phase II)) to the joint venture enterprise formed between HCPO and the winner of the public tender by way of asset transfer-operation-hand over, and to grant an operation licence to the joint venture enterprise for the operation of the Hangzhou Qige Sewage Water Treatment Plant during the Licensed Period. Upon expiry of the Licensed Period, the joint venture enterprise shall hand over the Hangzhou Qige Sewage Water Treatment Plant (in normal operation condition) to the City Management Office or its specified authority at nil consideration.

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LETTER FROM THE BOARD

On 18 July 2005, the Company received the Notice of Tender Invitation Assessment Results for Investors of the Hangzhou Qige Sewage Water Treatment Plant issued by the Committee for which the Committee has listed the Company as the first candidate for winning the tender of the Hangzhou Project.

Under the tender documents of the Hangzhou Project, the Company shall establish a joint venture enterprise, the Project Company, with HCPO to operate and manage the Hangzhou Qige Sewage Water Treatment Plant, and the Project Company shall acquire from HCPO the Hangzhou Qige Sewage Water Treatment Plant at the Consideration of RMB858,150,000 so as to operate and manage the Hangzhou Qige Sewage Water Treatment Plant and provide sewage water treatment services to Hangzhou Sewage Water Company in accordance with the Sewage Water Processing Agreement. In return, the Project Company can charge the sewage water processing service fee from Hangzhou Sewage Water Company pursuant to the Sewage Water Processing Agreement.

The Board on 21 October 2005, approved, among other matters, the terms of the Joint Venture Agreement and the Joint Venture Articles in relation to the formation of the Project Company in the PRC. On 15 March 2006, the Company and HCPO entered into the Joint Venture Agreement and the Joint Venture Articles. Pursuant to the tender documents of the Hangzhou Project, the Project Company shall enter into (i) the Assets Transfer Agreement with HCPO; (ii) the Sewage Water Processing Agreement with Hangzhou Sewage Water Company; and (iii) the Licensed Operation Agreement with the City Management Office, after the Project Company is established and the business licence of the Project Company is obtained.

The Project Company was established and the business licence of the Project Company was obtained on 5 April 2006. On 20 November 2006, the Project Company entered into (i) the Assets Transfer Agreement to acquire the Hangzhou Qige Sewage Water Treatment Plant from HCPO at the Consideration of RMB 858,150,000; (ii) the Sewage Water Processing Agreement in relation to the provision of sewage water processing services to Hangzhou Sewage Water Company; and (iii) the Licensed Operation Agreement in relation to an operation licence granted to the Project Company to acquire, operate and manage the Hangzhou Qige Sewage Water Treatment Plant.

Before the signing of the Assets Transfer Agreement, the Sewage Water Processing Agreement and the Licensed Operation Agreement, in order to ensure the smooth implementation of the Hangzhou Project and to address the interests of the Company and HCPO (as there was no return on investment for the injection of the registered capital of the Project Company by the Company and HCPO before the formal execution of the Assets Transfer Agreement, the Sewage Water Processing Agreement and the Licensed Operation Agreement (i.e. before the official operation of the Hangzhou Qige Sewage Water Treatment Plant by the Project Company)), the Committee has agreed to procure Hangzhou Sewage Water Company to enter into the Delegation and Operating Agreement with the Project Company for a term commencing from 1 July 2006 and expiring on the date of transfer of Sewage Water Treatment Plant (Phase I) as set out in the Assets Transfer Agreement. Pursuant to the Delegation and Operating Agreement, the Project Company was entrusted to operate and manage the Hangzhou Qige Sewage Water Treatment Plant, and in return the Project Company can charge the sewage water processing fee from the Hangzhou Sewage Water Company on the unit price as set out in the Delegation and Operating Agreement. The Project Company entered into the Delegation and Operating Agreement with Hangzhou Sewage Water Company on 20 November 2006.

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LETTER FROM THE BOARD

As the relevant percentage ratios of the Consideration for the Acquisition is more than 5% but less than 25%, the Acquisition by the Project Company constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules. It is subject to the reporting and announcement requirements, but is exempt from the Shareholders’ approval requirement.

The registered capital of the Project Company is RMB257,445,000 and the total investment of the Project Company is RMB858,150,000 (i.e. the Consideration). As there is a difference of RMB600,705,000 between the registered capital and the total investment of the Project Company, and pursuant to the Joint Venture Agreement, such difference shall be financed by the Project Company itself through bank borrowings, for which the Company agreed to execute a guarantee in favour of a bank in respect of such bank borrowings. In order to facilitate the Project Company on obtaining the loan in the principal amount of RMB600,000,000 from the Industrial and Commercial Bank of China, Zhejiang Province Branch (for financing almost the entire part of such difference between the registered capital and the total investment of the Project Company), on 20 November 2006, the Board approved, among other matters, the terms of the Guarantee provided to the extent of RMB600,000,000 in favour of the Industrial and Commercial Bank of China, Zhejiang Province Branch, for securing the full amount of the loan in the principal amount of RMB600,000,000 to be granted to the Project Company under the Facility Agreement. The remaining difference of RMB705,000 shall be financed by the profit earned from the provision of sewage water processing services to Hangzhou Sewage Water Company under the Sewage Water Processing Agreement. As stated in the Assets Transfer Agreement, 5% of the Consideration for Phases I and II shall be paid within seven days after the expiry of the Warrant Period (Phase I) and the Warrant Period (Phase II) respectively.

HCPO is a Substantial Shareholder of the Project Company and has appointed two directors to the board of directors of the Project Company, a subsidiary of the Company and hence is a connected person of the Company within the meaning of the Listing Rules. The Company and HCPO are both equity partners of the Project Company, in which 70% of the registered capital of the Project Company was contributed by the Company and 30% of the registered capital of the Project Company was contributed by HCPO. Thus, the financial assistance provided by the Company to the Project Company by way of the provision of the Guarantee in relation to the full amount of the loan in the principal amount of RMB600,000,000 granted to the Project Company under the Facility Agreement constitutes a connected transaction for the Company under Rule 14A.13(3) of the Listing Rules.

As the relevant percentage ratios represented by such amount of Guarantee exceed 2.5%, and the total value of the financial assistance provided under the Guarantee is more than HK$10,000,000, the financial assistance provided by the Company to the Project Company by way of the provision of the Guarantee shall be subject to the reporting, announcement and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The EGM will be convened at which ordinary resolutions will be proposed to seek approval of the Independent Shareholders for the terms of the Guarantee and the entering into the Guarantee. No Shareholder shall be required to abstain from voting at the EGM. At the EGM, votes of the Independent Shareholders will be conducted by way of poll.

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LETTER FROM THE BOARD

The Independent Board Committee has been formed to advise the Independent Shareholders as to whether the terms of the Guarantee are on normal commercial terms, fair and reasonable and in the interests of the Independent Shareholders and the Company as a whole. Baron, an independent financial adviser, has been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in this regard.

The purpose of this circular is (i) to provide you with details of the Assets Transfer Agreement, the Sewage Water Processing Agreement, the Licensed Operation Agreement and the Delegation and Operating Agreement; (ii) to provide you with details of the Guarantee; (iii) to set out recommendation of the Independent Board Committee and the letter of advice from Baron regarding the Guarantee; and (iv) to give you supplemental notice of the EGM.

ASSETS TRANSFER AGREEMENT, SEWAGE WATER PROCESSING AGREEMENT, LICENSED OPERATION AGREEMENT AND DELEGATION AND OPERATING AGREEMENT

Particulars of Assets Transfer Agreement

Date : 20 November 2006 Purchaser : the Project Company Vendor : HCPO, the legal owner of the Hangzhou Qige Sewage Water Treatment Plant, holds 30% equity interests in the Project Company, a non wholly-owned subsidiary of the Company. Save for being a Substantial Shareholder of the Project Company, HCPO is an independent third party not connected with the Directors, supervisors, chief executives or Substantial Shareholders of the Company or any of its subsidiaries or an associate of any of them.
Assets to be acquired : All rights and interests of the Hangzhou Qige Sewage Water Treatment Plant, together with all relevant menus, summaries, memoranda, plans and documents and technical information required for the operation and management of the Hangzhou Qige Sewage Water Treatment Plant.
Consideration : The Consideration for the Hangzhou Qige Sewage Water Treatment Plant was fixed by the People’s Government of Hangzhou City before the Company submitted its tender for the provision of the sewage water processing service in the Hangzhou Project, which was fixed at the sum of RMB858,150,000 and not subject to change. As set out in the tender documents of the Hangzhou Project, the consideration of the Hangzhou Qige Sewage Water Treatment Plant is RMB858,150,000 of which the Sewage Water Treatment Plant (Phase I) amounted to RMB516,450,000 (the “ Consideration for Phase I “) and the Sewage Water Treatment Plant (Phase II) amounted to RMB341,700,000 (the “ Consideration for Phase II “). The Project

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LETTER FROM THE BOARD

Company shall settle the Consideration partly by its internal fund of RMB257,445,000 contributed by the Company and HCPO, partly by bank borrowings of RMB600,000,000 of the Project Company and partly by the profit of RMB705,000 earned from the provision of sewage water processing services to Hangzhou Sewage Water Company under the Sewage Water Processing Agreement. Pursuant to the Joint Venture Agreement, the difference between the total investment and the registered capital shall be financed by the Project Company itself through bank borrowings for which only the Company would consider to execute a guarantee in favour of a bank for securing such bank borrowings.

