Rego Interactive Co., Ltd — Proxy Solicitation & Information Statement 2010

Nov 24, 2010

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, registered institution 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 Group Company Limited (the “Company”) , you should at once hand this circular with the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer, registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim 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)

MAJOR TRANSACTION - ACQUISITION OF SEWAGE WATER TREATMENT PLANTS’ ASSETS AND

PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION OF THE COMPANY

A notice of 2010 first extraordinary general meeting of the Company (the “EGM”) to be convened and held at 10:00 a.m. on 28 December 2010 at the conference room of the Company on 5/F, TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the People’s Republic of China (the “PRC”) is set out on pages 63 to 64 of this circular. Whether or not you intend to attend the EGM, you are requested to complete and return the accompanying form of proxy 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 and in any event not less than 24 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

25 November 2010

CONTENTS

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
**Letter from the **	Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Appendix I	- Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Appendix II	- Valuation Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix III	- General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
Notice of EGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	63

— i —

DEFINITIONS

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

• “Acceptance Date”

• 27 December 2007, being the date when the Company completed the acceptance test of the Transferred Assets

• “Acquisition”

the acquisition of Transferred Assets by the Company

• “Announcement”

the announcement of the Company dated 9 November 2010

• “Articles of Association”

the articles of association of the Company

• “Asian Loan Agreement”

• the loan agreement by Asian Development Bank to finance the assets in 北倉污水處理廠 (Beicang Sewage Water Treatment Plant[#] )

• “Asset Transfer Agreement”

the asset transfer agreement in respect of the acquisition of the Transferred Assets entered into between the Company and the Vendor on 9 November 2010

• “associates”

• has the meaning ascribed thereto under the Hong Kong Listing Rules

• “A Shares”

Renminbi-denominated domestic shares of nominal value of RMB1.00 each in the ordinary share capital of the Company

• “Board”

the board of Directors

• “Business Day(s)”

• a day on which licensed banks in the PRC are open for normal banking business throughout their normal business hours (excluding Saturdays and Sundays)

• “Company” or “Purchaser”

Tianjin Capital Environmental Protection Group 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

• “Completion”

completion of the acquisition of Transferred Assets

• “connected person(s)”

• has the meaning ascribed thereto under the Hong Kong Listing Rules

• “Co-operation Agreement”

the co-operation agreement entered into between the Company and the Vendor on 25 August 2003 concerning the possible acquisition of the Transferred Assets

“Directors”

the directors of the Company, including the independent non-executive directors

— 1 —

DEFINITIONS

“EGM” the 2010 first extraordinary general meeting of the Company to be convened and held at 10:00 a.m. on 28 December 2010 for the Shareholders to consider and, if thought fit, approve the Asset Transfer Agreement and the transaction(s) contemplated thereunder, and the amendment to the Articles of Association “Group” the Company and its subsidiaries “Hong Kong” The Hong Kong Special Administrative Region of the PRC “Hong Kong Listing Rules” the Rules Governing the Listing of Securities on the Main Board of the Stock Exchange “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 “Japan Loan Agreement” the loan agreement by Japan Bank for International Cooperation to finance the assets in 咸陽路污水處理廠 (Xianyanglu Sewage Water Treatment Plant[#] ) and 紀莊子污水處理廠 (Jizhuangzi Sewage Water Treatment Plant[#] ) “Latest Practicable Date” 22 November 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information containing herein “Mr. Tan” Mr. Tan Zhaofu “PRC” The People’s Republic of China, which for the purpose of this circular, shall exclude Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan “Sewage Water Treatment Plants” 紀莊子污水處理廠 (Jizhuangzi Sewage Water Treatment Plant[#] ), 咸陽路污水處理廠 (Xianyanglu Sewage Water Treatment Plant[#] ) and 北倉污水處理廠 (Beicang Sewage Water Treatment Plant[#] )

“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Shanghai Listing Rules” the Shanghai Stock Exchange Share Listing Rules

“Share(s)” ordinary share(s) of RMB1.00 each in the existing share capital of the Company “Shareholder(s)” holder(s) of Shares

— 2 —

DEFINITIONS

“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Transferred Assets”	(i) the assets which are financed by Japan Bank for
	International Cooperation in 咸陽路污水處理廠(Xianyanglu
	Sewage Water Treatment Plant#) and 紀莊子污水處理廠
	(Jizhuangzi Sewage Water Treatment Plant#); and (ii) the
	assets which are financed by Asian Development Bank in
	北倉污水處理廠(Beicang Sewage Water Treatment Plant#)
“TSC” or “Vendor”	天津市排水公司(Tianjin Sewage Company#), an indirect
	wholly-owned subsidiary of the Tianjin People’s Government
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“%”	per cent.

# English translation for reference only.

Note: For the purposes of this circular, foreign currency amounts have been converted into Hong Kong dollars using an exchange rate of RMB1 = HK$1.1667.

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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:

Mr. Zhang Wenhui (Chairman) Mr. Lin Wenbo Ms. Fu Yana Ms. Zhong Huifang

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

Non-executive Directors: Mr. An Pindong Ms. Chen Yinxing

Independent non-executive Directors: Mr. Xie Rong Mr. Di Xiaofeng Ms. Lee Kit Ying, Karen

25 November 2010

To the Shareholders,

Dear Sir or Madam,

MAJOR TRANSACTION - ACQUISITION OF SEWAGE WATER TREATMENT PLANTS’ ASSETS AND

PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION OF THE COMPANY

INTRODUCTION

In the Announcement, the Board announced that on 9 November 2010 (after trading hours), the Company (as the Purchaser) entered into the Asset Transfer Agreement with TSC (as the Vendor), pursuant to which the Company has agreed to acquire certain Transferred Assets from TSC. The consideration for the Acquisition is the sum of (i) the deposit of RMB261,578,056.76 (equivalent to approximately HK$305,183,000) and (ii) the outstanding amount of the principal loan and its accrued interest under the Asian Loan Agreement and the Japan Loan Agreement (after the Asset Transfer Agreement is taking effect).

— 4 —

LETTER FROM THE BOARD

As the consideration ratio under the Asset Transfer Agreement is more than 25% but less than 100%, the entering into of the Asset Transfer Agreement constitutes a major transaction of the Company under Chapter 14 of the Hong Kong Listing Rules and is subject to announcement and Shareholders’ approval at the EGM.

In the Announcement, the Company also proposed to amend paragraph 2 of Article 12 of the Articles of Association.

The purpose of this circular is to provide you with further information regarding, among other things, the Acquisition and the amendment to the Articles of Association.

THE ACQUISITION

The Asset Transfer Agreement

The following is a brief summary of some of the principal terms of the Asset Transfer Agreement:

Date: 9 November 2010

Parties: Vendor: TSC Purchaser: The Company

According to the Hong Kong Listing Rules and to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, TSC and its ultimate beneficial owner(s) are third parties independent of the Company and connected persons of the Company.

Transferred Assets to be acquired

The scope of the Transferred Assets are (i) the assets in 咸陽路污水處理廠 (Xianyanglu Sewage Water Treatment Plant[#] ) and 紀莊子污水處理廠 (Jizhuangzi Sewage Water Treatment Plant[#] ), which are financed by Japan Bank for International Cooperation (“ JBIC ”) under the Japan Loan Agreement; and (ii) the assets in 北倉污水處理廠 (Beicang Sewage Water Treatment Plant[#] ), which are financed by Asian Development Bank (“ ADB ”) under the Asian Loan Agreement. The Transferred Assets include machineries and equipment which are currently used by the Company’s Sewage Water Treatment Plants, such as effluent pumping stations, storm pumping stations, transformer substations, coarse bar screens, fine bar screens, digesters, boiler rooms, chlorine contact tanks, sedimentation pools, pipes, wells and other equipment for using in sewage and sludge treatment. The Transferred Assets form parts of the water treatment lines in the Company’s Sewage Water Treatment Plants and must be combined with other machineries and equipment in the plants in order to generate sewage output. They are beneficially owned by the Vendor but are currently managed and operated at no cost by the Company. Further information on the Transferred Assets is set out in the paragraph headed ‘‘Reasons for the Acquisition’’ below.

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LETTER FROM THE BOARD

Consideration for the Acquisition

The consideration for the Acquisition is the sum of (i) the deposit of RMB261,578,056.76 (equivalent to approximately HK$305,183,000) (the “ Deposit ”) and (ii) the outstanding amount of the principal loan and its accrued interest under the Asian Loan Agreement and the Japan Loan Agreement (after the Asset Transfer Agreement is taking effect) (the “ Repayment Amount ”). The consideration for the Acquisition will be settled by the Company out of its internal resources in the following manner:

• a) The Deposit of RMB261,578,056.76 (equivalent to approximately HK$305,183,000) shall be paid by cash within 5 Business Days after the Asset Transfer Agreement is taking effect; and

• b) The Repayment Amount shall be paid by cash to the Vendor in accordance with the repayment schedule of the Asian Loan Agreement and the Japan Loan Agreement before the repayment dates.

As the loans under the Japan Loan Agreement (the “ JBIC Loan ”) and the Asian Loan Agreement (the “ ADB Loan ”) shall be repaid in Japanese Yen and US Dollars respectively and the interest payable for the ADB Loan shall be calculated at 6 months LIBOR, the Directors are of the view that the exact repayment amount for each installment in the future is uncertain and the Company shall bear the risks of interest rate and exchange rate.

By using the exchange rates of US 1 Dollar against RMB6.6830, 100 Japanese Yen against RMB8.1040 and 6 months LIBOR of 0.4587% on 8 October 2010 (for reference only), the Repayment Amount (in accordance with the repayment schedule of the Asian Loan Agreement and the Japan Loan Agreement) shall be approximately RMB834,200,000 (equivalent to approximately HK$973,261,000). Pursuant to the repayment schedule of the above loan agreements, the Repayment Amount shall be repaid in 91 installments for 31 years. Based on the discount rate of 5.94% (being the medium to long term benchmark lending rate for 5 years or above announced by the People’s Bank of China as at 8 October 2010), the net present value for the Repayment Amount (91 installments) shall be approximately RMB430,300,000 (equivalent to approximately HK$502,031,000). Together with the Deposit of RMB261,578,056.76 (equivalent to approximately HK$305,183,000), the present value of the consideration for the Acquisition is RMB691,878,056.76 (equivalent to approximately HK$807,214,000) which is equivalent to the book value of the Transferred Assets as at 27 December 2007 (being the Acceptance Date). The present value of the consideration for the Acquisition represents a premium of approximately 0.4% over the appraised value of the Transferred Assets of approximately RMB689.10 million (equivalent to approximately HK$803,973,000) valued by 北京中 企華資產評估有限責任公司 (Beijing China Enterprise Appraisals Company Limited[#] ) (“ China Enterprise ”), an independent PRC valuer.

In view of the uncertainty on the exact repayment amount for each installment in the future and the risks of interest rate and exchange rate, the Group will rely on its internal control and risk management systems and will further enhance its risk control capability, for example, monitoring financial ratios of the Group. The finance department of the Group will monitor and analyze the above risks cautiously and will implement all control measures.

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LETTER FROM THE BOARD

Basis of determination of the consideration for the Acquisition

The consideration for the Acquisition was determined after arm’s length negotiations between the Company and the Vendor after taking into account of (i) the terms of the Co-operation Agreement; (ii) the book value of the Transferred Assets as at the Acceptance Date; and (iii) the appraised value of the Transferred Assets of approximately RMB689.10 million (equivalent to approximately HK$803,973,000) as stated in the valuation reports issued by China Enterprise, an independent PRC valuer, on 28 April 2010. The Directors are of the view that the consideration for the Acquisition is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Conditions precedent

The Asset Transfer Agreement shall take effect upon the following conditions having been fulfilled:

1. The passing of resolution(s) to approve the Asset Transfer Agreement and the Acquisition at the Shareholders’ meeting of the Company; and

2. The Asset Transfer Agreement and the Acquisition having been duly approved by the relevant PRC government authorities, and the relevant regulatory authorities and superior organisation of the Vendor.

If the above conditions are not satisfied or fulfilled on or before 31 December 2010 (or such later date to be agreed by the parties to the Asset Transfer Agreement in writing), the Asset Transfer Agreement shall lapse and neither party shall be bound to proceed with the Acquisition and the outstanding obligation under the Asset Transfer Agreement shall cease to be of any effect save and except for the existing rights and obligations of the parties.

Completion

Completion of the Acquisition shall take place within 5 Business Days after all the above conditions precedent are fulfilled by the Company and/or the Vendor. The Transferred Assets shall be beneficially owned by the Company upon Completion.

REASONS FOR THE ACQUISITION

The Company and its subsidiaries are principally engaged in the management and operation of sewage water treatment plants. The Sewage Water Treatment Plants, i.e. 紀莊子污水處理廠 (Jizhuangzi Sewage Water Treatment Plant[#] ), 咸陽路污水處理廠 (Xianyanglu Sewage Water Treatment Plant[#] ) and 北倉污水處理廠 (Beicang Sewage Water Treatment Plant[#] ), are the major assets of the Company.

