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 FOURTH SESSION OF THE BOARD

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

PROPOSED AMENDMENTS TO THE ARTICLES

PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE BOARD OF DIRECTORS

PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE SUPERVISORY COMMITTEE

PROPOSED AMENDMENTS TO THE RULES FOR THE AUDIT COMMITTEE

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

A letter from the Board is set out on pages 6 to 49 of this circular. A letter from the Independent Board Committee is set out on pages 50 to 51 of this circular. A letter from Maxa Capital is set out on pages 52 to 76 of this circular.

A notice convening the second extraordinary general meeting for the year 2021 (“ EGM ”) to be held at 10 a.m. on Friday, 22 October 2021 at Conference Room 201, Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC together with the relevant reply slip and proxy form had been issued to Shareholders separately.

The Company confirms and reminds, given that Wednesday, 22 September 2021 is a public holiday in Hong Kong, H Shareholders who wish to attend the EGM shall lodge their share certificates accompanied by the transfer documents with Computershare Hong Kong Investor Services Limited before 4:30 p.m. on Tuesday, 21 September 2021 for registration.

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 Friday, 1 October 2021.

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

15 September 2021

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . .	50
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . .	52
Proxy Form and Reply Slip . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77
Appendix I – Financial Information of the Group . . . . . . . . . . . . . . . . . . . .	80
Appendix II – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	81
Appendix III – Biographical Details of the Proposed Directors and
Supervisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	87

– i –

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
”Audit Committee” the audit committee of the Board
“associate(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules
“Board” the board of directors of the Company
“CAGR” compound annual growth rate
“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

– 1 –

DEFINITIONS

“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

“EGM”
the second extraordinary general meeting of the Company for the year 2021 to be convened and held at 10 a.m. on Friday, 22 October 2021 at Conference Room 201, Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC
“EGM Notice”
the notice for convening the EGM dated 7 September 2021, which has been issued to the Shareholders separately
“Engineering and Construction Services Framework Agreement”
an engineering and construction services framework agreement entered into between the Company and Sinopec Group on 19 December 2012 and as amended by supplemental agreements dated 28 August 2015, 21 August 2018 and 20 August 2021
“Financial Services Framework Agreement”
a financial services framework agreement entered into between the Company and Sinopec Group on 19 December 2012, as amended by supplemental agreements dated 22 April 2013, 28 August 2015, 21 August 2018 and 20 August 2021
“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 share(s) 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

– 2 –

DEFINITIONS

“Hong Kong Listing Rules”
“Hong Kong Stock Exchange”
“Independent Board Committee”
“Independent Financial Adviser” or “Maxa Capital”
“Independent Shareholders”
“Independent Third Party(ies)”
“Latest Practicable Date”
“Listing Date”
“PBOC”

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

The Stock Exchange of Hong Kong Limited

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

Maxa Capital Limited, a licensed corporation permitted to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, 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 Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps
Shareholders other than Sinopec Group and its associates
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 14 September 2021, being the latest practicable date before the printing of this circular for ascertaining certain information herein
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
the People’s Bank of China (中國人民銀行)

– 3 –

DEFINITIONS

“PRC” or “People’s Republic of the People’s Republic of China China”
“Proposed Annual Caps”
the proposed annual caps in respect of each of the Framework Agreements for each of the years ending 31 December 2022, 2023 and 2024, 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

“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“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

– 4 –

DEFINITIONS

“Sinopec Finance”
“Sinopec Finance Companies”
“Sinopec Group”
“subsidiary” or “subsidiaries”
“substantial shareholder(s)”
“Supervisor(s)”
“Supervisory Committee”
“US$”
“%”

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 Century Bright and Sinopec Finance
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
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
has the meaning ascribed thereto in the Hong Kong Listing Rules
the members of the Supervisory Committee
the Company’s supervisory committee established pursuant to the Company Law
the lawful currency of the United States of America
percentage ratio

– 5 –

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)

Executive Directors: SUN Lili (孫麗麗) (Chairwoman) XIANG Wenwu (向文武) (Vice Chairman) JIANG Dejun (蔣德軍)

Non-executive Director: WU Wenxin (吳文信)

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

15 September 2021

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 FOURTH SESSION OF THE BOARD

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

PROPOSED AMENDMENTS TO THE ARTICLES

PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE BOARD OF DIRECTORS

PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE SUPERVISORY COMMITTEE

PROPOSED AMENDMENTS TO THE RULES FOR THE AUDIT COMMITTEE

For identification purposes only

– 6 –

LETTER FROM THE BOARD

I. INTRODUCTION

Reference is made to the Company’s announcement dated 23 August 2021. 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:

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 2022, 2023 and 2024, 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;
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 2022, 2023 and 2024. 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;
to consider and approve the proposed appointments of the Directors of the Fourth Session of the Board and Supervisors of the Fourth Session of the Supervisory Committee, and the biographical details of the Directors and Supervisors candidates; and
to consider and approve the proposal to amend the Articles, the Rules and Procedures for the Meetings of the Board of Directors, the Rules and Procedures for the Meetings of the Supervisory Committee and the Rules for the Audit Committee.

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

1. Background Information

References are made to the Company’s announcement dated 21 August 2018, and the Company’s circular dated 18 September 2018, and the Company’s poll results announcement for the extraordinary general meeting held on 26 October 2018. 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 2019, 2020 and 2021, respectively, at the first extraordinary general meeting of the Company for the year of 2018 held on 26 October 2018. 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 2019 to 31 December 2021.

– 7 –

LETTER FROM THE BOARD

Reference is made to the Company’s announcement dated 23 August 2021 in relation to (among other things) the terms of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement, the renewal of the continuing connected transactions thereunder and the Proposed Annual Caps thereunder. Since the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement will expire on 31 December 2021, the Company and Sinopec Group entered into supplemental agreements on 20 August 2021, 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 2022 to 31 December 2024, subject to the Independent Shareholders’ approval of such renewal.

On 20 August 2021, 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 2022, 2023 and 2024, 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 and as to how they should vote in respect of the above resolutions and other issues. Maxa Capital has been engaged as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. Meanwhile, Sinopec Group and its associates will abstain from voting at the EGM in respect of the ordinary resolutions to approve the above matters.

– 8 –

LETTER FROM THE BOARD

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 the supplemental agreements dated 22 April 2013, 28 August 2015, 21 August 2018 and 20 August 2021 (collectively, the “ Financial Services Framework Agreement ”). Pursuant to the supplemental agreement dated 20 August 2021, 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 2022 to 31 December 2024, subject to Independent Shareholders’ approval at the EGM.

(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 governmentguided price; and (2) the market price. In the 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.

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LETTER FROM THE BOARD

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 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 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.

– 10 –

LETTER FROM THE BOARD

(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.
(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) Favorable 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.

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LETTER FROM THE BOARD

(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 2020, 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 RMB326.5 billion. Sinopec Group ranked second in 2020 in Fortune Global 500. The Group therefore considers that lending to Sinopec Group is a low risk fund allocation option. During the two years ended 31 December 2019 and 2020 and the six months ended 30 June 2021, 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 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 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

– 12 –

LETTER FROM THE BOARD

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.

In addition, the Board has considered the risks 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. Such risks 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 allocation 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 Board 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. In addition, the Board has considered the risks (such as the possible material adverse change in the financial conditions of the Sinopec Finance Companies) 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. The Group has further adopted (i) an independent financial system; (ii) risk management measures; (iii) internal control measures; and (iv) corporate governance measures (including the pricing mechanism) with respect to the transactions under the Financial Services Framework Agreement in order to further safeguard the interests of the Independent Shareholders. The relevant measures include, but are 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.

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LETTER FROM THE BOARD

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 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 (including the pricing mechanism) under the Financial Services Framework Agreement. Only independent non-executive Directors may vote in respect of matters 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.

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LETTER FROM THE BOARD

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 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 23 August 2021.

(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 2019 and 2020 and the six months ended 30 June 2021:

			For the
			six months
	For the year ended		ended
	31 December		30 June
	2019	2020	2021
		(RMB’000)
Service fees in relation to settlement,
entrustment loans and other financial
services	1,730	1,820	920
Maximum daily balance of deposits and
interest income	7,387,000	7,873,000	8,283,000
Maximum daily balance of entrustment
loans	19,000,000	21,000,000	22,000,000

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LETTER FROM THE BOARD

(h) Existing and Proposed Annual Caps

Existing Annual Caps

As disclosed in the Company’s announcement dated 23 August 2021, the existing annual caps for each of the years ended 31 December 2019 and 2020 and the year ending 2021 are set out below:

	For the years	ended/ending 31 December	ended/ending 31 December
	2019	2020	2021
		(RMB’000)
Service fees in relation to settlement,
entrustment loans 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

Proposed Annual Caps

The Proposed Annual Caps for each of the years ending 2022, 2023 and 2024 are set out below:

	For the	years ending 31 December	years ending 31 December
	2022	2023	2024
		(RMB’000)
Service fees in relation to settlement,
entrustment loans and other financial
services	3,500	4,000	4,000
Maximum daily balance of deposits and
interest income	8,000,000	8,000,000	8,000,000
Maximum daily balance of entrustment loans	20,500,000	20,500,000	20,500,000

Basis of the Proposed Annual Caps

In determining the above annual caps for each of the years ending 31 December 2022, 2023 and 2024, the following factors have mainly been considered:

(1) the utilization rates of the above-mentioned annual caps for each of the years ended 31 December 2019, 2020 and for the six months ended 30 June 2021;
(2) the interest rates and fee rates in connection with deposits, entrustment loans and other financial services;

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LETTER FROM THE BOARD

(3) in order to expand external investment channels and diversify our investment portfolio, the Group is planning to reduce the total amount of deposits and entrustment loans to Sinopec Finance Companies in the next three years;
(4) the expected business volume of the Group for the years 2022, 2023 and 2024; and
(5) the Group’s expected net cash inflow generated by its operating activities for the years 2022, 2023 and 2024.

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) Deposits 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 2019 and 2020, the utilization rates for the annual caps were 98.5% and 87.5% for 2019 and 2020 respectively; also, for the six months ended 30 June 2021, the maximum daily balance of deposits and interest income has already reached 82.8% of the annual cap of 2021.

Based on the utilization rates of the annual caps and the forecast that the domestic economy in China has entered into a phase of stable growth, the Directors are of the view that although the income generated by the Group in China will grow steadily, in order to expand external investment channels and diversify our investment portfolio, the Group is planning to reduce the scale of deposits with Sinopec Finance and Sinopec Century Bright in the next three years. Hence, the maximum daily balance of the deposits and interest income will decrease accordingly.

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LETTER FROM THE BOARD

(j) 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 2019 and 2020, the utilization rates for the annual caps were 100.0% and 100.0% for 2019 and 2020 respectively; also, for the six months ended 30 June 2021, the maximum daily balance entrustment loans has already reached 100.0% of the annual cap of 2021 (has been fully utilized).

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 expand external investment channels and diversify our investment portfolio, the Group is planning to reduce the total amount of entrustment loans to Sinopec Finance in the next three years. Therefore, although the Group is able to achieve a stable growth in income in 2022, 2023 and 2024, the annual caps for the entrustment loans will decrease.

(k) 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 2019 and 2020, the utilization rates for the annual caps were 55.4% and 52.3% for 2019 and 2020 respectively. Meanwhile, settlement and other financial services fees for the six months ended 30 June 2021 has taken up 24.0% of the annual cap of 2021.

As such, based on the facts that (i) the Company’s payment through Sinopec Finance Companies’ finance platform accounted for a large percentage of the Company’s total payment transactions for the two years ended 31 December 2020 and for the six months ended 30 June 2021; (ii) the expected total payment transaction volume by the Company for the years of 2022, 2023 and 2024; 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 scale of changes of the annual caps of the deposit and interest income, the entrustment loans and settlement and other financial services fees for the years of 2022, 2023 and 2024 are consistent with the corresponding expected scale of changes 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 2022, 2023 and 2024 are fair, reasonable and in the interests of the Company and Shareholders as a whole.

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LETTER FROM THE BOARD

(l) 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 -----

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.

Meanwhile, 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 2022, 2023 and 2024, one or more of the applicable percentage ratios calculated according to Rule 14.07 of the Hong Kong Listing Rules will exceed 25%. Under Chapter 14A of the Hong Kong Listing Rules, 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.

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LETTER FROM THE BOARD

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, 21 August 2018 and 20 August 2021 (collectively, the “ Engineering and Construction Services Framework Agreement ”). According to the supplemental agreement dated 20 August 2021, 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 2022 to 31 December 2024, 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.

(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; labor 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; labor 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;

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LETTER FROM THE BOARD

(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, technologies 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 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).

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LETTER FROM THE BOARD

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 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, historically, the Group did not use the market price for the procurement of such services from Sinopec Group because 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 economize 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 “– (f) Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions under the Engineering and Construction Services Framework Agreement.”

(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) Reasons for 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 second in 2020 in Fortune Global 500. Benefiting from its scale and strength, Sinopec Group can provide the Group with stable supply of equipment and 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.

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LETTER FROM THE BOARD

(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 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 favorable 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

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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 finance department of the Group works closely with the other departments and subsidiaries to collect information such as historical 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 noncompliant 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.
(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 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;

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(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 and there are no terms that are less favourable to the Company than the terms available to/from Independent Third Parties (as the case may be), and in the interests of the Company and the Shareholders as a whole.

(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 2019 and 2020 and the six months ended 30 June 2021.