As the Project Company shall handover the Hangzhou Qige Sewage Water Treatment Plant (in normal operation condition) to the City Management Office or its specified authority at nil consideration upon expiry of the Licensed Period, the Project Company shall recover its capital expenditure for the Acquisition (i.e. the Consideration of RMB858,150,000) by charging the sewage water processing service fee at the unit price of RMB0.836/cubic meter (not including valued-added tax, business tax or other similar turnover taxes) (the “ Unit Price ”) for the provision of the sewage water processing services to Hangzhou Sewage Water Company pursuant to the Sewage Water Processing Agreement. At the time when the Company submitted its tender for the provision of sewage water processing services by the Project Company in the Hangzhou Project, the Unit Price under the Sewage Water Processing Agreement was determined by the Company with reference to the amount of the capital expenditure for the Acquisition, the length of the Licensed Period, daily average basic volumes of sewage water to be processed as set out in the Sewage Water Processing Agreement, operation costs for operating and managing the Hangzhou Qige Sewage Water Treatment Plant and the provision of the sewage water processing service, and the expected return on investment for the capital expenditure for the Acquisition. The Unit Price is calculated on a cost-plus-profit basis and is linked to, among others, the capital expenditure for the Acquisition as fixed costs, the operation costs for operating and managing the Hangzhou Qige Sewage Water Treatment Plant, the operation costs for the provision of the sewage water processing service, profit on the provision of the sewage water processing service, the length of the Licensed Period and the daily average basic volumes of sewage water to be processed as set out in the Sewage Water Processing Agreement. By charging the sewage water processing service fee at the Unit Price for the daily average basic volume of sewage water to be processed as set out in the Sewage Water Processing Agreement, the Project Company shall be able to recover its capital expenditure for the Acquisition and earning profits during and upon the expiry of the Licensed Period, and on such basis, the Directors consider that the Unit Price is fair and reasonable and in the interests of the Shareholders as a whole.

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LETTER FROM THE BOARD

: The Project Company shall make payment of the Consideration for Phase I to HCPO in the following manners:

Payment terms for : The Project Company shall make payment of the Consideration for Sewage Water Phase I to HCPO in the following manners: Treatment Plant (Phase I) ● 30% of the Consideration for Phase I shall be paid within seven days after the Effective Date;

65% of the Consideration for Phase I shall be paid on or before the date on which the Sewage Water Treatment Plant (Phase I) is transferred to the Project Company from HCPO; and
the remaining 5% of the Consideration for Phase I shall be paid within seven days after the expiry of the Warrant Period (Phase I).
Payment terms for : The Project Company shall make payment of the Consideration for Sewage Water Phase II to HCPO in the following manners: Treatment Plant (Phase II) ● 30% of the Consideration for Phase II shall be paid within seven days after the date on which the construction work of the Sewage Water Treatment Plant (Phase II) is completed and fully inspected in accordance with the relevant PRC laws;
65% of the Consideration for Phase II shall be paid on or before the date on which the Sewage Water Treatment Plant (Phase II) is transferred to the Project Company from HCPO; and
the remaining 5% of the Consideration for Phase II shall be paid within seven days after the expiry of the Warrant Period (Phase II).
Transfer date of : The next business day after (i) the approval for the transfer of Sewage Sewage Water Water Treatment Plant (Phase I) is obtained from the relevant Treatment Plant governmental authority in Hangzhou City; (ii) the inspection work on (Phase I) Sewage Water Treatment Plant (Phase I) conducted by the inspection committee established in accordance with the Assets Transfer Agreement is completed; and (iii) 95% of the Consideration for Phase I is paid by the Project Company. Pursuant to the Assets Transfer Agreement, there is no long stop date for the transfer of Sewage Water Treatment Plant (Phase I).

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LETTER FROM THE BOARD

Transfer date of : The next business day after (i) the approval for the transfer of Sewage Sewage Water Water Treatment Plant (Phase II) is obtained from the relevant Treatment Plant governmental authority in Hangzhou City; (ii) the inspection work on (Phase II) Sewage Water Treatment Plant (Phase II) conducted by the inspection committee established in accordance with the Assets Transfer Agreement is completed and (iii) 95% of the Consideration for Phase II is paid by the Project Company. Pursuant to the Assets Transfer Agreement, there is no long stop date for the transfer of Sewage Water Treatment Plant (Phase II).

Particulars of Sewage Water Processing Agreement

Date : 20 November 2006
Parties : (i) the Project Company; and
(ii) Hangzhou Sewage Water Company, an independent third party not connected with the Directors, supervisors, chief executives or Substantial Shareholders of the Company or any of its subsidiaries or an associate of any of them. There is no relationship between the Hangzhou Sewage Water Company and HCPO as Hangzhou Sewage Water Company is not connected with HCPO.
Term : 25 years, commencing from the date of the Licensed Operation Agreement, and the commencement date shall be the same with the Licensed Operation Agreement.
Principal terms : (i) The Project Company shall provide sewage water processing services to Hangzhou Sewage Water Company while Hangzhou Sewage Water Company shall provide sewage water to the Project Company for processing during the Operation Period.
(ii) The Project Company shall be responsible for all costs, liabilities and risks for the operation and management of the Hangzhou Qige Sewage Water Treatment Plant during the Operation Period.
(iii) The Project Company shall, on every day for each year and every hour for each day, collect sewage water from the receiving point (as set out in the Sewage Water Processing Agreement), and release processed sewage water through the out-going point (as set out in the Sewage Water Processing Agreement).

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LETTER FROM THE BOARD

(iv) The Project Company shall issue invoices to Hangzhou Sewage Water Company on monthly basis and Hangzhou Sewage Water Company shall settle the invoices within ten working days after such invoice is issued by the Project Company.
(v) The sewage water processing service fee shall be the Unit Price of RMB0.836/cubic meter (not including value-added tax, business tax or other similar turnover taxes) which was the unit price offered by the Company when submitting the tender of the Hangzhou Project. The Unit Price shall be adjusted for every two operation years with reference to the costs of electricity and chemical materials, wages, enterprise income tax chargeable from time to time, disposal costs for sewage wastage soil and other relevant costs.
(vi) For each year during the Operation Period, the daily average basic volumes of sewage water to be processed under the Sewage Water Processing Agreement are as follow:-
330,000 cubic meter for the year 2006;
400,000 cubic meter for the year 2007;
430,000 cubic meter for the year 2008;
460,000 cubic meter for the year 2009;
500,000 cubic meter for the year 2010;
540,000 cubic meter for the year 2011 and thereafter.

The above daily average basic volumes were set out in the tender document and were one of the conditions of the tender of the Hangzhou Project.

(vii) The sewage water processing service fee shall be calculated by the formula of “the Unit Price X actual volume of sewage water processed X number of days”. However, if the actual volume of sewage water processed is lower than the daily average basic volume of sewage water as stated in (vi) above, the Project Company shall charge the fee with reference to the daily average basic volume of sewage water.

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LETTER FROM THE BOARD

(viii) During the Licensed Period, save for the provision of the sewage water processing service pursuant to the Sewage Water Processing Agreement, the Project Company cannot engage in any other services related to the provision of the sewage water processing service for processing sewage water not collected from the Third Inner Hangzhou City Sewage Water System, Zhi Sha Sewage Water System and Yu Huang District Lin Ping Sewage Water System (all of which collected sewage water from northern and eastern part of the inner city of Hangzhou), unless written consent is obtained from Hangzhou Sewage Water Company (the “ Arrangement ”). Given that (i) the Project Company is established by the Company (being the winner of the tender of the Hangzhou Project) and HCPO for the HangzhouProject solely for the purpose of acquiring the assets of Hangzhou Qige Sewage Water Treatment Plant, operating and managing the Hangzhou Qige Sewage Water Treatment Plant and providing sewage water processing services to Hangzhou Sewage Water Company (the “ Principal Activities ”), and in return charging sewage water processing service fee for the sewage water processed by the Project Company pursuant to the Sewage Water Processing Agreement; (ii) at the time when the Company submitted its tender for the provision of sewage water processing services in the Hangzhou Project, there was a mutual understanding between the People’s Government of Hangzhou City and the Company that the Project Company shall only be principally engaged in the Principal Activities, and not be supposed to engage in any other services related to the provision of the sewage water processing service, save for the Principal Activities; and (iii) the daily average basic volume of sewage water to be processed for each year during the Operation Period is provided under the Sewage Water Processing Agreement and thus, the Project Company will be assured with a basic amount of revenue to be generated in each year during the Operation Period, the business performance of the Project Company is guaranteed at a basic level and the Arrangement shall not affect the business and performance of the Project Company and thus, not be unfair to the Project Company.