— 7 —

LETTER FROM THE BOARD

Prior to the Acquisition, TSC has obtained the ADB Loan and JBIC Loan according to the Asian Loan Agreement and Japan Loan Agreement respectively to finance the reconstruction and expansion project of 紀莊子污水處理廠 (Jizhuangzi Sewage Water Treatment Plant[#] ), the construction project of 咸陽路污水處理廠 (Xianyanglu Sewage Water Treatment Plant[#] ) and 北倉污水處理廠 (Beicang Sewage Water Treatment Plant[#] ) (the “ Sewage Water Treatment Plant Projects ”). TSC will continue to be the borrower under the Asian Loan Agreement and the Japan Loan Agreement and will repay to the above banks after the Acquisition. With a view to smoothing out the operation of the Sewage Water Treatment Plant Projects after the expansion/construction period and preserve the integrity of the said Sewage Water Treatment Plants, the Company entered into the Cooperation Agreement with TSC in 2003 and both parties have agreed that the Transferred Assets would be transferred to the Company (after the Transferred Assets being successfully tested and installed) at a consideration which would be determined in accordance with the book value of the Transferred Assets at the time of transfer (subject to the approval by the Shareholders).

According to the Co-operation Agreement, the Transferred Assets form parts of the sewage system in the Sewage Water Treatment Plants and are beneficially owned by the Vendor. The Transferred Assets must be combined with other machineries and equipments in the Sewage Water Treatment Plants in order to process sewage water and could not stand alone to generate revenue. Accordingly, the Directors consider that the assets base of the Group will be enhanced after the Acquisition and the Acquisition helps to preserve the integrity of the assets in the Sewage Water Treatment Plants. After considering the above factors, the Directors consider that the Acquisition and the terms of the Asset Transfer Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

FINANCIAL EFFECT OF THE ACQUISITION

Immediately upon Completion of the Acquisition, the fixed assets and long-term liabilities of the Company will increase. Since the Transferred Assets must be combined with other machineries and equipments in the Sewage Water Treatment Plants to process sewage water and they could not stand alone to generate revenue, the Acquisition will not generate additional income for the Company. However, the depreciation and finance costs of the Company will increase which will affect the revenue of the Sewage Water Treatment Plants. Nevertheless, the Directors are of the view that the above factors will not adversely affect the normal operation of the Company.

INFORMATION ON TSC

The Vendor is a PRC state-owned enterprise and owned by 天津市水務局 (Tianjin Water Bureau[#] , “ TWB ”) and its principal activities are the provision of maintenance, operation, development and construction of rain water pipes, pumping stations, drainage facilities, sewage treatment plants and providing drainage technical advisory services. As at the Latest Practicable Date, TWB is owned by the Tianjin People’s Government and is a third party independent of the Company.

— 8 —

LETTER FROM THE BOARD

GENERAL

As the consideration ratio under the Asset Transfer Agreement is more than 25% but less than 100%, the entering into of the Asset Transfer Agreement constitutes a major transaction of the Company under Chapter 14 of the Hong Kong Listing Rules and is subject to announcement and Shareholders’ approval at the EGM.

Mr. Tan, who had retired from the position of an executive Director on 18 December 2009, is currently a legal representative and general manager of TSC. Pursuant to the Shanghai Listing Rules, as Mr. Tan has been serving in the capacity as an executive Director within the preceding 12 months, Mr. Tan and TSC are deemed as person/party connected to the Company. Accordingly, the Acquisition constitutes a connected transaction under the Shanghai Listing Rules. However, pursuant to the Hong Kong Listing Rules, TSC is not an associate of Mr. Tan since Mr. Tan does not have absolute control over TSC nor have any interest in the Acquisition, hence TSC would not be deemed as a connected person of the Company and the Acquisition does not constitute a connected transaction.

As no Shareholder has an interest in the Acquisition, no Shareholder is required to abstain from voting on the resolution(s) to be proposed at the EGM to approve the Asset Transfer Agreement and the transactions contemplated thereunder.

PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION

In order to ensure rapid, continuous and healthy development of the Company, and gradually nurture its own professional capabilities in the areas of consultation, design, construction, equipment and technical services, etc. and continuously improve the industry chain segments, the Company proposed to amend paragraph 2 of Article 12 of the Articles of Association for the Shareholders’ consideration and approval at the EGM.

The original paragraph 2 of Article 12 of the Articles of Association is as follows:

“The scope of business of the Company are the construction, design, management, operation, technical consultation and auxiliary services of sewage water treatment facilities; construction, design, toll-collection, repair and maintenance, management, operation, technical consultation and auxiliary services of Southeastern Half Ring Urban Road of the Middle Ring of Tianjin City, Tianjin City Indebted Road Construction for Vehicle-passage Toll Collection Office and their related auxiliary facilities and the development and operation of environmental protection technology and products.”

The original paragraph 2 of Article 12 of the Articles of Association is proposed to be deleted and substituted by:

“The scope of business of the Company: investment, construction, design, management, operation, technological consultation and auxiliary services of sewage water and tap water and other water treatment facilities; design, construction, management, building and operation management of municipal infrastructural facilities; licensed operation, technological consultation and auxiliary services of the Southeastern Half Ring Urban Road of the Middle Ring of Tianjin City; development and operation of environmental protection technologies and environmental protection products and equipment; leasing of self-owned housing, etc.”

— 9 —

LETTER FROM THE BOARD

Please note that the above English version of the Articles of Association is an unofficial translation of its Chinese version. In case of any discrepancy between the two versions, the Chinese version shall prevail.

EGM

The EGM will be held at 10:00 a.m. on 28 December 2010 at the conference room of the Company on 5/F, TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC. The notice of the EGM is set out on pages 63 to 64 to this circular. The purpose of the EGM is for the Shareholders to consider and, if thought fit, approve the resolutions in respect of, among other things, the Asset Transfer Agreement and the transaction(s) contemplated thereunder, and the amendment to the Articles of Association. At the EGM, voting of the Shareholders will be conducted by way of poll.

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

RECOMMENDATION

The Directors consider that the terms of the Asset Transfer Agreement and the transactions contemplated thereunder are fair and reasonable, and the Acquisition and the amendment to the Articles of Association are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend all Shareholders to vote in favour of the resolutions to be proposed at the EGM.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular and the notice of EGM.

By order of the Board of TIANJIN CAPITAL ENVIRONMENTAL PROTECTION GROUP COMPANY LIMITED Zhang Wenhui Chairman

Tianjin, the PRC

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. THREE-YEAR FINANCIAL INFORMATION AND THE SIX MONTHS ENDED 30 JUNE 2010 OF THE GROUP

Financial information with respect to the profits and losses, financial record and position (under Hong Kong Financial Reporting Standards), set out in the comparative table and the latest published audited consolidated balance sheet together with the notes on the annual accounts of the Group for each of the three years ended 31 December 2007, 2008 and 2009 are disclosed in pages 218 to 291 of annual report 2007, pages 211 to 287 of annual report 2008 and 144 to 199 of annual report 2009 of the Company respectively, which are published on both the website of IFN Financial Press (www.ifn.com.hk/IR/company.php?ref=6) and the website of the Stock Exchange (www.hkex.com.hk).

Financial information with respect to the unaudited profits and losses and the unaudited balance sheet together with the notes on the interim accounts of the Group for the six months ended 30 June 2010 are disclosed in pages 32 to 51 of the interim report 2010 of the Company, which are published on both the website of IFN Financial Press (www.ifn.com.hk/IR/company.php?ref=6) and the website of the Stock Exchange (www.hkex.com.hk).

B. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Sewage water treatment and sewage water treatment plant construction business

The upgrading and reconstruction projects of the Group’s sewage water treatment plants implemented smoothly as scheduled with the sewage water treatment plants meeting their operation targets. For the six months ended 30 June 2010, the Group processed a total of 385 million cubic metres of sewage water, an increase of 5.45% as compared to the corresponding period in 2009. It is because Chibi and Angui sewage water treatment plants had started its operations in May and April in 2009 respectively. During the first half year in 2010, the Group had won the bid for Tianjin’s Ninghe Modern Industrial Park sewage water treatment plant Build-Operate-Transfer (BOT) project. The scale of this project is almost 20,000 cubic metres per day and the Company has registered a project company for this project. For the six months ended 30 June 2010, the Group recorded the operating revenue from this segment of approximately RMB585.43 million and the gross profit of RMB269.05 million.

Recycled water pipeline connection and water supply business

Due to the addition of a new power plant user, the water sewage sales volume of the Group’s recycled water production and sales business increased by approximately 322.25% to 5.3744 million cubic metres for the six months ended 30 June 2010 as compared to the corresponding period last year. For the six months ended 30 June 2010, the Group recorded the operating revenue from this segment of approximately RMB21.55 million and the gross profit of approximately RMB4.21 million.

— 11 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Tap water supply business

During the six months ended 30 June 2010, the water sales volume of the tap water supply business of the Group was 17.83 million cubic metres, representing an increase of 5.32% as compared to the corresponding period last year, which was mainly due to an increase in water volume of 1.3 million cubic metres as a result of the commercial operations of the new Angui Tap Water Plant, despite a slight decline in the tap water volume from Qujing Capital Water Co. Ltd. due to the continuous dry spell in the southwestern region. For the six months ended 30 June 2010, the Group recorded the operating revenue from this segment of approximately RMB17.55 million and the gross profit of approximately RMB4.74 million.

Toll road collection business

Although the Tianjin City Indebted Road has ceased to collect the passage toll with effect from 1 January 2010 and the 6 toll stations in which the Group owned passage toll collection rights also ceased to collect passage toll at the same time. According to the spirit of the 津政辦[2010]51號文《關於成品油價格和稅費改革及取消政府還貸二級公路收費的實施意見》 (Opinions on the Implementation of Oil Prices and Tax Expenses Reforms and the Cancellation of Toll Collection on Government Indebted Tier 2 Roads (Jin Zheng Ban [2010] No. 51 Document)) dated 19 May 2010, the Company can still recognize revenue from road toll operations during the reporting period according to the amount specified in the 委託收費協議 (Subcontracting Toll Collection Agreement). The Group recognize revenue from this segment of RMB33.51 million during the six months ended 30 June 2010. For the six months ended 30 June 2010, the Group recorded the operating revenue from this segment of approximately RMB33.51 million and the gross profit of approximately RMB29.95 million.

According to the 2009 annual report of the Company, one of the three major trends is the integration of enterprises in the aspects of investment, operation, technology integration and water works project. Given that the Sewage Water Treatment Plants are the major assets of the Company, the Directors consider that the assets of the Group will be enhanced after the Acquisition and the Acquisition helps to preserve the integrity of the assets in the Sewage Water Treatment Plants. In the coming years, the Group will continue to purify the water environment for the daily living of the human rice, uphold its organizational mission of raising water quality, apply great efforts in achieving fast growth on the basis of capability enhancement and value creation and enhance the Shareholders’ value in the long run.

— 12 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. INDEBTEDNESS

Borrowings

As at the close of business on 30 September 2010, being the latest practicable date for the purpose of the statement of indebtedness, the Group had the following borrowings:

Unsecured Secured Guaranteed Non- guaranteed RMB’000 RMB’000 RMB’000 Long-term bank borrowings 148,000 1,208,243 977,000 Long-term liabilities — — 147,173 Current portion of long-term bank borrowings 14,000 194,967 100,000 Short-term debenture — — 600,000 Current portion of long-term liabilities — — 19,803 Other current liabilities — — 1,622 162,000 1,403,210 1,845,598	Total RMB’000 2,333,243 147,173 308,967 600,000 19,803 1,622
	3,410,808

The secured bank borrowings of RMB162,000,000 is pledged by the Group’s right to receive tap water and sewage processing fees.

The guaranteed bank borrowings of RMB1,403,210,000 include:

• i. RMB50,000,000 secured by TSC’s right to receive sewage water processing fees;

• ii. RMB489,000,000 and RMB33,000,000 guaranteed by Tianjin City Infrastructure Construction and Investment Group Limited and Tianjin Municipal Investment Company Limited respectively; and

• iii. RMB831,210,000 guaranteed by the Company for its subsidiaries.

— 13 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Material capital commitments

As at the close of business on 30 September 2010, the Group had the following material capital commitments:

Capital commitments - Construction projects	RMB’000
Contracted but not provided for	428,722
Authorised but not contracted for	509,048
Total capital commitments	937,770

General

Save as disclosed above and apart from intra-group liabilities, the Group did not, as at the close of business on 30 September 2010, have (a) any other debt securities issued and outstanding, and authorized or otherwise created but unissued; (b) other term loans; (c) any other borrowings or indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments; (d) any other debentures, mortgages or charges; or (e) any guarantees or material contingent liabilities.

D. WORKING CAPITAL

Taking into account of the expected completion of the Acquisition and the financial resources available to the Group, including the internally generated funds and the available banking facilities, the Directors are of the opinion that, after due and careful enquiry, the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular, in the absence of any unforeseeable circumstances.

E. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2009 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

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VALUATION REPORTS

APPENDIX II

Assets Valuation Report

On

Proposed transfer of the assets of Tianjin Sewage Water Treatment Project from Tianjin Sewage Company, financed by the loan of Japan Bank for International Cooperation to Tianjin Capital Environmental Protection Group Co., Ltd.

Ref No: (2010) No. 201 (Volume 1 of 1)

Beijing China Enterprise Appraisal Co., Ltd. 28 April 2010

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VALUATION REPORTS

APPENDIX II

Assets Valuation Report

Table of Contents

Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Abstract of assets valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		18
Assets valuation report
I.	Introduction to the appointors, assets owner, and other report users . . . . . . . . . . . .	20
II.	Purpose of valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
III.	Object and scope of valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
IV.	Type of valuations and their definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
V.	Date of assets valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
VI.	Basis of valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
VII.	Valuation methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
VIII.	Implementation process and status of valuation . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
IX.	Basis of assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
X.	Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
XI.	Valuation analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
XII.	Special matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
XIII.	Restrictions on the usage of Assets Valuation Report . . . . . . . . . . . . . . . . . . . . . . .	36
XIV.	Date of valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36

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VALUATION REPORTS

APPENDIX II

DISCLAIMER

• I. Beijing China Enterprise Appraisal Co., Ltd. (“CEA”) carries out assets valuation based on the relevant laws and regulations and the standards of asset valuation on the principle of independence, objectiveness and justness. Based on the information collected in the course of our practice, statement in the valuation report is objective, and we assume corresponding legal responsibilities for the reasonableness on the conclusion of the valuation.

