Sinopec Engineering Group Co Ltd. — Proxy Solicitation & Information Statement 2018

Sep 19, 2018

THE CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in SINOPEC Engineering (Group) Co., Ltd. , you should at once hand this circular, together with the accompanying form of proxy, to the purchaser or to the transferee or to the bank, stockbroker or other agent through whom the sale 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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中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.*

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

(Stock Code: 2386)

MAJOR TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS UNDER THE FINANCIAL SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

MAJOR TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS UNDER THE ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

PROPOSED APPOINTMENTS OF DIRECTORS OF THE THIRD SESSION OF THE BOARD

PROPOSED APPOINTMENTS OF SUPERVISORS OF THE THIRD SESSION OF THE SUPERVISORY COMMITTEE

PROPOSED AMENDMENTS TO THE ARTICLES

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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A letter from the Board is set out on pages 5 to 36 of this circular. A letter from the Independent Board Committee is set out on pages 37 to 38 of this circular. A letter from Dongxing Securities is set out on pages 39 to 66 of this circular.

An extract of the notice convening the first extraordinary general meeting for the year 2018 (“EGM”) to be held at 9 am on Friday, 26 October 2018 at Conference Room 201, Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC is set out on pages 67 to 71 of this circular.

If you intend to attend the EGM, please complete and return the enclosed reply slip in accordance with the instructions printed thereon as soon as possible and in any event by Saturday, 6 October 2018.

Whether or not you are able to attend the EGM, please complete and return the enclosed proxy form in accordance with the instructions printed thereon as soon as possible and in any event not less than 24 hours before the time scheduled for holding the EGM (or any adjourned meeting thereof). Completion and delivery of the proxy form shall not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

* For identification purposes only

18 September 2018

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Notice of the Extraordinary General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	67
Appendix I — Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	72
Appendix II — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	73
Appendix III — Biographical Details of the Proposed Directors and Supervisors . . . .	78

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DEFINITIONS

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

“Articles” the articles of association of the Company, as amended, supplemented or otherwise modified from time to time “associate(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules “Board” the board of directors of the Company “CBIRC” or “CBRC” China Banking and Insurance Regulatory Commission (中國銀行保險監督管理委員會) or its predecessor, China Banking Regulatory Commission (中國銀行業監督管理委員 會) “Company” SINOPEC Engineering (Group) Co., Ltd., a joint stock limited liability company incorporated under the laws of the PRC on 28 August 2012, which is listed on the Hong Kong Stock Exchange (Stock Code: 2386) “Company Law” the Company Law of the People’s Republic of China (中華人 民共和國公司法), as amended and adopted by the Standing Committee of the Twelfth National People’s Congress on 28 December 2013 and effective on 1 March 2014 (as amended, supplemented or otherwise modified from time to time) “connected person(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules “connected transaction(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules “controlling shareholder(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules “Director(s)” the director(s) of the Company “Dongxing Securities” Dongxing Securities (Hong Kong) Company Limited, a corporation licensed to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities as defined under the Securities and Futures Ordinance “Domestic Share(s)” ordinary share(s) of the share capital of the Company, with a nominal value of RMB1.00 each, which are subscribed for and paid up in RMB and are unlisted Shares which are currently not listed or traded on any stock exchange

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DEFINITIONS

“EGM”

the first extraordinary general meeting of the Company for the year 2018 to be convened and held at 9 am on Friday, 26 October 2018 at Conference Room 201, Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC

“EGM Notice”

the notice for convening the EGM set out on pages 67 to 71 of this circular

“Engineering and Construction an engineering and construction services framework Services Framework agreement entered into between the Company and Sinopec Agreement” Group on 19 December 2012 and as amended by supplemental agreements dated 28 August 2015 and 21 August 2018

“Financial Services Framework a financial services framework agreement entered into Agreement” between the Company and Sinopec Group on 19 December 2012, as amended by supplemental agreements dated 22 April 2013, dated 28 August 2015 and 21 August 2018

“Framework Agreements” the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement “Group” the Company and its subsidiaries “H Share(s)” overseas listed foreign invested ordinary share(s) in the ordinary share capital of the Company, with a nominal value of RMB1.00 each, listed on the Main Board of the Hong Kong Stock Exchange “HK$” the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Hong Kong Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended, supplemented or otherwise modified from time to time “Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited “Independent Board Committee” a committee comprising the independent non-executive Directors, namely Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng, which is set up for the purpose of advising the Independent Shareholders on the terms of each of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps

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DEFINITIONS

“Independent Financial Adviser” Dongxing Securities, which was appointed by the Company as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps “Independent Shareholders” Shareholders other than Sinopec Group and its associates “Independent Third Party(ies)” party(ies) not connected with any of the Directors, the Supervisors, the chief executive or the substantial shareholders of the Company or any of its subsidiaries or their respective associates “Latest Practicable Date” 17 September 2018, being the latest practicable date before the printing of this circular for ascertaining certain information herein “Listing Date” 23 May 2013 on which the H Shares are listed and from which dealings therein are permitted to take place on the Hong Kong Stock Exchange “PBOC” the People’s Bank of China (中國人民銀行) “PRC” or “People’s Republic of the People’s Republic of China which, for the purpose of this China” circular, excludes Hong Kong, Macau Special Administration Region of the PRC and Taiwan “Proposed Annual Caps” the proposed annual caps in respect of each of the Framework Agreements for each of the years ending 31 December 2019, 2020 and 2021, respectively “Prospectus” the prospectus of the Company dated 10 May 2013 “R&D” research and development “RMB” the lawful currency of the PRC “SAMC” Sinopec Assets Management Co., Ltd. (中國石化集團資產經 營管理有限公司), a company incorporated in the PRC on 7 December 2005 with limited liability and a wholly-owned subsidiary of Sinopec Group, which is also a connected person of the Company “Securities and Futures the Securities and Futures Ordinance (Chapter 571 of the laws Ordinance” of Hong Kong), as amended, supplemented or otherwise modified from time to time

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DEFINITIONS

• “Share(s)”

share(s) in the share capital of the Company, with a nominal value of RMB1.00 each

• “Shareholder(s)”

holder(s) of the Shares

• “Sinopec Century Bright” Sinopec Century Bright Capital Investment Limited ( 中國石 化盛駿國際投資有限公司), a limited liability company incorporated in Hong Kong on 29 November 1994 and a wholly-owned subsidiary of Sinopec Group, which is also a connected person of the Company

“Sinopec Corp.” China Petroleum & Chemical Corporation (中國石油化工股 份有限公司), a joint stock limited liability company incorporated under the laws of the PRC, which is listed on the Hong Kong Stock Exchange (Stock Code: 0386), Shanghai Stock Exchange (Stock Code: 600028), the London Stock Exchange (Stock Code: SNP) and the New York Stock Exchange (Stock Code: SNP) and is a subsidiary of Sinopec Group

• “Sinopec Finance” Sinopec Finance Co., Ltd. (中國石化財務有限責任公司), a limited liability company incorporated in the PRC in 1998 with 49% of its equity interest being held by Sinopec Corp. and 51% of its equity interest being held by Sinopec Group, which is also a connected person of the Company

• “Sinopec Finance Companies”

• Sinopec Century Bright and Sinopec Finance

• “Sinopec Group”

• China Petrochemical Corporation (中國石油化工集團公司), a state-owned enterprise incorporated under the laws of the PRC and established in July 1998 upon reorganization of the former China Petrochemical Corporation (中國石油化工總公 司), and the Company’s controlling shareholder

• “subsidiary” or “subsidiaries”

• has the meaning ascribed thereto in section 15 of the Companies Ordinance (Chapter 622 of the laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

• “substantial shareholder(s)”

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

• “Supervisor(s)” the members of the Supervisory Committee

• “Supervisory Committee”

• the Company’s supervisory committee established pursuant to the Company Law

• “US$”

• the lawful currency of the United States of America

• “%”

• percentage ratio

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LETTER FROM THE BOARD

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中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.*

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

(Stock Code: 2386)

Non-executive Directors: LING Yiqun (凌逸群) (Chairman) LI Guoqing (李國清)

Executive Directors: LU Dong (陸東) (Vice Chairman) XIANG Wenwu (向文武) SUN Lili (孫麗麗) (Employee Representative Director) WU Derong (吳德榮) (Employee Representative Director)

Independent non-executive Directors: HUI Chiu Chung, Stephen (許照中) JIN Yong (金湧) YE Zheng (葉政)

18 September 2018

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS UNDER THE FINANCIAL SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

MAJOR TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS UNDER THE ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

PROPOSED APPOINTMENTS OF DIRECTORS OF THE THIRD SESSION OF THE BOARD

PROPOSED APPOINTMENTS OF SUPERVISORS OF THE THIRD SESSION OF THE SUPERVISORY COMMITTEE

PROPOSED AMENDMENTS TO THE ARTICLES

* For identification purposes only

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LETTER FROM THE BOARD

I. INTRODUCTION

Reference is made to the Company’s announcement dated 21 August 2018. The purpose of this circular is to provide you with, among other things, further information in relation to the following resolutions to be proposed at the EGM:

1. to consider and approve the terms under the Financial Services Framework Agreement, the renewal of the continuing connected transactions thereunder and the proposed annual caps in respect thereof for each of the years ending 31 December 2019, 2020 and 2021, respectively. The services of deposits and entrustment loans under the Financial Services Framework Agreement will also constitute a major transaction of the Company on an aggregated basis;

2. to consider and approve the terms under the Engineering and Construction Services Framework Agreement, the renewal of the continuing connected transactions thereunder and the proposed annual caps in respect thereof for each of the years ending 31 December 2019, 2020 and 2021. The engineering and construction services provided by the Group to Sinopec Group and/or its associates thereunder will also constitute a major transaction of the Company on an aggregated basis;

3. to consider and approve the proposed appointments of the Directors of the Third Session of the Board and Supervisors of the Third Session of the Supervisory Committee, and the biographical details of the Directors and Supervisors candidates; and

4. to consider and approve certain proposed amendments to the Articles.

II. TRANSACTIONS UNDER THE FRAMEWORK AGREEMENTS AND THE PROPOSED ANNUAL CAPS

1. Background Information

References are made to the Company’s announcement dated 31 August 2015, and the Company’s announcement and circular dated 14 September 2015, and the Company’s poll results announcement for the extraordinary general meeting held on 30 October 2015. The Company reviewed and approved the resolutions in relation to the terms under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the renewal of the continuing connected transactions thereunder and the proposed annual caps for the years ending 31 December 2016, 2017 and 2018, respectively, at the third extraordinary general meeting of the Company for the year 2015 held on 30 October 2015. Pursuant to the said meeting, the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement were renewed for three years, with a valid term from 1 January 2016 to 31 December 2018.

References are made to the Company’s announcement dated 21 August 2018 in relation to (among other things) the renewal of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the proposed annual caps thereunder. Since the Financial Services Framework Agreement and Engineering and Construction Services Framework

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LETTER FROM THE BOARD

Agreement will expire on 31 December 2018, the Company and Sinopec Group entered into supplemental agreements on 21 August 2018, renewing each of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement for another three years. Pursuant to the renewals, a new valid term of each of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement will be extended and be from 1 January 2019 to 31 December 2021, subject to the Independent Shareholders’ approval of such renewal.

On 21 August 2018, the Board reviewed and approved, among other things, the proposed resolutions in relation to the terms under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the renewal of the continuing connected transactions thereunder, the proposed annual caps for the years ending 31 December 2019, 2020 and 2021, respectively, and to convene the EGM for the Independent Shareholders to consider and, if thought fit, approve, among other things, the above proposed resolutions. Sinopec Group and its associates will abstain from voting at the EGM in respect of the above proposed resolutions.

As each of the highest applicable percentage ratios of the annual caps in respect of the continuing connected transactions under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement exceeds 5%, thus, in accordance with the Hong Kong Listing Rules, such transactions shall be subject to the reporting, annual review, announcement and the Independent Shareholders’ approval under Chapter 14A of the Hong Kong Listing Rules. Meanwhile, since each of the highest applicable percentage ratios of the proposed annual caps in respect of the services of deposits and entrustment loans under the Financial Services Framework Agreement and the engineering services provided by the Group to Sinopec Group under the Engineering and Construction Services Framework Agreement exceeds 25%, such transactions will also constitute major transactions of the Company on an aggregated basis, and are subject to the announcement, circular and Independent Shareholders’ approval under Chapter 14 of the Hong Kong Listing Rules.

The Independent Board Committee has been established to advise the Independent Shareholders as to the terms of each of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions and major transactions thereunder and the Proposed Annual Caps.

2. Financial Services Framework Agreement

(a) Signing Date and Term

The Company entered into a financial services framework agreement with Sinopec Group on 19 December 2012, as amended by a supplemental agreement dated 22 April 2013 and a second supplemental agreement dated 28 August 2015 and a third supplemental agreement dated 21 August 2018 (collectively, the “ Financial Services Framework Agreement ”). Pursuant to the supplemental agreement dated 21 August 2018, the term of the Financial Services Framework Agreement has been extended by both parties after arm’s length negotiations for another three years from 1 January 2019 to 31 December 2021, subject to Independent Shareholders’ approval at the EGM.

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LETTER FROM THE BOARD

(b) Scope of Services

Pursuant to the Financial Services Framework Agreement, Sinopec Finance and Sinopec Century Bright will provide financial services to the Group, and such financial services primarily include deposits, loans, entrustment loans, settlement services, entrustment investments, financial and financing consulting, credit certification, insurance agency, exchange settlement, bond underwriting, foreign exchange business, and related consultancy and agency financial services. The Group enters into separate contracts with Sinopec Finance and Sinopec Century Bright, which set out the specific terms and conditions according to the principles provided in the Financial Services Framework Agreement.

(c) Pricing Policy

The pricing of the services provided under the Financial Services Framework Agreement shall be determined in accordance with the following principles in ascending order:

• (i) government-prescribed price and government-guided price: if at any time, the government-prescribed price is applicable to any particular financial service, such service shall be supplied at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;

• (ii) market price: the price of the same or similar services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and

• (iii) agreed price: to be determined by adding a reasonable profit over a reasonable cost.

Generally, the pricing of the services provided under the Financial Services Framework Agreement is determined by reference to (1) the government-prescribed price and government-guided price; and (2) the market price. In the unlikely event that the agreed price approach has to be used, with a view to arriving at a reasonable profit, such price will be determined through arm’s length negotiations between the relevant parties after taking into account the prevailing market and business conditions.

In particular, the Financial Services Framework Agreement provides that the services shall be provided in accordance with the following pricing principles:

• (i) Deposits services: the interest rate applicable to the Group’s deposits with the Sinopec Finance Companies will not be lower than: (x) the minimum interest rate published by the PBOC for deposits of a similar type for the same period (applicable to deposits with Sinopec Finance only); (y) the interest rate for deposits of a similar type for the same period placed by other members of Sinopec Group; and (z) the interest rate for deposits of a similar type for the same period offered by independent commercial banks to the Group;

• (ii) Entrustment loan services: the interest rates applicable to the Group’s entrustment loans to Sinopec Group through Sinopec Finance shall be (x) on normal commercial terms; (y) no

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LETTER FROM THE BOARD

less favourable than interest rates or comparable entrustment loans provided by other members of Sinopec Group to Sinopec Group through Sinopec Finance; and (z) generally not lower than the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp.; and

• (iii) Settlement and other financial services: the service fees for settlement, entrustment loans and other financial services charged by Sinopec Finance shall not be higher than (x) fees charged by independent commercial banks or financial institutions; and (y) fees charged to other members of Sinopec Group for similar services.

• (d) Termination

Before the termination of the Financial Services Framework Agreement, the parties may, according to the Hong Kong Listing Rules, negotiate and sign a new framework agreement or extend or renew the Financial Services Framework Agreement to ensure the normal operations of the relevant parties after expiration of the term of the Financial Services Framework Agreement.

(e) Commercial Rationale and Benefits of the Deposits and Entrustment Loans

Deposits

• (i) Centralized cash management. It is the Group’s policy to centralize its cash management function. As the terms offered by the Sinopec Finance Companies are no less favorable than the deposit interest rates published by the PBOC or independent commercial banks in Hong Kong for deposits of a similar type for the same period, the terms of placing deposits with the Sinopec Finance Companies are no less favorable to the Group than placing deposits with independent commercial banks. In addition, the centralized deposit of funds with the Sinopec Finance Companies will enable the Group to use the Sinopec Finance Companies as a primary clearing and settlement platform, provide the Group with access to a centralized cash pool (both onshore and offshore), giving the Group the flexibility to make timely withdrawals from time to time to meet its funding needs and reduce the need for the Group to obtain third party financing, which will in turn help it achieve a lower cost of funding and maximize cost and operational efficiencies.

• (ii) Clearing and settlement platform. In the Group’s ordinary course of business, as Sinopec Group is the Group’s single largest client, the Group transacts with numerous subsidiaries/affiliated companies of Sinopec Group. In line with Sinopec Group’s internal group policy, such subsidiaries/affiliated companies generally maintain settlement accounts with the Sinopec Finance Companies. The centralized maintenance of deposits by the Group with the Sinopec Finance Companies will facilitate clearing with other members of the Sinopec Group (some of whom are the Group’s clients), reduce the time required for remittance and receipt of funds and is generally more administratively efficient than settlement through independent banks. It would not be efficient for Sinopec Group (and its affiliates) and the Group to separately maintain bank accounts with independent banks for clearing and settlement.

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LETTER FROM THE BOARD

• (iii) Familiarity with the Group’s business. As the Sinopec Finance Companies only provide financial services to Sinopec Group and its members, they have over the years acquired extensive knowledge of the Group’s industry. In the context of the Group, the Sinopec Finance Companies are familiar with the Group’s capital structure, business operations, funding needs and cash flow pattern, which enables them to better anticipate and serve the Group’s business needs. As a result, the Sinopec Finance Companies are more well-positioned to provide the Group with bespoke and cost efficient services which would not be easy for independent commercial banks to replicate.

• (iv) Flexibility to the Group. The Group has the sole discretion to deposit and withdraw its deposits with the Sinopec Finance Companies from time to time. There is no restriction on the Group’s ability to deposit its cash with independent commercial banks in or outside the PRC now or in the future should the Group so wish. Currently, the Group maintains deposits with independent commercial banks in and outside the PRC and expects to continue to do so depending on the Group’s contractual and other requirements. The Group chooses to deposit its cash with the Sinopec Finance Companies as this helps the Group centralize the treasury management function.

Entrustment loans

• (i) Favourable short term fund investment options. Due to the nature of the Group’s business, the Group receives significant amounts of prepayments from clients from time to time, which may not be immediately required for its operational needs. Such prepayments are in effect advance payments from the Group’s clients, which the Group will apply towards performance of the underlying contracts as appropriate (such as purchase of raw materials and equipment, and payment of the Group’s sub-contractors) and are only temporarily idle. Therefore, the Group needs to invest such surplus cash prudently as it is an advance/deposit from the Group’s clients. Given the Group’s need to match funds within a relatively short period of time whilst maintaining flexibility to pay the Group’s trade payables from time to time, there is a lack of comparable alternative fund investment options. From the Group’s perspective, the provision of entrustment loans to Sinopec Group is a safe, cost efficient and flexible option for investing such cash surplus, which may not otherwise be available in the open market.

• (ii) Credit rating of Sinopec Group. Sinopec Group is the borrower of the entrustment loans. Pursuant to the terms of the entrustment loans, Sinopec Group has the sole obligation to repay principal and interest (and any late payment interest). In 2017, Sinopec Group obtained an A+ long term corporate credit rating from Standard & Poor with a stable outlook and an A1 long-term corporate credit rating from Moody’s with a stable outlook. As at the Latest Practicable Date, Sinopec Group had a registered capital of RMB274.867 billion. Sinopec Group ranked third in 2017 in Fortune Global 500. The Group therefore considers that lending to Sinopec Group is a low risk fund investment option. During the two years ended 31 December 2016 and 2017 and the six months ended 30 June 2018, Sinopec Group has not defaulted under any of the entrustment loans provided by the Group. Taking into account the creditworthiness of Sinopec Group and clean repayment history, the entrustment loans provided by the Group are generally unsecured. The Group considers that

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LETTER FROM THE BOARD

providing entrustment loans to Sinopec Group is a comprehensive, low risk fund investment option due to the top-tier credit rating of Sinopec Group and clean repayment history, generating a higher return for the Group than deposits which would have been the only other fund investment option for the Group given the investment policy with respect to such funds.

• (iii) Efficient and flexible cash management. Provision of entrustment loans to Sinopec Group will allow the Group to allocate its surplus cash efficiently within a relatively short timeframe. The Group’s entrustment loans to Sinopec Group generally do not exceed one year (the majority are for a period of one year or six months), enabling the Group to deploy its financial resources efficiently and flexibly. Upon the expiry of the entrustment loans, the Group will receive the principal amount and the interest payment in relation to such entrustment loans from Sinopec Finance Companies. Any new entrustment loans to Sinopec Group will be subject to normal approval procedures in a standardized way. Furthermore, whilst the Group has historically provided entrustment loans to Sinopec Group and expects to continue to do so in the future, the Group is not under any legal or other obligation to provide entrustment loans to Sinopec Group. Pursuant to the entrustment loan agreements, the Group is entitled to early terminate the entrustment loans (without penalty) at its option in which case current deposit interest rate will apply.