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LETTER FROM THE BOARD

Particulars of Licensed Operation Agreement

Date

: 20 November 2006

Parties : (i) the Project Company; and
(ii) the City Management Office, an independent third party not connected with the Directors, supervisors, chief executives or Substantial Shareholders of the Company or any of its subsidiaries or an associate of any of them. There is no relationship between the City Management Office and HCPO as City Management Office is not connected with HCPO.

Licensed Period : 25 years, commencing from the Effective Date.

Principal terms

: (i) With instruction from the People’s Government of Hangzhou City, the City Management Office shall grant an operation licence to the Project Company with exclusive rights to operate and manage the Hangzhou Qige Sewage Water Treatment Plant after the Acquisition, and in return, charging certain fees for the provision of sewage water processing services pursuant to the Sewage Water Processing Agreement.
(ii) During the Licensed Period, the Project Company shall provide sewage water processing services to Hangzhou Sewage Water Company in accordance with the Sewage Water Processing Agreement. However, the Hangzhou Qige Sewage Water Treatment Plant shall not process more than 720,000 cubic meter sewage water collected from Hangzhou Sewage Water Company per day.
(iii) The Project Company shall be responsible for all costs, liabilities and risks for the operation and management of the Hangzhou Qige Sewage Water Treatment Plant during the Licensed Period. In addition, the Project Company shall hand over the Hangzhou Qige Sewage Water Treatment Plant (in normal operation condition) to the City Management Office or its specified authority at nil consideration upon the expiry of the Licensed Period.
(iv) The City Management Office shall procure HCPO and Hangzhou Sewage Water Company to discharge their obligations under the Assets Transfer Agreement and the Sewage Water Processing Agreement respectively. In addition, the City Management Office shall guarantee and assist the Project Company to obtain the land use rights of the land in which the Hangzhou Qige Sewage Water Treatment Plant is situated.

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LETTER FROM THE BOARD

Particulars of Delegation and Operating Agreement

Date : 20 November 2006 Parties : (i) the Project Company; and
(ii) Hangzhou Sewage Water Company, which, before the signing of the Delegation and Operating Agreement, was entrusted by HCPO to operate and manage the Hangzhou Qige Sewage Water Treatment Plant until the expiry of the Delegation and Operating Agreement, an independent third party not connected with the Directors, supervisors, chief executives or Substantial Shareholders of the Company or any of its subsidiaries or an associate of any of them. There is no relationship between the Hangzhou Sewage Water Company and HCPO as Hangzhou Sewage Water Company is not connected with HCPO.
Term : Commencing from 1 July 2006 and expiring on the date of transfer of Sewage Water Treatment Plant (Phase I) as set out in the Assets Transfer Agreement.
Principal terms : (i) During the term of the Delegation and Operating Agreement, Hangzhou Sewage Water Company shall provide sewage water to the Project Company, and the Project Company shall provide sewage water processing services to Hangzhou Sewage Water Company. The Hangzhou Sewage Water Company shall pay the sewage water processing fee to the Project Company at the unit price of RMB0.42 per cubic meter of sewage water processed. The unit price of RMB0.42 is determined and calculated with reference to the operating costs for operating and managing the Hangzhou Qige Sewage Water Treatment Plant, the operating costs for the provision of the sewage water processing service and the profit on the provision of the sewage water processing service. The Project Company shall only provide sewage water processing service during the term of the Delegation and Operating Agreement and therefore does not need to consider the amount of the capital expenditure for the Acquisition when determining the unit price of RMB0.42 under the Delegation and Operating Agreement. Therefore, there is a difference between the unit prices under the Sewage Water Processing Agreement and the Delegation and Operating Agreement.
(ii) The Hangzhou Sewage Water Company shall be responsible for the disposal of the sewage wastage soil produced as a result of processing sewage water by the Project Company.

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LETTER FROM THE BOARD

(iii) During the term of the Delegation and Operating Agreement, the Project Company shall be responsible for the management, operation, repair and renovation of the Sewage Water Treatment Plant (Phase I), and shall ensure the normal operation of the Sewage Water Treatment Plant (Phase I). In addition, the Project Company shall be responsible for the operation management, facilities maintenance and repairing of the Sewage Water Treatment Plant (Phase II).
(iv) The Project Company shall carry out routine inspections on the quality of the inflow of sewage water provided, the outflow of the sewage water processed, and the sewage wastage soil produced. The Project Company shall submit the quality report to the Hangzhou Sewage Water Company on a monthly basis.
(v) Hangzhou Sewage Water Company shall settle the sewage water processing fees incurred in the previous month to the Project Company within five working days after receiving the sewage water processing fees from its agency companies. The Project Company shall be responsible for all costs and expenses for the operation and management of the Hangzhou Qige Sewage Water Treatment Plant such as repairing expenses, maintenance expenses, water and electricity costs, salary paid to the staff, during the term of the Delegation and Operating Agreement.
(vi) The sewage water processing service fee shall be calculated by the formula of “the unit price of RMB0.42 per cubic meter of sewage water processed X actual volume of sewage water processed X number of days”.

Reasons for entering into the Assets Transfer Agreement, the Sewage Water Processing Agreement, the Licensed Operation Agreement and the Delegation and Operating Agreement

In order to increase the commercialisation on the municipal public utilities and to enhance operational efficiency of the municipal public utilities, the People’s Government of Hangzhou City decided to grant an operation licence to a joint venture enterprise (which shall be formed between HCPO and the winner of the public tender) to operate the Hangzhou Qige Sewage Water Treatment Plant during the Licensed Period. The People’s Government of Hangzhou City selected the suitable joint venture partner for the joint venture enterprise by way of public tender. The winner of the public tender shall be granted the rights to set up the joint venture enterprise with HCPO, acquire the assets of Hangzhou Qige Sewage Water Treatment Plant, operate the Hangzhou Qige Sewage Water Treatment Plant and provide sewage water processing services to Hangzhou Sewage Water Company. On 18 July 2005, the Company received the Notice of Tender Invitation Assessment Results for Investors of the Hangzhou Qige Sewage Water Treatment Plant issued by the Committee for which the Committee has listed the Company as the first candidate for winning the tender of the Hangzhou

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LETTER FROM THE BOARD

Project. Therefore, the Company entered into the Joint Venture Agreement and the Joint Venture Articles with HCPO, and pursuant to which, the Project Company was established and the business licence of the Project Company was obtained on 5 April 2006.

In order to allow the Project Company to acquire the assets of Hangzhou Qige Sewage Water Treatment Plant, operate the Hangzhou Qige Sewage Water Treatment Plant and provide sewage water processing services to Hangzhou Sewage Water Company, the Project Company, on 20 November 2006, pursuant to the tender documents of the Hangzhou Project, entered into (i) the Assets Transfer Agreement with HCPO in relation to the Acquisition at the Consideration; (ii) the Sewage Water Processing Agreement with Hangzhou Sewage Water Company in relation to the provision of sewage water processing services to Hangzhou Sewage Water Company; and (iii) the Licensed Operation Agreement with the City Management Office in relation to an operation licence granted to the Project Company to acquire, operate and manage the Hangzhou Qige Sewage Water Treatment Plant.

By entering into the above agreements, the Project Company can operate and manage the Hangzhou Qige Sewage Water Treatment Plant, and can provide sewage water processing services to Hangzhou Sewage Water Company and in return, charge the sewage water processing service fee in relation to the provision of sewage water processing services to Hangzhou Sewage Water Company. In other words, the entering into of the Assets Transfer Agreement will contribute positively to the future earning of the Group. Meanwhile, the Directors expect that the entering into of the Assets Transfer Agreement will increase the assets of the Group and the entering into of the Facility Agreement by the Project Company will increase the liability of the Group. The Directors, including the independent non-executive Directors, are of the opinion that the terms of the Assets Transfer Agreement, the Sewage Water Processing Agreement, the Licensed Operation Agreement and the Delegation and Operating Agreement are fair and reasonable and are in the interest of the Shareholders and the Company as a whole.