• II. Lists of appraised assets has been provided and declared by the appointors and assets owners with their signatures and seals. The appointors and related party shall be responsible for the authenticity, legality, and completeness of the provided data as well as the appropriate usage of the valuation report.

• III. We do not have or not expected to have any interests in the assets and we do not have or not expected to have any interests with any related parties.

• IV. We have carried out on-site investigation on the valuation object and related assets thereof that are mentioned in the valuation reports. We have verified the legal ownership of the valuation object and the assets thereof and faithfully disclosed any findings. We have also requested the appointors and related parties to fulfill their property ownership formalities so as to meet the requirements for issuing the report.

• V. Analysis, judgment, and conclusions in the valuation report issued by CEA are restricted by the assumptions and confining conditions that are iterated in the valuation report. Users of this report shall give due consideration to the assumptions, confining conditions, and explanations for specific issues stated in the valuation report as well as their impacts on the valuation’s conclusions.

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VALUATION REPORTS

APPENDIX II

ABSTRACT OF ASSETS VALUATION REPORT

On

Proposed transfer of the assets of

Tianjin Sewage Water Treatment Project from Tianjin Sewage Company, financed by the loan of Japan Bank for International Cooperation to Tianjin Capital Environmental Protection Group Co., Ltd.

Ref No: (2010) No. 201

In light of the 《關於同意日元貸款天津污水處理項目形成資產轉讓的函》 ( 建財外經 [2008] 80 號 ) (Letter of Approval for Transfer of assets of Tianjin Sewage Water Treatment Financed by the loan of Japan Bank for International Cooperation issued by Tianjin Finance Bureau (Ref No: [2008] No. 80)) and 《關於對排水公司轉讓利用外債資金形成的資產進行評估的批後》 ( 市政公務管理資產 [2009] 415 號 ) (Reply on valuation of the transfer of the assets of Tianjin Sewage Company financed by the loan of foreign capital issued by Tianjin Municipal Highway Administration (Ref No: [2009] No. 415)), Tianjin Sewage Company proposes to transfer the company assets of Tianjin sewage water treatment project financed by the Yen-loan to Tianjin Capital Environmental Protection Group Co., Ltd.. Therefore, Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd. have appointed Beijing China Enterprise Appraisal Co., Ltd. (“CEA”) to valuate the assets involved in the proposed transfer, so as to provide a value reference basis for the assets transfer.

Based on the national regulations regarding assets valuation and on the principle of being objective, independent and justified, members of CEA carried out on-site investigation, market research, enquiring of the certificates and all necessary valuation procedures.

Based on the purpose and target of the valuation, the type of value is the market value for this valuation.

The cost approach method was adopted for this valuation. Based on the above mentioned work carried out during valuation, the following conclusions are arrived at:

On the premise of going concern as at the reference date of 31 December 2009, the original book value and the net book value of the assets under valuation were RMB 482.0015 million and RMB 482.0015 million respectively before valuation; the original value and the net book value of the assets are RMB 534.2153 million and RMB 482.0015 million respectively after valuation; the original value increased by RMB 52.2138 million at an appreciation rate of 10.83%, while the net book value decreased by RMB 6.0965 million at a depreciation rate of 1.26%.

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VALUATION REPORTS

APPENDIX II

Summary of the detailed valuation is shown in the following table:

Summary of the valuation results

		Unit: RMB 10,000 Book Value Appraised Value Differences Rate (%) A B C=B-A D=C/A*100% 0.00 0.00 0.00 48,200.15 47,590.50 -609.65 -1.26 48,200.15 47,590.50 -609.65 -1.26 48,200.15 47,590.50 -609.65 -1.26
	Item
	Current assets 1
	Non-current assets 2
	Fixed assets 3
	Total assets 4

The conclusion of the appraisal is only valid for the proposed transfer of the assets of Tianjin Sewage Water Treatment Project financed by the loan of Japan Bank for International Cooperation to Tianjin Capital Environment Protection Group Co., Ltd.. The appraisal result remains effective for one year as from the appraisal reference date 31 December 2009 under the condition that no significant change will occur to the market conditions or asset conditions. It needs to be reappraised if exceed one year.

Users of the valuation report shall pay attention to the effect of specific matters on the conclusions.

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VALUATION REPORTS

APPENDIX II

ASSETS VALUATION REPORT

On

Proposed transfer of the assets of Tianjin Sewage Water Treatment project from Tianjin Sewage Company, Financed by the loan of Japan Bank for International Cooperation to Tianjin Capital Environmental Protection Group Co., Ltd.

Ref No: (2010) No. 201

Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd.

Beijing China Enterprise Appraisal Co., Ltd. was appointed by Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd. to value the market value of the assets involved in the proposed transfer of the assets of Tianjin sewage water treatment project financed by the loan of Japan Bank for International Cooperation to Tianjin Capital Environmental Protection Group Co., Ltd. as of 31 December 2009 using the cost approach, based on the relevant laws, regulations, and the rules and principles of assets valuation, assets evaluation principles. The valuation is performed and required valuation procedures. The assets valuation results are herein reported as follows:

I. Introduction to the appointors, assets owner, and other report users

Our clients are Tianjin Sewage Company, the assets owner involved in this valuation, and Tianjin Capital Environmental Protection Group Co., Ltd.

• (I) The first appointor and the assets owner

• Company name: Tianjin Sewage Company

• Registered address: No. 1, Nanjing Road, Hexi District

• Legal representative: Tan Zhaofu

• Registered capital: RMB 1,200 million

• Type of company: Wholly state-owned

• Date of incorporation: July 1999

• Business scope: maintenance, operation, development and construction of storm sewage and drainage pipeline, pump stations, river ways, drainage facilities, and sewage treatment plant; maintenance and installation of electrical equipment and drainage technology consultation.

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APPENDIX II

VALUATION REPORTS

1. Company profile: Tianjin Sewage Company is a state-owned enterprise with a registered capital of RMB1.2 billion. The principal activities are maintenance and management of sewage treatment plants, pipe network and pump stations, and other drainage facilities, collection of sewage treatment charges, operation and management of sewage treatment plants, and monitoring of water quality and quantity, as well as capital raising, development, construction, and operation of related construction projects. Articles of association and management system of Tianjin Sewage Company are complete and the management of Tianjin Sewage Company are experienced. The deployment of technical personnel is rational. Of the technicians, 60% have obtained senior or middle-level professional and are equipped with high-level management skills and technical competence.

2. (II) The second appointor:

3. Company name: Tianjin Capital Environmental Protection Group Co., Ltd.

4. Registered address: Capital Environmental Protection Building, No. 76, Weijin Road South, Nankai District, Tianjin

5. Legal representative: Zhang Wenhui

6. Registered capital: RMB1,427.23 million

7. Type of company: Joint stock limited company

8. Date of incorporation: 8 June 1993

9. Business scope: Construction, design, management, operation, technical consulting and supporting services of Tianjin Dongjiao Wastewater Treatment Plant, Tianjin Jizhuangzi Sewage Water Treatment Plant, Tianjin Beicang Sewage Water Treatment Plant, and Tianjin Xianyanglu Sewage Water Treatment Plant, auxillary facilities, Southern Half Ring Urban Road of the Middle Ring of Tianjin City, toll gates of roads, constructed utilizing loans, construction, design, management, operation, technical consulting, and supporting services of auxiliary facilities; development and operation of environmental protection technologies and environment-friendly products; management of the project of Haihe Bridge in southeast part of the Middle Ring Road in Tianjin.

10. Company profile: Tianjin Capital Environmental Protection Group Co., Ltd. (TCEPG) was the first Chinese sewage treatment company listed on the A share and H share markets (A-share stock code: 600874; H-share stock code: 1065). It is also a pioneer and leading enterprise in the field of environmental protection in China.

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APPENDIX II

VALUATION REPORTS

TCEPG is responsible for the operation of four sewage water treatment plants, namely, Jizhuangzi Sewage Water Treatment Plant, Xianyanglu Sewage Water Treatment Plant, Dongjiao Sewage Water Treatment Plant, and Beicang Sewage Water Treatment Plant in downtown Tianjin, the sewage water treatment capacity of which has totaled 1,490,000 m[3] /day. The centralized sewage water treatment rate in downtown Tianjin exceeds 80% as a result of these sewage water treatment plants. They have made great contributions to energy conservation and emission reduction in Tianjin.

TCEPG began to exploit markets in other provinces and municipalities in 2003. By the end of the year, it successfully acquired Xiaohe Sewage Water Treatment Plant in Guiyang. In 2004, TCEPG expanded its business to the water resources market in Chibi, Hubei Province. In 2005, it successfully developed the water resources markets in Qujing of Yunnan Province, Baoying of Jiangsu Province, Honghu of Hubei Province, and Fuyang of Anhui Province. TCEPG began to set foot in water supply business after its successful water supply project in Qujing, Yunnan Province. In 2006, TCEPG entered the water resources markets in Hangzhou, Zhejiang Province and Wendeng, Shandong Province. In 2007, it entered the water resources market in northwest China through a successful project in Xi’an. In 2008, it successfully expanded into the water resources market in Anguo, Hebei Province, and gradually established development areas in north China, central part of South China, Yunnan and Guizhou, Jiangsu and Zhejiang, and northwest China. Thus, TCEPG has established a new national market development pattern of promoting work in all areas by drawing on the experiences gained from key points.

(III) Other valuation report users

Apart from the appointors, other valuation report users include valuation report users that are specified under the national laws and regulations.

II. Purpose of valuation

In light of the 《關於同意日元貸款天津污水處理項目形成資產轉讓的函》 ( 建財外經 [2008] 80 號 ) (Letter of Approval for Transfer of assets of Tianjin Sewage Water Treatment Financed by the loan of Japan Bank for International Cooperation issued by Tianjin Finance Bureau (Ref No: [2008] No. 80)) and 《關於對排水公司轉讓利用外債資金形成的資產進行評估的批後》 ( 市政公務管理資產 [2009] 415 號 ) (Reply on valuation of the transfer of the assets of Tianjin Sewage Water Company financed by the loan of foreign capital issued by Tianjin Municipal Highway Administration (Ref No: [2009] No. 415)), Tianjin Sewage Company proposes to transfer the assets of Tianjin Sewage Water treatment project financed by the loan of Japan Bank of International Cooperation to Tianjin Capital Environmental Protection Group Co., Ltd.. Therefore, Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd. have appointed CEA to value the assets involved in the proposed transfer, so as to provide a value reference basis for the assets transfer.

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VALUATION REPORTS

APPENDIX II

III. Object and scope of valuation

The object of this valuation is the market value of the assets involved in the transfer.

The scope of valuation covers buildings, structures, and equipment involved in the proposed transfer, and it includes 6 buildings, 13 structures, 6 pipelines and trenches, and 1,057 pieces of equipment.

Based on the on-site checking and investigation, the land use rights where the buildings (structures) under valuation belong to Tianjin Capital Environmental Protection Group Co., Ltd. The preliminary valuation affairs was previously handled by Tianjin Sewage Company but these responsibilities have been transferred to Tianjin Capital Environmental Protection Group Co., Ltd.. Statements concerning this matters have been issued by relevant parties.

Book value of the assets under valuation before valuation is as follows:

	Unit: RMB 10,000 Item Book Value Current assets 1 0.00 Non-current assets 2 48,200.15 Fixed assets 3 48,200.15 Total assets 4 48,200.15

Based on the on-site checking and investigation, the appraised assets were in normal conditions as of the base date of the assets valuation.

Assets covered in this investigation are consistent with those assets for valuation appointed by the appointors.

IV. Type of valuations and their definition

According to the valuation purpose and specific conditions of the valuation object of this valuation, the type of value is the market value for this valuation.

Market value refers to the estimated value of the valuation object that undergoes normal and fair transaction between the buyer and seller, who act freely and rationally, without being forced by any coercion as of the base date of assets valuation.

V. Date of assets valuation

Date of this assets valuation was 31 December 2009.

All pricing standards adopted are based on the effective prices as at the date of valuation, and all assets were the subsistent assets as at the date of valuation.

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VALUATION REPORTS

APPENDIX II

This base date was closest to the time when the plan for evaluation of commercial dealings was realized and was determined by the Clients according to their work schedules.