• (iv) Normal commercial terms. The Group understands that there is no market standard rate for entrustment loans as the interest rate is determined through arm’s length negotiations between the parties based on, among other things, relative bargaining power, risk profile and security value. The Group generally uses the prevailing base deposit rate published by the PBOC as a reference point with an upward adjustment taking into account the amount and term of the loan. In addition, the Group will refer to the list of interest rates which specifies the range of interest rates for different entrustment loan amounts and terms. Such list has been agreed by Sinopec Group and the Company after arm’s length negotiations and will be reviewed and re-negotiated by the parties periodically. Based on such list, the Company’s Chief Financial Officer and finance department will decide the interest rates of the entrustment loan agreements to be entered into between Sinopec Group and the Group. The Group will also make reference to other comparable rates, such as the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp., obtained through various channels such as banks and the relevant issuers (if any) for the purpose of ensuring that the interest rates for the entrustment loans are in the interests of the Company and the Shareholders as a whole. The interest rates on entrustment loans are generally not lower than the interest rates on bonds of similar terms issued by Sinopec Group and Sinopec Corp. The interest rates on entrustment loans provided by the Group to Sinopec Group are generally higher than the yield on principal-guaranteed wealth management products available in the PRC market.

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LETTER FROM THE BOARD

In addition, the Board has considered the risks, which mainly include (i) the risks commonly faced by the banking industry, and (ii) the possible material adverse change in the financial conditions of Sinopec Finance and Sinopec Century Bright, in association with the use of the services provided by Sinopec Finance and Sinopec Century Bright under the Financial Services Framework Agreement instead of the same services provided by independent commercial banks. However, after taking into account (i) that the interest rates on the Group’s entrustment loans are generally higher than yield on principal-guaranteed investment products available in the open market; (ii) Sinopec Group’s strong credit rating and clean repayment history; (iii) the potential significant drain on the Group’s time and resources to seek alternative borrowers and a lack of comparable alternative fund investment options compatible with the Group’s needs; and (iv) that the Group can early terminate its entrustment loans at its option (in which case the current deposit interest rate will apply), the Company and the Directors consider that the continuing connected transactions contemplated under the Financial Services Framework Agreement are in the interests of the Company and the Shareholders as a whole.

• (f) Internal control and corporate governance measures

Although there is no limit on the percentage of the Group’s total liquid and/or surplus funds to be deposited with the Sinopec Finance Companies or loaned to Sinopec Group, the Company considers that for the reasons explained above, such policy is in the interests of the Company and the Shareholders as a whole. The Group has further adopted (i) an independent financial system; (ii) risk management measures; (iii) internal control measures; and (iv) corporate governance measures with respect to the transactions (including the pricing mechanism) under the Financial Services Framework Agreement in order to further safeguard the interests of the Independent Shareholders. The relevant measures include, but not limited to, the following:

• The Sinopec Finance Companies and Sinopec Group provide sufficient information including various financial indicators (as well as annual and interim financial statements) at the end of every quarter to enable the Group to monitor and review the financial condition of the Sinopec Finance Companies and Sinopec Group.

• The Group requests, from time to time at its sole discretion, for the deposits with the Sinopec Finance Companies and the entrustment loans through Sinopec Finance to Sinopec Group to be withdrawn or early terminated (either in full or in part) to assess and ensure the liquidity and safety of its deposits and entrustment loans.

• Sinopec Group has undertaken, unconditionally and irrevocably, that it shall provide capital injection to Sinopec Finance in case of any payment difficulties arising from its operations. Such undertaking provides indemnification for the Group’s deposits with Sinopec Finance under the Financial Services Framework Agreement.

• The Group has adopted a cash management policy 《資金管理辦法》( ) and an internal bank management policy 《內部銀行管理辦法》( ). Such policies provide that the Group’s cash should be centrally managed in order to maximise the benefits of a cash pool. The Company’s finance department is responsible for administering the cash management policy and the internal bank management policy. When providing entrustment loans to

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LETTER FROM THE BOARD

connected persons (whether through Sinopec Finance or otherwise), the Group will consider the interest rate, service fees, term and use of loan and creditworthiness of the ultimate borrower based on principles of maximum return, cost control and risk control. The entrustment loan agreements (setting out interest rate, service fees, term and use of loan) are first approved by the Company’s finance department, then the Company’s Chief Financial Officer and ultimately by the Chairman of the Board or the Authorized Representatives.

• The Company’s management prepares risk assessment reports of the funds deposited with the Sinopec Finance Companies and entrustment loans to Sinopec Group every quarter which will be submitted to the Board for consideration.

• The independent non-executive Directors independently scrutinises the performance of the continuing connected transactions and the enforcement of the key contractual terms under the Financial Services Framework Agreement.

• Before entering into any transactions under the Financial Services Framework Agreement with the Sinopec Finance Companies, the Company will obtain at least three quotes from independent financial institutions for similar services of the same term. The Company will compare such quotes with those offered by the Sinopec Finance Companies, and decide whether to accept the quotes offered by the Sinopec Finance Companies.

• In the event that there is any change in the fees or interest rates for the services provided by the Sinopec Finance Companies to the Group under the Financial Services Framework Agreement, the Sinopec Finance Companies are required to notify the Company of (i) such change in the fees or interest rates; and (ii) the pricing information for the similar services provided by the Sinopec Finance Companies to other members of Sinopec Group. The relevant internal audit personnel of the Company will then check the aforementioned information to ensure that such revised fees or interests rates are not less favourable than the fees or interests rates offered by the Sinopec Finance Companies to the other members of Sinopec Group for similar services.

For further details of the Group’s internal control and corporate governance measures, please refer to the section headed “Connected Transactions” in the Prospectus and the Company’s announcement dated 21 August 2018.

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LETTER FROM THE BOARD

(g) Historical Amounts

Set out below (i) the fees in relation to settlement and other financial services paid to the Sinopec Finance Companies; (ii) the maximum daily balance of deposits and interest income arising from such deposits with the Sinopec Finance Companies; and (iii) the maximum daily balance of entrustment loans arranged through Sinopec Finance for each of the years ended 31 December 2016 and 2017 and the six months ended 30 June 2018:

			For the six
	For the year ended		months ended
	31 December		30 June
	2016	2017	2018
		(RMB’000)
Service fees in relation to settlement and other
financial services	2,717	1,027	663
Maximum daily balance of deposits and interest
income	6,219,448	5,631,217	5,957,796
Maximum daily balance of entrustment loans	14,100,000	15,500,000	17,000,000

(h) Existing and Proposed Annual Caps

Existing Annual Caps

As disclosed in the announcement dated 21 August 2018, the existing annual caps for each of the years ended 31 December 2016 and 2017 and the year ending 2018 are set out below:

	**For the years **	ended/ending 31 December	ended/ending 31 December
	2016	2017	2018
		(RMB’000)
Service fees in relation to settlement and other
financial services	4,620	5,080	5,580
Maximum daily balance of deposits and interest
income	8,000,000	8,500,000	9,000,000
Maximum daily balance of entrustment loans	16,600,000	19,400,000	22,500,000

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LETTER FROM THE BOARD

Proposed Annual Caps

The proposed annual caps for each of the years ending 31 December 2019, 2020 and 2021 are set out below:

	**For the **	**years ending 31 **	December
	2019	2020	2021
		(RMB’000)
Service fees in relation to settlement and other
financial services	3,120	3,480	3,840
Maximum daily balance of deposits and interest
income	7,500,000	9,000,000	10,000,000
Maximum daily balance of entrustment loans	19,000,000	21,000,000	22,000,000

Basis of the Proposed Annual Caps

In determining the above annual caps for each of the years ending 31 December 2019, 2020 and 2021, respectively, the Company has mainly considered:

• (i) the utilisation rate of the above-mentioned annual caps for each of the years ended 31 December 2016 and 2017 and for the six months ended 30 June 2018;

• (ii) the interest rates and fee rates in connection with deposits, entrustment loans and other financial services;

• (iii) the expected increase in the Group’s business volume for the years 2019, 2020 and 2021; and

• (iv) the Group’s expected net cash flow generated by its operating activities for the years 2019, 2020 and 2021.

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LETTER FROM THE BOARD

When determining whether funds are placed as deposits with the Sinopec Finance Companies or loaned to Sinopec Group through the provision of entrustment loans, the Group will take into account the following factors based on principles of maximum return, cost control and risk control: (i) the funding plan which specifies the Group’s long term and short term funding needs, operational needs and capital expenditure requirements; (ii) the Group’s fund investment needs with reference to the interest rates offered for deposits and entrustment loans; (iii) the amount of cash inflow from business operations; and (iv) the service fees charged and terms of entrustment loan.

In addition, the Group has also taken into account of following key basis and assumptions when determining the above annual caps:

(i) Deposit and interest income

For the continuing connected transactions in connection with the maximum daily balance of deposits and interest income, based on the historical figures for the two years ended 31 December 2016 and 2017, the utilization rates for the annual caps were 77.74% and 66.25% for 2016 and 2017 respectively; also, for the six months ended 30 June 2018, the maximum daily balance of deposits and interest income has already reached 66.20% of the annual cap of 2018.

Based on the utilization rates of the annual caps and the forecast that the domestic economy in China has entered into a phase of restructuring and stable growth, the Directors are of the view that the income generated by the Group in China will grow steadily, thus the maximum daily balance of the funds to be placed with Sinopec Finance is expected to grow stably accordingly. Meanwhile, the Directors are of the view that, in order to further strengthen offshore fund management and control and to satisfy the regulatory requirements on the offshore funds, the Group plans to reinforce the offshore fund centralization for the period from 2019 to 2021, hence the maximum daily balance of the funds to be placed with Sinopec Century Bright will increase accordingly.

(ii) Entrustment loans

For the continuing connected transactions in connection with the maximum daily balance of entrustment loans, based on the historical figures for the two years ended 31 December 2016 and 2017, the utilization rates for the annual caps were 84.94% and 79.90% for 2016 and 2017 respectively; also, for the six months ended 30 June 2018, the maximum daily balance entrustment loans has already reached 75.56% of the annual cap of 2018.

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LETTER FROM THE BOARD

The Directors have confirmed that the actual size of the entrustment loans by the Group was closely related to the net cash flow generated by the operating activities of the Company. The Directors have confirmed that, in order to maintain the capability to continuously develop the Group and the leading position in the industry amongst the peers, the Group adopted series of measures such as special clearing on receivables and inventories to improve operating cash flow, which help to maintain net cash flow generated by operating activities and operating income to be within the normal historical and industrial range. In this regard, it is expected that in 2019, 2020 and 2021, the Group will be able to achieve a stable growth in income, and net cash flow generated by operating activities is expected to rise as well.

(iii) Settlement and other financial services

For the continuing connected transactions in connection with settlement and other financial services fees, based on the historical figures for the two years ended 31 December 2016 and 2017, the utilization rates for the annual caps were 58.87% and 20.28% for 2016 and 2017 respectively. Meanwhile, settlement and other financial services fees for the six months ended 30 June 2018 has taken up 11.83% of the annual cap of 2018.

As such, based on the facts that (i) the Company’s payment through Sinopec Finance Companies’ finance platform accounted for approximately 60% of the Company’s total payment transactions for the two years ended 31 December 2017 and for the six months ended 30 June 2018; (ii) the expected total payment transaction volume by the Company for the years of 2019, 2020 and 2021; and (iii) the relevant settlement and other financial service fee rates, the proposed annual caps for settlement and other related financial services are derived accordingly.

On the basis of the above, the Directors are of the view that the year-on-year growth of the annual caps of the deposit and interest income, the entrustment loans and settlement and other financial services fees for the years of 2019, 2020 and 2021 are consistent with the corresponding expected growth of the income, the net cash flow to be generated by the operating activities and the total payments transactions of the Company. As such, the Directors are of the view that the annual caps for the year of 2019, 2020 and 2021 are fair, reasonable and in the interests of the Company and Shareholders as a whole.

(i) Implications under the Hong Kong Listing Rules

The following diagram sets out the shareholding relationship among Sinopec Group, Sinopec Finance, Sinopec Century Bright and the Company as at the Latest Practicable Date.

==> picture [301 x 150] intentionally omitted <==

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

Sinopec Group
70.86% 51% 67.01% [(1)] 100%
Sinopec Corp. The Company
49%
Sinopec
Sinopec Finance
Century Bright
----- End of picture text -----

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LETTER FROM THE BOARD

Note:

• (1) Sinopec Group directly and/or indirectly holds 2,967,200,000 Domestic Shares (including 59,344,000 Domestic Shares held by its wholly-owned subsidiary, SAMC), representing 67.01% of the issued total share capital of the Company as of the Latest Practicable Date.

As shown above, Sinopec Group holds more than 10% of the Company’s issued share capital and is therefore a substantial shareholder of the Company. Under Rules 14A.07(1) and 14A.07(4) of the Hong Kong Listing Rules, Sinopec Group and its associates (including Sinopec Century Bright and Sinopec Finance) are connected persons of the Company. Accordingly, the transactions under the Financial Services Framework Agreement between the Group and Sinopec Group and/or its associates constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

The transactions under the Financial Services Framework Agreement are entered into during the ordinary course of business of the Company and on normal commercial terms where, as the Directors currently expect, each of the applicable percentage ratios (except for the profit ratio) calculated for the purpose of Chapter 14A of the Hong Kong Listing Rules will exceed 5% on an annual basis and the annual consideration will exceed HK$10,000,000. Under Rule 14A.76(2) of the Hong Kong Listing Rules, such transactions will constitute the Company’s non-exempt continuing connected transactions, and are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

In terms of the proposed maximum daily balance of deposits and interest income as well as the proposed maximum daily balance of entrustment loans for each of the years ended 31 December 2016, 2017 and 2018, one or more of the applicable percentage ratios calculated according to Rule 14.07 of the Hong Kong Listing Rules will exceed 25%. The services of deposits and entrustment loans under the Financial Services Framework Agreement will also constitute major transactions of the Company on an aggregated basis, and are subject to the announcement, circular and Shareholders’ approval requirements under Chapter 14 of the Hong Kong Listing Rules.

3. Engineering and Construction Services Framework Agreement

(a) Signing Date and Term

The Company entered into an engineering and construction services framework agreement with Sinopec Group on 19 December 2012, as amended by the supplemental agreements dated 28 August 2015 and 21 August 2018 (collectively, the “ Engineering and Construction Services Framework Agreement ”). According to the supplemental agreement dated 21 August 2018, the term of the Engineering and Construction Services Framework Agreement has been extended by both parties after arm’s length negotiations for another three years from 1 January 2019 to 31 December 2021, subject to Independent Shareholders’ approval at the EGM. Relevant subsidiaries or associated companies of both parties will enter into separate contracts which will set out the specific terms and conditions according to the principles provided in the Engineering and Construction Services Framework Agreement.

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LETTER FROM THE BOARD

• (b) Service Scope

• (i) Provision of engineering and construction services by the Group to Sinopec Group: Pursuant to the Engineering and Construction Services Framework Agreement, the Group will provide the following engineering and construction services to the Sinopec Group and/or its associates: engineering consulting; project management; project supervision; contracting; engineering design; construction; testing and inspection and repair services; equipment manufacturing services; procurement services and equipment leasing; technology licensing, technology transfer and engineering technology services; labour supply service; and other engineering supporting services.

• (ii) Provision of services by Sinopec Group to the Group: Pursuant to the Engineering and Construction Services Framework Agreement, Sinopec Group and/or its associates will provide the following services in respect of the Group’s engineering and construction services business: supply of equipment and materials; procurement services and equipment leasing; technology licensing, technology transfer and engineering technology services; labour supply service; other supporting services.

• (c) Pricing Policy

The pricing of the relevant products and services provided under the Engineering and Construction Services Framework Agreement shall be determined in accordance with the following principles in ascending order:

• (i) government-prescribed price and government-guided price: if at any time, the government-prescribed price is applicable to any particular product or service, such product or service shall be supplied at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;

• (ii) tender and bidding price: where tender and bidding process is necessary under applicable laws, regulations and rules, the price ultimately determined in accordance with the tender and bidding process;

• (iii) market price: the price of the same or similar products, technology or services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and

• (iv) agreed price: to be determined by adding a reasonable profit over a reasonable cost.

Historically, there was no government-prescribed price or government-guided fee standard which was applicable to the engineering and construction services provided by the Group to Sinopec Group and those provided by Sinopec Group to the Group under the Engineering and Construction Services Framework Agreement. If, during the term of the Engineering and Construction Services Framework Agreement, there is any mandatory government-prescribed price or government-guided fee standard specifically applicable to the engineering and construction services to be provided by the Group to

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LETTER FROM THE BOARD

Sinopec Group or the services to be provided by Sinopec Group to the Group, relevant parties to the agreement shall be obliged to use the applicable government-prescribed price or agree the price of such services within the range of the government-guided fee standard. The Company also undertakes that it will abide by the relevant agreement and employ and disclose the details of the policy and guidance under the government prescribed price and government-guided fee standards when such price or fee standard becomes available.

For the engineering and construction services to be provided by the Group to Sinopec Group, the pricing is determined mainly by reference to the tender and bidding price. The bidding price mainly takes into account various factors including technical requirements, project execution standards, local meteorological and geographical conditions, public works conditions, estimated labor hour and costs, estimated material and equipment costs and other necessary expenses. The bidding prices are generally specific to each project and the Group is not able to implement standard pricing policies for all projects. In addition, the price and the tender and bidding process are conducted in accordance with the Bidding Law of the People’s Republic of China 《中華人民共和國招標投標法》( ) and other applicable PRC laws, rules and regulations. The Company also implemented the Internal Management Measures in relation to the Procurement and Bidding of Sinopec Engineering (Group) Co., Ltd. 《中( 石化煉化工程(集團)股份有限公司物資採購招標管理辦法》) to monitor and manage the tendering and bidding processes. The tender and bidding prices are also subject to the strict reviews of the Group’s audit departments each year. Meanwhile, the tender and bidding process is an open and transparent process based on market participation, the tender and bidding price under such process reflects the applicable price available in the open market. Hence, the tender and bidding price is the market price. The agreed price approach is only applied for services under certain circumstances (e.g. for services with unique technological advantages).

For the services to be provided by Sinopec Group to the Group under the Engineering and Construction Services Framework Agreement, the pricing is determined mainly by reference to the agreed price approach. The Group seeks to obtain the prices of relevant comparable services provided by at least three (where applicable) independent services providers to determine the reasonable costs and profits. The reasons why the Group did not use tender and bidding price approach are mainly because, historically, such services were not typically subject to tender and bidding process due to the common type and nature of such services as well as the high frequency of the procurement of such services. The Company does not anticipate the type, the nature, and the frequency of the procurement of the services to be procured from Sinopec Group by the Group during the term of the Engineering and Construction Services Framework Agreement to significantly deviate from those of the services the Group currently procures from Sinopec Group. In the event that the services to be procured from Sinopec Group by the Group are mandatorily subject to tender and bidding process, the price and the process will be conducted in accordance with the Bidding Law of the People’s Republic of China. In addition, the reasons why the Group did not use market price approach was mainly because historically the agreed price approach and terms have generally been more competitive than the available market price and terms from Independent Third Parties, which will further economise the procurement funds of the Group, increase the efficiency of the allocation of its procurement resources, as well as achieve economies of scale. For more details in relation to the determination of the agreed price approach and the relevant internal control procedures, please refer to the second measure under “— (f) Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions under the Engineering and Construction Services Framework Agreement.”

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LETTER FROM THE BOARD

(d) Termination

Before the termination of the Engineering and Construction Services Framework Agreement, the parties may, according to the Hong Kong Listing Rules, negotiate and sign a new framework agreement or extend or renew such framework agreement to ensure the normal running of the production operations of the relevant parties after expiration of the term of the Engineering and Construction Services Framework Agreement.

• (e) Commercial Rational and Benefits of the Engineering and Construction Services Framework Agreement

There are specific technology and quality standard requirements implemented in the oil industry. With a leading position in the oil industry, Sinopec Group ranked third in 2017 in Fortune Global 500 and has a steadily growing capital expenditure plan. Benefiting from its scale and strength, Sinopec Group can provide the Company with stable supply of equipment/materials, procurement services and technical services and other supporting products and services. Pursuant to the relevant terms under the Engineering and Construction Services Framework Agreement, the Group is able to procure products and services from Sinopec Group at prices no higher than the prices offered by other independent suppliers.

Sinopec Group mainly adopts public tendering process for its engineering projects. In consideration of the Group being a leading energy chemical engineering company in the PRC and the long-term relationship maintained with Sinopec Group, it is reasonably expected that Sinopec Group’s demand for the Group’s products and services will likely be increasing in tandem with its future capital expenditure plan.

• (f) Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions under the Engineering and Construction Services Framework Agreement

The Company has internal control measures for regulating the entering into of the continuing connected transactions under the Engineering and Construction Services Framework Agreement (including the relevant pricing mechanism). Such measures include the followings:

• (i) The Company supervises such continuing connected transactions in accordance with the procedures set forth in the Company’s internal control manual on continuing connected transactions (including the relevant pricing mechanism).