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LETTER FROM THE BOARD

DISCLOSEABLE TRANSACTION

On 16 June 2005, the Company submitted its tender for the provision of sewage water processing services at the Unit Price in the Hangzhou Project. On 18 July 2005, the Company received the Notice of Tender Invitation Assessment Results for Investors of the Hangzhou Qige Sewage Water Treatment Plant from the Committee. Since then, the Company negotiated with the People’s Government of Hangzhou City about the details of the Hangzhou Project. The terms governing the transfer of Hangzhou Qige Sewage Water Treatment Plant under the Assets Transfer Agreement were agreed at the time of the establishment of the Project Company. Given (i) the basic terms and conditions of the Assets Transfer Agreement are set out in the tender documents of the Hangzhou Project at the time when the Company submitted the tender for the provision of the sewage water processing services, and thus the transaction contemplated under the Assets Transfer Agreement formed part of the aggregated transactions in the Hangzhou Project, which are not newly emerged out of the Hangzhou Project after the establishment of the Project Company by the Company and HCPO; and (ii) the Company was negotiating with the People’s Government of Hangzhou City about the details of the Hangzhou Project before the establishment of the Project Company, during such time, HCPO was an independent third party of the Company, not connected with the Directors, supervisors, chief executives or Substantial Shareholders of the Company or any of its subsidiaries or an associate of any of them, the Acquisition contemplated under the Assets Transfer Agreement shall not be treated as a connected transaction under chapter 14A of the Listing Rules despite the Assets Transfer Agreement was entered into after the establishment of the Project Company. Pursuant to the tender documents of the Hangzhou Project, the Assets Transfer Agreement shall be entered into by the Project Company only after the Project Company is established and the business licence of the Project Company is obtained.

GUARANTEE

The registered capital of the Project Company is RMB257,445,000 (of which 70% of the registered capital of the Project Company was contributed by the Company, while 30% of the registered capital of the Project Company was contributed by HCPO), whereas the total investment of the Project Company is RMB858,150,000. Pursuant to the Assets Transfer Agreement, the Project Company agreed to acquire all rights and interests of the Hangzhou Qige Sewage Water Treatment Plant at the consideration of RMB858,150,000. There is a difference of RMB600,705,000 between the total investment and the registered capital of the Project Company, and pursuant to the Joint Venture Agreement, such difference shall be financed by the Project Company itself through bank borrowings, for which the Company agreed to execute a guarantee in favour of a bank in respect of such bank borrowings. On 8 June 2005, the Company issued an undertaking letter to the Committee agreeing to provide a 100% guarantee in favour of a bank for securing the bank borrowings of the Project Company, which are used for payment of the Consideration for the Hangzhou Qige Sewage Water Treatment Plant, subject to the satisfaction of requirements of the relevant laws and regulations in the PRC. Almost the entire part of such difference between the total investment and the registered capital of the Project Company (i.e. RMB600,000,000) was financed by the Project Company itself through

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LETTER FROM THE BOARD

obtaining a loan from the Industrial and Commercial Bank of China, Zhejiang Province Branch. In order to facilitate the Project Company in obtaining the loan in the principal amount of RMB600,000,000 from the Industrial and Commercial Bank of China, Zhejiang Province Branch, on 20 November 2006, the Board approved, among other matters, the terms of the Guarantee provided to the extent of RMB600,000,000 in favour of the Industrial and Commercial Bank of China, Zhejiang Province Branch, for securing the full amount of the loan in the principal amount of RMB600,000,000 to be granted to the Project Company under the Facility Agreement. The remaining difference of RMB705,000 shall be financed by the profit earned from the provision of sewage water processing services to Hangzhou Sewage Water Company under the Sewage Water Processing Agreement. As stated in the Assets Transfer Agreement, 5% of the Consideration for Phases I and II shall be paid within seven days after the expiry of the Warrant Period (Phase I) and the Warrant Period (Phase II) respectively.

The loan in the principal amount of RMB600,000,000 to be granted to the Project Company under the Facility Agreement is proposed to be secured by the Guarantee. The interest rate of the loan shall be 90% of the corresponding basis interest rate of the People’s Bank of China per annum (such interest rate is determined with reference to the market rates offered by the relevant bank in the PRC), with maturity period of 10 years. In accordance with the Facility Agreement, the loan will be repaid by the Project Company in 10 annual installments. The guarantee period under the Guarantee will last for a period equivalent to the term of the loan under the Facility Agreement plus 2 years. In order to protect the interests of the Company and the Shareholders, and in consideration for the Company to provide the Guarantee on a 100% basis, the Project Company agreed to provide a counter-guarantee in favour of the Company for all liability of the Company incurred under the Guarantee.

Reasons for the provision of the Guarantee

The Project Company shall be principally engaged in the management and operation of the Hangzhou Qige Sewage Water Treatment Plant, and was granted by the City Management Office an operation licence with exclusive rights to acquire, operate and manage the Hangzhou Qige Sewage Water Treatment Plant during the Licence Period, and to provide sewage water processing services to Hangzhou Sewage Water Company in accordance with the Sewage Water Processing Agreement, and in return, the Project Company has rights to charge certain sewage water processing service fee under the Sewage Water Processing Agreement from Hangzhou Sewage Water Company during such period. In order to allow the Project Company to operate and manage the Hangzhou Qige Sewage Water Treatment Plant and provide sewage water processing services to Hangzhou Sewage Water Company under the Sewage Water Processing Agreement, the Project Company acquired the Hangzhou Qige Sewage Water Treatment Plant pursuant to the Assets Transfer Agreement. The loan in the principal amount of RMB600,000,000 granted to the Project Company is to finance the costs of the acquisition of the Hangzhou Qige Sewage Water Treatment Plant contemplated under the Assets Transfer Agreement.

As the Project Company has agreed to provide a counter-guarantee in favour of the Company for all liability of the Company incurred under the Guarantee, the interests of the Company and the Shareholders are protected. In addition, as the financial assistance provided by the Company to the Project Company by way of the provision of the Guarantee is to facilitate the acquisition of the Hangzhou Qige Sewage Water Treatment Plant contemplated under the Assets Transfer Agreement by

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LETTER FROM THE BOARD

the Project Company (a non-wholly owned subsidiary in which 70% equity interests of the registered capital is held by the Company), so that the Project Company can operate and manage the Hangzhou Qige Sewage Water Treatment Plant, provide sewage water processing services to Hangzhou Sewage Water Company and receive sewage water processing service fee from Hangzhou Sewage Water Company under the Sewage Water Processing Agreement, and the terms of the Guarantee are on similar terms as the bank would normally offer to a third party, the Directors, including the independent non-executive Directors, are of the opinion that the terms for the provision of the Guarantee are fair and reasonable and are in the interest of the Shareholders and the Company as a whole.

CONNECTED TRANSACTION

INFORMATION OF THE GROUP, HCPO AND THE PROJECT COMPANY

The Group is principally engaged in (i) the design, management, operation, technological consultation of sewage water treatment plants and their related infrastructure facilities and auxiliary services; (ii) the design, toll collection, repair and maintenance, management, operation, technological consultation of toll roads and auxiliary services in relation to the operation of the South-eastern Half Ring Road of the Middle Ring of Tianjin, Tianjin City Indebted Road Construction for Vehicle-passage Toll Collection Office and their related auxiliary facilities; and (iii) the development and operation of environmental protection technology and products.

HCPO is a state-owned enterprise established in accordance with the laws of the PRC in June 2003 with the approvals from the Hangzhou City Committee and the People’s Government of Hangzhou City. The registered capital of HCPO is RMB6,500 million. HCPO is principally engaged in the businesses of public transportation, supply of water and gas, public utilities facilities, wastes processing services, real estate development, construction project and research and development of technologies.

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LETTER FROM THE BOARD

The Project Company shall be principally engaged in the management and operation of the Hangzhou Qige Sewage Water Treatment Plant. It shall also be engaged in the management, operation and technological consultation of sewage water treatment plants and their auxiliary services.

INFORMATION OF THE HANGZHOU QIGE SEWAGE WATER TREATMENT PLANT

The Hangzhou Qige Sewage Treatment Plant consists of two phases, including Sewage Water Treatment Plant (Phase I) and Sewage Water Treatment Plant (Phase II). The Sewage Water Treatment Plant (Phase I) began to operate in 2005 and has the sewage water processing capability of 400,000 cubic meter per day (equipments with a sewage water processing capability of 50,000 cubic meter per day are pending for installation), whereas the Sewage Water Treatment Plant (Phase II) has the sewage water processing capability of 200,000 cubic meter per day. The construction of the Sewage Water Treatment Plant (Phase II) was completed and is expected to operate in the first half year of 2007.