VI. Basis of valuation

Laws and regulations of the nation, local government, and relevant departments that were abided by during the assets valuation are as follows:

(I) Valuation basis of commercial dealings

1. 《關於同意日元貸款天津污水處理項目形成資產的函》(建財外經[2008]80號) Letter of Approval of Transfer of the Company Assets of Tianjin Sewage Water Treatment Project Financed by the Yen-loan issued by Tianjin Finance Bureau (Ref No: [2008] No. 80));

2. 《關於對排水公司轉讓利用外債資金形成的資產進行評估的批復》(市政公務管理資產 [2009]415號) ( Reply issued by Tianjin Municipal Highway Administration on Evaluation of the Assets that are Built with Foreign Loans and are to be Transferred by the Drainage Company (Ref No: [2009] No.415));

(II) Laws and regulations basis

1. 《中華人民共和國公司法》2005年10月27日第十屆全國人民代表大會常務委員會第十 八次會議修訂 (Company Law of the People’s Republic of China revised at the 18th session of the Standing Committee of the 10th National People’s Congress on 27 October 2005);

2. 國務院1991年91號令《國有資產評估管理辦法》(Order No.91: Management Measures of State-Owned Asset Evaluation promulgated by the State Council in 1991);

3. 國務院2003年第378號令《企業國有資產監督管理暫行條例》 (Order No.378: Provisional Regulations on Supervision and Administration of State-owned Assets in the Enterprises promulgated by the State Council in 2003);

4. 國務院國資委、財政部第3號令《企業國有產權轉讓管理暫行辦法》 (Order No.3 of State-owned Assets Supervision and Administration Commission of the State Council and Ministry of Finance: Interim Measures for the Management of the Transfer of the State-owned Property Rights of Enterprises );

5. 國家國有資產管理局國資辦發 (1992)36 號《國有資產評估管理辦法施行細則》 (Detailed Rules for Implementation of Evaluation and Management Measures for the State-owned Assets (Ref No: [1992] No.36) promulgated by the State State-owned Assets Administration Bureau);

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APPENDIX II

VALUATION REPORTS

1. 國務院國資委第12號令《企業國有資產評估管理暫行辦法》 (Order No.12 of State-owned Assets Supervision and Administration Commission of the State Council: Interim Measures on Evaluation and Administration of State-owned Assets in the Enterprises );

2. 國資委產權 [2006]274 號關於加強企業國有資產評估管理工作有關問題的通知 (Notice about Strengthening Evaluation and Management of State-Owned Assets in Enterprises (Ref No: [2006] No.274));

3. 財政部財會[2000]25號文《企業會計制度》 (Accounting System for Business Enterprises (Ref No: [2000] No.25) promulgated by Ministry of Finance);

4. 財政部財會[2001]43號關於印發《實施<企業會計制度>及其相關準則問題解答》的通 知 (Notice of the Ministry of Finance on issuance of Interpretation of Issues arising in the Implementation of “Enterprise Accounting System” and Rules Thereof (Ref No: [2001] No.43));

5. 財政部令第33號《企業會計準則�基本準則》 (Order No.33 of the Ministry of Finance: Accounting Standard for Business Enterprises - Basic Standard);

6. 中國資產評估協會中評協[1996]03號關於發佈《資產評估操作規範意見》（試行）的通 知 (Notice of China Appraisal Society on issuance of Opinions on Standard of Assets Evaluation Practice (Trial Implementation) (Ref No: [1996] No.03));

7. 天津國資委（津國資產權[2007]40號）關於印發《天津市企業國有資產評估管理暫行 辦法》的通知 (Notice of the State-owned Assets Supervision and Administration Commission of Tianjin Municipal People’s Government on Issuance of Interim Measures on Evaluation and Administration of State-owned Assets in the Enterprises in Tianjin (Ref No: [2007] No.40));

8. Other relevant laws, regulations and notice documents, etc.

(III) Valuation Standards

1. 財政部財企[2008]343號《關於實行資產評估準則有關制度銜接問題的通知》 (Notice on Questions Concerning Relation between Relevant Systems on Implementation of Assets Evaluation Standard (Ref No: [2008] No.343) promulgated by Ministry of Finance);

2. 財政部財企[2004]20號文關於印發《資產評估準則—基本準則》和《資產評估職業道 德準則— 基本準則》的通知 (Notice of Ministry of Finance on issuance of Assets Evaluation Standard-Basic Standard and Standard Of Professional Ethics in Assets Evaluation - Basic Standard (Ref No: [2004] No.20));

3. 中國資產評估協會中評協[2007]189號關於印發《資產評估準則—評估報告》等7項資 產評估準則的通知 (Notice of China Appraisal Society on issuance of seven evaluation standards including Assets Evaluation Standard - Evaluation Report (Ref No: [2007] No.189));

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APPENDIX II VALUATION REPORTS

1. 中評協[2004]134號關於印發《企業價值評估指導意見（試行）》的通知 (Notice of China Appraisal Society on issuance of Opinions on Value Evaluation of Enterprises (Trial Implementation) (Ref No: [2004] No.134));

2. 中評協[2008]218號關於印發《企業國有資產評估報告指南》的通知 (Notice of China Appraisal Society on issuance of Guidelines for Evaluation Report of State-Owned Assets in Enterprises (Trial Implementation) (Ref No: [2008] No.218))

(IV) Basis of assets rights

1. Construction Planning Permit;

2. Construction Project Planning Permit;

3. 天津市排水公司和天津創業環保集團股份有限公司關於房屋產權問題的《說明》 Explanations about property rights prepared by Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd.;

4. Purchase contracts of major equipment;

5. Contract, financial document and other documentation related to the assets acquisition and assets utilization.

6. (V) Source of pricing data

7. 《天津市建築工程預算基價編製說明》 (Description of Preparation for Estimated Base Price of Construction Work in Tianjin );

8. 《2008年天津市建築工程預算基價》 (2008 Estimated Base Price of Construction Work in Tianjin);

9. 《2008年天津市裝飾工程預算基價》(2008 Estimated Base Price of Decoration Work in Tianjin);

10. 《2008年天津市設備安裝工程預算基價》 (2008 Estimated Base Price of Equipment Installation Work in Tianjin);

11. 《2008年天津市市政工程預算基價》(2008 Estimated Base Price of Municipal Works in Tianjin);

12. Construction budget, cost related to the confirmation, drawings, changes, approval document and any other data provided by enterprises;

13. 天津工程造價信息（2009年第12期）(Tianjin Construction Cost Information (Volume 12, 2009));

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VALUATION REPORTS

APPENDIX II

1. 國家發展計劃委員會、建設部關於發佈《工程勘察設計收費管理規定》的通知計價格 [2002]10號 (Notice of State Development & Planning Commission and Ministry of Construction on issuance of Engineering Survey and Design Fees Regulations (Ref No: [2002] No.10));

2. 財政部關於印發《基本建設財務管理規定》的通知財建(2002)394號 (Notice on Regulations on Financial Management of Capital Construction (Ref No: (2002) No.394) by Ministry of Finance);

3. 《2009年中國機電產品報價手冊》 (2009 Manual of Quotations for Mechanical & Electrical Products in China);

4. 評估基準日近期的《UDC聯合商情》、《慧聰商情》、《黑馬快訊》 (UDC Joint Business Information, HC Business Information and Heima News Flash published around the base date of valuation);

5. 《資產評估常用數據與參數手冊》（增訂版）(Manual of Data and Parameters that are Frequently Used in Assets valuation (Revised));

6. 中國人民銀行公佈的評估基準日銀行存貸款利率、匯率 (Deposit and loan rate as well as exchange rate published by People’s Bank of China as at the date of valuation).

(VI) References and others

1. Schedule of assets valuation and investigation form provided by the appointors and assets owner;

2. Statistical data and technical standards published by relevant national authorities and other data collected by other valuation organizations.

VII. Valuation methodology

The cost approach was applied to provide valuation on each type of assets based on their actual conditions, and the total value under the valuation is the sum of the value of each type of assets. The details about the valuation methods for each type of asset are as follows:

1. Valuation of machinery equipment

The cost approach was applied to to provide valuation of the majority of the machinery equipments. The market price approach is applied to the used equipments when its price is made available on the second hand market.

Appraised value = Total replacement cost � residue rate

The types and characteristics of equipments included in the scope of this valuation were mainly machinery equipment.

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VALUATION REPORTS

APPENDIX II

• (1) Determination of total replacement cost

• (i) For the equipment not requiring installation:

Total replacement cost = Order price of equipment + Transportation cost

• (ii) Domestic equipment requiring installation:

Total replacement cost = Order price of equipment + Transportation cost + Installation and commissioning cost + Preliminary cost and other costs + Capital cost

Capital cost was considered when the project cycle is longer than half a year.

• (iii) For imported machinery equipment, the CIF price is determined after addressing inquiry to domestic agency, consulting recent price fluctuations of similar equipment as well as difference between quotation and transaction price. Once the CIF price is confirmed, it will be used as the base and multiplied by foreign exchange rate of the base date, and then adding in relevant tariff, value added tax, agent fees of foreign trade, bank service charges, commodity inspection fee, domestic transportation, installation fee, technological design cost, management cost of construction unit and capital cost, to derive the total replacement price.

Capital cost = (Order price of equipment + Transportation cost + Installation and commissioning cost + preliminary cost and other costs) � Loan interest rate at base date in different years � Reasonable construction period� 1/2

Alternative principle was applied to provide valuation on equipment whose price was not available when the similar equipment has been improved in terms of technology. Thus, the total replacement cost was determined based on the current price of the similar equipments in consideration of the depreciation due to functionality and other reasonable expenses.

(2) Determination of residue rate

Residue rate of the equipment was determined and adjusted mainly by applying the service life method, but other factors were also be taken into consideration, such as conducting site inspection to obtain equipment performance status, referring to data concerning operational status of major equipment and system, main technical index, inquiring engineers and operators about the technical conditions, as well as maintenance and repair.

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• (3) Determination of appraised value

According to the above analysis, appraised value was derived from multiplying total replacement price by residue rate.

Appraised value = Total replacement cost � residue rate

2. Valuation of buildings

Buildings under schedule of valuation shall be valuated by the most appropriate and reasonable method based on the actual conditions of the specific assets. The cost approach was applied in this valuation.

Calculation formula is: Appraised value = Total replacement cost � Residue rate

• (1) Determination of total replacement cost

Total replacement cost = Integrated construction cost + Preliminary cost and other costs + Capital cost

Calculation is performed in accordance with following procedures:

• (i) Integrated construction cost is mainly composed of the direct cost of construction and installation. First of all, drawing, financial data and other relevant data of buildings (structures) under valuation were collected and the corresponding calculation will be performed. Then, the integrated construction cost of building will be calculated taking into account construction project norm, charging standard and rate of construction project, and adjustment factor of labor cost published by Tianjin Municipal People’s Government.

• (ii) Calculation of preliminary costs and other costs

Preliminary cost and other costs were calculated based on each cost related to construction project that was published by national authorities and relevant departments of Tianjin Municipal People’s Government as at the base date of valuation.

• (iii) Calculation of capital cost:

Capital cost is the loan interest that is used as investment during the construction period. Accured interest of buildings under construction was calculated based on normal construction period. Current interest rate was considered, assuming that integrated construction cost and other allocation cost have already been regularly invested during construction period. Calculation formula is: capital cost = (Integrated construction and installation cost + Preliminary cost) � loan interest rate � Construction period/2.

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• (2) Determination of residue rate

• (i) Integrated residue rate method is adopted to determine the residue rate of valuable and the substantial buildings (structures), its calculation formula is as follows:

  • Integrated residue rate = Theoretic residue rate � 40% + Inspected residue rate � 60%

Theoretic residue rate = (Years of economic duration - Serviced duration)/ Year of economic duration � 100%

Site inspection: major factors affecting the residue rate of buildings were divided into three categories: structural (foundation, main body and roof), decoration (windows and doors, internal and external decoration and others), and equipment (water, electricity, etc.). Standard score of each factor for buildings with different structures was determined through the weight of each factor in the construction cost of the buildings. The score of each category was determined based on the actual conditions of the site during inspection and then the residue rate of the site was derived from the above score.

• (ii) Theoretical residue rate method was adopted to determine the residue rate of buildings (structures) with small unit value and relatively simple structures. The calculation formula is as follows:

Residue rate = (Durable life - Serviced life)/Durable life � 100%

The years of economic duration depends on the durable life of the building, the years of economic duration of the equipment and the renovation of the buildings.

• (3) Determination of the appraised value

Appraised value was derived by multiplying the total replacement cost by the residue rate.

VIII. Implementation process and status of valuation

• (I) Acceptance of appointment

On 7 April 2010, Beijing China Enterprise Appraisals Co., Ltd. was appointed by Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd. to act as the assets valuation organization for the Project.

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(II) Preparation of valuation plan

The assets valuation plan was made according to assets value, assets characteristics and assets distribution condition.

(III) Establishment of valuation team

Our established set up an assets valuation team that was responsible for the project. Principal of the project was appointed and valuation team was also assembled.

(IV) Assets inspection

Based on truthful assets declaration and overall assets inspection to be appraised, we have inspected the assets that are within the scope of this valuation. Contents of inspection included assets verification, usage condition, assets rights and other major factors affecting the valuation pricing. Assets inspection period was from 13 April 2010 to 16 April 2010. The detailed procedures were as follows:

1. Instructed the financial personnel and assets management personnel to register and report assets based on assets inspection as required by the appraised organization.

2. The valuers used the assets valuation schedules and accounted for assets’ properties and assets’ characteristics. The valuers verified the assets by applying the methods in which the composition, usage and maintenance conditions of the assets are considered.

3. Verification of property rights certificates

A necessary inspection was conducted to verify the legal ownership information and source of information of valuation object within the scope of valuation provided by enterprises being valued.

(V) Valuation and estimation

The period for valuation and estimation was between 17 April 2010 and 26 April 2010. Based on the valuation plan that was prepared according to the characteristics of the project by the appointors, and the valuer took into account the conditions of the enterprises and determined the pricing plan of various assets, then defined valuation parameters and price standards, and performed the valuation and estimation. As such, preliminary valuation results were successively presented.

(VI) Summary, auditing, and takeover

Valuation team summarized each professional valuation schedule and valuation description based on the work plan. Principal of the team was responsible to finalise the summary of valuation schedule, prepare valuation description and valuation report, and submit completed

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valuation schedule, valuation description, valuation report, as well as working papers to the organization for Level-III audit after the inspection. Project team submitted draft valuation report to the appointors after making modifications based on opinions from the auditors’ review.

(VII) Report submission

Report was submitted to the appointors on 28 April 2010.