			For the
			six months
	For the years ended		ended
	31 December		30 June
	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	25,584,000	32,932,000	18,195,000
Expenditure incurred for the provision of
services by Sinopec Group and/or its
associates to the Group	2,982,000	3,472,000	2,502,000

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LETTER FROM THE BOARD

(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 2019, 2020 and 2021 are set out below:

Revenue generated from the provision of engineering and construction services by the Group to Sinopec Group and/or its associates
Expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group

For the years	ended/ending 31	December
2019	2020	2021
	(RMB’000)
40,000,000	42,000,000	45,000,000
3,000,000	3,500,000	4,000,000

Proposed Annual Caps

The maximum aggregate annual amount of fees for each of the years ending 31 December 2022, 2023 and 2024 shall not exceed the caps set out below:

	For the	years ending 31	December
	2022	2023	2024
		(RMB’000)
Revenue generated from the provision of
engineering and construction services by
the Group to Sinopec Group and/or its
associates	55,000,000	55,000,000	55,000,000
Expenditure incurred for the provision of
services by Sinopec Group and/or its
associates to the Group	7,000,000	7,000,000	7,000,000

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 2022, 2023 and 2024, the following factors have mainly been considered:

(i) Sinopec Group’s investment plan in relation to, among other things, oil refining, petrochemical, new coal chemical, and natural gas during the period from 2022 to 2024;

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LETTER FROM THE BOARD

(ii) 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;
(iii) 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 of 30 June 2021; and
(iv) the Group’s business development plan for the years of 2022, 2023 and 2024, 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.

After reviewing the above and based on following assumptions:

(i) According to forecasts of the International Energy Agency (IEA), the global petrochemicals industry will maintain a strong growth trend in the next five years. It is expected that in 2026, the world’s newly commissioned production capacity of oil refining will increase by 440 million tonnes (8.5mb/d). Meanwhile, based on the publicly disclosed information of Sinopec Corp., in 2018, 2019, and 2020, the total capital expenditures of Sinopec Corp. were RMB118.0 billion, RMB147.1 billion, and RMB135.1 billion, respectively, with a three-year CAGR of 10.8%. Based on the publicly disclosed information of Sinopec Corp., its capital expenditure in 2021 is expected to increase 38%, amounting to 167.2 billion. In 2018, 2019 and 2020, the engineering and construction service of the Group’s revenue generated from Sinopec Group and/or its associates were RMB24.728 billion, RMB25.584 billion, and RMB32.932 billion, respectively, with a three-year CAGR of 35.8%. As such, after considering (a) the rapid development trend of the petrochemicals industry in the next three years, (b) the continuously growing capital expenditure plan of Sinopec Corp., and (c) the growth trend of the revenue of Group’s engineering and construction services generated from Sinopec Group and/or its associates, the Group expects that in 2022, 2023, and 2024, revenue of its engineering and construction services generated from Sinopec Group will continue to grow correspondingly and thus forming the basis of the proposed annual caps;
(ii) Projects obtained by the Group from Sinopec Group and/or its associates form a core part of the Group’s principal activities. To ensure the continuity of the Group’s production operations, and to avoid involuntary business interruption due to the exceeding of proposed caps of the continuing connected transactions under the Continued Engineering and Construction Services Framework Agreement, the Group adopts the upper end of the forecast amount as the cap when determining the proposed annual caps;
Calculated based on data from 2017 to 2020.

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(iii) The proportion of new contracts and backlog of engineering and construction services obtained by the Group from Sinopec Group and/or its associates recorded an expanding trend. From 2018 to 2020, the proportion of new contracts of engineering and construction services obtained by the Group from Sinopec Group to the Group’s new contracts of engineering and construction services had steadily increased and remained at approximately 65%, while the proportion of backlog obtained by the Group from Sinopec Group to the Group’s total backlog for the same years also recorded a steady increase and remained at approximately 55%. Therefore, the Group will also determine annual caps with reference to such proportions of the engineering and construction services contracts obtained by the Group from Sinopec Group; and
(iv) In view of the historical transaction amount, revenue generated from the provision of engineering and construction services by the Group to Sinopec Group and/or its associates increased by around 28.7% from approximately RMB25.584 billion in 2019 to approximately RMB32.932 billion in 2020. Meanwhile, despite the under-utilization of the Existing Annual Caps in 2019 and 2020 as a result of the slowing-growth of the global petrochemicals industry and Covid-19, the Group’s historical utilisation rate nevertheless increased from approximately 64.0% in 2019 to approximately 78.4% in 2020, and the utilisation rate reached 40.4% in the first half of 2021 based on the transaction amounts for the six months ended 30 June 2021 and the annual cap for the full year of 2021. In addition, the implied CAGR based on the proposed annual caps and the historical transaction amount for 2020 was approximately 29.2%, which was in line with the growth rate of the historical transaction amounts. Therefore, the increase of the proposed annual caps is generally in line with that of the historical transaction amounts.

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 2022, 2023 and 2024, namely RMB55 billion, RMB55 billion and RMB55 billion respectively, is consistent with the expected growth of the Sinopec Group’s total investments in the oil refining, petrochemical and LNG fields 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 following factors have mainly been 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 of 2022, 2023 and 2024.

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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 2022 to 2024 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 three 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, 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 growth of the Proposed Annual Caps for the provision of engineering and construction services by Sinopec Group to the Group for the years of 2022, 2023 and 2024, of approximately RMB7.0 billion, RMB7.0 billion and RMB7.0 billion, respectively, which 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 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 years of 2022, 2023 and 2024, there is no undue reliance concern between the Group and Sinopec Group. This is mainly because:

(1) 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

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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;

(2) 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
(3) The Group can maintain its revenue level to be generated from independent clients. 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 2022, 2023 and 2024, the Group in this regard anticipates that the Group’s revenues from independent third parties are expected to grow in the respective years.

(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

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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, announcement, annual review and Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

Meanwhile, 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 2022, 2023 and 2024, 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 Independent Shareholders’ approval requirements under Chapter 14 of the Hong Kong Listing Rules.

4. Approval by the Board

On 20 August 2021, the Company held the sixteenth meeting of the Third 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 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. WU Wenxin, our director, serves as the management of Sinopec Group, thus Mr. WU Wenxin, our director, 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 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.

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Maxa Capital has been appointed as the Independent Financial Adviser 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 and major 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.

According to the Hong Kong Listing Rules, the Independent Board Committee has been formed. After considering the advice from the Independent Financial Adviser, the Independent Board Committee will advise the Independent Shareholders on the fairness and reasonableness of the terms under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the connected transactions and major transactions thereunder and the Proposed Annual Caps, and whether they are in the interests of the Company and the Shareholders as a whole. To the best of the Directors’ knowledge, information and belief after making all due enquiry, no member of the Independent Board Committee has any material rights or interests in the aforementioned connected transactions.

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 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. As of the Latest Practicable Date, Sinopec Group directly or indirectly holds 2,967,200,000 Domestic Shares (including 59,344,000 Domestic Shares held by its whollyowned 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. Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions

The Company has implemented a suite of internal control measures for regulating the entering into of the continuing connected transactions (including the relevant pricing mechanisms). Such measures include the following:

(1) The Company supervises the continuing connected transactions in accordance with the procedures set forth in the Company’s internal control measures on continuing connected transactions (including the relevant pricing mechanism).
(2) For the general services provided by the Group to Sinopec Group where the market price is used, if the government-prescribed prices and government-guided prices are not available, the Group will actively seek to obtain market price information through various channels. The Company, for example, may refer to the comparable prices between the Company and no less than two Independent Third Parties and those between the Independent Third Parties, or obtain market price information of

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the same or similar or services through industry websites, independent industry information vendors or events held by industry organizations. The Group will take into account of such market price information, and determine the final price with Sinopec Group through arm’s length negotiations on normal commercial terms. For the general services provided by the Group to Sinopec Group where the agreed price is used, the Group, as services provider, will provide our quotes to Sinopec Group, while Sinopec Group will review our quotes, compare with the comparable market prices of the same or similar or services, and determine the final prices. Meanwhile, such prices are also subject to the review of the finance departments of the Group, and finally determined by the management of the Group.

For the general services provided by Sinopec Group to the Group where the market price is used, on the basis of the procurement and sale system of the Company, the Company requests the service suppliers, including Sinopec Group and other independent services suppliers, to offer the quotes for the services provided. The Company will then review and compare such quotes, negotiate the offering terms, and select the service suppliers after taking into account of the offer price, services quality, specific needs of both parties, and the qualification and experiences of the services suppliers.

(3) For the Technology R&D Services provided by the Group to Sinopec Group where the agreed price is used, with a view to arriving at a reasonable profit, the agreed price is determined through arm’s length negotiations between the relevant parties after making references to the average gross profit margins (generally around 15%, which will be adjusted subject to various factors including the size of the business and the technologies required) of similar businesses in 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 the Group, such price is subject to the review and approval of the Company’s technology department (or the technology department of the relevant subsidiary of the Company), or depending on the actual circumstances, such price will be reported by the Company’s technology department to the Company’s management for its further review and approval (or will be reported by the technology department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval). The technology department and the management of the Company or the technology department of the relevant subsidiary of the Company and the management of such subsidiary (as the case may be) will take into account factors including the type of business, the complexity of the projects and the technologies involved, as well as the prices of one to two relevant comparable services recently provided by the Group to Independent Third Parties in the past three months (if any) to ensure that the price of the Technology R&D 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.

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For the Technology R&D Services provided by Sinopec Group to the Group where the market price is used, before entering into any transactions under any technology R&D framework agreement with the relevant members of Sinopec Group, the Group will actively seek to obtain market price information through various channels, for example, obtaining quotes from at least one independent vendor which provides the same or similar products, technologies or services, and, where available, obtaining market price information of the same or similar products, technologies or services through various independent industry information vendors (such as industry organizations and professional organizations). The Company’s technology department will review and compare such quotes and, where available, the market price information with the quotes offered by the relevant members of Sinopec Group, or depending on the actual circumstances, the Company’s technology department will report the quotes and, where available, the market price information to the Company’s management for its further review, to determine whether to accept the quotes offered by the relevant members of Sinopec Group, so as to ensure that the price of the Technology R&D 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.

(4) 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 reports for the most recent financial years, 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 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 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.

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For the services under the Engineering and Construction Services Framework Agreement provided by Sinopec Group to the Group, relevant vendors will 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 vendors 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.

6. 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

Sinopec Group’s predecessor was China Petrochemical Corporation (中國石油化工總公司), which was established in July 1983. China Petrochemical Corporation (中國石油化工集團公司) was established in July 1998 upon reorganisation of the former China Petrochemical Corporation (中國石油化工總公司) and restructured into China Petrochemical Corporation (中國石油化工集團有限公司) in August 2018. 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.

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(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 2020, Sinopec Finance had total assets of RMB228.147 billion, Shareholders’ equity of RMB29.761 billion, registered capital of RMB18.0 billion and a capital adequacy ratio of 20.02%. Based on the unaudited accounts of Sinopec Finance, as at 30 June 2021, Sinopec Finance had total assets of RMB232.499 billion, Shareholders’ equity of RMB30.888 billion, registered capital of RMB18.0 billion and a capital adequacy ratio of 20.47%.

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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 2007. As at 31 December 2020, Sinopec Century Bright had total assets of US$45.49 billion and net assets of US$3.63 billion. Based on the unaudited accounts of Sinopec Century Bright, as at 30 June 2021, Sinopec Century Bright had total assets of US$59.36 billion and net assets of US$4.13 billion. In addition, Sinopec Century Bright has obtained an A2 rating from Moody’s with a stable outlook and an A from Standard & Poor with a stable outlook as well.

Sinopec Century Bright only provides financial services to members of the Sinopec Group (including the Company). 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 FOURTH SESSION OF THE BOARD AND SUPERVISORS OF THE FOURTH SESSION OF THE SUPERVISORY COMMITTEE

Proposed Appointments of Directors of the Fourth Session of the Board

Reference is made to the Company’s announcement dated 23 August 2021 in relation to the change of Directors. The Board recently considered and approved the proposed appointments of Mdm. SUN Lili[#] , Mr. XIANG Wenwu[#] , Mr. WANG Zizong, Mr. LI Chengfeng, Mr. WU Wenxin*, Mr. JIANG Dejun[#] , Mr. HUI Chiu Chung, Stephen[+] , Mr. JIN Yong[+] and Mr. YE Zheng[+] as candidates for Directors to serve the Fourth Session of the Board, each with a term commencing from the date of appointment and ending on the date of election of members of the next session of the Board [note] . All of the candidates for such Directors have confirmed that they had no disagreement on their nominations respectively.

Note:

Executive Directors

Non-executive Directors

Independent non-executive Directors

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According to the Articles, the proposed appointment of a Director assumed by a non-employee representative is subject to approval by Shareholders. The proposals of the appointments of Mdm. SUN Lili, Mr. XIANG Wenwu, Mr. WANG Zizong, Mr. LI Chengfeng, Mr. WU Wenxin, Mr. JIANG Dejun, 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 when their appointments are approved by the EGM and ends at the expiry of the Fourth 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 and performance bonuses, with reference to the duties or responsibilities of the relevant person and the performance of the Group. The Director’s fees in respect of the provision of services under the service contracts 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 Mdm. SUN Lili, Mr. XIANG Wenwu, Mr. WANG Zizong, Mr. LI Chengfeng, Mr. WU Wenxin, Mr. JIANG Dejun, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng are set out in Appendix III to this circular.

As at the Latest Practicable Date, save as disclosed above, none of Mdm. SUN Lili, Mr. XIANG Wenwu, Mr. WANG Zizong, Mr. LI Chengfeng, Mr. WU Wenxin, Mr. JIANG Dejun, 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 Mdm. SUN Lili, Mr. XIANG Wenwu, Mr. WANG Zizong, Mr. LI Chengfeng, Mr. WU Wenxin, Mr. JIANG Dejun, 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 SFO. None of Mdm. SUN Lili, Mr. XIANG Wenwu, Mr. WANG Zizong, Mr. LI Chengfeng, Mr. WU Wenxin, Mr. JIANG Dejun, 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 13.51(2)(v) of the Hong Kong Listing Rules.