RECOMMENDATIONS

Baron has been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Guarantee. The text of the letter from Baron to the Independent Board Committee and the Independent Shareholders is set out on pages 24 to 30 of this circular.

The letter from the Independent Board Committee, which contains its recommendation to the Independent Shareholders in respect of the Guarantee, is also set out on page 23 of this circular.

The Board considers that the terms for the provision of the Guarantee are fair and reasonable and are in the interest of the Shareholders and the Company as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the EGM for approving the terms of the Guarantee and the entering into the Guarantee as set out in the supplemental notice of the EGM.

EGM

According to Article 69 of the articles of association of the Company, Shareholder(s) alone or in aggregate holding 3% or more of the total number of the Company’s Shares shall have the right to propose an ex tempore motion ten days prior to the general meeting by furnishing the same to the convenor in writing. The convenor shall issue a supplemental notice of general meeting within two days after receiving the proposed motion to announce the contents of the ex tempore motion. Save as provided above, the convenor shall not amend motions stated in or add new motions to the notice of general meeting after the same has been issued and announced.

The Company received a letter from its controlling shareholder, Tianjin Municipal Investment Company Limited (“ TMICL ”), on 4 December 2006 requesting for the inclusion of ordinary resolutions to consider and approve by the Independent Shareholders the terms of the Guarantee and the entering into the Guarantee at the forthcoming EGM, a notice of which dated 3 November was sent to the Shareholders together with the circular dated 3 November 2006. On 4 December 2006, the Board resolved to put forward the said proposed ordinary resolutions at the forthcoming EGM to be held on 19 December 2006 for consideration and approval.

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LETTER FROM THE BOARD

The EGM will be held at 10:30 a.m. on 19 December 2006 at the conference room of the Company at 5th Floor, TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC, at which ordinary resolutions will be proposed to seek approval of the Independent Shareholders, among other things, for the terms of the Guarantee and the entering into the Guarantee. No Shareholder shall be required to abstain from voting at the EGM. At the EGM, votes of the Independent Shareholders will be conducted by way of poll.

Supplemental notice of the EGM is set out on pages 31 to 33 of this circular. A supplemental proxy form is also enclosed with this circular.

Whether or not you intend to attend the EGM in person, you are requested to complete and return the enclosed supplemental proxy form in accordance with the instructions printed thereon to the Company’s principal office address at TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC, as soon as possible but in any event not less than 24 hours before the time scheduled for the holding of the EGM or any adjournments thereof. Completion and return of the supplemental proxy form will not preclude you from attending and voting in person at the EGM or any adjournments thereof should you so wish.

An announcement will be made by the Company following conclusion of the EGM to inform Shareholders of the results of the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board Ma Baiyu Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1065)

5 December 2006

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION IN RESPECT OF THE GUARANTEE PROVIDED BY THE COMPANY

We have been appointed as members of the Independent Board Committee to give our advice on the Guarantee, details of which are set out in the letter from the Board included in the circular to the Shareholders dated 5 December 2006 (the “ Circular ”), of which this letter forms a part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Baron has been appointed as the independent financial adviser to advise us and the Independent Shareholders regarding the Guarantee. The letter from Baron is set out on pages 24 to 30 of the Circular.

Having considered the terms of the Guarantee, the advice given by Baron and the principal factors and reasons taken into consideration by it in arriving at its advice, we are of the opinion that the terms for the provision of the Guarantee are fair and reasonable and are in the interests of the Independent Shareholders and the Company as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM for approving the terms of the Guarantee and the entering into of the Guarantee.

Yours faithfully, Independent Board Committee

Mr. Wang Xiangfei Independent non-executive Director

Mr. Gao Zongze

Independent non-executive Director

Mr. Ko Poming

Independent non-executive Director

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LETTER FROM BARON

The following is the full text of a letter of advice from Baron to the Independent Board Committee and the Independent Shareholders dated 5 December 2006 prepared for the purpose of incorporation in this circular:

4/F, Aon China Building 29 Queen’s Road Central Central, Hong Kong

5 December 2006

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONNECTED TRANSACTION IN RESPECT OF THE GUARANTEE PROVIDED BY THE COMPANY

INTRODUCTION

We refer to our engagement under which Baron has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Guarantee, details of which are contained in the “Letter from the Board” set out on pages 5 to 22 of the circular of the Company dated 5 December 2006 (the “Circular”), of which this letter forms part. Terms defined in the Circular have the same meaning herein, unless the context requires otherwise.

The transaction under the Guarantee involves the granting of the financial assistance by the Company to the Project Company in which 70% of the registered capital of the Project Company was contributed by the Company and 30% of the registered capital of the Project Company was contributed by HCPO. The provision of the Guarantee constitutes a connected transaction for the Company under Rule 14A.13(3) of the Listing Rules.

The Independent Board Committee, comprising Mr. Wang Xiangfei, Mr. Gao Zongze and Mr. Ko Poming, has been established to advise the Independent Shareholders as to whether the terms of the Guarantee are on normal commercial terms, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. We have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in this regard.

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LETTER FROM BARON

BASIS OF OUR ADVICE

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders, we have relied on the information supplied and the opinion expressed by the Directors and the management of the Company. We have assumed that the information contained and representations made to us or referred to in the Circular are true, accurate and complete at the time they were made and continue to be so at the date of the Circular.

We consider that we have been provided with sufficient information to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading.

Having made all reasonable enquiries, the Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and further confirmed that, to the best of their knowledge and belief, there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading.

We have not, however, carried out any independent verification on the information provided by the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs of the Company, nor have we considered the taxation implication on the Group or the Shareholders as a result of the provision of the Guarantee.

A. Background of and reasons for provision of the Guarantee

Background of the Group, HCPO and the Project Company

HCPO is a state-owned enterprise established in accordance with the laws of the PRC in June 2003 with the approvals from the Hangzhou City Committee and the People’s Government of Hangzhou City. HCPO is principally engaged in the businesses of public transportation, supply of water and gas, public utilities facilities, wastes processing services, real estate development, construction project and research and development of technologies.

The Project Company was established and the business licence of the Project Company was obtained on 5 April 2006. The Project Company shall be principally engaged in the management and operation of the Hangzhou Qige Sewage Water Treatment Plant and the management, operation and technological consultation of sewage water treatment plants and their auxiliary services.

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LETTER FROM BARON

2. Background of the provision of the Guarantee

In order to speed up the commercialization on the municipal public utilities and to enhance the operational efficiency of municipal public utilities, the People’s Government of Hangzhou City decided to grant an operation licence to a joint venture enterprise (which shall be formed between HCPO and the winner of the public tender) to operate the Hangzhou Qige Sewage Water Treatment Plant during the Licensed Period. The People’s Government of Hangzhou City selected the suitable joint venture partner for the joint venture enterprise by way of public tender. The winner of the public tender shall be granted the rights to set up the joint venture enterprise with HCPO, acquire the assets of Hangzhou Qige Sewage Water Treatment Plant, operate the Hangzhou Qige Sewage Water Treatment Plant and provide sewage water processing services to Hangzhou Sewage Water Company. On 18 July 2005, the Company received the Notice of Tender Invitation Assessment Results for Investors of the Hangzhou Qige Sewage Water Treatment Plant issued by the Committee for which the Committee has listed the Company as the first candidate for winning the tender of the Hangzhou Project.

As mentioned in the section headed “Letter from the Board” in this Circular, the Company and HCPO entered into the Joint Venture Agreement and the Joint Venture Articles on 15 March 2006 in relation to the formation of the Project Company in the PRC. Pursuant to the tender documents of the Hangzhou Project, after the Project Company is established and the business licence of the Project Company is obtained, the Project Company shall enter into (i) the Assets Transfer Agreement with HCPO; (ii) the Sewage Water Processing Agreement with Hangzhou Sewage Water Company; and (iii) the Licensed Operation Agreement with the City Management Office. The Project Company was established and the business license of the Project Company was obtained on 5 April 2006.

In order to facilitate the Project Company in obtaining financing from the Industrial and Commercial Bank of China, Zhejiang Province Branch, the Board, on 20 November 2006, approved the terms of the Guarantee provided to the extent of RMB600,000,000 in favour of the Industrial and Commercial Bank of China, Zhejiang Province Branch, for the purpose of securing the full amount of the loan in the principal amount of RMB600,000,000 to be granted to the Project Company under the Facility Agreement. In accordance with the Facility Agreement, the loan will be repaid by the Project Company in 10 annual installments.