• (ii) For the engineering and construction services provided by the Group to Sinopec Group under the limited circumstances (e.g. for services with unique technological advantages) where the agreed price approach is used, with a view to arriving at a reasonable profit, such price will be determined through arm’s length negotiations between the relevant parties after making references to the gross profit margins of various business segments as disclosed in the Company’s annual report for the most recent financial year, and taking into account various factors, including the type of business, the complexity of the projects and the technologies involved, as well as the prevailing market and business conditions. As to

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LETTER FROM THE BOARD

the Group, such price is subject to the review and approval of the marketing department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval. The marketing department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the type of business, the complexity of the projects and the technologies involved, as well as the scope and the price of at least one relevant comparable service recently (generally in the past three months to around one year given that the agreed price approach is only applied for services under certain circumstances (e.g. for services with unique technological advantages)) provided by the Group to Independent Third Parties to ensure that the terms of the engineering and construction services provided by the Group to Sinopec Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favourable to the Group than the terms available to Independent Third Parties.

For the services provided by Sinopec Group to the Group where the agreed price approach is used, relevant services providers inside the Sinopec Group generally provide a cost list in respect of the relevant services provided by Sinopec Group to the Group, and the Group will then seek to obtain the prices of relevant comparable services provided by at least three (where applicable) independent services providers to determine the reasonable costs and profits for ascertaining the agreed price of the services to be provided by Sinopec Group to the Group through arm’s length negotiations between the relevant parties. As to the Group, such price is subject to the review and approval of the marketing department and the procurement department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department and the procurement department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval. The marketing department, the procurement department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the scope, the quality and the prices of relevant comparable services provided by independent services providers to ensure that the terms of the services to be provided by Sinopec Group to the Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favourable to the Group than the terms available from Independent Third Parties.

• (iii) The respective finance department of the Group works closely with the other departments and subsidiaries to collect information such as transaction amounts and transaction terms, analyze and estimate if the actual transaction amounts of the continuing connected transactions may exceed the annual caps, form a joint inspection team which inspects the performance of connected transaction twice a year, recommend and enforce measures of enhancement to correct any non-compliant issues in a timely manner.

• (iv) As part of its audit procedures for the first half-year audit, the Group’s external auditor conducts checking on the pricing and the annual caps of the continuing connected transactions on a half-yearly basis. The Group’s external auditor also issues and submits an assurance report in respect to the continuing connected transactions to the Hong Kong Stock Exchange each year.

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LETTER FROM THE BOARD

• (v) The Board will review the performance of the continuing connected transactions and the financial reports that consist of the actual transaction amounts of the continuing connected transactions incurred on a half-yearly basis. The Board will then opine on matters such as (i) whether the pricing policies/mechanisms were fully complied with by the Group and relevant connected person when performing the Engineering and Construction Services Framework Agreement; and (ii) whether the actual transaction amounts of the continuing connected transactions incurred exceed the annual caps as approved at the general meeting. The independent non-executive Directors will report to the Shareholders at the Shareholders’ meeting on an annual basis on their performance of such duties. Such report includes opinions on (i) whether the actual transaction amounts of the continuing connected transactions incurred exceed the annual caps as approved at the general meeting; (ii) whether the continuing connected transactions are performed pursuant to the pricing policies/mechanisms and other key requirements under the Engineering and Construction Services Framework Agreement; and (iii) whether the continuing connected transactions are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

• (vi) The Group’s internal control and risk management departments conduct internal assessments on the enforcement of pricing policies/mechanisms and other internal control measures in respect of the continuing connected transactions on an annual basis, in order to ensure such internal control measures remain complete and effective;

• (vii) The Supervisory Committee supervises the matters relating to the continuing connected transactions. It reviews the annual financial reports and interim financial reports of the Group which contains information regarding the performance of the continuing connected transactions on an annual basis. It also reviews the compliance of the continuing connected transactions, whether the pricing policies/mechanisms are enforced, whether the prices are fair and reasonable and whether there is any act which may be detrimental to the interests of the Group and the Shareholders as a whole; and

• (viii) The Company’s Audit Committee reviews the annual report, annual financial report, interim report and interim financial report of the Group which contain information regarding the performance of the continuing connected transactions. It opines on the continuing connected transactions on matters such as the enforcement of the pricing polices/mechanisms, the fairness of the connected transactions and whether the actual transaction amounts of the continuing connected transactions incurred exceed the annual caps.

By implementing the above measures, the Directors consider that the Company has established sufficient internal control measures to ensure that the continuing connected transactions under the Engineering and Construction Services Framework Agreement are fair and reasonable, on normal commercial terms or on terms no less favourable to the Company than the terms available to or from Independent Third Parties (as the case may be), and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

(g) Historical Amounts

Set out below (i) the revenue generated from the provision of engineering and construction services by the Group to the Sinopec Group and/or its associates; and (ii) the expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group for each of the years ended 31 December 2016 and 2017 and the six months ended 30 June 2018.

			For the six
	For the years ended		months ended
	31 December		30 June
	2016	2017	2018
		(RMB’000)
Revenue generated from the provision of
engineering and construction services by the
Group to Sinopec Group and/or its associates	14,509,322	13,163,949	6,928,400
Expenditure incurred for the provision of services
by Sinopec Group and/or its associates to the
Group	1,171,793	1,582,046	556,734

(h) Existing and Proposed Annual Caps

Existing Annual Caps

As disclosed in the announcement, the existing annual caps for each of the years ended 31 December 2016 and 2017 and the year ending 31 December 2018 are set out below:

	**For the years **	**ended/ending 31 **	December
	2016	2017	2018
		(RMB’000)
Revenue generated from the provision of engineering
and construction services by the Group to Sinopec
Group and/or its associates	22,000,000	24,000,000 25,000,000
Expenditure incurred for the provision of services by
Sinopec Group and/or its associates to the Group	2,200,000	2,300,000	2,400,000

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LETTER FROM THE BOARD

Proposed Annual Caps

The maximum aggregate annual amount of fees for each of the years ending 31 December 2019, 2020 and 2021 shall not exceed the caps set out below:

	**For the **	**years ending 31 **	December
	2019	2020	2021
		(RMB’000)
Revenue generated from the provision of engineering
and construction services by the Group to Sinopec
Group and/or its associates	40,000,000	42,000,000 45,000,000
Expenditure incurred for the provision of services by
Sinopec Group and/or its associates to the Group	3,000,000	3,500,000	4,000,000

Basis of Caps

In determining the above annual caps for the Group’s provision of engineering and construction services to the Sinopec Group and/or its associates for each of the years ending 31 December 2019, 2020 and 2021, the Company has primarily considered the followings:

• (i) historical operating income generated from the provision of engineering and construction services by the Group to Sinopec Group and/or its associates, as well as such operating income as a percentage of the Group’s total operating income for the corresponding year;

• (ii) the total amount of backlog and new contracts value in connection with the provision of engineering and construction services by the Group to Sinopec Group, as well as such amounts as a percentage of the total amount of the Group’s backlog and new contracts value as at 30 June 2018;

• (iii) the Group’s business development plan for 2019, 2020 and 2021, and the operating income in connection with the engineering and construction services provided by the Group to Sinopec Group as a percentage of the Group’s total operating income; and

• (iv) Sinopec Group’s investment plan in relation to, among other things, oil refining, petrochemical, new coal chemical, and natural gas during the period from 2019 to 2021.

After reviewing the above and based on following assumptions:

• (i) the engineering contract amount obtained by the Group from Sinopec Group as a percentage of Sinopec Group’s annual investment plans remains stable at a level of approximately 50% throughout the years, and the expected engineering contract amount obtained by the Group from Sinopec Group for the period from 2019 to 2021 is derived with reference to such contribution as well as the future investment plan of Sinopec Group; and

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LETTER FROM THE BOARD

• (ii) the engineering services provided by the Group to Sinopec Group as a percentage of the Group’s income remains stable throughout the years, and the growth trend for the income derived from the connected transactions on our provision of engineering services is reflective of the trend of the Group’s total income,

the Board is of the view that the year-on-year growth of the proposed annual caps for the provision of engineering and construction services by the Group to Sinopec Group in 2019, 2020 and 2021, namely RMB40 billion, RMB42 billion and RMB45 billion respectively, is consistent with the expected growth of the Sinopec Group’s total investments in the oil refining, petrochemical and LNG field and the Group’s business development plan in the corresponding years. As such, the Directors are of the view that such proposed annual caps are fair, reasonable and in the interests of the Company and the Shareholders as a whole.

In determining the above annual caps for the provision of services by Sinopec Group and/or its associates to the Group, the Company has mainly considered:

• (i) historical expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group;

• (ii) the expenditure incurred for the provision of services by Sinopec Group to the Group as a percentage of the revenue generated from the provision of engineering and construction services by the Group to Sinopec Group; and

• (iii) the Group’s business development plan for the years 2019, 2020 and 2021.

After reviewing the above and based on following assumptions:

• (i) the expenditure incurred for the provision of services by Sinopec Group to the Group as a percentage of the revenue generated from the provision of engineering, and construction services by the Group to Sinopec Group remains stable throughout the years. Such percentage is expected to increase to a stable level for the period from 2019 to 2021 as a result of future development of the Group and Sinopec Group;

• (ii) the actual connected transaction amount in relation to the engineering services provided by Sinopec Group to the Group can be estimated using such percentage, and combined with the estimated increase in investment in different sectors according to the investment plan of Sinopec Group in the coming years and thus the corresponding future expected revenue generated from the provision of engineering and construction services by Sinopec Group to the Group; and

• (iii) in order to better meeting the Group’s needs of future development, the Group will engage Sinopec Group to conduct centralized procurement of IT equipment, bespoke software network installation in 2019, 2020 and 2021, since such arrangements will not only contribute to an increased operational efficiency, but also lower the purchase cost as a result of stronger buying power by combining the needs of various subsidiaries/associates under Sinopec Group;

the Board is of the view that the year-on-year growth of the proposed annual caps for the provision of engineering and construction services by Sinopec Group to the Group for the year of 2019, 2020

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and 2021, namely RMB3.0 billion, RMB3.5 billion and RMB4.0 billion, is consistent with the expected growth of Sinopec Group’s total investments in the oil refining, petrochemical and LNG field and the Group’s business development plan in the corresponding years. As such, the Directors are of the view that such proposed annual caps are fair, reasonable and in the interests of the Company and the Shareholders as a whole.

The Directors are also of the the opinion that, withstanding the substantial size and the level of increase of the continuing connected transactions with Sinopec Group under the Engineering and Construction Services Framework Agreement for the year 2019, 2020 and 2021, there is no undue reliance concern between the Group and Sinopec Group. This is mainly because:

• (i) The business relationship between the Group and Sinopec Group is mutual and complimentary. Sinopec Group is one of the largest petrochemical products manufacturers in China and one of the world’s largest petroleum process operators and refiners. The Group, on the other hand, is one of the leading oil refining and chemical engineering companies with advanced technologies and remarkable achievements in China. Sinopec Group is the largest client of the Group, and the Group is the largest oil refining and chemical engineering service provider of Sinopec Group in terms of the historical revenues. The business cooperation between the Group and Sinopec Group is a mutual result of the respective market shares and competitive strengths of both groups;

• (ii) Notwithstanding the fact that the industry landscape is dominated by a limited number of customers, the Group has close business relationships with other customers other than Sinopec Group. China’s oil refining and petrochemical industry is highly concentrated and dominated by a handful of leading energy enterprises. As a result, the revenues of oil refining and chemical engineering companies in China, such as the Group, are mostly derived from a limited number of customers in the market, and especially from their controlling shareholders. Notwithstanding such industry landscape, the Group has established a diversified customer network other than Sinopec Group and set up a strategic plan for global development and endeavors to exploit the intensely competitive overseas markets. The Group carries out dozens of projects in the Middle East, Central Asia, Southeast Asia, and North America, and none of such overseas projects are related to Sinopec Group. In this regard, the Group has a highly diversified group of major clients; and

• (iii) The Group can maintain its revenue level to be generated from independent clients. According to China Petroleum and Chemical Industry Association, the world’s oil refining and petrochemical industry is expected to grow rapidly in 2018. In this regard, the Group’s revenues with the independent third parties are also expected to grow rapidly along with the increasing revenues between the Sinopec Group and the Group. Specifically, the Group is expected to consolidate its cooperation with and procure increasing number of EPC contracts from leading energy enterprises in China and independent third parties in overseas markets. Since the revenues generated from these projects are to be accrued in 2019, 2020 and 2021, the Group in this regard anticipates that the Group’s revenues from independent third parties are expected to grow in the respective years, and the proportions of the revenues to be generated from independent third parties are expected to increase to a level comparable to those from Sinopec Group and its associates in 2019, 2020 and 2021.

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LETTER FROM THE BOARD

(i) Implications under the Hong Kong Listing Rules

Sinopec Group holds more than 10% of the Company’s issued share capital and is therefore a substantial shareholder of the Company. Under Rules 14A.07(1) and 14A.07(4) of the Hong Kong Listing Rules, Sinopec Group and its associates are connected persons of the Company. Accordingly, the transactions under the Engineering and Construction Services Framework Agreement between the Group and Sinopec Group and/or its associates constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

The transactions under the Engineering and Construction Services Framework Agreement are entered into during the ordinary course of business on normal commercial terms where, as the Directors currently expect, each of the applicable percentage ratios (except for the profit ratio) calculated for the purpose of Chapter 14A of the Hong Kong Listing Rules will exceed 5% on an annual basis and the annual consideration will exceed HK$10,000,000. Under Rule 14A.76(2) of the Hong Kong Listing Rules, such transactions will constitute the Company’s non-exempt continuing connected transactions, and are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

In terms of the revenue generated from the provision of engineering and construction services by the Group to Sinopec Group and/or its associates for each of the years ending 31 December 2019, 2020 and 2021, one or more of the applicable “percentage ratios” calculated according to Rule 14.07 of the Hong Kong Listing Rules will exceed 25%. The provision of engineering and construction services by the Group to Sinopec Group and/or its associates under the Engineering and Construction Services Framework Agreement will also constitute major transactions of the Company on an aggregated basis, and therefore is subject to the announcement, circular and Shareholders’ approval requirements under Chapter 14 of the Hong Kong Listing Rules.

4. Approval by Directors and Independent Shareholders

On 21 August 2018, the Company held the thirteenth meeting of the second session of the Board. After discussion, all the non-connected Directors unanimously approved, among other things, the terms under each of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement, the continuing connected transactions and major transactions contemplated thereunder and the Proposed Annual Caps. The services of deposits and entrustment loans under the Financial Services Framework Agreement will constitute a major transaction of the Company on an aggregated basis, and the engineering and construction services provided by the Group to Sinopec Group and/or its associates under the Engineering and Construction Services Framework Agreement will also constitute a major transaction of the Company on an aggregated basis. Since the relevant proposals are related to a connected transaction with the Company’s controlling shareholder and Mr. LING Yiqun and Mr. LI Guoqing serve as the senior management of Sinopec Group, thus Mr. LING Yiqun and Mr. LI Guoqing abstained from voting on the aforementioned proposals at the relevant Board meeting.

Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng, being the independent non-executive Directors, unanimously approved the relevant proposals. All non-connected Directors (including the independent non-executive Directors) considered that (i) each of the Framework

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LETTER FROM THE BOARD

Agreements and the continuing connected transactions thereunder are on normal commercial terms in the ordinary and usual course of the Group’s business, and (ii) the terms, the continuing connected transactions and the Proposed Annual Caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

Dongxing Securities (Hong Kong) Company Limited has been appointed as the Independent Financial Advisor and will advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms under each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps and whether they are in the interests of the Company and the Shareholders as a whole. It will also advise the Independent Shareholders on how to vote and other relevant issues.

The Company will convene the EGM for the Independent Shareholders to consider and approve (if think fit), among other things, the terms under each of the Framework Agreements, the continuing connected transactions and major transactions contemplated thereunder and the Proposed Annual Caps. As of the Latest Practicable Date, Sinopec Group directly and/or indirectly holds 2,967,200,000 Domestic Shares (including 59,344,000 Domestic Shares held by its wholly-owned subsidiary, SAMC), representing 67.01 of the issued total share capital of the Company. Sinopec Group therefore constitutes the controlling shareholder and a connected person of the Company. As such, Sinopec Group and its associates will abstain from voting at the EGM in respect of the ordinary resolutions to approve the above matters.

5. General Information

(a) The Company

The Company is an international engineering corporation, with the leading edge in the PRC. The Group provides engineering services for a broad range of industries including oil refining, petrochemicals, new coal chemicals, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation engineering, environmental protection and energy saving engineering with a complete service chain involving research, development and licensing, preliminary consultation, financial assistance, design, procurement, construction and pre-commissioning/start-up services. With its industry experience of more than 60 years and continual innovation in technical expertise, the Group has achieved great success in the design and construction of large-scale and complex oil refining, petrochemical and new coal chemical projects, and possesses strong competitiveness.

(b) Sinopec Group

Established in July 1998, Sinopec Group is a state-owned company and functions as a state-authorised investment organisation. Sinopec Group is the largest integrated oil and petrochemical enterprise in the PRC and is one of the largest integrated oil and petrochemical enterprises in the world. Sinopec Group principally engages in businesses including: (i) exploration, development, production and trading of oil and gas; (ii) oil processing and production, trading,

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transportation, distribution and marketing of oil products; (iii) production, distribution and trading of petrochemical and other chemical products; (iv) oil engineering; (v) utilities services and social services such as water and electricity; and (vi) international trading, R&D as well as manufacturing of chemical fiber, fertiliser and polyester related equipment.

(c) Sinopec Finance

Sinopec Finance is a non-banking financial institution incorporated in the PRC in 1988 and is subject to the Administrative Measures on Finance Companies within Group Enterprises 《企業集團( 財務公司管理辦法》) and other relevant regulations promulgated by the PBOC and CBIRC. Sinopec Finance is 51% owned by Sinopec Group and 49% owned by Sinopec Corp. The establishment of such non-banking financial institutions is subject to approval by the CBIRC and its operation is subject to the ongoing supervision of the CBIRC. Non-banking financial institutions shall comply with applicable regulations relating to interests rates issued by the PBOC and CBIRC.

In the PRC, finance companies within group enterprises are only permitted under applicable PRC laws and regulations to provide financial services to enterprises within the same parent group. Therefore, Sinopec Finance only provides financial services to members of the Sinopec Group, including the Group.

As a non-banking financial institution, Sinopec Finance is subject to various regulatory and capital adequacy requirements, including capital adequacy ratios, loan-to-deposit ratios, limit on interbank loans and deposit reserve thresholds. The CBIRC issued a regulatory guideline, the Administrative Measures on Finance Companies within Group Enterprises 《企業集團財務公司管理( 辦法》), in July 2004 (and as amended in December 2006) (the “CBIRC Guideline ”) with respect to the establishment and ongoing regulation of such non-banking financial institutions. The CBIRC Guideline provided, among other things, that “when applying for establishment of a finance company, the board of directors of the parent company shall undertake in writing that, if, in an emergency, the finance company faces difficulties in meeting its payment obligations, the parent company will increase the capital of the finance company as required to solve such payment difficulties. Such undertaking shall be contained in the articles of association of the finance company.” Sinopec Group provided such undertaking to the CBIRC on 18 December 2004 (the “ Parent Undertaking ”). The Parent Undertaking provides that, pursuant to the CBIRC Guideline, Sinopec Group undertakes that if, in an emergency, Sinopec Finance faces difficulties in meeting its payment obligations, it will increase the capital of Sinopec Finance as required to solve such payment difficulties.

As at 31 December 2017, Sinopec Finance had total assets of RMB178.962 billion, shareholders’ equity of RMB24.747 billion, registered capital of RMB18.0 billion and a capital adequacy ratio of 24.41%. Based on the unaudited accounts of Sinopec Finance, as at 30 June 2018, Sinopec Finance had total assets of RMB198.342 billion, shareholders’ equity of RMB24.854 billion, registered capital of RMB18.0 billion and a capital adequacy ratio of 21.14%.

As at the Latest Practicable Date, the business scope of Sinopec Finance as set out in its business license includes: (i) providing financial and financing consultancy, credit certification and related consultancy and agency services to members of the group; (ii) assisting members of the group in settlement; (iii) providing guarantees to members of the group; (iv) providing entrustment loan and

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LETTER FROM THE BOARD

entrusted investment services; (v) providing bill acceptance and discount services to members of the group; (vi) processing the settlement of internal transfers between accounts and providing solution plans for relevant settlement and clearing; (vii) taking deposits from members of the group; (viii) providing loan and finance leases to members of the group; (ix) conducting inter-borrowings among finance companies; (x) issuing corporate bonds of finance companies upon approval; (xi) underwriting the corporate bonds issued by members of the group; (xii) making equity investments in financial institutions; (xiii) making investments in negotiable securities; (xiv) providing consumer credits, buyers’ credits and finance lease services to products of members of the group; and (xv) approved insurance agency services.