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

Reference is made to the Company’s announcement dated 23 August 2021 in relation to the change of Supervisors. The Supervisory Committee recently considered and approved the proposed appointments of Mr. ZHU Fei, Mr. ZHANG Xinming, Mr. ZHOU Yingguan and Mr. ZHOU Chengping as non-employee representative Supervisors to serve the Fourth 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. All of the candidates for such 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. ZHANG Xinming, Mr. ZHOU Yingguan and Mr. ZHOU Chengping will be put forward at the EGM for the Shareholders’ consideration and approval by way of ordinary resolutions.

If the above Supervisor candidates are approved by the EGM as Supervisors, such Supervisors will execute associated service contracts with the Company. According to the service contracts, such Supervisors’ term starts from the date when their appointments are approved by the EGM, and ends at the expiry of the Fourth 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 the 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. ZHANG Xinming, Mr. ZHOU Yingguan and Mr. ZHOU Chengping are set out in Appendix III to this circular.

As at the Latest Practicable Date, save as disclosed above, none of Mr. ZHU Fei, Mr. ZHANG Xinming, Mr. ZHOU Yingguan and Mr. ZHOU Chengping 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. ZHANG Xinming, Mr. ZHOU Yingguan and Mr. ZHOU Chengping had any interest in the Shares within the meaning of Part XV of the SFO. None of Mr. ZHU Fei, Mr. ZHANG Xinming, Mr. ZHOU Yingguan and Mr. ZHOU Chengping 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 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 13.51(2)(v) of the Hong Kong Listing Rules.

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LETTER FROM THE BOARD

IV. PROPOSED AMENDMENTS TO THE ARTICLES

1. Reasons for Proposed Amendments to the Articles

To fulfill the need of the development of the Company, the general counsel was incorporated into senior management of the Company with an addition of chapter 13 general counsel. An adjustment was made to the terms related to the composition of the Board and the supervisory committee to increase the flexibility of personnel arrangement of the Board and the supervisory committee of the Company.

2. Major Contents of the Amendments

In the event of discrepancy between the Chinese version and the English version of these proposed amendments to the Articles, the Chinese version shall prevail.

(1) Proposed amendments to Paragraph 4 of Article 7 of the Articles

Current Paragraph 4 of Article 7:

Unless otherwise defined, senior management personnel referred to in these Articles of Association refers to the president, vice president, chief financial officer, board secretary and any other person designated as senior management by the board of directors of the Company.

Proposed amendments:

Unless otherwise defined, senior management personnel referred to in these Articles of Association refers to the president, vice president, chief financial officer, general counsel, board secretary and any other person designated as senior management by the board of directors of the Company.

(2) Proposed amendments to Article 8 of the Articles

Current Article 8:

In accordance with the Company Law and the Constitution of the Communist Party of China (the “Party”), the Company hereby set up Party organizations and related working organs, and maintain an adequate level of staffing to handle Party affairs as well as sufficient funding necessary for the activities of the Party organizations. The Party organizations play the role of the leadership core and political core in the Company.

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LETTER FROM THE BOARD

Proposed amendments:

In accordance with the Company Law and the Constitution of the Communist Party of China (the “Party”), the Company hereby set up Party organizations and related working organs, and maintain sufficient and competent staffs to handle Party affairs as well as sufficient funding necessary for the activities of the Party organizations. The Party organizations of the Company shall play the role of the leadership by setting the right direction, keeping in mind the big picture as well as ensuring the implementation of Party policies and principles.

(3) Proposed amendments to Article 93 of the Articles

Current Article 93:

The Company shall have a board of directors which is accountable to the shareholders’ meeting.

Proposed amendments:

The Company shall have a board of directors. The board of directors is responsible for formulating strategies, making decisions and preventing risks which is accountable to the shareholders’ meeting.

(4) Proposed amendments to Article 94 of the Articles

Current Article 94:

The board of directors shall consist of nine directors, including three independent non-executive directors. There shall be a chairman and a vice chairman of the board of directors. An independent non-executive director refers to a director who does not hold any position other than directorship in the Company and who has no relationship with the Company or its major shareholder(s) (i.e. a shareholder who alone holds or shareholders who together hold 5% or more of the total voting shares of the Company) that could hinder such shareholder(s) from making independent and objective judgments, and who is in compliance with the independence requirements under the stock exchange rules in the place where shares of the Company are listed.

Proposed amendments:

The board of directors shall consist of seven to nine directors, including at least one third of independent non-executive directors. There shall be a chairman and a vice chairman of the board of directors. An independent non-executive director refers to a director who does not hold any position other than directorship in the Company and who has no relationship with the Company or its major shareholder(s) (i.e. a shareholder who alone holds or shareholders who together hold 5% or more of the total voting shares of

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LETTER FROM THE BOARD

the Company) that could hinder such shareholder(s) from making independent and objective judgments, and who is in compliance with the independence requirements under the stock exchange rules in the place where shares of the Company are listed.

(5) Proposed amendments to Article 101 of the Articles

Current Article 101:

The board of directors shall exercise the following functions and powers:

��

(11) to appoint or remove the Company’s president and to appoint or remove the vice president and the chief financial officer of the Company according to the recommendations of the president; to appoint or remove the secretary to the board of directors and to decide on their remuneration;

��

Proposed amendments:

The board of directors shall exercise the following functions and powers:

��

(11) to appoint or remove the Company’s president and to appoint or remove the vice president, the chief financial officer and the general counsel of the Company according to the recommendations of the president; to appoint or remove the secretary to the board of directors and to decide on their remuneration;

��

(6) Proposed amendments to Article 121 of the Articles

Current Article 121:

The Company shall have a president who is accountable to the board of directors. The president shall be nominated by the board of directors and appointed or removed by the board of directors.

The Company shall have several vice president and one chief financial officer who shall assist the president in work. The vice president and the chief financial officer shall be nominated by the president and appointed or removed by the board of directors.

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LETTER FROM THE BOARD

Proposed amendments:

The Company shall have a president who is accountable to the board of directors. The president shall be nominated by the board of directors and appointed or removed by the board of directors.

The Company shall have several vice president, one chief financial officer and one general counsel who shall assist the president in work. The vice president, the chief financial officer and the general counsel shall be nominated by the president and appointed or removed by the board of directors.

The president and other senior management of the Company shall be responsible for business operation, decision implementation and management improvement.

(7) Proposed amendments by adding a Chapter 13 to the Articles

Proposed additional Articles:

CHAPTER 13 GENERAL COUNSEL

Article 125:

The Company shall adhere to the rule of law, and strives to build a law-abiding enterprise with sound governance, operational compliance, management discipline, law-abiding and integrity.

The audit committee of the board of directors shall be responsible for advancing and guiding the establishment of the Company’s rule of law and compliance management.

Article 126:

The Company shall implement the general counsel system. The general counsel shall play the role of legal review in operation management, promoting the establishment of the Company’s rule of law and compliance management.

The general counsel, a member of the senior management of the Company, shall be nominated by the president and appointed or removed by the board of directors.

Article 127:

The general counsel shall attend any board meeting that involves legal affairs to be considered and provide legal advice.

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LETTER FROM THE BOARD

(8) Proposed amendments to Paragraph 2 of Article 125 of the Articles

Current Paragraph 2 of Article 125:

The supervisory committee shall consist of seven supervisors, including three employee representative supervisors. The non-employee representative supervisors shall be elected and dismissed through the meetings of shareholders. Employee representative supervisors shall be elected and dismissed through the employee representatives meetings, employee meetings or through other forms of democratic election.

Proposed amendments:

The supervisory committee shall consist of five to seven supervisors, including at least one third of employee representative supervisors. The non-employee representative supervisors shall be elected and dismissed through the meetings of shareholders. Employee representative supervisors shall be elected and dismissed through the employee representatives meetings, employee meetings or through other forms of democratic election.

V. PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE BOARD OF DIRECTORS

1. Reasons for Proposed Amendments to the Rules and Procedures For the Meetings of the Board of Directors

In order to optimize the corporate governance structure and promote the further long-term development of the Company, the Board proposes the amendments to the Rules and Procedures for the Meetings of the Board taking account of the Company’s situations and the amendments to the Articles.

2. Contents of the Proposed Amendments to the Rules and Procedures For the Meetings of the Board of Directors

(1) Proposed amendments to Article 3 of the Rules and Procedures For the Meetings of the Board of Directors

Current Article 3:

The board of directors shall be accountable to the shareholders’ meeting and exercise the following functions and powers:

��

(11) to appoint or remove the Company’s president and to appoint or remove the vice president and the chief financial officer of the Company according to the recommendations of the president; to appoint or remove the secretary to the board of directors and to decide on their remuneration;

��

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LETTER FROM THE BOARD

Proposed amendments:

The board of directors shall be accountable to the shareholders’ meeting and exercise the following functions and powers:

��

(11) to appoint or remove the Company’s president and to appoint or remove the vice president, the chief financial officer and general counsel of the Company according to the recommendations of the president; to appoint or remove the secretary to the board of directors and to decide on their remuneration;

��

(2) Proposed amendments to Article 7 of the Rules and Procedures For the Meetings of the Board of Directors

Current Article 7:

The board of directors shall consist of nine directors, including three independent non-executive directors. There shall be a chairman and a vice chairman of the board of directors.

Proposed amendments:

(3) Proposed amendments to Article 9 of the Rules and Procedures For the Meetings of the Board of Directors

Current Article 9:

The audit committee shall consist of at least three members. All of the members should be non-executive Directors, more than half of the members should be independent non-executive Directors, and at least one of the members should be an independent non-executive Director who possesses relevant professional qualifications or experience in accounting or financial management. The chairman and vice chairman (if any) of the audit committee must be independent non-executive Directors. The main responsibility of the audit committee is to review and monitor the financial reporting process and internal control system of the Company and its subsidiaries.

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LETTER FROM THE BOARD

Proposed amendments:

VI. PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE SUPERVISORY COMMITTEE

1. Reasons for the Proposed Amendments to the Rules and Procedures for the Meetings of the Supervisory Committee

In order to optimize the corporate governance structure and promote the further long-term development of the Company, the Supervisory Committee of the Company proposes the amendments to the Rules and Procedures for the Meetings of the Supervisory Committee taking account of the Company’s situations and the amendments to the Articles.

2. Contents of Proposed Amendments to the Rules and Procedures for the Meetings of the Supervisory Committee

Current Article 9:

The supervisory committee shall consist of seven supervisors, including three employee representative supervisors. The supervisory committee shall have a chairman and may have a vice chairman of the supervisory committee. The appointment and removal of the chairman and vice chairmen of the supervisory committee shall be approved by over two thirds of the supervisory committee members.

Proposed amendments:

The supervisory committee shall consist of five to seven supervisors, including at least one third of employee representative supervisors. The supervisory committee shall have a chairman and may have a vice chairman of the supervisory committee. The appointment and removal of the chairman and vice chairmen of the supervisory committee shall be approved by over two thirds of the supervisory committee members.

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LETTER FROM THE BOARD

VII. PROPOSED AMENDMENTS TO THE RULES OF THE AUDIT COMMITTEE

1. Reasons for the Proposed Amendments to the Rules of the Audit Committee

In order to optimize the corporate governance structure and promote the further long-term development of the Company, the Audit Committee of the Company proposes the amendments to the Rules of the Audit Committee taking account of the Company’s situations and the amendments to the Articles.

2. Contents of the Proposed Amendments to the Rules of the Audit Committee

Current Article 8:

The audit committee performs the following duties:

Other duties imposed by the securities regulatory authority of the place of listing.

Proposed amendments:

13. Be responsible for advancing and guiding the establishment of the Company’s rule of law and compliance management.

Other duties imposed by the securities regulatory authority of the place of listing.

VIII. RECOMMENDATIONS

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

The Board (including independent non-executive Directors) 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; (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; and (iii) the authorization to Mdm. SUN Lili, the Chairwoman, to sign relevant documents on behalf of the Company, and do such things and take such actions as she deems necessary or desirable in accordance with the resolutions of the Board dated 20 August 2021, so as to make any changes as she deems necessary, desirable or expedient. 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

– 47 –

LETTER FROM THE BOARD

Framework Agreement will also constitute a major transaction of the Company. As mentioned above, Maxa Capital 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 Maxa Capital to the Independent Board Committee and the Independent Shareholders which are set out on pages 50 to 51 and pages 52 to 76 of this circular, respectively. The Independent Board Committee, having taken into consideration the advice of Maxa Capital, 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 Group; 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 Fourth Session of the Board and Supervisors of the Fourth Session of the Supervisory Committee

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

3. Amendments to the Articles, the Rules and Procedures For the Meetings of the Board, the Rules and Procedures for the Meetings of the Supervisory Committee and Rules of the Audit Committee

The Board (including independent non-executive Directors) considers that the resolutions in relation to (i) the proposed amendments to the Articles and the authorization to Mdm. SUN Lili, the Chairwoman, to, on behalf of the Company, deal with all procedural requirements such as applications, approvals, registration and filings in relation to the proposed amendments to the Articles (including the amendments to wording as requested by relevant regulatory authorities); (ii) the proposed amendments to the Rules and Procedures for the Meetings of the Board of Directors; (iii) the proposed amendments to the Rules and Procedures for the Meetings of the Supervisory Committee; (iv) the proposed amendments to the Rules of Audit Committee are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend all Shareholders to vote in favor of the relevant resolutions to be proposed at the EGM as set out in the EGM Notice.