3. Reasons for the provision of the Guarantee

The Project Company shall be principally engaged in the management and operation of the Hangzhou Qige Sewage Water Treatment Plant; and also engaged in the management, operation and technological consultation of sewage water treatment plants and its auxiliary services. As disclosed in the annual report of the Group for the year ended 31 December 2005 (“Annual Report”), the turnover of the sewage water processing and construction of sewage plants, as stated in the accounts prepared in accordance with Accounting Principles Generally Accepted in Hong Kong, amounted to approximately RMB504.54 million and RMB647.52 million respectively for each of the two years ended 31 December 2005, representing approximately 86.92% and approximately 90.72% of the Group’s total turnover during the respective periods. In addition, the segment results for the sewage water processing and construction of sewage plants for each of the two years ended 31 December 2005 of the Group amounted to approximately RMB313.25 million and RMB475.33 million respectively, representing approximately 88.44% and 92.03% to the net profit of the Group respectively.

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LETTER FROM BARON

As mentioned in the chairman’s statement in the Annual Report, the Company is optimistic in the business operation of sewage water processing and construction business of sewage water treatment plants and will continue to take sewage water treatment operations as one of its core competitiveness and will further ascertain the strategic positioning as a water supply investment operator and will select quality investment projects in related areas. In addition, the Group will fully capitalize on its own technical advantage in the development of sewage water operation projects and enhance the contribution from sewage water operation projects to the overall profit of the Company.

To allow the Project Company to operate and manage the Hangzhou Qige Sewage Water Treatment Plant and provide sewage water processing service to Hangzhou Sewage Water Company, the Project Company acquired the Hangzhou Qige Sewage Water Treatment Plant according to the Assets Transfer Agreement, the Directors consider that it is necessary for the Project Company to finance the costs of the Acquisition of the Hangzhou Qige Sewage Water Treatment Plant.

As stated in the section headed “Letter from the Board” in this Circular, there is a difference between the registered capital of RMB257,445,000 and the total investment of the Project Company of RMB858,150,000 (i.e. the Consideration). In accordance with the Joint Venture Agreement, the difference shall be financed by the Project Company itself through bank borrowings for which the Company agreed to execute a guarantee in favour of a bank in respect of such bank borrowings of the Project Company. We have reviewed the undertaking letter issued by the Company to the Committee dated 8 June 2005 and noted that the Company agreed to provide a 100% guarantee in favour of a bank for securing the bank borrowings of the Project Company, which are used for payment of the Consideration for the Hangzhou Qige Sewage Water Treatment Plant, subject to the satisfaction of the requirements of the relevant laws and regulations in the PRC.

In order to facilitate the Project Company in obtaining the financing from the Industrial and Commercial Bank of China for almost the entire part of the difference between the registered capital and the total investment of the Project Company, on 20 November 2006, the Board approved, among other matters, the terms of the Guarantee provided to the extent of RMB600,000,000 in favour of the Industrial and Commercial Bank of China, Zhejiang Province Branch, for securing the full amount of the loan in the principal amount of RMB600,000,000 to be granted to the Project Company under the Facility Agreement.

Pursuant to the Joint Venture Agreement, the difference between the registered capital of RMB257,445,000 and the total investment of the Project Company of RMB858,150,000 shall be financed by the Project Company itself through bank borrowings, for which the Company agreed to execute a guarantee in favour of a bank in respect of such bank borrowings. As advised by the Directors, the loan in the principal amount of RMB600,000,000 will not be available to the Project Company without the Guarantee. If the loan is not available to the Project Company, the Company’s expansion plan for the development of the sewage industry in Hangzhou will be barred and the financial position and business operation of the Project Company may be adversely affected, which may have an adverse impact on the Group.

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LETTER FROM BARON

Given the fact that the provision of the Guarantee is a condition to the grant of the loan facility and the availability of the facility is essential for the Project Company to finance the costs of the Acquisition of the Hangzhou Qige Sewage Water Treatment Plant, we are of the view that the provision of the Guarantee by the Company is in the interests of the Company and the Independent Shareholders as a whole.

B. Terms of the Guarantee

As stated in the section headed “Letter from the Board” in this Circular, the Industrial and Commercial Bank of China, Zhejiang Province Branch, agrees to grant a ten years loan facility in the principal amount up to RMB600,000,000 to the Project Company. The facility is proposed to be secured by the Guarantee and the interest rate of the loan shall be 90% of the corresponding basis interest rate of the People’s Bank of China per annum by reference to the market rates offered by the relevant bank in the PRC, with maturity period of 10 years. The guarantee period under the Guarantee will last for a period equivalent to the term of the loan under the Facility Agreement plus 2 years.

To protect the interests of the Company and the Shareholders, and in consideration for the Company to provide the Guarantee on a 100% basis, the Project Company agreed to provide a counter-guarantee in favour of the Company for all liability of the Company incurred under the Guarantee. We have reviewed the guarantee agreement for a loan borrowed by a subsidiary of the Company entered into between the Company and a bank in China and note that the terms (including the guarantee period) of the guarantee asked for by the bank is comparable to the Guarantee. We were confirmed by the Directors that for subsidiaries of a listed company borrowing money in China, it is common practice that the listed company will be required to execute a guarantee in favor of the bank concerned. We consider that the terms of the Guarantee (i.e. the guarantee period and other relevant terms) are similar to those asked for by other banks in China. In view of the above, we are of the view that the provision of the Guarantee is on normal commercial terms and the terms of the Guarantee are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

C. Control by the Group over the operation and management of the Project Company

As the Company will provide the Guarantee to the Project Company, the risk of misuse of the loan proceeds by the Project Company will be a crucial factor if the Company does not possess any control over the Project Company in terms of management and operation. As stated in the section headed “Letter from the Board” in this Circular, the Project Company is 70% owned by the Company and 30% owned by HCPO. We have been informed by the management of the Company that the Company will take precautious measurement to exercise control over the business operations and management of the Project Company carefully, including but not limited to, the formulation of business policies and strategies, financial policies, internal financial control, management of trade receivables and payables and treasury management. In addition, the Company has appointed three executive directors in the board of directors of the Project Company and one independent director will be jointly appointed by the Company and HCPO. To avoid the risk of misuse of the loan proceeds by the Project Company, the usage of the loan proceeds will be closely monitored in accordance with the internal procedures of the Project Company. In this connection, the Directors are of the view that the Company is able to monitor the financial operations and usage of the loan proceeds from the bank.

— 28 —

LETTER FROM BARON

As advised by the senior management of the Company, any drawdown by the Project Company under the Facility Agreement must be approved by the bank and the financial controller of the Project Company and must be initially deposited into the bank accounts of the Project Company maintained with the bank granting the financing. The operation of the bank accounts of the Project Company requires the company seal of the Project Company, which is under the custody of the financial controller of the Project Company appointed to the Project Company by the Company. In other words, the Company will always be fully aware of and have full control over any utilization of the loan facility by the Project Company, as well as the Company’s exposure under the Guarantee.

In view of the effective management control by the Company in the management and operations of the Project Company and the control over the drawdown of the loan facilities, we consider that the Company will be in a position to safeguard against any potential misuse of the loan facility.

D. Financial effects to the Group

The provision of the Guarantee will not have any direct impact on the profitability, liabilities or gearing of the Group unless and until such time that the Guarantee is called upon.

According to the Annual Report of the Company for the year ended 31 December 2005, the shareholders’ equity and the net tangible assets was approximately RMB2,330.49 million and RMB1,734.73 million as at 31 December 2005 respectively. The Group has a gearing ratio of approximately 23.46% calculated by total borrowings from banks of approximately RMB1,300 million minus cash and bank balances of approximately RMB753.29 million divided by the shareholders’ equity of approximately RMB2,330.49 million. Although the Project Company would provide a counter-guarantee in favour of the Company, the Company would still need to bear the liability of the loan facilities in the aggregate amount of RMB600,000,000 in the event that the entire amount of the Guarantee is called upon. As stated in the interim report for the six months ended 30 June 2006, the total amount of outstanding guarantee provided to the subsidiaries of the Company, as stated in the accounts prepared in accordance with the Hong Kong Financial Reporting Standards, amounted to RMB120,000,000. If the Guarantee is provided, the Company will have an aggregate outstanding guarantee of RMB720,000,000, representing approximately 31.02% of the Group’s unaudited consolidated net assets of approximately RMB2,321 million as at 30 June 2006. Should the Project Company fail to meet its repayment obligations under the loan facility and the Company (being the guarantor) was required to assume such repayment obligation under the Guarantee, the financial position of the Group may be adversely affected.