(d) Sinopec Century Bright

Sinopec Century Bright is a company incorporated in Hong Kong with limited liability. It is licensed under the Money Lenders Ordinance (Chapter 163 of the Laws of Hong Kong). It is approved by the State Administration of Foreign Exchange of the PRC (中華人民共和國國家外匯管理局) as an offshore settlement center for centralised cash management for members of the Sinopec Group in year 2007. As at 31 December 2017, Sinopec Century Bright had total assets of US$55.746 billion and net assets of US$2.687 billion. Based on the unaudited accounts of Sinopec Century Bright, as at 30 June 2018, Sinopec Century Bright had total assets of US$54.771 billion and net assets of US$3.147 billion. In addition, Sinopec Century Bright has obtained an A2 rating from Moody’s with a stable outlook and an A rating from Standard & Poor with a stable outlook as well.

Sinopec Century Bright only provides financial services to members of the Sinopec Group (including the Group). Sinopec Century Bright is used as an interim/short term deposit platform by the Group particularly to settle trade payables and receivables in respect of overseas projects.

III. PROPOSED APPOINTMENTS OF DIRECTORS OF THE THIRD SESSION OF THE BOARD AND SUPERVISORS OF THE THIRD SESSION OF THE SUPERVISORY COMMITTEE

Proposed Appointments of Directors of the Third Session of the Board

References are made to the Company’s announcement dated 11 September 2018 in relation to the change of Directors, the Board recently considered and approved the proposed appointments of Mr. YU Baocai and Mr. WU Wenxin as non-executive Directors to serve the Third Session of the Board, the proposed appointments of Mr. LU Dong and Mr. XIANG Wenwu as executive Directors to serve the Third Session of the Board, and the proposed appointments of Mr. HUI Chiu Chung, Stephen, Mr.JIN Yong and Mr. YE Zheng as independent non-executive Directors to serve the Third Session of the Board, for a term commencing from the date of appointment and ending on the commencement of the next session of the Board. The above Directors candidates have confirmed that they had no disagreement on the nomination respectively.

In addition, current Directors, Mr. LING Yiqun and Mr. LI Guoqing will not seek for re-election as Directors upon expiration of their terms of office as Directors. Among them, Mr. LING Yiqun will

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LETTER FROM THE BOARD

cease to serve as the Chairman of the Company, non-executive Director and the Chairman of the Nomination Committee of the Board; Mr. LI Guoqing will cease to serve as a non-executive Director and member of the Strategic Development Committee of the Board. The resignations of such current Directors shall become effective from the date of expiration of their terms.

According to the Articles, the proposed appointment of a Director assumed by a non-employee representative is subject to Shareholders’ approval. The proposals of the appointments of Mr. YU Baocai, Mr. LU Dong, Mr. XIANG Wenwu, Mr. WU Wenxin, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng will be put forward at the EGM for the Shareholders’ consideration and approval by way of ordinary resolutions.

If the above Director candidates are approved by the EGM as Directors, such Directors will execute associated service contracts with the Company. According to the service contracts, such Directors’ term starts from the date since their appointments are approved by the EGM and ends at the expiry of the Third Session of the Board. Pursuant to relevant provisions of the service contracts, the remunerations of the executive Directors shall be determined pursuant to relevant regulations in China and the internal measurements on remunerations of the Company. Pursuant to such regulations and internal measures, a Director’s remuneration shall consist of base salaries, performance bonuses and medium-to-long-term incentives, with reference to the responsibilities or duties of the relevant person and the performance of the Group. The remuneration for an independent non-executive Director shall be RMB200,000 (before tax) per year. Non-executive Directors are not paid by the Company. The Company shall also disclose the remunerations to be paid to the Directors during the relevant reporting periods in its annual reports.

Biographical details of each of Mr. YU Baocai, Mr. LU Dong, Mr. XIANG Wenwu, Mr. WU Wenxin, Mr. HUI Chiu Chung, Stephen, Mr.JIN Yong and Mr. YE Zheng are set out in the Appendix III to this circular.

As at the Latest Practicable Date, save as disclosed above, none of Mr. YU Baocai, Mr. LU Dong, Mr. XIANG Wenwu, Mr. WU Wenxin, Mr. HUI Chiu Chung, Stephen, Mr.JIN Yong and Mr. YE Zheng served as a director in other listed companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years and had any relationship with any Director, Supervisor, senior management member or substantial shareholder (as defined in the Hong Kong Listing Rules) of the Company.

As at the Latest Practicable Date, none of Mr. YU Baocai, Mr. LU Dong, Mr. XIANG Wenwu, Mr. WU Wenxin, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng had any interest in the Shares within the meaning of Part XV of the Securities and Futures Ordinance. None of Mr. YU Baocai, Mr. LU Dong, Mr. XIANG Wenwu, Mr. WU Wenxin, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng has ever been penalised by any securities regulatory authorities or any other relevant authorities.

Save as disclosed above, the Board is not aware of other matter in relation to the above-mentioned candidates being appointed as Directors that needs to be brought to the attention of the Shareholders, or other information to be disclosed pursuant to Rules 13.51(2)(h) to (v) of the Hong Kong Listing Rules.

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LETTER FROM THE BOARD

Proposed Appointments of Supervisors of the Third Session of the Supervisory Committee

References are made to the Company’s announcement dated 11 September 2018 in relation to the change of Supervisors, the Supervisory Committee recently considered and approved the proposed appointments of Mr. ZHU Fei, Mr. WANG Guoliang, Mr. YE Wenbang and Mr. WU Jibo as non-employee representative Supervisors to serve the third session of the Supervisory Committee, for a term commencing from the date of appointment and ending on expiry of the term of the next session of the Supervisory Committee. The above Supervisor candidates have confirmed that they had no disagreement on the nomination respectively.

According to the Articles, the proposed appointment of a Supervisor assumed by a non-employee representative is subject to approval by the Shareholders. The proposals of the appointments of Mr. ZHU Fei, Mr. WANG Guoliang, Mr. YE Wenbang and Mr. WU Jibo will be put forward at the EGM for the Shareholders’ consideration and approval by way of ordinary resolutions.

In addition, current Supervisors, Mr. ZHOU Yingguan and Mr. WANG Cunting will not seek for re-election as Supervisors upon expiration of their terms of office as Supervisors. Resignations of Mr. ZHOU Yingguan and Mr. WANG Cunting shall become effective from the date of expiration of their terms.

If the above Supervisor candidates are approved by the EGM Supervisors, such Supervisors will execute associated service contracts with the Company. According to the service contracts, such Supervisors’ term starts from the date since their appointments are approved by the EGM through democratic elections, and ends at the expiry of the Third Session of the Supervisory Committee. The Company shall pay remunerations to the Supervisors pursuant to the relevant regulations in China and the internal measurements on remunerations of the Company, and the Company shall also disclose remunerations to be paid to the Supervisors during the relevant reporting periods in its annual report.

Biographical details of each of Mr. ZHU Fei, Mr. WANG Guoliang, Mr. YE Wenbang and Mr. WU Jibo are set out in the Appendix III to this circular.

As at the Latest Practicable Date, save as disclosed above, none of Mr. ZHU Fei, Mr. WANG Guoliang, Mr. YE Wenbang and Mr. WU Jibo served as a director in other listed companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years and had any relationship with any Director, Supervisor, senior management member or substantial shareholder (as defined in the Hong Kong Listing Rules) of the Company.

As at the Latest Practicable Date, none of Mr. ZHU Fei, Mr. WANG Guoliang, Mr. YE Wenbang and Mr. WU Jibo had any interest in the Shares within the meaning of Part XV of the Securities and Futures Ordinance. None of Mr. ZHU Fei, Mr. WANG Guoliang, Mr. YE Wenbang and Mr. WU Jibo has ever been penalised by any securities regulatory authorities or any other relevant authorities.

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LETTER FROM THE BOARD

Save as disclosed above, the Board is not aware of other matters in relation to above-mentioned candidates being appointed as Supervisors that need to be brought to the attention of the Shareholders, or other information to be disclosed pursuant to Rules 13.51(2)(h) to (v) of the Hong Kong Listing Rules.

IV. PROPOSED AMENDMENTS TO THE ARTICLES

Rationale for Proposed Amendments to the Articles

In accordance with the Company Law and the resolutions passed at the thirteenth meeting of the Second Session of the Board, given the registered address of the Company changes, amendments are proposed to be made to the Articles. The Company published an announcement regarding the details of the proposed amendments to the Articles on 21 August 2018. The amended Articles will become effective on the date they are considered and approved at the EGM by way of a special resolution.

Major Contents of the Proposed Articles Amendments

Proposed amendments to Article 3 of the Articles

The current Article 3 of the Articles:

The address of the Company: A6 Huixindong Street, Chaoyang District, Beijing, China

Zip: 100029

Tel: 86-10-69196380

Fax: 86-10-69196637

is proposed to be amended as follows:

The address of the Company: 101, 5/F, Building 8, Shenggujiayuan, Chaoyang District, Beijing, China

Zip: 100029

Tel: 86-10-56730522

Fax: 86-10-56730500

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LETTER FROM THE BOARD

V. RECOMMENDATIONS

1. Transactions under Each of the Framework Agreements and the Proposed Annual Caps

The Directors (including all independent non-executive Directors) consider that (i) the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the continuing connected transactions thereunder are on normal commercial terms in the ordinary and usual course of business of the Company; and (ii) the terms, the continuing connected transactions thereunder and the Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Therefore, the Board recommends the Independent Shareholders to vote in favour of relevant ordinary resolutions to be proposed at the EGM. The services of deposits and entrustment loans under the Financial Services Framework Agreement will also constitute a major transaction of the Company. As mentioned above, Dongxing Securities (Hong Kong) Company Limited was appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders.

Your attention is drawn to the letter from the Independent Board Committee and the letter from Dongxing Securities to the Independent Board Committee and the Independent Shareholders which are set out on pages 37 to 38 and pages 39 to 66 of this circular, respectively. The Independent Board Committee, having taken into consideration the advice of Dongxing Securities, considers that (i) the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the continuing connected transactions thereunder are on normal commercial terms in the ordinary and usual course of business of the Company; and (ii) the terms, the continuing connected transactions thereunder and the Proposed Annual Caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Therefore, the Independent Board Committee recommends the Independent Shareholders to vote in favour of relevant ordinary resolutions to be proposed at the EGM.

2. Appointments of Directors of the Third Session of the Board and Supervisors of the Third Second Session of the Supervisory Committee

The Directors (including all independent non-executive Directors) consider that the resolutions in relation to the above proposed appointments of Directors of the Third Session of the Board and Supervisors of the Third Session of the Supervisory Committee are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favor of the relevant resolutions to be proposed at the EGM as set out in the EGM Notice.

3. Proposed Amendments to the Articles

The Directors (including all independent non-executive Directors) consider that the resolutions in relation to the proposed amendments to the Articles, and the authorization to Mr. SANG Jinghua, Vice President and the secretary to the Board, to, on behalf of the Company, deal with all procedural requirements such as applications, approvals, registration and filings in relation to the proposed

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amendments to the Articles (including the amendments to wording as requested by relevant regulatory authorities) are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favor of the relevant resolutions to be proposed at the EGM as set out in the EGM Notice.

VI. ADDITIONAL INFORMATION

Your attention is drawn to the financial information of the Group and the general information set out in Appendix I and Appendix II to this circular, respectively.

By order of the Board SINOPEC ENGINEERING (GROUP) CO., LTD. SANG Jinghua

Vice President and Secretary to the Board

Beijing, the PRC 18 September 2018

As of the Latest Practicable Date, the executive Directors are LU Dong, XIANG Wenwu, SUN Lili (employee representative Director) and WU Derong (employee representative Director); the non-executive Directors are LING Yiqun and LI Guoqing; and the independent non-executive Directors are HUI Chiu Chung, Stephen, JIN Yong and YE Zheng.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [43 x 44] intentionally omitted <==

中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.*

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

(Stock Code: 2386)

18 September 2018

To the Independent Shareholders

Dear Sir or Madam,

THE FINANCIAL SERVICES FRAMEWORK AGREEMENT AND THE ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT, THE CONTINUING CONNECTED TRANSACTIONS THEREUNDER AND THE PROPOSED ANNUAL CAPS FOR THE YEARS 2019 TO 2021

We refer to the circular of the Company dated 18 September 2018 (the “ Circular ”) despatched to the Shareholders of which this letter forms part. Unless the context requires otherwise, terms and expressions in this letter shall have the same meanings as those defined in the Circular.

We have been appointed to advise the Independent Shareholders on whether the terms under each of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Dongxing Securities has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to the terms under each of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps.

We wish to draw your attention to the letter from the Board as set out on pages 5 to 36 of the Circular and the letter from the Independent Financial Adviser as set out on pages 39 to 66 of the Circular.

* For identification purposes only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the advice given by the Independent Financial Adviser, we are of the opinion that (i) each of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement and the continuing connected transactions thereunder are on normal commercial terms, and in the ordinary and usual course of business of the Company; and (ii) the terms, the continuing connected transactions thereunder and the Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM.

Yours faithfully,

For and on behalf of the Independent Board Committee HUI Chiu Chung, Stephen JIN Yong YE Zheng Independent Non-Executive Directors

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice dated 18 September 2018 from Dongxing Securities prepared for the purposed of inclusion in this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the terms under the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Proposed Annual Cap.

18 September 2018

To the Independent Board Committee and the Independent Shareholders of SINOPEC Engineering (Group) Co., Ltd.

Dear Sirs,

MAJOR TRANSACTIONS AND

CONTINUING CONNECTED TRANSACTIONS UNDER FINANCIAL SERVICES FRAMEWORK AGREEMENT AND ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and Independent Shareholders in respect of the following, details of which are set out in the Letter from the Board contained in the circular of the Company dated 18 September 2018 (the “ Circular ”) of which this letter forms part. Unless the context requires otherwise, capitalized terms used in this letter shall have the same meanings as those defined in the Circular.

• a) Sinopec Finance and Sinopec Century Bright being subsidiaries of Sinopec Group to provide financial services to the Company contemplated under the Financial Services Framework Agreement (“ Financial Services Continuing Connected Transactions ”) as well as the proposed annual caps for each of the three years ending 31 December 2021 (“ Proposed Financial Services Annual Caps ”) thereof;

• b) The engineering and construction services transactions between the Company and Sinopec Group contemplated under the Engineering and Construction Services Framework Agreement (“ Engineering and Construction Services Continuing Connected Transactions ”) as well as the proposed annual caps for each of the three years ending 31 December 2021 (“ Proposed Engineering and Construction Services Annual Caps ”) thereof;

“Financial Services Continuing Connected Transactions” and “Engineering and Construction Services Continuing Connected Transactions” are collectively known as “ Continuing Connected Transactions ”.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 21 August 2018, the Board reviewed and approved the proposal on the terms of each of the Framework Agreements, the Continuing Connected Transactions thereunder and the Proposed Annual Caps. As of the Latest Practicable Date, the Company is held both directly and indirectly as to approximately 67.01% of the issued share capital by Sinopec Group, which is the controlling shareholder of the Company. According to Rule 14A.07 of the Hong Kong Listing Rules, Sinopec Group is a connected person of the Company; Sinopec Finance and Sinopec Century Bright are subsidiaries of Sinopec Group. Accordingly, the transactions contemplated under the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules. As the applicable percentage ratios in respect of the Continuing Connected Transactions exceed 5%, the Continuing Connected Transactions are subject to reporting, annual review, announcement and independent shareholders’ approval requirements of the Hong Kong Listing Rules. Meanwhile, since each of the highest applicable percentage ratios of the proposed annual caps in respect of the services of deposits and entrustment loans under the Financial Services Framework Agreement and the engineering services provided by the Group to Sinopec Group under the Engineering and Construction Services Framework Agreement exceeds 25%, such transactions will also constitute major transactions of the Company on an aggregated basis, and are subject to the announcement, circular and independent shareholders’ approval under Chapter 14 of the Hong Kong Listing Rules. Sinopec Group and its associates will abstain from voting at the EGM on the resolutions approving the Continuing Connected Transactions and the Proposed Annual Caps.

The Independent Board Committee has been established to advise the Independent Shareholders as to the terms of the Financial Services Framework Agreement and the Engineering and Construction Framework Agreement as well as the Proposed Annual Caps thereunder. We, Dongxing Securities (Hong Kong) Company Limited (“Dongxing Securities” or “we”), have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether (i) the Continuing Connected Transactions are entered into on normal commercial terms or terms no less favorable to the Company than those with Independent Third Parties, in the ordinary and usual course of business, and the terms of such agreements are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole; and (ii) the Proposed Annual Caps are reasonably determined, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

We have not acted as an independent financial adviser and has not provided any other services to the Company during the past two years. As at the Latest Practicable Date, we are not aware of any relationships or interests between us and the Company or any other parties that could be reasonably be regarded as hindrance to our independence as defined under Rule 13.84 of Hong Kong Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions and the Proposed Annual Caps. We are not associated with the Company, its subsidiaries, its associates or their respective substantial shareholders or associates or any other parties to the Continuing Connected Transactions and the Proposed Annual Caps, and accordingly, are eligible to give independent advice and recommendations on the terms of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Proposed Annual Caps. Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Adviser, no arrangement exists whereby we will receive any fees from the Company, its subsidiaries, its associates or their respective substantial shareholders or associates or any other parties to the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Continuing Connected Transactions contemplated thereunder.

BASIS OF OUR OPINION

In formulating our advice and recommendations, we have relied on the accuracy of the information and facts supplied, and the opinions expressed by the Company, its Directors and its management to us. We have assumed that all statements of belief and intention made by the Directors and the management of the Company were made after due enquiry. We have also assumed that all information, representations and opinion made were true, accurate and complete at the time they were made and continued to be true at the date of the Circular and will remain so up to the date of the EGM.

We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, by its Directors and by its management, and we have been advised by the Directors and the management of the Company that no material facts have been omitted from the information provided.

We consider that we have reviewed sufficient information to reach an informed view, to justify our reliance on the accuracy of the information provided to us by the Group, its Directors and its management and to provide a reasonable basis for our recommendation. We have not, however, conducted in-depth investigation into the business affairs, financial position or future prospects of the Group and Sinopec Group, nor carried out independent verification of the information supplied, representations made or opinions expressed by the Group, its Directors and its management. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. We have no obligation to update, revise or reaffirm this opinion to take into account subsequent developments (including any material change in market and economic conditions) after the date that this opinion is delivered to the Independent Board Committee and the Independent Shareholders.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendations regarding the Continuing Connected Transactions and the Proposed Annual Caps, we have considered the principal factors and reasons set out below. In reaching our conclusion, we have considered the results of the analysis in light of each other and ultimately reached our opinion based on the results of all analysis taken as a whole.

1. Background of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement

2. 1.1 Background of the Continuing Connected Transactions

The Company had signed a number of framework agreements with Sinopec Group before its listing in Hong Kong Stock Exchange, amongst which the Financial Services Framework Agreement (including the Supplementary Agreement on Financial Services Framework Agreement signed with

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Sinopec Group on 22 April 2013 and 28 August 2015) and Engineering and Construction Services Framework Agreement signed with Sinopec Group on 19 December 2012 (including the Supplementary Agreement on Engineering and Construction Services Framework Agreement signed with Sinopec Group on 28 August 2015) are to expire on 31 December 2018.

Pursuant to the Financial Services Framework Agreement, The Sinopec Finance Companies agree to provide financial services to the Group. During the Company’s listing application process, the Company was granted a waiver by the Hong Kong Stock Exchange in respect of the continuing connected transactions from strict compliance with the announcement and independent shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules, such waiver expired on 31 December 2013. The Company disclosed details on the continuing connected transactions under the Financial Services Framework Agreement in the circular dated 10 September 2013 and received approval from the Independent Shareholders in relation to such Financial Services Framework Agreement and the proposed annual caps for 2014 and 2015 on 29 October 2013.

Upon the expiry of the annual caps for 2014 and 2015 on 31 December 2015, the Company disclosed details on the continuing connected transactions under the Financial Services Framework Agreement in the circular dated 14 September 2015 and received approval from the Independent Shareholders in relation to such Financial Services Framework Agreement and the proposed annual caps for 2016, 2017 and 2018 on 30 October 2015.

As the proposed annual caps for 2016, 2017 and 2018 are to expire on 31 December 2018, the Company expects to continue such connected transactions after the expiry on 31 December 2018 and comply with the provisions of Chapter 14A of the Hong Kong Listing Rules in connection with such connected transactions. The Sinopec Finance Companies are to provide financial services to the Group for the three years ending 31 December 2019, 2020 and 2021. Therefore, the Company submits the Financial Services Continuing Connected Transactions and the Proposed Financial Services Annual Caps to the Independent Shareholders for approval.

Pursuant to Engineering and Construction Services Framework Agreement, the Group and Sinopec Group are to provide engineering and construction services to each other. During the Company’s listing application process, the Company was granted a waiver by the Hong Kong Stock Exchange in respect of the continuing connected transactions from strict compliance with the announcement and Independent Shareholders’ approval requirement under Chapter 14A of the Hong Kong Listing Rules, such waiver expired on 31 December 2015. Upon the expiry of the annual caps for 2014 and 2015, the Company disclosed details on the continuing connected transactions under the Engineering and Construction Services Framework Agreement in the circular dated 14 September 2015 and received approval from the independent shareholders in relation to such Engineering and Construction Services Framework Agreement and the proposed annual caps for 2016, 2017 and 2018 on 30 October 2015.