– 48 –

LETTER FROM THE BOARD

IX. ADDITIONAL INFORMATION

The Company would like to clarify that Notes 1(c) on page 4 of the Notice of EGM provided that:

“H Shareholders who wish to attend the EGM shall lodge their share certificates accompanied by the transfer documents with Computershare Hong Kong Investor Services Limited before 4:30 p.m. on Wednesday, 22 September 2021 for registration.”

However, given that Wednesday, 22 September 2021 is a public holiday in Hong Kong, the latest time for the registration of the transfer of H Shares for the relevant EGM should be before 4:30 pm on Tuesday, 21 September 2021, Notes 1(c) on page 4 of the Notice of EGM shall be: “H Shareholders who wish to attend the EGM shall lodge their share certificates accompanied by the transfer documents with Computershare Hong Kong Investor Services Limited before 4:30 p.m. on Tuesday, 21 September 2021 for registration.”

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. JIA Yiqun

Chief Financial Officer, Company Secretary

Beijing, the PRC 15 September 2021

As at the date of this announcement, Directors of the Company are: SUN Lili[#] , XIANG Wenwu[#] , WU Wenxin[*] , JIANG Dejun[#] , HUI Chiu Chung, Stephen[+] , JIN Yong[+] and YE Zheng[+] .

Executive Directors
Non-executive Director

Independent non-executive Directors

– 49 –

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)

15 September 2021

To the Independent Shareholders

Dear Sir or Madam,

THE FINANCIAL SERVICES FRAMEWORK AGREEMENT, THE ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT, THE CONTINUING CONNECTED TRANSACTIONS THEREUNDER AND THE PROPOSED ANNUAL CAPS FOR THE YEARS 2022 TO 2024

We refer to the circular of the Company dated 15 September 2021 (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. Maxa Capital 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 6 to 49 and the letter from the Independent Financial Adviser as set out on pages 52 to 76 of the Circular.

* For identification purposes only

– 50 –

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, the Independent Board Committee recommends 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

– 51 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the letter of advice from Maxa Capital Limited, the Independent Financial Adviser, to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

==> picture [151 x 38] intentionally omitted <==

Unit 1908, Harbour Center 25 Harbour Road Wan Chai Hong Kong

15 September 2021

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

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

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of (i) the Financial Services Framework Agreement and the transactions contemplated thereunder and the proposed annual caps for each of the three years ending 31 December 2024 (“ Proposed Financial Services Annual Caps ”); and (ii) the Engineering and Construction Services Framework Agreement and the transactions contemplated thereunder and the proposed annual caps for each of the three years ending 31 December 2024 (the “ Proposed Engineering and Construction Services Annual Caps ”), details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular dated 15 September 2021 issued by the Company (the “ Circular ”) of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

Since the existing Framework Agreements will expire on 31 December 2021, on 20 August 2021, the Group and Sinopec Group entered into a series of supplemental agreements, among other things, renewing the terms of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement (collectively known as the “ Non-exempt Framework Agreements ”) for another three years; and revising the Proposed Financial Services Annual Caps and the Proposed Engineering and Construction Services Annual Caps.

– 52 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As of the Latest Practicable Date, Sinopec Group directly and/or indirectly holds approximately 67.01% of the issued total share capital of the Company, which is the controlling shareholder of the Company. According to Rule 14A.07 of the Hong Kong Listing Rules, Sinopec Group and its associates (including Sinopec Century Bright and Sinopec Finance) are connected persons of the Company and hence the transactions contemplated under the Non-exempt Framework Agreements constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules. As the highest applicable percentage ratios in respect of the continuing connected transactions under the Non-exempt Framework Agreements exceed 5%, such transactions are subject to reporting, annual review, announcement, and independent shareholders’ approval requirements of the Hong Kong Listing Rules. Sinopec Group and its associates will abstain from voting at the EGM on the resolutions in relation to the Non-exempt Framework Agreements. The Independent Board Committee has been established to advise the Independent Shareholders as to the terms of the Non-exempt Framework Agreements as well as the Proposed Annual Caps thereunder. We, Maxa Capital Limited, have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in this regard.

OUR INDEPENDENCE

As at the Latest Practicable Date, we did not have any relationship with or interest in the Company, its subsidiaries and any other parties that could reasonably be regarded as relevant to our independence. We are not associated with the Company, its subsidiaries, its associates, or their respective substantial shareholders or associates or any other parties to the Non-exempt Framework Agreements, and accordingly, are eligible to give independent advice and recommendations on the terms of the Non-exempt Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps. Save for this appointment, there was no other engagement between the Company and us in last two years. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from the Company, its subsidiaries, its associates or their respective substantial shareholders or associates.

BASIS OF OUR OPINION

In formulating our advice and recommendations, we have reviewed, among others, (i) the Non-exempt Framework Agreements; (ii) the annual reports of the Company for the two years ended 31 December 2019 (the “ 2019 AR ”) and 31 December 2020 (the “ 2020 AR ”) and the interim report of the Company for the six months ended 30 June 2021 (the “ 2021 IR ”); (iii) the consolidated audited financial statements for the three years ended 31 December 2020 of Sinopec Finance Companies; (iv) the basis of calculation of the Proposed Annual Caps; and (v) the Company’s internal control procedures and records in relation to continuing connected transactions. 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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that we have reviewed sufficient and relevant information and documents and have taken reasonable steps as required under Rule 13.80 of the Hong Kong Listing Rules to reach an informed view and to provide a reasonable basis for our recommendation. We have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors and the Company, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the date of this letter. We have also assumed that all statements of belief, opinion, expectation, and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. Our opinion is based on the Directors’ representation and confirmation that no material facts have been omitted from the information provided and referred to in the Circular.

The Company confirmed that it has, at our request, provided us with all currently available information and documents which are available under present circumstances to enable us to reach an informed view and we have relied on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our opinion. We have no reason to suspect that any material facts or information, which is known to the Company, have been omitted or withheld from the information supplied or opinions expressed in the Circular nor do doubt the truth and accuracy of the information and facts, or the reasonableness of the opinions expressed by the Company and the Directors which have been provided to us. We have not, however, conducted any independent verification on the information provided to us by the Directors, nor have we conducted any form of independent in-depth investigation into the business and affairs of the Company, Sinopec Group and each of their respective subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of and reasons for the Non-exempt Framework Agreements

1.1 Information of the Group

The Group is a leading energy and chemical engineering company in the PRC with strong international competitiveness and can provide domestic and overseas clients with overall solutions for petrol refining, petrochemicals, aromatics, coal chemicals, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation facilities, environmental protection and energy saving, among other industry sectors. The business of the Group mainly comprises four segments, namely, (i) engineering, procurement and construction contracting (“ EPC Contracting ”); (ii) construction; (iii) engineering, consulting and licensing; and (iv) equipment manufacturing, respectively. Set out below is the summarised financial information of the Group for the three years ended 31 December 2018, 2019 and 2020

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(“ FY2018 ”, “ FY2019 ” and “ FY2020 ”, respectively) and for the six months ended 30 June 2020 and 2021 (“ 1H2020 ” and “ 1H2021 ”, respectively), as extracted from the 2019 AR, the 2020 AR and the 2021 IR:

	For the year ended	For the year ended	For the year ended	For the six months	For the six months
		31 December		ended	30 June
	2018	2019	2020	2020	2021
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(audited)	(audited)	(audited)	(audited)	(audited)
Total revenue	47,019,024	52,261,051	52,352,584	23,797,156	26,851,392
EPC Contracting	29,135,814	32,438,087	33,577,673	15,528,332	16,252,860
Construction	14,401,934	17,219,628	14,804,376	6,901,301	8,709,469
Engineering,
consulting and
licensing	2,924,408	2,317,552	3,603,524	1,210,131	1,580,515
Equipment
manufacturing	556,868	285,784	367,011	157,392	308,548
Profit before tax	2,121,515	2,827,400	3,010,562	1,562,823	1,611,209
Profit for the
year/period	1,679,809	2,183,519	2,382,206	1,260,353	1,347,283

As disclosed in the 2019 AR, the total revenue of the Group was approximately RMB52,261.1 million for FY2019, representing an increase of approximately RMB5,242.1 million or 11.1% as compared to approximately RMB47,019.0 million for FY2018, whereas the profit for the year was approximately RMB2,183.5 million for FY2019, representing an increase of approximately RMB503.7 million or 30.0% as compared to approximately RMB1,679.8 million for FY2018. Such increase in the revenue and the profit for the year was primarily attributable to the fact that multiple large projects such as Zhongke Refining and Chemical Integration Project, Sinochem Quanzhou Ethylene Project, Zhejiang Petrochemical Zhoushan Refining and Chemical Integration Project as well as Kuwait Oil Refining Project have entered into peak execution period during FY2019.

As disclosed in the 2020 AR, the total revenue of the Group was approximately RMB52,352.6 million for FY2020, representing an increase of approximately RMB91.5 million or 0.2% as compared to approximately RMB52,261.1 million for FY2019, whereas the profit for the year was approximately RMB2,382.2 million for FY2020, representing an increase of approximately RMB198.7 million or 9.1% as compared to approximately RMB2,183.5 million for FY2019. Such increase in the revenue and the profit for the year was primarily attributable to the combined effect of (i) the increase in the revenue generated in the PRC resulting from the steady construction development of multiple large EPC contracting projects such as Fujian Gulei Refining and Chemical Integration Project, Zhenhai Refining and Chemical Ethylene Expansion Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project; and (ii) the decrease in revenue generated from overseas resulting from the global spread of COVID-19 epidemic as well as the settlement and completion for the Kuwait Oil Refining Project.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the 2021 IR, the total revenue of the Group was approximately RMB26,851.4 million for 1H2021, representing an increase of approximately RMB3,054.2 million or 12.8% as compared to approximately RMB23,797.2 million for 1H2020, whereas the profit for the period was approximately RMB1,347.3 million for 1H2021, representing an increase of approximately RMB86.9 million or 6.9% as compared to approximately RMB1,260.4 million for 1H2020. Such increase in the revenue and the profit for the period was primarily attributable to (i) the increase in the revenue derived from the engineering, consulting and licensing segment resulting from the fact that multiple new contracts such as EPC contract of Hainan Refining & Chemical Ethylene and Refinery Expansion Project, EPC contract of Wenzhou LNG receiving terminal project as well as the construction contract of ethylene facilities of AGCC project in Russia were secured during 1H2021; and (ii) the increase in the revenue derived from the other three segments resulting from the fact that various existing projects such as Zhenhai Refining and Chemical Ethylene Expansion Project, Fujian Gulei Refining and Chemical Integration Project, Zhejiang Petrochemical Zhoushan Refining and Chemical Integration Project Phase II, Hainan Refining & Chemical Ethylene and Refinery Expansion Project and Crude Oil Storage Facility Project have entered into peak construction periods during 1H2021.

				As at
	As	at 31 December		30 June
	2018	2019	2020	2021
	RMB’000	RMB’000	RMB’000	RMB’000
	(audited)	(audited)	(audited)	(audited)
Non-current assets	7,034,787	7,256,957	7,409,911	7,402,680
Current assets	63,837,953	60,616,791	64,055,416	64,807,831
Loans due from the
ultimate holding
company	18,000,000	19,000,000	21,000,000	20,500,000
Contract assets	11,573,904	8,085,951	8,826,268	10,826,662
Cash and cash equivalents	16,997,663	9,935,338	8,440,757	6,570,002
Notes and trade receivables	9,726,429	8,613,198	8,424,388	8,002,054
Time deposits	2,142,406	7,086,066	8,273,435	8,692,752
Prepayments and other
receivables	4,967,162	6,664,671	7,705,785	8,519,103
Total assets	70,872,740	67,873,748	71,465,327	72,210,511
Non-current liabilities	2,890,751	2,811,549	2,537,011	2,458,452
Current liabilities	41,998,840	37,791,658	40,672,278	40,976,764
Notes and trade payables	28,686,243	22,114,039	21,675,887	20,742,763
Contract liabilities	9,968,594	13,314,941	15,511,149	16,648,622
Total liabilities	44,889,591	40,603,207	43,209,289	43,435,216
Net current assets	21,839,113	22,825,133	23,383,138	23,831,067
Net assets	25,983,149	27,270,541	28,256,038	28,775,295

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the 2019 AR, the Group had net current assets of approximately RMB22,825.1 million with current ratio of approximately 1.60 times as at 31 December 2019 as compared to net current assets of approximately RMB21,839.1 million with current ratio of approximately 1.52 times as at 31 December 2018, such increase was mainly attributable to (i) the increase in loans due from the ultimate holding company from approximately RMB18,000.0 million as at 31 December 2018 to RMB19,000.0 million as at 31 December 2019; (ii) the increase in time deposits from approximately RMB2,142.4 million as at 31 December 2018 to RMB7,086.1 million as at 31 December 2019; and (iii) the decrease in notes and trade payables from approximately RMB28,686.2 million as at 31 December 2018 to approximately RMB22,114.0 million as at 31 December 2019; and was partially offset by the decrease in cash and cash equivalents from approximately RMB16,997.7 million as at 31 December 2018 to approximately RMB9,935.3 million as at 31 December 2019.

As disclosed in the 2020 AR, the Group had net current assets of approximately RMB23,383.1 million with current ratio of approximately 1.57 times as at 31 December 2020 as compared to net current assets of approximately RMB22,825.1 million with current ratio of approximately 1.60 times as at 31 December 2019, such increase was mainly attributable to the increase in loans due from the ultimate holding company from approximately RMB19,000.0 million as at 31 December 2019 to RMB21,000.0 million as at 31 December 2020; and was partially offset by the increase in contract liabilities from approximately RMB13,314.9 million as at 31 December 2019 to approximately RMB15,511.1 million as at 31 December 2020.