By virtue of the provision of the Guarantee and assuming the obligations under the loan facility in the event that the Project Company fails to meet the obligation to repay the loan (together with any interests) and the Project Company fails to fulfill the obligation under the counter-guarantee granted to the Company, the cash flow position of the Company will be affected. We would like to draw the Shareholders’ attention that he/she/it should consider the management control by the Group over the Project Company and, in particular, the control mechanism for the utilization of the proceeds under the loan facility. As the financial assistance provided by the Company to the Project Company by way of the provision of the Guarantee is to facilitate the acquisition of the Hangzhou Qige Sewage Water

— 29 —

LETTER FROM BARON

Treatment Plant which is of importance to the Group’s profitability and allows the Group to capture the potential growth of the water sewage industry in Hangzhou, we consider that the benefits from the proposed provision of financial assistance to the Project Company by way of granting the Guarantee would compensate for the risks associated with provision of the Guarantee.

As stated in the section headed “Letter from the Board” in this Circular, under the Sewage Water Processing Agreement, for each year during the Operation Period, the Project Company was guaranteed the following daily average basic volumes of sewage water to be processed:

330,000 cubic meter for the year 2006;
400,000 cubic meter for the year 2007;
430,000 cubic meter for the year 2008;
460,000 cubic meter for the year 2009;
500,000 cubic meter for the year 2010; and
540,000 cubic meter for the year 2011 and thereafter.

Taking into account the service fee of RMB0.836/cubic meter (not including the value-added tax, business tax or other similar turnover taxes) as provided for under the Sewage Water Processing Agreement, the Directors are of the view, and we concur with them, that the Project Company will be assured with a basic amount of revenue to be generated in each year during the Operation Period and the business performance of the Project Company is guaranteed at a basic level.

E. Recommendation

Having considered the above principal factors and reasons, we considered the provision of the Guarantee is on normal commercial terms and in the ordinary and usual course of business and the terms of the Guarantee are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommended the Independent Shareholders, and the Independent Board Committee to advise the Independent Shareholders, to vote in favor of the resolutions to approve the provision of the Guarantee at the EGM.

Yours faithfully, For and on behalf of

Baron Capital Limited Chiu Sui Keung, Thomas Managing Director

— 30 —

SUPPLEMENTAL NOTICE OF THE EXTRAORDINARY GENERAL MEETING

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1065)

SUPPLEMENTAL NOTICE OF THE EXTRAORDINARY GENERAL MEETING

This notice is supplemental to the Notice dated 3 November 2006 (the “ Notice ”) of the extraordinary general meeting (the “ EGM ”) of Tianjin Capital Environmental Protection Company Limited (the “ Company ”) to be held at 10:30 a.m. on 19 December 2006 at the conference room of the Company at 5th Floor, TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the People’s Republic of China (the “ PRC ”).

According to Article 69 of the articles of association of the Company, shareholder(s) alone or in aggregate holding 3% or more of the total number of the Company’s shares shall have the right to propose an ex tempore motion ten days prior to the general meeting by furnishing the same to the convenor in writing. The convenor shall issue a supplemental notice of general meeting within two days after receiving the proposed motion to announce the contents of the ex tempore motion. Save as provided above, the convenor shall not amend motions stated in or add new motions to the notice of general meeting after the same has been issued and announced.

The Company received a letter from its controlling shareholder, Tianjin Municipal Investment Company Limited, on 4 December 2006 requesting for the inclusion of ordinary resolutions to consider and approve by the Independent Shareholders the terms of the Guarantee and the entering into the Guarantee at the forthcoming EGM. On 4 December 2006, the Board resolved to put forward the said proposed ordinary resolutions at the forthcoming EGM for consideration and approval.

The following ordinary resolutions are proposed to the EGM as ordinary resolution numbers 15(a) and 15(b):

I. As ordinary resolutions:
(a) the Guarantee (as defined in the circular of the Company dated 5 December 2006 (the “ Circular ”), a copy of which has been produced to the EGM marked “A” and signed by the chairman of the EGM for the purpose of identification) and the terms thereof be and are hereby approved;
- (b) any one of the directors of the Company be authorized for and on behalf of the Company, among other matters, to sign, execute, perfect, deliver or to authorize signing, executing, perfecting and delivering all such documents and deeds be hereby approved, and be and are hereby authorized to do or authorize doing all such acts, matters and things as they may in their discretion consider necessary, expedient or desirable to give effect to and implement the Guarantee;

— 31 —

SUPPLEMENTAL NOTICE OF THE EXTRAORDINARY GENERAL MEETING

The original special resolution numbers 15, 16 and 17 as stated in the Notice are proposed to be renumbered as special resolution numbers 16, 17 and 18 respectively.

By order of the Board Ma Baiyu Chairman

Tianjin, the PRC 5 December 2006

As at the date hereof, the Board comprises executive Directors: Ms. Ma Baiyu, Mr. An Pindong, Mr. Gu Qifeng, Mr. Wang Zhanying, Mr. Tan Zhaofu and Ms. Fu Yana, and independent non-executive Directors: Mr. Wang Xiangfei, Mr. Gao Zongze and Mr. Ko Poming.

Notes:

(1) Shareholders (the “ Shareholders ”) of the Company entitled to attend the extraordinary general meeting to be held on 19 December 2006 according to the Notice and whose names appears on the register of members of the Company at the close of the afternoon trading session on 17th November 2006 will be entitled to attend the EGM. As stated in the Notice, the Shareholders of H shares of the Company (the “ H Shares ”) are reminded that the register of members of the Company’s H Shares are closed from 18th November 2006 to 19th December 2006, both days inclusive, during the period no transfer of H Shares will be effected. The holders of H Shares with names appeared in the Company’s register of members on 17th November 2006 or their proxies shall present their identity cards or passports as proofs of their identities upon attending the EGM.
(2) Each Shareholder having the rights to attend and vote at the EGM is entitled to appoint in written form one or more than one proxy (whether a Shareholder or not) as his proxy to attend and vote on his behalf at the EGM. If more than one proxy are appointed by a Shareholder, such proxies shall only exercise their voting rights on a poll.
(3) Shareholders can appoint a proxy by an instrument in writing (i.e. by using the enclosed supplemental form of proxy). The supplemental form of proxy shall be signed by the person appointing the proxy or an attorney authorized by such person in writing. If the supplemental form of proxy is signed by an attorney, the power of attorney or other documents of authorization shall be notarially certified. To be valid, the supplemental form of proxy and the notarially certified power of attorney or other documents of authorization must be delivered to the principal office address of the Company by not less than 24 hours before the time scheduled for the holding of the EGM or any adjournments thereof. Completion and return of the supplemental form of proxy will not preclude you from attending and voting in person at the EGM or any adjournments thereof should you so wish.
(4) Shareholders or their proxies shall present proofs of their identities upon attending the EGM. Should a proxy be appointed, the proxy shall also present the supplemental form of proxy.

— 32 —

SUPPLEMENTAL NOTICE OF THE EXTRAORDINARY GENERAL MEETING

(5) The EGM is expected to last for half a day. Shareholders and their proxies who attend the EGM shall be responsible for their own travelling and accommodation expenses.

Principal office address of the Company: TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC.

Postal code: 300381

Telephone No.: (8622) 2393 0128

Facsimile No.: (8622) 2393 0126

— 33 —

GENERAL INFORMATION

APPENDIX I

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with respect 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 will make any statement herein misleading.

EXPERT

(a) The following is the qualification of the expert who has given its opinion or advice which are contained in this circular:

Name Qualification Baron a licensed corporation to carry out type 1 and 6 regulated activities (dealing in securities and advising on corporate finance) under the SFO

(b) As at the Latest Practicable Date, Baron does not have any shareholding in any member of the Group, nor does it have any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(c) Baron has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name and letter in the form and context in which it appears.
(d) The letter and recommendation given by Baron are given as of the date of this circular for incorporation herein.
(e) As at the Latest Practicable Date, Baron has, or has had no direct or indirect interest in any assets which have been acquired or disposed of by, or leased to, any member of the Group or are proposed to be acquired or disposed of by, or leased to, any member of the Group since 31 December 2005, the date to which the latest published audited financial statement of the Group was made up.

— 34 —

GENERAL INFORMATION

APPENDIX I

DISCLOSURE OF INTERESTS

Directors’ Interests

As at the Latest Practicable Date, save as disclosed below, none of the Directors, supervisors and chief executives of the Company and their associates had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange:

				Approximate
				percentage in the
				issued share
	The Company/			capital of the
	name of		Number and	Company/
	associated		class of	associated
Name	corporation	Capacity	securities	corporations
			(Note)
Director	The Company	Beneficial owner	6,850	0.00051%
Wang Zhangying			A Shares (L)
Supervisor	The Company	Beneficial owner	959	0.000072%
Nie Youzhuang			A Shares (L)

Note: The letter “L” represents the person’s long position in the Shares.