As the proposed annual caps for 2016, 2017 and 2018 are to expire on 31 December 2018, the Company expects to continue such connected transactions after the expiry on 31 December 2018 and comply with the provisions of Chapter 14A of the Hong Kong Listing Rules in connection with such connected transactions. The Company and Sinopec Group expect to continue transactions for mutual

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provision of engineering and construction services between each other for the three years ending 31 December 2019, 2020 and 2021. Therefore, the Company submits the Engineering and Construction Services Continuing Connected Transactions and the Proposed Engineering and Construction Services Annual Caps to the Independent Shareholders for approval.

1.2 Background of the relevant parties for the transactions

1.2.1 Background of the Group

The Group is an international engineering corporation that provides engineering services for a broad range of industries including oil refining, petrochemicals, new coal chemical, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation engineering, environmental protection and energy saving engineering with a complete service chain involving research, development and licensing, preliminary consultation, financial assistance, design, procurement, construction and pre-commissioning/start-up services.

Set out below is a summary of the Group’s financial information in accordance with International Financial Reporting Standards (the “ IFRS ”) extracted from the 2015, 2016 and 2017 annual reports as well the 2018 interim report:

							For the
							six months
			For the years ended				ended
			31 December				30 June
	2015		2016			2017	2018
	_RMB Million _		_RMB Million RMB Million _				RMB Million
Revenue	45,498		39,402			36,209	18,336
Operating Profit	3,845		1,942			1,112	998
Profit before Taxation	4,240		2,377			1,635	1,336
Net Profit Attributable to Shareholders
of the Group	3,318		1,671			1,130	1,108
Net Cash Flow Generated from/(Used
in) Operating Activities	5,793		4,671			4,241	(1,033)
							As at
		**As **	at 31 December				30 June
	2015		2016			2017	2018
	RMB Million	RMB Million		_RMB _	Million		RMB Million
Total Asset	58,468		58,888		59,406		61,155
Total Liability	33,766		33,624		33,815		35,214
Total Equity Attributable to the
Shareholders of the Group	24,694		25,261		25,587		25,936

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1.2.2 Background of Sinopec Group

Established in July 1998, Sinopec Group is a state-owned company and functions as a state-authorized investment organization. Sinopec Group is the largest integrated oil and petrochemical enterprise in the PRC and is one of the largest integrated oil and petrochemical enterprises in the world. Sinopec Group principally engages in businesses including: (i) exploration, development, production and trading of oil and gas; (ii) oil processing and production, trading, transportation, distribution and marketing of oil products; (iii) production, distribution and trading of petrochemical and other chemical products; (iv) oil engineering; (v) utilities services and social services such as water and electricity; and (vi) international trading, R&D as well as manufacturing of chemical fiber, fertilizer and polyester related equipment.

1.2.3 Background of Sinopec Finance and Sinopec Century Bright

Sinopec Finance is a non-banking financial institution incorporated in the PRC in 1988 and is subject to the Administrative Measures on Finance Companies within Group Enterprises《(企業集團 財務公司管理辦法》) and other relevant regulations promulgated by the PBOC and CBIRC. Sinopec Finance is 51% owned by Sinopec Group and 49% owned by Sinopec Corp. The establishment of such non-banking financial institutions is subject to approval by the CBIRC and its operation is subject to the ongoing supervision of the CBIRC. Non-banking financial institutions shall comply with applicable regulations relating to interests rates issued by the PBOC and CBIRC.

In the PRC, finance companies within group enterprises are only permitted under applicable PRC laws and regulations to provide financial services to enterprises within the same parent group. Therefore, Sinopec Finance only provides financial services to members of Sinopec Group, including the Group.

As a non-banking financial institution, Sinopec Finance is subject to various regulatory and capital adequacy requirements, including capital adequacy ratios, loan-to-deposit ratios, limit on interbank loans and deposit reserve thresholds. The CBIRC (formerly known as “China Banking Regulatory Committee”, “CBRC”) issued a regulatory guideline 《企業集團財務公司管理辦法》( ) in July 2004 (and as amended in December 2006) (the “ CBRC Guideline ”) with respect to the establishment and ongoing regulation of such non-banking financial institutions. The CBRC Guideline provided, among other things, that “when applying for establishment of a finance company, the board of directors of the parent company shall undertake in writing that, if, in an emergency, the finance company faces difficulties in meeting its payment obligations, the parent company will increase the capital of the finance company as required to solve such payment difficulties. Such undertaking shall be contained in the articles of association of the finance company.” Sinopec Group provided such undertaking to the CBRC on 18 December 2004 (the “ Parent Undertaking ”). The Parent Undertaking provides that, pursuant to the CBRC Guideline, Sinopec Group undertakes that if, in an emergency, Sinopec Finance faces difficulties in meeting its payment obligations, it will increase the capital of Sinopec Finance as required to solve such payment difficulties.

Based on the unaudited accounts of Sinopec Finance, as at 30 June 2018, Sinopec Finance had total assets of RMB198.342 billion, shareholders’ equity of RMB24.854 billion, registered capital of RMB18.0 billion and a capital adequacy ratio of 21.14%.

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As at the Latest Practicable Date, the business scope of Sinopec Finance as set out in its business license includes: (i) providing financial and financing consultancy, credit certification and related consultancy and agency services to members of the group; (ii) assisting members of the group in settlement; (iii) providing guarantees to members of the group; (iv) providing entrustment loan and entrusted investment services; (v) providing bill acceptance and discount services to members of the group; (vi) processing the settlement of internal transfers between accounts and providing solution plans for relevant settlement and clearing; (vii) taking deposits from members of the group; (viii) providing loan and finance leases to members of the group; (ix) conducting inter-borrowings among finance companies; (x) issuing corporate bonds of finance companies upon approval; (xi) underwriting the corporate bonds issued by members of the group; (xii) making equity investments in financial institutions; (xiii) making investments in negotiable securities; (xiv) providing consumer credits, buyers’ credits and finance lease services to products of members of the group; and (xv) approved insurance agency services.

Sinopec Century Bright is a company incorporated in Hong Kong and licensed with limited liability under the Money Lenders Ordinance (Cap. 163 of the Laws of Hong Kong). In 2007, Sinopec Century Bright was approved by the State Administration of Foreign Exchange of the PRC (“ SAFE ”) as an offshore settlement center for centralized cash management for members of Sinopec Group. Sinopec Century Bright only provides financial services to Sinopec Group and its members. It is used by the Company as an interim/short term deposit platform particularly to settle trade payables and receivables in respect of overseas projects.

As at 31 December 2017, Sinopec Century Bright had total assets of US$55.746 billion and net assets of US$2.687 billion. Based on the unaudited accounts of Sinopec Century Bright, as at 30 June 2018, Sinopec Century Bright had total assets of US$54.771 billion and net assets of US$3.147 billion. In addition, Sinopec Century Bright has obtained an A2 rating from Moody’s with a stable outlook and an A rating from Standard & Poor with a stable outlook as well.

Sinopec Century Bright only provides financial services to members of the Sinopec Group (including the Group). Sinopec Century Bright is used as an interim/short term deposit platform by the Group particularly to settle trade payables and receivables in respect of overseas projects.

Pursuant to the Financial Services Framework Agreement, the Company primarily receives deposit services, entrustment loan services as well as settlement services and other financial services.

• 1.2.4 Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions under the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement

The business activities and financial position of The Sinopec Finance Companies are subject to the ongoing supervision of the relevant authorities. In addition, as advised by the Directors, the Company, The Sinopec Finance Companies will adopt various internal control and risk management measures in relation to the Continuing Connected Transactions to be provided by The Sinopec Finance Companies in order to protect the interests of the Shareholders.

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The relevant regulation, internal control and risk management measures adopted by The Sinopec Finance Companies include but not limit to the following:

• The establishment of Sinopec Finance as a non-banking financial institution was authorized by the CBRC. Sinopec Finance is required to provide report to the CBRC on a regular basis;

• Sinopec Century Bright is licensed under the Money Lenders Ordinance (Cap. 163 of the Laws of Hong Kong) in Hong Kong, and governed by relevant regulatory bodies in Hong Kong. Besides, Sinopec Century Bright is an offshore settlement center approved by SAFE for centralized cash management for members of Sinopec Group;

• Sinopec Finance Companies and Sinopec Group will provide sufficient information including various financial indicators (as well as annual and interim financial statements) at the end of every quarter to enable the Group to monitor and review the financial position of Sinopec Finance, Sinopec Century Bright and Sinopec Group;

• The Group will, from time to time at its sole discretion, request for the deposits with Sinopec Finance Companies and the entrustment loans through Sinopec Finance to Sinopec Group to be withdrawn or early terminated (either in full or in part) to assess and to ensure the liquidity and safety of its deposits and entrustment loans;

• Sinopec Group has undertaken, unconditionally and irrevocably, that it shall provide capital injection to Sinopec Finance in case of any payment difficulties arising from its operations. Such undertaking provides indemnification for the Group’s deposits with Sinopec Finance under the Financial Services Framework Agreement;

— The Group has adopted a Cash Management Policy（資金管理辦法) and Internal Bank Management Policy (內部銀行管理辦法). Such policies provide that the Group’s cash should be centrally managed in order to maximize the benefits of a cash pool. The Company’s finance department is responsible for administering the Cash management Policy and the internal bank management policy. When providing entrustment loans to connected persons (whether through Sinopec Finance or otherwise), the Group will consider the interest rate, service fees, terms and use of loans and creditworthiness of the ultimate borrower based on principles of maximum return, cost control and risk control. The entrustment loan agreements (setting out interest rate, service fees, terms and use of loans) are first approved by the Company’s finance department, then by the Company’s Chief Financial Officer and ultimately by the Chairman of the Board or the Authorized Representatives.

— The Company’s management will prepare risk assessment reports of the funds deposited with Sinopec Finance Companies and entrustment loans to Sinopec Group every quarter which will be submitted to the Board for consideration; and

— The independent non-executive directors will independently scrutinize the performance of the continuing connected transactions and the enforcement of the key contractual terms under the Financial Services Framework Agreement.

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• Before entering into any transactions under the Financial Services Framework Agreement with Sinopec Finance Companies, the Company will obtain at least three quotes from independent financial institutions for similar services of the same term. The Company will compare such quotes with those offered by The Sinopec Finance Companies, and decide whether to accept the offer from Sinopec Finance Companies; and

• In the event that there is any change in the fees or interest rates for the services provided by The Sinopec Finance Companies to the Group under the Financial Services Framework Agreement, the Sinopec Finance Companies are required to notify the Company of: i) such change in the fees or interest rates; and ii) the pricing information for the similar services provided by The Sinopec Finance Companies to other members of Sinopec Group. The relevant internal audit personnel of the Company will then check the aforementioned information to ensure that such revised fees or interests rates are not less favorable than the fees or interests rates offered by The Sinopec Finance Companies to other members of Sinopec Group for similar services.

In order to assess the adequacy and appropriateness of the internal control procedures in relation to the Financial Services Framework Agreement above, we have discussed with the Directors to understand the procedures, and reviewed various internal records provided by the Company in relation to the application of pricing principles, including sample contracts and sample receipts on entrustment loan interest income, sample notices on deposit interest payment received from the Sinopec Finance Companies, sample certificates of service fees charged by the Sinopec Finance Companies for remittance and receipt of funds. The Company has followed the above mentioned procedures for the implementation of the relevant pricing policies. Based on the above, we concur with the view of the Directors that the implementation of such internal control measures is able to ensure the pricing mechanism and terms of the transactions are fair and reasonable, and no less favorable than the terms provided by independent third party.

Moreover, the Company has internal control measures for regulating the entering into of the continuing connected transactions under the Engineering and Construction Services Framework Agreement (including the relevant pricing mechanism). Such measures include the following:

• The Company will supervise such continuing connected transactions in accordance with the procedures set forth in the Company’s internal control manual on continuing connected transactions (including the relevant pricing mechanism);

• For the engineering and construction services provided by the Group to Sinopec Group under circumstances where the agreed price is used, with a view to arriving at a reasonable profit, such price will be determined through arm’s length negotiations between the relevant parties after making references to the gross profit margins of various business segments as disclosed in the Company’s annual report for the most recent financial year, and taking into account various factors, including the type of business, the complexity of the projects and the technologies involved, as well as the prevailing market and business conditions. The agreed price will be subject to the review and approval of the marketing department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department of the relevant subsidiary of the Company to

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the management of such subsidiary for its further review and approval. The marketing department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the type of business, the complexity of the projects and the technologies involved, as well as the scope and the prices of at least one relevant comparable service recently (generally in the past three months to around one year given that the agreed price is only applied for services under certain circumstances (e.g. for services with unique technological advantages)) provided by the Group to Independent Third Parties to ensure that the price of the engineering and construction services provided by the Group to Sinopec Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favorable to the Group than the terms available to Independent Third Parties.

• In determination of the pricing under the agreed price for the services provided by Sinopec Group to the Group, relevant services providers inside the Sinopec Group generally provide a cost list in respect of the relevant services provided by Sinopec Group to the Group, and the Group will then seek to obtain the prices of relevant comparable services provided by at least three (where applicable) independent vendors to determine the reasonable costs and profits for ascertaining the agreed price of the services provided by Sinopec Group to the Group through arm’s length negotiations between the relevant parties. As to the Group, such price is subject to the review and approval of the marketing department and the procurement department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department and the procurement department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval. The marketing department, the procurement department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the scope, the quality and the prices of relevant comparable services provided by independent service providers to ensure that the price of the services provided by Sinopec Group to the Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favorable to the Group than the terms available from Independent Third Parties;

• The respective finance department of the Group works closely with the other departments and subsidiaries to collect information such as transaction amounts and transaction terms, analyze and estimate if the actual transaction amounts of the continuing connected transactions may exceed the annual caps, form a joint inspection team which inspects the performance of connected transaction twice a year, recommend and enforce measures of enhancement to correct any non-compliant issues in a timely manner.

• As part of its audit procedures for the first half-year audit, the Group’s external auditor conducts checking on the pricing and the annual caps of the continuing connected transactions on a half-yearly basis. The Group’s external auditor also issues and submits an assurance report in respect to the continuing connected transactions to the Hong Kong Stock Exchange each year.

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• The Board will review the performance of the continuing connected transactions and the financial reports that consist of the actual transaction amounts of the continuing connected transactions incurred on a half-yearly basis. The Board will then opine on matters such as (i) whether the pricing policies/mechanisms were fully complied with by the Group and relevant connected person when performing the Engineering and Construction Services Framework Agreement; and (ii) whether the actual transaction amounts of the continuing connected transactions incurred exceed the annual caps as approved at the general meeting.

• The independent non-executive Directors will report to the Shareholders at the Shareholders’ meeting on an annual basis on their performance of such duties. Such report includes opinions on (i) whether the actual transaction amounts of the continuing connected transactions incurred exceed the annual caps as approved at the general meeting; (ii) whether the continuing connected transactions are performed pursuant to the pricing policies/mechanisms and other key requirements under the Engineering and Construction Services Framework Agreement; and (iii) whether the continuing connected transactions are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

• The Group’s internal control and risk management departments will conduct internal assessments on the enforcement of pricing policies/mechanisms and other internal control measures in respect of the continuing connected transactions on an annual basis, in order to ensure such internal control measures remain complete and effective;

• The Supervisory Committee supervises the matters relating to the continuing connected transactions. It reviews the annual financial reports and interim financial reports of the Group which contains information regarding the performance of the continuing connected transactions on an annual basis. It also reviews the compliance of the continuing connected transactions, whether the pricing policies/mechanisms are enforced, whether the prices are fair and reasonable and whether there is any act which may be detrimental to the interests of the Group and the Shareholders as a whole; and

• The Company’s Audit Committee will review the annual report, annual financial report, interim report and interim financial report of the Group which contain information regarding the performance of the continuing connected transactions. It will opine on the continuing connected transactions on matters such as the enforcement of the pricing polices/mechanisms, the fairness of the connected transactions and whether the actual transaction amounts of the continuing connected transactions incurred exceed the annual caps.

In order to assess the adequacy and appropriateness of the internal control procedures in relation to the Engineering and Construction Service Framework Agreement for products and services provided by Sinopec Group to the Group, we have discussed with the Directors to understand the procedures, and we reviewed sample contracts, cost list and respective independent vendors’ pricing of relevant comparable products and services provided by the Company in relation to the application of the pricing principles. For products and services provided by the Group to Sinopec Group, we have reviewed the gross profit margins of respective business segments as disclosed in the annual reports for the most recent financial year of the Company, sample contracts and relevant documents on cost

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estimation. The Company has followed the above mentioned procedures for the implementation of the relevant pricing policies. Based on the above, we concur with the view of the Directors that the implementation of such internal control measures is able to ensure the pricing mechanism and terms of the transactions are fair and reasonable, and no less favorable than the terms provided by independent third party.

The above mentioned internal control and the risk management measures aim at mitigating the relevant risks involved in the Continuing Connected Transactions and safeguarding the interests of the Company and Shareholders. The Directors consider that the above internal control and risk management measures are adequate and effective in monitoring the Continuing Connected Transactions contemplated under the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement in all material respects. We consider that the above internal control and risk management measures will allow the Group to monitor up-to-date information regarding the Continuing Connected Transactions contemplated under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement and to mitigate the Company’s risk associated with the relevant transactions, which help ensure the interests of the Company and the Shareholders as a whole to be safeguarded.

1. Principal terms of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement

2. 2.1 Scope of Services

Details of Continuing Connected Transactions contemplated under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement are set out below:

• a) Pursuant to the Financial Services Framework Agreement and the supplemental agreements, the Sinopec Finance Companies provide the Group financial services, which include: deposits, loans, entrustment loans and settlement services, entrustment investments, financial and financing consulting, credit certification, insurance agency, exchange settlement, bond underwriting, foreign exchange business, and related consultancy and agency financial service. The Group enters into separate contracts with the Sinopec Finance Companies, which set out the specific terms and conditions according to the principles provided in the Financial Services Framework Agreement;

• b) Pursuant to the Engineering and Construction Services Framework Agreement, Sinopec Group and/or its associates will provide the following services in respect of the Group’s engineering and construction services business: supply of equipment and materials; procurement services and equipment leasing; technology licensing, technology transfer and engineering technology services; labor supply service; other supporting services.;

• c) Pursuant to the Engineering and Construction Services Framework Agreement, the Group will provide the following engineering and construction services to Sinopec Group and/or its associates: engineering consulting; project management; project supervision;

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contracting; engineering design; construction; testing and inspection and repair services; equipment manufacturing services; procurement services and equipment leasing; technology licensing, technology transfer and engineering technology services; labor supply service; and other engineering supporting services.

2.2 Pricing Policies

• 2.2.1 Pricing policies for Financial Services Framework Agreement

According to the Financial Services Framework Agreement, the transactions conducted thereunder shall be priced in accordance with the following terms:

• (1) government-prescribed price and government-guided price — if at any time, the government-prescribed price is applicable to any particular financial service, such service shall be provided at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;

• (2) market price — the price of the same or similar services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and

• (3) agreed price — to be determined by adding a reasonable profit over a reasonable cost.

The pricing of such services provided under the Financial Services Framework Agreement are mainly determined by reference to (1) the government-prescribed price and government-guided price; and (2) the market price. In the unlikely event that (3) the agreed price has to be used, with a view to arriving at a reasonable profit, such price will be determined through arm’s length negotiations between the relevant parties after taking into account prevailing market and business condition.

In particular, the service of the Financial Services Framework Agreement provides that the services shall be provided in accordance with the following pricing principles:

• (a) Deposit services — the interest rate applicable to the Group’s deposits with the Sinopec Finance Companies will not be lower than, (i) the minimum interest rate published by the PBOC for deposits of a similar type for the same period (applicable to deposits with Sinopec Finance only); (ii) the interest rate for deposits of a similar type for the same period placed by other members of Sinopec Group; and (iii) the interest rate for deposits of a similar type for the same period offered by independent commercial banks to the Group;

• (b) Entrustment loan services — the interest rates applicable to the Group’s entrustment loans to Sinopec Group through Sinopec Finance shall be (i) on normal commercial terms; (ii) no less favorable than interest rates for comparable entrustment loans provided by other

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members of Sinopec Group to Sinopec Group through Sinopec Finance; and (iii) generally not lower than bond and loan interest rates for companies and financial institutions with credit ratings and risk level similar to Sinopec Group and Sinopec Corp. in the PRC Market; and

• (c) Settlement and other financial services — the service fees charged by Sinopec Finance shall not be higher than (i) fees charged by independent commercial banks or financial institutions; and (ii) fees charged to other members of Sinopec Group for similar services.

As we understand that there is no market standard rate for entrustment loans, we have discussed with the Directors to understand the basis in determining the interest rates on the entrustment loans with Sinopec Group as described in section 1.2.4 above. We consider that the pricing policy in respect of the deposit services and entrustment loan services stated above is reasonable to the Company and its Shareholders as a whole as it enables the Company to earn interest income from the Sinopec Finance Companies at interest rates that are no less favorable than the interest rates offered by independent commercial banks or interest rates offered by the Sinopec Finance Companies to other members of Sinopec Group. In addition, the settlement, entrustment loans and other financial service fee rates to be charged by the Sinopec Finance Companies are no less favorable than the fee rates charged by independent commercial banks or financial institutions for provision of similar services.