As disclosed in the 2021 IR, the Group had net current assets of approximately RMB23,831.1 million with current ratio of approximately 1.58 times as at 30 June 2021 as compared to net current assets of approximately RMB23,383.1 million with current ratio of approximately 1.57 times as at 31 December 2020, such increase was mainly attributable to (i) the increase in prepayments and other receivables from approximately RMB7,705.8 million as at 31 December 2020 to RMB8,519.1 million as at 30 June 2021; and (ii) the increase in contract assets from approximately RMB8,826.3 million as at 31 December 2020 to approximately RMB10,826.7 million as at 30 June 2021; and was partially offset by (i) the decrease in cash and cash equivalents from approximately RMB8,440.8 million as at 31 December 2020 to approximately RMB6,570.0 million as at 30 June 2021; and (ii) the increase in contract liabilities from approximately RMB15,511.1 million as at 31 December 2020 to approximately RMB16,648.6 million as at 30 June 2021.

1.2 Information of Sinopec Group

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(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, research and development as well as manufacturing of chemical fiber, fertiliser and polyester related equipment.

1.3 Information of Sinopec Century Bright

Sinopec Century Bright is a company incorporated in Hong Kong with limited liability. It is licensed under the Money Lenders Ordinance (Cap. 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 Sinopec Group in year 2007.

As at 31 December 2020, Sinopec Century Bright had total assets of approximately US$45.5 billion and net assets of approximately US$3.6 billion. As at 30 June 2021, Sinopec Century Bright had total assets of approximately US$59.4 billion and net assets of approximately US$4.1 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 Sinopec Group (Including the Group). Sinopec Century Bright is used as an interim/short term deposit platform by the Company particularly to settle trade payables and receivables in respect of overseas projects.

1.4 Information of Sinopec Finance

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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.

As at 31 December 2020, Sinopec Finance had total assets of approximately RMB228.1 billion, shareholders’ equity of approximately RMB29.8 billion, registered capital of approximately RMB18.0 billion and a capital adequacy ratio of approximately 20.0%. As at 30 June 2021, Sinopec Finance had total assets of approximately RMB232.5 billion, shareholders’ equity of approximately RMB30.9 billion, registered capital of approximately RMB18.0 billion and a capital adequacy ratio of approximately 20.5%.

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) providing approved insurance agency services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Principal terms of the Non-exempt Framework Agreements

We have reviewed the Non-exempt Framework Agreements and noted that the terms and conditions of the supplemental agreements signed on 20 August 2021 are substantially the same as those of the existing framework agreements. Both parties will enter into separate contracts which will set out the specific terms and conditions according to the principles provided in the Non-exempted Framework Agreements.

2.1 Scope of services

The scope of services under the Non-exempt Framework Agreements are set out below:

(i) Pursuant to the Financial Services Framework Agreement and the supplemental agreements, Sinopec Finance Companies will provide financial services to the Group, among others, 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 Sinopec Finance Companies, which set out the specific terms and conditions according to the principles provided in the Financial Services Framework Agreement;
(ii) Pursuant to the Engineering and Construction Services Framework Agreement, the Group will provide engineering and construction services to Sinopec Group and/or its associates including but not limited to: 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; and
(iii) Pursuant to the Engineering and Construction Services Framework Agreement, Sinopec Group and/or its associates will provide the following services to the Group 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 services; and other engineering supporting services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.2 Pricing Policies

2.2.1 Pricing Policies under the Financial Services Framework Agreement

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

(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.

The pricing of the services provided under the Financial Services Framework Agreement is mainly determined by reference to (i) the government-prescribed price and government-guided price; and (ii) the market price. In the unlikely event that 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 the prevailing market and business conditions.

In addition to the above, 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: (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;
(ii) Entrustment loans 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 favourable than interest rates for comparable entrustment loans provided by other members of Sinopec Group to Sinopec Group through Sinopec Finance; and (iii) generally not lower than the interest rates for 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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(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 (i) fees charged by independent commercial banks or financial institutions; and (ii) fees charged to other members of Sinopec Group for similar services.

Given that (i) it allows the Company to earn interest income from the Sinopec Finance Companies at interest rates which are no less favourable than the deposit interest rates published by the PBOC or independent commercial banks in Hong Kong or interest rates offered by the Sinopec Finance Companies to other members of Sinopec Group for deposits of a similar type for the same period; and (ii) 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, we consider that the abovementioned pricing policies are fair and reasonable to the Company and its Shareholders as a whole.

2.2.2 Pricing policies under the Engineering and Construction Services Framework Agreement

The pricing of the services provided under the Engineering and Construction 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 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, technologies 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 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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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 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 on the price of such services within the range of the government-guided fee standard (as appropriate).

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. The price and the tender and bidding process are conducted accordance with the Bidding Law of the People’s Republic of China (《中華人民共和國招標投標法》). In term of market price, as 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 is only applied for services under certain circumstances (e.g. for services with unique technological advantages).

For the engineering and construction services provided by Sinopec Group to the Group under the Engineering and Construction Services Framework Agreement, the pricing of which is determined mainly by reference to the agreed price. 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, historically, the Group did not use the market price for the procurement of such services from Sinopec Group 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 economise the procurement funds of the Group, increase the efficiency of the allocation of its procurement resources, and achieve economies of scale.

Having reviewed (i) the sample contracts in relation to the engineering and construction services provided by the Group to Sinopec Group and provided by Sinopec Group to the Group; and (ii) the financial data in the 2019 AR and the 2020 AR and other related materials, we consider that (i) the basis of such pricing principle is formulated via pre-determined procedures; and (ii) the abovementioned pricing policies are fair and reasonable to the Company and its Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Reasons for and benefits of the transactions contemplated under the Non-exempt Framework Agreements

3.1 Financial Services Framework Agreement

As stated in the Letter from the Board, the reasons for and possible benefits of the Financial Services Framework Agreement are as follows:

3.1.1 Deposits services

(i) Centralised cash management

It is the Group’s policy to centralise 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 centralised 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 centralised 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 maximise cost and operational efficiencies.

(ii) Clearing and settlement platform

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 centralised 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 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 INDEPENDENT FINANCIAL ADVISER

(iii) Familiarity with the Group’s business

As the Sinopec Finance Companies only provide financial services to members of Sinopec Group and its subsidiaries, 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 the Group’s business needs. As a result, the Sinopec Finance Companies are more well positioned to provide and serve the Group with bespoke and cost-efficient services that 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 to centralise the treasury management function.

3.1.2 Entrusted 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 subcontractors) 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 time whilst maintaining flexibility to pay the Group’s trade payables from time to time, there is a lack of comparable alternative fund allocation 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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(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 2020, 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 approximately RMB326.5 billion and ranked second in 2020 in Fortune Global 500. The Group therefore considers that lending to Sinopec Group is a low-risk fund allocation option. During the two years ended 31 December 2020 and the six months ended 30 June 2021, Sinopec Group has not defaulted under any of the entrustment loans provided by the Group. Taking into account that the creditworthiness of Sinopec Group and clean repayment history, the entrustment loans provided by the Group are generally unsecured. The Group considers 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.

(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. Any new loans to Sinopec Group will be subject to normal approval procedures in a standardised 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 loans (without penalty) at its option in which case current deposit interest rate will apply.

(iv) Normal commercial terms

As advised 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 based on the amount and term of the loan. In addition, the Group

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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 refer 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.

In addition, the Board has considered the risks in association with the use of the services provided by Sinopec Finance Companies under the Financial Services Framework Agreement instead of the same services provided by independent commercial banks. Such risks mainly include (i) risks faced by the banking industry generally; and (ii) potential major adverse change in the financial conditions of Sinopec Finance Companies. However, taking into account that (i) the interest rates on the Group’s entrustment loans are generally higher than yield on principalguaranteed 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 allocation 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 under the Financial Services Framework Agreement are in the interests of the Company and the Shareholders as a whole.

We have reviewed the licenses of the Sinopec Finance Companies and have been advised by the Company that to their best knowledge, up to the Latest Practicable Date, there is no record of non-compliance with relevant laws, rules and regulations of the PRC and Hong Kong on the Sinopec Finance Companies. 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 and Sinopec Finance only provide financial services to Sinopec Group (including the Group). Sinopec Group has made the Parent Undertaking towards Sinopec Finance as its controlling shareholder 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. In 2020, 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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Moody’s with a stable outlook. Accordingly, we consider that Sinopec Group’s ability to honour its undertaking in favour of the Group is strong and the credit risks of Sinopec Finance Companies are not less controllable as compared to that to public licensed commercial banks.

Having considered the abovementioned reasons, in particular, (i) the Company has greater flexibility in managing its cash resources and facilitating the settlement process with other members of Sinopec Group; (ii) the Company could benefit from the deposits 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; and (iv) the credit risks of Sinopec Finance Companies are not less controllable as compared to that to public licensed commercial banks, we concur with the Directors’ view that the transactions contemplated under the Financial Services Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

3.2 Engineering and Construction Services Framework Agreement

As stated in the Letter from the Board, the reasons for and possible benefits of the Engineering and Construction Services Framework Agreement are as follows:

There are specific technology and quality standard requirements exclusive to the oil industry. With a leading position in the oil industry, Sinopec Group ranked second in 2020 in Fortune Global 500. By relying on 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 can 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, Sinopec Group is likely to increase its demand for the Group’s products and services for its future capital expenditure plan.

Based on the abovementioned reasons, in particular, (i) the nature of the oil industry which requires specific technology and quality standard requirements; (ii) Sinopec Group’s leading position in the oil industry; and (iii) the Group’s long-term relationship with Sinopec Group, we concur with the Directors’ view that the transactions contemplated under the Engineering and Construction Services Framework Agreement are in line with the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Proposed Annual Caps

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

4.1 Historical Amount, Existing and Proposed Annual Caps

The following table sets forth (i) the historical amounts for the two years ended 31 December 2020 and for the six months ended 30 June 2021; (ii) the existing annual caps for each of the two years ended 31 December 2020 and for the year ending 31 December 2021; and (iii) the Proposed Annual Caps for each of the three years ending 31 December 2024.

		Existing Annual	Existing Annual	Caps	Proposed Annual	Proposed Annual	Proposed Annual	Caps
		for the years ended/ending			for	the years ending
		31 December				31 December
		2019	2020	2021	2022		2023	2024
				_RMB _	million
Financial Services Framework	Agreement
Maximum daily balance of	Annual caps	7,500	9,000	10,000	8,000		8,000	8,000
deposits and interest income	Actual amounts	7,387	7,873	8,2831
	Utilisation rates	98.5%	87.5%	82.8%2
Maximum daily balance of	Annual caps	19,000	21,000	22,000	20,500		20,500	20,500
entrusted loans	Actual amounts	19,000	21,000	22,0001
	Utilisation rates	100.0%	100.0%	100.0%2
Service fees in relation to	Annual caps	3.12	3.48	3.84	3.50		4.00	4.00
settlement, entrustment loans	Actual amounts	1.73	1.82	0.921
and other financial services	Utilisation rates	55.4%	52.3%	24.0%2
Engineering and Construction	Services Framework	Agreement
Revenue generated from the	Annual Caps	40,000	42,000	45,000	55,000		55,000	55,000
provision of engineering and	Actual amounts	25,584	32,932	18,1951
construction services by the	Utilisation rates	64.0%	78.4%	40.4%2
Group to Sinopec Group
and/or its associates
Expenditure incurred for the	Annual Caps	3,000	3,500	4,000	7,000		7,000	7,000
provision of services by	Actual amounts	2,982	3,472	2,5021
Sinopec Group and/or its	Utilisation rates	99.4%	99.2%	62.6%2
associates to the Group

Historical amount for the six months ended 30 June 2021.
The utilisation rates for the year ending 31 December 2021 are computed based on the actual amounts up to 30 June 2021.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.2 Proposed Financial Services Annual Caps

4.2.1 Basis of determining the Proposed Financial Services Annual Caps

In determining the Proposed Financial Services Annual Caps for each of the three years ending 31 December 2024, the Company has mainly considered:

(i) the utilisation rates of the existing annual caps for the Financial Services Framework Agreement for each of the years ended 31 December 2019, 2020 and for the six months ended 30 June 2021;
(ii) the interest rates and fee rates in connection with deposits, entrustment loans and other financial services;
(iii) in order to expand external investment channels and diversify the Group’s investment portfolio, the Group is planning to reduce the total amount of deposits and entrustment loans to Sinopec Finance Companies in the next three years;
(iv) the expected business volume of the Group for the years of 2022, 2023 and 2024; and
(v) the Group’s expected net cash inflow generated by its operating activities for the years of 2022, 2023 and 2024.

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 allocation 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.

4.2.2 Assessment to the Proposed Financial Services Annual Caps

Deposits and interest income

In assessing the fairness and reasonableness of the proposed annual caps for the deposits and interest income, we have (i) reviewed the historical amounts of the deposits and interest income for the two years ended 31 December 2020 and for the six months ended 30 June 2021, which represent the utilisation rates of approximately 98.5%, 87.5% and 82.8% for the corresponding periods; and (ii) reviewed and discussed the forecast model for determining the proposed annual caps with the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Besides, we also noted that there is a continued expansion in the Group’s business scale as the revenue of the Group increased from approximately RMB47,019.0 million for FY2018 to approximately RMB52,261.0 million for FY2019, and slightly increased to approximately RMB52,352.6 million for FY2020.

Based on the above factors, the Company decided to adopt a prudent treasury measurement policy and adjust the proposed annual caps for the deposit and related interest income accordingly with reference to the actual amounts for the two years ended 31 December 2020 and for the six months ended 30 June 2021. We noted that (i) the utilisation rates of the annual caps for the deposits and interest income remain high for the corresponding periods; and (ii) the proposed annual caps are close to the annual caps for each of the two years ended 31 December 2020 and for the six months ended 30 June 2021, and therefore we concur with the Directors that the proposed annual caps for the maximum daily balance of deposit and related interest income are fair and reasonable.