IX. Basis of assumptions

The valuation report is a fair conclusion that was drawn from valuation performed by professional valuers of CEA. The said conclusions exhibit rational analysis, argumentation and comparison that were performed by the valuers on the value of the assets, according to actual conditions. The valuation report is a conclusion of the evaluation on the basis of the following valuation assumptions:

1. In terms of legal descriptions or legal matters of the appraised assets (including its ownership or incumbent limitations), CEA performed general investigation by complying with relevant codes. Save for disclosed in our appraised work report, it was assumed the ownership of appraised assets is valid and the assets could be liquidated in the market; furthermore they were not subject to any lien or easement and they were not encroached or had any other incumbent limitations;

2. In terms of information employed as basis for all or part of the valuation’s conclusions in the valuation report, CEA holds the view that sources of all such information, including those provided by assets owner and other parties are reliable and appropriate based on prudent analysis;

3. After verification, all licenses, usage permits, letters of consent or other legal or administrative authorization documents that were signed and issued by relevant local and national government organizations and groups, and the way in which the assets were used that were employed as basis of value estimation in the valuation report, are legally valid within the period of validity and as at the base date of valuation. The valuation team assumed that the said licenses, files, etc, will be approved and renewed (such as business license, etc) at any time when their validity terms expire;

4. Save for disclosed in work report, the team assumed that the enterprise has completely complied with any relevant local and national laws and regulations;

5. The team assumed that all improvements on the relevant assets performed by the enterprise are in line with relevant laws and regulations related to other laws, plans, or engineering codes set by relevant competent departments at higher levels;

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1. Within the scope of valuation, specific sewage were not considered as an entire system assets. During the valuation process, the team assumed these assets under valuation were used together with other complementary assets so that the assets under valuation would perform effectively.

If any one of the above-mentioned conditions fails, the valuation conclusion will be influenced heavily.

X. Conclusion

CEA has performed valuation of assets owned by Tianjin Sewage Company. According to the national regulations base on valuation, and on the principle of “independence objectiveness and justness”, and the necessary valuation procedures, the valuation has mainly employed the cost approach and has drawn the following conclusions after completion:

On the premise of going concern as at the reference date of 31 December 2009, the original book value and the net book value of the assets under evaluation were RMB 482.0015 million and RMB 482.0015 million respectively before valuation; the original book value and the net book value of the assets are RMB 534.2153 million and RMB 475.9050 million respectively after valuation; the original book value increased by RMB 52.2138 million at an appreciation rate of 10.83%, while the net book value decreased by RMB 6.0965 million at a depreciation rate of 1.26%.

Summary of the detailed valuation is shown in the following table:

Summary of the valuation results

		Unit: RMB 10,000 Book Value Appraised valuation Value Differences Rate (%) A B C=B-A D=C/A*100% 0.00 0.00 0.00 48,200.15 47,590.50 -609.65 -1.26 48,200.15 47,590.50 -609.65 -1.26 48,200.15 47,590.50 -609.65 -1.26
	Item
	Current assets 1
	Non-current assets 2
	Fixed assets 3
	Total assets 4

The conclusions reflect the purpose of this valuation, the evaluation object’s current price was set according to principles of open market without considering these the following conditions: influence on assets’ price from mortgage and guarantee likely to be undertaken in the future and additional amount likely to be paid by special counterparty on valuation value, influence of changes to the state’s macroeconomic policies, and occurrence of natural disasters and other force majeure. In general, if the said conditions change, valuation results will become invalid.

The appointors and users of the report shall pay particular attention to the assumptions and special matters disclosed in the assets valuation report.

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APPENDIX II

XI. Valuation analysis

Details of the changes are set out as follows (after adopted the cost approach and compared with the net book value):

Unit: RMB

	Account title	Book value Appraised value Rate (%) Original value Net value Original value Net value Original value Net value 482,001,527.66 482,001,527.66 534,215,310.00 475,904,957.00 10.83 -1.26 28,460,486.35 28,460,486.35 33,052,200.00 31,147,970.00 16.13 9.44 453,541,041.31 453,541,041.31 501,163,110.00 444,756,987.00 10.50 -1.94
	Fixed assets
	Buildings
	Equipments

Compared with book value, reasons of changes shown in assets appraised results are as follows:

1. Buildings and structures

Original book value and net book value of buildings increased at appreciation rates of 16.13% and 9.44% respectively. Based on our analysis, the buildings were completed at the end of 2006 and the cost level of construction and installation of Tianjin City has shown a remarkable increase until base date at the end of 2009; However, enterprise’s buildings did not undergo any depreciation in their value thus, appreciation margin of valuation’s net book value is less than that of their original book value.

2. Machinery equipments

Original book value of machinery equipments increased at a 10.50% and their net book value decreased at a depreciation rate of 1.94%. Reasons for the increase in the original value increase are as follows: most of equipments were imported from Europe with free tariff and value added tax. However, such equipments cannot enjoy the benefit of the policy as at the base date, while the Euro depreciated as at valuation date. Accordingly, there was an offset to bring the original value increased while the appraised net book value has a slight decrease as there was depreciation on the machinery equipments.

XII. Special matters

During the valuation process, we found that the following matters (including but not limited to) are likely to affect valuation conclusions. Such matters are outside our scope of ability and capacity of our evaluators:

• (I) Valuation conclusions might be affected by professional level of our valuers who participated in the Project.

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• (II) The report is prepared by using business license, property rights certificates, financial statement, accounting voucher and other relevant materials related to the valuation provided by appointors. Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd. shall be responsible for authenticity, legality, and integrity of their materials provided.

• (III) Tianjin Sewage Company provided all legal ownership materials of the evaluation objects and shall be responsible for the authenticity, legality, and integrity of these materials. According to regulations of 中注協會協[2003]18號文《註冊資產評估師關注評估對象法律 權屬指導意見》( Guidelines for Certified Public Valuers Concerning Legal Ownership of Evaluation Object Ref No: [2003] No. 18), purpose of Certified Public Valuer’s implementing assets valuation transaction is to estimate the values of objects being evaluated and provide professional opinions. Confirmation of legal ownership of valuation objects or expressing opinions on such matter do not belong to practice scope of Certified Public Valuers.

• (IV) In terms of faulty matters which existed in the enterprise that are likely to affect value of assets, CEA and evaluators shall not assume relevant responsibilities if the enterprise did not provide any special explanations when performing entrusting and the said faulty matters could not be clarified after evaluators had gone through the evaluation procedures.

• (V) After the base date of valuation, if the assets quantity and valuation standard have changed and affected the valuation conclusions, the valuation conclusions shall not be used directly and must be adjusted or revaluated.

• (VI) In terms of concealed works like inlet and outlet channels, their values were determined based on relevant materials like drawings of completed works that were provided by the property owner. The valuers did not perform any physical inspection of the said works’ specific conditions.

• (VII) Most of the valuation objects were equipments purchased before 1 January 2009. Users of the report should pay attention to the fact that value added tax, similar to value added tax payable for imported equipments under the current tax regulations, was included in the evaluation value.

• (VIII) Usage rights of the land, where the buildings (structures) under evaluation are located belong to Tianjin Capital Environmental Protection Group Co., Ltd.. Its proposed planning formalities that were originally fulfilled by Tianjin Drainage Company have been transferred to Tianjin Capital Environmental Protection Group Co., Ltd. Relevant parties have supplied explanations for the said matters.

Users of the valuation report shall pay attention to the influence of the above-mentioned special matters on the conclusions.

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XIII. Restrictions on the usage of Asset Valuation Report

• (I) The valuation report only serves the valuation purpose specified in the report and shall not be used for other commercial dealings.

• (II) The valuation report shall only be employed by the users specified herein.

• (III) The conclusions shall only serve for the valuation purpose for the appointers. Unless otherwise specified in laws and regulations or agreed by related parties, it is illegal to extract, quote or disclose to public media the content of the said report without seeking permission from CEA.

• (IV) The report is a professional conclusion supplied by the valuer according to the relevant state’s laws and regulations and will attain legal effect once it is affixed with an official seal and signature of CEA.

• (V) Assuming that there is no significant change to the market conditions or assets, the valuation results will be valid for a year from the base date of valuation to the date of the realization of the commercial dealings. When the purpose of the valuation is realized within a year after the base date of valuation, valuation’s conclusions can be regarded as references for achieving evaluation’s purpose. However, if the purposed realization period is beyond a year or if there is any significant change to the market conditions or assets, the assets shall be reevaluated.

XIV. Date of valuation report

Date of valuation report is 28 April 2010.

Legal representative or authorizer:

Certified Public Valuer: Wang Hongyu Certified Public Valuer: Zhang Guoqiang

Beijing China Enterprise Appraisal Co., Ltd. 28 April 2010

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APPENDIX II

Assets Valuation Report

On

Proposed transfer of the assets of Beicang Sewage Water Treatment project from Tianjin Sewage Company, financed by the loan of the Asian Development Bank to Tianjin Capital Environmental Protection Group Co., Ltd.

Ref No: (2010) No. 209 (Volume 1 of 1)

Beijing China Enterprise Appraisal Co., Ltd. 28 April 2010

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APPENDIX II

Assets Valuation Report

Table of Contents

Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Abstract of Assets Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		40
Assets Valuation Report
I.	Introduction to the appointors, assets owner and other report users . . . . . . . . . . . . .	42
II.	Purpose of valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
III.	Object and scope of valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
IV.	Types of valuation and their definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
V.	Date of assets valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
VI.	Basis of valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46
VII.	Valuation methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	49
VIII.	Implementation process and status of valuation . . . . . . . . . . . . . . . . . . . . . . . . . . .	51
IX.	Basis of assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	53
X.	Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54
XI.	Valuation analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
XII.	Special matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
XIII.	Restrictions on the usage of Assets Valuation Report . . . . . . . . . . . . . . . . . . . . . . .	56
XIV.	Date of Valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57

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DISCLAIMER

• I. Beijing China Enterprise Appraisal Co., Ltd. (“CEA”) carries out assets valuation based on the relevant laws and regulations and the standards of assets valuation under the principle of independence, objectiveness and justice. Based on the information collected in the course of our practice, statement in the valuation report is objective, and we assume corresponding legal responsibilities for the reasonableness on the conclusion of the valuation.

• II. Lists of appraised assets have been provided and declared by the appointors and the asset owner with their signatures or seals. The appointors and related party shall be responsible for the authenticity, legality, and completeness of the provided data as well as the appropriate usage of the valuation report.

• III. We do not have or not expected to have any interests in the assets and we do not have or not expected to have any interests with any related parties.

• IV. We have carried out on-site investigation on the valuation and related assets thereof that are mentioned in the valuation reports. We have verified the ownership of the valuation object and the assets thereof and faithfully disclosed any findings. We have also requested the appointor and related parties to fulfill their property ownership formalities so as to meet the requirements for issuing the report.

• V. Analysis, judgment, and conclusions in the valuation report issued by CEA are restricted by the assumptions and confining conditions that are iterated in the valuation report. Users of this report shall give due consideration to the assumptions, confining conditions, and explanations for specific issues stated in the valuation report as well as their impacts on the conclusions.

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ABSTRACT OF ASSETS VALUATION REPORT

On

Proposed transfer of the assets of Beicang Sewage Water Treatment project from Tianjin Sewage Company, financed by the loan of the Asian Development Bank to Tianjin Capital Environmental Protection Group Co., Ltd.

Ref No: (2010) No. 209

In light of the 《關於同意亞洲開發銀行貸款天津污水處理和水資源保護項目形成資產轉讓的 函》(津財外經[2008] 78號) Letter of Approval for Transfer of the Assets of Tianjin Sewage Water Treatment and Water Resource Conservation Project financed by the Asian Development Bank loan issued by 天津市財政局 Tianjin Finance Bureau (Ref No: [2008] No. 78)) and《關於對排水公司轉讓 利用外債資金形成的資產進行評估的批覆》 (Reply on the assets valuation transferred by Tianjin Sewage Company financed by the foreign loans) issued by 天津市市政公路管理局 (Tianjin Municipal Highway Administration) (Ref No: [2009] No. 415), Tianjin Sewage Company proposes to transfer the assets of Beicang Sewage Water treatment project (“Transfer”) financed by the Asian Development Bank loan to Tianjin Capital Environmental Protection Group Co., Ltd. Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd. appointed Beijing China Enterprise Appraisal Co., Ltd. (“CEA”) to value the assets involved in the proposed transfer, so as to provide a value reference basis for assets transfer.

Based on the national regulations regarding assets valuation and on the principle of objective, independent and justified, members of CEA carried out on-site investigation, market research, enquiring of the certificates and all necessary valuation procedures.

Based on the purpose and target of the valuation, the type of value is the market value for this valuation.

The cost approach method was adopted for this valuation. Based on the above valuation work carried out during valuation. We have made the following conclusions are arrived at:

On the premise of going concern as at the reference date of 31 December 2009, the original book value and the net book value of the assets under valuation were RMB 209.8910 million and RMB 209.8910 million respectively before valuation. The original value and the net book value of the assets were RMB 234.8046 million and RMB 213.1962 million respectively after valuation. The original value increased by RMB 24.9136 million at the rate of 11.87%, while the net value increased by RMB 3.3052 million at the rate of 1.57%.

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Summary of the detailed valuation is shown in the following table:

Summary of the valuation results

		Unit: RMB 10,000 Book Value Appraised Value Differences Rate (%) A B C=B-A D=C/A*100% 0.00 0.00 0.00 20,989.10 21,319.62 330.52 1.57 20,989.10 21,319.62 330.52 1.57 20,989.10 21,319.62 330.52 1.57
	Item
	Current assets 1
	Non-current assets 2
	Fixed assets 3
	Total assets 4

The conclusion of the appraisal is only valid for the proposed transfer of the assets of Beicang Sewage Water Treatment Project financed by the Asian Development Bank Loan to Tianjin Capital Environment Protection Group Co., Ltd.. The appraisal result remains effective for one year as from the appraisal reference date 31 December 2009 under the condition that no significant change will occur to the market conditions or asset conditions. It needs to be reappraised if exceed one year.