For the deposit services, we have obtained and reviewed certain internal records provided by the Directors, including the notices on the interest payment received from the Sinopec Finance Companies up until 30 June 2018. For the entrustment loan services, we have obtained and reviewed certain entrustment loan agreements entered into between the Company and Sinopec Finance during the six months ended up until 30 June 2018. We note that the Sinopec Finance Companies have followed the aforesaid policy to set the interest rates for the deposit and entrustment loan services.

As advised by the Directors, the interest rate for the entrustment loans is determined through arm’s length negotiations between the parties based on, among others, relative bargaining power, risk profile, security value. The Group will also make reference to other comparable rates, such as the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp., obtained through various channels such as banks and the relevant issuers (if any) for the purpose of ensuring that the interest rates for the entrustment loans are in the interests of the Company and the Shareholders as a whole.

In order to assess the fairness and reasonableness of the interest rates on the entrustment loans to Sinopec Group, we have compared such interest rates against the yield of certain principal-guarantee wealth management products available in the PRC market. We consider that the yield of the principal-guaranteed wealth management products are fair and representative samples for comparison of the interest rates of on entrustment loans after taking into account the creditworthiness and clean repayment history of Sinopec Group. We have obtained selected entrustment loans agreements entered by the Company and compared such interest rates against certain principal-guaranteed wealth management products, and interest rate of bonds with similar terms issued

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by Sinopec Group and Sinopec Corp.. We noted that the interest rates on entrustment loans are generally not lower than the interest rates on bonds of similar terms issued by Sinopec Group and Sinopec Corp., and higher than the yield on principal-guaranteed wealth management products available in the PRC market.

2.2.2 Pricing policies for Engineering and Construction Services Framework Agreement

According to the Engineering and Construction Services Framework Agreement, the transactions conducted thereunder shall be priced in accordance with the following terms:

• (1) government-prescribed price and government-guided price — if at any time, the government-prescribed price is applicable to any particular product or service, such product and service shall be provided at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;

• (2) tender and bidding price — where tender and bidding process is necessary under applicable laws, regulations and rules, the price ultimately determined in accordance with the tender and bidding process;

• (3) market price — the price of the same or similar products, technologies or services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and

• (4) Agreed price — to be determined by adding a reasonable profit over a reasonable cost.

Pricing principle (1) is based on government-prescribed price or government-guided price. Historically, there was no government-prescribed price or government-guided fee standard that was applicable to the engineering and construction services provided by the Group to Sinopec Group and those provided by Sinopec Group to the Group under the Engineering and Construction Services Framework Agreement. If, during the term of the Engineering and Construction Services Framework Agreement, there is any mandatory government-prescribed price or government-guided fee standard specifically applicable to the engineering and construction services to be provided by the Group to Sinopec Group or those to be provided by Sinopec Group to the Group, relevant parties to the agreement shall be obliged to use the applicable government-prescribed price or agree the price of such services within the range of the government-guided fee standard. Given that government-prescribed price or government-guided price requires application to all relevant participants in the industry and market, we consider that pricing principle (1) is fair and in line with normal business practice.

For the engineering and construction services provided by the Group to Sinopec Group, the pricing of which is determined mainly by reference to the tender and bidding price under pricing principle (2). The price and the tender and bidding process are conducted in accordance with the Bidding Law of the People’s Republic of China《( 中華人民共和國招標投標法》). For the services provided by Sinopec Group to the Group, such services were not historically and typically subject to tender and bidding process due to the common type and nature of such services as well as the high

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frequency of the procurement of such services. The Company does not anticipate the type, the nature, and the frequency of the procurement of the services to be procured from Sinopec Group by the Group during the term of the Engineering and Construction Services Framework Agreement to significantly deviate from those of the services the Group currently procures from Sinopec Group. During the term of the Engineering and Construction Services Framework Agreement, in the event that the services to be procured from Sinopec Group by the Group are mandatorily subject to tender and bidding process, the price and the process will be conducted in accordance with the Bidding Law of the People’s Republic of China. Through discussion with the Directors, we note that the Company has established a tender management system for sending bidding invitations to qualified suppliers to participate in public tender or invitation tender according to the specific conditions of the project and observes the principles of openness, fairness, economy, and timely supply in evaluating the tenders submitted by adopting the lowest bid price method or comprehensive evaluation method to determine the specific supplier. We have reviewed the Company’s manual on bidding procedures as well as documents on bidding invitation. As the tender and bidding price under such process reflects the applicable price available in the open market, we concur with the views of the Directors that the basis of pricing principle (2) is fair and reasonable.

Regarding the engineering and construction services provided by the Group to Sinopec Group, the tender and bidding process is an open and transparent process based on market participation, and the tender and bidding price under such process inherently reflects the applicable price available on the open market. Hence, the tender and bidding price is the market price under pricing principle (3). For the engineering and construction services provided by Sinopec Group to the Group, the Group did not use the market price for the procurement of such services from Sinopec Group historically, because the agreed price and terms have generally been more competitive than the available market price and terms from Independent Third Parties, which will further economize the procurement funds for the Group, increase the efficiency of the allocation of the procurement resources, as well as achieve economies of scale. If market price is more competitive than the agreed price after comparison to the market comparable services during the internal procedures for pricing, market price will be used for that particular transaction between the Group and Sinopec Group. Having discussed with the Directors, we concur with the view of the Directors that price under pricing principle (3) will be determined on terms no less favorable to the Group than the terms available to Independent Third Parties.

For the engineering and construction services provided by the Group to Sinopec Group, the agreed price under pricing principle (4) is only applied for services under certain circumstances (e.g. for services with unique technological advantages). Such price is determined through arm’s length negotiation between the relevant parties on a case by case basis taking into consideration of the average gross profit margins of various business segments in the most recent financial year as well as professional factors such as business types, project complexity, technology content etc. As for the services provided by Sinopec Group to the Group, the pricing of which is determined mainly by reference to the agreed price, the Group will seek to obtain the prices of relevant comparable services provided by at least three (where applicable) independent vendors to determine the reasonable costs and profits.

Having reviewed documents on budget estimates, sample contracts and financial data in the annual reports as well as other related materials, we consider that the pricing principle has been implemented as described above and is in line with the profit margin of the Company. As such, we consider that the basis of such pricing principle is formulated via pre-determined procedures.

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Based on the above, we consider that the terms of the Financial Services Framework Agreement as well as the Engineering and Construction Services Framework Agreement are on normal commercial terms and are fair and reasonable.

1. Reasons for and benefits of the transactions contemplated under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement

The Continuing Connected Transactions are subject to the Proposed Annual Caps whereby for each of the three years ending 31 December 2019, 2020 and 2021. As mentioned in the Letter from the Board, the Continuing Connected Transactions are and will be conducted in the ordinary and usual course of business of the Company and will continue to be agreed on an arm’s length basis with terms that are fair and reasonable and in the interest of the Company and the Shareholders as a whole. Given the Company has maintained long-term relationship with Sinopec Group, from entering into the Continuing Connected Transaction and onwards, it is beneficial to the Company’s business development and growth. Also, the Continuing Connected Transactions will be conducted on normal commercial terms or on terms no less favorable than those available to the Company from Independent Third Parties.

• 3.1 Reasons for utilizing deposit services from The Sinopec Finance Companies

Clearing and settlement platform and centralized treasury management

In line with Sinopec Group’s internal group policy, such subsidiaries/affiliated companies generally maintain settlement accounts with the Sinopec Finance Companies. The Directors advised that the centralized maintenance of deposits by the Group with the Sinopec Finance Companies will facilitate clearing with other members of Sinopec Group (some of whom are the Group’s clients), reduce the time required for remittance and receipt of funds and is generally more administratively efficient than settlement through independent commercial banks. The Directors consider that it would not be efficient for Sinopec Group (and its affiliates) and the Group to separately maintain bank accounts with independent banks for clearing and settlement. In addition, the centralized deposit of funds with the Sinopec Finance Companies will provide the Group with access to a centralized cash pool (both onshore and offshore), giving the Company the flexibility to make timely withdrawals from time to time without any restriction to meet its funding needs and reduce the cost for the Group to obtain third party financing. In light of the above, the Directors consider that the utilization of deposit services from the Sinopec Finance Companies helps the Group to achieve a lower cost of funding and maximize cost and operational efficiencies.

Familiarity with the Group’s business

As the Sinopec Finance Companies only provide financial services to Sinopec Group and its members, they have over the years acquired extensive knowledge of the Group’s industry. The Sinopec Finance Companies are familiar with the Group’s capital structure and serve the business operations,

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funding needs and cash flow pattern, which enables them to better anticipate the Group’s business needs. As a result, the Directors consider that the Sinopec Finance Companies are more well-positioned to provide the Group with bespoke and cost efficient services which would not be easy for independent commercial banks to replicate.

Flexibility to the Group

The Group has the sole discretion to deposit and withdraw its deposits with the Sinopec Finance Companies from time to time without any restriction. There is no restriction on the Group to deposit its cash with independent commercial banks in or outside the PRC now or in the future should the Group so wishes. As advised by the Directors, in order to meet its need such as the expansion of its overseas business and distribution of dividend, the Group currently maintains deposits with independent commercial banks in and outside the PRC and expects to continue to do so depending on its contractual and other requirements. Nonetheless, the Group chooses to deposit its cash with the Sinopec Finance Companies this helps the Group centralize the treasury management function.

3.2 Reasons for utilizing entrustment loan services from the Sinopec Finance Companies

Favorable short term fund investment options

As advised by the Directors, due to the Group’s business nature, the Group receives significant amounts of prepayments from clients from time to time, which may not be immediately required for its operational needs. Such prepayments are in effect advance payments from the Group’s clients, which the Group will apply towards performance of the underlying contracts as appropriate and are only temporarily idle. Therefore, the Group needs to invest such surplus cash prudently from time to time as it is an advance/deposit from its clients. Given the Group needs to fund match within a relatively short period of time whilst maintaining flexibility to pay the Group’s trade payables from time to time, the Directors advised that it has explored alternative fund investment options in the open market but in view of the counterparty risk, the cost and time required for negotiations and the lack of flexibility, such alternatives are not reasonably available to the Group. Given its investment needs, there is a lack of comparable alternative fund investment options. The Directors consider that the provision of entrustment loans to Sinopec Group is a safe, cost efficient and flexible option for investing such cash surplus, which may not otherwise be available in the open market.

Credit rating of Sinopec Group

The borrower of the entrustment loans is Sinopec Group. Pursuant to the terms of the entrustment loans, Sinopec Group has the sole obligation to repay principal and interest (and any late payment interest). In 2017, Sinopec Group obtained an A+ long-term corporate credit rating from Standard & Poor with a stable outlook and an A1 long-term corporate credit rating from Moody’s with a stable outlook. The Directors therefore consider that lending to Sinopec Group is a low risk fund allocation option. As advised by the Directors, Sinopec Group has not defaulted under any of the entrustment loans provided by the Group for the two years ended 31 December 2016 and 2017 and the six months ended 30 June 2018. Taking into account the creditworthiness of Sinopec Group and clean repayment history, the entrustment loans provided by the Group are generally unsecured. The Group considers

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that providing entrustment loans to Sinopec Group is a comprehensive, low risk fund allocation option due to the top-tier credit rating of Sinopec Group and clean repayment history, generating a higher return for the Group than deposits which would have been the only other fund allocation option for the Group given the investment policy with respect to such funds.

Efficient and flexible cash management

Provision of entrustment loans to Sinopec Group will allow the Group to allocate its surplus cash efficiently within a relatively short timeframe. As advised by the Directors, the entrustment loans to Sinopec Group generally do not exceed one year (the majority are for a period of one year or six months), enabling the Group to deploy its financial resources efficiently and flexibly. Upon the expiry of the entrustment loans, the Group will receive the principal amount and the interest payment in relation to such entrustment loans from Sinopec Finance Companies. Any new entrustment loans to Sinopec Group will be subject to normal approval procedures in a standardized way. Furthermore, whilst the Group has historically provided entrustment loans to Sinopec Group and expects to continue to do so in the future, the Group is not under any legal or other obligation to provide entrustment loans to Sinopec Group. Pursuant to the entrustment loan agreements, the Group is entitled to early terminate the entrustment loans (without penalty) at its option in which case current deposit interest rate will apply.

Normal commercial terms

As advise by the Directors, the Group understands that there is no market standard rate for entrustment loans as the interest rate is determined through arm’s length negotiations between the parties based on, among other things, relative bargaining power, risk profile and security value. The Group generally uses the prevailing base deposit rate published by the PBOC as a reference point with an upward adjustment taking into account the amount and term of the loan. In addition, the Group will refer to the list of interest rates that specifies the range of interest rates for different entrustment loan amounts and terms. Such list has been agreed by Sinopec Group and the Company after arm’s length negotiations and will be reviewed and re-negotiated by the parties periodically. Based on such list, the Group’s Chief Financial Officer and finance department will decide the interest rates of the entrustment loan agreements to be entered into between Sinopec Group and the Group. The Group will also make reference to other comparable rates, such as the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp., for the purpose of ensuring that the interest rates for the entrustment loans are in the interests of the Company and the Shareholders as a whole. The interest rates on entrustment loans provided by the Group to Sinopec Group are generally higher than the yield on principal-guaranteed wealth management products available in the PRC market.

Based on our discussion with the Directors, the Board has considered the risks in association with the use of the services provided by the Sinopec Finance Companies under the Financial Services Framework Agreement against the same services provided by independent commercial banks such as the possible material adverse change in the financial conditions of The Sinopec Finance Companies. As the Company will place its surplus funds into The Sinopec Finance Companies, any material

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adverse change in financial conditions of The Sinopec Finance Companies would affect the their abilities to repay the funds to the Company. We consider this risk is manageable taking into the account the internal control and risk management measures in place to safeguard the funds of the Company.

Taking into account the aforesaid reasons, in particular, (i) the Company is able to have greater flexibility in managing its cash resources and facilitating the settlement process with other members of Sinopec Group by utilizing the financial services provided by The Sinopec Finance Companies; (ii) the Company could benefit from the deposit and entrustment loan services provided by The Sinopec Finance Companies at interest rates which are no less favorable than the interest rates for deposits or entrustment loans of similar nature and under similar terms offered by other independent commercial banks or financial institutions; (iii) the Company can mitigate the counterparty risk and default risk by providing the entrustment loans to Sinopec Group with sound credit rating and clean repayment history; (iv) the deposit services with The Sinopec Finance Companies provide the Company with an alternative but do not preclude the Company from using the services of other PRC or Hong Kong commercial banks; and (v) The Sinopec Finance Companies are regulated by the relevant authorities and, as depository services providers to the Company, their risk profile is not greater than that of independent commercial banks in the PRC or offshore, and the associated risks as a whole, we concur with the Directors’ view that the transactions contemplated under the Financial Services Framework Agreement are in line with the interests of the Company and the Shareholders as a whole.

• 3.3 Reasons for products and services under the Engineering and Construction Services Framework Agreement

We noted that Sinopec Group have specific technology and quality standard requirements exclusive to the oil industry. By relying on its scale and strength, Sinopec Group can provide the Group with stable supply of equipment/ materials, procurement services and technical services and other supporting products and services. Pursuant to relevant terms under the Engineering and Construction Services Framework Agreement, the Group is able to procure products and services from Sinopec Group at prices no higher than the prices offered by other independent suppliers.

As advised by the management of the Company, with a leading position in the oil industry, Sinopec Group ranked third in 2017 in Fortune Global 500 and has steadily growing capital expenditure plan. Sinopec Group mainly adopts public tendering process for its engineering project. In consideration of the Group’s being a leading energy chemical engineering company in the PRC and the long-term relationship maintained with Sinopec Group, Sinopec Group is likely to increase its demand for the Group’s products and services for its future capital expenditure plan.

4. The Proposed Annual Caps, Basis and Underlying Assumptions

In assessing the fairness and reasonableness of the Proposed Annual Caps, we have discussed with the Directors about the basis and underlying assumptions used in the determination of the Proposed Annual Caps.

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4.1 Historical Annual Caps

The table below sets out (i) the historical transaction figures for the two years ended 31 December 2016 and 2017 as well as the six months ended 30 June 2018; (ii) the existing annual caps for the years ended 31 December 2016, 2017 and 2018; and (iii) the Proposed Annual Caps for the years ending 31 December 2019, 2020 and 2021:

			**Historical Annual **	**Historical Annual **	Caps		**Proposed Annual **	Caps
		**for **	the years ended/ending			for the years ending
			31 December				31 December
		2016 2017			2018	2019	2020	2021
			RMB Million				RMB Million
Under Financial Services Framework Agreement
Maximum daily balance of	Annual Caps	8,000	8,500		9,000	7,500	9,000	10,000
deposits & related interest
income
	Actual Figures	6,219	5,631		5,9581
Maximum daily balance of	Annual Caps	16,600	19,400		22,500	19,000	21,000	22,000
entrustment loans
	Actual Figures	14,100	15,500	17,0001
Service Fees in relation to	Annual Caps	4.62	5.08		5.58	3.12	3.48	3.84
settlement and other
financial services
	Actual Figures	2.72	1.03		0.661
Under Engineering and Construction Services Framework Agreement
Engineering services	Annual Caps	22,000	24,000		25,000	40,000	42,000	45,000
provided by the Group to
Sinopec Group and/or its
associates
	Actual Figures	14,509	13,164		6,9281
Engineering services	Annual Caps	2,200	2,300		2,400	3,000	3,500	4,000
obtained by the Group
from Sinopec Group
and/or its associates
	Actual Figures	1,172	1,582		5571

Note:

• 1 Historical transaction figures for the six months ended 30 June 2018;

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• 4.2 Historical and the Proposed Financial Services Annual Caps under the Financial Services Framework Agreement and the basis

As discussed with the Directors, the Proposed Financial Services Annual Caps are determined taking into consideration of the following factors:

• (i) the utilization rate of the above-mentioned annual caps for each of the years ended 31 December 2016 and 2017 and for the six months ended 30 June 2018;

• (ii) the interest rates and fee rates in connection with deposits, entrustment loans and other financial services;

• (iii) the expected increase in the Group’s business volume for the years 2019, 2020 and 2021; and

• (iv) the Group’s expected net cash flow generated by its operating activities during the years 2019, 2020 and 2021.

4.2.1 Deposit and interest income

For the Continuing Connected Transactions in connection with maximum daily balance of deposits and interest income, based on the historical figures for the two years ended 31 December 2016 and 2017, the utilization rates for the annual caps were 77.74% and 66.25% for 2016 and 2017 respectively; also, for the six months ended 30 June 2018, the maximum daily balance of deposits and interest income has already reached 66.20% of the annual cap of 2018.

Based on the utilization rate of the annual caps and the consideration on the fact that the domestic economy has entered into a phase of restructuring and stable growth, the Directors are with the view that income generated by the Group domestically will grow steadily, accordingly maximum daily balance of the funds placed with Sinopec Finance is to experience a stable growth. According to the Group’s medium and long-term development plan and the three-years rolling plan, the total revenue is expected to grow steadily for the three years ending 31 December 2021. The corresponding daily maximum balance of funds collected will maintain a relatively steady growth trend. As advised by the Directors, in order to further strengthen offshore fund management and control and to satisfy the regulatory requirements on the offshore funds, the Group plans to reinforce the offshore fund centralization for the period from 2019 to 2021, hence the maximum daily balance of the funds placed with Sinopec Century Bright will increase accordingly.

Given combined consideration on the above mentioned, the Directors consider the Proposed Financial Services Annual Caps regarding the maximum daily balance of deposit and related interest income need to be increased moderately as compared with the existing annual cap of 2018 in order to match with the expected increase in the Group’s business volume both domestically and internationally and with the need for centralized fund management and control.

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4.2.2 Entrustment Loans

For the Continuing Connected Transactions in connection with maximum daily balance of entrustment loans, based on the historical figures for the two years ended 31 December 2016 and 2017, the utilization rates for the annual caps were 84.94% and 79.90% for 2016 and 2017 respectively; also, for the six months ended 30 June 2018, the maximum daily balance entrustment loans has already reached 75.56% of the annual cap of 2018.

As confirmed by the Directors, the actual size of the entrustment loan by the Group was closely related to the net cash flow generated by the operating activities of the Company. We have been advised by the Directors, in order to maintain the capability in continuous development of the Group and the advantageous position in the industry amongst the peers, the Group adopts series of measures such as special clearing on receivables and inventories to improve operating cash flow, which help to maintain net cash flow generated by operating activities and operating income to be within the normal historical and industrial range. The Directors expect in 2019, 2020 and 2021, the Group will be able to achieve a stable growth in income (as discussed in 4.3.1 below), and net cash flow generated by operating activities is expected to rise as well.

Therefore, based on the estimated maximum daily balance of entrustment loan in 2018, the Directors expect a moderate increase on the Proposed Financial Services Annual Caps regarding maximum daily balance of entrusted loans in order to match with business expansion as well as improvement in operating cash flow.