Entrusted Loans

In assessing the fairness and reasonableness of the proposed annual caps for the entrusted loans, we have reviewed the historical amounts of the entrusted loans for each of the two years ended 31 December 2020 and for the six months ended 30 June 2021, which represent the utilisation rates of 100.0%, 100.0% and 100.0% for the corresponding periods.

Moreover, we have also reviewed and discussed the forecast model for determining the proposed annual caps with the Company and understood that (i) 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; (ii) the Group intends to maintain its advantageous position in the industry amongst the peers by adopting a series of measures such as special clearing on receivables and inventories to improve operating cash flow, which helps to maintain net cash flow generated by operating activities and operating income to be within the normal historical and industrial range; and (iii) the domestic economy in the PRC has entered into a phase of stable growth, as such the Directors expect the Group’s cash flow generated by operating activities will remain steady in the years of 2022, 2023 and 2024.

Having considered the possible factors that might affect the cash flow generated by operating activities, the Company decided to adopt a prudent treasury measurement policy and adjust the proposed annual caps for the maximum daily balance of entrusted loans in accordance with the current cash flow generated by operating activities. We noted that (i) the annual caps for the entrusted loans were fully utilised for the corresponding periods; and (ii) the proposed annual caps are

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

close to the annual caps for the two years ended 31 December 2020 and for the six months ended 30 June 2021, and therefore we concur with the Directors that the proposed annual caps for the maximum daily balance of entrusted loans are fair and reasonable.

Settlement and other financial services related service fees

In assessing the fairness and reasonableness of the proposed annual caps for the service fees in relation to settlement and other financial services, we have reviewed the historical amounts of the settlement and other financial services related service fees for each of the two years ended 31 December 2020 and for the six months ended 30 June 2021, which represent the utilisation rates of approximately 55.4%, 52.3% and 24.0% of for the corresponding periods.

We have discussed with the Company and understood that although the relevant historical utilisation rates are relatively low, such service fees are highly related to the Group’s operating income and cash rate of sales. We have also reviewed and discussed the forecast model for determining the proposed annual caps with the Company, and noted the assumptions used in that model are in line with the historical performance of the Group. Therefore, we concur with the Directors that the proposed annual caps for the maximum daily balance of the settlement and other financial services related service fees are fair and reasonable.

4.3 Proposed Engineering and Construction Services Annual Caps

4.3.1 Basis of determining the Proposed Engineering and Construction Services Annual Caps

In determining the above annual caps for the Group’s provision of engineering and construction services to Sinopec Group and/or its associates for each of the years ending 31 December 2022, 2023 and 2024, the Company has mainly considered the following:

(i) Sinopec Group’s investment plan in relation to, among other things, oil refinery, petrochemicals, new coal chemicals, and natural gas during the period from 2022 to 2024;
(ii) 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 amounts as a percentage of the Group’s total operating income for the corresponding year;
(iii) 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 2021; and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) the Group’s business development plan for the years of 2022, 2023 and 2024, 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.

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 2022, 2023 and 2024.

4.3.2 Assessment to the Proposed Engineering and Construction Services Annual Caps

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

In assessing the fairness and reasonableness of the proposed annual caps for the engineering and construction services provided by the Group to Sinopec Group and/or its associates, we have reviewed the historical amounts of the relevant engineering and construction services for the two years ended 31 December 2020 and for the six months ended 30 June 2021, which represent the utilisation rates of approximately 64.0%, 78.4% and 40.4% for the corresponding periods.

We have also reviewed and discussed the forecast model for determining the proposed annual caps with the Company and understood that (i) the Proposed Engineering and Construction Services Annual caps are related to the scale of development of Sinopec Group and the Group for the next three years; and (ii) the historical percentage of engineering contract amounts obtained by the Group from Sinopec Group to Sinopec Group’s annual investment plan remains stable while the expected engineering contract amounts to be obtained by the Group from Sinopec Group for the period from 2022 to 2024 are estimated with reference to such percentage together with the future investment plan of Sinopec Group.

Based on the above factors, the Company determined to increase the proposed annual caps for the engineering and construction services provided by the Group to Sinopec Group and/or its associates in accordance with the total amount of order in hand and expected new contracts value in connection with the provision of engineering and construction services by the Group to Sinopec Group. We note that (i) the historical amount increased significantly by approximately 28.7% from

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

approximately RMB25,584.0 million for FY2019 to approximately RMB32,932.0 million for FY2020; (ii) the historical utilisation rate increased significantly from approximately 64.0% for FY2019 to approximately 78.4% for FY2020, and the utilisation rate for 1H2021 reached 40.4% based on the transaction amounts for the six months ended 30 June 2021 and the annual cap for the full year of 2021; and (iii) the implied compound annual growth rate based on the proposed annual caps and the historical transaction amount for FY2020 was approximately 29.2%, which is in line with the growth rate of the historical transaction amounts. Therefore, we concur with the Directors’ view that the proposed annual caps for the engineering and construction services provided by the Group to Sinopec Group and/or its associates are fair and reasonable.

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

In assessing the fairness and reasonableness of the proposed annual caps for the engineering and construction services provided by Sinopec Group and/or its associates to the Group, we have reviewed the historical amounts of the relevant engineering and construction services for the two years ended 31 December 2020 and for the six months ended 30 June 2021, which represent the utilisation rates of approximately 99.4%, 99.2% and 62.6% for the corresponding periods.

We have also discussed with the Company and understood that (i) the Proposed Engineering and Construction Services Annual Caps are related to future business development status of 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 will increase to a relatively higher stable level for the period from 2022 to 2024 as a result of future development of the Group and Sinopec Group; and (iii) the Group will conduct engineering and construction related supporting services such as procurement of equipment and materials through Sinopec Group in 2022, 2023 and 2024 because such arrangement would allow the Group to increase its operational efficiency and lower the overall purchase cost for the Group. We have also reviewed and discussed the forecast model for determining the proposed annual caps with the Company, and noted the assumptions used in that model are generally in line with the historical performance of the Group.

Having considered (i) the future business development of the Group; (ii) the historical and expected growth in the revenue generated from the provision of engineering and construction services by the Group to Sinopec Group; and (iii) high utilisation rates of the annual caps for the two years ended 31 December 2020 and for the six months ended 30 June 2021, we concur with the view of the Directors that the annual caps for the engineering and construction services provided by Sinopec Group to the Group are fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions under the Non-exempt Framework Agreements

The Company has adopted certain internal control procedures and corporate governance measures in relation to the Non-exempt Framework Agreements, details of which are included in the section headed “5. Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions” in the Letter from the Board.

For the deposit services, we have obtained and reviewed (i) the Company’s measures for the Administration of Bank Deposits Balance and the summary of deposits placed by the Company in Sinopec Finance Companies with comparison results of interest rates provided by Sinopec Finance Companies and other independent banks to the Company; and (ii) samples for the deposits in 2021, which were randomly selected by the Company as per our request and we believe are fair and representative samples of the interest rates offered by Sinopec Finance Companies and other independent banks to the Company. We have compared the interest rates offered by Sinopec Finance Companies with independent banks provided to the Company for the deposit services and noted that the interest rates of the deposit services provided by the Sinopec Finance Companies to the Company are not less favourable than the interest rates provided by such independent banks or the interest rate for same type of deposits announced by the PBOC for the same period.

For the entrusted loans, we understood from our discussion with the Company that the interest rates for the entrustment loans are determined through arm’s length negotiations between the parties based on, among others, relative bargaining power, risk profile and security value. The Group will also make reference to other comparable rates, such as the interest rates for 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 of entrusted loans, we have obtained samples for the entrusted loans provided by the Sinopec Finance Companies in 2021, which were randomly selected by the Company as per our request and we believe are fair and representative samples of the interest rates offered by Sinopec Finance Companies and independent banks provided to the Company for the entrusted loans, and noted that the interest rates of the entrusted loans provided by the Sinopec Finance Companies to the Company are not less favourable than the interest rates provided by such independent banks.

For the engineering and construction services, we have obtained and reviewed (i) sample contracts between Sinopec Group and the Group as well as sample contracts between the Group and independent third parties; and (ii) sample documents in relation to the tender and bidding process, which were randomly selected by the Company as per our request and we believe are fair and representative samples. We understood that the pricing of the engineering and construction services under such sample contracts is determined by reference to the tender and bidding price, and we noted that the terms of the sample contracts between the Group and Sinopec Group are no less favourable to the Company than the terms of the sample contracts between the Group and independent third parties.

– 75 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to Rules 14A.55 and 14A.56 of the Hong Kong Listing Rules, the independent non-executive Directors and auditor of the Company will conduct annual review and issue confirmations regarding the continuing connected transactions of the Company each year. We have reviewed the 2019 AR and the 2020 AR and noted that the independent non-executive Directors and the auditor of the Company have reviewed the non-exempt continuing connected transactions during such years and provided the relevant confirmations. As confirmed with the Company, the Company will continue to comply with the relevant annual review requirement under the Hong Kong Listing Rules on an on-going basis.

Based on the above, we concur with the Directors’ view that the Group has effective internal policies in place to continue to monitor the continuing connected transactions under the Non-exempt Framework Agreements and the Proposed Annual Caps, therefore the interests of the Company and its Shareholders would be safeguarded.

6. Recommendation

Having considered the above factors and reasons, we are of the opinion that (i) the continuing connected transactions under the Non-exempt Framework Agreements are conducted in the ordinary and usual course of business of the Company and on normal commercial terms; and (ii) the terms of the Non-exempt Framework Agreements and the Proposed Annual Caps are fair and reasonable and in the interests of the Company and its Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend and we also recommend the Independent Shareholders to vote in favour of the resolutions in relation to the Non-exempt Framework Agreements to be proposed at the EGM.

Yours faithfully, For and on behalf of Maxa Capital Limited Dian Deng Managing Director

Ms. Dian Deng is a licensed person registered with the Securities and Futures Commission of Hong Kong and a responsible officer of Maxa Capital to carry out type 6 (advising on corporate finance) regulated activities under the SFO and has over 13 years of experience in corporate finance industry.

– 76 –

==> 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)

Proxy Form for the Second Extraordinary General Meeting for the Year 2021

The number and type of Shares relating to this proxy form [(Note][1)]

==> picture [34 x 33] intentionally omitted <==

I (We) [(Note][2)] of being the holder(s) of

H Share(s)/Domestic Share(s) [(Note][3)] of RMB1.00 each in the capital of SINOPEC Engineering (Group) Co., Ltd. (the “ Company ”) now appoint (Note 4)

(I.D.and voteNo.:for me (us) at the second extraordinaryTel. No.:general meeting of the Company )/thefor thechairmanyear 2021of the(themeeting“ EGM as”) myto be(our)heldproxyat 10toa.m.attendon Friday, 22 October 2021 at Conference Room 201, Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC for the purposes of considering and, if thought fit, passing the resolutions as set out in the Company’s Notice of the Second Extraordinary General Meeting for the Year 2021 and Closure of Register of Members for H Shares dated 7 September 2021. In the absence of any instruction(s), the proxy may vote for or against the resolutions at his/her own discretion. In this proxy form, unless the context otherwise requires, capitalised terms used herein shall have the same meanings as defined in the Company’s announcement dated 23 August 2021.

	Ordinary Resolutions	For(Note 5)	Against(Note 5)	Abstain(Note 5)
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 2022, 2023 and 2024, respectively, and
	to authorise Mdm. SUN Lili, the Chairwoman, 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 20 August 2021, so as to effect this
	resolution and make any changes as she 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 2022, 2023
	and 2024, respectively, and to authorise Mdm. SUN Lili, the
	Chairwoman, to sign relevant documents on behalf of the Company,
	and do such things and take such actions as she deems necessary or
	desirable in accordance with the resolutions of the Board dated 20
	August 2021, so as to effect this resolution and make any changes as
	she deems necessary, desirable or expedient
3.	to consider and approve the proposed appointment of Mdm. SUN Lili
	as an executive Director of the Fourth Session of the Board
4.	to consider and approve the proposed appointment of Mr. XIANG
	Wenwu as an executive Director of the Fourth Session of the Board
5.	to consider and approve the proposed appointment of Mr. WANG
	Zizong as a non-executive Director of the Fourth Session of the Board
6.	to consider and approve the proposed appointment of Mr. LI Chengfeng
	as a non-executive Director of the Fourth Session of the Board
7.	to consider and approve the proposed appointment of Mr. WU Wenxin
	as a non-executive Director of the Fourth Session of the Board
8.	to consider and approve the proposed appointment of Mr. JIANG Dejun
	as an executive Director of the Fourth Session of the Board
9.	to consider and approve the proposed appointment of Mr. HUI Chiu
	Chung, Stephen, as an independent non-executive Director of the
	Fourth Session of the Board
10.	to consider and approve the proposed appointment of Mr. YE Zheng, as
	an independent non-executive Director of the Fourth Session of the
	Board

– 77 –

Ordinary Resolutions
For(Note 5)
Against(Note 5)
Abstain(Note 5)
11.
to consider and approve the proposed appointment of Mr. JIN Yong, as
an independent non-executive Director of the Fourth Session of the
Board
12.
to consider and approve the proposed appointment of Mr. ZHU Fei as
a Supervisor of the Fourth Session of the Supervisory Committee
13.
to consider and approve the proposed appointment of Mr. ZHANG
Xinming as a Supervisor of the Fourth Session of the Supervisory
Committee
14.
to consider and approve the proposed appointment of Mr. ZHOU
Yingguan as a Supervisor of the Fourth Session of the Supervisory
Committee
15.
to consider and approve the proposed appointment of Mr. ZHOU
Chengping as a Supervisor of the Fourth Session of the Supervisory
Committee
Special Resolutions
For(Note 5)
Against(Note 5)
Abstain(Note 5)
16.
to consider and approve the proposed amendments to the Articles of
Association (H Shares) of SINOPEC Engineering (Group) Co., Ltd.
(the “Articles”), and the authorization to Mdm. SUN Lili, the
Chairwoman, to, on behalf of the Company, deal with all procedural
requirements such as applications, approvals, registration and filings in
relation to the proposed amendments to the Articles (including the
amendments
to
wording
as
requested
by
relevant
regulatory
authorities)
17.
to consider and approve the proposal to amend the Rules and
Procedures for the Meetings of the Board of Directors of SINOPEC
Engineering (Group) Co., Ltd.
18.
to consider and approve the proposal to amend the Rules and
Procedures
for
the
Meetings
of
the
Supervisory
Committee
of
SINOPEC Engineering (Group) Co., Ltd.
19.
to consider and approve the proposal to amend the Rules of Audit
Committee of SINOPEC Engineering (Group) Co., Ltd.