Users of the valuation Report shall pay attention to the effect of specific issues on the conclusions.

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APPENDIX II

On

ASSETS VALUATION REPORT

Proposed transfer of the assets of Beicang Sewage Water Treatment project from Tianjin Sewage Company financed by the loan of Asian Development Bank to Tianjin Capital Environmental Protection Group Co., Ltd.

Ref No: (2010) No. 209

To: Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd.

Beijing China Enterprise Appraisal Co., Ltd. was appointed by Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd., to provide valuation on the assets involved in the project for the proposed transfer of the assets of Beicang sewage water treatment project from Tianjin Sewage Company financed by the loan of Asian Development Bank to Tianjin Capital Environmental Protection Group Co., Ltd. for their market value on 31 December 2009 by the method of cost approach. The valuation is based on the basis of relevant laws, regulations, assets valuation rules, and principles and in line with required valuation procedures. The assets valuation results are herein reported as follows:

• I. Introduction to the appointors, assets owner, and other report users

Our clients are Tianjin Sewage Company, the assets owner involved in this valuation, and Tianjin Capital Environmental Protection Group Co., Ltd.

• (I) The first appointor and the assets owner

• Company name: Tianjin Sewage Company

• Registered address: No. 1, Nanjing Road, Hexi District

• Legal representative: Tan Zhaofu

• Registered capital: RMB1,200 million

• Type of company: Wholly state-owned

• Date of incorporation: July 1999

• Business scope: maintenance, operation, development and construction of storm sewage pipeline, pump stations, river ways, drainage facilities, and sewage treatment plant; maintenance and installation of electrical equipment and drainage technology consultant.

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VALUATION REPORTS

1. Company profile: Tianjin Sewage Company is a state-owned enterprise with a registered capital of RMB1.2 billion. The principal activities are maintenance and management of sewage treatment plants, pipe network and pump stations, and other drainage facilities, collection of sewage treatment charges, operation and management of sewage treatment plants, and monitoring of water quality and quantity, as well as capital rising, development, construction, and operation of related construction projects. Articles of association and management system of Tianjin Sewage Company are complete and the management of Tianjin Sewage Company are experienced. The deployment of technical personnel is rational. Of the technicians, 60% have obtained senior or middle-level professional and are equipped with high-level management skills and technical competence.

2. (II) The second appointor:

3. Company name: Tianjin Capital Environmental Protection Group Co., Ltd.

4. Registered address: Capital Environmental Protection Building, No. 76, Weijin Road South, Nankai District, Tianjin

5. Legal representative: Zhang Wenhui

6. Registered capital: RMB1,427.23 million

7. Type of company: Joint stock limited company

8. Date of incorporation: 8 June 1993

9. Business scope: Construction, design, management, operation, technical consulting and supporting services of Tianjin Dongjiao Sewage Water Treatment Plant, Tianjin Jizhuangzi Sewage Water Treatment Plant, Tianjin Beicang Sewage Water Treatment Plant, and Tianjin Xianyanglu Sewage Water Treatment Plant auxiliary facilities; southern Half Ring Urban Road of the Middle Ring of Tianjin City, toll gates of roads constructed utilizing loans, and construction, design, management, operation, technical consulting, and supporting services of auxiliary facilities; development and operation of environmental protection technologies and environment-friendly products; management of the project of Haihe Bridge in southeast part of the Middle Ring Road in Tianjin.

10. Company profile: Tianjin Capital Environmental Protection Group Co., Ltd. (TCEPG) was one of the companies listed on the A share and H share markets (A-share stock code: 600874; H-share stock code: 1065) in China whose principal business is engaged in sewage water treatment. It is also a pioneer and leading enterprise in the field of environmental protection in China.

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VALUATION REPORTS

TCEPG is responsible for the operation of four sewage water treatment plants, namely, Jizhuangzi Sewage Water Treatment Plant, Xianyanglu Sewage Water Treatment Plant, Dongjiao Sewage Water Treatment Plant, and Beicang Sewage Water Treatment Plant in downtown Tianjin, the sewage water treatment capacity of which has totaled 1,490,000 m[3] /day. The centralized sewage water treatment rate in downtown Tianjin exceeds 80% as a result of these sewage water plants. They make great contributions to energy conservation and emission reduction in Tianjin.

TCEPG began to exploit markets in other provinces and municipalities in 2003. By the end of the year, it successfully acquired Xiaohe Sewage Water Treatment Plant in Guiyang. In 2004, TCEPG expanded its business to the water resources market in Chibi, Hubei Province. In 2005, it successfully developed the water resources markets in Qujing of Yunnan Province, Baoying of Jiangsu Province, Honghu of Hubei Province, and Fuyang of Anhui Province. TCEPG began to set foot in water supply business after its successful water supply project in Qujing, Yunnan Province. In 2006, TCEPG utilized the water resources markets in Hangzhou, Zhejiang Province and Wendeng, Shandong Province. In 2007, it entered the water resources market in northwest China through a successful project in Xi’an. In 2008, it successfully expanded into the water resources market in Anguo, Hebei Province, and gradually established development areas in north China, central part of South China, Yunnan and Guizhou, Jiangsu and Zhejiang, and northwest China. Thus, TCEPG has established a new national market development pattern for promoting work in all areas by drawing on the experiences gained on key points.

(III) Other valuation report users

Apart from the appointers, other valuation report users include valuation report users that are specified in the national laws and regulations.

II. Purpose of valuation

In light of the 《關於同意亞洲開發銀行貸款天津污水處理和水資源保護項目形成資產轉讓的 函》 (津財外經[2008] 78號) (Letter of Approval for Transfer of Assets of Tianjin Sewage Water Treatment and Water Resource Conservation Project financed by the Asian Development Bank loan issued by 天津市財政局 (Tianjin Finance Bureau) (Ref No: [2008] No. 78)) and《關於對排水公司轉 讓利用外債資金形成的資產進行評估的批覆》 (Reply on assets valuation transferred by Tianjin Sewage Company financed by the foreign loan) issued by 天津市市政公路管理局 (Tianjin Municipal Highway Administration) (Ref No: [2009] No. 415), Tianjin Sewage Company proposes to transfer the assets of Beicang Sewage Treatment treatment project financed by the Asian Development Bank loan to Tianjin Capital Environmental Protection Group Co., Ltd.. Therefore, Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd. appointed CEA to provide valuation on the assets involved in the proposed transfer, so as to provide basis of value reference for assets transfer.

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III. Object and scope of valuation

The object of this valuation is the market value of the assets involved in the transfer.

The scope of valuation covers buildings, structures, and equipment involved in the proposed transfer, and it includes 9 structures, 62 pipelines and trenches, and 508 pieces of equipment.

Based on the on-site checking and investigation, the land use rights where the structures under valuation belongs to Tianjin Capital Environmental Protection Group Co., Ltd.

Book value of the assets under valuation before valuation is as follows:

	Unit: RMB10,000 Item Book Value Current assets 1 0.00 Non-current assets 2 20,989.10 Fixed assets 3 20,989.10 Total assets 4 20,989.10

Based on the on-site checking and investigation, the appraised assets were in normal service conditions as of the date of assets valuation.

Assets covered in this check are consistent with those appraised assets provided by the appointors.

IV. Types of valuation and their definitions

According to the valuation purpose and specific conditions of the valuation object of this valuation, the types of value is the market value for this valuation.

Market value refers to the estimated value of the evaluation object that undergoes normal and fair transaction between the buyer and seller, who act freely and rationally, without being forced by any coercion as of the date of assets valuation.

V. Date of assets valuation

Date of assets valuation was 31 December 2009.

All pricing standards adopted are based on the effective prices as at the date of valuation, and all assets were the subsistent assets as at the date of valuation.

The date of assets valuation was confirmed by the appointors and closest to the time when the valuation of any commercial dealings were realised.

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VALUATION REPORTS

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• VI. Basis of valuation

The laws and regulations of the nation, local government, and relevant departments that were abided by during the assets valuation are set out as follows:

• (I) Basis of valuation for commercial dealings

• 《關於同意亞洲開發銀行貸款天津污水處理和水資源保護項目形成資產轉讓的函》 (建財外經[2008]78號) (Letter of Approval for transfer of the Assets of Tianjin Sewage Water Treatment and Water Resource Conservation Project financed by the Asian Development Bank loan) issued by (天津市財政局) Tianjin Finance Bureau (Ref No: [2008] No.78);

• 《關於對排水公司轉讓利用外債資金形成的資產進行評估的批復》(市政公務管理資產 [2009]415號) (Reply on assets valuation transferred by Tianjin Sewage Company financed by the foreign loans) (Ref No: [2009] No.415) issued by 天津市市政公路管 理局 Tianjin Municipal Highway Administration;

• (II) Laws and regulations basis

• 《中華人民共和國公司法》2005年10月27日第十屆全國人民代表大會常務委員會第十 八次會議修訂 (Company Law of the People’s Republic of China revised at the 18th session of the Standing Committee of the 10th National People’s Congress on 27 October 2010);

• 國務院1991年91號令《國有資產評估管理辦法》(Order No.91: Management Measures of State-Owned Asset Valuation promulgated by the State Council in 1991);

• 國務院2003年第378號令《企業國有資產監督管理暫行條例》 (Order No.378: Provisional Regulations on Supervision and Administration of State-owned Assets in the Enterprises promulgated by the State Council in 2003[#] );

• 國務院國資委、財政部第3號令《企業國有產權轉讓管理暫行辦法》 (Order No.3 of State-owned Assets Supervision and Administration Commission of the State Council and Ministry of Finance: Interim Measures for the Management of the Transfer of the State-owned Property Rights of Enterprises );

• 國家國有資產管理局國資辦發(1992)36號《國有資產評估管理辦法施行細則》 ( Detailed Rules for Implementation of Evaluation and Management Measures for the State-owned Assets (Ref No: [1992] No.36) promulgated by the State State-owned Assets Administration Bureau);

• 國務院國資委第12號令《企業國有資產評估管理暫行辦法》 (Order No.12 of State-owned Assets Supervision and Administration Commission of the State Council: Interim Measures on valuation and Administration of State-owned Assets in the Enterprises );

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VALUATION REPORTS

APPENDIX II

1. 國資委產權 [2006]274 號關於加強企業國有資產評估管理工作有關問題的通知 (Notice about Strengthening Evaluation and Management of State-Owned Assets in Enterprises (Ref No: [2006] No.274));

2. 財政部財會[2000]25號文《企業會計制度》 ( Accounting System for Business Enterprises (Ref No: [2000] No.25) promulgated by Ministry of Finance);

3. 財政部財會[2001]43號關於印發《實施<企業會計制度>及其相關準則問題解答》的通 知 (Notice of the Ministry of Finance on issuance of Interpretation of Issues arising in the Implementation of “Enterprise Accounting System” and Rules Thereof (Ref No: [2001] No.43));

4. 財政部令第33號《企業會計準則—基本準則》 (Order No.33 of the Ministry of Finance: Accounting Standard for Business Enterprises - Basic Standard );

5. 中國資產評估協會中評協[1996]03號關於發佈《資產評估操作規範意見》（試行）的通 知 (Notice of China Appraisal Society on issuance of Opinions on Standard of Assets Evaluation Practice (Trial Implementation) (Ref No: [1996] No.03));

6. 天津國資委（津國資產權[2007]40號）關於印發《天津市企業國有資產評估管理暫行 辦法》的通知 (Notice of the State-owned Assets Supervision and Administration Commission of Tianjin Municipal People’s Government on Issuance of Interim Measures on Evaluation and Administration of State-owned Assets in the Enterprises in Tianjin (Ref No: [2007] No.40));

7. Other relevant laws, regulations and notice documents, etc.

(III) Valuation standards

1. 財政部財企[2008]343號《關於實行資產評估準則有關制度銜接問題的通知》 ( Notice on Questions Concerning Relation between Relevant Systems on Implementation of Assets Evaluation Standard (Ref No: [2008] No.343) promulgated by Ministry of Finance);

2. 財政部財企[2004]20號文關於印發《資產評估準則—基本準則》和《資產評估職業道 德準則— 基本準則》的通知 (Notice of Ministry of Finance on issuance of Assets Evaluation Standard-Basic Standard and Standard Of Professional Ethics in Assets Evaluation - Basic Standard (Ref No: [2004] No.20));

3. 中國資產評估協會中評協[2007]189號關於印發《資產評估準則—評估報告》等7項資 產評估準則的通知 (Notice of China Appraisal Society on issuance of seven evaluation standards including Assets Evaluation Standard - Evaluation Report (Ref No: [2007] No.189));

4. 中評協[2004]134號關於印發《企業價值評估指導意見（試行）》的通知 (Notice of China Appraisal Society on issuance of Opinions on Value Evaluation of Enterprises (Trial Implementation) (Ref No: [2004] No.134));

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APPENDIX II

VALUATION REPORTS

1. 中評協[2008]218號關於印發《企業國有資產評估報告指南》的通知 (Notice of China Appraisal Society on issuance of Guidelines for Evaluation Report of State-Owned Assets in Enterprises (Trial Implementation) (Ref No: [2008] No.218))

(IV) Basis of assets rights

1. 重大設備購置合同 Purchase contract of major equipments;

2. 資產取得、使用等有關的合同、會計憑證及其它資料 Contract, financial document and other documentation related to the assets acquisition and assets utilization.