4.2.3 Settlement and other financial services related service fees

For the Continuing Connected Transactions in connection with the settlement and other financial services related service fees, based on the historical figures for the two years ended 31 December 2016 and 2017, the utilization rates for the annual caps were 58.87% and 20.28% for 2016 and 2017 respectively; also, for the six months ended 30 June 2018 the settlement and other financial services related service fees has taken up 11.83% of the annual cap of 2018. Have discussed with the Directors, we note the utilization rates in relation to these connected transactions are at low level. As advised by the Directors, it is mainly due to the fact that the Company’s payment through the Sinopec Finance Companies’ finance platform dropped to approximately 60% of the Company’s total payment transactions for the two years ended 31 December 2017 and for the six months ended 30 June 2018.

For the Proposed Financial Services Annual Caps regarding service fees in relation to settlement and other financial services, we have discussed with the Directors and notice that service fees in relation to settlement referred to prescribed currency settlement fees charged by the Sinopec Finance Companies for each transaction. Therefore, the Directors, after considering the fact that (i) the Company’s payment through the Sinopec Finance Companies’ finance platform accounted for approximately 60% of the Company’s total payment transactions for the two years ended 31 December 2017 and for the six months ended 30 June 2018; (ii) the expected total payment transactions by the Company for 2019, 2020 and 2021; and (iii) the relevant settlement and other financial service fee rates, have derived the Proposed Financial Service Annual Caps in relation to the settlement and other financial services.

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When we assess the reasonableness of the Proposed Financial Services Annual Caps, we have reviewed the breakdowns of every type of financial service transactions in the past and reviewed financial information as disclosed in the 2017 annual report and 2018 interim report of the Company. Having discussed the relevant basis and assumption with the Directors, we also understand the Proposed Financial Services Annual Caps are closely related to the level of business activities and operating cash flow for the future three years. Having considered (i) the level of Company’s payment through the Sinopec Finance Companies’ finance platform; (ii) the Group’s increasing level of business activities (as discussed in 4.3.1 below) and the corresponding level of the operating cash flow; (iii) the Proposed Financial Services Annual Caps will provide the Company more flexible asset allocation, we concur with the view of the Directors that the Proposed Financial Services Annual Caps are considered fair and reasonable and in the interests of the Company and Shareholders as a whole.

• 4.3 Historical and the Proposed Engineering and Construction Services Annual Caps under the Engineering and Construction Services Framework Agreement and the basis

4.3.1 Engineering services provided by the Group to Sinopec Group and/or its associates

As discussed with the Directors, the Proposed Engineering and Construction Services Annual Caps are determined after taking into consideration of the following factors:

• (i) historical operating income generated from the provision of engineering and construction services by the Group to Sinopec Group and/or its associates, as well as such operating as a percentage of the Group’s total operating income for the corresponding year;

• (ii) the total amount of backlog and new contracts value in connection with the provision of engineering and construction services by the Group to Sinopec Group, as well as such amounts as a percentage of the total amount of the Group’s backlog and new contracts value as at 30 June 2018;

• (iii) the Group’s business development plan for 2019, 2020 and 2021, and the operating income in connection with the engineering and construction services provided by the Group to Sinopec Group as a percentage of the Group’s total operating income; and

• (iv) Sinopec Group’s investment plan in relation to, among other things, oil refinery, petrochemical, new coal chemical, and natural gas during the period from 2019 to 2021.

Taking into account of the factors from (i) to (iv), the Proposed Engineering and Construction Services Annual Caps for the three years ending 31 December 2021 are RMB40 billion, RMB42 billion and RMB45 billion respectively.

For the continuing connected transactions in respect of the provision of services by the Group to the Sinopec Group under the Engineering and Construction Services Framework Agreement, based on the historical figures for the two years ended 31 December 2016 and 2017, the utilization rates for the annual caps were 65.95% and 54.85% for 2016 and 2017 respectively; for the six months ended 30 June 2018, the utilization rate has already reached 27.71% of the annual cap of 2018.

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In view there is a substantial increase of the Proposed Engineering and Construction Services Annual Caps in respect of the provision of services by the Group to the Sinopec Group as compared to the historical figures, as advised by the Directors, the increase was mainly due to:

• (1) The international crude oil prices plunged from USD100 per barrel to USD30 per barrel from the second half of 2014 to early 2016. This resulted in the recession in the international petroleum and petrochemical oil and gas related industries, where the capital expenditure in the industries and the revenue of the engineering companies decreased substantially. As a result, the Group’s revenue plummeted from 2015 to 2017, and notably, the revenue for the year 2017 recorded the lowest since the Company’s listing at the Stock Exchange. Since 2017, on the other hand, the international petroleum price started to rebound and reached USD80 per barrel in the first half of 2018. According to China Petroleum and Chemical Industry Association, since 2018, the global economic recovery and rising of petroleum crude oil price have been fuelling the chemical engineering industry world-wide into a boom period. It is expected that energy enterprises are more willingly to invest, and the Group under such circumstances anticipates a significant growth in revenues from 2019 to 2021 as compared with that in 2017, which is consistent with the forecasted industry life cycle and trends.

According to the Sinopec Group’s investment management and development planning department, Sinopec Group is expected to significantly increase the investment in refining, petrochemical (including coal chemical) and LNG sectors in 2019, 2020 and 2021 as compared to the past few years. As a leading oil refinery and petrochemical engineering company with advanced technologies, remarkable achievements and leading market share in China, the Group is confident that it will maintain stable market share in future projects invested by Sinopec Group.

• (2) Due to the revenue recognition in different stages of the projects (such as the commencement, peak and completion stages), the revenues for certain years may increase significantly if the peak stages of different major projects overlap. Therefore, when determining the Proposed Engineering and Construction Services Annual Caps in respect of the services provided by the Group, the Group has raised the annual caps significantly in 2019 and further applied a 10% to 20% increment in 2020 and 2021 based on the Group’s revenue forecast model.

In assessing the reasonableness of the Proposed Engineering and Construction Services Annual Caps, we have also discussed with the Directors, and reviewed the internal calculation of the Proposed Engineering and Construction Services Annual Caps by the Group to Sinopec Group and or/its associates. We noted from discussion with the Directors on relevant basis and assumptions that the Proposed Engineering and Construction Services Annual caps are related to the scale of capital investment of Sinopec Group and the Group for the next three years. Based on this, we have considered the following two estimations: (i) from the historical statistics, the engineering contract amount obtained by the Group from Sinopec Group as a percentage of Sinopec Group’s annual investment plan remains stable throughout the years, and the expected engineering contract amount obtained by the Group from Sinopec Group for the period from 2019 to 2021 can be estimated using this percentage as well as the future investment plan of Sinopec Group; (ii) from the historical

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statistics, the engineering services provided by the Group to Sinopec Group as a percentage of the Group’s total income remains stable throughout the years, and the growth trend for the income derived from the connected transactions on engineering services provision is similar to the trend of the Group’s total income. Therefore, the expected engineering contract amount obtained by the Group from Sinopec Group for the period from 2019 to 2021 can also be estimated using this percentage rate as well as the future expected income of the Group.

As advised by the Directors, after taking into account the possible fluctuations of the chemical engineering market and to allow certain flexibility, the Proposed Engineering and Construction Services Annual Caps in relation to engineering services provided by the Group to Sinopec Group and/or its associates for the period from 2019 to 2021 are determined with reference to the higher of the two aforementioned estimations, backlog and new contract value of the Group and future business development status of the Group and Sinopec Group. Having reviewed the relevant statistics, we concur with the view of the Directors that, the Proposed Engineering and Construction Services Annual Caps in relation to engineering services provided by the Group to Sinopec Group are fair and reasonable and in the interests of the Company and Shareholders as a whole.

4.3.2 Engineering services provided by Sinopec Group and/or its associates to the Group

As disclosed in the Letter to the Board, the Proposed Engineering and Construction Services Annual Caps are determined taking into consideration of the following factors, including reference to:

• (i) historical expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group;

• (ii) the expenditure incurred for the provision of services by Sinopec Group to the Group as a percentage of the revenue generated from the provision of engineering and construction services by the Group to Sinopec Group; and

• (iii) the Group’s business development plan for the years 2019, 2020 and 2021.

Based on the factors from (i) to (iii) and through estimation, the Directors propose the annual caps in relation to the engineering services purchased by the Group from Sinopec Group and/or its associates for the three years ending 31 December 2021 are RMB3.0 billion, RMB3.5 billion and RMB4.0 billion respectively.

In assessing the reasonableness of the Proposed Engineering and Construction Services Annual Caps, we have discussed with the Directors, and reviewed the internal calculation of the Proposed Engineering and Construction Services Annual Caps provided by Sinopec Group and/or its associates to the Group. We noted from discussion with the Directors on relevant basis and assumptions that the Proposed Engineering and Construction Services Annual Caps are related to future business development status of the Group as well as the office and production facilities required for the Group’s business development for the next three years. We have considered (i) from the historical statistics, the expenditure incurred for the provision of services by Sinopec Group to the Group as a percentage of the revenue generated from the provision of engineering, and construction services by the Group to Sinopec Group remains stable throughout the years. Such percentage will increase to a higher stable

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level for the period from 2019 to 2021 as a result of future development of the Group and Sinopec Group. Also, the connected transaction amount in relation to the engineering services provided by Sinopec Group to the Group can be estimated using such percentage, combined with the estimated increase in investment in different sectors according to the investment plan of Sinopec Group in the next three years and thus the corresponding future expected revenue generated from the provision of engineering and construction services by the Group to Sinopec Group and/or its associates. (ii) In addition, in order to meet the needs of the Group’s development in the future, the Group will conduct centralized procurement of IT equipment, bespoke software and network installation through the Sinopec Group in 2019, 2020 and 2021, because this arrangement would not only contribute to an increased operational efficiency, but also lower purchase cost as a result of stronger bargaining power by combining the needs of various subsidiaries/associates under the Sinopec Group.

As advised by the Directors, the Proposed Engineering and Construction Services Annual Caps in relation to the engineering services provided by Sinopec Group to the Group are determined by the aggregation of the above (i) and (ii). Having reviewed relevant statistics, we concur with the view of the Directors that, the Proposed Engineering and Construction Annual Caps in relation to engineering services provided by the Sinopec Group to the Group are fair and reasonable.

5. Annual review of the Continuing Connected Transactions

As discussed with the Company, the Company will comply with the annual review requirements of the Hong Kong Listing Rules, in particular:

• (a) each year the independent non-executive directors must review the Continuing Connected Transactions and confirm in the annual report that the transactions have been entered into:

• (1) in ordinary and usual course of business of the Company;

• (2) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favorable to the Company than terms available to or from (as appropriate) independent third parties; and

• (3) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole.

• (b) each year the auditors of the Company must provide a letter to the Board (with a copy provided to the Hong Kong Stock Exchange at least 10 business days prior to the bulk printing of the Company’s annual report), confirming that the Continuing Connected Transactions:

• (1) have received the approval of the Board;

• (2) are in accordance with the pricing policies of the Group;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (3) have been entered into in accordance with the relevant agreement governing the Continuing Connected Transactions; and

• (4) have not exceeded the Proposed Annual Caps.

• (c) the Company shall allow, and shall procure that the relevant counterparties to the Continuing Connected Transactions shall allow, the Company’s auditors to have sufficient access to their records for the purpose of the reporting on the Continuing Connected Transactions as set out in paragraph (b); and

• (d) the Company shall promptly notify the Hong Kong Stock Exchange and publish an announcement in accordance with the Hong Kong Listing Rules if it knows or has reason to believe that the independent non-executive directors and/or the auditors of the Company will not be able to confirm the matters set out in paragraphs (a) and/or (b) respectively.

In light of the above, we are of the view that appropriate measures will be in place to govern the conduct of the Continuing Connected Transactions and assist in safeguarding the interests of the Independent Shareholders.

RECOMMENDATIONS

Having taken into account the above factors and reasons, we are of the opinion that (i) the Continuing Connected Transactions are conducted in the ordinary and usual course of business of the Company and on normal commercial terms; and (ii) the Continuing Connected Transactions and the Proposed Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Therefore, we advise the Independent Board Committee to recommend, and we ourselves recommend the Independent Shareholders to vote in favor of the relevant resolution to approve the Continuing Connected Transactions and the Proposed Annual Caps at the EGM.

Yours faithfully, For and on behalf of

Dongxing Securities (Hong Kong) Company Limited Anthony Tsang Executive Director Investment Banking Department

Mr. Anthony Tsang is a licensed person registered with the Securities and Futures Commission and as a responsible officer of Dongxing Securities (Hong Kong) Company Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO. Mr. Anthony Tsang has over 9 years of experience in the corporate finance industry, and has participated in the provision of independent financial advisory services for various connected transactions involving companies listed in Hong Kong.

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NOTICE OF THE EXTRAORDINARY GENERAL MEETING

==> picture [43 x 44] intentionally omitted <==

中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.*

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

(Stock Code: 2386)

NOTICE OF THE FIRST EXTRAORDINARY GENERAL MEETING FOR THE YEAR 2018 AND CLOSURE OF REGISTER OF MEMBERS FOR H SHARES

NOTICE IS HEREBY GIVEN that the first extraordinary general meeting (the “ EGM ”) of SINOPEC Engineering (Group) Co., Ltd. (the “ Company ”) for the year 2018 will be held at 9 am on Friday, 26 October 2018 at Conference Room 201, Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC. References are respectively made to the Company’s announcements dated 21 August 2018 and 11 September 2018 (the “ Announcements ”), in relation to, among others, the renewal of continuing connected transactions under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the proposed amendments to the Articles and the change of directors and supervisors of the Company. In this notice, unless the context otherwise requires, terms used herein shall have the same meanings as defined in the Announcements.

RESOLUTIONS TO BE CONSIDERED AND APPROVED AT THE EGM

By way of ordinary resolutions:

• (1) to consider and approve the terms under the Financial Services Framework Agreement, the continuing connected transactions thereunder and the proposed annual caps in respect thereof for each of the years ending 31 December 2019, 2020 and 2021, respectively, and to authorise Mr. XIANG Wenwu, the executive Director and the President, to sign relevant documents on behalf of the Company, and do such things and take such actions as he deems necessary or desirable in accordance with the resolutions of the Board dated 21 August 2018, so as to effect this resolution and make any changes as he deems necessary, desirable or expedient;

• (2) to consider and approve the terms under the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the proposed annual caps in respect thereof for each of the years ending 31 December 2019, 2020 and 2021, respectively, and to authorise Mr. XIANG Wenwu, the executive Director and the President, to sign relevant documents on behalf of the Company, and do such things and take such actions as he deems necessary or desirable in accordance with the resolutions of the Board dated 21 August 2018, so as to effect this resolution and make any changes as he deems necessary, desirable or expedient;

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NOTICE OF THE EXTRAORDINARY GENERAL MEETING

• (3) to consider and approve the proposed appointment of Mr. YU Baocai as a non-executive Director of the Third Session of the Board;

• (4) to consider and approve the proposed appointment of Mr. LU Dong as an executive Director of the Third Session of the Board;

• (5) to consider and approve the proposed appointment of Mr. XIANG Wenwu as an executive Director of the Third Session of the Board;

• (6) to consider and approve the proposed appointment of Mr. WU Wenxin as a non-executive Director of the Third Session of the Board;

• (7) to consider and approve the proposed appointment of Mr. HUI Chiu Chung, Stephen, as an independent non-executive Director of the Third Session of the Board;

• (8) to consider and approve the proposed appointment of Mr. JIN Yong, as an independent non-executive Director of the Third Session of the Board;

• (9) to consider and approve the proposed appointment of Mr. YE Zheng, as an independent non-executive Director of the Third Session of the Board;

• (10) to consider and approve the proposed appointment of Mr. ZHU Fei as a Supervisor of the Third Session of the Supervisory Committee;

• (11) to consider and approve the proposed appointment of Mr. WANG Guoliang as a Supervisor of the Third Session of the Supervisory Committee;

• (12) to consider and approve the proposed appointment of Mr. YE Wenbang as a Supervisor of the Third Session of the Supervisory Committee; and

• (13) to consider and approve the proposed appointment of Mr. WU Jibo as a Supervisor of the Third Session of the Supervisory Committee.

By way of special resolutions:

• (14) to consider and approve the proposed amendments to the Articles, and the authorization to Mr. SANG Jinghua, Vice President and the secretary to the Board, to, on behalf of the Company, deal with all procedural requirements such as applications, approvals,

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NOTICE OF THE EXTRAORDINARY GENERAL MEETING

registration and filings in relation to the proposed amendments to the Articles (including the amendments to wording as requested by relevant regulatory authorities).

By Order of the Board SINOPEC ENGINEERING (GROUP) CO., LTD.

SANG Jinghua

Vice President and Secretary to the Board

Beijing, the PRC 11 September 2018

As at the Latest Practicable Date, the Company’s executive directors are LU Dong, XIANG Wenwu, SUN Lili (employee representative director) and WU Derong (employee representative director); the non-executive directors are LING Yiqun and LI Guoqing; and the independent non-executive directors are HUI Chiu Chung, Stephen, JIN Yong and YE Zheng.

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NOTICE OF THE EXTRAORDINARY GENERAL MEETING

Notes:

ATTENDEE OF THE EGM

1. ELIGIBILITY AND REGISTRATION PROCEDURE FOR ATTENDING THE EGM

• (a) Closure of Register of Members. For the purpose of ascertaining Shareholders who are entitled to attend and vote at the EGM, the register of members of the Company will be closed from Wednesday, 26 September 2018 to Friday, 26 October 2018 (both days inclusive).

• (b) Holders of Domestic Shares and H Shares whose names appear on the register of members of the Company before the close of business day on Wednesday, 26 September 2018 are entitled to attend and vote in respect of all resolutions to be proposed at the EGM.

• (c) Holders of H Shares who wish to attend the EGM shall lodge their share certificates accompanied by the transfer documents with Computershare Hong Kong Investor Services Ltd. before 4:30 p.m. on Monday, 24 September 2018 for registration.

• (d) A Shareholder or his/her/its proxy shall produce proof of identity when attending the meeting. If a Shareholder is a legal person, its legal representative or other persons authorized by the board of directors or other governing body of such Shareholder may attend the EGM by producing a copy of the resolution of the board of directors or other governing body of such Shareholder appointing such persons to attend the meeting.

• (e) Holders of Domestic Shares and H Shares intending to attend the EGM should return the reply slip for attending the EGM to the Company on or before Saturday, 6 October 2018.

• (f) Shareholders may send the above reply slip to the Company in person, by post or by fax.

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NOTICE OF THE EXTRAORDINARY GENERAL MEETING

1. Proxy

2. (a) A Shareholder eligible to attend and vote at the EGM is entitled to appoint, in written form, one or more proxies to attend and vote on his/her/its behalf. A proxy need not be a Shareholder.

3. (b) A proxy should be appointed by a written instrument signed by the appointer or his/her/its attorney duly authorized in writing. If the form of proxy is signed by the attorney of the appointer, the power of attorney authorizing that attorney to sign or the authorization document(s) must be notarized.

4. (c) To be valid, the power of attorney or other authorization document(s) which have been notarized together with the completed form of proxy must be delivered to the place of business of the Company for holders of Domestic Shares and Computershare Hong Kong Investor Services Ltd. at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong for holders of H Shares not less than 24 hours before the time designated for holding of the EGM.

5. (d) A Shareholder or his/her/its proxy may exercise the right to vote by poll.

3. Resolutions for independent shareholders’ approval

Pursuant to the Hong Kong Listing Rules, the ordinary resolutions numbered 1 and 2 to be proposed at the EGM re subject to Independent Shareholders’ approval. Sinopec Group and its associates will abstain from voting on this resolution.

4. Miscellaneous

• (a) The EGM will not last for more than one working day. Shareholders who attend the EGM shall bear their own travelling and accommodation expenses.

• (b) The address of the Share Registrar of H Shares, Computershare Hong Kong Investor Services Ltd., is at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.

• (c) The place of business of the Company is at:

Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing Post Code: 100029

Telephone No.: +86(10) 5673 0522 Facsimile No.: +86(10) 5673 0500

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group (i) for the year ended 31 December 2017 is disclosed on pages 124 to 211 of the 2017 annual report of the Company published on 19 March 2018; (ii) for the year ended 31 December 2016 is disclosed on pages 110 to 183 of the 2016 annual report of the Company published on 20 March 2017; and (iii) for the year ended 31 December 2015 is disclosed on pages 117 to 185 of the 2015 annual report of the Company published on 21 March 2016. The above have been published on the website of the Hong Kong Stock Exchange (www.hkexnews.hk) and the website of the Company (www.segroup.cn).

2. INDEBTEDNESS STATEMENT

As at the close of business on 31 August 2018, being the latest practicable date for the purpose of preparing this indebtedness statement, the Group did not have any loan capital issued, any bank overdrafts and liabilities under acceptances (other than general commercial papers) or other similar indebtedness, debentures, mortgages, charges or loans or acceptance credits or hire purchase commitments, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

Taking into account the internal and other financial resources available to the Group, after diligent and thorough consideration, the Directors are of the opinion that, in the absence of unforeseen circumstances, the Group has sufficient working capital required at present and for at least the next 12 months from the date of this circular.

4. FINANCIAL AND TRADING PROSPECTS

There has been no significant change in the trend of the business and financial and trading prospects of the Group since the date of the last published interim report.