Date:

, 2021

Signature(s):

(Note 6)

Notes:

Please insert the number and type of share(s) registered under your name(s) relating to this proxy form. If no number is inserted, this proxy form will be deemed to relate to all of the shares in the capital of the Company registered under your name(s).
Please insert full name(s) (in Chinese or English) and address(es) as shown in the register of members in BLOCK LETTERS.
Please insert the number of shares registered under your name(s) and delete as appropriate. If no number is inserted, this proxy form will be deemed to relate to all of the shares in the capital of the Company registered under your name(s).
If any proxy other than the chairman of the EGM is preferred, please delete the words “ the chairman of the meeting ” and insert the name and address of the proxy desired in the space provided. If this is left blank, the chairman of the EGM will act as your proxy. A shareholder entitled to attend and vote at the EGM may appoint one or more proxies to attend and vote in his/her/its stead. Such proxies may only exercise their voting rights in a poll. A proxy need not be a shareholder of the Company but must attend the EGM in person to represent you. ANY ALTERATION MADE TO THIS PROXY FORM MUST BE SIGNED BY THE SIGNATORY .
Attention:votingvote AGAINSTon anyIf youresolution,anywishresolution,to pleasevote FORpleaseindicateanyindicateresolution,with awith“�” pleaseain“the�” inindicateappropriatethe appropriatewithspacea “�underspace” in the“ABSTAIN”,underappropriate“Against”.andspaceIfyouryouundervotingwish“For”.towillABSTAINIfbeyoucountedwishfromtoin the total number of votes cast in that resolution for the purpose of calculating the result of that resolution. In the absence of any such indication, the proxy will vote or abstain at his/her discretion. Any invalid vote or any waiver to vote shall be disregarded as voting rights for the purpose of calculating the result of that resolution.
This proxy form must be signed under hand by you or your attorney duly authorised in writing on your behalf. If the appointor is a legal person, this form must be signed under its common seal or under hand by any director(s) or agent(s) duly appointed by such corporation.
In the case of joint holders of shares, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share as if he/she/it were solely entitled thereto; but if more than one of such joint holders are present at the meeting in person or by proxy, the vote of the person, whose name stands first in the register of members of the Company in respect of such share shall be accepted.
To be valid, the power of attorney or other authorisation document(s) which have been notarised together with the completed proxy form must be delivered to the place of business of the Company at Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC for Domestic Shareholders and Computershare Hong Kong Investor Services Ltd. at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong for H Shareholders not less than 24 hours before the time designated for holding of the EGM.
For identification purposes only.

– 78 –

==> 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)

Reply Slip for the Second Extraordinary General Meeting for the Year 2021

To: SINOPEC Engineering (Group) Co., Ltd. (“ SINOPEC SEG ”)

I (We) [(Note][1)]

Tel. No.: being the holder(s) of [(Note][2)]

H share(s)/domestic share(s) of RMB1.00 each in the capital of SINOPEC SEG hereby confirm that I (we) or my (our) proxy wish to attend the second extraordinary general meeting of SINOPEC SEG for the year 2021 (the “ EGM ”) to be held at 10 a.m. on Friday, 22 October 2021 at Conference Room 201, Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC.

Signature(s):

Date: 2021

Notes:

Please insert full name(s) (in Chinese or in English) and registered address(es) as shown in the register of members in BLOCK LETTERS .
Please delete as appropriate and insert the number of shares of SINOPEC SEG registered under your name(s).
The completed and signed reply slip should be delivered to SINOPEC SEG by fax (Fax: (+86) 10 5673 0500), by post or by hand at Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang District, Beijing, the PRC (Postal Code: 100029) such that the same shall be received by SINOPEC SEG on or before 1 October 2021. Failure to sign and return this reply slip, however, will not preclude an eligible shareholder of SINOPEC SEG from attending the EGM.
For identification purposes only

– 79 –

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 2020 is disclosed on pages 120 to 203 of the 2020 annual report of the Company published on 21 March 2021; (ii) for the year ended 31 December 2019 is disclosed on pages 120 to 211 of the 2019 annual report of the Company published on 22 March 2020; and (iii) for the year ended 31 December 2018 is disclosed on pages 132 to 227 of the 2018 annual report of the Company published on 11 March 2019. 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 July 2021, being the latest practicable date for the purpose of preparing this indebtedness statement, except for total lease liabilities of RMB168 million and loans to fellow subsidiaries of RMB175 million, 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 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.

– 80 –

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.

– 81 –

GENERAL INFORMATION

APPENDIX II

					Percentage
			Number of shares	Percentage	in the
			with interests	in shares of	total share
			held or regarded	the Company	capital of
	Class of		as being held	of the same	the Company
Name of Shareholders	Shares	Capacity	(Shares)	class (%)(5)	(%)(6)
China Petrochemical	Domestic	Beneficial	2,967,200,000(L)	100.00(L)	67.01(L)
Corporation(1)	Share	owner/Interests of
		controlled corporation
Prudential plc(2)	H Share	Interests of controlled	101,914,500(L)	6.97(L)	2.30(L)
		corporation
Brown Brothers Harriman	H Share	Agent	101,871,342(L)	6.97(L)	2.30(L)
& Co.(3)			101,871,342(P)	6.97(P)	2.30(P)
FMR LLC(4)		Beneficial owner	90,338,771(L)	6.18(L)	2.04(L)
Eastspring Investments(5)	H Share	Beneficial owner	87,256,500(L)	5.97(L)	1.97(L)
JPMorgan Chase & Co.(6)	H Share	Interests of controlled	82,089,034(L)	5.61(L)	1.85(L)
		corporation/Investment	5,259,328(S)	0.36(S)	0.12(S)
		manager/Persons	76,455,247(P)	5.23(P)	1.73(P)
		having a security
		interest in
		shares/Approved
		lending agent
Pandanus Associate Inc.(7)	H Share	Interests of controlled	76,193,353(L)	5.22(L)	1.72(L)
		corporation
Pandanus Partners L.P.(7)	H Share	Interests of controlled	76,193,353(L)	5.22(L)	1.72(L)
		corporation
FIL Limited(7)	H Share	Interests of controlled	76,193,353(L)	5.22(L)	1.72(L)
		corporation

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

Notes:

(1) China Petrochemical Corporation (“Sinopec Group”) directly and/or 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 1 September 2021 and filed by Prudential plc with the Hong Kong Stock Exchange.
(3) The information is based on the Corporate Substantial Shareholders Notice dated 14 July 2021 and filed by Brown Brothers Harriman & Co. with the Hong Kong Stock Exchange.
(4) The information is based on the Corporate Substantial Shareholders Notice dated 13 July 2021 and filed by FMR LLC with the Hong Kong Stock Exchange.

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GENERAL INFORMATION

APPENDIX II

(5) The information is based on the Corporate Substantial Shareholders Notice dated 8 July 2021 and filed by Eastspring Investments with the Hong Kong Stock Exchange.
(6) The information is based on the Corporate Substantial Shareholders Notice dated 8 July 2021 and filed by JPMorgan Chase & Co. with the Hong Kong Stock Exchange.
(7) The information is based on the Corporate Substantial Shareholders Notices dated 22 July 2021 and filed by Pandanus Associates Inc., Pandanus Partners L.P. and FIL Limited with the Hong Kong Stock Exchange. According to these notices, Pandanus Associates Inc. holds 100% interest in Pandanus Partners L.P. and Pandanus Partners L.P. holds 36.86% interest in FIL Limited.
(8) It is calculated on the basis that the Company has issued 2,967,200,000 Domestic Shares and 1,460,800,000 H Shares.
(9) It is calculated on the basis that the Company has issued 4,428,000,000 shares in total.

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 Fourth 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 Fourth Session of the Supervisory Committee. The service contracts may be renewed according to the Articles and applicable laws and regulations.

Save as disclosed above, 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 management positions held by some of the Company’s 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) WU Wenxin.

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GENERAL INFORMATION

APPENDIX II

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

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 2021 (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 2021 (being the date to which the latest published audited financial statements of the Group were made up).

8. LITIGATION

Save as disclosed in the section headed “Significant Events — 4. Material Litigation or Arbitration Events” in the Company’s 2021 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 Maxa Capital which has given its opinion or advice contained in this circular:

Name Qualifications

Maxa Capital a licensed corporation permitted to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, 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 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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GENERAL INFORMATION

APPENDIX II

As at the Latest Practicable Date, Maxa Capital 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, Maxa Capital had no direct or indirect interest in any assets which had been, since 30 June 2021 (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.

Maxa Capital 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. JIA Yiqun. For details of his biographical information, please refer to the Company’s 2020 annual report.
(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.

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GENERAL INFORMATION

APPENDIX II

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the offices at 31/F, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong from the date of this circular up to and including 22 October 2021:

(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 15 September 2021, the full text of which is set out on pages 50 to 51 of this circular;
(d) the letter from Maxa Capital to the Independent Board Committee and the Independent Shareholders dated 15 September 2021, the full text of which is set out on pages 52 to 76 of this circular;
(e) the written consent of Maxa Capital referred to in the paragraph headed “Expert” in this Appendix II;
(f) the Articles;
(g) the 2019 and 2020 annual reports of the Company; and
(h) this circular.

– 86 –

APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

BIOGRAPHICAL DETAILS OF NEW DIRECTORS

Mdm. SUN Lili

Mdm. SUN Lili (孫麗麗), aged 59, is an expert in petrochemical engineering technology and management, a master of national engineering survey and design, and the academician of Chinese Academy of Engineering, Chairwoman of the Company, and an executive Director of Sinopec Engineering Incorporation (中國石化工程建設公司). Mdm. SUN is a senior engineer with a university diploma. From June 2004 to April 2012, she served as the vice president of Sinopec Engineering Incorporation. From January 2006 to May 2008, she served as the vice president of SINOPEC International Petroleum Exploration and Development Co., Ltd. (中國石化國際石油勘探開發有限公司). From September 2011 to March 2015, she has served as the chairwoman of the Project Supervision and Management Committee of Saudi Yanbu Refinery Joint Venture (沙特延布煉廠合資公司). From December 2011 to March 2015, she has served as the president of Saudi Yanbu Refinery Project and a member of the remuneration committee and audit committee of the board of directors of Saudi Yanbu Refinery Joint Venture. From April 2012 to October 2013, she served as the vice president of Sinopec Engineering Incorporation. From November 2013 to October 2019, she served as the president of Sinopec Engineering Incorporation. Since November 2013, she has served as an executive director of Sinopec Engineering Incorporation. From January 2014 to November 2014, she served as the Vice President of SINOPEC SEG. She served as a Director of SINOPEC SEG since January 2015. Since December 2020, she has been the chairwoman of SINOPEC SEG.

Mr. XIANG Wenwu

Mr. XIANG Wenwu (向文武), aged 55, is the Vice Chairman of the Board of SINOPEC SEG, and an executive Director of Sinopec Fourth Construction Company. Mr. XIANG is a senior economist and holds a Ph.D. diploma. Mr. XIANG served as deputy manager of Sinopec Group Second Construction Company (中國石化集團第二建設公司) from June 1999 to March 2004, the manager of Sinopec Group SCC from March 2004 to December 2008, the general manager of Sinopec Group SCC from December 2008 to July 2010, a director and the general manager of Sinopec Group Nanjing Engineering Co., Ltd. (中國石化南京工程有限公司) from December 2009 to April 2012, an executive director and the general manager of Sinopec Nanjing Engineering Co., Ltd. from April 2012 to November 2014, and the vice president of the Company from August 2012 to January 2017. Mr. XIANG has been the President of SINOPEC SEG from January 2017 to December 2020, a Director of SINOPEC SEG since February 2017. He has been the Vice Chairman of the Board of SINOPEC SEG and an executive director of Sinopec Group Fourth Construction Company since December 2020.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Mr. WANG Zizong

Mr. WANG Zizong (王子宗), aged 56, is the deputy chief engineer of Sinopec Group (中國石油化工集團有限公司), general manager of information and digital management department of Sinopec Group (中國石油化工集團有限公司信息和數字化管理部), general manager of information and digital management department of Sinopec Corp. (中國石油化工股份有限公司信息和數字化管理部), and chairman of Petro-CyberWorks Information Technology Co., Ltd. (石化盈科信息技術有限責任公司). Mr. Wang is a senior engineer with a doctoral degree. Mr. Wang was the deputy manager of Beijing Petrochemical Engineering Company (北京石油化工工程公司) from October 1998 to July 1999. He held various positions in Sinopec Engineering Incorporation from July 1999 to May 2001. He was the deputy general manager and chief engineer of Sinopec Engineering Incorporation from May 2001 to April 2012; deputy manager and chief engineer of Sinopec Engineering Incorporation from April 2012 to July 2013; deputy chief engineer of Sinopec Engineering Incorporation since July 2013; concurrently acting as the director of information management department of Sinopec Group from March 2019 to December 2019; concurrently acting as the chairman of Petro-CyberWorks Information Technology Co., Ltd. since March 2019; general manager of information and digital management department of Sinopec Group; and concurrently acting as the general manager of information and digital management department of Sinopec Corp since December 2019.