3. (V) Source of pricing data

4. 《天津市建築工程預算基價編製說明》 (Description of Preparation for Estimated Base Price of Construction Work in Tianjin) ;

5. 《2008年天津市建築工程預算基價》( 2008 Estimated Base Price of Construction Work in Tianjin );

6. 《2008年天津市裝飾工程預算基價》( 2008 Estimated Base Price of Decoration Work in Tianjin );

7. 《2008年天津市設備安裝工程預算基價》 ( 2008 Estimated Base Price of Equipment Installation Work in Tianjin );

8. 《2008年天津市市政工程預算基價》( 2008 Estimated Base Price of Municipal Works in Tianjin );

9. Construction budget, cost related to the confirmation, drawings, changes, approval document and any other data provided by enterprises;

10. 天津工程造價信息（2009年第12期）(Tianjin Construction Cost Information (Volume 12, 2009));

11. 國家發展計劃委員會、建設部關於發佈《工程勘察設計收費管理規定》的通知計價格 [2002]10號 (Notice of State Development & Planning Commission and Ministry of Construction on issuance of Engineering Survey and Design Fees Regulations (Ref No: [2002] No.10));

12. 財政部關於印發《基本建設財務管理規定》的通知財建(2002)394號 (Notice on Regulations on Financial Management of Capital Construction (Ref No: (2002) No.394) by Ministry of Finance);

13. 《2009年中國機電產品報價手冊》 ( 2009 Manual of Quotations for Mechanical & Electrical Products in China );

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APPENDIX II

VALUATION REPORTS

1. 評估基準日近期的《UDC聯合商情》、《慧聰商情》、《黑馬快訊》 ( UDC Joint Business Information, HC Business Information and Heima News Flash published around the date of valuation);

2. 《資產評估常用數據與參數手冊》（增訂版）(Manual of Data and Parameters that are Frequently Used in Assets Evaluation (Revised));

3. 中國人民銀行公佈的評估基準日銀行存貸款利率、匯率 (Deposit and loan rate as well as exchange rate published by People’s Bank of China as at the date of valuation).

(VI) References and others

1. Schedule of assets evaluation and investigation form provided by the appointors and assets owner;

2. Statistical data and technical standards published by relevant national authorities and other data collected by other valuation organizations.

VII. Valuation methodology

Cost approach was mainly adopted to appraise each type of assets based on their actual conditions, and the total value under the valuation is the sum of the value for each type of assets costs. The details about the valuation method for each type of asset are as follows:

1. Valuation of machinery and equipment

The cost approach was applied to provide valuation on machinery equipment. Market price approach is applied to the used equipment when its price is made available on the second-hand market.

Appraised value = Total replacement cost � residue rate

The types and characteristics of equipments were mainly included in the scope of the valuation.

• (1) Determination of total replacement cost

• (i) For the equipment not requiring installation:

Total replacement cost = Purchasing price of equipment + Transportation cost

• (ii) Domestic equipment requiring installation:

Total replacement cost = Purchasing price of equipment + Transportation cost + testing and commissioning cost + Preliminary construction cost and other costs + capital cost

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VALUATION REPORTS

APPENDIX II

Capital cost was considered when project cycle was longer than half a year.

• (iii) For the imported machinery equipment, CIF price was determined after addressing inquiry to domestic agency, consulting recent price fluctuations of similar equipment as well as difference between the quotation and the transaction price. CIF price, which was used as a basis, was multiplied by foreign exchange rate of the base date, plus the relevant tariff, value added tax, agent fees of foreign trade, bank service charges, commodity inspection fee, domestic transportation, installation fee, technological design cost, management cost of construction unit and capital cost, constituted the total replacement price.

Capital cost = (Purchasing price of equipment + Transportation cost + Testing and commissioning cost + deposit and other costs) � interest rate at base date in different years � construction period � 1/2

Alternative principle was applied to appraise the equipment whose price was not available or existing technical performance of similar equipment of which has been improved. Thus, total replacement cost was determined based on current price of similar equipment and taking functional depreciation and other reasonable expenses into consideration.

(2) Determination of residue rate

Residue rate of the equipment was determined and corrected mainly by applying service life method, but other factors were also be taken into consideration, such as conducting site inspection to obtain equipment performance status, inspect the operational status of major equipment and system as well as main technical index, inquired engineers and operators relating to the conditions, repair and maintenance of the equipment.

(3) Determination of appraised value

According to the above analysis, appraised value was derived from multiplying total replacement price by residue rate.

Appraised value = Total replacement cost � Residue rate

2. Valuation on structures, pipelines and trenches

Structures, pipelines and trenches within the scope of valuation shall valuated by adopting the most reasonable and applicable method according to actual conditions of specific assets. Cost approach was applied in this valuation.

Calculation formula is: Appraised value = Total replacement cost � Residue rate

(1) Determination of total replacement cost

Total replacement cost = Integrated construction cost + Preliminary construction cost and other costs + capital cost

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VALUATION REPORTS

APPENDIX II

Calculation is performed in accordance with following procedures:

• (i) Integrated construction cost is mainly composed of direct cost of construction and installation. Drawing budget and financial statement data and other relevant data of structures, pipelines and trenches under valuation was collected and then corresponding calculation was performed based on the above data. Integrated construction cost of building was calculated based on the construction project norm, charging standard and rate of construction project, and adjustment factor of labor cost published by Tianjin Municipal People’s Government.

• (ii) Calculation of preliminary construction costs and other costs

Preliminary construction cost and other costs were calculated based on each cost related to construction project that was published by national authorities and the relevant departments of 天津市政府 (Tianjin Municipal People’s Government[#] ) and that was valid as at the base date of valuation.

• (iii) Calculation of capital cost:

Capital cost is the loan interest and used as investment during the construction period. Accrued interest of buildings under construction was calculated based on normal construction period. Current interest rate was considered, assuming that integrated construction cost and other allocation cost have already been regularly invested during construction period. Calculation formula is: capital cost = (Integrated construction and installation cost + Preliminary cost) � loan interest rate � Construction period/2.

(2) Determination of residue rate

Theoretic residue rate is adopted in this evaluation as the objects within the scope of valuation are all structures, pipelines and trenches. The calculation formula is as follows:

Theoretic residue rate = (Durability - Usage life)/ Durability �100%.

• (3) Determination of appraised value

Appraised value was derived by multiplying total replacement cost by residue rate.

VIII. Implementation process and status of valuation

(I) Acceptance of appointment

On 7 April 2010, Beijing China Enterprise Appraisals Co., Ltd. was appointed by Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd. to act as the assets valuer for the Project.

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APPENDIX II

(II) Preparation of valuation plan

Assets valuation plan was made according to the assets value, assets characteristics and assets distribution condition.

(III) Establishment of valuation team

Our Company established an assets evaluation team that was responsible for the project. Principal of the project was appointed and valuation team was also assembled.

(IV) Assets inspection

Based on truthful assets declaration and overall assets inspection to be appraised, we have inspected the assets that are within the scope of this valuation. Contents of inspection included assets verification, usage condition, assets rights and other factors affecting the valuation pricing. The inspection period was from 13 April 2010 to 16 April 2010. The detailed procedures were as follows:

1. Instructed the finance personnel and assets management personnel to register and report assets based on assets inspection as required by the appraised organization.

2. The valuers used the assets valuation schedules and accounted for assets’ properties and assets’ characteristics. The valuers verified the assets by applying the methods in the composition, usage and maintenance conditions of the assets are considered.

3. Verification of property rights certificates

A necessary inspection was conducted to verify the legal ownership information and source of information of valuation object within the scope of valuation provided by enterprises being valued.

(V) Valuation and estimation

The period for valuation and estimation was between 17 April 2010 to 26 April 2010. Based on the valuation plan that was prepared according to the characteristics of the project by the appointors, the valuer took into account the conditions of the enterprises and determined the pricing plan of various assets, then defined evaluation parameters and price standards, and then performed the evaluation and estimation. As such, preliminary valuation results were presented successively.

(VI) Summary, auditing, and takeover

Valuation team summarized each professional evaluation schedule and valuation description based on the work plan. Principal of the team was responsible to finalize the summary of valuation schedule, prepare description and valuation report, and submitted

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VALUATION REPORTS

APPENDIX II

complete evaluation schedule, valuation description, valuation report, as well as working paper to the organization for Level-III audit after the inspection. Project team submitted draft valuation report to the appointors after updating the valuation report based on opinions from the review.

(VII) Report submission

Report was submitted to the appointors on 28 April 2010.

• IX. Basis of assumptions

The valuation report is a fair conclusion that was drawn after valuation performers by professional valuers of CEA. The said conclusion results exhibit rational analysis, argumentation and comparison that were performed by the said valuers of the value of the assets, according to actual conditions. The valuation report is a conclusion of the valuation on the basis of the following valuation hypotheses:

1. In terms of legal descriptions or legal matters of the appraised assets (including its ownership or incumbent limitations), CEA performed general investigation by complying with relevant codes. Save for disclosed in our appraised work report, we assume the ownership of appraised assets is valid and the assets can be liquidated in the market; furthermore they were not subject to any lien or easement and they were not encroached or had any other incumbent limitations;

2. In terms of information employed as basis for all or part of the valuation’s conclusions in the valuation report, CEA holds the view that the sources of all such information, including those provided by assets owners and other parties are reliable and appropriate based on prudent analysis;

3. After verification, all licenses, usage permits, letters of consent or other legal or administrative authorization documents that were signed and issued by relevant local and national government organizations and groups, and the way in which the assets were used that were employed as basis of value estimation in the valuation report, are legally valid within the period of validity and as at the base date of valuation. The valuation team assumed that the said licenses, files, etc, will be approved and renewed (such as business license, etc) at any time when their validity terms expire;

4. Save for disclosed in work report, we asssume that the enterprise has completely complied with any relevant local and national laws and regulations;

5. We assume that all the improvements of all relevant assets performed by the enterprise has been in line with all relevant laws and regulations related to other laws, plans, or engineering codes set by relevant competent departments at higher levels;

6. Within the scope of valuation, specific sewage were not considered as an entire system assets. During the valuation process, the team assumed these assets under valuation were used together with other complementary assets so that the assets under valuation would perform effectively.

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VALUATION REPORTS

APPENDIX II

If any one of the above-mentioned conditions fails, the valuation conclusion will be influenced affected heavily.

X. Conclusion

CEA has performed valuation of assets owned by Tianjin Sewage Company. According to the national regulations base on valuation, and on the principle of “independence objectiveness and justness”, and the necessary valuation procedures, the valuation has mainly employed the cost approach and has drawn the following conclusions after completion:

On the premise of going concern as at the reference date of 31 December 2009, the original book value and the net book value of the appraised assets were RMB209.8910 million and RMB209.8910 million respectively before valuation. The original value and the net book value of the assets were RMB234.8046 million and RMB213.1962 million respectively after valuation; the original value increased by RMB24.9136 million at an appreciation rate of 11.87%, while the net value increased by RMB3.3052 million at an appreciation rate of 1.57%.

Summary of the detailed evaluation is shown in the following table:

Summary of the valuation results

		Unit: RMB 10,000 Book Value Appraised Value Differences Rate (%) A B C=B-A D=C/A*100% 0.00 0.00 0.00 20,989.10 21,319.62 330.52 1.57 20,989.10 21,319.62 330.52 1.57 20,989.10 21,319.62 330.52 1.57
	Item
	Current assets 1
	Non-current assets 2
	Fixed assets 3
	Total assets 4

The conclusions reflect the purpose of this valuation, the evaluation object’s current price was set according to principles of open market without considering these the following conditions: influence on assets’ price from mortgage and guarantee likely to be undertaken in the future and additional amount likely to be paid by special counterparty on valuation value, influence of changes to the state’s macroeconomic policies, and occurrence of natural disasters and other force majeure. In general, if the said conditions change, valuation results will become invalid.

The appointors and users of the report shall pay particular attention to the hypotheses and special matters disclosed in the assets valuation report.

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APPENDIX II

XI. Valuation analysis

Details of the changes are set out as follows (after adopted the cost approach and compared with the net book value):

Unit: RMB

	Account title	Book value Appraised value Rate (%) Original value Net value Original value Net value Original value Net value 209,890,989.69 209,890,989.69 234,804,590.00 213,196,225.00 11.87 1.57 110,920,192.35 110,920,192.35 129,551,200.00 120,399,623.00 16.80 8.55 98,970,797.34 98,970,797.34 105,253,390.00 92,796,602.00 6.35 -6.24
	Fixed assets
	Buildings
	Equipments

Compared with book value, reasons of changes shown in assets appraised results are as follows:

1. Structures, pipelines and trenches

Original value and net book value of structures, pipelines and trenches increased at the rates of 16.80% and 8.55% respectively. Based on our analysis, since the structures, pipelines and trenches were completed at the end of 2007, cost level of construction and installation of Tianjin City has shown a remarkable increase until base dateof the end of 2009. On the other hand, appreciation margin of valuation’s net book value is less than that of their original value as the buildings did not provide any depreciation.

2. Machinery equipments

Original value of machinery equipments increased at the rate of 6.35% and their net value decreased at the rate of 6.24%. Reasons for the original value increase are as follows: most of equipments were imported from Europe with free from tariff and value added tax. However, such equipments cannot enjoy the benefit of the policy as at the base date, while the Euro depreciated at the valuation date. Accordingly, there was an offset to bring the original value increased while the appraised net book value had a slighty decrease as there was no depreciation on the machinery equipments.