As at the Latest Practicable Date, none of the Directors, supervisors or chief executives of the Company or their spouses or children under 18 years of age were granted or had exercised any right to subscribe for any equity or debt securities of the Company or any of its associated corporations (within the meaning of Part XV of the SFO).

As at the Latest Practicable Date, so far as known to the Directors, supervisors or chief executives of the Company, Ms. Ma Baiyu, the chairman and executive Director of the Company, is also the chairman of TMICL, being the controlling shareholder and holding company of the Company, and Mr. An Pindong, the executive Director of the Company, is also the general manager of TMICL. Save as disclosed above, none of the Directors or proposed Directors is a director or employee of a company which had any interests or short positions in any shares and underlying shares (including options) of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO.

— 35 —

GENERAL INFORMATION

APPENDIX I

None of the Directors or supervisor of the Company has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2005, the date to which the latest published audited financial statement of the Group was made up.

None of the Directors or supervisor of the Company or Baron is materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries which are the contract or arrangement subsisting at the Latest Practicable Date and which is significant in relation to the business of the Group taken as a whole.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company and their respective associates have interests in a business, apart from the business of the Group, which competes or is likely to compete, either directly or indirectly, with the business of the Group.

Substantial Shareholders’ Interests

(a) As at the Latest Practicable Date, so far as is known to, or can be ascertained after reasonable enquiries by, the Directors, supervisors or chief executives of the Company, the following entities (other than a Director, supervisor or chief executive of the Company) had an interest or short position in the shares or underlying shares (including options) of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO:

				Approximate
			Approximate	percentage
			percentage in	in the total
		Number and	the relevant	issued share
		class of	class of	capital of the
Name of Shareholder	Capacity	securities	securities	Company
		(Note 1)
TMICL	Beneficial Owner	797,152,609	80.47%	59.91%
		A Shares (L)
ISIS Asset Management Plc.	Investment Manager	17,286,000	5.08%	1.30%
		H Shares (L)
HSBC Asset Management	Investment Manager	20,000,000	5.88%	1.50%
(Hong Kong) Limited		H Shares (L)

Note: The letter “L” represents the person’s long position in the Shares.

— 36 —

APPENDIX I

GENERAL INFORMATION

(b) As at the Latest Practicable Date, so far as is known to, or can be ascertained after reasonable enquiries by the Directors, supervisors or chief executives of the Company, the following entities (other than a Director, supervisor or chief executive of the Company) were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any members of the Group:

		Approximate
		percentage
		of equity
Name of entity	Name of member of the Group	interests held
Tianjin Sewage Engineering Company	Tianjin Capital New Materials	18.67%
	Company Limited
Tianjin Senyuan Technology	Tianjin Capital New Materials	10.66%
Development Company Limited	Company Limited
Xianhe Sewage Water Treatment Plant	Baoying Capital Water Company	30%
	Limited
HCPO	Project Company	30%

(c) Save as disclosed above, there is no other person (other than a Director, supervisor or chief executive of the Company) so far as is known to the Directors, supervisors or chief executives of the Company who, as at the Latest Practicable Date, had an interest or short position in the shares or underlying shares (including options) of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO, or, had, directly or indirectly, interested in 10% or more of nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any members of the Group.

SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date are as follows:

	Number of
	Shares	RMB
Authorised:
ordinary Shares of RMB1 each	1,330,665,242	1,330,665,242
Issued and fully paid:
domestic Shares of RMB1 each	990,665,242	990,665,242
H Shares of RMB1 each	340,000,000	340,000,000

— 37 —

GENERAL INFORMATION

APPENDIX I

SERVICE CONTRACTS OF THE DIRECTORS AND THE SUPERVISORS

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had entered into or was proposing to enter into a service contract with the Company or any of its subsidiaries (excluding contracts expiring or determinable by the Company within one year without payment of compensation other than statutory compensation).

LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or arbitration or claim of material importance is known to the Directors to be pending or threatened by or against the Company.

MATERIAL CHANGES

The Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31 December 2005, the date to which the latest published audited financial statements of the Group were made up.

GENERAL

(a) The Company secretaries of the Company are Ms. Fu Yana and Mr. Kwan Man Fai. Mr. Kwan is a solicitor practising in Hong Kong.
(b) The Stock Exchange has granted a waiver in relation to the appointment of the qualified accountant for the period from 1 July 2006 to 31 December 2006, and during such period, the Company has arranged Ms. Chen Yinxing to assume the position of the qualified accountant of the Company, and arrange Mr. Ip Pui Sum, a certified public accountant recognized by the Hong Kong Institute of Certified Public Accountants, as the Company’s financial consultant, to provide assistance to Ms. Chen.
(c) The registered office address of the Company is at No.45, Guizhou Road, Heping District, Tianjin, the PRC and the head office address of the Company is at TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC.
(d) The H Share transfer office of the Company in Hong Kong is Hong Kong Registrars Limited at 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(e) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copy of the Guarantee is available for inspection during normal business hours up to and including 19 December 2006 at the offices of Li & Partners, at 22nd Floor, World Wide House, Central, Hong Kong and at the EGM.

— 38 —

AI assistant

Rego Interactive Co., Ltd — Proxy Solicitation & Information Statement 2006

50588_rns_2006-12-05_da46743a-3ef9-45d1-9130-fb95107dfe51.pdf

(Stock Code: 1065)

DISCLOSEABLE TRANSACTION IN RESPECT OF THE HANGZHOU QIGE SEWAGE WATER TREATMENT PLANT AND CONNECTED TRANSACTION IN RESPECT OF THE GUARANTEE PROVIDED BY THE COMPANY AND SUPPLEMENTAL NOTICE OF THE EGM

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(Stock Code: 1065)

DISCLOSEABLE TRANSACTION IN RESPECT OF THE HANGZHOU QIGE SEWAGE WATER TREATMENT PLANT AND CONNECTED TRANSACTION IN RESPECT OF THE GUARANTEE PROVIDED BY THE COMPANY AND SUPPLEMENTAL NOTICE OF THE EGM

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

ASSETS TRANSFER AGREEMENT, SEWAGE WATER PROCESSING AGREEMENT, LICENSED OPERATION AGREEMENT AND DELEGATION AND OPERATING AGREEMENT

Particulars of Assets Transfer Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Particulars of Sewage Water Processing Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Particulars of Licensed Operation Agreement

LETTER FROM THE BOARD

Particulars of Delegation and Operating Agreement

LETTER FROM THE BOARD

Reasons for entering into the Assets Transfer Agreement, the Sewage Water Processing Agreement, the Licensed Operation Agreement and the Delegation and Operating Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

DISCLOSEABLE TRANSACTION

GUARANTEE

LETTER FROM THE BOARD

Reasons for the provision of the Guarantee

LETTER FROM THE BOARD

CONNECTED TRANSACTION

INFORMATION OF THE GROUP, HCPO AND THE PROJECT COMPANY

LETTER FROM THE BOARD

INFORMATION OF THE HANGZHOU QIGE SEWAGE WATER TREATMENT PLANT

RECOMMENDATIONS

EGM

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

(Stock Code: 1065)

CONNECTED TRANSACTION IN RESPECT OF THE GUARANTEE PROVIDED BY THE COMPANY

Yours faithfully, Independent Board Committee

Mr. Ko Poming

LETTER FROM BARON

CONNECTED TRANSACTION IN RESPECT OF THE GUARANTEE PROVIDED BY THE COMPANY

INTRODUCTION

LETTER FROM BARON

BASIS OF OUR ADVICE

A. Background of and reasons for provision of the Guarantee

LETTER FROM BARON

2. Background of the provision of the Guarantee

3. Reasons for the provision of the Guarantee

LETTER FROM BARON

LETTER FROM BARON

B. Terms of the Guarantee

C. Control by the Group over the operation and management of the Project Company

LETTER FROM BARON

D. Financial effects to the Group

LETTER FROM BARON

E. Recommendation

(Stock Code: 1065)

SUPPLEMENTAL NOTICE OF THE EXTRAORDINARY GENERAL MEETING

SUPPLEMENTAL NOTICE OF THE EXTRAORDINARY GENERAL MEETING

Notes:

RESPONSIBILITY STATEMENT

EXPERT

DISCLOSURE OF INTERESTS

Directors’ Interests

APPENDIX I

Substantial Shareholders’ Interests

GENERAL INFORMATION

SHARE CAPITAL

SERVICE CONTRACTS OF THE DIRECTORS AND THE SUPERVISORS

LITIGATION

Rego Interactive Co., Ltd Proxy Solicitation & Information Statement 2006