Mr. LI Chengfeng

Mr. LI Chengfeng (李成峰), aged 57, is the deputy chief engineer of China Petroleum and Chemical Corporation (中國石油化工股份有限公司), general manager of chemical industry department of China Petroleum and Chemical Corporation (中國石油化工股份有限公司化工事業部), executive director of Sinopec Assets Management Co., Ltd. (中國石化集團資產經營管理有限公司), chairman of Shanghai Secco Petrochemical Co., Ltd. (上海賽科石油化工有限責任公司) and Amur Natural Gas Chemical Project Joint Venture Company (阿穆爾天然氣化工項目合資公司) and vice chairman of Zhongtian Hechuang Energy Co., Ltd. (中天合創能源有限責任公司). Mr. Li is a senior engineer with a master’s degree. Mr. Li served as vice president of Yangzi Petrochemical-BASF Co., Ltd. (揚子石化–巴斯夫有限責任公司) from December 2004 to September 2005; director of Sinopec Yangzi Petrochemical Co., Ltd. (中國石化揚子石化股份(有限責任)公司) from September 2005 to March 2008; deputy general manager of Sinopec Yangzi Petrochemical Co., Ltd. from September 2005 to October 2006; general manager of Sinopec Yangzi Petrochemical Co., Ltd. from October 2006 to June 2007; chairman of Yangzi Petrochemical-BASF Co., Ltd. from October 2006 to March 2008; general manager of Sinopec Yangzi Petrochemical Corp. from June 2007 to March 2008; general manager of Sinopec Corp. Chemical Sales Co., Ltd. (中國石化化工銷售公司) from March 2008 to November 2014; deputy director of chemical industry department of Sinopec Corp. from July 2010 to November 2014; general manager of Sinopec Corp. Wuhan Company (中國石化股份公司武漢分公司), and chairman of China-Korea (Wuhan) Petrochemical Co., Ltd. (中韓(武漢) 石油化工有限公司) from November 2014 to December 2016; chairman of Yangzi Petrochemical Co., Ltd., and Yangzi Petrochemical-BASF Co., Ltd. from December 2016 to June 2018; director of the chemical industry department of Sinopec Corp. from June 2018 to December 2019; general manager of the chemical industry department of Sinopec Corp. and executive director of Sinopec Group Asset Management Co., Ltd. since December 2019; deputy chief engineer of Sinopec Corp. since December 2020.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Mr. WU Wenxin

Mr. WU Wenxin (吳文信), aged 57, is a Director of the Company and also serves as the general manager of the engineering department of Sinopec Group (中國石油化工集團有限公司工程部), and the general manager of the engineering department of Sinopec Corp. (中國石油化工股份有限公司工程部). Mr. WU is a senior engineer with a master’s degree. From May 2007 to September 2010, he served as the deputy general manager of Fujian Petrochemical Company Limited (福建煉油化工有限公司). From December 2007 to September 2010, he was the director of the refining and ethylene integration project of Fujian Refining & Petrochemical Co., Ltd. (福建聯合石油化工有限公司). From November 2009 to September 2010, he served as a director of Fujian Petrochemical Co., Ltd. (福建煉油化工有限公司). From July 2010 to March 2018, he served as a deputy director of the engineering department of Sinopec Corp. From September 2013 to March 2018, he was a deputy director of the engineering department of Sinopec Group. From October 2017 to October 2018, he was an executive director and general manager of Sinopec Engineering Quality Supervision Co., Ltd. (中國石化工程質量監測有限公司). From March 2018 to December 2019, he served as the director of the engineering department of Sinopec Group and the director of the engineering department of Sinopec Corp. He has been a Director of SINOPEC SEG since October 2018, and has been the general manager of the engineering department of Sinopec Group and the general manager of the engineering department of Sinopec Corp. since December 2019.

Mr. JIANG Dejun

Mr. JIANG Dejun (蔣德軍), aged 55, is a Director and President of the Company. Mr. JIANG is a senior engineer with a Ph. D. degree. From November 2001 to September 2003, he was the deputy head of Lanzhou Design Institute of Sinopec Group (中國石化集團蘭州設計院). From September 2003 to June 2007, he was a director and the vice president of Sinopec Ningbo Engineering Co., Ltd. (中國石化寧波工程有限公司). From June 2007 to December 2008, he was the deputy manager of SINOPEC SEG. From December 2008 to September 2012, he was the Vice President of SINOPEC SEG and deputy director of Engineering Enterprise Management Department of Sinopec Group. From September 2012 to October 2019, he has been the vice president of Sinopec Fifth Construction Co., Ltd. (中國石化第五建設有限公司). He was an employee representative Supervisor of SINOPEC SEG from January 2015 to December 2020, and was the general manager of Sinopec Engineering Incorporation from October 2019 to December 2020. Since December 2020, he has been the President of SINOPEC SEG. Since February 2021, he has been a Director of SINOPEC SEG.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Mr. HUI Chiu Chung, Stephen

Mr. HUI Chiu Chung (許照中), J.P., aged 74, is an independent Director of the Company. Mr. HUI is currently the chairman and chief executive officer of Luk Fook Financial Services Limited and an independent non-executive director of Zhuhai Holdings Investment Group Limited. He also serve as an independent non-executive director of 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) and 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. Mr. HUI has been appointed as the independent non-executive director of Hong Kong Exchanges and Clearing Limited (Stock Code: 388) by the Hong Kong SAR Government since April 2009, at which his term expires 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 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 of the Hong Kong Securities and Investment Institute and Fellow of the Hong Kong Institute of Directors in 2011 and 2002, respectively. Mr. HUI has been an independent Director of SINOPEC SEG since April 2013.

Mr. JIN Yong

Mr. JIN Yong (金涌), aged 85, is an independent Director of the Company. 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 (清華大學化工科學與技術研究院), a professor of the Chemical Engineering department of Tsinghua University, an executive officer of China Society of Particuology (中國顆粒學會) and an executive officer of Chemical Industry and Engineering Society of China (中國化工學會). Mr. JIN worked as a teaching assistant in Electrical Engineering Research Office in the University of Science and Technology of China (“USTC”) (中國科學技術大學電工程教研室) from October 1959 to February 1960. He also served as a teacher engaging in advanced studies in the Chemical Research Office in Tianjin University (天津大學化工教研室) 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 Director of SINOPEC SEG since April 2013.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Mr. YE Zheng

Mr. YE Zheng (葉政), aged 56, is an independent Director of the Company. Mr. YE is a director of Ace Sustainability & Risk Advisors Limited. He worked in Shanghai Municipal Finance Bureau (上海市財政局) from October 1982 to January 1989. Mr. YE has over 25 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 (香港均富會計師事務所) from January 2002 to July 2005; a director in Ernst &Young from August 2005 to October 2006 and a practicing director of Mazars CPA Limited from November 2006 to April 2021. 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 director of Ace Sustainability & Risk Advisors Limited since April 2021 and an independent Director of SINOPEC SEG since April 2013. 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 from 1 November 2014 to 31 October 2016.

BIOGRAPHICAL DETAILS OF NEW SUPERVISORS

Mr. ZHU Fei

Mr. ZHU Fei (朱斐), aged 56, is the Chairman of the Supervisory Committee and the Trade Union of SINOPEC Engineering. Mr. ZHU is a senior engineer with university education. 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, and has been the Chairman of the Trade Union of SINOPEC SEG since November 2019.

Mr. ZHANG Xinming

Mr. ZHANG Xinming (張新明), aged 54, is the chairman of Sinopec Shanghai Engineering Co., Ltd. (中國石化上海工程有限公司). Mr. ZHANG Xinming is a senior engineer with an MBA degree. Mr. ZHANG served as the vice president of Sinopec Luoyang Engineering Co., Ltd. (中國石化洛陽工程有限公司) and Sinopec Guangzhou Engineering Co., Ltd. (中國石化廣州工程有限公司) from August 2013 to March 2015; served as the deputy director of the development and planning department of China Petrochemical Corporation (中國石油化工集團有限公司發展計劃部) from March 2015 to December 2019; held the position of vice president of the development and planning department of China Petrochemical Corporation from December 2019 to April 2021; and served as the chairman of Sinopec Shanghai Engineering Co., Ltd. from September 2020. He has been a Supervisor of SINOPEC SEG since May 2021.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Mr. ZHOU Yingguan

Mr. ZHOU Yingguan (周贏冠), aged 52, is a supervisor of SINOPEC SEG, as well as an executive director of Sinopec Nanjing Engineering Co., Ltd. (中國石化南京工程有限公司). Mr. ZHOU is a proper senior economist with university education. From March 2004 to July 2010, Mr. ZHOU served as the vice president of the Sinopec Group Second Construction Company (中國石化集團第二建設公司). From July 2010 to April 2012, he served as the vice president of Sinopec Group Nanjing Engineering Co., Ltd. From April 2012 to April 2017, he has been the vice president of Sinopec Nanjing Engineering Co., Ltd. He was the Supervisor of SINOPEC SEG from January 2015 to October 2018. He has been an executive director and president of Sinopec Fourth Construction Co., Ltd. from April 2017 to December 2020. He has been a Director of SINOPEC SEG from October 2018 to December 2020. Since December 2020, he has been an executive Director of Sinopec Nanjing Engineering Co., Ltd. Since February 2021, he has been a Supervisor of SINOPEC SEG.

Mr. ZHOU Chengping

Mr. ZHOU Chengping (周成平), aged 58, is an executive director of Sinopec Luoyang Engineering Co., Ltd. (中石化洛陽工程有限公司) and Sinopec Guangzhou Engineering Co., Ltd. (中石化廣州工程有限公司). Mr. ZHOU is a proper senior engineer with a master’s degree. He served as the deputy manager of Luoyang Engineering Corporation of Sinopec Engineering Incorporation (中國石化集團工程建設公司洛陽工程公司) from November 2001 to May 2003. From May 2003 to December 2008, he served as the deputy manager of Sinopec Group Luoyang Petrochemical Engineering Corporation (中國石化集團洛陽石油化工工程公司). From December 2008 to April 2012, he served as the deputy general manager of Sinopec Group Luoyang Petrochemical Engineering Corporation. From April 2012 to October 2014, he worked as the deputy general manager of Sinopec Luoyang Engineering Co., Ltd. and Sinopec Guangzhou Engineering Co., Ltd. From October 2014 to May 2020, he served as the general manager of Sinopec Luoyang Engineering Co., Ltd. and Sinopec Guangzhou Engineering Co., Ltd. Since October 2014, he has been an executive director of Sinopec Luoyang Engineering Co., Ltd. and Sinopec Guangzhou Engineering Co., Ltd.

– 92 –

AI assistant

Sinopec Engineering Group Co Ltd. — Proxy Solicitation & Information Statement 2021

14896_rns_2021-09-15_6290f172-0906-4ca4-8226-c8d0b092ed87.pdf

THE CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

PROPOSED APPOINTMENTS OF DIRECTORS OF THE FOURTH SESSION OF THE BOARD

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

PROPOSED AMENDMENTS TO THE ARTICLES

PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE BOARD OF DIRECTORS

PROPOSED AMENDMENTS TO THE RULES FOR THE AUDIT COMMITTEE

DEFINITIONS

DEFINITIONS

DEFINITIONS

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

(Stock Code: 2386)

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

PROPOSED APPOINTMENTS OF DIRECTORS OF THE FOURTH SESSION OF THE BOARD

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

PROPOSED AMENDMENTS TO THE ARTICLES

PROPOSED AMENDMENTS TO THE RULES FOR THE AUDIT COMMITTEE

I. INTRODUCTION

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

1. Background Information

LETTER FROM THE BOARD

2. Financial Services Framework Agreement

(a) Signing Date and Term

(b) Scope of Services

(c) Pricing Policy

(d) Termination

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

Deposits

LETTER FROM THE BOARD

Entrustment loans

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(f) Internal control and corporate governance measures

(g) Historical Amounts

(h) Existing and Proposed Annual Caps

Existing Annual Caps

Proposed Annual Caps

Basis of the Proposed Annual Caps

(i) Deposits and interest income

(j) Entrustment loans

(k) Settlement and other financial services

(l) Implications under the Hong Kong Listing Rules

3. Engineering and Construction Services Framework Agreement

(a) Signing Date and Term

(b) Service Scope

(c) Pricing Policy

LETTER FROM THE BOARD

(d) Termination

(e) Reasons for and Benefits of the Engineering and Construction Services Framework Agreement

LETTER FROM THE BOARD

(g) Historical Amounts

(h) Existing and Proposed Annual Caps

Existing Annual Caps

Proposed Annual Caps

Basis of Caps

(i) Implications under the Hong Kong Listing Rules

4. Approval by the Board

LETTER FROM THE BOARD

5. Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions

LETTER FROM THE BOARD

LETTER FROM THE BOARD

6. General Information

(a) The Company

(b) Sinopec Group

(c) Sinopec Finance

(d) Sinopec Century Bright

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

Proposed Appointments of Directors of the Fourth Session of the Board

Executive Directors

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

IV. PROPOSED AMENDMENTS TO THE ARTICLES

1. Reasons for Proposed Amendments to the Articles

2. Major Contents of the Amendments

(1) Proposed amendments to Paragraph 4 of Article 7 of the Articles

Current Paragraph 4 of Article 7:

Proposed amendments:

Sinopec Engineering Group Co Ltd. Proxy Solicitation & Information Statement 2021

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

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