XII. Special matters

During the valuation process, we found that the following matters (including but not limited to) are likely to affect the valuation conclusions. Such matters are outside our scope of ability and capacity of:

• (I) Valuation conclusions might be affected by the professional level of our valuers who participated in the Project.

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APPENDIX II

• (II) The bases to prepare this report is the business license, property rights certificates, financial statement, accounting voucher and other relevant materials related to the valuation provided by the appointors. Tianjin Sewage Company and Tianjin Capital Environmental Protection Group Co., Ltd. shall be responsible for authenticity, legality, and integrity of their materials provided.

• (III) Tianjin Sewage Company furnished legal ownership materials of valuation object and shall be responsible for authenticity, legality, and integrity of the said furnished materials. According to [2003]18號文《注冊資產評估師關注評估對象法律權屬指導意見》 regulations of (Guidelines for Certified Public Valuers Concerning Legal Ownership of Valuation Object Ref No: [2003] No. 18) purpose is to perform appraised value of object being valuated and provide professional opinions. Confirmation of legal ownership of evaluation object or expressing of opinions does not belong to practice scope of Certified Public Valuers.

• (IV) CEA and our valuers shall not assume relevant responsibilities if the enterprise does not provide explanations and the said faulty matters cannot be clarified after evaluators has gone through the evaluation procedures (in terms of any faulty matters which existed in the enterprises and are likely to affect the value of assets.

• (V) If assets quantity and valuation standard have changed and affected the evaluation conclusions after the valuation date, the valuation conclusions shall not be used and must be adjusted or reevaluated.

• (VI) Land use rights, where the structures under valuation are located, belong to Tianjin Capital Environmental Protection Group Co., Ltd.

• (VII) In terms of concealed works like inlet and outlet channels, their work value were determined based on relevant materials like drawings of completed works that were furnished by the assets owner; and the valuators did not perform any direct physical inspection of the said works’ specific conditions.

• (VIII) Most of the valuation objects were equipments acquired before 1 January 2009. Users of the report should pay attention to the fact that value added tax similar to value added tax payable for imported equipments in line with tax regulations, was included in the evaluation value.

Users of the valuation report shall pay attention to the influence of the above-mentioned special matters on the conclusions.

XIII. Restrictions on the use of Asset Valuation Report

• (I) The valuation report only serves the valuation purpose specified in the report and shall not be used for other commercial dealings.

• (II) The valuation report shall only be employed by users specified herein.

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APPENDIX II

VALUATION REPORTS

• (III) The conclusions shall only serve for the valuation purpose for the appointors. Unless otherwise specified in laws and regulations or agreed by related parties, it is prohibited to extract, quote or disclose to public media the content of the said report without seeking permission from CEA.

• (IV) The report is a professional conclusion supplied by the valuer according to the relevant state’s laws and regulations and will attain legal effect if it is affixed with an official seal and signature of CEA.

• (V) The usage validity period of the valuation results of the Report will be for a year from the base date of valuation to the date of the realization of the commercial dealings and on the assumption that no substantial changes of the market conditions. When purpose of the evaluation is realized within a year after the date of valuation, the conclusions can be regarded as references. However, if the valuation is beyond a year or there are substantive changes occuring to market conditions or assets, assets shall be revalued.

XIV. Date of valuation report

Date of valuation report is 28 April 2010.

Legal representative or authorizer:

Certified Public Valuer: Wang Hongyu Certified Public Valuer: Zhang Guoqiang

Beijing China Enterprise Appraisal Co., Ltd. 28 April 2010

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GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particular given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Interests of Directors, supervisors and chief executives of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors, supervisors or chief executives of the Company in the Shares, underlying Shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which were required to be (i) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors, supervisors or chief executives of the Company was taken or deemed to have under such provisions of the SFO); or (ii) entered in the register kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies were as follows:

Interests in the domestic shares of the Company:

				Approximate
				percentage in
				the total issued
	The Company/		Number and	share capital of
	name of		class of	the Company/
	associated		securities	associated
Name	corporations	Capacity	(note)	corporations
Mr. Nie Youzhuang	The Company	Beneficial	959 domestic	0.00007%
(Supervisor)		owner	Shares (L)

Note: The letter “L” represents the person’s long positions in the Shares, underlying Shares and debentures of the Company or its associated corporations.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, supervisors or chief executive of the Company had any interest or short positions in the Shares, underlying Shares and debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which is required to be (i) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors, the supervisors or chief executives of the Company were taken or deemed to have under such provisions of the SFO); or (ii) entered in the register kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

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APPENDIX III

GENERAL INFORMATION

As at the Latest Practicable Date, so far as the Directors were aware, none of the Directors or their respective associates were considered to have interest in any business, which competes or may compete with the business of the Company or has any other conflict of interest with the Company which would be required to be disclosed under Rule 8.10 of the Hong Kong Listing Rules.

None of the Directors has any interest, direct or indirect, 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 2009, the date to which the latest published audited financial statement of the Group was made up.

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

(b) Substantial Shareholders interests

As at the Latest Practicable Date, save as disclosed below, so far as is known to the Directors, the supervisors or the chief executives of the Company, no other person has an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or were required to be notified to the Company and the Stock Exchange pursuant to section 324 of the SFO, or, who is, 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:

Long positions in the Shares:

			Approximate	Approximate	Approximate
		Number and	percentage in	percentage in
		class of	the relevant	the total issued
		securities	class of	share capital of
Name of Shareholder	Capacity	(note)	securities	the Company
Tianjin International	Beneficial	755,704,199	69.51%		52.95%
Investment Company	owner	A Shares (L)
Limited
Edmond de Rothschild Asset	Investment	33,900,000	9.97%		2.38%
Management	manager	H Shares (L)
Edmond de Rothschild Asset	Investment	33,300,000	9.79%		2.33%
Management Hong Kong	manager	H Shares (L)
Limited
ISIS Asset Management Plc.	Investment	17,286,000	5.08%		1.21%
	manager	H Shares (L)
HSBC Asset Management	Investment	20,000,000	5.88%		1.40%
(Hong Kong) Limited	manager	H Shares (L)

Note: The letter “L” represents the entity’s long positions in the Shares.

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GENERAL INFORMATION

APPENDIX III

3. SERVICE CONTRACTS

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).

4. 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.

5. EXPERT AND CONSENT

The following is the qualification of the expert whose reports are contained in this circular:

Name Qualification

Beijing China Enterprise Appraisals Professional valuation firm Company Limited[#] (北京中企華資 產評估有限責任公司) (“ China Enterprise ”)

As at the Latest Practicable Date, China Enterprise has no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group. China Enterprise also has no direct or indirect interest in any assets which has been since 31 December 2009 (being the date to which the latest published audited consolidated accounts of the Group were made up), acquired or disposed of by or leased to any member of the Group or, is proposed to be acquired or disposed of by or leased to, any member of the Group.

China Enterprise has given and has not withdrawn its written consent dated 25 November 2010 to the issue of this circular with the inclusion herein of its reports and/the reference to its name, in the form and context in which it appears.

6. MISCELLANEOUS

• (a) The company secretary to the Board is Ms. Fu Yana. Ms. Fu is an economist. She obtained a bachelor degree in journalism from 天津師範大學 (Tianjin Normal University[#] ) and a master degree in business administration from 南開大學 (Nankai University[#] ). The company secretary of the Company in Hong Kong is Mr. Lo Wai Keung, Eric. He is a solicitor admitted in Hong Kong.

• (b) The registered office of the Company is No. 45 Guizhou Road, Heping District, Tianjin, the PRC (Postal code: 300051). The principal office address of the Company is situated at TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC (Postal code: 300381).

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GENERAL INFORMATION

APPENDIX III

7. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) were entered into by members of the Group within two years immediately preceding the date of this circular and up to the Latest Practicable Date:

• i) the tenancy agreements and their supplemental agreements dated 23 December 2008 and 24 September 2009 entered into between the Company (as landlord) and 天津城市基礎設施建 設投資有限公司 (Tianjin City Infrastructure Construction and Investment Group Limited[#] ) relating to the lease of certain area from 3rd floor to 12th floor of TCEP Building and 28 car parking spaces;

• ii) the tenancy agreements and their supplemental agreements dated 23 December 2008 and 24 September 2009 entered into between the Company (as landlord) and 天津城投建設工程管 理諮詢有限公司 (Tianjin City Investment and Construction Engineering Management and Consultation Company Limited[#] ) relating to the lease of certain area of 3rd floor to 4th floor of TCEP Building and 10 car parking spaces;

• iii) the tenancy agreements and their supplemental agreements dated 23 December 2008 and 24 September 2009 entered into between the Company (as landlord) and 天津城投城市資源經 營有限公司 (Tianjin City Investment and Resources Operating Company Limited[#] ) relating to the lease of certain area of 6th floor of TCEP Building and 10 car parking spaces;

• iv) the guarantee agreement dated 29 December 2009 entered into between China Development Bank and the Company relating to the provision of guarantee for the RMB80 million loan of 武漢天創環保有限公司 (Wuhan Tianchuang Environmental Protection Company Limited[#] ) (the wholly-owned subsidiary of the Company) for financing the outstanding investment amount of 咸寧市咸安污水處理廠項目 (Xian’an Sewage Water Treatment Plant project in Xianning City[#] ); and

• v) the Asset Transfer Agreement.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the office of Messrs. Li & Partners at 22nd Floor, World Wide House, Central, Hong Kong during normal business hours on any weekday (except public holidays) for a period of 14 days from the date of this circular:

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

• (b) the annual reports of the Company for the three years ended 31 December 2009;

• (c) the valuation reports on the Transferred Assets;

• (d) the written consent as referred to in the paragraph headed “Expert and Consent” in this appendix;

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GENERAL INFORMATION

APPENDIX III

• (e) the material contracts as referred to in the paragraph headed “Material Contracts” in this appendix; and

• (f) this circular.

— 62 —

NOTICE OF EGM

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 1065)

NOTICE OF 2010 FIRST EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2010 first extraordinary general meeting of Tianjin Capital Environmental Protection Group Company Limited (the “ Company ”) will be held at the conference room of the Company on 5/F, TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the People’s Republic of China (the “ PRC ”) on 28 December 2010 at 10:00 a.m. for the purpose of considering the resolutions as listed below:

Unless otherwise indicated, capitalized terms used herein shall have the same meanings as those defined in the announcement of the Company dated 9 November 2010.

• I. As ordinary resolutions:

• the Asset Transfer Agreement (a copy of which has been produced to the EGM marked “1” and signed by the chairman of the EGM for the purpose of identification), and the terms and conditions thereof and the transactions contemplated thereunder and the implementation thereof be and are hereby approved and confirmed; and

• any one of the Directors be authorised for and on behalf of the Company, among other matters, to sign, execute, perfect, deliver or to authorise signing, executing, perfecting and delivering all such documents and deeds, to do or authorise 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 Asset Transfer Agreement, and to waive compliance from or make and agree such variations of a non-material nature to any of the terms of the Asset Transfer Agreement they may in their discretion consider to be desirable and in the interests of the Company and all the Directors’ acts as aforesaid be hereby approved, ratified and confirmed.

• II. As special resolution:

• To consider and approve the proposal in relation to the amendment to the Articles of Association of the Company.

By order of the Board Zhang Wenhui

Chairman

Tianjin, the PRC

• 9 November 2010

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NOTICE OF EGM

As at the date of this notice, the Board comprises four executive Directors: Mr. Zhang Wenhui, Mr. Lin Wenbo, Ms. Fu Yana and Ms. Zhong Huifang; two non-executive Directors: Mr. An Pindong and Ms. Chen Yinxing; and three independent non-executive Directors: Mr. Xie Rong, Mr. Di Xiaofeng and Ms. Lee Kit Ying, Karen.

Notes:

• (1) The holders of shares (the “ Shareholders ”) whose names appear on the register of members at 4:00 p.m. on 26 November 2010 will be entitled to attend the general meeting. The holders of H shares of the Company (“ H Shares ”) are reminded that the register of members of the Company’s H Shares will be closed from 27 November 2010 to 27 December 2010, both days inclusive, during the period no transfer of H Shares will be effected. All transfers, accompanied by the relevant share certificates, must be lodged for registration with the Company’s H Shares registrar and transfer office, Hong Kong Registrars Limited at Rooms 1712 -1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not later than 4:00p.m. on 26 November 2010. The holder of H Shares and whose name appears on the register of members of the Company’s H Shares on 27 November 2010 or his/her proxy may attend the general meeting by bringing his/her own identity card or passport.

• (2) Each Shareholder having the rights to attend and vote at the general meeting is entitled to appoint in written form one or more than one proxies (whether a Shareholder or not) as his proxy to attend and vote on his behalf at the general meeting. If more than one proxy is appointed by a Shareholder, such proxy shall only exercise his voting rights on a poll.

• (3) Shareholders can appoint a proxy by an instrument in writing (i.e. by using the enclosed form of proxy). In order to be valid, the form of proxy and, if such form of proxy is signed by a person under a power of attorney or authority on behalf of the appointer, a notarially certified power of attorney (if any) or other authority (if any) under which it is signed, must be deposited at 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 general meeting.

• (4) Shareholders who intend to attend the general meeting should complete and return the completed and signed reply slip for attendance to the office of the secretary of the Board at the Company’s principal office address on or before 7 December 2010 by hand, by post or by facsimile. Please use the enclosed reply slip or its copy for the purpose of confirmation.

• (5) Shareholders or their proxies shall present proofs of their identities upon attending the general meeting. Should a proxy be appointed, the proxy shall also present the form of proxy.

• (6) The general meeting is expected to last for about half a day. The Shareholders and their proxies attending the general meeting 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: 86-22-23930128

Facsimile: 86-22-23930126

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