5. FINANCIAL EFFECT OF THE TRANSACTIONS UNDER THE FINANCIAL SERVICES FRAMEWORK AGREEMENTS

The Directors expect that the transactions under the Framework Agreements will not have any immediate material financial impact on the earnings, assets or liabilities of the Company.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars 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

As at the Latest Practicable Date, so far as was known to the Board, none of the Directors, Supervisors and senior management members of the Company had any interest or short positions in any shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance) which are required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the Securities and Futures Ordinance (including interests or short positions which they are taken or deemed to have under such provisions of the Securities and Futures Ordinance), or which were required, pursuant to section 352 of the Securities and Futures Ordinance, to be entered in the register maintained by the Company referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in Appendix 10 to the Hong Kong Listing Rules, to be notified to the Company and the Hong Kong Stock Exchange.

As at the Latest Practicable Date, so far as was known to the Board, none of the Directors was a director or employee of a company which 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 provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance.

3. DISCLOSURE OF SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, save as disclosed below, so far as was known to the Board, no persons (not being a Director, Supervisor or senior management member of the Company) had an interest or short position in the shares or underlying shares and debentures 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 Securities and Futures Ordinance, or, who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at the general meeting of any other member of the Company.

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APPENDIX II

GENERAL INFORMATION

					Percentage
			Number of shares	Percentage	in the
			with interests held	in shares of	total share
			or regarded as	the Company	capital of
	Class of		being held	of the same	the Company
Name of Shareholders	Shares	Capacity	(Shares)	class (%)(6)	(%)(7)
China Petrochemical	Domestic	Beneficial owner/	2,967,200,000(L)	100.00(L)	67.01(L)
Corporation(1)	Share	Interests of
		controlled corporation
National Council for Social	H Share	Beneficial owner	131,468,000(L)	6.99(L)	2.31(L)
Security Fund of the PRC(2)
JPMorgan Chase & Co.(3)	H Share	Trustee/Interests of	191,851,008(L)	13.13(L)	4.33(L)
		controlled corporation	1,090,000(S)	0.07(S)	0.02(S)
			129,314,415(P)	8.85(P)	2.92(p)
Prudential plc(4)	H Share	Interests of	117,459,500 (L)	8.04 (L)	2.65(L)
		controlled corporation
FIL Limited(5)	H Share	Interests of	87,471,500 (L)	5.99(L)	1.98(L)
		controlled corporation

Notes: (L): long position; (S): short position; (P): lending pool.

Notes:

• (1) China Petrochemical Corporation (“Sinopec Group”) directly and indirectly holds 2,967,200,000 domestic shares of the Company (“Domestic Shares”), representing 100% of the Domestic Shares and approximately 67.01% of the total share capital of the Company, respectively. Sinopec Assets Management Co., Ltd. is a wholly-owned subsidiary of Sinopec Group and directly holds 59,344,000 Domestic Shares, representing 2.00% of the Domestic Shares and approximately 1.34% of the total share capital of the Company, respectively. For the purposes of the SFO, Sinopec Group is also deemed to be interested in the Domestic Shares held by Sinopec Assets Management Co., Ltd..

• (2) The information is based on the Corporate Substantial Shareholders Notice dated 13 June 2018 and filed by the National Council for Social Security Fund of the PRC with the Hong Kong Stock Exchange.

• (3) The information is based on the Corporate Substantial Shareholders Notice dated 5 June 2018 and filed by JPMorgan Chase & Co. with the Hong Kong Stock Exchange.

• (4) The information is based on the Corporate Substantial Shareholders Notice dated 7 June 2017 and filed by Prudential plc with the Hong Kong Stock Exchange.

• (5) The information is based on the Corporate Substantial Shareholders Notice dated 20 June 2018 and filed by FIL Limited with the Hong Kong Stock Exchange.

• (6) It is calculated on the basis that the Company has issued 2,967,200,000 Domestic Shares and 1,460,800,000 H Shares.

• (7) It is calculated on the basis that the Company has issued 4,428,000,000 shares in total.

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GENERAL INFORMATION

APPENDIX II

4. PARTICULARS OF DIRECTORS’ AND SUPERVISORS’ CONTRACTS

The executive Directors and non-executive Directors have entered into service contracts with the Company. Such service contracts shall be valid from the date on which the relevant Director was appointed to the expiry of the Second Session of the Board. The service contracts may be renewed according to the Articles and applicable laws and regulations.

The Supervisors have entered into contracts with the Company in respect of their compliance with relevant laws and regulations, the Articles and arbitration rules. The tenure will be from the date on which the relevant Supervisor is appointed to the expiry of the Second Session of the Supervisory Committee. The service contracts may be renewed according to the Articles and applicable laws and regulations.

As at the Latest Practicable Date, none of the Directors or Supervisors of the Company had a service contract with any member of the Group (other than contracts expiring or determinable by the relevant employer within one year without the payment of compensation (other than statutory compensation)).

5. COMPETING INTERESTS

As at the Latest Practicable Date, other than certain directorships and/or other senior management positions held by some of the Directors in Sinopec Corp. as disclosed below, so far as the Board was aware, none of the Directors or their respective associates had any interest in a business which competes or is likely to compete directly or indirectly with the business of the Group:

• (a) Mr. LING Yiqun holds senior management position at Sinopec Corp.; and

• (b) Mr. LI Guoqing holds senior management position at Sinopec Corp.

6. DIRECTORS’ AND SUPERVISORS’ INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors and the Supervisors had any interests, either directly or indirectly, in any assets which had been, since 30 June 2018 (being the date to which the latest published audited financial statements of the Group were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors and the Supervisors was materially interested in any contract or arrangement which was significant in relation to the business of the Group taken as a whole.

7. 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 Company since 30 June 2018 (being the date to which the latest published audited financial statements of the Group were made up).

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GENERAL INFORMATION

APPENDIX II

8. LITIGATION

Save as disclosed in the section headed “Significant Events — 4. Material Litigation or Arbitration Events” in the Company’s 2018 interim report, as at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and, so far as the Directors were aware, no litigation or claim of material importance was pending or threatened by or against any member of the Group.

9. EXPERT

The following is the qualification of Dongxing Securities (Hong Kong) Company Limited which has given its opinion or advice contained in this circular:

Name Qualifications Dongxing Securities (Hong Kong) a corporation licensed by Securities and Futures Commission Company Limited to carry out type 1 (dealing in securities) , type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities as defined under the Securities and Futures Ordinance

As at the Latest Practicable Date, Dongxing Securities (Hong Kong) Company Limited had no shareholding in any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Dongxing Securities (Hong Kong) Company Limited had no direct or indirect interest in any assets which had been, since 30 June 2018 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of by, or leased to any member of the Group, or were proposed to be acquired or disposed of by, or leased to any member of the Group.

Dongxing Securities (Hong Kong) Company Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and the reference to its name included herein in the form and context in which it appears.

10. MATERIAL CONTRACTS

Within two years immediately prior to the Latest Practicable Date, there was no contract (not being contracts entered into in the ordinary course of business) entered into by any member of the Group which was or might be material.

11. MISCELLANEOUS

• (a) The Company Secretary is Mr. SANG Jinghua. For details of his biographical information, please refer to the Company’s 2017 annual report.

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GENERAL INFORMATION

APPENDIX II

• (b) The registered office of the Company is at No.8 Building, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing.

• (c) H Share registrar of the Company is Computershare Hong Kong Investor Services Ltd. at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.

• (d) In the event of any inconsistency, the English language version of this circular shall prevail over the Chinese language version.

12. ROUNDING

Certain amounts and percentages figures included in this circular have been subject to rounding adjustments, or have been rounded to one or two decimal places. Any discrepancies between totals and sums of amounts listed in any table are due to rounding.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the offices at 40th Floor, Sunlight Tower, No. 248 Queen’s Road East, Wanchai, Hong Kong from the date of this circular up to and including Tuesday, 2 October 2018:

• (a) the Financial Services Framework Agreement;

• (b) the Engineering and Construction Services Framework Agreement;

• (c) the letter from the Independent Board Committee to the Independent Shareholders dated 18 September 2018, the full text of which is set out on pages 37 to 38 of this circular;

• (d) the letter from Dongxing Securities (Hong Kong) Company Limited to the Independent Board Committee and the Independent Shareholders dated 18 September 2018, the full text of which is set out on pages 39 to 66 of this circular;

• (e) the written consent of Dongxing Securities referred to in the paragraph headed “Expert” in this Appendix II;

• (f) the Articles;

• (g) the 2016 and 2017 annual reports of the Company; and

• (h) this circular.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

BIOGRAPHICAL DETAILS OF NEW DIRECTORS

Mr. YU Baocai

Mr. YU Baocai (喻寶才), aged 53, is the vice president of China Petrochemical Corporation (中國石油化工集團公司). Mr. YU is a senior engineer and holds a master’s degree. Mr. YU served as the deputy general manager of PetroChina Daqing Petrochemical Company (中國石油大慶石化分公 司) from September 1999 to December 2001, the general manager of PetroChina Daqing Petrochemical Company from December 2001 to September 2003, and the general manager of PetroChina Lanzhou Petrochemical Company (中國石油蘭州石化分公司) from September 2003 to September 2008. He was the vice president of China National Petroleum Corporation (中國石油天然氣集團公司) from September 2008 to June 2018. He held a post as the director of PetroChina Company Limited from May 2011 to June 2018. He has been the vice president of China Petrochemical Corporation since June 2018.

Mr. LU Dong

Mr. LU Dong (陸東), aged 55, is the Vice Chairman of the Board of SINOPEC Engineering. Mr. LU is a senior engineer at professor level with a university diploma. From January 2000 to March 2004, he was the vice president of Yangzi Petrochemical Limited Liability Company (揚子石油化工 有限責任公司). From March 2003 to July 2004, he worked as the deputy director of Chemical Department of Sinopec Corp. (中國石化股份化工事業部). From July 2004 to December 2007, he served as the president of Fujian Petrochemical Company Limited (福建煉油化工有限公司). From July 2004 to October 2014, he was a director of Fujian Petrochemical Company Limited. From December 2005 to October 2014, he worked as the chairman of the board of directors of Fujian Petrochemical Company Limited. From February 2007 to October 2014, he served as the chairman of the board of directors of and president of Fujian Refining & Petrochemical Company Limited (福建聯合石油化工有限公司). He has been the Vice Chairman of the Board of SINOPEC Engineering since January 2015.

Mr. XIANG Wenwu

Mr. XIANG Wenwu (向文武), aged 52, is an executive Director and President of SINOPEC Engineering. Mr. XIANG is a professor-level economist and holds a Ph.D. diploma. Mr. XIANG served as the deputy manager of Sinopec Group Second Construction Company (中石化第二建設有限 公司) from June 1999 to March 2004. He served as the manager of Sinopec Group Second Construction Company from March 2004 to December 2008 and as the general manager of Sinopec Group Second Construction Company from December 2008 to July 2010. He was a director and general manager of Sinopec Nanjing Engineering & Construction Incorporation (中石化南京工程有限 公司) from December 2009 to April 2012 and an executive director and general manager of Sinopec Nanjing Engineering & Construction Incorporation from April 2012 to November 2014. He was the Vice President of SINOPEC Engineering from August 2012 to January 2017. He has been the President of SINOPEC Engineering since January 2017 and a Director of SINOPEC Engineering since February 2017.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Mr. WU Wenxin

Mr. WU Wenxin (吳文信), aged 54, is the director of Engineering Department of China Petrochemical Corporation, director of Engineering Department of China Petroleum and Chemical Corporation (中國石油化工股份有限公司), and an executive director and general manager of Sinopec Engineering Quality Supervision Co., Ltd. (中石化工程質量監測有限公司). Mr. WU is a senior engineer at professor level with a master’s degree. Mr. WU served as the deputy general manager of Fujian Petrochemical Company Limited (福建煉油化工有限公司) from May 2007 to September 2010; he was the project director of the refining and ethylene integration project of Fujian Refining & Petrochemical Company Limited (福建聯合石油化工有限公司); he was a director of Fujian Petrochemical Company Limited from November 2009 to September 2010; he was the deputy director of Engineering Department of China Petroleum and Chemical Corporation from July 2010 to March 2018; he was the deputy director of Engineering Department of China Petroleum and Chemical Corporation from September 2013 to March 2018; he has served as an executive director and the general manager of Sinopec Engineering Quality Supervision Co., Ltd. since October 2017; since March 2018, he has been the director of Engineering Department of China Petrochemical Corporation and the director of Engineering department of China Petroleum and Chemical Corporation.

Mr. HUI Chiu Chung, Stephen

Mr. HUI Chiu Chung (許照中), J.P., aged 71, is an independent non-executive Director of SINOPEC Engineering. Mr. HUI is currently the Chairman and Chief Executive Officer of Luk Fook Financial Services Limited. He also serves as an independent non-executive director of Zhuhai Holdings Investment Group Limited (Stock Code: 908), Gemdale Properties and Investment Corporation Limited (Stock Code: 535), Lifestyle International Holdings Limited (Stock Code: 1212), China South City Holdings Limited (Stock Code: 1668), Agile Group Holdings Limited (Stock Code: 3383), FSE Engineering Holdings Limited (Stock Code: 331) and a non-executive director of Luk Fook Holdings (International) Limited (Stock Code: 590), whose shares are listed on the Hong Kong Stock Exchange. Since April 2009, Mr. HUI had been appointed by the Hong Kong Government as an independent non-executive director of Hong Kong Exchanges and Clearing Limited (Stock Code: 388), at which his term of office ended in April 2015. Mr. HUI has over 47 years of experience in the securities and investment industry. He was the Managing Director of UOB Kay Hian (Asia) Limited (大華繼顯(亞洲)有限公司) from 2002 to 2005; Group Managing Director of OSK Asia Holdings Limited (僑豐金融集團有限公司) (“OSK”) from August 2005 to March 2007; Chief Executive Officer of OSK from April 2007 to March 2011; and the vice chairman of OSK Asia Holdings Hong Kong Limited (僑豐金融集團(香港)有限公司) from April 2011 to September 2011. He served for years as a council member and vice chairman of the Hong Kong Stock Exchange, a member of the Advisory Committee and the Committee on Real Estate Investment Trusts of the Hong Kong Securities and Futures Commission, a director of the Hong Kong Securities Clearing Company Limited, a member of the Listing Committee of the Hong Kong Exchanges and Clearing Limited, an appointed member of the Securities and Futures Appeal Tribunal, a member of the Standing Committee on Company Law Reform, and an appointed member of the Hong Kong Institute of Certified Public Accountants Investigation Panel. Mr. Hui became a Senior Fellow Member of the Hong Kong Securities and Investment Institute and Fellow Member of the Hong Kong Institute of Directors in 2011 and 2002, respectively. Mr. HUI has been an independent non-executive Director of SINOPEC Engineering since April 2013.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Mr. JIN Yong

Mr. JIN Yong (金涌), aged 82, is an independent non-executive Director of SINOPEC Engineering. Mr JIN currently is a member of Chinese Academy of Engineering, the dean of the Chemical Engineering Science and Technology Research Institute of Tsinghua University, a professor of the Chemical Engineering Department of Tsinghua University, an executive officer of China Society of Particuology and an executive officer of Chemical Industry and Engineering Society of China. Mr. JIN worked as an assistant teacher in Electrical Engineering Research Office in the University of Science and Technology of China (“USTC”) from October 1959 to February 1960. He also served as a teacher engaging in advanced studies in the Chemical Research Office in Tianjin University from February 1960 to February 1961, and worked as a teacher in the Chemistry Department in USTC from February 1961 to May 1973. Since 1973, Mr. JIN has been a lecturer, associate professor, professor and tutor of doctoral candidates at the Chemical Engineering department of Tsinghua University. Mr. Jin has been an independent non-executive Director of of SINOPEC Engineering since April 2013.

Mr. YE Zheng

Mr. YE Zheng (葉政), aged 53, is an independent non-executive Director of SINOPEC Engineering. Mr. YE is a practicing director of Mazars CPA Limited (瑪澤會計師事務所有限公司). He worked in Shanghai Municipal Finance Bureau (上海市財政局) from October 1982 to January 1989. Mr. YE has over 22 years of experience in audit, internal control and consultancy. He served as an auditor in Ernst & Young (安永會計師事務所) from October 1995 to April 2000; an audit manager in KPMG (畢馬威會計師事務所) from May 2000 to December 2001; a senior audit manager in Grant Thornton (均富會計師事務所) from January 2002 to July 2005; and a director in Ernst & Young from August 2005 to October 2006. Mr. YE obtained a bachelor’s degree in accounting and finance in May 1993, and a master’s degree in business administration in December 1994, both from California State University, Long Beach. Mr. YE became a member of the American Institute of Certified Public Accountants in September 1998 and a member of the Hong Kong Institute of Certified Public Accountants in May 2003. He has been a practicing director of Mazars CPA Limited since November 2006 and an independent non-executive Director of SINOPEC Engineering since April 2013. From 1 November 2014 to 31 October 2016, Mr. YE was a consulting expert for the third session of the committee for enterprise internal control standards appointed by the Ministry of Finance of the People’s Republic of China.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

BIOGRAPHICAL DETAILS OF NEW SUPERVISORS

Mr. ZHU Fei

Mr. ZHU Fei (朱斐), aged 53, is the Chairman of the Supervisory Committee of SINOPEC Engineering. Mr. ZHU is a senior engineer with a university diploma. From October 1998 to July 1999, he was the deputy head of Beijing Design Institute (北京設計院). From July 1999 to December 2002, he undertook different roles at Sinopec Engineering Incorporation. From December 2002 to April 2012, he worked as the vice president of Sinopec Engineering Incorporation. From April 2012 to October 2014, he was the vice president of Sinopec Engineering Incorporation. From November 2014 to April 2017, he was the vice president of Sinopec Fourth Construction Co., Ltd. He has been an employee representative Supervisor since January 2015 and the Chairman of the Supervisory Committee of SINOPEC Engineering since May 2017.

Mr. WANG Guoliang

Mr. WANG Guoliang (王國良), aged 58, is a Supervisor of SINOPEC Engineering. He is a vice president of each of Luoyang Petrochemical Engineering Corporation (LPEC)/SINOPEC (中石化洛陽 工程有限公司) and Guangzhou Petrochemical Engineering Corporation (GPEC)/SINOPEC (中石化廣 州工程有限公司). Mr. WANG is a senior engineer at professor level with a doctorate degree. From September 1997 to November 2001, he worked as the deputy manager of China Petrochemical Luoyang (中國石油化工總公司洛陽石油化工工程公司). From November 2001 to May 2003, he was the secretary of the CPC Committee of Sinopec Group Luoyang Petrochemical Engineering Corporation (中國石化集團洛陽石油化工工程公司). From May 2003 to December 2008, he was the deputy manager of Sinopec Group Luoyang Petrochemical Engineering Corporation. From December 2008 to April 2012, he was the vice president of Sinopec Group Luoyang Petrochemical Engineering Corporation. From April 2012 to September 2012, he was the vice president of Luoyang Petrochemical Engineering Corporation (LPEC)/SINOPEC and Guangzhou Petrochemical Engineering Corporation (GPEC)/SINOPEC. From September 2012 to November 2014, he was an executive director and president of each of Luoyang Petrochemical Engineering Corporation (LPEC)/SINOPEC and Guangzhou Petrochemical Engineering Corporation (GPEC)/SINOPEC. From December 2012 to November 2014, he was the Vice President of SINOPEC Engineering. Since November 2014, he has been the vice president of each of Luoyang Petrochemical Engineering Corporation (LPEC)/SINOPEC and Guangzhou Petrochemical Engineering Corporation (GPEC)/SINOPEC. He has been a Supervisor of SINOPEC Engineering since January 2015.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Mr. YE Wenbang

Mr. YE Wenbang（葉文邦）, aged 55, is a director and vice president of Sinopec Shanghai Engineering Co., Ltd. (中石化上海工程有限公司). Mr. YE is a senior engineer with a master’s degree. From September 2001 to January 2003, Mr. YE worked as the deputy dean of Shanghai Pharmaceutical Industry Design Institute (上海醫藥工業設計院). He was the deputy general manager and director of Sinopec Group Shanghai Engineering Co., Ltd. from January 2003 to April 2012. He was the deputy general manager and supervisory committee convener of Sinopec Group Shanghai Engineering Co., Ltd. from April 2012 to May 2012. He was the supervisory committee convener of Sinopec Group Shanghai Engineering Co., Ltd. from May 2012 to August 2016. He has been a director and deputy general manager of Sinopec Group Shanghai Engineering Co., Ltd. from August 2016.

Mr. WU Jibo

Mr. WU Jibo (吳吉波), aged 49, is the deputy general manager of Sinopec Nanjing Engineering & Construction Incorporation (中石化南京工程有限公司). Mr. WU is a senior engineer at professor level with a master’s degree. From August 2008 to December 2008, Mr. WU worked as the vice manager of Sinopec Group Second Construction Company (中國石化第二建設公司). From December 2008 to July 2010, he served as the vice president of the Sinopec Group Second Construction Company. From July 2010, he has been the deputy general manager of Sinopec Nanjing Engineering & Construction Incorporation since July 2010.

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